C H A P T E R    T H I R T E E N

PRIVATE-SECTOR ORGANIZATIONS

IN THIS CHAPTER, we document three case studies of strategy maps in private-sector service companies. Two of them—Northwestern Mutual and Media General—adopted the scorecard as they introduced radically new strategies. Northwestern Mutual was shifting from a more than century-old strategy of offering superior insurance products through its career sales force to a strategy focused on offering comprehensive financial security to its end-use customers. Media General had expanded from its traditional base as a newspaper publisher into a regional media powerhouse with multiple publishing, broadcast, and electronic media outlets. The company wanted to gain synergies from its diverse media businesses by a strategy it called “convergence,” coordinating the different media in a given market so that they could provide quality information in the way each does best, but delivered from a comprehensive and unified perspective. Both companies used strategy maps to clarify, communicate, and align their organizations to their new strategies.

Volvofinans used the strategy map to solve a serious management problem: the lack of understanding by employees about the company’s strategy and a consequent decline in employee satisfaction and commitment. The clarity offered by the strategy map led quickly to substantial improvements in employee morale, which subsequently translated into heightened customer and financial performance.

NORTHWESTERN MUTUAL

Background

Northwestern Mutual is one of the oldest and most respected companies in the United States. Headquartered in Milwaukee, the company, with its subsidiaries and affiliates, offers insurance, investment products, and advisory services to address the needs of policy owners and clients for financial protection, capital accumulation, estate preservation, and asset distribution. Since its founding in 1857, the company has been driven by a strong value system and culture of integrity with one core premise: doing what’s best for its policy owners. As a mutual company, Northwestern Mutual has no shareholders. It focuses solely and directly on its three million members. The company’s approach to mutuality, including its long-term investment strategy and intense attention to operating fundamentals, helps it maintain the highest financial strength ratings from all four of the country’s major rating agencies. In 2003, Northwestern Mutual expects to remain the leading U.S. individual life insurance company paying dividends to policy owners.

The Situation

Traditionally, Northwestern Mutual’s business model was premised on providing superior life insurance and a few ancillary products, all through a single, career sales force of financial representatives. Although the company had sold investment products for several decades, its primary focus remained on selling risk-based insurance products. But the world had changed. In the mid- to late 1990s the company broadened its focus in response to evolving needs of policy owners and clients, more fluid investment markets, and finally, in 1999, enactment of the Gramm-Leach-Bliley Act that formalized direct competition between insurance companies, banks, and other financial institutions. Northwestern Mutual was now pursuing a strategy that emphasized helping clients achieve financial security by offering integrated solutions containing both insurance and investment products. In 2001, Ed Zore became the company’s new CEO. He had an extensive background in investments and a firm belief that employee engagement and measurement would be critical to the future success of the company.

The Strategy

Northwestern Mutual adopted a strategy that focused on enhancing its core insurance business and expanding its investment product business to meet more diverse policy owner and client needs. The company’s vision was to leverage its traditional strengths—building enduring relationships, providing expert advice, and offering strong product value—to become the premier company helping clients achieve lifelong financial security. The company would build out its “network of specialists,” a joint work model that enabled its traditional life insurance sales force to draw upon product and investment experts, as needed, to address clients’ increasingly complex financial security needs. This strategy required the company to balance its desire to expand capabilities to address more policy owner and client needs while continuing to maintain focus on the fundamentals that had allowed it to become the premier life insurance company.

Northwestern Mutual viewed the Balanced Scorecard as a tool to communicate and monitor the success of its broader strategy. The Scorecard framework also served to further Zore’s goals of enhancing employee engagement and moving the company to a performance and measurement-based culture.

The Strategy Map

As a mutual company focused on doing what’s best for its policy owners and clients, Northwestern Mutual’s overarching financial objective is to deliver strong product value to policy owners and customers in the form of dividend-paying capacity and exceptional financial strength (see Figure 13-1). This primary financial objective is supported by four others: two dealing with insurance and investment product revenue growth, and two reemphasizing the company’s commitment to aggressively managing its operating fundamentals, such as mortality and morbidity, operating expenses, and investment results.

From the customer perspective, Northwestern Mutual’s strategy map describes how to achieve differentiation from its converging competition. The company has an objective that policy owners and clients continue to view it as a world-class provider of leading products and relationship-based services. It also emphasizes the expert advice and needs-based planning required to address clients’ broad array of financial needs. Deb Beck, executive vice president of planning and technology, commented, “Our field force has a long history of conducting needs-based analysis and planning. Our strategy seeks to leverage this strength so we can address more of our clients’ insurance and investment needs through a robust, integrated planning approach.”

