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.

The federal government mandated adoption of certified electronic health record systems (EHR), at least in part, to reduce administrative costs for physicians. This study used time-driven activity-based costing to determine the administrative costs associated with billing and insurance activities at a large academic health care center that had a certified EHR system. The center enjoyed economies of scale by concentrating its bill paying functions within a single, dedicated unit. The study found that costs for processing a single bill ranged from $20 for a primary care visit, about 20% of revenues, up to $215 for an inpatient surgical procedure. The high costs were not caused by wasteful, inefficient processes, duplicate or redundant tasks, or the inappropriate use of high-wage personnel to perform low-skilled tasks. Rather, they were driven by the heterogeneous payment requirements across the multiple payers and health plans contracting with the academic health center.

Partners in Health, a global NGO focused on delivering health care to residents of rural underserved communities, conducts a project on the cost of primary care at five sites in the Central Highlands of Haiti. It devises a simple approach for tracking the resources used by patients being treated for diverse medical conditions, as an input to a time-driven activity-based costing model. The results show considerable cost diversity across the five sites, but organizational leaders differ on the interpretation and action implications of the findings.

Article | Harvard Business Review | January–February 2018

Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality

Robert S. Kaplan, George Serafeim and Eduardo Tugendhat

More than a billion people in the developing world remain in extreme poverty and outside the formal economy. Traditional CSR programs have done little to alleviate the situation and rarely produce transformative change.
Instead of trying to fix local problems, the authors argue, corporations need to reimagine the regional ecosystems in which they participate. They should search for systemic, multisector opportunities; mobilize complementary partners; and obtain seed and scale-up financing from organizations with a mission to alleviate poverty. They should also align the various stakeholders around the new strategy, using proven tools such as a co-created strategy map.
These principles are informed by the authors’ experience with several successful inclusive-growth projects. An initiative in Uganda is bringing small maize farmers into the mainstream regional economy, while a training program in El Salvador is giving unemployed youths the skills to work in the country’s growing service sector.

Keywords: inclusive growth; sustainability; social impact; Business Strategy; shared value; impact investing; inequality; Poverty; corporate governance; balanced scorecard; strategy execution; Economic Growth; Developing Countries and Economies; Poverty; Equality and Inequality; Corporate Social Responsibility and Impact; Strategy; Investment;

Citation:

Kaplan, Robert S., George Serafeim, and Eduardo Tugendhat. "Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality." Harvard Business Review 96, no. 1 (January–February 2018): 127–133. View Details

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