MBA Company Project
Enhancing Strategy Execution in the case of
Undersecretariat for Defence Industries (SSM) in TURKEY
Author: Mustafa ÖZÇELİK Student Number: 10891951
AUGUST 2015
Supervised by: Prof. Dr. Hans STRIKWERDA Submission Date: 31.08.2015
2/55 Abstract
In this thesis, the Balanced Scorecard and Strategy Map concepts are examined with the aim of implementing a strategic management approach effectively in the Undersecretariat for Defence Industries (SSM) in order to meet the demands for a change in the business world of the 21st century.
In the first chapter, strategy execution process, strategic planning, performance measurement, importance of intangible assets, balanced scorecard and strategy map issues are discussed in order to provide a theoretical framework for the thesis.
In the second chapter, the case is introduced with statement of the problem and statement of the underlying logic of defence acquisition. Moreover, balanced scorecard as a strategic management tool and strategy map as a tool to make a cause and effect relationship between strategic objectives are being introduced.
In the third chapter, strategic readiness (including human capital, information capital and organizational capital of SSM) is analysed with regard to surveys and interviews conducted within the organization. In addition to this, strategic objectives and initiatives according to related objectives are revised. Meanwhile, finally, the 2012-2016 strategic plan has been evaluated in the light of balanced scorecard method and a strategy map has been developed for the new strategic objectives and goals.
Keywords: Strategy, strategic performance management, strategic readiness, balanced scorecard, performance indicators, alignment and strategy map.
3/55 Contents
Abstract ... 2
I. Introduction and Research Question ... 4
II. Strategy Execution ... 7
A. Strategic Planning ... 7
B. Importance of Performance Measurement ... 9
C. Importance of Intangible Assets ... 9
D. Balanced Scorecard ... 10
E. Strategy Map ... 16
F. BSC for Public Sector Organizations ... 18
III. Case Description ... 20
A. Nature of Defence Acquisition ... 20
B. Strategy Execution at SSM ... 21
C. Budgeting Process at SSM and BSC ... 24
D. Problem Statement ... 25
E. Methodology ... 26
IV. Results... 28
A. Determining BSC Perspectives ... 28
B. Determining Objectives, Indicators and Initiatives... 28
C. Preparing Strategy Map for SSM ... 37
V. Recommendations and Conclusion ... 44
References ... 48
4/55 I. Introduction and Research Question
There is a rapid change around firms and a tendency to a service and a knowledge economy rather than product driven economy with regard to last century.
Two dominant models, centralized by function and decentralized by product and region, shaped the business strategies in the last century. With the rapid change in technology, competition intensified in the last quarter of the twentieth century and problems related with those models arose and companies started to find new ways to organize themselves to create corporate value (Kaplan & Norton, 2006).
With the fact that, competition is not just in the product specifications and production capabilities but also in understanding underlying customer needs and providing a unique value to the customers, organizations find themselves in need of change towards the demands of knowledge economy.
Since knowledge is seen as a part of being competitive, this new type of business environment emphasises the importance of development and exploitation of knowledge within the company. Moreover, the way to enhance knowledge within an organization is investing in intangible assets.
Intangible assets play a larger role in value creation as do tangible assets. Therefore, firms prioritize investments in intangible assets. Moreover, intangible assets are seen as the way to facilitate internal business process that is key in order to deliver on the value proposition of customers and satisfy shareholder expectations on achieving organization`s objectives that creates sustainable value for the company (Kaplan & Norton, 1996).
As the source of sustainable value within an organization, intangible assets can be grouped as: 1. Human capital
2. Databases and information systems 3. Responsive, high quality processes 4. Customer relationships and brands 5. Innovation capabilities
6. Culture and leadership
Kaplan and Norton launched Balanced Scorecard (BSC) methodology during 1990s with the aim of a new performance management system that enables intangible assets to be managed and to contribute to corporate level strategy. From a political context, BSC is introduced with
5/55 the aim of improving the competitiveness of US-economy and maintaining US hegemony in the world (Strikwerda, 2014). BSC is based on quantifying intangible assets. It offers a framework to describe strategies for creating value for both tangible and intangible assets by forming a cause and effect relationship between the objectives in the four perspectives, these are: Financial, Customer, Internal Process, and Learning and Growth. (Kaplan & Norton 2004). The way to form a cause and effect relationship between the strategic objectives is using Strategy map. Performance indicators of an organization can be prepared based on strategy map that assures that the performance indicators lead to measure effectivity of strategy execution. Unlike traditional performance measurement systems that are based on keeping individuals and organizational units in compliance with pre-set plan, balanced scorecard is used for aligning individual, organizational and cross-departmental initiatives to achieve a common goal. From this perspective it is a new management control system, replacing the old budget-driven system with its limitations. Furthermore, it is a communication, information and learning system and performance indicators are input for learning and adapting process of an organization in addition to show the position of the company. To achieve this aim, the performance measures should reflect organization`s long term strategy obviously. (Kaplan & Norton, 1996)
Another important concept for a company is strategic readiness that shows the status of intangible assets to support the organization`s strategy. When the components of the learning and growth perspective; human, information and organizational capital are aligned with the strategy, it means that company has a high degree of strategic readiness: it has the ability to mobilize and sustain the process of change required to execute its strategy. (Kaplan & Norton 2004)
In terms of strategic readiness, alignment is another critical issue. An organization is aligned when all employees have a common goal, a shared vision, and an understanding of how their personal objectives link with the corporate strategy, an aligned organization encourages proactive behaviours such as innovation and risk taking because individuals’ actions are directed toward achieving strategic objectives. Enhancing communication environment and setting personal and business unit objectives aligned to the strategy and establishing incentives that reward employees when they achieve personal, departmental or corporate goals are key elements of alignment. (Kaplan & Norton 2004)
6/55 As a strategic institution of Turkey, SSM faces with a change according to the requirements of knowledge economy. With the aim of enhancing both tangible and intangible assets, 2012-2016 Strategic Plan was launched in 2011. Although Strategic Plan enabled SSM to talk about vision, mission and strategic goals, survey and interview results has showed that SSM has still problems within some fundamental areas in strategy execution like strategy awareness, leadership, strategic alignment, knowledge sharing and retention rates. The research question for this thesis is how the strategy execution can be enhanced within the Undersecretariat for Defence Industries in TURKEY. The theoretical frameworks are expected to shed a light into the problems of SSM related with strategy execution.