Northwestern Mutual’s internal process perspective centers around two primary themes. The first focuses on the processes needed to help the company expand its “network of specialists.” For example, to make its “network” more robust, the company will continue to expand its exclusive sales force through better recruiting and retention and enhanced financial representative productivity. These goals, in turn, will be furthered by a “network” objective, in the learning and growth perspective, to increase the capabilities of specialists and encourage joint work on complex client cases.

The other internal process theme emphasizes the internal home office processes that drive the company’s operating fundamentals. The company wants its employees to find new and more efficient ways of working, and to manage company projects to deliver maximum benefits.

Figure 13-1   Northwestern Mutual Strategy Map

 

The company has a regulatory process objective, shared both by the network and home office, to ensure that compliance remains a point of emphasis. Another dual objective for network and home office is to adopt new technology aligned to the strategy.

The company will foster employee loyalty, productivity, and personal growth by engaging employees in company success and strategy and by providing a high-quality work environment.

Anecdotes

Northwestern Mutual’s senior management team is using the company Score-card as a mechanism for facilitating regular, quarterly discussions about execution of the company strategy. According to Beck:

Part of the beauty of the tool is that it meshes well with our form of mutuality and value system. Unlike some companies, we’ve never focused solely upon short-term financial measures like stock valuation and quarterly results. Instead we’ve tended to frame our decisions with a longer-term horizon in mind and have focused upon both the financial and nonfinancial aspects of meeting policy owner and client needs. The Balanced Scorecard helps us to do this regularly with our company strategy in mind.

The company has used the company Scorecard as an element in a broad campaign to educate employees about their tight connection to company strategy. Beck said:

When Ed Zore became our new CEO, he made employee engagement a top priority. We believe the Scorecard has helped us take engagement to another level, as employees have been better able to visualize how their roles further the company’s strategic objectives.

Northwestern Mutual has cascaded the Balanced Scorecard framework into its business units and support departments. The company appointed departmental Balanced Scorecard coordinators to help embed Scorecard concepts within each organization.

The Scorecard has also become a visible part of the company’s annual planning cycle. All new project-funding proposals are now linked to the company’s strategic objectives. And Northwestern Mutual has begun to see results. Within one year of aligning projects to the Scorecard, the company saw a 21 percent improvement in the number of projects meeting scope, schedule, and budget goals.

Last year, Northwestern Mutual began a series of employee surveys designed to measure, among other things, employee engagement and commitment. The most recent survey showed a dramatic improvement in the number of employees who felt that they “understood company business direction and saw a clear link between their jobs and company objectives.” The Balanced Scorecard rollout was a principal reason for this improvement.

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Case prepared by Arun Dhingra of Balanced Scorecard Collaborative and Deborah Beck of Northwestern Mutual. Our thanks to Ed Zore for sharing the Northwestern Mutual experience.

VOLVOFINANS

Background

Founded in 1959 and headquartered in Göteborg, Sweden, Volvofinans is the leading vehicle-financing company in Sweden, with total lending reaching 23.5 billion kroners ($2.7 billion) in 2001. This small but powerful lender employs about 190 people and has a highly focused mission: support sales of Volvo and Renault products in Sweden by financing products and sales. Ford Credit International owns 50 percent of the company. Swedish Volvo dealerships own the remaining 50 percent. Dealers are thus the firm’s customers and its owners. Additional customers include fleets (firms operating more than fifty company cars) and individual consumers seeking attractive financing terms for their auto purchases.

The Situation

In 1996, Volvofinans’s executives observed a troubling lack of shared vision throughout the company’s workforce. Surveys revealed declining commitment, eroding satisfaction, and scanty knowledge of corporate goals throughout the ranks. The firm sought a tool that would enable employees to support the company’s overall mission, to “promote the sales of Volvo and Renault vehicles in Sweden through competitive sales-financing solutions attractive to dealers, private customers, and companies.” Intrigued by Swedish-based insurer Skandia Group’s experience with the Balanced Scorecard and by Harvard Business Review articles on the subject, Volvofinans’s then-managing director, along with business controller Marianne Söderberg, assembled a Scorecard team. The project produced a Scorecard that could be displayed using PowerPoint slides and Excel spreadsheets. But the project stalled because the Scorecard was difficult to circulate and use by more than one person at a time.

The project was idle until August 2000, when Björn Ingemanson became the new managing director. Determined to renew the effort, Ingemanson authorized the building of a new IT system that would facilitate easy BSC use and circulation on the company’s intranet. Ingemanson and his team also decided to focus the revived initiative on the Strategy-Focused Organization principle of “making strategy everyone’s job.” The firm espoused having an open, decentralized culture in which employees felt free to speak their minds and challenge management’s ideas. But few people outside the senior management team participated in discussions about strategy and the development of future business. Ingemanson believed it was time to mobilize the pool of intellectual capital for strategy implementation.

