2.2 Employee’s Strategic Alignment
2.2.3 The Principles of the SFO Model
The strategy-focused organisation allows organisations to build a management system that manages strategy. Strategy means interacting so that everyone can learn the plan for success.
Focused means navigation in the organisation to align strategy, and organisation means mobilising all employees to perform in various ways that will come together across the business.
The Balanced Scorecard provides a framework to look at strategy from four perspectives;
Financial, Customer, Internal Business Processes, and Learning and Growth. It gives managers the proper information to make crucial decisions that affect everyone in the company (Kaplan
& Norton, 2001c).
Kaplan & Norton (2001c, p. 149) present five principles for strategy-focused organisations (Figure 2), namely: "translate the Strategy to operational terms, align the organisation to the
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strategy, make strategy everyone's everyday job, make strategy a continual process and mobilise leadership for change". Make strategy everyone's job contains strategic awareness, personnel BSC and a balanced paycheck. Managers know they cannot execute strategies alone, but they need support from everyone. This third principle needs the employees to understand the strategy and align their day-to-day activities to support the success of that strategy; this manner is called top-bottom communication. The BSC allows the personnel objectives to be aligned with the organisation's objectives. Instead of cascading objectives through a chain of command, it includes communicating the entire strategy to employees and setting objectives for the personnel (Kaplan & Norton, 2001c).
Simbolon (2018) researched the application of the strategic model as a "performance management system" in the governmental organisation in Indonesia. The research covers three main themes: first, reviewing the quality of BSC implementation in organisations by adopting the strategy-focused organisation (SFO) model; second, defining the degree to which organisational factors impact the BSC implementation; finally, examining how the BSC affect employee behaviour and organisational performance. By designing and then distributing a questionnaire to 1675 employees in public organisations in Indonesia, results revealed that first, the five principles of the SFO model related to each other. SFO's principles are strategy translation and alignment; the strategy is like everyone's job related to organisational commitment, while strategy is a continuous process, and leadership top management support has a positive significance.
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FIGURE 2SFO MODEL (SOURCE:(KAPLAN &NORTON,2001C, P.9)
2.2.3.1 Principle One: Translate Strategy into Operational Term
The strategy-focused organisation needs the strategy to be placed at the organisation's core. If the employees do not sufficiently comprehend the strategy, it will not be fully implemented and cannot be understood if it is not described (Kaplan & Norton, 2001c). Hence, it is vital to transfer strategy into operational form and create a framework that links intangible and tangible assets. In order to achieve this link, a strategy map was suggested as a tool to facilitate sighting this link. The strategy map clarifies the processes for converting intangible assets into tangible customers or stakeholders and financial outcomes, providing managers with an outline for
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unfolding and managing strategy in a knowledge economy. A strategy map is referred to as a
"logical and comprehensive architecture for describing strategy" (Kaplan & Norton, 2001a). In their BSC model, Kaplan & Norton (2006) created a strategy map that shows the high level of the organisation's objectives and how it is interconnected through the four BSC aspects.
Nevertheless, once the managers create the high-level strategy map, they must align the entire organisation with the strategy through cascading strategy maps to several organisational units, such as departments and individuals (Kaplan & Norton, 2006). These generate a mutual and clear base point for all organisational, functional, and employees (Kaplan & Norton, 2001c).
Figure (3) provides an example of the strategy map.
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FIGURE 3STRATEGYMAP(SOURCE:(KAPLAN &NORTON,2001A, P.92)
2.2.3.2 Principle Two: Align the Organisation to the Strategy
This principle concerns the corporate and business unit alignment. The strategy-focused organisation requires more than providing each business unit with a balanced scorecard to manage strategy. It necessitates aligning and linking the business units to create synergies
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through the interaction between the various business units. Accordingly, a corporate scorecard should help the individual business units to operate within a corporate structure rather than working as independent units. This principle can also be applied when several business units have a shared service unit. An example has shared human resource units to manage human resource activities within several business units (Kaplan & Norton, (2001b); Kaplan & Norton, (2001c)).
The SFO construct was built upon acknowledged strategic management theories and frameworks. For instance, the alignment of the organisation strategy discussed in the SFO construct was built upon Alfred Chandler's strategic point of view; Chandler defined how competitive advantage could be realised by leveraging synergy among the business units. In addition to other researchers' work, such as Goold, Alexander, Campbell and Collis and Montgomery, the latter introduced the resource-based view of alignment that discuss the benefits of aligning the organisation's resources to achieve competitive advantage (Schulte, 2005).
2.2.3.3 Principle Three: Make Strategy Everyone’s Everyday Job
Previously, aligning employees to the organisation's strategy was unnecessary; employees needed less knowledge about the organisation's strategy. Nonetheless, recently, with replacing the old-fashioned and obsolete type of work and transitioning into knowledge-based work, employees' understanding of their organisation strategy has been of great importance.
According to Kaplan & Norton (2001c), several critical factors need great attention to alignment; for example, employee compensation does not guarantee commitment to organisational goals. Not all employees are equally significant to the organisation; in some
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cases, organisations might neglect employees who are in direct contact with clients, and service receivers might be neglected from training and rewards. In a strategic focus organisation, employees are key players in implementing strategy. Therefore, these organisations utilise three distinct aspects to achieve employee alignment. The three aspects are "creating strategic awareness, defining personal and team objectives, and linking incentives and compensation to the Balanced Scorecard". These three aspects are the focus of this thesis and are going to be examined in further detail.
Based on Schulte (2005), making a strategy for everyone's job is consistent with the work of Frederick Taylor and Carla O'Dell and C. J. Grayson on knowledge management strategies.
Accordingly, SFO is expected to leverage the organisation's performance and achieves competitive advantage by aligning employees' efforts and knowledge with the organisation's strategic goals and objectives. This principle is also aligned with the management by objectives (MBO) principle by Peter Drucker (Rahman, et al., 2020).
2.2.3.4 Principle Four: Make Strategy a Continual Process
There is a discontinuity between how organisations manage strategy and operation; however, strategy-focused organisations use a "double-loop" process by creating a framework that integrates budget, operation, and strategy management (Kaplan & Norton, 2001c).
The fourth principle is aligned with emerging strategies principles developed by Henry Mintzberg, as described by Schulte (2005, p. 512), "in addition, SFOs identify and support emerging strategies by challenging assumptions about the theory of the organisation by adapting to new strategic directions that have emerged from the organisation".
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2.2.3.5 Principle Five: Mobilise Change through Executive Leadership Implementing
Formulating a new strategy can be easy; nevertheless, implementing the new strategy is challenging. Organisations that execute new strategies require a wide range of changes. (Kaplan
& Norton, 2001c) describe this change by transformation to distinguish it from routinely continuous improvement. The leaders of SFO lead transformation on large scales; the challenge of the change is related to the scale of the transformation.
2.2.4 Employee Strategic Alignment Dimensions (Make Strategy Everyone’s Everyday