7/55 II. Strategy Execution
In order to know how to achieve its mission, every organization needs to develop a strategy. In other words, strategy is a way to define how an organization create a sustainable value for its stakeholders (Kaplan & Norton, 2004).
Determining the right strategy itself is not adequate for an organization. In their book “The Strategy Focused Organization”, Kaplan and Norton state that 70% of organizations fail not because of bad strategies, just because of bad execution. In order to execute the strategy as needed; strategy, operations and budget should be linked. Managers should be forced to ask what kind of changes and operations are needed to execute the strategy and what kind of resources will be required to drive the operational changes (Kaplan & Norton, 2008). In addition to this, a well-defined, understandable strategic plan and a strategic performance measurement system are the key tools of strategy execution.
A. Strategic Planning
Strategic planning defined by Robert Anthony as
“the process of deciding upon objectives, on changes in these objectives, on the resources used to achieve these objectives and on the policies that are to govern the acquisition, use and disposition of these resources.”
Strategic planning is starting with setting mission, vision and values of an organization (see Appendix I). While mission is a statement about the existence reason of the organization, vision is the way to define long term goals (up to ten years) and try to view itself from the point of external factors in the future. Furthermore, strategy is about making mission and vision operational and defining how to achieve mission and vision (Kaplan & Norton, 2004).
From Micheal Porter’s point of view, strategy is not only what the organization wants to achieve but also what it decides not to do. Hence, strategy is about choice. Organizations can’t meet the expectations of whole possible customers. Strategy determines which customers has decided to serve and the value proposition that it will offer to attract those customers (Kaplan, 2010). To put in a nutshell, as stated in the saying, “Be careful what you wish for; you might get it.” Hence, determining the strategy is so critical for every organization.
Next step is executing the strategy.
8/55 “sufficient time and resources available as required; objectives understanding and complete agreement; continuity and competence of decision makers; perfect monitoring and best value; and positive, transparent, robust and objective performance evaluation.”
Not only what is measured but also how the measurements are used lies behind the organizational success. Compensation, alignment of all units with a common strategy, communication and education, setting personal objectives, linking strategy, planning, resource allocation and budgeting, setting targets, enhancing information systems, conducting management meetings to promote testing, learning and adaptation and senior leadership's use of measurement determines organizational success.
According to Kaplan and Norton, there should be a basic Office of Strategy Management (OSM) which is directly associated with CEO in order to successfully execute the strategy and should have the responsibilities as follows:
Create and manage the scorecard
Any changes made at the annual strategy-planning meetings should be translated into company's strategy map and Balanced Scorecard.
Align the organization
A company can execute its strategy only if it aligns with the strategies of business units Review strategy
85 % of executive leadership teams spend less than one hour per month for discussing their business strategy.
Develop strategy
Performance measures give information about the validity of the assumptions behind company's strategy. If the assumptions are wrong, they should be updated if necessity.
Communicate strategy
One of the most effective way of communicating strategy is informing each employee by CEO about the strategy. In addition to this, OSM should contact with HR about education of scorecard and its role included in employee training.
9/55 Initiatives should be separated from daily operations and executed by designated department. OSM should only intervene when an initiative falls behind schedule, is over budget, or is not achieving its goals. OSM should monitor the progress of strategic initiatives and report them to high-level managers.
Integrate strategic priorities with other support functions
OSM should play key role for human resource alignment and knowledge management. This processes must be part of overall resource allocation processes.
B. Importance of Performance Measurement As a prominent British scientist, Lord Kelvin said:
"I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but you can’t measure it, when you can’t express it in numbers, your knowledge is of a meager and unsatisfactory kind.
If you can’t measure it, you can’t improve it."
The aim of the performance management is allowing people to recognize performance; seeing results clearly and fuelling performance. All the authors and organizations are on the same point about the existence of performance measurement system. On the other hand, not all the performance measurement systems are meeting the expectations. In a public survey, 58 % of executives believe that their current performance management approach drives neither employee engagement nor high performance. They are in need of something focused on enhancing performance in the future rather than evaluating it in the past (Buckingham & Goodall). Carter contributes this by defining “tin opener” approach which focus on addressing underlying problems rather than questioning why goals and target are not being met. Measures are only benefits to management where they are regarded as indicators that will provide signal for further investigation (Mackie, 2008).
Benefits of performance measurement are improved organizational performance, better decision-making, better stakeholder communication, and better relations with both customers and employees (Mackie, 2008).
10/55 Intangible assets can account for 80% of an organization's value in today's knowledge economy (Kaplan & Norton, 2006).
Although managers are aware of the vital importance of intangibles, their alignment and management is one of the difficult points in their strategic performance management initiatives (Marr, 2006). According to OECD, the definition of intangible assets is “something that is not a physical asset or a financial asset, and that is capable of being owned or controlled for use in commercial activities”. It shows the difficulty in alignment of intangible assets. Then the next question is how to manage and create value something that is difficult to align with the strategy of an organization.
Value from intangible assets is indirect, assets such as knowledge, culture and leadership rarely have a direct effect on financial goals. Improvements in intangible assets affect objectives of the organization through chains of cause-effect relationship (Kaplan, 2010). Enhancing and aligning intangible assets leads to improved process performance, which, in turn, drives success for customers and shareholders (Kaplan & Norton, 2004).
Furthermore, value from intangible assets depends on organizational context and strategy (Kaplan, 2010). Intangible assets create more value when they are aligned with each other, with the organization’s tangible assets and with the strategy (Kaplan & Norton, 2004).
Kaplan and Norton addressed the question of creating value from intangible assets and proposed a solution by launching Balanced Scorecard (BSC) method during 1990s. BSC enables companies to;
Describe intangible assets
Align and integrate intangible assets to the strategy Measure their alignment
Next section, BSC method will be examined from a broad perspective.
