CM: You have long suggested that a great strategy never guarantees success.
Kaplan: What's become obvious over the years is that it's not important to have the perfect strategy. But it's important to have a good strategy that's executed very well. Too much time is being spent on analysis, while execution is an afterthought. The big insight, we believe — and it's one that management wasn't aware of 10 years ago — is that managers fail to use their management systems as a tool for articulating and implementing strategy. And one of the reasons people often find it very difficult to implement new strategies is that they don't change the measuring system. So, a company might be saying let's move in this direction, but they are still using old measurements.
CM: What are some of the old measurements that companies continue to rely on, perhaps too much?
Kaplan: In the past, they would look at sales, costs deduction, and market share. If you look at Mobil, there were people who were responsible for revenues, and these are the people who worked with dealers and gasoline sales, and then there were the people in the refineries who were often looking to cut costs. In the past, volume and cost were the primary measurements. There were a number of recent articles describing how Lucent pushed stuff out on its customers with huge discounts in order to meet its year-end sales target. And what's strange here is that this is a company, with close relationships with its customers, falling back upon old financial measures that were never meant to be a good short-term indicator in the first place.
CM: You've described strategy as a continual process. What do you mean, exactly?
Kaplan: A lot of people think strategy is an annual event, where senior executives go offsite and do it and then come back. But there is a set of processes that really need to continue to go, and one of them is to just hook the budgeting system up to the strategy and planning. Most organization budgeting is a separate process, which means that the strategic priorities you need to go forward to achieve your strategic objectives don't get funded, and you may look to find the money out of operations, but this doesn't work. It's not just funds, it's people. So, to make it continual means that monthly you're not just reviewing your financials, which is the way it works in most organizations, but instead you are reviewing all the measures that are linked to the strategy. So, you're looking at customer satisfaction, you're looking at innovation, and you're looking at improvement in operating processes, you're looking at if employees are more motivated or the skills are being upgraded. So, the monthly reviews are a much broader set of indicators and the broader set reflects the strategy.
CM: Can you give an example of when a company was able to quickly change its strategy?
Kaplan: Yes. One example we use in the book is a large convenience store chain in the Boston area where the CEO had a concept in which he wanted to make shopping in a convenience store a fun and exciting experience, and the whole scorecard was built around this strategy. After six to nine months there didn't seem to be a correlation between fun, exciting stores and customer retention, so they went into it in more depth. They did a focus group and they discovered that people didn't go to convenience stores for fun and excitement. When they went to a convenience store they wanted convenience and good merchandise, ease of selection, and ease of buying. So in light of these they shifted the strategy in less than a year from this customer intimacy approach to operational excellence.
CM: How widely are new measures now being used by corporations?
Kaplan: Well, what we see are corporations getting a broader set of indicators. Bain & Company has released a report showing that 50 to 60 percent of large companies are using a Balanced Scorecard approach, which means that they are probably using measures other than financial, and they are probably looking at employees, and they're looking at quality and market share, and they're looking at environmental measures. But I would guess that a much smaller number of companies are truly implementing a scorecard tied to the strategy. Most are probably using what we call stakeholder scorecards involving employees, customers, suppliers. These are really just indicators, but they still cause the companies to be smarter and more balanced, and it gets them thinking about what they have to do better.
CM: So, it would not be a mistake to believe that a growing percentage of consulting dollars is tied to implementation.
Kaplan: Companies vary regarding the use of consultants, and some prefer to do the strategy implementation themselves. We do know of examples where people have relied largely on our book and have done it on their own. But others feel they need a consultant to assist in the transformation process. So, there's an opportunity for consultants here, if they have good experience, and know how to deal with the political sensitivities that often surround the transformation process.
CM: Now, this is where you expect your new Web venture, Balanced Scorecard Collaborative, to capture some business.
Kaplan: Yes. Through the Collaborative we will shortly be offering a set of services over the Web. We have a lot of content, a lot of experience, and there's a large do-it-yourself market out there, and people who might be willing to spend $75,000 or even $150,000, but not the $300,000 or $3 million that some of these consulting firms require.
Consulting projects seem to be getting bigger and bigger, and we actually feel we can deliver a lot of the content and process of building this strategy management system over the Web at a lower price point.
CM: Would your target market be largely made up of middle-market companies?
Kaplan: Yes, but there are probably some large companies, and even divisions of large companies, that don't want to have to mint a giant consulting relationship. They have a project team, they're motivated, and have the necessary internal support, but the question remains, How do we do it? They need help doing it. This also gives us a chance to reach nonprofit and government organizations that often can't afford consulting fees, as well as companies in different parts of the world. Our services will be available via the Web from Thailand to Bolivia.
CM: Does this venture aspire to become a consultancy?
Kaplan: We think it's a new form of professional services firm, where we create the content and continue to enhance the content through a variety of mechanisms — conferences, training, consulting, case writing — and we have this content put on the Web and readily accessible.
CM: This means that it would be up to the client to customize the measurements?
Kaplan: Yes. We would be giving them templates that could help them determine where to start, and where to find the necessary information they'll need, and what types of questions they should be asking. It's now being tested with a lot of companies, and we expect it to be released to the public shortly. If you look across the types of services people use, they buy books or subscriptions for about $100, or they go to conferences for about $1,000 to $2,000, but consulting contracts can go all the way up to $300,000 or more. So, there is an enormous gap here. And it's somewhere between $10,000 and $300,000 where people are not providing services — other than sole practitioners, who don't really have the content knowledge of these new methodologies. So, in a number of ways we expect this to be a disruptive technology
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