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Alignment - Using the Balanced Score-card

to create Corporate Synergies

By Robert S Kaplan & David P Norton,

Harvard Business School Press, 2006

Introduction

Most large organizations are divided into business units. The challenge is to coordinate the activities of these units and leverage their skills for the benefit of the organization as a whole. Too often, these units are out of synch and work at cross purposes. This book explains how the Balanced Score Card can be used to align business units with corporate strategy.

Alignment poses a strategic challenge for most organizations. Alignment is multidimensional in scope, involving financial synergies, cross selling of products and services to deliver unique solutions to customers and sharing of knowledge and expertise across the organisation. Alignment needs to be planned and executed carefully to maximize shareholder value.

Generating Synergy

When an organization aligns the activities of its various business and support units, it creates additional sources of value. The authors call this Enterprise derived value. Value can be created in various ways. Corporate financial synergy revolves around issues such as where to invest, where to harvest, how to balance risk and how to create an investor brand. Customer synergy means enhancing customer relationships by offering a range of complementary products and services from different business units. Internal process synergies can be created by generating economies of scale in activities such as procurement, logistics and infrastructure. Learning and growth synergies can be generated by developing and sharing critical intangible assets including people, technology, culture and leadership.

Despite various innovations in organization design, there is nothing like the best structure to balance the tension between specialization and integration. The authors suggest that instead of looking for the best structure, companies must choose an optimal structure and put in place...