Tansformation and the balanced score card
Introduction The purpose of this chapter is to examine the nature of organiza- tional transformation, how it occurs, and how it can be measured. Aldrich (2001) defines organizational transformation along three possible dimensions: changes in goals, boundaries, and activities. According to Aldrich, transformations must involve a qualita- tive break with routines and a shift to new kinds of competencies that challenge existing organizational knowledge (p. 163). He warns us that many changes in organizations disguise themselves as transformative but are not. Thus, focusing on the qualifications of authentic or substantial transformation is key to understanding whether it has truly occurred in an organization. Technology, as with any independent variable, may or may not have the capacity to instigate organizational transformation. Therefore, it is important to integrate transformation theory with responsive organizational dynamism (ROD). In this way, the measurable outcomes of orga- nizational learning and technology can be assessed in organizations that implement ROD. Most important in this regard, is that organi- zational transformation, along with knowledge creation, be directly correlated to the results of implementing organizational learning. That is, the results of using organizational learning techniques must result in organizational transformation. Organizational transformation is significant for three key reasons: 1. Organizations that cannot change will fundamentally be at risk against competitors, especially in a quickly changing market. 140 INFORMATION TECHNOLOGY 2. If the organization cannot evolve, it will persist in its norms and be unwilling to change unless forced to do so. 3. If the community population is forced to change and is con- strained in its evolutionary path, it is likely that it will not be able to transform and thus, will need to be replaced. Aldrich (2001) establishes three dimensions of organizational transformation. By examining them, we can apply technology- specific changes and determine within each dimension what consti- tutes authentic organizational transformation. 1. Goals: There are two types of goal-related transformations: (a) change in the market or target population of the organiza- tion; (b) the overall goal of the organization itself changes. I have already observed that technology can affect the mission of an organization, often because it establishes new market niches (or changes them). Changed mission statements also inevitably modify goals and objectives. 2. Boundaries: Organizational boundaries transform when there is expansion or contraction. Technology has historically expanded domains by opening up new markets that could not otherwise be reached without technological innovation. E-business is an example of a transformation brought about by an emerging technology. Of course, business can contract as a result of not assimilating a technology; technology also can create organizational transformation. 3. Activity systems: Activity systems define the way things are done. They include the processing culture, such as behav- ioral roles. Changes in roles and responsibilities alone do not necessarily represent organizational transformation unless it is accompanied by cultural shifts in behavior. The cultural assimilation component of ROD provides a method with which to facilitate transformations that are unpredict- able yet evolutionary. Sometimes, transformations in activ- ity systems deriving from technological innovations can be categorized by the depth and breadth of its impact on other units. For example, a decision could be made to use technology as part of a total quality management (TQM) 141orGAnIzAtIonAl trAnsForMAtIon effort. Thus, activity transformations can be indirect and need to be evaluated based on multiple and simultaneous events. Aldrich s (2001) concept of organizational transformation bears on the issue of frequency of change. In general, he concludes that the changes that follow a regular cycle are part of normal evolution and flow of organizational life (p. 169) and should not be treated as transformations. Technology, on the other hand, presents an inter- esting case in that it can be perceived as normal in its persistence and regularity of change while being unpredictable in its dynamism. However, Aldrich s definition of transformation poses an interesting issue for determining transformations resulting from technological innovations. Specifically, under what conditions is a technological innovation considered to have a transformative effect on the organi- zation? And, when is it to be considered as part of regular change? I refer to Figure 6.1, first presented in Chapter 3 on driver and sup- porter life cycles to respond to this question. The flows in this cycle can be used as the method to determine technological events that are normal change agents versus transforma- tive ones. To understand this point, one should view all driver-related technologies as transformational agents because they, by definition, affect strategic innovation and are approved based on return on investment (ROI). Aldrich s (2001) normal ebb and flows repre- sent the mini-loops that are new enhancements or subtechnologies, which are part of normal everyday changes necessary to mature a Mini loop technology enhancementsTechnology driver Evaluation cycle Driver maturation Support status Replacement or outsource Economies of scale Figure 6.1 Driver-to-supporter life cycle. 