Professional Documents
Culture Documents
S T R AT E G Y
MEASUREMENT
M A N AG E M E N T AC C O U N T I N G G U I D E L I N E
Using Strategy
Maps to Drive
Performance
By
Howard M. Armitage, Ph.D, CMA, FCMA
and
Cameron Scholey, MBA, CMA
The material contained in the Management Accounting Guideline Using Strategy Maps to Drive Performance is designed to provide
illustrative information with respect to the subject matter covered. It does not establish standards or preferred practices.This
material has not been considered or acted upon by any senior or technical committees or the board of directors of either the
AICPA, CIMA or The Society of Management Accountants of Canada and does not represent an official opinion or position of
either the AICPA, CIMA or The Society of Management Accountants of Canada.
Copyright © 2006 by The Society of Management Accountants of Canada (CMA-Canada), the American Institute of Certified
Public Accountants, Inc. (AICPA) and The Chartered Institute of Management Accountants (CIMA). All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, without
the prior written consent of the publisher or a licence from The Canadian Copyright Licensing Agency (Access Copyright). For
an Access Copyright Licence, visit www.accesscopyright.ca or call toll free to 1-800-893-5777.
ISBN 1-55302-193-2
S T R AT E G Y
U S I N G S T R AT E G Y M A P S TO D R I V E
PERFORMANCE
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and strategies, and to achieve breakthrough strategy execution.The MAG describes the
MEASUREMENT results. Its focus is based on the following importance of (a) setting appropriate overriding
premise: objectives in a corporate setting, (b) establishing a
dominant value proposition that will set the
Although formulating robust and meaningful
direction for achieving those objectives, and
strategies is a fundamental part of a successful
(c) using that proposition to guide the selection of
business process, it is at the implementation
critical financial, customer, internal process, and
and execution phase of strategy — not at the
learning and growth strategies.
planning or formulation phase, where major
impediments to desired outcomes are found. Those familiar with Balanced Scorecards (BSC for
short) will note that strategy mapping is closely
A recent approach to improving strategy
related to the BSC — in fact, it evolved from the
implementation and execution is called strategy
experiences of early BSC adoptersi. In many ways,
mapping. Pioneered by Robert Kaplan and David
however, strategy maps are more innovative than
Norton (also the founders of the Balanced
the BSC.While the BSC is best known for
Scorecard movement), strategy mapping is a
enhancing an organization’s performance
cutting-edge approach to the art of strategy
Learn how to select key financial strategies that will lead to achieving
the overriding objective
Internal Customer
Learn how to select key customer strategies that will lead to superior
financial results and achieve the overriding objective
Learn how to select key internal processes that support the customer
strategies that will lead to superior financial results and achieve the
overriding objective
Learning & Growth
Learn how to select key learning and growth processes that support the
internal strategies that will lead to superior customer and financial
results and achieve the overriding objective
one suggests that strategy maps are the complete sponsorship support at the senior level
answer to strategy execution, they are a promising (CEO/president and board) leads to the creation
solution to the compelling need for better of strategy mapping champions and teams that
execution of strategy. Strong anecdotal evidence can use this process to begin developing and
suggests that such maps assist organizations to communicating their corporate and divisional
achieve better results. In addition, well-crafted maps.
strategy maps improve the alignment of other
The guideline should also be useful to consultants
corporate functions, such as strategy planning,
intending to implement strategy maps for clients.
budgeting, monitoring, operations, and
compensation. By so doing, they can improve the In short, the guideline will assist strategy mapping
probability of successful execution of strategy and advocates, sponsors, champions and
superior operating and financial performance. implementation teams to:
In the following sections, this MAG will describe ● Understand the benefits of strategy mapping;
(a) the scope of, and reasons for the MAG, (b) a ● Understand the steps in the strategy mapping
six-step methodology for developing and process;
implementing a corporate-level strategy map, ● Effectively participate in developing, validating,
(c) how to cascade the map to lower level business
integrating and rolling out processes necessary
units and support groups, and (d) the importance
for a successful strategy mapping initiative.
of validating the map and its associated measures
with ongoing strategic objectives.
THE COMPELLING NEED FOR
BETTER EXECUTION OF
SCOPE AND AUDIENCE
STRATEGY
The MAG discusses the compelling need for
The vast majority of organizations have well-
better strategy execution, and provides a
defined procedures for developing strategic plans.
framework for implementing a strategy map
Strategic planning concepts including (but not
systematically. Much excellent literature clearly
limited to) Porter’s 5-Forces, STEEP (Social,
articulates what strategy mapping is, and why a
Technological, Economic, Environmental and
company should adopt it.This guideline focuses on
Political) analysis and SWOT (Strength,Weakness,
how to implement a strategy mapping initiative.
Opportunity,Threat) analysis, PMI (Plus, Minus,
Strategy maps have proven useful in public, not- Interesting), Red and Blue Ocean strategies3,
for-profit and private sector organizations. Indeed, together with liberal use of focus groups, market
many principles underlying the construction, roll- assessments and company retreats to revisit and
out and communication of strategy maps are refine strategy are common practices on the
similar for a wide variety of entities. Sectors differ business landscape.While strategic planning
in several important ways. This MAG provides exercises will always have room for improvement
useful insight for a broad cross-section of readers. and new insight, it is clear that considerable
However, its primary audience is the private resources, in the form of company personnel,
sector, and the construction of the map that consultants and research firms, are spent annually
follows assumes a private sector settingii. to develop and roll out strategies designed to give
organizations a competitive edge. And for the
Well-conceived strategy maps will pervade the
most part, the result of these corporate retreats,
organization. Consequently, the MAG will be of
research and planning exercises are good, solid,
interest to several levels of organizational
strategies designed to move the entity forward
personnel, including the professional accountant in
and provide sustainable, even superior, returns.
business. First, there are many mid- to senior level
individuals who have read about strategy maps (or But there is also a major disconnect between the
have been to conferences describing them), and formulation and execution phases of strategy.
have become strategy mapping advocates. Such The ability to cascade an organization’s vision,
advocates come from various corporate mission and core strategies into actionable
functions, including finance, accounting, marketing, behaviors that achieve critical objectives is more
manufacturing, and head office support.The MAG difficult than much of our current strategy
provides advocates with the reasons and a literature would suggest. Failure to execute
process for implementing a strategy map that can strategy not only leads to shareholder and board
convince corporate sponsors to provide financial frustration, but also accounts for high executive
and moral support for the initiative. In turn, turnover.
