Rated as one of the most popular management tools, the balanced scorecard has been in use for more than two decades and the benefits gained by organizations that use the tool are widely evident. Initially designed as a measurement tool, the balance scorecard has transitioned into a useful strategic management tool. Over the years, organizations that have adopted the balanced scorecard have managed to effectively measure performance and implement their strategies successfully.
In many organizations, very few employees have knowledge of the strategy being pursued. How is it possible then to effectively execute strategy if the very people charged with the responsibility of implementing it do not even understand it? Without a complete description of strategy, it is very difficult for executives to easily communicate the strategy among themselves or to their employees. Furthermore, if there is no shared understanding of the strategy, it is also difficult for the executives to create alignment around it. This lack of alignment often impedes successful strategy execution.
Strategy execution is far more important than strategy formulation. Working in harmony with the BSC, the strategy map helps executives to communicate the organization’s strategy clearly and briefly to all the stakeholders and execute it successfully. It is therefore imperative for executives to understand strategy and be able to bring clarity to everyone in the organization that is charged with carrying it out. For any strategy to be effective, it must contain descriptions of financial aspirations, market to be served, processes to be excelled in and the people who will be responsible for carrying it out. The strategy map achieves this. It provides the visual framework that integrates the organization’s objectives into the four perspectives of the BSC.
Furthermore, the strategy map helps you determine what you must do well in each of the BSC perspectives in order to successfully execute your strategy. It helps you describe your strategy in a uniform and consistent way that enables objectives and measures to be established and managed. In other words, the strategy map provides the missing link between strategy formation and strategy execution. It illustrates the cause-and-effect relationships that link desired outcomes in the customer and financial perspectives to outstanding performance in critical internal processes.
So how can you successfully develop your strategy map? One important aspect to consider when building a strategy map and BSC measures is how many and which perspective you will choose. Depending on the nature of your organization it might be worthwhile for you to consider additional perspective to the four original perspectives – Financial, Customer, Internal Processes and Employee Learning and Growth. Additional perspectives might be in the areas of innovation, R&D, environment, suppliers, CSR and governance. When choosing the perspectives of your strategy map and BSC it is important to ensure that your chosen perspectives communicate the complete story of your strategy and create a competitive advantage for your organization. It is also important to capture the key stakeholders contributing to your organization’s success. However, take note that you do not need to include every possible contributor otherwise your map will become cluttered.
Since the main purpose of the strategy map and the BSC is to communicate clearly and briefly the organization’s key drivers, it is important that you select the perspectives that enable you to capture the organization’s key stakeholders and describe how you are going to serve each of them and thereby successfully implement your strategy. Questions such as – What value propositions will ensure that our customers are satisfied and remain loyal? What processes must we excel at in order to drive this customer valued proposition, and what competences must our employees possess? – will help you develop a strategy map and BSC that clearly communicates your strategy and demonstrate how you plan to execute that strategy.
The success and credibility of your strategy map and BSC also depends on the pool of information used to develop them. You need to gather and review as much background material as you can find for each perspective. Sources of material that can be used to gather information include annual reports, the organization’s mission statement, strategic plan, project plans, competitor data, analyst reports, benchmarking reports, trade journals and news articles. Since the sources of information vary, it is critical to ensure that the source documents provide a single view of your organization’s mission, core values, vision and strategies. Any discrepancies identified should be resolved.
In sum, the strategy map is a one-page graphical representation of what you must do well in each of the four BSC perspectives in order to effectively execute your strategy. It helps you outline the critical objectives necessary for the success of your organization. Remember, the essence of strategy is doing different things than your rivals to create value. You must therefore avoid copying the objectives and metrics of your competitors as these may prove counterproductive to your efforts. You need to understand your processes and value propositions because it is the determination of the key drivers of your particular organization that will ultimately differentiate you from your rivals.