Introduction to Strategy Maps
SIP Strategy Maps
(Update March 2008) - About a year after the original version of this article was written, I added a modified form of strategy maps to the System Improvement Process (SIP). Here are two examples: The Starvation Problem maps a common folk saying. The Proper Coupling Strategy Map is from the analysis of the proper coupling part of the sustainabilty problem, which is a work in progress. For more on this tool, see the chapter on The Transformation Strategy Map in the Analytical Activism manuscript.
Introduction (to the original article)
A Strategy Map is a diagram showing a company or business unit's overall
strategy. Along with Strategy Maps comes the concept of a Balanced Scorecard.
A Balanced Scorecard contains the quantitative measures showing how well
the strategy is going, such as market segment share and average cost per
customer. The two work hand in hand, so much so that the terms "Strategy
Map" and "Balanced Scorecard" have become interchangeable.
This is unfortunately often confusing.
Some Examples
Examine this example
of a Strategy Map
PDF I
prepared for a small software startup company in Vilnius, Lithuania.
Think of Strategy Maps as the reasoning behind a plan and the Balanced
Scorecard as the measure of how well that plan is going. Note that
strategic planners do the Strategy Map first, and then the Balanced
Scorecard. Here's a simplified example:
Imagine your top managers pounding out a strategy for the coming year.
They would start with the goal of maximizing net profit. Then working
backwards from that, they set the sub goals of Maximize Income and Minimize
Expenses. They then develop a high level strategy for each: Diversified
revenue streams and Minimize overhead per customer. This is the financial
perspective of the business.
But nothing happens unless customers buy the product. Thus the Strategy
Map framework says to then plan the Customer Perspective strategies that
will result in achieving your Financial Perspective strategies. The managers
did this, and came up with the three strategies shown: more products for
the customer to choose from, a broad enough product line so that a customer
can find everything they were looking for lead to diversified revenue
streams, and increasing quality to reduce repair costs.
Note how the map shows which strategies in the customer area support
strategies above them. You can see at a glance what the overall strategy
is. This is the beauty and the power of Strategy Maps.
Once the total strategic plan is set a key question arises: how can
we best measure it is being executed well? That's what the Balanced
Scorecard is for. It is "balanced" because it takes in far
more than just traditional financial measures. Financial measures are lagging
indicators because they tell what has already happened. They give
an unbalanced view of performance, one that has led many an astute manager
to unexpected failure. What people also need is leading indicators that
tell how well things are going, and how well the lagging indicators
are probably going to come out. For example, the above Strategy Map
might have this Balanced Scorecard:
The strategic objectives come right off the map. The measures of achievement
may be on the map for richness of information or they may be implied.
Often there is great debate over what measure is best, or if a reliable,
cost effective quantitative measure can even be designed.
Once the scorecard starts being used, data such as that shown is collected,
published, and used for analysis and decisions. Scorecard results show
at a glance how the business is doing.
In the above example all four measures are improving. But in the real
world this seldom happens. For example, revenue might be down. But if
the rest of the scorecard is steady or improving, there is usually no
cause for concern. This is because analysis will usually show that the
revenue dip was temporary and caused by factors outside the control of
the company, such as a recession, a natural disaster, or an event unique
to the industry, such as one of only two factories in the world making
a critical part burned down.
Just like Strategy Maps, in a Balanced Scorecard you can see in seconds
how well your strategic plan is proceeding. Not just management, but anyone
can see it, because the measures are simple and few in number. Everyone
in the company gets the same picture. This is the beauty and power
of the Balanced Scorecard.
Why Is This Tool So Powerful?
Working together, strategy maps and balanced scorecards are a "framework
for change." They were introduced to the business world in the mid
1990s by the work of Robert Kaplan and David Norton. As Harvard
Business Review Online says:
"The Balanced Scorecard [and Strategy Maps] has
transformed companies around the globe. This performance
management system helps top executives set corporate
strategy and objectives and then translate them into
a coherent set of measures, transforming strategy
into a continuous process owned by everyone. The
scorecard also enables you to communicate high-level
goals down to all organizational levels. Employees know
not only what to do, but why. Most important,
the scorecard augments financial measures with objectives
and metrics in customer relationships, internal processes,
and learning and growth--less tangible areas notoriously
difficult to measure."
Exactly why is this daring duo of tools so powerful? The answer lies
in the fact that positive feedback loops must be present to improve
performance. There is no other way to learn from one's own behavior
and improve it.
Consider
the four step Cycle of Continuous Improvement. This causal loop diagram
shows how measures are used to improve performance. Start reading it at
the top. Imagine you have just performed something, such as writing this
article. Now how might you measure how well you did it? Perhaps by the
number and amount of positive content of emails you got from the people
that read it. That would be your measure of performance. You could then
analyze that feedback and improve your ability to write articles well.
