The notion that companies must create incentives that motivate their employees to achieve the company's strategic goals applies to mutual fund as much as any other company, the developer of the popular management theory says.
"Business is business and an effective organization is an effective organization," says David P. Norton, whose theory of the "Balanced Scorecard," was explained in the best-selling book, "Translating Strategy Into Action: The Balanced Scorecard," published in 1996. Norton was the book's co-author.
Norton, president of Renaissance Worldwide Strategy Group, a management consulting firm based in Lincoln, Mass., said the theory applied to the mutual fund industry as well as others in a talk at the East Coast regional meeting of the National Investment Company Service Association last month.
Every organization has a strategy for success, but less than 10 percent of the plans are effectively executed, said Norton. This is usually the case because executives have not effectively communicated the strategies to middle managers and other employees. On top of this, management has judged employees' performance using criteria which do not motivate employees to pursue the chosen strategies.
"The problem isn't the strategy, it's the execution," said Norton. "It's having an organization that can implement, move quickly and adapt. It's knowing how to create a culture that allows an organization to go from ideas at the top and get 10,000 people to execute." Research suggests that ninety percent of executives, 50 percent of middle managers, but only 5 percent of the line work force are aware of their organization's strategic goals, Norton says. It also indicates that 85 percent of management teams spend less than one hour per month discussing strategy; 60 percent of organizations do not link budgets to strategy and only 25 percent of managers have incentives linked to strategy.
"No one has told the workers what's important," said Norton. "They only realize what's important by what you're measuring, and if you're not measuring it, they think it's not important. You start with the strategy and the measures become the way to describe strategies."
The first step a company should take to correct this problem is to identify factors that are important to its success -- for example, increasing employee productivity. It should then take steps to ensure that what is measured are qualities such as response time, effort spent in problem-solving, flexibility in ability to cross sell and awareness of customers, Norton said.