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The Strategy Map and

Balanced Scorecard

Chapter 2

Strategy
 A strategy accomplishes two principal functions:
1. Creating a competitive advantage by positioning
the company in its external environment with
resources to support customers better than its
competitors
2. Having a clear strategy provides clear guidance for
how internal resources should be used to gain a
competitive advantage in the marketplace

Strategy
A good strategy has two important components:
1. A clear statement of the company’s advantage in
the competitive marketplace.
2. The scope of the strategy, where the company
intends to compete most aggressively.

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Balanced Scorecard
 The Balanced Scorecard (BSC) provides a system for
measuring and managing all aspects of a company’s
performance
 The scorecard balances traditional financial
measures of success, such as profits and return on
capital, with nonfinancial measures of the drivers of
future financial performance
 The Balanced Scorecard measures organizational
performance across different perspectives

Balanced Measurements
• The BSC enables companies to:
• Track financial results
• Monitor how they are building the capabilities for
future growth and profitability:
1. With customers
2. With their internal processes
3. With their employees and systems

Perspectives
 Four different but linked perspectives are derived
from the organization’s strategy:
1. Financial
2. Customer
3. Process
4. Learning and Growth

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Connecting the Four Perspectives

 A strategy map provides a visual representation of the
linkages in the four perspectives of the BSC

1. Financial Perspective Return on Investment

2. Customer Perspective Customer Loyalty

On-Time Delivery

3. Process Perspective Process Quality Cycle Time

4. Learning and
Employees’ Process Improvement Skills
Growth Perspective

Strategy and the BSC

 A BSC tells the story of the business unit’s strategy
 A BSC identifies and makes explicit the hypotheses
about the cause-and-effect relationships between:
– Outcome measures in the Financial and Customer
perspectives
– Performance drivers of those outcomes in the
Internal and Learning and Growth perspectives

Objectives
 Concise statements that articulate what the
organization hopes to accomplish
 Action phrases
 Tell the story of the strategy through the cause‐and‐
effect relationships
 Extensive (3–5 sentence) description of each
objective

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Objectives
 Typical objectives found in each of the four BSC
perspectives include:
1. Increase revenues through expanded sales to existing
customers (Financial perspective)
2. Become service oriented (Customer perspective)
3. Achieve excellence in order fulfillment through
continuous process improvements (Internal
perspective)
4. Align employee incentives and rewards with the
strategy (Learning and Growth perspective)

Measures
 Provide specificity and reduce the ambiguity that is
inherent in word statements
 Specifying exactly how an objective is measured will
give employees a clear focus for their improvement
efforts
 Once the objectives have been translated into
measures, managers select targets for each measure

Targets and Initiatives

 Targets establish the level of performance or rate of
improvement required for a measure
– Should be set to represent excellent performance
– Should, if achieved, place the company as one of the
best performers in its industry
 Initiatives are the short‐term programs and action
plans that will help achieve the stretch targets
established for its measures

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What Is Strategy?
 Strategy is about selecting the set of activities in
which an organization will excel to create a
sustainable difference in the marketplace
 The role for the BSC is to provide needed specificity
that makes vision, mission, and strategy statements
meaningful and actionable for employees

1. Financial Perspective
 The ultimate objective for profit‐maximizing
companies
 Financial performance measures indicate whether
the company’s strategy, implementation, and
execution are contributing to bottom‐line
improvement

Financial Perspective
 A company’s financial performance can be improved
in two ways:
1. Generate revenue growth by:
– Selling new products
– Selling to new customers
– Selling in new markets
2. Increased productivity occurs by:
– Lowering direct and indirect expenses
– Utilizing their financial and physical assets more
efficiently

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2. Customer Perspective
 Identify the targeted customer segments in which the
business unit competes and the measures of the
business unit’s performance in these targeted
segments
 This perspective typically includes several common
measures of the successful outcomes from a well‐
formulated and implemented strategy:
 Achieve customer satisfaction and loyalty
 Acquire new customers
 Increase market share
 Enhance customer profitability

Customer Perspective
 A strategy identifies specific segments targeted
for growth and profitability
 Companies must also identify the objectives
and measures for the value proposition it offers
customers

Customer Perspective
 The value proposition is the unique mix of product, price,
service, relationship, and image offered to the targeted
customers
– Defines the company’s strategy
– Communicates what the company expects to do for its
customers better or differently from its competitors
 Value propositions used successfully by different companies
include:
1. “Best buy” or lowest total cost
2. Product leadership (innovation)
3. Complete customer solutions (full line)

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3. Process Perspective
 Means by which the organization will:
– Create and deliver the value proposition for
customers
– Achieve the productivity improvements for the
financial objectives
 The Internal perspective identifies the critical
processes at which the organization must excel to
achieve its customer, revenue growth, and
profitability objectives

Process Perspective
• Organizations perform many different processes,
which may be classified into four groupings:
• Operating processes
• Day‐to‐day processes by which companies

produce their existing products and services and

deliver them to customers
• Customer management processes
• Processes by which companies expand

relationships with targeted customers

(acquire/satisfy/retain)

Process Perspective
• Innovation processes
• Processes by which companies develop new
products, processes, and services,
• Regulatory and social processes
• Processes by which companies ensure that they
meet or exceed regulations on business practices

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4. Learning and Growth Perspective

• Identifies objectives for the people, systems, and
organizational alignment that create long‐term
growth and improvement
• Define the employee capabilities, skills,
technology, and organizational alignment that will
contribute to improving performance in the
measures selected in the first three perspectives
• Identify investments needed to improve the skills
of employees, enhance information technology
and systems, and align people to the company’s
objectives

Learning and Growth Perspective

• Identifies how executives mobilize their intangible

assets to drive improvement in the internal
processes most important for implementing their
strategy
• Examines each of the processes they selected in the
Internal perspective

Learning and Growth Perspective

• Develop core competencies and skills

• Encourage employees to gain a broader business
understanding
• Build the level of skills
• Develop leadership skills
• Provide access to strategic information
• Engage and empower employees

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BSC in Nonprofits and Government Organizations

• The BSC is especially well‐suited for nonprofit and

government organizations (NPGOs)
• Their success has to be measured by their
effectiveness in providing benefits to constituents
• Because nonfinancial measures can assess
performance with constituents, the BSC provides the
natural performance management system for NPGOs

NPGOs and Strategy

• Many NPGOs encountered difficulties in developing
their initial BSC, finding that they didn’t have a clear
strategy
• Many NPGOs place their mission objective at the top
of their scorecard and strategy map
• Cannot use the standard BSC architecture where
financial objectives are the ultimate, high‐level
outcomes to be achieved

BSC Summary
• The benefits from BSC are realized as the
organization integrates its new measurement
system into management processes that:
• Communicate the strategy to all employees and
organizational units
• Align employees’ individual objectives and
incentives to successful strategy implementation
• Integrate the strategy with ongoing management
processes