142 INFORMATION TECHNOLOGY technological innovation. Thus, driver variables that result from mini- loops, would not be considered transformational agents of change. It is important to recognize that Aldrich s (2001) definition of organizational transformation should not be confused with theories of transformative learning. As West (1996) proclaims, The goal of organizational learning is to transform the organization (p. 54). The study of transformative learning has been relevant to adult education, and has focused on individual, as opposed to organizational, devel- opment and learning. Thus, transformative learning has been better integrated in individual learning and reflective practice theories than in organizational ones. While these modes of learning are related to the overall learning in organizations, they should not be confused with organizations that are attempting to realize their performance objectives. Yorks and Marsick (2000) offer two strategies that can produce transformative learning for individuals, groups, or organizations: action learning and collaborative inquiry. I covered action science in Chapter 4, particularly reflective practices, as key interventions to fos- ter both individual and group evolution of learning, specifically in reference to how to manage ROD. Aspects of collaborative inquiry are applied to later stages of maturation and to more senior levels of management based on systems-level learning. As Yorks and Marsick (2000) state, For the most part the political dimensions of how the organization functions is off limits, as are discussions of larger social consequences (p. 274). Technological innovations provide acceleration factors and foster the need for ROD. Technology also furnishes the potential tangible and measurable outcomes necessary to normalize York and Marsick s (2000) framework for transformative learning theory into organiza- tional contexts as follows: 1. Technology, specifically e-business, has created a critical need for organizations to engage with clients and individuals in a new interactive context. This kind of discourse has established accelerated needs, such as understanding the magnitude of alternative courses of action between customer and vendor. The building of sophisticated intranets (internal Internets) and their evolution to assimilate with other Internet operations 143orGAnIzAtIonAl trAnsForMAtIon has also fueled the need for learning to occur more often than before and at organizational level. Because technology can produce measurable outcomes, individuals are faced with accelerated reflections about the cultural impact of their own behaviors. This is directly related to the implementation of the cultural assimilation component of ROD, by which individuals determine how their behaviors are affected by emerging technologies. 2. Early in the process of implementing strategic integration, reflective practices are critical for event-driven technology projects. These practices force individuals to continually reex- amine their existing meaning perspectives (specifically, their views and habits of mind). Individual reflection in, on, and to practice will evolve to system-level group and organizational learning contexts, as shown in the ROD arc. 3. The process of moving from individual to system-level learn- ing during technology maturation is strengthened by the learners abilities to comprehend why historical events have influenced their existing habits of mind. 4. The combination of strategic integration and cultural assimi- lation lays the foundation for organizational transformation to occur. Technology provides an appropriate blend of being both strategic and organizational in nature, thus allow- ing learners to confront their prior actions and develop new practices. Aldrich (2001) also provides an interesting set of explanations for why it is necessary to recognize the evolutionary aspect of organiza- tional transformations. I have extended them to operate within the context of ROD, as follows: Variation : Defined as change from current routines and compe- tencies and change in organizational forms (Aldrich, 2001, p. 22). Technology provides perhaps the greatest amount of variation in routines and thereby establishes the need for something to manage it: ROD. The higher the frequency of variation, the greater the chance that organizational transfor- mation can occur. Variation is directly correlated to cultural assimilation. 144 INFORMATION TECHNOLOGY Selection : This is the process of determining whether to use a technology variation. Selections can be affected by external (outside the organization) and internal (inside the organi- zation) factors, such as changes in market segments or new business missions, respectively. The process of selection can be related to the strategic integration component of ROD. Retention : Selected variations are retained or preserved by the organization. Retention is a key way of validating whether organizational transformation has occurred. As Aldrich states: Transformations are completed when knowledge required for reproducing the new form is embodied in a com- munity of practice (p. 171). Because of the importance of knowledge creation as the basis of transformation, communities of practice are the fundamental struc- tures of organizational learning to support organizational transforma- tion. Aldrich (2001) also goes beyond learning; he includes policies, programs, and networks as parts of the organizational transformative process. Figure 6.2 shows Aldrich s evolutionary process and its rela- tionship to ROD components. Thus, we see from Figure 6.2 the relationships between the pro- cesses of creating organizational transformation, the stages required to reach it, the ROD components in each stage, and the correspond- ing organizational learning method that is needed. Notice that the mapping of organizational learning methods onto Aldrich s (2001) scheme for organizational transformation can be related to the ROD arc. It shows us that as we get closer to retention, organizational learn- ing evolves from an individual technique to a system/organizational learning perspective. Aldrich s model is consistent with my driver- versus-supporter concept. He notes, When the new form becomes a taken-for-granted aspect of every day life in the organization, its legitimacy is assumed (p. 175). Hence, the assimilation of new technologies cannot be consid- ered transformative until it behaves as a supporter. Only then can we determine that the technology has changed organizational biases and norms. Representing the driver and supporter life cycle to include this important relationship is shown in Figure 6.3. 