Like so many big ideas, Blue Ocean Strategy was not new when its founders conceived it. They just gave it a resonant name and started to flesh out the idea.
In this case, it was W Chan Kim and Renée Mauborgne. They gave their Blue Ocean Strategy concept a set of case studies to tempt new adopters, and some thinking tools to give them confidence. The result is an approach to developing new products and services with a 15-year track record.
If you’ve not yet encountered Blue Ocean Strategy and the concept of Value Innovation, it’s well worth exploring.
How can you be sure that your management team is balancing its attention across all the things that matter – rather than focusing solely on one thing: the money? The answer is that what gets measured gets managed. So you need to score yourself on a balanced scorecard.
That’s the insight that Robert Kaplan and David Norton gave us in a stand-out Harvard Business Review article, ‘Putting the Balanced Scorecard to Work‘. The article may date back to 1993, but it’s still one of HBR’s most-read must-read articles.
For hundreds of years, there has been little to challenge traditional hierarchies for their ability to organise at scale. Holacracy is doing just that.
It’s a form of Adhocracy, which we covered in an earlier article. But, whilst we are way past ‘peak adhocracy’, it seems that holacracy is is thriving.
Holacracy is a modern attempt to reform traditional hierarchies. It keeps the aspect of senior level overviews and subordinate focus. But it gives a far greater autonomy to individuals, and a more substantial decision authority to small teams at the focus of operations and change.
It’s often more honoured in the breach than in the observance. But, CSR (or Corporate Social Responsibility) has moved from a ‘nice to have’ add-on to being an obligation many of the world’s largest corporations are embracing.
Yet, while some do it with relish, others display more reticence. And it sometimes seems that no two of them have the same interpretation of what it means. After all, the centuries old profit motive is easy to define and straightforward to measure. But social responsibility… Is that about development, fairness, environmentalism, or what?
We know what the oldest profession is… And the second oldest. But up with them, dating back to the earliest times in human history is the business of retail.
When Ug sold an arrowhead to Og, he became a retailer. And when Ig bought goods from Ug to sell, rather than make them himself, he moved sales from the factory gate to the retail market.
We may not all work in retail, but I’m prepared to bet that every reader of this article has experienced it as a customer. It is so pervasive, that one has to wonder: do we really need an article about it?
Management literature is chock-full of books about the best companies and how to emulate them. Arguably the best of all these books is Tom Peters’ and Robert Waterman’s In Search of Excellence.
After 35 years, the book remains in print and, while some of its exemplars have not proved to show such enduring excellence, the ideas persist.
We have covered Tom Peters in some depth in an earlier Pocketblog. He was born in 1942 and went to Cornell University on a US Navy scholarship. He earned a bachelor’s degree in Civil Engineering and served for four years in the US Navy. Following that, he got a PhD in Organisational Behaviour from Stanford University.
In 1974, he joined US management consulting firm McKinsey in their San Fransisco office, quickly becoming a partner. There, he took on a major research project looking at the organisational and implementation aspects of companies, while colleagues in the New York office got the plum research project around strategy.
As Peter’s project matured, long-serving McKinsey colleague, Robert Waterman, became involved, and their work morphed into the McKinsey 7S Model and then into the book, In Search of Excellence.
Robert Waterman grew up in the US during the war and attended the Colorado School of Mines, where he graduated in 1958 with a Bachelor’s degree in Geophysics. He then went on to gain an MBA from Stanford University in 1961.
He joined McKinsey in 1964 and remained with the firm until 1985, leaving as a senior director and a member of the Firm’s Executive Committee. He working in Australia and the San Francisco office. It was in the latter that he met and started to work with Tom Peters on the project that would become the book, In Search of Excellence.
When Peters was fired from McKinsey for an article that was read as denigrating strategy in favour of operations and implementation, Waterman remained with the firm. Peters was granted 50 per cent of the royalties of the book the two were working on. McKinsey retained the 50per cent share for Waterman’s half.
Eventually, this hard line rankled and Waterman left the firm. He co-founded energy firm AES, and served on a number of corporate boards. Increasingly his non-executive roles focus on not-for-profits.
The McKinsey 7S Model
In researching ‘cool’ companies, Peter began to assemble a humanistic set of criteria for what made them work well. He was working against the paradigm of rigid strategic planning and financial focus. This theme would be picked up again ten years later by Kaplan and Norton.
Working with Waterman and Julien Phillips, they synthesised his findings into seven mutually interacting areas of business focus that need to be addressed and co-ordinated.
In Search of Excellence evolved from unstructured research into a two-day, 700-slide seminar that Peters gave in Germany, to Siemens. Invited to do the same for PepsiCo, Peters was requested to trim down and focus his presentation. The result was eight key lessons he drew from his research.