D. Balanced Scorecard
Balanced Scorecard is a management tool for describing, communicating and implementing strategy and balancing and managing the tensions among it in terms of economic, environmental and social value (Kaplan, 2010).
11/55 The Balanced Scorecard recognizes the limitation to financial targets alone in short-time horizons when managers are following a long-term strategy of enhancing the capabilities of their stakeholder relationships, operating and innovation processes, human resources, information resources, and organizational culture (Kaplan,2010). It is the fact that, due to the role of intangible assets, the value of the firm is based on future cash flows. Hence, BSC emphasizes non-financial parameters as management information.
BSC has four main dimensions: Financial Perspective
Financial perspective is the final goal for profit-maximizing organizations. It is the indicator of whether the strategy execution benefits to bottom line. The fundamental aim for the financial performance is maximizing profit that can be achieved by either spending less or selling more. According to Kaplan and Norton, financial strategy has two dimensions; productivity improvements and growth. Whereas growth strategy is in the long-term part, productivity improvement is the part of short-term decisions. Strategy map and BSC let organizations to balance this tension.
Customer Perspective
Customer perspective is the lead indicator for financial performance since cash flow is generated through the customer value proposition. The way to achieve desired financial goals is customer satisfaction. Product/service attributes, relationship and image are key parameters for customer satisfaction (Kaplan & Norton, 2004).
First step of this perspective is determining customer segment as target. According to this segmentation decision, value proposition should be built. Value proposition includes what the organization offers to its targeted customers in terms of product, price, quality, service, relationship and image (Kaplan & Norton, 2004).
Furthermore, according to strategy map perspective, customer value proposition is the starting point for processes.
Internal Perspective
After determining customer segmentation and value proposition, next step is having related internal processes for customer value proposition. Internal processes are also key for reducing costs and improving productivity to achieve financial goals. Hence, internal perspective is lead
12/55 indicator of both customer and financial perspectives. According to this perspective, processes are prior to structure. In their book “Strategy Maps”, Kaplan and Norton organize organization’s internal processes to be organized across departments in order to have a best use of knowledge and information, and group them into four items;
Operations management processes
It is about daily business issues about delivering a products or services. Many companies see operational excellence as the key for success. While operational excellence is not the only way to achieve sustainable business, without it, companies will have a difficulties in strategy execution.
Customer management processes
It is about enhancing value that is proposed to customers. Innovation processes
It is about launching something new for organization or market. Regulatory and social processes
It is about improving communities and the environment and complying with standards. Deciding in which internal processes terms to excel with is depends on the organization’s strategic choices. It is also worth to note that compared to most authors on process management, Kaplan & Norton defined processes as accountable entities in the planning system, with a budget/business case, performance metrics and targets.
Learning and Growth Perspective
The objectives in this perspective determine which investments in jobs/skills (the human capital), which investments in information capital, and which investments in organization, processes, systems and infrastructure are needed to execute the processes and to deliver the customer value proposition (Kaplan &Norton 2004).
It enables corporations to create corporate value from activities related to human capital development (recruiting, training, and leadership development activities) and to knowledge management (IT-based systems for capturing, storing, and communicating knowledge and best practices throughout diverse organizational units.) (Kaplan & Norton, 2006)
As Kaplan and Norton stated the weakest link in a strategy map and Balanced Scorecard is the learning and growth perspective. It is seen as "the black hole of the Balanced Scorecard". While some companies had some generic indicators for this perspective like employee satisfaction,
13/55 retention rate and lateness, none had a link between their employee capabilities and strategy before Balanced Scorecard methodology. Norton proposed the concepts of strategic human capital readiness and strategic job families and linkages to information capital and organizational capital (Kaplan, 2004).
Another objective of learning and growth perspective is identifying best practices in the organization (or outside the organization) and to disseminate the best practice to other business units (Kaplan & Norton, 2004).
A research done by Kaplan & Norton showed that, on average, 95 % of a company's employees are unaware of, or do not understand, its strategy (Kaplan & Norton, 2005). According to Bower, managers fail to translate the strategy in the systemic context to facilitate new behaviour. On the other side of the coin, executives who achieved breakthrough performance by using balanced scorecard referred two words: alignment and focus. Although each organization achieves strategic alignment and focus in different ways, Kaplan & Norton first propose that each organization uses a common set of five principles called as principles of strategy focused organization that also transforms Balanced Scorecard from a performance measurement system to an interactive management system for strategy execution as follows (Kaplan & Norton, 2001):
Translate the Strategy to Operational Terms
To create a common understanding across units and employees, organizations translate their strategy into tactical level objectives via strategy map and balanced scorecard.
Align the Organization to the Strategy
Every unit in an organization has duties specific to itself so it has own strategy. One of main barrier for implementing strategy is related with lack of communication and coordination across the units. Strategies of the units must be linked and integrated in order to form a synergy at the organizational level.
Make Strategy Everyone's Everyday Job
A research published by Harvard Business Review showed that 59 % employees are believed that there is a difference between who form the strategy and who execute the strategy. Moreover, only one-third of them say that strategy creation is part of everyone's job.
14/55 Implementing new strategy can’t be done by executive leaders by themselves. In order to understand and implement the strategy into their day-to-day business, everyone in the organization should contribute with their ideas or actions.
McKevitt and Lawton stated that performance measurement will fail if there is no participative environment that promotes ownership at all levels of the organization.
The way to achieve this is using balanced scorecard to communicate and educate the organization about the new strategy. Balanced scorecard methodology lets employees to link their personal objectives to high-level strategic objectives (Kaplan & Norton, 2001).
Moreover, this methodology provides top-down communication rather than top-down direction. This encourages employees to be more innovative to find new ways to achieve their objectives.
Make Strategy a Continual Process
Research into practices of the best team leaders shows that they conduct regular check-ins with each team member about near-term work. During this meetings, both people understand and explore their strengths using a self-assessment tool. The underlying idea behind this is that people's strengths generate their highest performance today and the greatest improvements in their performance tomorrow (Buckingham, 2015).
