Managing Alliances with the Balanced Scorecard PDF

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t os www.hbr.org rP Fifty percent of corporate alliances fail. But you can increase your partnership’s Managing Alliances odds of success by applying with the Balanced yo these techniques. Scorecard by Robert S. Kaplan, David P. Norton, op and Bjarne Rugelsjoen tC Included with this full-text Harvard Business Review article: No 1 Article Summary Idea in Brief—the core idea 2 Managing Alliances with the Balanced Scorecard Do Reprint R1001J This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  t Managing Alliances with the Balanced os Scorecard Idea in Brief rP A recent study by McKinsey & Company found that only half of all joint ventures yield returns above the cost of capital. That’s a problem, given that partnerships and alliances are a central part of almost any company’s business model. yo An alliance usually gets defined from the start by service level agreements about what each side will contribute, not by what each side hopes to gain. The agreements focus on operational metrics rather than on strategic objectives. The balanced scorecard management sys- tem can help companies switch their alli- op ance management focus from contribu- tions and operations to strategy and commitment. Solvay Pharmaceuticals and Quintiles used the balanced scorecard tool kit to manage their alliance and together reduced the tC total cycle time in clinical studies by 40%. COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. No Do page 1 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  Fifty percent of corporate alliances fail. But you can increase your t partnership’s odds of success by applying these techniques. os rP Managing Alliances with the Balanced Scorecard yo by Robert S. Kaplan, David P. Norton, op and Bjarne Rugelsjoen tC Corporate alliances are a 50/50 bet—at least renegotiate. By that time, the companies’ lead- according to a recent study by McKinsey & ers have returned to run their own organiza- Company, which found that only half of all tions and haven’t followed up to ensure that COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. joint ventures yield returns to each partner their vision for synergies is being realized. The above the cost of capital. That’s worrying, middle managers coordinating the alliance, given that partnerships and alliances are cen- who have no clear way to translate their lead- tral to many companies’ business models. ers’ vision into action, simply focus on achiev- No Originally used to outsource noncore parts of ing the operational SLA targets instead of supply chains, alliances today are expected to working across organizational boundaries to generate a competitive advantage. So it is nec- make the alliance a strategic success. And be- essary to dramatically improve their odds of cause the managers usually remain under the success. HR policies and follow the career development Why do alliances fail so often? The prime paths of their parent organization, they have culprit is the way they are traditionally orga- little incentive to commit much energy to the nized and managed. Most alliances are defined project. by service level agreements (SLAs) that iden- With this dynamic in place, it’s easy to see Do tify what each side commits to delivering why most alliances deliver disappointing per- rather than what each hopes to gain from the formance. But the problems can be remedied if partnership. The SLAs emphasize operational companies switch their focus from operations performance metrics rather than strategic ob- and contractual obligations to strategy and jectives, and all too often those metrics be- commitment. In the following pages we show come outdated as the business environment how the balanced scorecard (BSC) manage- changes. Alliance managers don’t know ment system helps companies create better whether to stick to the original conditions or alignment with their alliance partners. Draw- harvard business review january–february 2010 page 2 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  Managing Alliances with the Balanced Scorecard t ing on the experience of two strategic partners, mittee provided oversight, set milestones, and os Solvay Pharmaceuticals and Quintiles, we monitored progress. demonstrate how applications of BSC tech- The initial five-year contract worked well. niques can clarify strategy, drive behavioral But when it came up for renewal in 2006, both change, and provide a governance system for companies thought that they could generate strategy execution. even more value if they could upgrade their partnership to a true alliance. An integrated rP Anatomy of a Strategic Alliance development platform—leveraging each com- Solvay, a top-40 pharmaceutical company, de- pany’s respective strengths—would provide velops leading neuroscience, cardio-meta- opportunities for gains in productivity, effi- bolic, influenza vaccine, and pancreatic en- ciency, and development speed above and be- zyme products. Headquartered in Brussels, it yond traditional outsourcing. Both parties employs 10,000 people worldwide. were also willing to share development costs A research-driven organization, Solvay has for certain Solvay products, thus increasing formidable competencies in the drug discovery Solvay’s development capacity and sending yo process. But the average cost of bringing new more work to Quintiles, which generated more drugs to market has escalated to