19 June 2009 • 12:29 pm

Cascading Conundrums – Part II

In Part I of this topic, I asserted that cascading a balanced scorecard (BSC) across an organization is a process that requires careful planning, and thoughtful answers to the ‘When’ and ‘Why’ questions. I cautioned that hastily planned cascading can derail the entire change program. Here, we continue with the next question every leadership team should consider before cascading strategy across the organization.

Look Beyond the Organization Chart to Answer the ‘Where’ Question

The easy and obvious approach to deciding where to cascade in the organization entails looking at the organization chart, and deciding which business and support units should get their own BSCs. So simple and obvious that leaders miss the fact that there are other approaches that may be more effective.

When an organization’s structure changes slowly over time, it is usually due to the political pressure to preserve leadership roles for certain individuals, as well as the natural resistance to change. These are the organizations whose members see themselves as working in ‘silos.’ The effect of a static organization structure may be to sub-optimize the organization’s effectiveness. The organization’s value proposition may need to evolve to meet external opportunities and challenges, but that evolution is constrained by an assumption that the existing structure is sacred. When decisions about the strategy itself are made in the context of the assumed permanence of the organization structure, it can be said that ‘Strategy Follows Structure.’ This is an unnecessary and prospectively costly constraint on the change program.

But some organizations restructure too frequently. There, the absence of certainty creates an underlying level of anxiety for staff members and managers, and valuable energy is devoted to personal political posturing (for the next re-org) instead of value creation. These organizations may be better poised to anticipate and respond to external opportunities and challenges, but I am not convinced. In one such client enterprise, a paralysis in accomplishing change resulted from the relative impermanence of people and groups.

And some organizations use matrix structures. While not inherently dysfunctional (some matrixes actually do work!), this approach requires staff members and managers to hone their political skills to navigate the challenges of conflicting leadership messages. There is no doubt that matrix organizations are less efficient, due to the overhead cost of overlapping (and sometimes competing) management structures.  

The controlling principle for answering the ‘Where’ question should be ‘Structure Follows Strategy.’ Look at the newly-hatched strategy at the enterprise level. Will success require different parts of the organization to work closely together across boundaries? Will existing political rivalries inhibit execution? If you could start from scratch, would you draw the organization chart the same way it is now? If you are answering yes to any of these questions, it may be best to use the cascading structure to blur or erase the existing boundaries, and create ad hoc overlay structures that align with strategic themes and objectives. Such ‘theme teams’ have proven to be very effective in tearing down walls, creating better cooperation and partnerships across the enterprise. While it may not be possible to erase and redraw the incumbent organization structure, these cross-functional teams may become the primary leadership structure for accomplishing change, and can render the old silos irrelevant.

Sound scary? You bet. But the default approach of aligning strategy to the existing structure will serve to reinforce the existing structure, no matter how sub-optimal it may be. Cascading strategy can be a powerful tool for effecting (or inhibiting) positive change in an organization’s structure.

Another aspect of the ‘where’ question is about depth. Of course, the size and diversity of the organization should be a key determinate, but as one goes deeper, the size of each group with its own BSC shrinks. It is impractical to have a BSC for a very small number of people, when the overhead of sustaining that BSC represents a significant fraction of the labor pool in the group. It is better to invest energy in integrating the strategy management system with individual employee performance management processes, in partnership with front-line managers and the HR organization. But that is a topic for another post. The best guidance on depth is to go only as deep through layers of the organization as absolutely necessary to ensure alignment and staff engagement. As the number of BSCs multiplies, so does the overhead cost of the strategic management system.

A final note about organizational geography: Some organization have such highly-entrenched functional and business units and hands-off management style that strategy at the enterprise level is too generic to offer meaningful guidance to subordinate units. An alternative approach to top-down cascading that has worked in these cases was dubbed “middle-up-down” by one of my colleagues. This approach entails enabling the subordinate units to create provisional strategy maps and measures and feed them up to enterprise-level leadership for a process of review and reconciliation, followed by a downward cascade that is informed by the reconciliation. Please comment below if you’d like to learn more about this approach in a future posting.

Next: The Final Three Questions

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