The BR Leadership Platform recently had a leadership conversation with renowned international business strategist and expert, Professor Robert Kaplan, who will be visiting South Africa next month.
Kaplan is the Baker Foundation Professor at the Harvard Business School (HBS). He joined the HBS faculty in 1984 after 16 years on the faculty of the business school at Carnegie-Mellon University, where he served as dean from 1977 to 1983. Kaplan received a BS and MS in Electrical Engineering from MIT, and a PhD in Operations Research from Cornell University.
Kaplan’s research, executive education teaching, and consulting focus on linking cost and performance management systems to strategy implementation. His current research focuses on two topics: measuring and managing organizational risk and, in a joint project with Michael Porter, measuring the cost of delivering health care and linking patient costs to outcomes.
Kaplan was a co-developer of both activity-based costing and The Balanced Scorecard. He has authored or co-authored 14 books and more than 150 papers, including 23 in the Harvard Business Review. Recent books include The Execution Premium: Linking strategy to operations for competitive advantage, the fifth Balanced Scorecard book co-authored with David Norton, and Time-Driven Activity Based Costing with Steve Anderson.
What follows is an excerpted interview conducted by Adriaan Groenewald.
BRLP: You are of course known for the Balanced Scorecard – is that still the overall framework for implementing a strategy – has that not changed over the years?
Kaplan: Yes, we take a strategy and describe in terms of the financial outcomes you’re trying to achieve. The key element there is revenue generation and trying to understand what we need to do to generate revenues – I guess you would think about customers, who are your targeted customers, and what is it you offer them that leads them to buy from you. And once you understand what that value proposition is for the customer then you think about what the critical processes are that help to create and endure that value for customers. Then you get to what we call learning and growth which is, now we understand the critical processes that drives value for customers and shareholders, so what skills and capabilities do our employees need, what motivation they need. So it’s a very logical story for why you need objectives and measures across these four balanced scorecard perspectives.
BRLP: So will that be the core message when you come to South Africa as well, or will there be another twist to it or some other insight?
Kaplan: Sure, yes. I’ll be describing that whole set of inter-related management processes based on strategy maps and scorecards that help organizations describe, communicate and then implement their strategies.
BRLP: You speak on every continent every year. What would you say are the most common traps that leaders fall prey to that result in strategy implementation failure?
Kaplan: The biggest one actually is where they think their job is done once they formulate the strategy and maybe even describe it a little bit to employees. Ultimately strategy has to be executed by your employees, they are the ones who interact with customers, develop new products and services and improve existing processes. Leaders also think that by managing financials every quarter they are going to have success and you end up with a series of actions that in the short term deliver somewhat better financial performance, but in the longer term actually erode the capabilities for implementing the strategy, which makes them very vulnerable to competitors.
For us it gives a way to focus, simultaneously on short and long term, because you do have to have short term performance and you do have to generate cash if you are going to invest and sustain a long term strategy. It goes back to leadership. I am going to talk about leadership in South Africa to make it important – leadership is about changing the organization, moving in a new and better direction – it starts with that and then when you have a set of tools and new management processes that help the leaders position the organization in that direction.
BRLP: It dawned on me one day that perhaps for a CEO or Executive team it’s more about teaching the strategy all the way down the organization as opposed to communicating it. I know it’s playing with words, but when you see yourself as teaching it then maybe leaders will make better inroads?
Kaplan: Yes, in fact, one of my favourite organizations is an Indian IT services provider and the CEO calls himself the Chief Mentor, not the Chief Executive. He says our most important assets leave the building every night and my job is to have them come back the next day, re-energized and motivated and with the right skills to create value for our customers. So it’s very much in that teaching role and we’ve learned that just because you’ve told people doesn’t mean they’ve actually heard it and understood it and so you need multiple messages and it has to be reinforced, so certainly your comment is valid. There have to be teachers and facilitators, not just lecturers.
BRLP: The environment globally and certainly in a complex environment like South Africa, seems to become more dynamic, more complex, it never stands still, it’s continually moving, and leaders seem to struggle to really get a hold on the environment because it is a moving target. Are you finding that leaders are struggling more than ever before to execute strategy successfully?
Kaplan: Yes, these are very volatile times, and certainly that volatility makes things unpredictable and coming from a variety of sources, but I still think it doesn’t mean you’re changing your strategy every quarter or even every year. It becomes even more important to have this true north ahead of your organization where you have position for competitive success. But part of what you’re saying is that there is increased expectations on business in today’s world and some of them are correcting problems such as making business more sensitive to their impact on the environment and certainly that is going to play an increased role along multiple connections – companies will have to internalize this as they implement their strategies, but then in another sense there are huge societal problems and now they are getting closer to South Africa. Governments have proven themselves incapable of solving those problems and so they look to business.
BRLP: One would think that is more relevant in an emerging economy with so much need as we would have in South Africa.
Kaplan: It is and I’ve seen the movement coming, not just from Africa but Latin America – mining companies and utility companies and anyone heavily involved in communities and working with infrastructure is finding it tremendously different and challenging expectations to continue to operate in those communities. There is this huge social challenge because if they want to grow they have to work with the indigenous labour force and government has failed in educating the labour force in many countries, including now the USA. There’s no alternative for business, they need employees and they need to scale so they need to tie up those education and training programmes for their employees.
BRLP: So the world has surely changed a great deal since you became prominent about 20 years ago. It’s a different world isn’t it?
Kaplan: Yes it is, and particularly on 2 dimensions – one, the expectations on business and two, the kind of volatility we have. Up until about 6 years ago things were what we called the Great Moderation. Economic growth was steady around the world and now that’s completely changed. The other theme that I’ll talk about and the current research – we’ll be touching on it in South Africa – is risk management. Not only about what companies need to do right, but what can happen that could prevent them from achieving their strategies.
BRLP: It sometimes feels like the world is so volatile and so dynamic, the pace of change is so fast that, certainly political leaders and even corporate leaders can hardly make promises to the market place or to their constituency.
Kaplan: Well I think that the promises can’t be said in absolute terms, in terms of revenue, but I think it can be framed in relative terms such as we’ll be in the top 10 or 20 in our industry in terms of growth or financial performance or customer loyalty. If the economy falls then everybody is in trouble. And if the industry does contract then you’ll be a survivor. And maybe that’s the best you can do. It may be difficult to focus on some target level of profits or generate a certain cash flow, when we don’t have control over the macro-economic environment. But what we do have control over, whatever the nature of that macro-economic environment, is you want to do better than the other guy.
BRLP: Describe the kind of business leader, given the context we’ve just spoken about, that exceeds in today’s environment.
Kaplan: First they have to have a vision – they have to think about all these forces we’ve been talking about – and have someone say that this is how the company should be positioned to survive and prosper in this dynamic type of a world with increased expectations. They have to be able to have a guiding coalition, an executive team, to work together on these challenges, and the most important thing the leader will have to realize is that the executive team can’t do this by themselves – their success will require having every employee understand where they’re going and how to motivate them to achieve that.
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