more than $1 opportunities for milestone payments, should billion per successful compound, making it successful outcomes be achieved. harder for Solvay to capitalize on its research The alliance’s proponents had to overcome skills. Clinical trials require access to patients, concerns within Solvay about loss of control as physicians, and health care organizations, more of its in-house activities got outsourced. areas where Solvay has less of an advantage. Senior executives of the two companies had to Historically, it had selected clinical trials sup- endorse and commit to the alliance strategy, op pliers through a competitive bidding process which included sharing profits and risks. The for each new compound. In 2000, Solvay’s companies knew they would have to change R&D unit worked with 50 different suppliers. the way they worked together. Armed with It’s no wonder executives believed that Solvay knowledge gathered from the McKinsey study could be more efficient and achieve better re- and others about the likely shortfalls in alli- sults if it could outsource the management of ance outcomes, executives identified the fol- tC all clinical trial work to a single partner. lowing problems that had to be overcome: Solvay began the transition to this model by focusing more on the contractual terms choosing Quintiles, one of its existing suppli- of the alliance than on a joint strategy; ers, to perform all stages of the trial process. spending more time and effort selling the Based in North Carolina and employing alliance internally than managing its strategy; 23,000 people in more than 50 countries, concentrating more on controlling the al- Quintiles has helped develop or commercialize liance and extracting returns than on remov- all of the 30 best-selling pharmaceutical prod- ing barriers to the successful execution of the No ucts and nine of the top 10 biologics (medical strategy. products created by biological processes). In The executives believed that a management 2001 the two companies moved from a transac- system based on the tools of the balanced score- tional relationship to a preferred partnership. card, which both companies already used inter- Under the terms of the agreement, Solvay con- nally, would help address those issues. From solidated a significant number of its out- past experience with the system, both sides felt sourced projects under Quintiles in return for that jointly drawing up a balanced scorecard Robert S. Kaplan ([email protected]) reductions in Quintiles’s normal prices. The and a strategy map would promote consensus is the Baker Foundation Professor at two companies formed a joint clinical team for on and alignment with the goals of the alliance. Do Harvard Business School. David P. each compound in order to manage strategic The scorecard and strategy map would also Norton (dnorton@thepalladiumgroup and operational aspects of conducting clinical serve as a framework for a governance system to.com) is a founder and a director of trials. They also formed functional teams, monitor progress toward goals and create incen- Palladium Group, Inc. in Lincoln, Massa- staffed by employees from both firms, to im- tives for both parties to achieve them. chusetts. Bjarne Rugelsjoen (bjarne@ prove the major processes in the drug develop- rugelsjoen.no) is a director at GoalFocus, ment cycle, such as procurement of clinical Building the Alliance Scorecard a performance-coaching consultancy supplies and alignment of finance and human A seven-person joint steering committee (JSC) based in London. resources practices. A joint development com- oversaw the creation of the map and scorecard harvard business review january–february 2010 page 3 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  Managing Alliances with the Balanced Scorecard t and, subsequently, led the governance process. nership. The Quintiles alliance manager os Chaired by Solvay’s head of R&D, the commit- observed, “There are still pockets of people not tee included Solvay’s head of clinical research, working strategically within the alliance. We its CFO, the president of Quintiles’s clinical de- need to help them understand that this alli- velopment group, and its executive vice presi- ance is different from a traditional, transac- dent of corporate development. Two “alliance tion-driven, customer-vendor model.” managers,” one from each company but agreed After a series of workshops and interviews rP on by both, rounded out the team. The alliance with each JSC member, the project team iden- managers were responsible for driving the im- tified the alliance’s strategic objectives. Follow- plementation of the strategic objectives set by ing BSC practice, it sorted those objectives into the JSC. They oversaw projects, developed man- five strategic themes: agement structures, implemented perfor- Living the alliance: Ensure that we have the mance management tools, and served as the right culture (including trust), communica- primary communication contacts for alliance tion, leadership, people development, IT, and participants. rewards and recognition. yo The JSC appointed a project team consisting Collaboration: Create the transparency we of the two alliance managers and employees desire and make the best use of resources and from both organizations’ strategic planning, services across organizations and third parties. project management, and corporate communi- Speed and process innovation: Do things cations departments. An external consultant