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Recently, this disconnect between plan and However, experienced management teams usually
MEASUREMENT execution has become more evident. Larry know these things and attempt to take them into
Bossidy, Chairman and CEO of Honeywell account. So why, in the face of all we know and all
International, and co-author of Execution, the the money and time poured into planning retreats,
Discipline of Getting Things Done, wrote: executive education and consultants, do we have
so little to show for in converting knowledge into
Most often today, the difference between a
successful outcomes?
company and its competitor is the ability to
execute. .....Execution is the great unaddressed David Norton, author and co-author of many
issue in the business world today. Its absence is articles and books in the area of strategy and
the single biggest obstacle to success and the scorecarding systems, pinpoints the key issues that
cause of most of the disappointments that are impede strategy execution. In a popular website,
mistakenly attributed to other causes4. he recently highlighted these issues8:
This same sentiment was expressed by Michael First, it is impossible to execute something
Roach, CEO, CGI Group that cannot be described.The point he is
making here is that, while we have generally
The true value of leadership is actually in the
accepted tools, such as financial statements,
execution. Can you actually implement that
to describe the economic health of a firm,
vision, that dream? Can you execute to the plan,
we do not have similar taxonomies to
can you deliver a positive outcome?5”
effectively describe, agree on and
While these sentiments reflect the frustrations of communicate strategy. Executive opinions
practitioners, academics have also observed the often differ substantially on whether the
same phenomenon. In a well-known publication, strategy should focus on product/service
The Knowing-Doing Gap, Pfeffer and Sutton6 differentiation, customer intimacy, cost
document the extraordinary gap between effectiveness, technical superiority, or some
knowledge obtained through books, articles, combination of several approaches.This
meetings, retreats, workshops, educational type of confusion is widespreadiii and where
programs, and the deliverables organizational such confusion exists, execution fails at the
leaders hope for. operating levels. Indeed, this explains why
most managers and employees cannot
Analysts are equally concerned about this
articulate their company’s strategy.
knowing-doing gap. A series of Ernst & Young
studies7 in the USA and the UK asked analysts to Second, this confusion exists because
rank the most important non-financial variables organizations do not effectively manage
they look for in analyzing a firm’s future prospects. their implementation of strategy or make
They cited factors such as “ability to attract and strategy a priority in the firm. For example,
retain talent”,“management credibility”, while vice presidential titles are common in
“innovativeness” and “quality of corporate finance, HR, marketing, logistics and
strategy”, but the single most important manufacturing, it is much less common to
consideration for both USA and UK analysts in encounter vice presidents of corporate
recommending an investment was the ability of strategy or Offices of Strategy Management
the firm to execute its corporate strategy. that provide the central focus and
The inference to be drawn is that, while analysts resourcing for executing strategy.
understand the importance of creating a value
Third, even when strategy implementation is
promise, the ability to deliver on the promise is
given more focus, organizations have yet to
what justifies premium ratings.
devote adequate resources to
This, of course, leads to the question of why well- communicating, monitoring, measuring and
formulated strategies so often fail to be validating their strategic progress. It is one
successfully implemented. Some conclusions are thing to track high-level, lagging, financial
obvious to those close to the action. For example, indicators of performance. It is quite
senior managers often falsely conclude that others another to develop, measure and monitor
in the organization share their view of the leading measures of performance that often
corporate strategy. Organizational leaders also foretell future success or failure, and relate
often misjudge the resistance to change and the them directly to strategy achievement.
impact of culture on strategic implementation.
First-generation balanced scorecards introduced
Change agents often underestimate the time it
in the mid- and late 90s attempted to address
takes to create a successful change process.
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these issues, but with only limited success.While has not been widely followed in business circles.
strategy was portrayed as being at the heart of
Strategy maps bring this visualization to life in a
these early scorecards, in reality organizations
business context in a generalized but highly
primarily used their scorecards as improved
integrated manner. Every organization, no matter
performance measurement systems to overcome
its size or sector, must meet customer
an overriding emphasis on financial numbers.
requirements and financial obligations. In turn,
However, building scorecards without first
customer and financial expectations can only be
understanding core strategies turned out to be
met with the right people/technologies and the
frustrating, unproductive, and largely disappointing.
right business processes.The strategy map, as
Many firms that adopted first-generation balanced
depicted in generic form in Figure 2, incorporates
scorecard systems abandoned their initiatives.
these two outcome perspectives (customer and
Other organizations, however, persisted, soon
financial expectations) with the two input
recognizing the necessity of making strategy the
perspectives (people/technologies and processes)
starting point of a more complete management
into a single representation that organizations can
system, one that begins with describing and
use to communicate their strategies and translate
communicating strategy before attempting to
them into concrete actions.
develop specific performance measures.
