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, Marketing and Operations functions is complex. Robert Kaplan and David Norton in The Strategy Focused Organization (Harvard Business School Press, 2001) have developed a generic strategy map template that they use in consulting work. The template is a starting point for the strategy design process and is tailored for a particular firm. Kaplan and Norton claim that the template helps executive teams describe their strategies and dramatically improved the quality of their insights. The template facilitates great precision in defining the customer value proposition and increase awareness that internal processes, competencies, and technologies must be linked to that value proposition. The purpose is to foster a cause-and-effect mentality that encourages more innovative approaches to strategy implementation. The template is also useful to analyze or reverse-engineer an existing strategy. Mapping what a firm is currently doing into the template should tell the story of the strategy. Starting with the structure of the template, you should be able to reverse the logic and deduce the current strategy. Exhibit 1 is the template proposed by Kaplan and Norton. It¶s very important to keep in mind that the positioning of a perspective on the template does not in any way indicate the importance of the idea. For example, the ³Learning and Growth Perspective´ at the bottom of the template is just as important as the ³Financial Perspective´ at the top. When properly constructed the strategy map should portray an integrated and logical description of how the strategy will be accomplished.
Exhibit 1 Kaplan and Norton's Generic Strategy Map
Financial Perspective ± Whether companies use return on investment, return on capital employed (ROCE), economic value added (EVA), or some other value-based metric as the high-level financial objective, they have two basic strategies for driving financial performance: growth and
1 This material is an edited version of Chapter 3, ³Building Strategy Maps´, Robert S. Kaplan and David P. Norton, The Strategy Focused Organization, The Harvard Business School Press, 2001, pp. 69-105.
Sony Corporation and Intel Corporation epitomize this strategy. more careful acquisition. The Home Depot differentiates itself through the knowledge and helpfulness of its sales staff. and Dell Computer Corporation. Reduce the working and fixed capital needed to support a given level of business by great utilization. It generally has two components: 1. and reasonable prices. Good examples of these companies are McDonald¶s Corporation. This is similar to Terry Hill¶s concept of ³order winners´ and ³qualifiers´ described in the previous section. Increase customer value. Productivity strategies focus on cost reduction and efficiency. price and ease of purchase that no one else can match. Southwest Airlines. Treacy and Wiersema claim that successful companies excel at one of these three dimensions of value while maintaining ³threshold standards´ on the other two. Product leadership. This is how a company differentiates itself in the marketplace. 2. 3. The company must still have excellent product selection. Cost and productivity will be less emphasized. A product leadership company pushes its products into the realm of the unknown. 1995. Kaplan and Norton stress a balanced approach to ensure that cost and asset reductions do not compromise a company¶s growth opportunities. Improve asset utilization. A customer-intimate company builds bonds with its customers: it knows the people it sells to and the products and services it needs. Operational excellence. new products. Companies in the mature end of their lifecycle will emphasize the cost reduction and asset utilization components. The Home Depot. This dimension of the strategy implies the greatest amount of change and requires the longest time to execute. as these organizations spend heavily to develop and introduce new products and services and to extend into new markets and applications. as limited opportunities remain to find new customers or expand into new markets. Inc has successfully executed this strategy. Treacy and F. the untried. This component tends to be intermediate term in duration and focuses on processes that integrate the firm¶s systems with the customer¶s to make processes more efficient. The value proposition defines the specific strategy to compete for new customers or increased share of existing customer businesses.productivity. The productivity strategy generally yields results sooner than the growth strategy. The Customer Perspective ± This is the heart of the strategy and defines how growth will be achieved. Develop new sources of revenue from new markets. A clear definition of this value proposition is the most important single step in the development of a strategy map. Sony and many pharmaceutical companies succeed by offering the best product for 2 M. The productivity strategy features the efficient execution of operational activities in support of existing customers. Most companies are in the middle of their life cycle and employ a ³profitable growth´ strategy that requires a balance of the contributions from revenue growth and from cost reduction and productivity. 2. For example. or disposal or parts of the current and fixed asset base. Work with existing customers to expand their relationship with the company. Like the revenue growth strategy. Build the franchise. the productivity strategy generally has two components: 1. and share common resources with other business units. The revenue growth strategy focuses on developing new sources of revenue and profitability. or new customers. As a contrast Intel. reduce indirect costs. The following are three different ways to differentiate:2 1. pp. 31-38 . Narrow Your Focus. The Discipline of Market Leaders: Choose Your Customers. Operationally excellent companies deliver a combination of quality. but these are not the primary reasons for its targeted customers to shop there. or the highly desirable. They argue that companies that are in early-stage startup mode see opportunity for rapid growth and will emphasize objectives from the revenue growth side. 2. Addison-Wesley. Wiersema. Customer intimacy. high-quality inventory management. Improve cost structure. Dominate Your Market. Lower the direct costs of products and services.