BSC integrates the management of tactics with the management of strategy by using three important processes (Kaplan & Norton, 2001):
o Linking Strategy to the budgeting process o Conducting simple management meetings
o Providing a process of learning and adapting the strategy
This is the shift from linear thinking to three levels of parallel thinking and acting. Mobilize Leadership for Change
Active participation of executive level managers are critical for the success of implementation of strategy. Otherwise, change never occurs, strategy can’t be implemented so breakthrough performance can’t be expected from the organization.
Kotter describes process for leading change by the steps as follows: o Establishing a sense of urgency
15/55 o Creating a vision
o Communicating the vision
o Empowering others to act on the vision o Planning for and creating short-term wins
o Consolidating improvements and producing still more change o Institutionalizing new approaches
According to Katter (1982), since the middle managers have their fingers on the pulse of operations, they can conceive, suggest, and set in motion new ideas that high-level managers do not have an idea. Hence, they have a critical role in strategy execution. The common characteristics of successful middle managers in terms of innovation and change are described as;
Comfort with change Clarity of direction Thoroughness
Participative management style
Persuasiveness, persistence and discretion
Kaplan and Norton enhanced their five principles of strategy focused organization and transformed it into comprehensive six stage closed-loop management system that links strategic planning with operational execution as follows (see Appendix II):
1. Develop the Strategy 2. Translate the Strategy 3. Align the Organization 4. Plan Operations 5. Monitor and Learn
6. Test and Adapt the Strategy
Executive managers should periodically review the performance of the initiatives and test each one's underlying assumptions. Corporate strategy and strategic themes are just hypotheses about value creation. By translating the hypotheses of a strategic theme into linked objectives and measures, executives can test the strategy and casual relationships.
In their book “Breaking the Code of Change”, Beer and Nohria state that the key is sequencing creating economic value which is planned and programmatic, and developing organization’s
16/55 human capability which is less planned and programmatic correctly at different points in the change cycle. Systemic change can be driven from the front line. The CEO is in the driver seat but it is the engine, wheels and transmissions that need to act together to do the job.
E. Strategy Map
Strategy map is a visual representation of strategy. It provides a single-page view of how objectives stated in perspectives integrate and combine to describe the strategy (Kaplan & Norton, 2004). It enables managers to pinpoint the specific human, information and organization capital to support internal processes that leads to achieve customer satisfaction and financial goals by defining and communicating the cause-effect relationships between the objectives. (Kaplan & Norton, 2004).
Strategy map bridges strategy formulation and strategy execution.
In their book “Strategy Maps” Kaplan and Norton states that strategy map has some principles (see Appendix III):
Strategy balances contradictory factors
Long term and short term objectives usually contradicts like investing on intangible assets and achieving financial performance expectations. Starting point of strategy map is balancing short term and long term objectives.
Strategy is based on differentiated customer value proposition
In order to have a sustainable business, customers should be satisfied. The way to satisfy customers is proposing differentiated value to them. Those differentiated value propositions are; price, functional use, technical quality, image, accessibility, delivery, choice method, service etc.
Value is created through internal business processes
Effective and aligned internal processes is key to obtain sustainable value creation. Organizations should determine and focus on critical internal processes that creates more value than others. According to Kaplan and Norton, these internal processes, called as strategic themes, are;
o Operations Management o Customer Management o Innovation
o Regulatory and Social
17/55 Each strategic theme mentioned above are deliver benefits at different time. They should be balanced and be seen as a bundle.
Strategic alignment determines the value of intangible assets
Learning and growth perspective consists of intangible assets those are classified as: o Human Capital (Employees’ skills, talent, and knowledge)
The way to align human capital to strategy is using strategic job families techniques (Kaplan & Norton, 2004). Each organization has some processes that create more value than other ones. Organizations should focus on these processes and to enhance them they need to define strategic jobs and identify competencies.
o Information Capital (Databases, information systems, networks, and technology infrastructure)
Bridging information capital and strategy can be done by using strategic IT portfolio technique (Kaplan & Norton, 2004). Specific IT systems and infrastructure should be implemented for strategic processes and they should have a priority in terms of funding.
On the other side, Kaplan & Norton ignore Venkatraman’s Business IT alignment paradigm, since information capital not only be aligned, but also be prepared and capable of supporting new business models (Strikwerda, 2014). o Organizational Capital
The way to align organization capital and strategy is defining organization change agenda. In order to develop new culture and climate, an agenda of cultural change should be derived from strategy. Organization capital has four components (Kaplan & Norton, 2004):
Culture
Awareness and internalization of the mission, vision, and values Leadership
Availability of capable leaders that leads change according to strategy Alignment
Linking individual and team goals with strategic objectives of the organization
Teamwork
Sharing knowledge that have a potential to add value within the organization
18/55 There should be a strong alignment between strategy and intangible assets. If all three components of this perspective are aligned with the strategy that means organization has an organizational readiness. Indicators of organization readiness are:
o Alignment between the human capital capabilities in strategic job families and strategic themes.
o Meeting human capital requirements by means of IT infrastructure and strategic IT applications that is having access to all information, one database, plug & play environment for applications (agility), semantic data standardization for transactions.
o Having a culture, leadership, alignment and teamwork to lead changes in the organization.
F. BSC for Public Sector Organizations
For the public sector, their success is based on their effectiveness in providing benefits to constituents (Kaplan, 2010). Furthermore, final goal for public sector organizations are achieving their mission. (see Appendix IV)
Since the final goal for public sector organizations is providing benefits to constituents and customers rather than achieving financial targets, customer perspective precedes financial perspective in the public sector (Kettunen, 2005). Hence, many public sector organizations rearrange the geography of their Balanced Scorecard to place customer perspective at the top (Kaplan,2001).
To put in a nutshell, BSC is a strategic management system that is useful for both profit and non-profit organizations. It provides a solution to the changing nature of the organization and of strategy (Strikwerda, 2014). On the other hand, there are some limitations in the BSC system. According to Strikwerda, Kaplan and Norton’s management system may be discussed against:
Organization of information
Strategy map concept suggests that information capital should be aligned with strategy. However, information capital planning needs to go further the existing strategy of the firm, it must facilitate new strategies and business models.
Organizational capital, especially the role of the systemic context Kaplan and Norton are not clear on systemic context.