145orGAnIzAtIonAl trAnsForMAtIon Technology Variation Strategic integration assess value of technology Cultural assimilation assess extent of what to implement and determine effects on structure Strategic integration determine which technologies best fit corporate needs and provide highest ROI Corresponding organizational learning methods Individual reflective practices Group-based reflective practices Social discourse using communities of practice Communities of practice and knowledge management Validation of organizational transformation technology has provided strategic outcomes and modified structures and processes Selection Retention Figure 6.2 Stages of organizational transformation and ROD. Individual reflective practice Group-based reflective practice Communities of practice Knowledge management Organizational transformation Mini loop technology enhancementsTechnology driver Evaluation cycle Driver maturation Support status Replacement or outsource Economies of scale Figure 6.3 Organizational transformation in the driver-to-supporter life cycle. 146 INFORMATION TECHNOLOGY Methods of Ongoing Evaluation If we define organizational transformation as the retention of knowl- edge within the body of communities of practice, the question to be answered is how this retention actually is determined in practice. The possibility often occurs that transformations are partial or in some phase of completion. This would mean that the transformation is incomplete or needs to continue along some phase of approach. Indeed, cultural assimilation does not occur immediately, but rather, over periods of transition. Much of the literature on organizational transformation does not address the practical aspects of evaluation from this perspective. This lack of information is particularly prob- lematic with respect to technology, since so much of how technology is implemented relates to phased steps that rarely happen in one major event. Thus, it is important to have some method of ongoing evalua- tion to determine the extent of transformation that has occurred and which organizational learning methods need to be applied to help continue the process toward complete transformation. Aldrich s (2001) retention can also be misleading. We know that organizational transformation is an ongoing process, especially as advocated in ROD. It is probable that transformations continue and move from one aspect of importance to another, so a completed trans- formation may never exist. Another way of viewing this concept is to treat transformations as event milestones. Individuals and communi- ties of practice are able to track where they are in the learning process. It also fits into the phased approach of technology implementation. Furthermore, the notion of phases allows for integration of organiza- tional transformation concepts with stage and development theories. With the acceptance of this concept, there needs to be a method or model that can help organizations define and track such phases of transformation. Such a model would also allow for mapping outcomes onto targeted business strategies. Another way of understanding the importance of validating organizational transformation is to recognize its uniqueness, since most companies fail to execute their strategies. The method that can be applied to the validation of organizational transformation is a management tool called the balanced scorecard. The balanced scorecard was introduced by Kaplan and Norton (2001) in the early 1990s as a tool to solve measurement problems. The ability 147orGAnIzAtIonAl trAnsForMAtIon of an organization to develop and operationalize its intangible assets has become more and more a critical component for success. As I have already expressed regarding the work of Lucas (1999), financial measurement may not be capable of capturing all IT value. This is particularly true in knowledge-based theories. The balanced score- card can be used as a solution for measuring outcomes that are not always financial and tangible. Furthermore, the balanced scorecard is a living document that can be modified as certain objectives or measurements require change. This is a critical advantage because, as I have demonstrated, technology projects often change in scope and in objectives as a result of internal and external factions. The ultimate value, then, of the balanced scorecard, in this con- text, is to provide a means for evaluating transformation not only for measuring completion against set targets but also for defining how expected transformations map onto the strategic objectives of the organization. In effect, it is the ability of the organization to execute its strategy. Before explaining the details of how a balanced scorecard can be applied specifically to ROD, I offer Figure 6.4, which shows Mobilize change through executive leadership Balanced Translate the strategy to operational terms Scorecard Make strategy a continual processStrategy Align organizational to the strategy Make strategy everyones job Figure 6.4 Balanced scorecard. (From Kaplan, R.S., & Norton, D.P., The Strategy-Focused Organization , Harvard University Press, Cambridge, MA, 2001.) 