EMPLOYEES & ORGANIZATION BUSINESS PROCESSES CUSTOMER VALUE

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Week 6 DQ/.Human_Resource_Outsourcing_Lo (1).pdf

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Human Resource Outsourcing: Long Term Operating Performance Effects From The Provider’s Perspective Butler, Maureen G;Callahan, Carolyn M;Smith, Rodney E Journal of Applied Business Research; Sep/Oct 2010; 26, 5; ProQuest Central pg. 77

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Week 6 DQ/Managing alliances with the balanced scorecard.pdf

Managing Alliances with the Balanced Scorecard Fifty percent of corporate alliances fail. But you can increase your partnership’s odds of success by applying these techniques. by Robert S. Kaplan, David P. Norton, and Bjarne Rugelsjoen

Robert S. Kaplan (rkaplan@hbs.edu) is the Baker Foundation Professor at Harvard Business School.

David P. Norton (dnorton@ thepalladiumgroup.com) is the founder and presi- dent of the Balanced Scorecard Collaborative, Palladium Group, in Lincoln, Massachusetts.

Bjarne Rugelsjoen (bjarne@rugelsjoen.no) is a director at GoalFocus, a performance-coaching consultancy based in London.

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C orporate alliances are a 50/50 bet—at least ac-cording to a recent study by McKinsey & Company, which found that only half of all joint ventures yield returns to each partner above the cost of capital. That’s worrying, given that partnerships and alliances are central to many companies’ business models. Originally used to outsource noncore parts of supply chains, alliances today are expected to generate a competitive advantage. So it is necessary to dramati- cally improve their odds of success.

Why do alliances fail so often? The prime cul- prit is the way they are traditionally organized and managed. Most alliances are defi ned by service level agreements (SLAs) that identify what each side com- mits to delivering rather than what each hopes to gain from the partnership. The SLAs emphasize op- erational performance metrics rather than strategic objectives, and all too often those metrics become outdated as the business environment changes. Al- liance managers don’t know whether to stick to the original conditions or renegotiate. By that time, the companies’ leaders have returned to run their own organizations and haven’t followed up to ensure that their vision for synergies is being realized. The mid- dle managers coordinating the alliance, who have no clear way to translate their leaders’ vision into action, simply focus on achieving the operational SLA targets instead of working across organizational boundaries to make the alliance a strategic success. ILL

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Regulators Fulfi ll my regulatory requirements so I can approve safe and eff ective drugs.

Prescribers I want safer and more eff ective drugs.

Investigators Involve me in the alliance to bring innovative drugs to patients.

Payers Off er me drugs at a fair price.

Patients I want access to eff ective medications that treat my illness.

A strategy map brings together all of a company’s strategic objectives to illustrate causal linkages. It allows managers to see how attaining objectives at, say, the employee level helps the fi rm achieve business-process, customer, and, ultimately, fi nancial objectives.

The chart to the right presents the strategy map created by Brussels- based Solvay Pharmaceuticals and North Carolina-based Quintiles, a biopharmaceutical services fi rm, to manage execution of their alliance strategy. It identifi es the fi ve strategic themes of the partnership and shows how achieving them would translate into real value for both companies. To reach consensus on joint objectives, measures, targets, and initiatives, participants engaged in candid dialogue, which helped to increase trust and improve collaboration.

We have color coded the strategic themes to make it clear how each one relates to the various strategic perspectives. Some themes reside only in one perspective; others span multiple perspectives.

The project team regularly updates the map with traffi c lights (red, yellow, green) adjacent to each objective to signal what has been achieved and which performance issues need executives’ attention.

The chart reads from the bottom up.