The Strategy Map

During a series of lively seminars attended by managers and employees from a cross-section of many functions and levels—up to one-third of the company’s workforce—the Scorecard team began crafting Volvofinans’s strategy map (see Figure 13-2). They called the document their Vägvisaren, or road map. Rank-and-file employees defined most of the map’s objectives and measures—an effective first step in aligning everyone behind the strategy.

The company initially identified more than thirty-five objectives, then combined several to arrive at a manageable twenty-two. Executives also decided to emphasize product leadership and operational excellence as keys to implementing Volvofinans’s strategy. Within the strategy map, themes such as motivated and involved coworkers, win/win with Volvo dealers, and growth and efficiency strategy—along with a value chain flowing from product development to customer loyalty—provided the framework for the map’s cause-and-effect relationships. Although the Scorecard team included arrows indicating causal connections in the map, they decided to circulate an arrow-less version throughout the organization, because people found it easier to absorb visually. The team used the strategy map to communicate high-level strategy effectively and compellingly to all employees.

The highlights from the map included the following:

• Coworkers/Learning perspective: To fulfill its mission, Volvofinans needs a motivated, actively involved, and knowledgeable workforce. It now nurtures a culture of learning by encouraging everyone to participate in strategy discussions, leveraging the company’s existing consensus-oriented culture. In contrast with the aborted initial Scorecard project, the team adopted objectives for “efficient IT support” and “high availability of information.”
• Process perspective: In this perspective, the emphasis on product leadership and operational excellence come together. This section of the map outlines ways to improve product development, sales and marketing, risk handling, credit handling, and cultivation of customer loyalty. Objectives include developing innovative financing products, continually educating Volvo dealers on Volvofinans’s offerings, serving customers efficiently, and administering contracts quickly and accurately. The arrow flowing from left to right indicates the direction of the company’s value chain.
• Customer and financial perspectives: The process objectives feed into objectives in the customer and financial perspectives. For instance, by meeting its process objective for “market leadership in financial solutions and concepts” (reflecting its emphasis on product leadership), Volvofinans expects to boost its ability to partner successfully with dealers. Successful partnering in turn supports growth through “attractive financial solutions” and “increased credit administration services.” But dealers aren’t Volvofinans’s only customers. Market leadership in financial solutions and concepts also supports the objective for “attractive package solutions” for fleet and end-customers. Serving these customers in turn supports another objective under the growth strategy theme in the financial perspective: “market leader within fleet administration and finance.” Another objective in the process perspective—“efficient contract administration”—links directly to the financial efficiency objective to be the “market leader in cost-efficient contract administration.”

Figure 13-2   AB Volvofinans Strategy Map

 

Anecdotes

Volvofinans’s inclusive strategy map development process paid big dividends. Recent surveys revealed that employees now had a stronger grasp of department and company strategy. Morale and commitment to company goals have also soared, as has employees’ mastery of industry dynamics. These improvements led to tangible outcomes. In 2001, the company’s share of the new-car financing market through Volvo dealerships in Sweden expanded, leading to significant increases in lending amounts and the number of contracts in force.

Its emphasis on product leadership and operational excellence also yielded results. The company launched “Volvo Carloan,” an insurance plan that pays customers’ monthly auto-loan bills if they lose their jobs or develop a long-term illness. By mid-2002, more than 100,000 customers had signed up for the plan; Volvofinans’s competitors have belatedly launched similar products. And the company boasts the lowest cost per administered contract in its market. Volvofinans is a member of the Balanced Scorecard Hall of Fame.

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Case prepared by Carl-Frederik Helgegren of the Balanced Scorecard Collaborative, Sweden, and Lauren Keller Johnson, a contributor to the Balanced Scorecard Report. We thank Marianne Söderberg and Bjorn Ingemanson for sharing their Volvofinans experience.

MEDIA GENERAL, INC.

Background

From a small newspaper empire founded in the 1850s, Richmond, Virginia-based Media General has grown into the ninth largest publicly traded newspaper company in the United States, with divisions in publishing, broadcast, and electronic media. Concentrated in the Southeast, the firm publishes twenty-five daily newspapers that have a combined circulation of more than one million. Media General’s twenty-six network-affiliated television stations reach more than 30 percent of U.S. households. The company also operates more than fifty online enterprises related to its print and broadcast properties. In 2002, it employed more than 8,000 people and generated revenues of $837 million.

The Situation

Over the decades, Media General had expanded somewhat haphazardly beyond the Southeast. When J. Stewart Bryan III became chairman and CEO in 1990, the company embarked on a massive transformation, shedding old businesses and acquiring others to fit with its new, regionally focused strategy. However, competitive pressures and the explosive growth of cable television and the Internet depressed the value of Media General’s stock.