These eight lessons were to become the core eight chapters of In Search of Excellence:
A bias for action
‘Getting on with doing the job’. Rapid decision-making unhampered by bureaucracy. This has since morphed into the concept of ‘Agility’.
Close to the customer
Trying to serve each customer as an individual. This has since become business orthodoxy.
Autonomy and entrepreneurship
Each part of the business acts as an entrepreneurial centre, rather than as a part of a machine. This creates greater innovation. Now, of course, entrepreneurialism is part of the zeitgeist.
Productivity through people
Individual contributors are the source of quality. Peters and Waterman were fundamentally in the humanist management tradition.
The 7-S framework started with shared vales. These need to guide everyday practice.
Stick to the knitting
Stay with the business that you know; your core competencies. Diversification carries big risks.
Simple form, lean staff
Some of the best companies have small headquarters and simple process. What company or public authority has escaped the ‘Lean’ revolution?
Simultaneous loose-tight properties
Centralised values, but autonomous operational choices combine the stability of a large organisation with the adaptability of a small one. Many start-ups are seeing the same challenge as they grow, from the opposite direction to Peters’ and Waterman’s large corporations.
After the Search
Both Peters and Waterman followed up the book with their own takes on what next and, in particular, addressing the shortcomings of their earlier research. But apart from one fascinating interview, I don’t think they have worked together since the two or three years of touring, following the release of their book.
That’s a shame. Two remarkable minds came together and, arguably, each did their best work in collaboration with the other.
Take two electrical engineers. Put one into a management consulting role and the other into academia. Mix them up, and what do you get?
Yes, it is a trick question. Robert Kaplan and David Norton developed a powerful business strategy and performance measurement tool. Indeed, it’s a tool all managers should be aware of and understand: The Balanced Scorecard.
Robert Kaplan was born in 1940 and studied Electrical Engineering at MIT, gaining a BS and then an MS, before moving to Cornell, to take a PhD in Operations research.
He started his academic career directly afterwards, moving to Carnegie Mellon’s Tepper School of Business in 1968. He remained there until 1983, serving as Dean of the school from 1977.
In 1984, Kaplan moved to the Harvard Business School, to take up the chair as Marvin Bower Professor of Leadership Development, which he now holds emeritus.
In 1987, Kaplan, along with William Bruns, first defined Activity Based Costing. It was to become a widely used methodology for gaining control of strategic revenue expenditure in industry. Ironically, it only started to lose ground when a new, more broadly-based approach started to gain popularity.
David Norton was born in 1941. He too studied Electrical Engineering, at Worcester Polytechnic Institute. He moved to the Florida Institute of Technology for an MS in Operations Research, and then to Florida State University for an MBA. He also gained a PhD from Harvard Business School.
Norton’s career was in consultancy, cofounding Nolan Norton & Co in 1975, and serving as president until it was acquired in 1987 by KPMG Peat Marwick. He became a partner, but shortly after the publication of Balanced Scorecard—Measures that Drive Performance‘ in 1992, he founded a new business to promote consulting with the Balanced Scorecard at its heart.
The Balanced Scorecard
We’ve covered the Balanced Scorecard before. But let’s revisit it in some more detail.The idea supposedly came from a conversation David Norton had on a golf course with IBM Executive, John Thompson. Thompson reportedly observed that he needed a scorecard, like the one they used in golf, for running his company.
In a variant metaphor, Kaplan and Norton suggest that it would be an unsafe airplane that had just one gauge in its cockpit. So the idea was born for a scorecard that looks at the business from multiple perspectives. Initially, it is four:
Internal Business Perspective
Organisational capacity and learning Perspective
Together, the key measures (or KPIs – Key Performance Indicators) under the headings articulate the organisation’s strategic priorities.
The Origins of the Balanced Scorecard
The original idea, however, tracks back to Art Schneiderman in 1987. He went on to work on a research project with Kaplan, and Norton’s firm Nolan Norton. This collaboration led to the publication by Kaplan and Norton in 1992, and their subsequent 1996 book, The Balanced Scorecard: Translating Strategy into Action. It’s now out of print and available only second hand or in digital editions.
The broad approach to implementing a balanced scorecard is:
Make sure you have a clear vision and strategy
Find the performance categories that best link your vision and strategy to success (Here are some different examples: service standards, thought leadership, marketing activity, performance management, internal morale)
For each perspective, define a small number of objectives that support your vision and strategy
Develop standards or ways to measure progress and build simple systems to monitor and communicate performance against each perspective
Spread the word throughout your organisation that these measures will drive your reward and promotion mechanisms
Monitor performance and compare it with your objectives
Take action to bring performance in line with your objectives
The Legacy of the Balanced Scorecard
As a tool for controlling a business, the balanced scorecard tracks back to Taylorist Scientific Management. However, its flexibility allows managers to monitor and therefore control the measures they choose.