right; leverage our global expertise; and im- provided an objective perspective and helped prove the start-up and management of studies negotiate agreement on joint goals. Team to achieve breakthrough results. members conducted one-on-one interviews Growth: Create the right portfolio of new op with key executives, asking questions such as, products; collaborate on decisions to develop “How can we create shareholder value for both compounds; improve investment manage- companies?,” “How do we create differentia- ment; and accelerate the flow of compounds tion in the marketplace?,” and “What issues into the clinical development phase. and current problem areas should we ad- Value for both: Create value for both orga- dress?” The discussions uncovered some nega- nizations by jointly driving all these activities. tC tive aspects of the companies’ five-year part- The project team next worked with the JSC and the employees who would be involved in the alliance to draw a complete strategy map that showed how the objectives embedded in Teams and Committees these various themes would collectively deliver value. In the exhibit “The Alliance Strategy Here are the teams and committees that keep the Solvay-Quintiles alliance on track. Map,” the map is broken down into four areas Joint Steering Committee (1) (or perspectives, in BSC parlance) that show No Governs the alliance, provides leadership, and defines strategy how the objectives for the employees and orga- nizations feed into the objectives for business Joint Development Committee (1) processes, which satisfy the needs of the alli- Provides oversight, sets milestones, and monitors progress on clinical trials ance’s customers. Fulfilling customer expecta- tions, in turn, creates value for the alliance’s Project Team (1) stakeholders. These four perspectives corre- Facilitates creation of alliance strategy map, strategic objectives, and scorecard spond closely to those on a conventional map of measures and targets or scorecard, except here, the stakeholder per- spective replaces the financial one. Theme Teams (5) Do Three of the themes contain strategic objec- Align functional and clinical team efforts with each theme’s cross-functional tives that cross multiple BSC perspectives. The objectives speed and process innovation theme, for exam- Clinical Teams (1 per compound) ple, includes objectives in the business-process, Manage strategic and operational aspects of conducting clinical trials customer, and stakeholder perspectives. Two themes exist in only one of the four perspec- Functional Teams (many) tives. To further clarify joint expectations, the Improve the major processes in the drug development cycle project team placed the expected “wins” for harvard business review january–february 2010 page 4 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  Managing Alliances with the Balanced Scorecard t Wins for Solvay Pharmaceuticals os The Alliance Compounds to market; maximized value of portfolio Wins for Quintiles Strategy Map Expanded revenue base; milestone payments A strategy map brings together all of a company’s strategic objectives to illus- Value for Both rP trate causal linkages. It allows manag- ers to see how attaining objectives at, STAKEHOLDER Dramatically Create shareholder Increase value OUTCOMES improve clinical value for both from innovative say, the employee level helps the firm development organizations approaches to achieve business-process, customer, efficiency by bringing a clinical development and, ultimately, financial objectives. significant number The chart to the right presents the of commercially viable compounds strategy map created by Brussels-based WHICH to market Solvay Pharmaceuticals and North DRIVES yo Carolina–based Quintiles, a biopharma- Patients Investigators ceutical services firm, to manage execu- I want access Involve me in the tion of their alliance strategy. It identi- CUSTOMER to effective alliance to bring VALUE Payers medications that fies the five strategic themes of the Offer me drugs innovative drugs treat my illness. to patients. partnership and shows how achieving at a fair price. them would translate into real value for Prescribers both companies. To reach consensus on Regulators I want safer and more op joint objectives, measures, targets, and Fulfill my regulatory effective drugs. initiatives, participants engaged in can- requirements so I can approve safe and effective drugs. did dialogue, which helped to increase THAT trust and improve collaboration. DELIVER We have coded the strategic themes Speed and Process Growth to make it clear how each one relates to Innovation the various strategic perspectives. Improve protocol development Accelerate flow of tC Some themes reside only in one per- compounds spective; others span multiple perspec- Reduce time between patient testing and release of statistical report Improve investment tives. The project team regularly updates Adopt new trial methodolgies management each objective to signal what has been BUSINESS achieved and which performance issues PROCESSES Compress time from site identification Make joint go/no-go need executives’ attention. to patient enrollment decisions No The chart reads from the bottom up. Collaboration Develop Manage Leverage Use third transparent resources the services parties cost drivers to ensure best in existing to deliver EXECUTE use of talent organizations excellence Living the Alliance Do Ensure trust Execute the Align Implement at all levels