148 INFORMATION TECHNOLOGY exactly where the scorecard fits into the overall picture of transition- ing emerging technologies into concrete strategic benefit. The generic objectives of a balanced scorecard are designed to cre- ate a strategy-focused organization. Thus, all of the objectives and measurements should be derived from the vision and strategy of the organization (Kaplan & Norton, 2001). These measurements are based on the fundamental principles of any strategically focused orga- nization and on alignment and focus. Kaplan and Norton define these principles as the core of the balanced scorecard: 1. Translate the strategy to operational terms : This principle includes two major components that allow an organization to define its strategy from a cause-and-effect perspective using a strategy map and scorecard. Thus, the strategy map and its corresponding balanced scorecard provide the basic measure- ment system. 2. Align the organization to the strategy: Kaplan and Norton define this principle as favoring synergies among organiza- tional departments that allow communities of practice to have a shared view, and common understanding of their roles. 3. Make strategy everyone s everyday job: This principle supports the notion of a learning organization that requires everyone s participation, from the chief executive officer (CEO) to cleri- cal levels. To accomplish this mission, the members of the organization must be aware of business strategy; individuals may need personal scorecards and a matching reward sys- tem for accomplishing the strategy. 4. Make strategy a continual process: This process requires the linking of important, yet fundamental, components, includ- ing organizational learning, budgeting, management reviews, and a process of adaptation. Much of this principle falls into the areas of learning organization theories that link learning and strategy in ongoing perpetual cycles. 5. Mobilize change through executive leadership: This principle stresses the need for a strategy-focused organization that incorporates the involvement of senior management and can mobilize the organization and provide sponsorship to the overall process. 149orGAnIzAtIonAl trAnsForMAtIon Using the core balanced scorecard schematic, I have modified it to operate with technology and ROD, as shown in Figure 6.5. 1. Evaluation of technology: The first step is to have an infrastruc- ture that can determine how technology fits into a specific strategy. Once this is targeted, the evaluation team needs to define it in operational terms. This principle requires the stra- tegic integration component of ROD. 2. Align technology with business strategy : Once technology is evaluated, it must be integrated into the business strategy. This involves ascertaining whether the addition of technology will change the current business strategy. This principle is also connected to the strategic integration component of ROD. 3. Make technology projects part of communities of practice : Affected communities need to be strategically aware of the project. Organizational structures must determine how they distrib- ute rewards and objectives across departments. This principle requires the cultural assimilation component of ROD. 4. Phasedin technology implementation : Short- and long-term project objectives are based on driver and supporter life cycles. Executive interfaces Balanced Evaluation of technology Scorecard Phase technology implementation Responsive org dynamism strategy Align technology with business strategy Make technology project part of communities of practice Figure 6.5 Balanced scorecard ROD. 150 INFORMATION TECHNOLOGY This will allow organizational transformation phases to be linked to implementation milestones. This principle maps onto the cultural assimilation component of ROD. 5. Executive interface : CEO and senior managers act as executive sponsors and project champions. Communities of practice and their common threads need to be defined, including middle management and operations personnel, so that top- down, middle-up-down, and bottom-up information flows can occur. The balanced scorecard ultimately provides a framework to view strategy from four different measures: 1. Financial : ROI and risk continue to be important components of strategic evaluation. 2. Customer : This involves the strategic part of how to create value for the customers of the organization. 3. Internal business processes : This relates to the business pro- cesses that provide both customer satisfaction and operational efficiency. 4. Learning and growth : This encompasses the priorities and infrastructure to support organizational transformation through ROD. The generic balanced scorecard framework needs to be extended to address technology and ROD. I propose the following adjustments: 1. Financial : Requires the inclusion of indirect benefits from technology, particularly as Lucas (1999) specifies, in nonmon- etary methods of evaluating ROI. Risk must also be factored in, based on specific issues for each technology project. 2. Customer : Technology-based products are integrated with customer needs and provide direct customer package inter- faces. Further, web systems that use the Internet are depen- dent on consumer use. As such, technology can modify organizational strategy because of its direct effect on the cus- tomer interface. 