19/55 New insights into strategy conceptualization
A close loop management system is not sufficient. Planning and monitoring should have multiple levels at the same time like operational, structural and PESTLE level.
20/55 III. Case Description
A. Nature of Defence Acquisition
Defence acquisition defined by Venelin Georgiev as process of defence products’ life cycle management starting from determination of requirements, through research and development, purchasing, use in operations, exploitation and maintenance, to disposal. According to Elisabeth Wright important elements of the defence acquisition process are sourcing, cost, logistics, innovation and technologies.
The mission of defence acquisition is providing significant value to the improvements of armed forces' military capabilities by efficient allocation of defence resources, investments in modern and innovative armaments, and effective management of their life cycle (Georgiev, 2010). Defence projects are extremely costly so they consume great amount of public sources. Transparency and accountability are so important in defence acquisition because of the size of investment. In an environment with extremely limited resources, the question of effective defence acquisition becomes increasingly important (Georgiev, 2010). Moreover, defence is also a risky business since developing and introducing into service an equipment takes long time. Reducing project and life costs, having better timescales and meeting performance requirements are the key expectations on the procurement side (McGuffog, 2011)
Venelin Georgiev defined the characteristics of defence acquisition policy development as follows:
Improving the efficiency of defence management and forming capabilities for further improvement of the military management system
Realizing the process of defence modernization in an efficient and effective way by implementing innovative investment projects in order to guarantee the appropriate conditions for implementing defence missions and goals
Supporting a standard level of quality for defence products within their life cycle and optimizing process of disposal of unnecessary armaments, machines and infrastructures Broaden the scope of innovative activity as an instrument for efficient defence
transformation
Implementing national and international technical and technological experience in the process of enhancement of defence capabilities.
21/55 By its complex nature, there might be some specific defence acquisition strategies such as (Georgiev, 2010);
Life Cycle Management Policy R&D Policy
Project Management Policy Risk Management Policy Defence Industrial Policy
B. Strategy Execution at SSM
SSM is the procurement authority that is established with the aim of meeting system requirements of Turkish Military Forces. Having more than 500 employees, SSM is a project organization. Moreover, it has a horizontal hierarchy with the focus of being expert on defence acquisition. Undersecretary, Deputy Undersecretary, Head of Departments are top-level managers (totally 26 person), whereas project/business unit managers are mid-level managers. Executing about 356 projects having more than 30 billion US dollars budget, SSM has a critical role in terms of defence acquisition and industrialization of Turkey.
First strategic plan (2007-2011) of SSM which was the one of the pioneers among the governmental organizations was launched in 2006. It provided top-level managers to talk about common goals of SSM and form an awareness within the organization. SSM started to make a financial analysis of the defence industry according to strategic plan.
With the vision of making Turkey superior in defence and security technologies and with the mission of management of industrialization, technology and procurement programs that assures the continuous improvement of Turkey’s defence capabilities, SSM launched its second strategic plan (2012-2016) in 2011 with a more professional approach.
During preparing the strategic plan, Balanced Scorecard method was used. In addition to this, both internal (SWOT, PEST, interviews with employees and top-level managers) and external (stakeholder interviews) analysis made in order to took a picture of Undersecretariat and Turkish Defence Industry.
Strategic priorities stated in the strategic plan (2012-2016) are; Sustainability of the Defence Industry
22/55 Achieving Maturity in Program Management
Developing Technological Competence
Employees Who Create Value and Receive Recognition Corporate values are;
National defence industry is our priority
We strive to create value added for national security
We search for a balance between performance, budgets, schedules and industrialization
We are aware that teamwork and collaboration are vital for success Continuous improvement is the pillar of our approach
SSM represents the leadership for change and progress
Strategic Themes and Objectives defined in the strategic plan (2012-2016) are; Theme-1: Being the Architecture of Sustainable and Competitive Defence Industry Related Objectives:
Developing measures to increase the effectiveness of the defence and security sectors. Increasing the local procurement ratio via creating supply chains spread over tiers. Ensuring the private sector’s active role in the whole life cycle, extending from product
design to manufacturing and logistics support.
Promoting and supporting the increase of defence and aeronautics exports.
Theme-2: Gaining competence in defence and security technologies that will prepare Turkish Armed Forces for future combat environments
Related Objectives:
Implementing indigenous development projects for platforms and systems that bring about technological superiority
Creating the technology base urged by the defence industry by means of systemizing technology development activities
Planning and developing test & certification infrastructure to support design and development activities.
Theme-3: Achieving maturity in program management practice aimed at stakeholder satisfaction
23/55 Related Objectives:
Institutionalizing the program management methodology
Enhancing the contribution of SSM and the industry to the management of future defence and security needs
Planning Defence Industry Support Fund (SSDF) to provide permanent financing for defence industrial strategies.
Theme-4: Being a strong organization with employees who create value and receive recognition Related Objectives:
Developing institutional knowledge and competence. Developing corporate identity and communication skills
Developing and institutionalizing human resources policies in order to increase employee motivation
Performance indicators are;
SS25 Defence Industry Efficiency Indicator SS25 Logistics Revenue
Supply Industry and SMEs revenue ratio in the D&A Revenue Export rate in the Defence & Aviation (D&A) Revenue
Total D&A Revenue
Total D&A Export Revenue
Implementation ratio of "Technology Acquisition Road Map" Amount of funds for Credit and Incentives
Readiness ratio of Standard Logistic Contract # of Projects having Airworthiness Certification Spendings for R&D in Contracts executed at SSM Total spendings for D&A done by SSM
Personel retention rate Spendings for training Training hours per employee
24/55 In order to achieve objectives, SSM started iniatives and projects with regards to strategic plan. There are montly and quarterly (with participation of mid-level managers) meetings to discuss about the initiatives and projects.
There are also two documents published annualy, “performance program document” and “business activities report” including the schedule and fund required/spent (budgeting process) for the initiatives and projects. From this point of view, strategy execution is seen as a part of budgeting process.
C. Budgeting Process at SSM and BSC
It hard to establish a link between strategy and resources in the traditional management systems. With the scarcity of supply and the excess of demands, it is significant for an organization to prioritize strategical objectives and planning resources with regards to this. However, long term strategic planning and annual budgeting processes are done separately and budgets are determined with regards to spending of previous year in the traditional management systems.
