People Innovation Excellence

LINKING STRATEGY AND INNOVATION (Part 2)

Oleh Hendry Hartono, S.E., M.M., Erwin Halim, SPt., M.M., Yohannes Kurniawan, S.Kom., S.E., MMSI. dan Yerki Teguh Basuki

4. Discussion and Implication

Why using balance scorecard? A strategy-based balanced scorecard system involves the collaborative development of a firm’s “Story of the Strategy” and identifies the connection between creative capacity, efficient product development processes, improved customer and stakeholder value, and financial outcomes. The balanced scorecard uses four strategic perspectives, shown in Figure 1, above– complementary but distinct lenses for looking at organizational strategy and performance. The use of perspectives allows the organization to build a model of how the “intangible” factors – creativity, talent, new ideas, and collaborative interaction with customers – interact with the more “tangible” factors – well defined processes, funds invested, sales results – to create an innovative, sustainable organization that can adapt resiliently to change.

  1. Financial Perspective: In a business, owners, investors and analysts view the organization as a financial system that provides return on investment. In a non-profit, donors see the benefit to others from their support of the organization’s mission. In government, taxpayers and their representatives see value for money spent on the public good.
  2. Customer Perspective: In a business, customers see the business’ products and services as a way to satisfy needs and desires at an appropriate price, and stakeholders may act as advocates for other issues, such as the environment and the community. Non-profit and government agencies work within a complex network of impacted clients and stakeholders, any or all of whom may exercise influence on the organization’s funding or license to operate.
  3. Internal Perspective: The activities at which the organization must excel in order to provide value for customers, stakeholders, and ultimately, those who foot the bill. Internal management and staff (including contractors, volunteers and others) work to improve business processes to efficiently turn resources into outputs (products and services) that will satisfy customer and client needs. In the case of innovation, effective processes include the procedures for evaluating new ideas, testing them, funding them for further development, or discarding them – the “perspiration”.
  4. Learning and Growth Perspective: The foundation of the other perspectives – the physical infrastructure, culture, tools and technology, knowledge and skills, and information systems required to create, plan, design, and deliver products and services to customers and stakeholders. Organizational capacity is a mix of tangible (people, tools, systems, structures) and intangible assets (ideas, culture) that allow the “inspiration” to bloom.

Innovation becomes strategic when it is fully integrated into the fabric of the organizational planning and management process. Organizations typically have several strategic themes or focus areas, such as: Operational Excellence, Sustainability, or Strategic Partnering. Innovation can be a strategic theme, as well. As a theme, Innovation can be viewed through each of the four perspectives of the balanced scorecard (Kaplan and Norton, 2001), for example:

  1. From a financial perspective, innovation means the organization is continuing to provide value – expressed in financial terms – for owners, donors, or taxpayers, depending on the type of organization.
  2. From a customer perspective, innovation means developing and deploying new products, services, or business models that create increased value for customers or clients, and address the concerns of other stakeholders.
  3. From an internal perspective, innovation means creating and managing a well-understood process for evaluating, fostering, and deploying promising ideas.
  4. From a learning and growth perspective, innovation requires a blend of leadership and culture, skills, and organizational structures that allow new ideas to be generated.

These are implication for managers: First, as managers can develop a better understanding about the relationship between strategy and innovation. When this synergy is achieved, innovation become more reliable to execute, or understanding this relationship make managers get the right track to get innovation performance more likely.

Second, we have related question that managers would be asked, is it possible to manage strategy that drive innovation? In the internal of organization, most of them facing internal company issues such as lack of resources, lack of market intelligence, unsuitable corporate culture. Tidd and Bessant (2009) argue that managers will have better understanding that an essential feature of corporate strategy should therefore be an innovation strategy with considerable uncertainty about present and future developments in technology, competitive threats and market demands.

5. Conclusions

In a strategy-based balanced scorecard system, measures are a means, not an end. Meaningful, strategically important measures can only be developed once strategic objectives have been developed and linked together on the strategy map. And, understanding what measures are truly strategic will help you to identify and prioritize organizational initiatives that will drive your innovation performance and firm performance. Lawson and Samson (2001) indicate a positive relationship between innovation performance and firm performance. Each strategic objective is supported by one or more measures. As you can see, the company is tracking a mix of tangible and intangible indicators that tell it if the culture is becoming more innovative, how many new ideas are moving through the development process, how customers feel about the new products, and how much return there is on the investment in new products. And, initiatives have been identified to improve performance on these objectives.

In this paper, shown how innovation can be addressed as a strategic theme, part of a balanced scorecard that includes the other themes that matter to the organization as well. For organizations in which innovation is critical to fulfilling the mission and achieving the vision, this is a powerful approach. When the theme maps are merged, the organization is assured that innovation is fully embedded into an overall business strategy.


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