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Mobilizing an R&D organization through strategy cascading: effective strategy implementation in R&D depends on clarity, empowerment, dialogue, and motivation--not on control.

Article Excerpt
Connecting technical efforts to the business is a major challenge for R&D management of large companies. Lack of this alignment results in running after technical feats (the infamous playful engineers who have fun pursuing "gold plated," over-designed solutions), eternally running after the competition's innovations without catching up, or faking the business numbers ("chasing the hockey stick--the breakthrough revenue explosion is always two years away").

Technical employees who are not knowledgeable about strategy are not able to make good decisions, and they may lose motivation and no longer contribute all their knowledge, or start pursuing their own personal goals rather than supporting the organization.

Consider the following example from a manufacturing organization (1): We walked through the factory, which consisted of highly automated lines with few workers. We came upon a back room, in which four people in blue coveralls were drinking coffee and huddling over some blueprints. As evaluators, we asked, "So, who are you, and what are you doing here?" One of the workers answered our question with ease: "We are the electricians for this area. Since the plant is competing with Portuguese sister factories that have lower cost, the plant has as its strategic goal to reduce the cost per unit by 10 percent while slightly improving quality. One of the contributors to this goal is line up-time, which is reduced by electricity failures. Therefore, we have put a number of measures in place in order to reduce line downtime due to electricity problems by two-thirds, and we are now sitting here on call in order to trouble-shoot and discuss which of the new measures does not yet work fully."

What had this "blue-collar" worker just done? He had outlined the operating strategy of the organization, cascaded it down to the line and then to his function, and explained how the actions of his group contributed to the strategy. Ask yourself: Can your technical personnel do this (who may well be more sophisticated than the electrician depicted above)? The power of this strategic clarity, encompassing all levels of the organization, is clear: front line personnel who understand the context (because it has been translated to their concerns and daily lives) are more effective for two reasons: First, strategy cascading improves clarity and therefore the quality of decisions taken. Second, strategy cascading gives people the feeling of being informed and involved, which motivates them. Better motivated personnel are willing to go the extra step and volunteer the secret knowledge they have and the extra effort they can offer. Both effects make strategy execution more effective.

Usually, the breaking down of the business strategy to department, group and individual goals ("strategy cascading") is viewed by senior management as a strategy implementation turbocharger: "I explain to you what you need to do and how it fits in, then you can make better informed decisions, and I can track better what' s going on." This is certainly useful, but this article argues that a second (and perhaps greater) benefit of strategy cascading lies in the fact that the thus-involved employees feel less surrounded by ambiguity, and hence more secure, more motivated and more empowered to produce and articulate ideas, and in the fact that feedback from those employees can improve the strategy.

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Based on experience in companies I have seen, I propose how this larger prize can be captured. But be warned--it's not a "flavor of the month" effort; it requires managerial investment and commitment.

Tools for Technology Strategy Cascading

Two tools for technology strategy cascading are well known. The first is the financial ratio tree developed by Richard Foster, et al (2). It breaks important financial ratios into their constituent parts: for example, ROI = profit/capital employed; profit = revenue - cost; revenue = (number of products introduced) x (revenue per product), and so on.

This is an elegant conceptual tool that conveys a clear understanding of cause and effect; however, it is only rarely used because as you descend down the tree to operational measures, it proves virtually impossible to keep the tree consistent (without causal levers popping up at multiple places at once), and the numbers that you can actually derive become stylized and hard to measure.

The second tool, and the most widely used, is Kaplan and Norton's Balanced Scorecard shown in Figure 1 (3,4). The balanced scorecard evaluates a (sub)organization's activities according to financial, customer, business process, and "learning" or competence-building goals. This tool offers a reasonable view of various goals of the organization, with the possibility of breaking them down to lower levels of the organization.

The balanced scorecard tool has three principal limitations. First,...

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