Proposals of the authors on how to best align operational structures with strategy
Kaplan and Norton (2006) first looked at six ways in which organizations may choose to align their structures with strategy. In one of the oldest models, the authors assert that companies may choose to align their structure with strategy through centralized functions. This mode was quite common during the industrial era because it provided a means of gaining from economies of scale.
However, the lack of adaptability in this method caused organizations to look for other routes such as decentralization by product and geographical region, matrix functions, networked organizations, Velcro organizations and even virtual organizations.
Regardless of all these tactics, this quest to find the right organizational structure is often fruitless because the right way to bring out value in an organization is to focus on the balanced scorecard.
The writers believe that one should look for a structure that creates the least amount of problems and then work out a system for aligning that structure with the organizational strategy. In doing this, there are four perspectives that the proposal handles. In terms of operations strategy, the perspective that would best fit is the process perspective.
In the process perspective, business units decide to share or synergize their processes and hence generate savings or gain other benefits. Usually, it may be possible to find companies sharing functions such as distribution, research, manufacturing and purchasing. Therefore, amalgamating these processes does lead to substantial gains by the economies of scale.
Furthermore, a business unit with a core competency can share that capability with another business unit and thus lead to value addition.
For example, in technology drive organizations, a core competency such as the use of optics in Canon Incorporated caused it to benefit from the same optics in its other products. This type of perspective deals directly with operational structures because business processes are what constitute operational structures (Slack et. al, 2007).
Four perspectives
Kaplan and Norton (2006) beleive that the sources of value creation through the scorecard occur at these levels: customer level, growth and learning level, process level and financial level.
In the customer’s perspective, the authors affirm that when firms align their various business units then this is likely to lead to better results because of an ability to deliver the same value in various outlets (if the organization is a franchise).
Alternatively, customer perspectives sometimes arise out of the sharing of certain relationships common to various units. This implies that services will be delivered conveniently and the products will be better created. Customers can also get more comprehensive services in one organization compared to what they would normally get from specialist providers.
The other perspective that can alter corporate strategy is the process perspective. As explained earlier, this aspect comes about when business units arise and then synergize certain processes that are common to them. It leads to cost savings and efficiency.
Learning and growth is also another perspective that can arise out of the synchronization of knowledge management as well as human capital development. This creates an enterprise wide advantage because today’s business environment is characterized by a need to develop intangible assets. Those who do not take the time to do so may not be in a position to increase their value and hence beat their competitors.
Organizations can do this in various ways. For example, if a firm happens to be a multinational then it can take advantage of its wide employee pool in order to fill its management positions. A case in point is General Electric which accords its various workers opportunities for promotions from different geographical units and this has created a vast number of experienced management.
Alternatively, companies may choose to develop their employees through training opportunities in different product units. Knowledge management can also be done through the sharing of knowledge management ideas between various business units.
Lastly, the financial perspective is mostly achieved through the efficient use of business resources such that most wastage is eliminated during production, purchase or distribution. Conversely, organizations can also get opportunities to work on their corporate governance through the balanced scorecard and this will ensure effective use of company materials or finances without those losses that arise out of unethical use.
Certain business units may also have a lot of commonalities and can be easily synchronized. Therefore effectively integrating those units can lead to a lot of cost savings.
Furthermore, some business units may have better relationships with certain external parties compared to others. Bringing these levels together could cause disadvantaged sectors to benefit from those sectors that already have established themselves (Kaplan and Norton, 2006).
Conclusion
The article endorses the use of the balanced scorecard as a method for aligning structure and organizational strategy. Through the four perspectives, one can see how the balanced scorecard does lead to value creation.
References
Slack, N. Chambers, S. and Johnston, R. (2007). Operations Management 6th Edition. NY: Prentice Hall
Kaplan, R. and Norton, D. (2006). How to implement a new strategy without disrupting your organization. Harvard Business Review 84(3), 100-109