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Every entrepreneur would claim that he has a vision, a mission and a clear strategy for his company. How well these are known and lived in the organization, however, is another matter. Especially in times of crisis, however, it helps to know strengths and weaknesses and to know exactly what measures to take to survive in the market in the long term. A well-developed strategy is therefore indispensable in order to further develop companies and make them fit for the future. Without a defined strategy, it is virtually impossible to consistently align business decisions.
Strategic Planning: Why Companies Need a Strategy
Formulating the strategy is a task. You implement a challenge. Even for the definition of a vision and the associated strategy, it is not enough to look into the past with the financial metrics. Instead, companies have to constantly question and reinvent themselves. The (further) development of companies is not only a decisive competitive advantage and helps to identify unique selling points. In a fast-paced time when companies are confronted with change at a rapid pace, companies can only be successful in the long term if they keep an eye on their own development and drive them forward.
But why is it important to implement a vision, mission and strategy? Imagine what happens if there is no holistic goal in the company? Perhaps the Chief Financial Officer defines a cost-cutting program to secure the financial result, while the sales manager sets the target of achieving an increase in sales at all costs. And the development delivers products that win design awards but are expensive in production. Not good conditions for a successful future of the company.
Strategic planning, i.e. the definition of a vision, a mission and a strategy, is therefore essential in order to achieve the objectives set. But it doesn’t help if all of these are just tame paper tigers that end up in a drawer. Every employee in the company needs to know the goals that are relevant to him or her in order to be able to align his or her actions accordingly. Key figures that can be measured help to illustrate the objectives and allow conclusions to be drawn as to whether the objectives set are being achieved.
There are many management systems for strategic alignment. An interesting tool is the Balanced Scorecard, which is not only based on financial key figures, but also explicitly incorporates processes, customers and the development of the company into the management decision.
Leading successfully: Translating vision, mission and strategy into key figures
Each athlete regularly checks his or her level of performance. He may be dreaming of an Olympic participation and consistently aligns his training with being able to call up his performance at a certain point in time. The team that supports him knows the goals and knows the route along the way. Training data from the past are evaluated and analyzed, but on the way to Olympic victory it is also above all about thinking about what the athlete still has to learn, in which areas he still has to develop in order to be able to win.
Sometimes it is not so easy for companies to set clear goals and to inspire the whole team to direct all actions to achieve those goals. But the principle is actually the same as for the athlete in our example. Every company needs clear goals and a route for achieving them. Everyone in the team needs to know them in order to build their actions on it. The route in a company can be found in the vision, mission and strategy.
The Balanced Scorecard helps effectively align an organization with long-term goals. The BSC approach looks at four different levels:
- Financial perspective
- Customer perspective
- Process perspective
- Innovation and knowledge perspective (development)
Key figures are assigned to each perspective, which are measurable and can therefore be used for performance assessment. Typical metrics such as time, quality, profitability, cycle times or average age of the products are easily understood and can be easily determined. Based on this, goals can be defined. By matching target and IST values, hard facts are created, deviations from the specifications can be seen at a glance. This is a crucial advantage, because they show early on where the goals are missed. The BSC approach is therefore an effective management system to keep an eye on long-term goals.
Easily identify cause and effect
In addition to the alignment with measurable key figures, the application of Balanced Scorecard also speaks to the fact that causes and effects are identified by looking at the four different perspectives – a purely consideration of the financial measures would not allow this. A classic measure of the customer’s perspective, for example, is growth. If a target deviation is detected here, this usually has an impact on financial measures. From the BSC this becomes immediately apparent. It is even likely to provide clues as to why growth has been slowed down. This could be due, for example, to the quality of the products. Here, it is worth a close look at the key figures of the process perspective. Cause research does not have to be carried out laboriously, but results from the available key figures.
We always assume that individual divisions communicate with each other and are networked. That information is exchanged and available where it is needed. Unfortunately, however, reality often shows a different picture. Despite numerous voting meetings and project meetings, communication in companies is often inadequate or simply too slow.
On the other hand, the holistic approach used in the BSC approach can be used to derive faster and more targeted measures. The cause-and-effect chain is transparent and comprehensible. This also helps with internal communication, as the key figures are quickly understood throughout the company. And if deviations and problems are known, then the affected areas can jointly define measures and fix the problems.
BSC, more than one metric Tableau
Data is now available in masses – big data. Now it is important to filter out the right data and work with the key figures that are crucial. It is always important that key figures are measurable. The challenge is no longer in the amount of data – storage space is cheap, it’s more about data quality. Here, too, the BSC approach helps, which takes into account different perspectives, but is nevertheless limited to the essential and above all measurable key figures.
Based on the information provided, further management tools such as lean management can be used and appropriate measures can be taken. Customer orientation and the avoidance of time and resources are the hallmarks of lean management. If this is available in an enterprise, this is more than clear from the application of the BSC. It can therefore be a powerful tool for taking immediate action.
With this transparency, it is easier to further develop vision, mission and strategy. The available data show the strengths and weaknesses, potentials and dangers available and how they need to be addressed.
Helpful management system or pure job creation?
The BSC pushes its limits if incorrect data is available and is used with it. It can also be a challenge to determine the relevant key figures. As always, target-actual targets must be realistic and not dreams of ambitious managers. In also, all factors must be checked again and again and, if necessary, adjusted, which involves effort. However, these difficulties exist with every management system. However, the advantages mentioned speak for the implementation in a company.
However, the key figures used make it easier to define and monitor clearly measurable and transparent targets. By looking at the four perspectives, the company is illuminated holistically, cause and effect quickly become clear. And both together, i.e. the use of the key figures and the transparency in the target deviations and the individual influencing factors, can be defined quickly and specifically measures. As a result, the Balanced Scorecard is a practical tool that not only highlights the biggest problem areas at a glance, but also helps to communicate goals in the company.