New Directions in Strategic Management

Performance-based Strategy: Kaplan and Norton’s Strategy-Focussed Organization

Books: The Strategy-Focussed Organization: How Balanced Scorecard Companies Thrive in the New Business Environment by Robert Kaplan and David Norton Living Strategy: Putting People at the Heart of Corporate Purpose by Lynda Gratton Leading the Revolution by Gary Hamel all the Right Moves by Constantinos Markides


These four books illustrate several themes in current strategic management:

They go well beyond the traditional issues of corporate scope and competitive advantage to cover organizational design and culture, competitive dynamics, internal metrics, knowledge management, entrepreneurship, and interfirm collaboration.

In line with this broader scope, they draw on a wider range of disciplines than in the past. Two are by academics from outside the strategic management area: Robert Kaplan’s background is in accounting and operations research, Lynda Gratton’s is in organizational behaviour. 

They all address a common concern: how should managers make strategy in an increasingly competitive environment which they cannot hope to forecast?

Performance-based Strategy: Kaplan and Norton’s Strategy-Focussed Organization

In the 1990s, the basis of strategic planning shifted from specific resource deployment to setting and monitoring performance goals. The orientation of companies’ strategies around shareholder value creation involved linking strategic planning with financial control. Refocusing strategy around shareholder value provided the driving force behind the main strategic thrusts of the 1990s – cost reduction, outsourcing, disposal of peripheral businesses – and the emphasis on core capabilities as the foundation for competitive advantage.

In linking strategy to the goal of maximizing shareholder wealth, top management had to face up to the problem that, on its own, shareholder value creation is a nebulous goal. It is long term and its linkage of strategy to the market value of the firm is both indirect and long term. It does not readily offer a basis for establishing actionable, easy-to-monitor performance objectives. The contribution of Robert Kaplan and David Norton’s balanced scorecard is that it fills this gap between the broad strategic thrust of the company and the goal of creating shareholder value. In their first book (Kaplan and Norton 1996), they argued that financial targets on their own would not, in the long run, lead a company to maximize shareholder value. To avoid the short-termism that is likely if financial targets are monitored on a quarterly and annual basis, the financial perspective needed to be balanced against a customer perspective, an internal business perspective, and an innovation and growth perspective. While this approach appears reminiscent of old-fashioned management-by-objectives, its real power is in the integration it offers. By linking strategy to shareholder value creation through an integrated set of specific objectives with clearly-defined metrics, the balanced scorecard permits overall strategic goals to be cascaded down the organization in such a way that every department and, ultimately, every employee has a set of actionable, measurable objectives.

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