In the 1980s, globalisation was the ‘Big New Thing’. Never mind that Chinese and Levantine traders had traded across half the globe at the start of the first millennium BCE. At the forefront of thinking about how multi-national corporations could organise themselves to prosper were a truly multi-national pair: an Australian, who’d worked in London and Paris and now occupied a professorship in the US, and an Indian who’d studied in the US and was a professor in France.
Christopher Bartlett and Sumantra Ghoshal surveyed the way multinationals organised themselves and categorised when each of the structures would be appropriate. Their legacy is visible on our high streets, in our back-offices, in factories and in building services today. A huge proportion of the goods we use are sold by multinationals.
Christopher Bartlett was born in 1943, and grew up in Australia. He studies Economics at the University of Queensland, gaining a BA in 1964. He worked as a marketing manager for the Alcoa company in Australia, before becoming a consultant with the London office of McKinsey and Co, and then a General Manager in France, for Baxter Laboratories.
But academia called to Bartlett, and he travelled to the US, to do a Masters (1971) and then PhD (1979) in business administration at Harvard, joining the faculty of Harvard Business School in 1979. He remained there and is not an emeritus Professor.
Sumantra Ghoshal was born in Calcutta, India, in 1946. He studied Physics at Delhi University, gaining his BSc. From there, he worked from 1969 to 1981 at the Indian Oil Corporation.
In 1981, a Fulbright scholarship took Ghoshal to the US, where he took a an SM at MIT in 1983, then did something extraordinary. He worked on and completed two different PhD theses at two different universities, at the same time. He was awarded a PhD by MIT in 1985 and a DBA by Harvard the next year.
And in 1985, he took up a position at Insead, where he became Professor of Business Policy in 1992. Two years later, he moved to the London Business School to become Professor of Strategic Leadership. He remained there until his untimely death from brain haemorrhage in 2004.
Managing Across Borders: Strategies for Multi-National Corporations
Surveying 250 managers from 9 multinational companies, Bartlett and Ghoshal concluded that there are three principal models that multinationals followed:
The Multinational – ‘Multi-domestic’ – Corporation
The Multinational structure is a decentralised, federal organisational structure that focuses on local markets and has only loose central control. They later called this model ‘multi-domestic’, and is most responsive to local demand. The corporation looks most like a portfolio of different companies. Now, these will be seen as band portfolios in which the brands have a lot of autonomy and much of their own infrastructure.
Food and drink, and household appliances are products that most need this strategy.
The Global Corporation
The global organisation tries to gain maximum economies of scale by centralising as many of its functions as possible. This often results in brands sharing infrastructure and services, leading to a lot of strategic decisions being driven by functional expertise and priorities. Brands therefore become increasingly global and undifferentiated in local markets.
Plant and heavy machinery, technical equipment, and raw materials production are products that most need this strategy.
The International Corporation
Here, there is a lot more centralisation than in the multi-domestic corporation. But there is also more local autonomy than in the global model. One role of the centre is to facilitate knowledge transfer among the trading divisions, so they can share technologies and achieve economies, while making some of their own choices to optimise use of domestic supply chains and expertise.
Textiles, light machinery, and printing and publishing are products that most need this strategy.
A Fourth Model…
Bartlett and Ghoshal considered that these three models left open the possibility of a new, fourth structure. This would combine elements of all three, and they also assessed which of the four models would work best, according to two pressures:
When both pressures were high, their new model would be most suitable:
The Transnational Corporation
The transnational corporation is the most complex. It balances widespread global integration of technology and supply chains against the need to adapt products and services to local market preferences. It is supported by a strong central headquarters, that is able to move managers around to gain international experience and share knowledge.
Cars, consumer electronics, and pharmaceuticals are products that most need this strategy.
From Systematic Efficiency to Responsive Innovation
Bartlett and Ghoshal also discerned powerful shifts in the fundamental needs of a business strategy. Where Michael Porter had laid out strategies that would allow companies to win the largest share of a market, Ghoshal and Bartlett argued that corporations need a strategy to create value anew, and grow their market as a way of winning business. They said companies need to innovate their way out of market pressures, rather than push against them.
They also challenged the orthodoxy that began with the Scientific Management movement of Taylor, Gantt, Adamiecki, and the Gilbreths, and then the efficiency drives of people like Ford and Sloane. Sloane’s approach of Strategy, Structure, and Systems became the McKinsey 7S model. But Bartlett and Ghoshal wanted to replace Strategy, Structure, and Systems by Purpose, Process, and People.
The three Ps were the new building blocks of a corporation. In a series of articles for the Harvard Business Review, they placed responsibility for each of these firmly on the shoulders of top management.
So here we are, in 2017. And our world is dominated by a range of global, multinational, and transnational corporations, whose focus is on process and whose mantra is people. Not a bad body of work to act as a symbol of what multinational collaboration can achieve!