In the 2001 book “The Strategy-Focused Organization”, Kaplan and Norton transform their Balanced Scorecard. In 1992 they introduced the Balanced Scorecard in the Harvard Business Review as system to measure performance; now they change it to a strategic management system. A lot of this transformation was done by further emphasizing the so called Strategy Map.
Strategy Maps are diagrams that describes how an organization can create value: by connecting strategic objectives in explicit cause and effect relationship with each other. Via the four Balanced Scorecard perspectives: financial, customer, processes, learning and growth. See the figure below (You can click on the graph to download a bigger one in pdf-format). Strategy Maps are a strategic part of the Balanced Scorecard framework to describe strategies for value creation.
Characteristics of Strategy Maps
1. All of the information is contained on one page; this enables relatively easy strategic communication.
2. There are four perspectives: Financial; Customer; Internal; Learning and Growth.
3. The financial perspective looks at creating long-term shareholder value, and uses a productivity strategy of improving cost structure and asset utilization and a growth strategy of expanding opportunities and enhancing customer value.
4. These last four elements of strategic improvement are supported by price, quality, availability, selection, functionality, service, partnerships and brand.
5. From an internal perspective, the operations processes and the customer management processes help to make the product and service attributes. While the innovation, regulatory and social processes help with relationships and image.
6. All of these processes are supported by the allocation of human capital, information capital and organizational capital. Organizational capital is comprised of company culture, leadership, alignment and teamwork.
7. Connecting arrows are describing cause and effect relationships.
What are the main principles behind Strategy Maps?
1. Strategy balances contradictory forces.
2. Strategy is based on a differentiating customer value proposition.
3. Value is added through internal business processes.
4. Strategy consists of simultaneous, complementary themes.
5. Strategic alignment determines the value of intangible assets.
Usage of Strategy Maps? Benefits
By connecting such things as shareholder value creation, customer management, process management, quality management, core capabilities, innovation, human resources, information technology, organizational design and learning with one another in one graphical representation, Strategy Maps can help greatly in describing the strategy and to communicate the strategy among executives and to their employees. In this way an alignment can be created around the strategy, which makes a successful implementation of the strategy more easy. No small thing, bearing in mind that often, the implementation of a constructed strategy is the biggest challenge.
Although the previous book of Kaplan and Norton already spent 64 pages on Strategy Maps, you can find the latest, best and most comprehensive treatment of Strategy Maps including lots of examples in the book that is mentioned below.
Book: Robert Kaplan and David Norton – Strategy Maps