As a strategic management system, resource requirements are determined and budgeting decisions are made in parallel with BSC’s objectives, measures, targets and initiatives. Budget forecasting is done for each strategical objective with a top-down method and used as an input for annual budget. Prioritizing the strategic objectives during this process let the organization to think strategically. Budgeting process used for SSM as well can be seen in the Figure_1 below.
25/55 D. Problem Statement
As a service company, top-level managers at the SSM have a vision to transform it into a modern organization that can makes Turkey superior in defence and security technologies. They aware that there is a need for enhancing both tangible and intangible assets. The 2012-2016 Strategical Plan was launched by using balanced scorecard method for this aim.
In order to analyse the success of new strategical plan, SSM did some surveys (see Appendix V) showing that only 43% of the employees aware of the strategy and just 11% of the employees know the relation between the strategy and the job they do. Moreover, knowledge gained in a team is not shared with other teams. That means organizational readiness is low. According to survey results, weaknesses of SSM are determined as; leadership, performance management, rewarding, business processes, human-focus, career opportunities,
To contribute this result, when the objectives are analysed, there is no focus on the issues like; culture, awareness, alignment, teamwork, performance management. Furthermore, performance indicators are not cover whole strategic objectives that causes inefficiencies in the execution of strategy. The measurements are just evaluated annually within the budgeting process. The scorecard is not used effectively as a management system to motivate breakthrough competitive performance.
As stated by Undersecretary in the “Performance Program Document 2015”, strategic plan is seen as a tool for budgeting process.
During the interview with the ex-Undersecretary who lead the current strategic plan, two fundamental questions asked to him are;
What is the benefit of strategic plan?
What is the problems related with strategic plan?
He stated that strategic plan provided to see the whole picture of both the Undersecreteriat and Turkish Defence Industry. According to him;
Strategic plan increased the awareness and lead people to look from a point of strategic perspective.
The organization started to talk about strategy more.
It was the first step of internalizing strategic planning process and it lead to a standardization in processes.
26/55 It also lead SSM to communicate with the defence sector.
SSM started to track the objectives and initiatives.
On the other hand, he stated that it was the first step and there is a long way to go.
When the interviews are conducted with some of the top-level managers, the same questions were arised to them. The answers were; enhancing communication, talking about strategy, vision and mission, having long-term goals and enabling analysis of defence industry on the benefit side whereas lacking of feedback mechanism, lacking of awareness of employees on the problem side.
When the same questions arised to the employees with a survey done while preparing current strategic plan, %57 of them stated that they heard the terms of vision, mission and strategic objectives but did not understand them clearly.
When the external analysis are put on a table, it is realized that some of the stakeholder’s expectations like dual use, delivery on-time and delivery with expected performance were not in the objectives. Moreover, there is no focus on culture, awareness, alignment, teamwork, IT management, fair work-load and innovation in the objectives.
Moreover, initiatives are discussed during monthly strategic review meetings but since the objectives were not covered fully by the measures and initiatives, some of them were missed and never talked. That caused the strategy to fail.
When the issues mentioned above are thought; in order to make SSM’s strategy execution effective, managers have to decide what kind of initiatives can be done in order to enhance learning and growth perspective elements such as alignment, leadership, teamwork, performance management, career opportunities etc.
E. Methodology
To understand the problem, the current strategic plan and its execution process have been analysed. The surveys, workshops and interviews done while preparing existing strategic plan has been examined to understand the customer value and core competences needed to achieve those values. Interviews with different level managers (ex-undersecretariat, head of strategy department, head of human resources department, head of space projects, 5 project managers
27/55 from different fields) were made to understand the problem from their perspective. During the interviews, two fundamental questions asked to the managers are;
What is the benefit of current strategic plan?
What is the problems related with current strategic plan?
To solve the problem, all the stakeholder views are examined and translated into objectives. Then, a strategy map is prepared by using balanced scorecard methodology.
After putting strategic objectives into a strategy map, performance indicators and initiatives are prepared in order to implement and monitor these objectives. Performance indicators and initiatives are discussed with strategic planning team. However, targets and budgets needed for those objectives and initiatives are not included because of the time limitations.
Recommendations are made to transform understanding of balanced scorecard perspective from a traditional performance measurement system to a management system that creates a learning environment.
In addition to this, weekly meetings are conducted with the head of strategy department. All the results (strategy map, objectives, measures and initiatives) and the thesis are also shared and discussed with the head of strategy department. The first reaction to the thesis is that strategy department will update current strategic plan and will use this thesis as a guidebook.
28/55 IV. Results
A. Determining BSC Perspectives
SSM has a fund that is called Defence Industry Support Fund and the only financial goal for SSM is effective management of the fund. Since financial goals are not valid for SSM, there is no need to put it as a perspective in BSC. Instead of this, value creation for Turkey can be stated as a final goal since it is the existence reason of SSM. Financial performance is set as an objective in internal business perspective. BSC perspectives for SSM are as follows:
Value Creation Perspective Customer Perspective
Internal Business Perspective Learning and Growth Perspective
B. Determining Objectives, Indicators and Initiatives Value Creation Perspective
After examining interviews with stakeholders and top-level managers, the objectives that would create value for Defence Industry and so Turkey are determined as follows:
Growth in Export and International Cooperation
Almost all biggest projects were initiated in Turkey for a decade ago so defence industry can’t preserve its growth rate without export or international cooperation. Moreover, being in high-competitive world market may force defence industry firms to be innovative. SSM has contact offices around the world in order to bridge Turkish defence industry and the other countries. In addition to this, SSM can monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” to the firms doing more export and international agreements than others.
Sustainability of the Defence Industry
Minimizing the effects of defence firms to the environment and enhancing relationships between defence firms and suppliers are critical issues in terms of sustainability. SSM can monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” in this area. Enhancing Supply Industry
Specialization is a critical issue in the defence sector. The knowledge in the industry should be shared with the supply industry to let them specialize in critical
29/55 technological areas. SSM has an industrialization portal to form a database about the capabilities of supply industry firms and there are some obligations on the main contracts related with this issue. In addition to this, “Supply Industry Integration Principles” should be published in order to lead suppliers. SSM can also monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” in this area.