Strategy maps describe how organizations create
The breakthrough in these second-generation
value by building on strategic themes such as
scorecards was the use of a strategy mapiv —
“growth” or “productivity”.These themes
a visualization process designed to communicate
determine what specific strategies organizations
and validate the “story” of a company’s strategy in
will adopt at their customer, process, and learning
a manner that company stakeholders can follow,
and growth levels.Well-constructed maps describe
understand and help realize.
how the organization plans to meet its specific
The underlying concept of strategy maps is based customer promises, through a combination of
Add/Retain Increase
High-Value Revenue per Reduce Cost
Customer
on a well-known premise — a picture is worth a employee, technology and business processes that
thousand words.While psychologists tell us that satisfy customer expectations and meet
most humans are better able to respond to visual shareholder demands. In short, they provide the
rather than oral or textual forms of conceptual framework that organizational leaders
communication, until the past decade this axiom and their followers can use to better understand
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and execute strategy. well thought through.Value propositions are not
MEASUREMENT explicitly expressed, and when they are,
Organizations adopting strategy maps can reduce
inappropriate business processes are often chosen
the impediments to successful strategy
to support them. Certainly, there are books, a few
implementation. First, the map provides a way to
(fairly expensive) websites and consulting
describe and communicate strategy systematically
organizations that provide guidance. However, for
— companies use their maps to “tell the story” of
the vast majority of firms that may want to
their strategy to various corporate stakeholders,
develop their own strategy map, there is little
thereby achieving a much greater understanding
guidance as to how to go about it. In short, to
and engagement in the strategic process. Second,
reach strategy maps’ full potential calls for a
maps force organizations to place the onus first on
disciplined, systematic approach to their
the strategy, and only secondarily on measuring
development and ongoing use within the
implementation, thus removing the problem of
organization.
numerous unfocused measures.Third, leading edge
adopters use their maps to not only define and The next section provides a step-by-step approach
communicate strategic imperatives, but also to to strategy mapping that will assist advocates,
validate their actions.They use them to test the sponsors, strategy-mapping champions and teams
links described on the map. For example,“if we in their endeavor to create and implement a
undertake this set of strategies/initiatives in proper strategy map.
perspective X, then are we seeing the results we
expect to see in perspective Y”? CREATING STRATEGY MAPS — THE
The timing for this MAG is appropriate.While the GUIDING SIX STEPS
concept of the balanced scorecard has been Organizations increasingly recognize the strategy
widely accepted worldwide (estimates are that map as an integral component of successful
40 - 50% of Fortune 500 companies have adopted strategy execution. In this and the next section, we
some form of the BSCv), many implementations spend considerable time discussing how to
are still at early stages.The strategy map, an
develop high level corporate, and secondary and
integral part of advanced balanced scorecard
tertiary level maps.
systems, is much less recognized by practitionersvi,
and the process of building robust strategy maps is Strategy maps can be, and often are, used as stand-
still in its infancy.We observe that many maps are alone tools that organizations employ to develop,
poorly conceived and poorly constructed.The understand, and convey their strategic story.To
proper “story” of the company’s strategy is not maximize their value, however, they need to be
being told. Linkages between perspectives are not seen, and used, as core building blocks in an aligned
Mission
Why We Exist
Values
What’s Important to Us
Vision
What We Want to Be
Strategy
Our Game Plan
Strategy Map
Translate the Strategy
Balanced Scorecard
Measure and Focus
Strategic Outcomes
Satisfied Shareholders Delighted Customers Efficient and Effective Motivated and Prepared
Processes Workforce
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U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
change management process.This means that the which provided the hotel’s main construction
existence of a strategy map and balanced material — ice.The stated vision of the Glacier
scorecard are necessary, but not sufficient, Hotel was:
conditions to effectively execute strategy.To get
To be an ice hotel of global renown,
the most from them, they need to be seen as part
where innovative and unique offerings
of a change management initiative. Figure 39
provide an unmatched value, an
highlights where the strategy map fits in the
unrivaled experience and total
overall strategic management process.
satisfaction for our guests.
The diagram indicates that strategic deployment
The hotel opened January 1. Made entirely of
begins with shaping or reaffirming the firm’s
ice, the opening and closing dates of the hotel
mission, core values, and vision.These statements
were dictated mostly by Mother Nature.The
form the basis for the considerable (and often
hotel consisted of 28 rooms in its first year, and
lengthy) discussion that leads to the development
included an art gallery that visitors not staying
of a strategic plan.This part of the process,
at the hotel could visit for a fee.All rooms had
consisting of the use of well-known strategic
one queen-size bed, which slept two. Everything
planning tools, consultant input and executive
in the hotel, including beds, had a frame made
knowledge, is generally robust.
entirely of ice. Guests slept in a sleeping bag on
The logic and visual quality of the strategy map a bed of deer pelts placed overtop a bed-
has improved the ability to cascade the strategic shaped block of ice.The room temperature
objectives down to specific measures, targets, and ranged from -3° C to -6° C (26° F to 21°F), but
personal initiatives. However, organizations are still guests remained warm as long as they
uncertain about the actual steps they can take to remained in the bed.
create their own strategy maps.
Expected occupancy was 98%. Actual
We now discuss six steps that have proven very occupancy was 91%. Financial and operating
useful in developing a strategy map.To provide an results barely met expectations, and the owner
integrated view of the map’s development, each knew that changes had to be made.The owner
step will consist of both an explanation and also knew that the board and government
exposition.The steps are: would be looking for a strategy that would put
the hotel in a position to be compared to the
1. Specify an overriding objective
likes of the ones in Quebec and Sweden. She
2. Choose the value proposition had learned of Strategy Mapping and the
3. Choose the financial strategies Balanced Scorecard and felt they would be
4. Choose the customer strategies helpful tools to develop, communicate and
measure progress toward achieving strategic
5. Execute through the internal perspective
objectives.
strategies
6. Plan the learning and growth strategies
Step 1: Specify an Overriding
To better communicate the transition from
Objective
generic principles to their specific application, we
will use The Glacier Innvii as an example. In the next few years, what will it take to succeed?
