Mapping the Path to the Future
George would like to thank Michael Contrada from Palladium Group, Inc. for his helpful input to this column.Strategy management is comprised of three key components: strategy maps, performance scorecards and strategic initiatives. This column will explain the strategy mapping process and provide some guidelines for its implementation in different strategic contexts.
Strategy maps have joined the management lexicon. Like the balanced scorecard, the strategy map has become a standard tool used by businesses across the globe. Also like the balanced scorecard, it became famous both as a concept and as a body of practice and methodology in the writings of Drs. Robert Kaplan and David Norton.1,2
As defined by Kaplan and Norton, a strategy map is a visual representation of the strategy. It answers the questions, "What are a business's strategic objectives?" and "How do they integrate and combine to create future value for shareholders, customers and employees?"3 Just as income statements and balance sheets provide a standardized way to communicate a financial plan, so strategy maps are convenient conventions for communicating strategic plans. It fulfills a need that Larry Bossidy has articulated: a strategy "should be describable in one page in terms of its basic building blocks ... if you can't describe your strategy in 20 minutes, simply and in plain language, you haven't got a plan." The strategy map is now the tool of choice to communicate strategy.4
In simple terms, the strategy map depicts business objectives across the four perspectives associated with the balanced scorecard - financial, customer, internal process, and learning and growth (see Figure 1).5 The financial and customer perspectives state the outcomes of the strategy: achieving the appropriate balance between revenue and growth, on the one hand, and meeting targeted customer value propositions on the other. These outcomes, in turn, are driven by performance on critical internal business processes and progress building the enabling intangible assets of culture, people and information that sustain organizational learning and growth. Once there is agreement on the strategic objectives on the map, the measures (key performance indicators or KPIs) and actions (strategic initiatives) required to drive execution are readily defined. In this way, strategy mapping becomes the way to map the path to the future.
Figure 1: Generic Strategy Map
If strategy execution is enabled by visibility, leverage and responsiveness, it is easy to see how the strategy map is a critical tool supporting all three. First, the objectives on the map define the highest level of outcomes and drivers that management needs to monitor and review - visibility. Second, the objectives on the map point directly at the processes, subprocesses and activities that are the priorities for achieving effective change in performance - leverage. Third, the ongoing dialog generated around results and assumptions on the cause-and-effect relationships among objectives enables fact-based learning and evolution of the strategy - responsiveness.
In order for the strategy map to play its role in strategy execution supporting visibility, leverage and responsiveness, it must explicitly reflect the nature of the underlying business model. Understanding this is key to building good strategy maps and knowing how best to use them.
In general, strategies fall into two categories - exploiting the current business model and exploring new business models. The first type of strategy endeavors to maximize the potential of the current business model. Companies such as Dell, Wal-Mart and Toyota fall into this category. They need to strengthen the productivity of their business model by increasing the scale or expanding the scope of their core operations. Strategy maps for these kinds of companies should closely reflect the existing business model. The key is to get everyone in agreement on what the vital elements of the model are.
For these kinds of exploitation strategies, the map enables leverage by making the assumptions of the business model explicit and by using measures and initiatives to direct the actions to maximize performance. Keeping track of performance against operating assumptions serves visibility, and rapid adaptation of tactical plans in light of performance is a major driver of responsiveness.
The second type of strategy - exploring new business models - is found among companies that seek transformation either because they aspire to something better or because they must leave a burning platform. IBM during the Gerstner era and, more recently, the auto and pharma giants are examples of this type of strategy. They need to shed outdated business models and explore alternatives that will let them regain their past ability to generate consistent growth and profitability.
Strategy maps for these kinds of exploration strategies must reflect the new directions and the new capabilities that must be built to succeed with the new business model. The map enables leverage, in this case, by clarifying the operating hypotheses that are being tested by initiatives undertaken to create new capabilities and forge new directions. Visibility is gained by generating feedback, and responsiveness is achieved by adapting the strategy and mapping accordingly.6
- Robert Kaplan and David Norton. Strategy Maps. Boston: Harvard Business School Publishing, 2004.
- Robert Kaplan and David Norton. "Having Trouble with your Strategy? Then Map It." Harvard Business Review, January-February 2001.
- Robert Kaplan and David Norton. "Strategy Maps." Strategic Finance, March 2005, 35.
- Larry Bossidy and Ram Charan. Execution. New York: Crown Business, 185.
- Strategy Maps, 31.
- John Roberts. The Modern Firm. Oxford: Oxford University Press, 2004.