The Alliance Strategy Map

Wins for Solvay Pharmaceuticals Compounds to market; maximized value of portfolio Wins for Quintiles Expanded revenue base; milestone payments

EMPLOYEES & ORGANIZATION

BUSINESS PROCESSES

CUSTOMER VALUE

STAKEHOLDER OUTCOMES

Value for Both

Speed and Process Innovation

Growth

Collaboration

Living the Alliance

Improve protocol development

Reduce time between patient testing and release of statistical report

Adopt new trial methodolgies

Compress time from site identifi cation to patient enrollment

Accelerate fl ow of compounds

Improve investment management

Make joint go/no-go decisions

Develop transparent cost drivers

Manage resources to ensure best use of talent

Leverage the services in existing organizations

Use third parties to deliver excellence

Ensure trust at all levels

Execute the strategy with visionary leadership

Align incentives to focus employees on alliance strategy

Implement comprehensive IT strategy to increase speed and collaboration

Dramatically improve clinical development effi ciency

Create shareholder value for both organizations by bringing a signifi cant number of commercially viable compounds to market

Increase value from innovative approaches to clinical development

EXECUTE

THAT DELIVER

WHICH DRIVES

Values Put patients fi rst. Focus on science and innovation. Communicate. Trust. Respect. Support. Commit. Make a diff erence.

MANAGING ALLIANCES WITH THE BALANCED SCORECARD

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Idea in Brief

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.

An alliance usually gets defi ned 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 system can help companies switch their alliance management focus from contributions and operations to strategy and commitment.

Solvay Pharmaceuticals and Quintiles used the balanced scorecard tool kit to manage their alliance and together reduced the total cycle time in clinical studies by 40%.

And because the managers usually remain under the HR policies and follow the career development paths of their parent organization, they have little incen- tive to commit much energy to the project.

With this dynamic in place, it’s easy to see why most alliances deliver disappointing performance. But the problems can be remedied if companies switch their focus from operations and contractual obligations to strategy and commitment. In the fol- lowing pages we show how the balanced scorecard (BSC) management system helps companies cre- ate better alignment with their alliance partners. Drawing on the experience of two strategic partners, Solvay Pharmaceuticals and Quintiles, we demon- strate how applications of BSC techniques can clarify strategy, drive behavioral change, and provide a gov- ernance system for strategy execution.

Anatomy of a Strategic Alliance Solvay, a top-40 pharmaceutical company, develops leading neuroscience, cardio-metabolic, infl uenza vaccine, and pancreatic enzyme products. Head- quartered in Brussels, it employs 10,000 people worldwide.

A research-driven organization, Solvay has for- midable competencies in the drug discovery process. But the average cost of bringing new drugs to market has escalated to more than $1 billion per successful compound, making it harder for Solvay to capitalize on its research skills. Clinical trials require access to patients, physicians, and health care organizations, areas where Solvay has less of an advantage. Histori- cally, it had selected clinical trials suppliers through a competitive bidding process for each new compound. In 2000, Solvay’s R&D unit worked with 50 diff erent suppliers. It’s no wonder executives believed that Solvay could be more efficient and achieve better results if it could outsource the management of all clinical trial work to a single partner.

Solvay began the transition to this model by choosing Quintiles, one of its existing suppliers, to perform all stages of the trial process. Based in North Carolina and employing 23,000 people in more than 50 countries, Quintiles has helped develop or com- mercialize all of the 30 best-selling pharmaceutical products and nine of the top 10 biologics (medical products created by biological processes). In 2001 the two companies moved from a transactional rela- tionship to a preferred partnership. Under the terms of the agreement, Solvay consolidated a signifi cant number of its outsourced projects under Quintiles in return for reductions in Quintiles’s normal prices. The two companies formed a joint clinical team for each compound in order to manage strategic and op- erational aspects of conducting clinical trials. They also formed functional teams, staff ed by employees from both fi rms, to improve the major processes in the drug development cycle, such as procurement of clinical supplies and alignment of finance and human resources practices. A joint development committee provided oversight, set milestones, and monitored progress.