This first step is critical, because it links the
The Glacier Inn strategy map to the earlier steps of
creating/reaffirming an organization’s mission/core
The Glacier Inn was established a few years ago values/vision.This step must differentiate between
in Northern Minnesota after a visit to Quebec’s what the organization truly understands as its
Ice Hotel convinced the owner and her partners overriding objective, and the strategies it plans to
that a similarly styled hotel would be popular implement.There is considerable confusion on this
with both adventurous Americans and point. Many mission and vision statements are
Canadians. often mistakenly portrayed as the ultimate
As a result, the owner and partners invested objective to be achieved — satisfied customers,
their life savings and were able to secure a service excellence, best-in-field, market leader,
substantial 3-year loan from the state low-cost provider, etc. Indeed, these are critical
government.With these proceeds, they outcomes and are highly desired by all
purchased a plot of land bordering a main river, organizations. However, for profit-making
organizations, the overriding objective must be
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economic. Michael Porter, the well-known superior returns. However, shortly after winning the
MEASUREMENT strategist, makes this point forcefully: prestigious Malcolm Baldrige National Quality
Award for their high quality performance,Wallace
“Start with the right goal: superior long term
Corporation was forced to file for bankruptcy.
return on investment. Only by grounding strategy
Florida Power & Light, winner of the even more
in sustained profitability will real economic value
prestigious Deming Award, almost suffered the
be generated. Economic value is created when
same fate. As management began to realize that the
customers are willing to pay a price for a
costs of quality exceeded the benefits, they were
product or service that exceeds the cost of
forced to cut back and downsize quality initiatives.
producing it.When goals are defined in terms of
Similarly, Federal Express backtracked on its quality
volume or market share leadership, with profits
operations once it learned the economic
assumed to follow, poor strategies often result”.10
consequencesviii.
This is a fine point, but its importance should not
Similar anecdotes could be described for
be underestimated.There is no question that
organizations pursuing other non-economic
serving customers effectively, developing new and
objectives as primary goals.The point is not to
unique products and achieving market dominance
discourage these worthy and important initiatives.
are worthy objectives. And, as Tom Peters points
They are the differentiators that give rise to
out, business isn’t some dry, dreary, boring, by-the-
competitive advantage.The point simply is that they
numbers enterprise. Business can be cool11. But in a
should not be seen as ends to themselves — the
profit-making environment, these are all the
discipline provided by the correct overriding
ingredients for success. Success is achieved by
objective: superior, sustainable financial returns — is
significant revenues and/or cost containment that
the indicator that permits management to
lead to superior economic returns — the overriding
determine if these underlying strategies and
objective.
initiatives are working as intended.
Those who have missed this lesson have paid a
The overriding objective should be the first element
serious price.Take quality, for example. Few
of the strategy map. It should contain a financial
followers of organizational practice would dispute
target and a time dimension.
the importance of total quality management. Better
processes, fewer defects and reduced variance have Examples of an overriding objective could be:
improved the fortune of companies and consumers ● Increase return on capital employed by six
alike. Indeed, many organizations believe that
percent within three years.
achieving higher and higher levels of quality is the
primary goal that, if religiously pursued, will lead to ● Increase profit margin from 8 to 12% and net
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cash flow from $500,000 to $750,000 within five speaking, more than most people realize.
years.
To lead the market, companies first need to
● Increase target share price by 20% by next segment the market in new and unconventional
reporting date. ways, based on current and expected customer
● Increase total shareholder return relative to perceptions of value.What do (or will) customers
benchmark by 10% within two years. really (not traditionally) value? Armed with this
Overriding objectives are the first item to appear information, companies can re-focus to provide the
on a strategy map. Figure 4 excerpts the generic new value drivers better than competitors, and lead
overriding objective “Maximize Organizational the field.The second step in strategy mapping is to
Value” from the generic map shown earlier in choose the value proposition that will help the
Figure 2. organization win the market.
Application of principle to the Glacier Inn:The generic The threeix value propositions put forth by Treacy
map is a guide — it needs to be adjusted by each and Wiersema provide an excellent framework for
organization to reflect its particular circumstance. competing in today’s markets12:
The owner of the Glacier Inn and her partners 1. Operational excellence (also referred to as best
have a vision for the ice hotel. However, they accept total cost)
that the vision can only be reached if there is an
2. Product leadership
economic return sufficient to satisfy the initial
investors, and an adequate cash flow sufficient to 3. Customer intimacy (also referred to as
support operations and loan covenants. Based on customer solutions)
investor and market expectations and their The idea behind the value proposition approach is
estimated revenue and cost model from operations to choose one dominant value proposition, and
as a privately held hotel, Glacier selected provide breakthrough customer value in it. For the
profitability and cash flow (rather than shareholder two propositions not chosen, it is imperative not to
return, normally the case for larger or publicly lead but to compete, at least, to some threshold
listed firms) as their overriding objective.This was level. Doing so can create an image that will keep
Step 1 on Glacier’s strategy map (shown later in customers coming back, as well as provide the
Figure 10b). company the luxury of being the name that new
market entrants will know.
