10.4 Strategy maps and Balanced Scorecard

Strategy maps and Balanced Scorecards are powerful tools for implementing and executing strategy. They visually link strategic objectives across four perspectives: financial, customer, internal processes, and learning and growth. This helps organizations translate complex strategies into actionable plans.

These tools align employees with strategic priorities and measure progress through key performance indicators. By cascading objectives throughout the organization, they ensure everyone understands how their work contributes to overall goals. Regular reviews keep strategies relevant and drive continuous improvement.

Strategy maps for performance measures

Linking strategic objectives

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• A strategy map visually represents how an organization's strategic objectives are linked together in a cause-and-effect relationship to create value
• The strategy map organizes objectives into four perspectives: financial, customer, internal processes, and learning and growth
  • Each perspective contains strategic objectives that are linked together to show how they drive overall performance

Four perspectives in a strategy map

• Financial perspective objectives are at the top of the strategy map and define the financial outcomes the organization aims to achieve
  • Examples include increasing revenue, reducing costs, or improving profitability
  • These objectives are driven by the other perspectives
• Customer perspective objectives define how the organization will create value for customers to achieve the desired financial outcomes
  • This includes objectives around customer satisfaction, loyalty, acquisition, and retention
  • For example, improving customer service or developing new products that meet customer needs
• Internal process perspective objectives define the key operational processes the organization must excel at to deliver on the customer value proposition
  • This includes innovation, operations, and post-sales service processes
  • For instance, streamlining manufacturing processes or reducing time-to-market for new products
• Learning and growth perspective objectives are at the foundation of the strategy map and define the skills, capabilities, and organizational culture needed to drive the internal processes
  • This includes human capital (employee skills and training), information capital (systems and databases), and organizational capital (culture, leadership, alignment) objectives
  • An example would be implementing a new CRM system or training program

Measuring progress with KPIs

• Key performance indicators (KPIs) are defined for each strategic objective to measure progress
  • Leading indicators measure drivers of performance (e.g. employee engagement)
  • Lagging indicators measure outcomes (e.g. revenue growth)
  • A mix of leading and lagging KPIs provides a comprehensive view of performance

Balanced Scorecard for strategy execution

Translating strategy into action

• The Balanced Scorecard translates an organization's strategy map into an actionable framework to monitor and control strategy execution
  • It includes strategic objectives, measures, targets, and initiatives for each of the four perspectives
• Objectives are a concise statement of what must be achieved and what is critical to success in each perspective
  • For example, "Improve customer satisfaction" or "Increase market share"
• Measures are the key performance indicators used to track progress against objectives
  • They should be quantifiable, measurable, and a mix of financial and non-financial, leading and lagging indicators
  • Examples include customer satisfaction score, market share percentage, or number of new products launched

Setting targets and initiatives

• Targets specify the level of performance or rate of improvement needed for a measure
  • They can be based on benchmarks, stakeholder expectations, or required rates of improvement
  • For instance, improve customer satisfaction by 10% over last year
• Initiatives are the key action programs required to achieve objectives
  • They are often large-scale projects that close performance gaps or help reach targets
  • An example could be implementing a new customer loyalty program to improve retention
• Owners are assigned to each objective to drive accountability for results
  • Reporting frequency is established, such as monthly or quarterly reviews

Aligning the organization

• The Balanced Scorecard helps translate strategy into operational terms
  • Cascading scorecards align the organization at every level to strategic priorities
  • Corporate scorecard objectives are translated into division, department, team and individual goals
• This ensures every employee understands how their day-to-day actions contribute to overall strategy
  • For example, a frontline customer service rep's goal to resolve issues on first contact aligns to the company's objective of improving customer satisfaction

Communicating strategic priorities

Simplifying complex strategies

• Strategy maps and Balanced Scorecards are powerful communication tools to articulate priorities both internally to employees and externally to other stakeholders
• The visual nature of strategy maps helps simplify complex strategies into an easy to understand, one-page view of what's important
  • This helps build understanding and commitment to strategic objectives
  • For instance, a strategy map can quickly convey the key pillars of the strategy and how they link together

Aligning employees to strategy

• Cascading strategy maps and scorecards down to the individual level ensures every employee understands how their day-to-day actions contribute to overall strategic priorities
  • This improves alignment and engagement as employees see the purpose behind their work
• Individual and team goals should be aligned to Balanced Scorecard objectives and measures
  • Compensation and rewards can be tied to scorecard performance to reinforce priorities
• Regular business reviews and management meetings should be focused on discussing Balanced Scorecard results
  • Problem solving efforts can be directed to areas that are underperforming against targets

Demonstrating performance to stakeholders

• Publishing Balanced Scorecard results on a regular cadence fosters transparency and accountability for results
  • Celebrating wins and honestly discussing challenges reinforces the importance of strategic priorities
• Strategy maps can be used to communicate to external stakeholders, like investors, how the organization is positioned to create future value
  • The Balanced Scorecard can demonstrate how the organization is performing against its strategy
  • For example, showing improving customer satisfaction scores or progress on sustainability goals

Effectiveness of strategy maps vs Balanced Scorecards

Driving the right actions

• Assessing the effectiveness of strategy maps and Balanced Scorecards requires examining if they are driving the right behaviors and actions to deliver on strategic objectives
• Effective strategy maps and scorecards should be driving decision making and resource allocation
  • Budgets and investments should be aligned to strategic priorities
  • For instance, if entering a new market is a key objective, is the organization allocating resources to make that happen?
• Leading indicators on the Balanced Scorecard should be predictive of future performance on lagging indicators and broader strategic goals
  • If not, the scorecard may need to be adjusted
  • An example would be if improving employee training (leading) is not resulting in higher quality (lagging), the linkage may be flawed

Adapting to change

• To remain effective over time, strategy maps and Balanced Scorecards need to be regularly reviewed and updated as the environment changes and the strategy evolves
  • They are meant to be living documents, not static snapshots in time
• Scorecards and maps should be adjusted as goals are met, initiatives are completed, or external factors change
  • For example, a new competitor entering the market may require a shift in strategy and updates to the objectives and measures
• A regular review cadence, such as quarterly strategy sessions, can help keep the strategy map and scorecard aligned to the current realities of the business
  • This ensures they remain relevant and continue driving the organization in the right direction