Strategy Maps and Balanced Scorecards

In truth, the science of Strategy Management has been  highly influenced by Kaplan and Norton, first with the invention of Balanced
Scorecards in 1992, and later with a companion invention of Strategy Maps in 2004.  Almost all strategy management and Enterprise Performance Management vendors  offer these techniques. Almost all projects use them. This level of ubiquity is  staggering. But, as it turns out, there is good reason for this. Let’s see why.

Strategy
Maps*

*This diagram comes complements of ActiveStrategy, a
well-regarded strategy management vendor, headquartered in Plymouth Meeting,
Pa.

Some general comments

In a strategy project, Strategy Maps are built before
Balanced Scorecards.

Both Strategy Maps and Balanced Scorecards assume that a strategy
has been formulated. These tools are then invaluable in strategy execution.

Please examine the left hand side of the diagram (1.0
Financial, etc.). These are called perspectives, which we will have a great
deal to say about in a moment. Perspectives are shared in both strategy maps
and balanced scorecards. OK, on to perspectives.

Financial Perspective

The financial perspective describes the financial goals
(also referred to as objectives) of the Corporation. All companies must
describe financials goals as part of an overall strategy. Each box in the
diagram describes a goal, like “1.1 Reinvest to fuel future innovations”. Goal
statements are short, action-oriented, and should be crystal clear.

Goals are linked to each other (with arrows) in a cause
and effect manner. So, for example, within the Financial Perspective, the goal
of “Hit Profitability Targets” leads naturally to both “Reinvest to fuel future
innovations” and “Give back 10% of profits to our community”. In fact, the
ability to link goals is the major contribution of strategy maps.

Customer Perspective

All goals in the financial perspective must be driven by
customer-oriented goals, and so the customer perspective becomes the necessary
second layer in the strategy map. Consider the goal: “Provide the best value to
our best customers”. Notice its linkage to a goal in the financial perspective.

Internal Perspective

As we derive financial benefits from our customers (for
whom we provide real value), how do we provide excellent products and services
to our customers? This leads us to the internal perspective and the goals our
employees must attain to meet the customer-centered goals. Consider the
perspective: “Improve our understanding of & ability to meet client needs”.
That goal ties directly to the customer goal of “Provide the best value to our
best customers”. The internal perspective reflects goals that the current
organization must be capable of meeting.

Learning and Growth Perspective

Represented as “Our People” in the diagram – With respect
to the goals for the Internal Perspective, either our people are ready to meet
their goals today, or we need to institute some “learning and growth” to
improve their current skills. Therefore, the “Learning and Growth Perspective”
has a series of goals which are all geared to helping staff meet their internal
perspective goals (which improves our ability to work with customers, which
improves our financials…) It all fits together!

Balanced Scorecards

As you can see from the diagram above which represents
the Balanced Scorecard, the four Perspectives are represented again. Whereas,
before, we wanted to show all the relevant goals and their relationship to one
another, now we want to show how to actually realize each goal.

Consider the following example:

Goal: Improve customer satisfaction

Measure: The percentage of
customers who are “Net Promoters” in a Customer Survey

 Target:
90% of customers are Net Promoters

Initiatives:

  • Implement customer surveys, account
    follow-ups and remediation programs
  • Six sigma program to improve quality defects
  • Create a working council with our most active
    customers

The Balanced Scorecard provides all the details to drive
a successful project execution.

Putting it all together

Strategy formulation comes first.

Goals are derived to meet the strategy. The Strategy
Map
allows for the definition and linkages of goals across the Financial,
Customer, Internal Process and Learning & Growth Perspectives

The Balanced Scorecard provides an approach for
goals to be further described using metrics, targets and initiatives.

Of course, there is still much difficult work to be done as the organization assigns initiatives to work teams. These initiatives are at the heart of strategy execution. Clear accountability is required; the projects are expected to be delivered on time and on budget.

About Barry Wilderman

Barry Wilderman has over 30 years of experience as an industry analyst, researcher and consultant. He is a highly regarded public speaker, and has spoken at numerous business events around the world. I am pleased to offer a set of value-driven improvement services to buyers and vendors of Enterprise Performance Management (EPM) solutions: For buyers of EPM solutions: EPM solutions are crucial to meet the needs of the Corporate Finance and Corporate Strategy departments. Therefore, there must be a successful collaboration between IT and top corporate executives to select, implement and support EPM software. We help make sure you get it right. For vendors of EPM solutions: This is one of the most visible application areas – what an audience to sell to! We are here to help ensure you are truly delivering value (both product and services) – and marketing your competitive advantage. Barry’s approach to research and consulting has been shaped by a number of critical job experiences: At META Group, Barry managed a team of enterprise application analysts focused on issues of selecting software, selecting the best consulting firm(s), implementation strategy and success factors beyond the go-live date. This work spanned numerous industries and horizontal disciplines. His clients were both enterprise vendors and companies implementing enterprise software. At Lawson Software, Barry was able to apply a great deal of the META research in the practical world of an enterprise vendor. He coordinated a series of studies around Lawson’s Business Intelligence and financial solutions. He also managed a team of value consultants who helped companies model their pain points and translate those pain points into quantifiable benefits. Early in Barry’s career, he worked at McKinsey and Company, where he managed an analytic services group, working on delivering value in client engagements. Barry also worked for Information Builders, where he helped shape its approach to third party application delivery and artificial intelligence. Barry holds a BS from City College of New York and MS Degrees from Brown University and New York University. :
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