Step 2: Choose the Value Proposition Image: How Does the Customer See The
The company that tries to do everything ultimately Organization?
achieves nothing, or at best very little, and is For an organization to dominate, the market must
destined to find mediocrity.That said, companies deem it worthy of that honor.The organization
that deliver extraordinary levels of distinctive value must be seen as a standout in at least one major
to carefully selected customer groups can reap the area that the market values. In addition, the
rewards offered by market leadership. Sounds good, organization must be able to compete in other
but how does an organization pull that off? How areas to at least some threshold standard.Three
many market leaders can there really be? Generally images that can make an organization stand out
Table 1 - The Value Propositions
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are presented in Table 1. Venetian Hotel — Las Vegas, and Ritz-Carlton —
MEASUREMENT can all provide the same basic service of overnight
The “best deal” image is one driven by price,
accommodation, and can all be market leaders.
where price refers not only to the sticker price,
How? By leading in the specific market segment
but also the “intangible price” of an item, such as
where they have chosen to compete. Each hotel
minimal wait time and a hassle-free return policy.
has chosen a value proposition, and in doing so
As Table 1 indicates, companies focused on
has been able to hone customer value to a level
operational excellence will use price as the key
of excellence that makes guests (and
driver of the “best deal” image. Be the best here,
competitors) take notice.
and that market segment will accept the low-end
thresholds both in terms of unique attributes and Formule 1: Operational Excellence
relationship.Wal-Mart, Dell, IKEA, and ING have
“A clever concept at an unbeatable price”: this
for many years been viewed as excellent
catch-phrase from their website describes the
examples of companies pursuing this value
platform upon which Formule 1 has gained a
proposition.
massive market share in Europe’s hotel industry.
The next image is the “best product or service”. With prices as low as $30 per night, one might
Companies that decide to compete here are using wonder how a hotel can even make money. How
the product leadership value proposition, and will do they do it? By relying on two crucial factors:
use unique attributes and features in their volume, and absolute cost leadership.
products and services as their main image driver.
With small, cheaply made prefabricated rooms
The best companies here will find a market willing
and a self-check-in and check-out system, Formule
to accept a price at the higher end of the
1 is the cost (and thus price) leader in Europe.
threshold standards. Gap provides an excellent
Despite such low prices, the hotel chain’s huge
example of a product leader — they brand
market share, coupled with an occupancy rate
themselves as introducing many of the latest
well above the norm, allows them to realize a
fashions, and spend liberally to get celebrities to
return on assets that puts other more swanky
endorse their apparel.As a result, people are
hotel chains to shame.And talk about
willing to pay large premiums to wear the Gap
convenience: their website allows prospective
brand. Other well-known organizations that
customers to see what is available at any given
compete on product/service leadership include
time at any of their hotels, and book rooms online
CNN, Apple and Cirque de Soleil.
with just a few mouse clicks. From the low prices
The third and final image is that of the “best to the hassle-free experience, Formule 1 typifies
friend”. Companies that compete in this area operational excellence in every way.
follow the customer intimacy value proposition,
The Venetian Hotel — Las Vegas: Product Leadership
providing solutions to their customers.The
companies start with a product or service, and Hotels do not have to be just about sleep - they
instead of leaving it to the customer to make the can be about an experience. At the Venetian
most of product or service, collaborate with the Hotel, guests experience the romance of Italy in
clients to make it work.The process may take a the heart of the Las Vegas Strip.Whether it is the
bit longer, and cost more, but to those in this entrance into the lobby, a stroll along a
market segment, the process is worth the time cobblestone walkway, or a relaxing ride in an
and cost. Moores Clothing For Men, a Canadian authentic Italian gondola under a glorious painted
chain of men’s clothing, embodies the spirit of sky, visitors are treated to a veritable Italian
customer intimacy. Rather than just selling experience.Talented Italian opera singers
clothes, staff at Moores (who are called “image serenade shoppers as they stroll along the Grand
consultants”) ask the right questions and work Canal, and costumed entertainers perform daily,
with customers on the right look. Image taking guests and visitors back in time to
consultants have even been known to phone Renaissance Venice.
clients to ask how a particular engagement went.
The hotel, of course, offers other features that
Customer-intimate competing firms also include
guests require. Restaurants, rooms, a casino and
Williams Sonoma, Starbucks and UPS.
service are all acceptable but not remarkable (i.e.
The Hotel Industry: It’s Not Just About Sleep they meet threshold levels). However, the defining
feature of the hotel is its Italian-style uniqueness.
The hotel industry provides an excellent example
The Venetian is selling an Italian adventure, which
of how three different hotels — Formule 1,
makes it a “product leader” in the truest sense.
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Product Leadership
First to market; Unique attributes; Brand image
Customer
Customer Intimacy
Customer service; Relationship management;
Brand image
Operational Excellence
Price; Quality; Selection; Brand image
Internal
Increase profits
Learning & Growth
by Y% in 3 years
Product Leadership
The Glacier Inn provides an unmatched value,
How we plan to accomplish it
13
MANAGEMENT
S T R AT E G Y
has achieved remarkable results in doing so, strategies around revenues and costs. Financial
MEASUREMENT seems far less likely to stem from simple good strategies can be categorized into three key areas:
fortune than from market leadership resulting
1. Revenue growth;
from sound choices of value propositionx.
2. Productivity; and,
The Strategy Map
3. Asset utilization.
Understanding one’s value proposition is All organizations must pay some level of attention
fundamental to the construction of the financial, to each of these strategies. However, the choice
customer, internal business processes and learning of value proposition in Step 2 helps dictate which
and growth perspectives on the map. Many of the three will dominate, and where to spend
organizations do not explicitly show the value most of the effort and activity.Table 2 below
proposition on their maps, believing that the indicates the types of financial strategies
choice of strategies in the four perspectives will companies pursue based on the choice of value
be evident to readers.While this may be true, it is proposition.
better practice to include the value proposition
directly on the map. Knowledge of the value proposition assists
organizations to pinpoint which of the three
Figure 5 illustrates this process. First is a generic financial strategies will dominate. Figure 6
look at the value propositions — a firm must illustrates that organizations pursuing operational
choose a dominant proposition from the three efficiency propositions will focus on reaching their
alternatives. Second, it shows a map that highlights overriding objectives primarily through
Glacier Inn’s choice. Glacier’s owner believes that productivity and asset utilization strategies.
the hotel is clearly designed to attract visitors Organizations following customer-intimate or
whose primary reason for coming is neither cost, product leadership propositions will put less focus
nor comfort. Rather, it is adventure — a unique on these efficiency strategies, instead attempting
experience in a unique hotel.This is clearly a to grow revenue through unique product or
product leadership value proposition. customer features.