Developing Technological Competence
Since technology is the most important factor in defence products, developing technological competence is critical. For this aim, SSM has obligations on the main contracts for R&D efforts. Moreover, SSM publishes "Technology Acquisition Road Map” and "Technology Management Strategy" report in order to lead firms in terms of R&D. Know-How transfer agreements, clustering and technology development areas are other important tools in this area. SSM can also monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” in this area.
Increasing Employment
As a developing country, one of the main problems of Turkey is struggling with unemployment ratio. Increasing employment is one of the way to create value to the country. SSM can monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” in this area. Creating Competent Workforce
Competent human capital is the key element of developing critical technologies that let Turkish defence industry to gain competitive advantage. Encouraging researchers and organizing “New Ideas New Jobs” are the tools applied by SSM. SSM can monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” in this area.
Encouraging Dual Use
Another way of preserving growth ratio in the defence industry is using its capabilities in the non-military industry. SSM can monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” in this area.
30/55 Customer Perspective Objectives
Developing National Products and Competencies
In order to minimize the dependency of Turkish military forces to the other nations, Turkish industry should have a capability to develop national products and competencies. For this aim, SSM has an obligation with the name of Industry Participation and Offset on the main contracts. Moreover, SSM industrialization portal can be used to bring the capabilities of the industry in a portal. In addition to this, SSM can measure indigenous ratio within products and can monitor and encourage the firms by publishing “Defence Industry Analysis Report” and by giving “Defence Industry Awards” in this area.
Delivery On-Time
Delivering products on time is crucial to meet customer needs and satisfy them. SSM should measure project performances via a software.
Increasing Quality and Performance in Procurement
In addition to schedule, quality and the performance of the products are important for customer satisfaction. Compliance with international standards is also critical. SSM should measure project performances via a software.
Customer Satisfaction
Customer satisfaction is significant in order to maintain good relationships and to build trust between SSM and Turkish military forces. SSM should measure customer satisfaction ratio by conducting surveys with customers.
Cost-Effective Solutions
Whereas Turkish defence industry has ambitious goals, budget for the defence procurement is limited. Hence, industry should come with cost-effective solutions while meeting military needs. One way of minimizing the costs is using Commercial Off-The-Shelf (COTS) products that can be easily and cheaply procured.
Achieving Maturity in Performance Based Logistics
One of the goal of SSM is supporting Turkish military in terms of defence procurement from womb to tomb. In addition to requirement analysis, contract management, and product development and test, logistic support is the part of the life cycle of the products. SSM can monitor and encourage the firms by publishing “Defence Industry Analysis Report”, by giving “Defence Industry Awards” and
31/55 by putting logistic sections to the main contracts with regards to performance based logistics.
Enhancing Test and Certification Infrastructure
In order to have a high level standardization in the defence products, there should be testing and certification facilities according to needs. For this aim, there should be a database to combine all facilities and then additional facility needs can be determined via this database. Moreover, current facilities which are belongs to military should be put in use of defence industry firms.
Involvement of SSM and Industry to defining requirements
With developing national products and working with international partners both SSM and the defence industry gained a capability and know-how. This knowledge should be reflected while determining requirements of Turkish military forces. SSM may prepare “Technology Monitoring Reports” and “Feasibility Reports” and may organize “Requirements Management Platform” with the participation of experts from industry, universities and government.
Internal Business Perspective
Understanding Customer Needs
Having the knowledge of what the customer really wants and speaking with the same language with the customer are critical elements of project management. Both results with effectivity and efficiency. The signs for understanding the customer needs are spending time Request for Proposal (RFP) and contract performances like engineering changes, contract changes etc.
Achieving Life Cycle and Logistics Management Capability
As discussed in the customer perspective part, life cycle management and logistics management are important for product experiences of customers. For this aim, SSM should encourage both industry and customer to sign logistic support contracts.
Effective Fund Management
Not only strategic initiatives but also exporting, product development, R&D activities should be funded effectively in order to achieve strategic objectives. Launching credit mechanisms for product development and exporting may have a great effect on supporting R&D and product development activities. For
32/55 investing on strategic initiatives, SSM should have an effective budgeting process that enables SSM to determine its priority investments.
Tracking and Leading Defence Industry
You can only manage what you measure. In order to lead defence industry firms, analysis of defence industry in terms of finance, R&D activities, export activities, employment, revenue, logistic should be made. SSM can monitor and encourage the firms by publishing “Defence Industry Analysis Report”, “Sectoral Strategy Report” and by giving “Defence Industry Awards” in terms mentioned issues. Encouraging Innovation
Innovation is the lead parameter for both internal processes and cost-effective/high-performance product development, hence it support both customer perspective and value creation perspective objectives. When it comes to being innovative for internal processes, gathering and evaluating employee opinions via online platform may be a fruitful way of it.
Achieving Maturity in Project Program Management
Since the main objective of SSM is defence system acquisition for Turkish military forces, SSM must have a great knowledge in terms of project program management. For this aim, SSM may get a PRINCE2 certification on the corporate level since it the recommended project management approach in the public sector (OGC, 1996). For the employees who works directly project related jobs, having PMP certificate should be encouraged. Moreover, since Kaplan and Norton’s management system is a PPM system, it will also play a critical role in enhancing PPM capabilities within SSM.
Achieving Maturity in Internal Processes
Doing internal processes effectively and efficiently is the way to create corporate value. For this aim, SSM may get a Capability Maturity Model Integration (CMMI) certification that is a well-known process improvement training.
Learning and Growth Perspective
Recruiting and Training Talented Employees
Achieving strategical objectives can’t be done without required job and skills hence human capital is one of the most important elements of strategy execution.
33/55 In order to enhance human capital, HR department should be aligned with strategy in other words there should be a strategic human resource management. Recruitment, training, personal evaluation system, career development, being voice of employees are roles of strategic human resource management.