Companies such as McDonald¶s Corporation that stress operational excellence excel at being competitive on prices. ³What is Strategy´. high labor productivity and standardization. quality. Customer management processes might focus on rapid acquisition of new customers to consolidate the early mover advantage that a product leader creates. p. 77. and add a fourth perspective that being regulatory and environmental considerations. and to maintain and expand their physical presence in communities. Prices of product leadership companies are generally high and service is adequate but not necessarily exceptional. These processes align with the three customer value perspectives just introduced. Cost minimization implies an emphasis on efficiency. A customer intimacy strategy requires excellent customer management processes such as relationship management and solution development. Companies whose operations entail significant Environment. A strategy of operational excellence emphasizes cost. Here it is important to stress the importance of Operations Management. excellent supplier relationships. It is important that strategy not only specify the desired outcomes. or a factory making jet aircraft these processes must be designed so that they operate effectively. ³The essence of strategy is in the activities ± choosing to perform activities differently or to perform different activities than rivals. When such regulatory and EHS considerations are important for a successful strategy. and leadtime response. It is not uncommon to see companies that claim to have a strategy of innovation or value-adding customer relationships but choose internal business process that focus on cost minimization. Kaplan and Norton¶s template segments the value chain into four sets of business processes. Operations Management is all about designing and managing these processes. customer-perceived quality. the quickness of operating processes. The Internal Perspective ± This defines the business processes and the specific activities that the organization must master to support the customer value proposition. it must also describe how these outcomes will be achieved. These companies have a complete disconnect between the internal and customer perspectives of their strategy. . a group of Finance wizards managing an investment portfolio. Health and Safety (EHS) risks need to comply with regulations in the communities where they operate. focusing on those new product developments and service enhancements that contribute to better customer solutions. companies may include several objectives in a ³good corporate citizen´ theme in the internal perspective. Beyond compliance. There are three principle categories: 3 Porter. whose prices and operations are regulated to some extent by the government.their customers¶ needs. The innovation process would be motivated by the needs of targeted customers.´3 The activities of an organization are embedded in the internal business processes that comprise its value chain. and speed and efficiency of supply and distribution processes. Whether we are talking about the management of a sales force executing a Marketing Plan. A product leadership strategy would require a leading-edge innovation process that creates new products with best-in-class functionality and brings them to market rapidly. A strategy of regulatory and environmental excellence is important for companies such as telecommunications and utilities. As Michael Porter states. Operations Management is all about the design of effective business processes. these companies may even seek to achieve a reputation as a leader to enhance their ability to recruit and retain employees. The Learning and Growth Perspective ± This defines the intangible assets needed to enable activities and customer relationships to be performed at high levels of performance.
2. Rockwater is an undersea contractor that does projects with major oil companies around the world. and a higher return on capital (A4). and learning and growth perspectives. They propose that an integrated set of measures be developed to track performance from financial. Rockwater developed a strategy to improve its return-on-capital financial performance through two strategic themes: operations excellence ± reducing costs and improving quality. and align the workforce behind the strategy. The project teams could also leverage their costreduction experiences into lower prices for future work for price-sensitive (Tier II) customers. empower. Learning and growth strategies are important for long term development of the firm. and network required to support the strategy. tools. Cause-and-effect linkages in strategy maps describe a path by which improvements in the capabilities of intangible assets get translated in tangible customer and financial outcomes. higher profitability. The suggestions in turn led to many improvements in work practices that significantly reduced the incidence of costly rework (linkage A2). Exhibit 2 Rockwater's Strategy Map For the operational excellence theme. and research activities with requirements from the strategic business processes and customer differentiation strategy. . improved attitude and morale among employees led to a higher frequency of suggestions (linkage A1 in Exhibit 2). It is vitally important that a firm align human resources. Strategic competencies: The strategic skills and knowledge required by the workforce to support the strategy. Kaplan and Norton have developed their concept of ³The Balanced Scorecard´ to tell the story of how well an integrated strategy is being executed. The lower incidence of rework translated directly into lower project costs (A3). and customer management ± developing long-term partnerships with targeted (Tier I) customers. corporate climate. information technology. Strategic technologies: The materials and process technologies.1. internal. 3. Both themes required new capabilities and attitudes on the part of the workforce (see Exhibit 2). customer. Climate for action: The cultural shifts needed to motivate. Kaplan and Norton use the example of Rockwater. a division of Brown & Root Energy Services. information systems. databases.
The Harvard Business School Press. Addison-Wesley. 2001. This material is an edited version of Chapter 3. pp.For the customer management strategic theme. Narrow Your Focus. 5 M. 4 . These satisfied customers paid outstanding invoices with the shortest delays (linkage B3). The Strategy Focused Organization. Dominate Your Market. pp. Norton. these perspectives ensure the short and long term performance of the firm. The short collection period led to lower levels of working capital and higher cash flows leading directly (linkage B4) to an increased return on capital. Wiersema. ³Building Strategy Maps´. thirty to ninety days faster than dissatisfied customers paid. 69-105. The linkages in strategy maps provide the recipes for transformation and value creation over time. the company observed that its most satisfied valueseeking (Tier I) customers were serviced by employees who had scored highest on measures of attitude and alignment with Rockwater¶s strategy (linkages B1 and B2). Collectively. medium term. 77. p. ³What is Strategy´. Near term. The Discipline of Market Leaders: Choose Your Customers. increasing customer value is important. Kaplan and David P. build the business through loyalty and new customers. long term. value creation can focus on operational excellence. Robert S. 31-38 6 Porter. 1995. Treacy and F.