Choosing a value proposition guides the Revenue growth strategies
organization toward the most appropriate
financial strategies, which is the next step. All organizations want to grow revenue. Growth
is the oxygen of business — growing
organizations thrive; shrinking companies fade.
Step 3: Choose the Financial The value proposition chosen will dictate just
Strategies how an organization goes about growing its
Having established the value proposition, revenues. Companies following operational
organizations next formalize their plans and excellence will try to grow revenue through
Value
Proposition
Financial Operational Product Leadership Customer Intimacy
Strategy Excellence
Productivity Tight variable and Control but also spend Control but also spend
discretionary cost on R&D and marketing on solution selling
control
Asset utilization Maximize inventory Utilize fixed assets as Utilize fixed assets as
turnover necessary in pursuit of necessary in pursuit of
Utilize fixed assets to product leadership customer intimacy
fullest
14
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
reducing prices and increasing volume and such as pallet trading so that customers do not
turnover. Companies that improve productivity have to immediately remove shipments from their
and asset utilization can do this profitably.Wal- pallets.This provides Erb additional revenue
mart is an example of a company that promises through saving customers time, effort and cost.
lower and lower prices, yet does so profitably FedEx and UPS are also excellent examples of
through focusing on cost reductions. customer-intimate organizations.Their slogans,
respectively,“Absolutely, Positively Overnight” and
For those organizations pursuing product
“Your World Synchronized” immediately tell
leadership, revenue growth tends to come
clients that it is not just about delivering packages.
through price premiums for their cutting-edge
It is about fast, reliable delivery and synchronizing
offerings.Take Apple for example: by being “first-
global supply chains for any size of company — in
in” with products like the iPod, Apple was and is
short, solutions to customer problemsxi.
able to capture that segment of the market willing
to pay large premiums for the “latest and Productivity
greatest” products. It is important to note that
In management accounting terms, a productivity
Figure 6:The Relationship between Financial Strategies and Value Proposition
Step 3: Understanding the Link between Financial Strategies and the Value Proposition
Operational Excellence
Product Leadership
Customer Leadership
15
MANAGEMENT
S T R AT E G Y
proposition. A good example of this is CNN: (e.g. hotels), or machinery (e.g. automotive) get
MEASUREMENT emphasizing cost control too much would conflict the most return from these investments.This is
with CNN’s widely renowned reputation for particularly true for operationally excellent
being where the breaking story is. By spending organizations that can only achieve success
more, CNN is able to maintain its image as having through impressive inventory and other asset
the best coverage of any network. turnovers.
Customer-intimate companies, like the Ontario In the same vein as the discussion on productivity,
Teachers Insurance Plan (OTIP), must also strike a product leaders and customer-intimate
similar balance.They wish to get as much return organizations also need to improve their asset
as possible from their assets, but not to the point utilization without violating their primary value
of violating the customer-intimacy value propositions. In conclusion, the choice of financial
proposition. Although they could cut costs in strategies is an important step in the strategy
customer service staffing by outsourcing, OTIP mapping process. By aligning financial strategies
had no intention of doing so, as outsourcing would with the value proposition, companies can
go against their customer intimacy value position themselves to properly decide what
proposition. customers are willing to pay for.
Asset Utilization The Glacier Strategy Map
In management accounting terms, an asset The top portion of Figure 7 highlights the three
utilization strategy equates to optimizing the fixed generic financial strategies.The lower portion
cost structure of the organization. It is imperative illustrates the specific financial strategies Glacier
that companies who must invest heavily (or chose. Since Glacier is pursuing a product
moderately) in large-ticket items such as buildings leadership proposition, the company must focus
Step 3: Understanding the Link between Financial Strategies and the Value Proposition
Maximize OrganizationalValue
Financial
The Glacier Inn provides an unmatched value, an unrivaled experience and total
satisfaction for our guests through the provision of a unique hotel adventure
16
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
primarily on generating revenues from their they must clearly establish and articulate their
unique offerings.This will involve a combination of customer strategies. Customer strategies can be
financial strategies, including generating revenue categorized into three key areas:
from non-hotel room sources. Examples could ● Retaining and adding customers;
include ice museums designed to attract day
visitors, and outdoor activities and services that ● Increasing revenue per customer; and,
cater to an adventurous clientele. Building ● Reducing cost per customer.
additional capacity in terms of hotel rooms and Organizations must pay attention to each of these
infrastructure will add to revenue, as will a strategies. However, the choice of value
strategy that calls for providing in-hotel guests proposition once again dictates where the firm
with additional unique ice features, for example, should focus its effort and activity.Table 3 indicates
drinks poured into all-ice glasses, for which guests the types of customer-focused strategies
will be willing to pay premium prices. Glacier must companies tend to pursue based on the value
also search for and implement cost saving proposition chosen.
strategies that relate both to its physical and
human assets, but which strategy to emphasize: Those pursuing operational excellence will use
revenue growth or productivity,xii is clear. Both are competitive prices to retain and add customers, in
needed, but without the “unique” revenue growth addition to increasing revenue per customer.Tight
focus, all the productivity strategies in the world process and supply chain management will assist in
will not permit Glacier to succeed. its ongoing efforts to reduce costs per customer.
At this stage, Glacier’s strategy map consists of its Product leaders will offer the latest of
overriding objectives, its product leadership value technologies and features, including “add-on”
proposition, and its choice of high-level financial products and services, to increase customer
strategies it will pursue to achieve the overriding volume and revenue per customer. In pursuing
objective and the Glacier vision. premium pricing, product leaders cannot be given
a “license to spend”. To be profitable, strategic
The next step is to select the customer-related planning must try to balance spending and profits.
strategies.