3. Internal business processes : Technology requires business pro- cess reengineering (BPR), which is the process of reevaluat- ing existing internal norms and behaviors before designing a 151orGAnIzAtIonAl trAnsForMAtIon new system. This new evaluation process addresses customers, operational efficiencies, and cost. 4. Learning and growth : Organizational learning techniques, under the umbrella of ROD, need to be applied on an ongo- ing and evolutionary basis. Progress needs to be linked to the ROD arc. The major portion of the balanced scorecard strategy is in its initial design; that is, in translating the strategy or, as in the ROD scorecard, the evaluation of technology. During this phase, a strategy map and actual balanced scorecards are created. This process should begin by designing a balanced scorecard that articulates the business strategy. Remember, every organization needs to build a strategy that is unique and based on its evaluation of the external and internal situation (Olve et al., 2003). To clarify the definition of this strategy, it is easier to consider drawing the scorecard initially in the form of a strategy map. A generic strategy map essentially defines the components of each perspective, showing specific strategies within each one, as shown in Figure 6.6. Perspective: Financial Customer Process Learning and growth Improve technology Improve staff skills Establish new markets Increase customer service Increase efficiency More satisfied customers Improve profitability Stronger finances Increase customer base Figure 6.6 Strategy map. (From Olve, N., et al., Making Scorecards Actionable: Balancing Strategy and Control , Wiley, New York, 2003.) 152 INFORMATION TECHNOLOGY We can apply the generic strategy map to an actual case study, Ravell phase I, as shown in Figure 6.7. Recall that Ravell phase I created a learning organization using reflective practices and action science. Much of the organization transformation at Ravell was accelerated by a major event the relo- cation of the company. The move was part of a strategic decision for the organization, specifically the economies of scale for rental expense and an opportunity to retire old computers and replace them with a much needed state-of-the-art network. Furthermore, there was a grave need to replace old legacy applications that were incapable of operating on the new equipment and were also not providing the competitive advantage that the company sought. In using the strategy map, a balanced scorecard can be developed containing the specific outcomes to achieve the overall mission. The balanced scorecard is shown in Figure 6.8. The Ravell balanced scorecard has an additional column that defines the expected organizational transformation from ROD. This model addresses the issue of whether a change is truly a transformation. This method also provides a systematic process to forecast, understand, and Perspective: Financial Users Process Learning and growth New technology products New ways of staff interaction Establish new organization structure Improved systems Provide accurate and timely information More satisfied users Improve return on project investments Reduce technology overhead Increase user IT support Figure 6.7 Technology strategy map. 153orGAnIzAtIonAl trAnsForMAtIon present what technology initiatives will ultimately change in the stra- tegic integration and cultural assimilation components of ROD. There are two other important factors embedded in this modified balanced scorecard technique. First, scorecards can be designed at varying levels of detail. Thus, two more balanced scorecards could Strategy map perspective Financial Measureable outcomes Strategic objectives Organizational transformation Combine IT expenses with relocation and capitalize entire expense Combination of expenses requires formation of new communities of practice, which includes finance, engineering, and IT Improve returns on project investments Reduce technology overhead costs More satisfied users Increase user IT support Users Process Learning and growth Provide accurate and timely information Improved systems New technology products New ways of staff interaction structure Establish new organization Integrate new telephone system with computer network expenses Leverage engineering and communications expenses with technology Retire old equipment from financial statements Increase access to central applications Integrate IT within other departments to improve dynamic customer support requirements Provide new products to replace old e-mail system and make standard applications available to all users Establish help desk personnel Process of supporting users requires IT staff to embrace reflective practices. User relationship formed through new communities of practice and cultural assimilation with user community New culture at Ravell established Startegic integration occurs through increased discourse and language among communities of practice engaged in making relocation successful. New knowledge created and needs knowledge management Improve decision support for improved reporting and strategic marketing Upgrade new internal systems, including customer relationship management (CRM), general ledger, and rights and royalties Investigate new voice-messaging technology to improve integration of e-mail and telephone systems Physically relocate IT staff across departments Modify IT reporting structure with dotted line to business units IT becomes more critically reflective, understands value of their participation with learning organization. IT staff seeks to know less and understands view of the other · · · · · · · · · · · · · · · · · · · · · · Figure 6.8 Ravell phase I balanced scorecard. 154 INFORMATION TECHNOLOGY be developed that reflect the organizational transformations that occurred in Ravell phases II and III, or the three phases could be summarized as one large balanced scorecard or some combina- tion of summary and detail together.
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