Employee satisfaction
Without motivated and trained employees, any strategy has no chance to be successful (Kaplan & Norton, 2005). Employee motivation is also a leading factor for low retention ratio, so then, keeping knowledge within the firm. In the today’s knowledge based economy, keeping knowledge within the firm may provide a competitive advantage frım the VRIO framework. Annual surveys should be done in order to measure employee satisfaction in SSM. Moreover, in order to increase employee satisfaction, human resource management department should play a critical role by conducting career plans and development and performance system. In addition to this, retention rate, another sign of employee satisfaction, should be measured.
Defining and Prioritizing Strategic Jobs
The art of strategy is to defıne and focus on the critical few processes that give more value to the customers. Those few strategic processes must receive special attention since they create the differentiation (Kaplan & Norton, 2004).
Every job in the organization should create value, otherwise it shouldn’t be exist. However, some jobs called as strategic jobs are create much more value to organization. Hence, organizations should define those jobs and prioritize them in the budgeting process. Moreover, workforce analysis should be done specifically for strategic jobs and employees who are contributing to strategic jobs should be trained well. For SSM, after conducting an interview with director of strategic human resource management unit, some strategic jobs are determined as stated in the Table_1. The underlying principle applied while determining strategic jobs is matching internal business processes and required jobs.
Crıtıcal Internal Processes Strategic Jobs
Understanding Customer Needs Requirement Management Contract Negotiation
34/55 Tracking and Leading Defence
Industry
Industrial Management
Research and Development Management Life Cycle and Logistics
Management
Life Cycle Management
Maturity in Program Management
Program and Project Management
Maturity in Internal Processes Quality Management
Effective Fund Management Financial Analysis Innovation Innovation Management
Table I Strategic Jobs Enhancing Career Opportunities
A survey done in 2014 shows that only 30 % of the employees are loyal to SSM and 39 % of the employees want to leave the organization. One of the main problem related to this loyalty issue is the career opportunities that is really limited. Since SSM has a horizontal hierarchy, there are limited top-level management position. Hence there should be some other career opportunities as well. Giving scholarship for international master programs and NATO College of Defence opportunity are good examples of it. In addition to those ones, SSM employees might be assigned to SSM contact offices around to world in order to broad their knowledge and enhance their capabilities.
Enhancing IT Infrastructure
SSM has an electronic document systems to monitor and decrease bureaucracy, it has also private cloud infrastructure to store documents related to projects. Although it has technological capabilities, it has some missing issues. Interviews show that top-level managers do not see IT department as strategic partner. For them, IT has a support function. In order to transform IT as a strategic partner, alignment between IT capabilities and strategic objectives should be increased. For this aim, COBIT framework should be implemented. In addition to this, to monitor and manage projects processes effectively, SSM launched Project Management and Information System (PYBS) a few years ago. Moreover, there
35/55 should be a Strategic Performance Management Software with the aim of scorecard reporting in order to get valid and timely data.
Leadership
According to employees, leadership is one of the fundamental problems within SSM. Survey done in 2014 shows that;
37 % of employees think that top managers do not take actions to achieve long-term vision
49 % of employees think that top level managers do not lead them towards future goals.
58 % of employees think that top level managers do not see them as the most valuable assets of the organization.
30 % of employees think that top level managers are neither open for communication nor honest.
25 % of employees think that top level managers are not good at business management.
% 26 of employees do not thrust the decisions of top level managers. In order to lead the change in the organization, leadership skills are required. One of the way to enhance leadership perception from the point of employees is putting as a performance indicator for top-level managers. It can be also monitored with conducting surveys annually. Moreover, leadership trainings might be helpful to enhance leadership skills.
Effective Rotation
Rotation is good tool to increase the knowledge sharing within the organization. However, it is not systematic in the SSM that causes low employee satisfaction and loyalty. In order to handle with this, HRM department can make interviews with the employees who has a rotation potential accordance with their career plan. Then, rotation should be done in a systematic way. Moreover, rotation analysis should be done to measure the effectiveness.
Teamwork
Survey done in 2014 shows that,
63 % of employees believe that there is a lack of communication between employees.
36/55 83 % of employees believe that there is a lack of communication between
business units.
To struggle with SSM awards successful teams every year to encourage teamwork. In addition to this, best practices within the daily life’s of teams should be determined and shared with other employees via a platform.
Fair Workload
Many mid-level managers stated that there is too much workload in the project departments. Hence, most of the employees in those departments are overloaded. In order to handle this, workload analysis along SSM should be done and recruitment plans should be done according to this analysis.
Reputation and Branding
Reputation is crucial for attracting competent candidates, for keeping competent employees in the organization and getting support of public for defence projects and investments. To attract candidates “SSM conducts SSM Familiarization and Student Information Days” in the universities and at SSM as well. Moreover, putting being in the "Best Employers in Turkey" index as a BSC indicator might be a good way of enhancing reputation. For public supports, SSM has "Corporate Communication Projects". On the other hand, SSM is not so active in the social media. Social and environmental performance should be aligned to the strategy of the organization (Porter & Kramer, 2006). It is the fact that, social media usage is so important in terms of branding so social media projects should be launched within “Corporate Communication Projects”
Strategic Awareness and Alignment According to the same survey,
23% of employees do not know the relation between corporate level objectives and individual objectives.
SSM launched a performance system with the aim of bridging strategic objectives and business unit/employee objectives. In order to measure the effectiveness of this performance measurement system, annual surveys should be done. In addition to this, top-level managers should conduct meetings with their employees to talk about strategic objectives in order to increase awareness. Furthermore, department
37/55 objectives which are stated in the sectoral strategy document should be updated annually.
The objectives and the initiatives determined above can be seen in the Table_2 with the performance indicators.
Since the objectives are determined via results of stakeholder views, it covers all the critical issues. However, targets and budget couldn’t be set because of time limitations. The missing elements of Table_2 are targets and budget.
C. Preparing Strategy Map for SSM
In order to build a strategy map, SSM’s vision is translated into objectives, measures, and initiatives. As stated above, targets are the missing part of this study. There should be further studies within SSM to complete whole pieces. Cause and effect relationship is established between the objectives. Strategy map prepared for SSM can be seen in the Table_3.