To retain and add customers, customer-intimate
companies will tend to use strategies such as
Step 4: Choosing the Customer promoting word-of-mouth marketing and loyalty
Strategies programs. By offering complete solutions and
Having established financial strategies, bundling packages, these companies attempt to
organizations must formalize their plans and increase revenue per customer. Like product
strategies to win the marketplace. In other words, leaders, strategic planning must try to balance
Value
Proposition
Operational Product Leadership Customer Intimacy
Customer Excellence
Strategy
Reduce cost per Tight process and supply Spending and cost Spending and cost
customer chain management control policies as control policies as
necessary in pursuit of necessary in pursuit of
product leadership customer intimacy
17
MANAGEMENT
S T R AT E G Y spending and profits.The elements of the of safety, cleanliness, and service.These are
Customer Strategy Chart are portrayed in the highlighted on the map as “non-differentiable”
MEASUREMENT generic strategy map shown in the top portion of factors. In other words, they must be present, but
Figure 8. they are not the key differentiating strategies that
will persuade people to visit the Glacier Inn.
The bottom portion of Figure 8 indicates how
Glacier has translated these concepts into Note how closely tied these customer strategies
customer strategies it needs to implement to are to Glacier’s value proposition. It is a consistent
achieve its financial goals, overriding objective, and story of developing critical strategies around the
vision. Glacier’s product leadership value central value proposition — leading to revenue
proposition provides the necessary guidance here. growth and achievement of the overriding
Glacier must compete for hotel visitors through objective.
its uniqueness theme. Consequently, it must
pursue customer strategies that include Step 5: Execute through the Internal
“adventure”,“uniqueness”,“different”,“rare”,
Perspective Strategies
“exclusive” — the hallmarks of a product/service
leader.These core strategies are shown as shaded Having established financial and customer
boxes in Figure 8. At the same time, Glacier must strategies, organizations next establish those
ensure threshold levels of other amenities. For important actions that will realize the plans and
example, the “adventure” theme is a great strategies to win the marketplace. On the right
differentiator. But there must be a threshold level hand side of the strategy map, the focus changes
Add/Retain Increase
High-Value Revenue per Reduce Cost
Customer
Solutions
Current Migrated New New Offerings Focus Scalability Strategies
(e.g.Web)
Product/Service Attributes
Customer Strategies
18
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
Value
Proposition
Process to Operational Product Leadership Customer Intimacy
excel and lead Excellence
at
19
MANAGEMENT
S T R AT E G Y
managing capital projects and budgets. achieve its financial and customer goals. Glacier’s
MEASUREMENT Organizations that succeed here recognize that product leadership value proposition provides the
customers are willing to pay a premium for necessary guidance here. Glacier must strongly
leading-edge products and services, and will market its uniqueness theme.At the same time,
tolerate less than stellar customer service and Glacier must also continuously develop (a) the
cost. A good example is Nike. By focusing most of unique features it prides itself upon, and (b) the
their efforts on fashion innovations and branding, hiring and training programs it needs to excel in
those wanting to wear the Nike ‘swoosh’ are this market space.These are the dominant
willing to pay steep price premiums. Microsoft, internal processes. If they are not developed, the
another organization that has never been credited Glacier Inn will fail. Productivity processes are an
with “outstanding” customer service, still important supporting theme. If the proposition is
dominates the market through its product effective in attracting customers, every effort
leadership. must be made to keep the hotel open as long as
possible each year.This means achieving
Customer management leadership
efficiencies through targeted project/staff
Customer-intimate organizations tend to focus on management and exploiting existing ice
those processes most closely linked to customer technologies to preserve and extend its basic
management: selection, acquisition, preservation building component.The combination of these
and growth.The focus here is on developing internal process themes will lead to customer and
knowledge of customers and building strong financial objective success.
relationships. It also includes the processes for
This sets the stage for Step 6: planning the
providing convenient order handling, and offering
learning and growth perspective, where the plan
solution portfolios to customers. Extra effort is
to accomplish the strategy is finalized.
made to identify with customers and make
customer results happen. A good example is the
Four Seasons hotel, where the focus of all Step 6: Plan the Learning and Growth
employees is to provide a world-class experience, Strategies
whatever it takes15. UPS is another example of a
Having established financial and customer
firm that goes to extraordinary efforts to develop
strategies, and developed an execution plan,
solutions for customers.To do this, UPS must
organizations will inevitably notice some gaps in
hone their internal processes to ensure support
knowledge, skills and abilities necessary to
for their “best friend” image.
execute the chosen strategy. In this final strategy
It is important to emphasize again that all mapping step, companies develop the appropriate
organizations will develop strategies in all three learning and growth strategies.
areas. However, the value proposition assists in
The learning and growth perspective is about
focusing and prioritizing what effort to emphasize.
identifying and bridging gaps that could limit the
In addition to the core strategies noted above, organization’s ability to execute the key processes
organizations may also wish to highlight the identified in the internal perspective. Learning and
importance of developing other core processes growth can be classified into three primary areas:
for other stakeholders. For example, many
1. Human capital;
(particularly publicly listed) organizations find it
important to emphasize and communicate 2. Information capital; and,
processes relating to governance and control. 3. Organizational capital.
