Constructing Strategy Maps

Defining, Constructing Defining, Constructing and Using Strategy and Using Strategy

MapsMaps

Denyelle BrunoDenyelle Bruno

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Defining Terms• Mission: A concise statement of the reason for

the organization's existence.• Vision: A concise statement that defines

success “a picture of the future”.• Strategy: The means by which the

organization plans to achieve its vision.• Strategic map: A map of the cause-and-effect

chain of strategic objectives by which the strategy will be implemented.

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Strategy Map• A roadmap connecting the

organization’s strategic objectives to its operational initiatives.

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Use of The Map • Most company’s focus on what they

have done and not on the intangible assets that determined what they have to do now (and in the future).

• It’s the intangible assets that represent approximately 75% of the company’s overall value.

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Intangible Assets• Employee capacities• Databases• Information systems• Customer relationships• Quality• Responsiveness• services

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History • In the realm of business, the concept of

strategy maps was introduced by Robert S. Kaplan and David P. Norton. The standard reference is their book, Strategy-focused Organization. The strategy map was the answer of a missing tool between strategy and the balanced scorecard. It is the connection between a strategy paper and a operative implementation plan.

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When and by whom is it used?

• Strategy maps can help to describe the strategy and to communicate the strategy among executives and to their employees.

• It provides a vehicle for alignment.• It’s successful in its ability to show

implications of efforts.

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How is it different?• Standard companies success

measures are retrospective (internal lagging indicators).

• Strategy maps provides a roadmap to the future (internal leading indicators).

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Why are strategy maps important?

• Strategy maps identify critical processes and measure how well aligned they are to intangible assets.

• A one page document that highlights which process and actions are crucial and which are secondary.

• It provides visual clarity to help everyone in the organization discuss and understand the strategy and their role in helping to attain objectives.

• If the strategy isn’t working, strategy maps can help track down where things went wrong.

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The components of a strategy map

Four perspectives, seen as building blocks:

1. Financial (on top for private sector)2. Customer (on top for public sector)3. Internal4. Learning and Growth

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Financial Perspective• Financial results (private sector)

– Profit– Return on capital– Cash flow– Margins

• Financial results (non-profits)– Income from sponsors or government grants– Cash flow– Cost control results

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Customer Perspective• What’s the value proposition?

– Price– Quality– Availability– Selection– Functionality– Service– Partnership– Brand

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Internal (business) perspective

• Operations management processes– Develop and sustain supplier relationships– Produce products and services– Distribute and deliver products and services to customers– Manage risk

• Customer management processes– Customer selection– Customer acquisition– Customer retention– Customer growth

• Innovation processes– Identify opportunities for new products and services– Manage the research and development portfolio– Design and develop the new products and services– Bring the new products to market

• Social and regulatory processes– Companies need to comply with laws and statutory regulations– Companies would like a good reputation and people friendly regulation that generates

customer goodwill

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Learning and Growth perspective

• People (Human Capital)• Information Capital• Organization capital or capacity

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Map Flow• Flows from the bottom to the top up to final

result.• Start with highest perspective to identify

needs.• Determine the work that needs to be done to

support the higher objectives.• Encode the information in the map.• The arrows of effect are from lower

perspectives to higher perspectives.

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Constructing a strategy map

• Strategy mapping comes after the strategic objectives are developed.

• The strategic objectives should fill in the top portion of the map “financial perspective”.

• The map should then be developed from top down in themes to ensure resources and processes are in alignment with strategy.

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Questions to help get at the content

• Financial Perspective: “If we succeed at our strategic objectives, how will we look to our shareholders?”

• Customer Perspective: “To achieve our vision how will we look to our customers?” “What’s our value proposition?”– Lowest total cost– Product Leadership– Complete Customer Solution– System lock-in

• Internal perspective: “To satisfy our customers, what processes do we need?”

• Learning and Growth Perspective: “To achieve our objectives who do we need to employ, and what do they need to know?”

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Creative Mapping • Strategy maps can look different

from one another but generally speaking, the creativity should sit within the mapping content and not within the framework itself

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What’s the relationship between a strategy map and

a balanced scorecard?• The balanced scorecard is a translation of

the strategy.• The strategy’s success is based on internal

lagging factors.• The scorecard’s success is based on

internal leading factors.

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Creating a Balanced Scorecard

Balanced Scorecards should be tightly aligned to your current strategic plan. The best way to achieve this alignment is to use your strategy map as the foundation for the top-level Balanced Scorecard. The Balanced Scorecard becomes the strategic “shorthand” that is the framework for dramatic long- and short-term results.

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The Balanced Scorecard

• Measures what drives performance• Provides metrics used to measure

business success• You can’t manage what you can’t

measure• Success of use is determined by

alignment and focus

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Example of a Balanced Scorecard

Acme Chocolate Company Balanced Scorecard Mission: To provide every customer with the highest quality and most unique chocolate tasting experience.

Vision: A world in which fine chocolate accompanies every fine dining experience. Area/Theme Objective Measures Targets Initiatives Financial: Drive EBIDTA

Improve Profitability

Improve Cost Structure

Expand Revenue Opportunities

Drive Revenue through increased Average Ticket

Labor Cost COGs Number of re-

seller partners added per year

Average Ticket

17% 45% 10/year $60 per

ticket

Location negotiation standards

Partner financial standards/contract

Weekly financial review

Customer Product

Leadership

Quality Location Service Selection

Mystery Shop Random QA

visits Competition

Studies

>90% rating >85% audit quarterly

Mystery Shop Program QA Audit Program Quarterly review meeting

Internal QA Breadth

Supply QA Production QA Real Estate

Selection Speed (freshness)

Plant QA Audits AA only sites Plant to shelf

speed

>90% 10/year 1 week

Plant QA Audit Program Real-Estate quarterly

review meeting Shipping process review

Learning Uncompromised,

best in class products and services

Employee who provide unequaled knowledge and service

Service Training Chocolate

Chemistry Training

P&L Training

100% attainment

50% attainment

100% attainment

Develop Service Training Program

Develop chocolate engineer university

Business class for all business managers

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Other Resources• Google has lots of examples of both

strategic maps and BSCs• Microsoft office Programs - Visio • Doesn’t need to be high-tech• Book: Strategy Maps, Converting

Intangible Assets into Tangible Outcomes by Robert S. Kaplan and David P. Norton