That would then improve your actual performance the next time. This would
in turn improve your measure of performance, as you got even more emails
saying better things. Because you are now practicing analysis over and
over, your ability to do analysis improves. And so does your ability to
do the next article well, and so on. The cycle goes around over and over,
with all four elements improving each time. Improvement may be slow at
first, but once the cycle gets going it tends to give dramatic, fast improvement.
This is a positive feedback loop because an increase in each element
ultimately causes that same element to increase even more. This is also
known as a virtuous cycle or a race to the top.
Now let's relate the power of this positive feedback loop to maps and
scorecards.
Actual performance is the strategic objectives that make up a
Strategy Map. Measure of performance makes up the scorecard. Neither
is a direct measure of any company's greatest asset: its Ability to
do something well, also known as human capitol or the right people.
However, in our opinion there is an even more important asset than that.
It is Feedback analysis skill, which is another term for the ability
to learn. Given a choice between someone with high skills and other person
with lower skills but a higher ability to learn, the shrewd, far-sighted
manager will pick the second person every time, because it is the ability
to learn that gives a company its greatest competitive or cooperative
advantage in the long run. This is because the ability to learn is
the same as the ability to control one's own evolution, and to better
win the battle of the survival of the fittest in any particular market
niche or endeavor.
Or instead of improving your ability to achieve competitive goals,
you can choose to improve your ability to achieve cooperative goals.
Because we are living more and more in a world where cooperation increases
the total payoff available to all players, which course you should take
is becoming more and more obvious.
Therefore what Strategy Maps and Balanced Scorecards really offer in
one tidy little package is a tried and true way for an entire company
to become a unified learning organization, with that learning
supporting a particular organizational thinking structure: the
one created by the Strategy Map. Think about it. You now have everyone
thinking along the same lines, in the same strategic directions, and self-evolving
at the speed of performance and measurement cycles.
But that's not all. Another reason maps and scorecards are so powerful
is they are a mature process for strategic planning and management
of that plan. This process maximizes the chances of success if followed
correctly. This is relatively easy to do once the fundamentals of the
process are known. The literature is beginning to be too large to survey.
I'm still new at this myself, but the key principles seem to be, in order
of importance:
1. Become strategy focused: Get everyone in the
company, and we mean everyone, educated and focused on
the Strategy Map. Tie compensation, continued employment,
and promotion to scorecard results. Center corporate
planning around Strategy Maps and scorecard results.
Don't look at your financial statement first: look at
your scorecard. FOCUS, FOCUS, FOCUS on the right STRATEGY.
2. Use causal flow principles: Develop your Strategy Map using
sound causal flow diagram principles. Show the crucial relationships.
Be sure there is a good cause for all objectives to be achieved. The
conscious, proper use of causal flow diagrams can take you and your
organization up to the more mature level of SYSTEMS THINKING.
3. Measure well: Develop a good measure for all important objectives
and use those measures to manage strategic plan execution. The proper
use of measures CLOSES THE CYCLE OF CONTINUOUS IMPROVEMENT LOOP.
4. Use four map areas: Group your Strategy Map into the four
areas of Financial Perspective, Customer Perspective, Internal Processes,
and Personal Learning and Growth, in that sequence. (The last two were
left out in the above introductory example.) Start at the foundation
and ensure that the personal area drives the layer above it, which drives
the layer above it, and so forth. Use of this flow of influence, or
value chain, is a powerful STRUCTURAL SUCCESS PATTERN.
There are many more process elements, but this handful of rules to follow
should get you well along the road. Maps and scorecards are not a panacea,
but if used wisely they can turn strategic chaos into clarity, and clarity
into company wide focus, and focus into results.
This introduction is intended to give you an initial overview. The rest
is up to you.
Literature
The best overall first book to study appears to be The Strategy Focused
Organization: How balanced scorecard companies thrive in the
new business environment, by Kaplan and Norton, 2001, 397 pages.
For more examples and further detail, see their next book, Strategy
Maps: Converting Intangible Assets into Tangible Outcomes, 2004.
An option to these long books is their seminal articles in the Harvard
Business Review. However, any serious user of this tool probably
needs at least The Strategy Focused Organization.
Their first book, The Balanced Scorecard, 1996, has now been translated
into nineteen languages. However their 2001 book is a bit better, due
to a more refined process and further empirical studies supporting their
assertions. This is just what one would expect after the passing of five
years of, guess what, continuous improvement by Kaplan and Norton of the
power of the tool.
There is also Kaplan's and Norton's website, home of the Balanced
Scorecard Collaborative.
Happy trails! Or should we say happy mapping? 
Jack Harich
May 21, 2004
(This is one of the many articles at Thwink.org.)