strategy with incentives comprehensive visionary to focus IT strategy leadership employees to increase EMPLOYEES & on alliance speed and ORGANIZATION strategy collaboration Values Put patients first. Focus on science and innovation. Communicate. Trust. Respect. Support. Commit. Make a difference. harvard business review january–february 2010 page 5 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  Managing Alliances with the Balanced Scorecard t each company next to each objective. These map and the five theme scorecards in hand, os served as helpful reference points when the the alliance managers could then determine companies negotiated targets. the personal objectives of and rewards for each The process of reaching consensus on the of the more than 500 employees involved in themes, the objectives within each theme, and the alliance. Each company, of course, had its the overall strategy map created buy-in and un- own incentive and reward system. But now the derstanding among all participants. Alliance performance metrics for employees in the alli- rP employees engaged in candid dialogue during ance were aligned with those identified in the joint working sessions about the potential ben- map and scorecards. efits for each company. Having such frank con- The functional teams used the map and versations was the first step toward achieving scorecards to identify best practices and to re- greater transparency and establishing trust. design key business processes. All the joint clin- Next, the functional teams (which already ical teams then implemented the improved existed under the preferred partnership ar- processes in the trials for their compounds. rangement) put together scorecards for the five Finally, the alliance managers, with help from yo themes, specifying metrics, targets, and initia- both companies’ internal communications de- tives for each objective. (The scorecard for one partments, led a major push to promote the theme is shown in the exhibit “The Collabora- message to alliance employees. Ambassadors tion Theme Scorecard.”) With the complete used such tools as laminated strategy maps, The Collaboration Theme 1 234 op Collaboration Scorecard PROCESS OBJECTIVE Develop Manage Leverage Use third Once you have sorted your strategic objec- transparent resources the services parties tives into themes and mapped them, you cost drivers to ensure best in existing to deliver need to create metrics that enable you to use of talent organizations excellence track your progress on the objectives in each JOINT WINS tC theme. You also need to select initiatives that will drive improvement in the scorecard Create a develop- Put the right people Increase probability Increase probability ment plan that in the jobs they of success by of success by en- metrics. ensures commercial are best suited for, improving access to gaging key external viability and regu- reducing the need diverse information stakeholders latory approval for oversight and expertise Leverage oppor- tunities outside the alliance METRICS No Quality and risk Skills and capability Viability risk score % Stakeholder assessment score index (experts’ assess- coverage: key of development ment of viability: stakeholders plan % Duplicated scientific, commer- (investigators, activities (% of cial, regulatory, and regulators, patients, Trust and trans- activities in value market access) health agencies, parency survey chain unnecessarily and so on) involved score carried out at Net present value of in the process both Solvay and compound Quintiles) Loyalty index INITIATIVES Do Create a new Establish a resource Design a new Promote early development plan management expert-led end- engagement with process program to-end challenge stakeholder process process Map the value chain Map RACI (respon- sible/accountable/ consulted/ informed) overlap harvard business review january–february 2010 page 6 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  Managing Alliances with the Balanced Scorecard t video presentations by company executives and The Solvay-Quintiles joint steering commit- os alliance leaders, and even an alliance game to tee meets quarterly to discuss the alliance’s make sure all stakeholders understood the mis- progress. With input from the theme, func- sion and the goals of the partnership. The am- tional, and joint clinical teams, the JSC moni- bassadors followed up with periodic newsletters tors achievements, addresses emerging rela- and e-mails touting progress made on the five tionship issues, reallocates resources, and strategic themes. makes decisions on any unresolved issues. It rP serves, in effect, as a court of final appeal over Establishing the Governance disagreements about what projects should or Structure should not be carried out by the alliance. Although drawing up the map and scorecard The theme team meetings and JSC reviews got the two companies and alliance employees help the two companies resolve problems that, on the same page, participants recognized if left unchecked, would undermine the collab- that they needed a governance process to con- oration required by the alliance. For instance, tinually monitor the partnership and to keep the theme teams realized that security systems yo it on track. The alliance managers asked five and firewalls blocked employees of one com- senior executives to become “theme leaders”; pany from accessing information stored inside each would be accountable for one theme’s the other. Because all sides had