The Strategy

Media General’s mission statement was “to be the leading provider of high-quality news, entertainment, and information in the Southeast by continually building on our position of strength in strategically located markets.” But Bryan recognized that success lay in synergy—exploiting the individual and collective strengths of Media General’s three divisions. The goal, he explains, was to “coordinate different media in a given market to provide quality information in the way each does best—but delivered from a comprehensive and unified perspective.” This approach, known as “convergence,” became the cornerstone of Media General’s strategy.

Convergence required strong teamwork, communication, and cooperation—no small feat for traditionally autonomous, culturally disparate units that often competed with each other.

Strategy Map

Adopted in 2002, the Balanced Scorecard fostered the common vision that would make convergence a reality (see Figure 13-3).

Customer Perspective

Defining its customers and recognizing their different needs proved one of the most challenging tasks for the cross-functional BSC team. Articulating a common customer value proposition forced differences of opinion to surface. In addition, for media organizations, the customer perspective represented the locus of a historical tension—between the editorial side, which served readers, and the publishing side, which served advertisers. These two customer bases competed for space and airtime. Finally, Media General division heads perceived more differences than commonalities among their respective readers and viewers—even though all audiences wanted quality news and information. “Accurate, compelling, and relevant content” thus represented Media General’s goal to become the dominant source of information in each market. Across its diverse media, the company sought to provide its advertiser-customers “a desired audience,” leveraging demographic and geographic reach with multimedia, multimarket advertising packages.

Figure 13-3   Media General Strategy Map

 

Internal (Process) Perspective

The internal perspective strategic theme was to leverage convergence and Southeast focus through several subthemes:

Promote public trust and identity: Beyond their inherent value, integrity and fairness fulfill core customer expectations. Build strong community partnerships supported the community involvement identified in the customer perspective. Brand image drove and would be driven by these objectives. Media General would promote its individual brands and link the corporate brand to individual brands, among all its stakeholders.

Develop and deliver superior content: The objective deliver superior content spoke directly to convergence. The common news desk exemplified this objective in action. Editors from newspapers, broadcast stations, and interactive media in a given market would work together and make daily decisions on how to cover a given story from their respective vantage points. By orchestrating coverage in this way, Media General believed it could increase readership, viewership, and users.

Create and acquire new products and services: Greater interaction among divisions, units, and departments (sharing new ideas, cross-referencing sister media) would help Media General’s companies identify and exploit new growth opportunities. This subtheme would drive customer growth on both sides of the customer perspective.

Win new advertisers: By better understanding its advertising customers’ businesses, Media General could better serve existing customers—and attract new ones—with, for example, creative multimarket and multimedia advertising packages that offered economies of scale. Increasing the percentage of multimedia advertisers and nurturing long-term relationships supported the financial perspective’s objective to increase advertising revenue.

Deliver high-quality service: This operational excellence objective reinforced efficiencies and profitable growth in the financial perspective. Besides the standard efficiency gains achieved through process improvements, convergence encouraged units to leverage their purchasing power to reduce costs through coordinated procurement. Quality improvements included establishing guidelines on when to interrupt scheduled coverage with breaking news and fact-verification standards for online news (this objective also contributed to public trust).

Innovative content: “Innovative solutions” could include a lifestyle magazine, produced from leveraged content, that could be distributed throughout multiple markets.

Learning and Growth Perspective

Promote employee communication would facilitate heightened interaction for the critical internal process objectives. Promote culture of change and employee empowerment involved nurturing creativity and innovation, as well as fostering decision making among lower-level employees. These objectives had the greatest bearing on the two major sources of revenue growth.

Financial Perspective

Leveraging news content from multiple media sources would enable Media General to deliver new products and services. This, along with new acquisitions, represented the revenue growth objective for the reader and viewer customers. (Subscriptions are loss leaders in media.) Advertising revenues, bolstered by multimedia, multimarket advertising packages, would provide the other key revenue source. Operational excellence, boosting efficiencies, would improve cost and asset management.

Results

According to Bryan, the strategy map’s first big accomplishment was to facilitate massive culture change. By providing a shared language and common ways to measure success, the map helped employees see the value in cooperating toward common goals. Media General also gained a much deeper understanding of its customers’ needs. Its stock, already on the rebound, has performed well under the BSC; per-share earnings almost tripled in 2002 (taken before accounting rule adjustments). Company revenues grew 4 percent in 2002, a brutal year in the publishing industry. And convergence was working: Multimedia advertising packages brought a stunning 42.5 percent revenue gain to Media General’s interactive media division in 2002.

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Case prepared by Patricia Bush and Janice Koch of Balanced Scorecard Collaborative. Our thanks to Stewart Bryan for sharing the Media General experience.