The initial five-year contract worked well. But when it came up for renewal in 2006, both compa- nies thought that they could generate even more value if they could upgrade their partnership to a true alliance. An integrated development platform— leveraging each company’s respective strengths— would provide opportunities for gains in productivity, efficiency, and development speed above and beyond traditional outsourcing. Both parties were also willing to share development costs for certain Solvay products, thus increasing Solvay’s develop- ment capacity and sending more work to Quintiles, which generated more opportunities for milestone payments, should successful outcomes be achieved.

The alliance’s proponents had to overcome con- cerns within Solvay about loss of control as more

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• focusing more on the contractual terms of the alli- ance than on a joint strategy;

• spending more time and eff ort selling the alliance internally than managing its strategy;

• concentrating more on controlling the alliance and extracting returns than on removing barriers to the successful execution of the strategy.

The executives believed that a management system based on the tools of the balanced score- card, which both companies already used internally, would help address those issues. From past expe- rience with the system, both sides felt that jointly drawing up a balanced scorecard and a strategy map would promote consensus on and alignment with the goals of the alliance. The scorecard and strategy map would also serve as a framework for a gover- nance system to monitor progress toward goals and create incentives for both parties to achieve them.

Building the Alliance Scorecard A seven-person joint steering committee (JSC) oversaw the creation of the map and scorecard and, subsequently, led the governance process. Chaired by Solvay’s head of R&D, the committee included Solvay’s head of clinical research, its CFO, the presi- dent of Quintiles’s clinical development group, and its executive vice president of corporate develop- ment. Two “alliance managers,” one from each com- pany but agreed on by both, rounded out the team. The alliance managers were responsible for driving the implementation of the strategic objectives set by the JSC. They oversaw projects, developed man- agement structures, implemented performance management tools, and served as the primary com- munication contacts for alliance participants.

The JSC appointed a project team consisting of the two alliance managers and employees from both or- ganizations’ strategic planning, project management, and corporate communications departments. An ex- ternal consultant provided an objective perspective and helped negotiate agreement on joint goals. Team members conducted one-on-one interviews with key executives, asking questions such as, “How can we create shareholder value for both companies?,” “How do we create diff erentiation in the marketplace?,” and

“What issues and current problem areas should we address?” The discussions uncovered some negative aspects of the companies’ fi ve-year partnership. The Quintiles alliance manager observed, “There are still pockets of people not working strategically within the alliance. We need to help them understand that this

of its in-house activities got outsourced. Senior ex- ecutives of the two companies had to endorse and commit to the alliance strategy, which included sharing profi ts and risks. The companies knew they would have to change the way they worked together. Armed with knowledge gathered from the McKinsey study and others about the likely shortfalls in alli- ance outcomes, executives identifi ed the following problems that had to be overcome:

Once you have sorted your strategic objectives into themes and mapped them, you need to create metrics that enable you to track your progress on the objectives in each theme. You also need to select initiatives that will drive improvement in the scorecard metrics.

The Collaboration Theme Scorecard

PROCESS OBJECTIVE

Develop transparent cost drivers

Manage resources to ensure best use of talent

Leverage the services in existing organizations

Use third parties to deliver excellence

JOINT WINS

Create a develop- ment plan that ensures commercial viability and regu- latory approval

Put the right people in the jobs they are best suited for, reducing the need for oversight

Increase probability of success by improving access to diverse information and expertise

Increase probability of success by en- gaging key external stake holders

Leverage oppor- tunities outside the alliance

METRICS

Quality and risk assessment score of development plan

Trust and trans- parency survey score

Skills and capability index

% Duplicated activities (% of activities in value chain unnecessarily carried out at both Solvay and Quintiles)

Viability risk score (experts’ assess- ment of viability: scientifi c, commer- cial, regulatory, and market access)

Net present value of compound

Loyalty index

% Stakeholder coverage: key stakeholders (investigators, regulators, patients, health agencies, and so on) involved in the process

INITIATIVES

Create a new development plan process

Establish a resource management program

Map the value chain

Map RACI (respon- sible/accountable/ consulted/ informed) overlap

Design a new expert-led end- to-end challenge process

Promote early engagement with stakeholder process

Collaboration

 

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