agreed that in- objectives and would oversee related cross- formation sharing was a strategic priority, the functional initiatives. JSC felt empowered to work with the IT func- The executives were supported by theme tions in each company to overcome their resis- teams, employees who worked to ensure that tance to giving alliance employees access to the functional and joint clinical teams contrib- Quintiles’s operational dashboards. Now mem- op uted to the theme’s cross-functional objectives. bers of the alliance can easily monitor the For example, the speed and process innovation progress of clinical trials. team held regular meetings to stimulate ideas on improving and accelerating clinical trials The Payoff and to share those suggestions with the func- The new approach has yielded impressive re- tional and joint clinical teams. The theme sults. The alliance reduced total cycle time for tC teams also solicited suggestions from the func- clinical studies by approximately 40%, an tional and joint clinical teams on ways to achievement that brings new products to mar- achieve the theme’s strategic objectives. ket much faster and leads to tremendous cost Theme team members presented the most reductions. Three global registration pro- promising initiatives to the joint steering com- grams were completed from 2003 to 2007, a mittee. When proposals were approved, the much faster rate than the companies had pre- theme teams then monitored their execution viously achieved. In addition, one functional by the functional and joint clinical teams. team developed a new way to manage nonper- No forming sites (those recruiting inadequate numbers of patients). That led to the alliance halving the number of nonperforming sites For Further Reading and saving €25,000 to € 35,000 per site (a study can have 20 to 150 sites). Moreover, the teams More than a decade ago, Robert Kaplan and David Norton introduced the balanced felt that the shared understanding of joint ob- scorecard (BSC), which has transformed companies by helping top executives set jectives on the strategy map empowered them corporate strategy and translate it into objectives, measures, and targets that the en- to make strategic and scientific decisions tire workforce understands. much earlier in a clinical program’s design— To learn more, consult the following articles, which are available at www.hbr.org: Do saving time and money and, more important, “Putting the Balanced Scorecard to Work” (HBR September–October 1993) keeping everyone’s focus on delivering the al- liance strategy. “Having Trouble with Your Strategy? Then Map It” (HBR September 2000) Members of the joint steering committee ac- “How to Implement a New Strategy Without Disrupting Your knowledge that building the alliance strategy Organization” (HBR March 2006) map and theme scorecards required more time than any map or scorecard built within their “Mastering the Management System” (HBR January 2008) own companies. The process required aligning harvard business review january–february 2010 page 7 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  Managing Alliances with the Balanced Scorecard t two organizations with entirely different busi- ness, service, and availability up and down the os ness models and cultures—one is a research- supply chain. What’s more, it has identified driven pharmaceutical company, the other an $150 million in new revenue opportunities. operationally oriented services company. Yet the JSC is so pleased with the benefits of the For cross-entity collaboration to yield the new management system that it is replicating highest rewards, the partners must first agree the process with several key customer groups, on strategy and then design metrics to deter- rP medical specialists in the world’s leading aca- mine how well the strategy is being imple- demic medical centers, and payer organiza- mented. They must communicate a common tions. vision and offer incentives that motivate em- We’ve described in detail the Solvay-Quin- ployees to improve collaboration and deliver tiles experience of using balanced scorecard results. They also need a process that allows techniques to create alliance value. But this ex- them to talk candidly about difficulties, resolve perience is not unique. Infosys, the Indian IT disputes, share information, and continually services provider, has built more than two adapt the strategy to evolving external condi- yo dozen “relationship scorecards” with custom- tions as well as to newly created internal capa- ers and uses these in quarterly meetings with bilities. The balanced scorecard management executives in its client organizations (see A. system provides a framework for partners to Martinez, “Infosys’s Relationship Scorecard: work collaboratively and productively to Transformational Partnerships,” HBS Case 109- achieve benefits that neither could accomplish 006). LagasseSweet, a $1 billion wholesaler in on its own. the building services industry, also collaborates with its leading trading partners—manufactur- Reprint R1001J op ers and distributors—to produce scorecards to To order, see the next page measure performance. As a result it has saved or call 800-988-0886 or 617-783-7500 millions of dollars and improved responsive- or go to www.hbr.org tC No Do harvard business review january–february 2010 page 8 This document is authorized for educator review use only by anna brattström, Lund University until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860