Mastering the Management System

Robert S. Kaplan; David P. Norton

Article | Harvard Business Review | January 2008

Mastering the Management System

Abstract

Companies have always found it hard to balance pressing operational concerns with long-term strategic priorities. The tension is critical: World-class processes won't lead to success without the right strategic direction, and the best strategy in the world will get nowhere without strong operations to execute it. In this article, Kaplan, of Harvard Business School, and Norton, founder and di-rector of the Palladium Group, explain how to effectively manage both strategy and operations by linking them tightly in a closed-loop management system. The system comprises five stages, beginning with strategy development, which springs from a company's mission, vision, and value statements, and from an analysis of its strengths, weaknesses, and competitive environment. In the next stage, managers translate the strategy into objectives and initiatives with strategy maps, which organize objectives by themes, and balanced scorecards, which link objectives to performance metrics. Stage three involves creating an operational plan to accomplish the objectives and initiatives; it includes targeting process improvements and preparing sales, resource, and capacity plans and dynamic budgets. Managers then put plans into action, monitoring their effectiveness in stage four. They review operational, environmental, and competitive data; assess progress; and identify barriers to execution. In the final stage, they test the strategy, analyzing cost, profitability, and correlations between strategy and performance. If their underlying assumptions appear faulty, they update the strategy, beginning another loop. The authors present not only a comprehensive blueprint for successful strategy execution but also a managerial tool kit, illustrated with examples from HSBC Rail, Cigna Property and Casualty, and Store 24. The kit incorporates leading management experts' frameworks, outlining where they fit into the management cycle.

Keywords: Framework; Management Analysis, Tools, and Techniques; Management Systems; Operations; Performance Improvement; Strategy;

Format: Print

16 pages

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Citation:

Kaplan, Robert S., and David P. Norton. "Mastering the Management System." Special Issue on HBS Centennial. Harvard Business Review 86, no. 1 (January 2008): 62–77.

Kurt Meyer, chief risk officer of Swissgrid, the Swiss national electricity transmission system operator, reflects on the risk management system he installed after the deregulation and liberalization of the European energy market. With 41 connections to other European networks, a failure in Swissgrid’s network could interrupt the supply of electricity in Switzerland and much of Europe. Meyer describes the periodic interactive risk workshops conducted at each business unit to identify, assess, and mitigate risks. Executive Risk Workshops of the CEO and the company’s leadership team discuss the business units’ risk profiles and risks that cut across the units, such as safety, weather, and regulatory changes. New and emerging risks are discussed at Extraordinary Risk Workshops. Meyer recently deployed an app on employees’ smartphones for them to easily report anomalies or concerns. Reports from the app are embedded in a new real-time crisis management platform used by several Swiss companies, federal authorities, and the Swiss Army. Despite a full array of risk management tools and processes, Meyer remains concerned about risks yet to be identified.

Working Paper | HBS Working Paper Series | 2018

Reverse the Curse of the Top-5

Robert S. Kaplan

The past 40 years has seen a large increase in the number of articles submitted to journals ranked in the top-5 of their discipline. This increase is the rational response, by faculty, to the overweighting of publications in these journals by university promotions and tenure committees. The ranking factors for academic journals, however, arose for a completely different purpose, to guide the journal acquisition decisions by budget-constrained university librarians. Using journal impact factors to infer the quality of an faculty members’ publications incurs a high incidence of both Type 1 errors, when we conclude incorrectly that a paper published in a top-5 journal is a high-impact paper, and Type 2 errors, when we conclude that papers (and books) not published in top-5 journals have low impact. In addition, a third type of error gets introduced as faculty pursue the research they perceive is favored by editors of top-5 journals, at the potential expense of more innovative and relevant research, perceived to be unpublishable in a top-tier journal. Accounting scholarship, in particular, has underinvested in research about innovative practices or the emerging accounting issues faced by contemporary organizations (Kaplan, 2011), likely because such research is viewed as unpublishable in top-5 journals. This gap persists despite recent scholarship that has documented how important, fundamental ideas can emerge from “use-inspired” research (see Pasteur’s Quadrant (Stokes, 1997)). The paper concludes by suggesting reforms to overcome the dysfunctional fixation on publication in top-5 journals.

Keywords: Information Publishing; Journals and Magazines; Power and Influence; Research;

Citation:

Kaplan, Robert S. "Reverse the Curse of the Top-5." Harvard Business School Working Paper, No. 19-052, October 2018. View Details

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This note was written to provide students with fundamental concepts and methods for the analysis of cost variances. It focuses on the decomposition of cost variances into price, quantity, and mix variance components, an approach that allows students to identify the root causes of differences between expected and actual costs.

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