These processes may take several forms, including
fiduciary, regulatory, and environmental. Similarly,
Human capital
some organizations have adopted processes
consistent with corporate social responsibility Human capital is the economic value an
objectives such as social justice and community organization derives from (a) application of
obligations. knowledge, (b) collaboration, and (c) engaged
individuals. Managed well, human capital is an
The strategy map
enormous source of value that comes from
The top portion of Figure 9 shows what the committed individuals making informed decisions
generic strategy map looks like at this point.The on service, quality, effectiveness, creativity, goal
bottom portion of Figure 9 indicates how Glacier alignment, and productivity. Many argue that an
has translated these concepts into internal organization’s human capital is its single biggest
business strategies it needs to implement to competitive advantage. Organizations can go a
20
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
Add/Retain Increase
High-Value Revenue per Reduce Cost
Customer
Solutions
Current Migrated New New Offerings Focus Scalability Strategies
(e.g.Web)
How we plan to
Internal
Increase CF by $XXX
Learning & Growth
Introduce new Add more Add more in- Maximize proficiency Increase staff and
sources of non-hotel hotel capacity hotel features in ice management hotel operating
revenue efficiencies
Customer
long way to achieve their overriding objectives by manuals, databases, files and infrastructure to gain
aligning human capital skills to their dominant competitive advantage and to execute strategy.
value propositions.This includes attracting and Examples include the effective use of intranets and
retaining the right types of skills, and providing central document repositories, and the ability to
appropriate coaching, mentoring and opportunities list projects containing information on those
for developing the know-how necessary to whose particular expertise can assist in solving
execute specific strategies.While this may seem particular classes of problems.The type of
obvious, the high rate of employee turnover in information capital chosen depends on the firm’s
some organizations and industries indicates all too primary value proposition. For example, a
common mismatches between desired outcomes customer relationship management (CRM) data
and employee skills. base system will be far more critical to a
customer-intimate organization than to an
Information capital
operationally efficient firm. Similarly, systems that
Information capital relates to how organizations report on statistical process control will be far
utilize their information systems, networks, more important to an operational efficient firm
21
MANAGEMENT
S T R AT E G Y
than to a product leader. The Glacier map in Figure 10b clearly highlights
MEASUREMENT Glacier’s Learning & Growth strategies. As a firm
Organizational capital
in the guest “adventure” business, it needs to be
Organizational capital is the firm’s ability to sure that the employees delivering its unique style
connect employee goals to corporate goals. of programs and activities have the right
Companies with high levels of organizational competencies. Glacier will be more likely to
capital are ones that exhibit complementary team successfully execute its strategies if it looks for
memberships, open communication channels, young, energetic, nature-loving individuals with a
shared visions, trust in leaders, and common bonds genuine concern for clients.Where would that
— usually leading to greater employee retention strategy lead them to find such individuals? Several
and superior performance. Leadership, teamwork locations are possible, but since the Inn is seasonal,
and communication are important ingredients in and Glacier must also be cognizant of its cash flow
organizational capital.Together, they provide the and profitability objectives, a likely source would
ability to adapt, and to make the changes required be university programs that (a) specialize in the
to execute on the strategyxiii. environmental or kinesiology studies, and (b)
include practicums or cooperative work terms in
Companies need to take different approaches to
their academic requirements. As seen in the
learning and growth because of their specific
internal business process part of the map, Glacier’s
circumstances, customer expectations, and internal
success also depends on keeping the hotel open as
business requirements. In short, the firm’s human,
long as possible, and through potential seasonal
informational and organizational capital policies
temperature thaws. Partnering with universities
Table 5: Capital Focus Chart
Value
Proposition
Operational Product Leadership Customer Intimacy
Type of Excellence
Capital
Status quo: abide by Status quo: depends on
Status quo: challenge
Human Risk: minimize Risk: calculated customer
Time horizon: shorter Risk: calculated
Time horizon: longer
Flexibility: rigid Time horizon: very long
Flexibility: versatile
Flexibility: adaptable
Focus:efficiency Focus:innovation Focus: customers
Information Sharing:external Sharing:internal Sharing: internal, external
Main area: operations Main area: R&D Main area: sales
Customer response: N/A Customer response: N/A Customer response: rapid
its specific financial results (overriding objectives) promises guests an unrivalled experience and total
within three years, if it is to survive. Management customer satisfaction by providing them with a
believes it can achieve these objectives through a unique hotel experience.
strongly differentiated value proposition that
Figure 10a: Completed Generic Strategy Map
Add/Retain Increase
High-Value Revenue per Reduce Cost
Customer
Solutions
Current Migrated New New Offerings Scalability Strategies
Focus
(e.g.Web)
Internal
Introduce new Add more Add more in- Maximize Increase staff and
sources of non-hotel hotel capacity hotel features proficiency in ice hotel operating
revenue management efficiencies
Customer
Attract and train youthful, Create and promote a Partner with local
energetic, individuals who culture of innovation by colleges/communities to
desire to participate and learn aligning business goals with adopt new advances in ice
in an experienced-based setting personal goals making and preservation
The Glacier Inn provides an unmatched value, an unrivaled experience and total satisfaction
for our guests through the provision of a unique hotel adventure
23
MANAGEMENT
S T R AT E G Y
Glacier will achieve its overriding objective by this.The example then will focus on the box
MEASUREMENT heavily relying on revenue growth through “Introduce new sources of non-hotel revenue.”
additional hotel capacity, unique in-hotel ice
The map can be used to visually communicate to
features, and expansion of its non-hotel sources of
employees exactly how introducing new sources
revenue (ice museums and ice-related attractions).
of non-hotel revenue will support the revenue
At the same time, Glacier must manage its two
growth strategy.The more specifically the
major cost components — employee/hotel costs
elements of the customer perspective can be
and ice construction and maintenance.
drawn into a discussion, the more likely it is that
The customer-related strategies that will assist employees will be able to visualize and understand
Glacier to meet its revenue projections are how the pieces of the map fit together. For
strongly based on the value proposition of product example, the creation of a grounds tour for day
leadership.While meeting threshold levels on core guests (not unlike the wine tours offered by
customer expectations (safety, cleanliness, service), wineries) can create a sense of adventure and
it will focus the bulk of its activities on its uncommon experience, in large part due to the
differentiated adventure theme — different meals, unique design of the facility. It may include lunch or
different experiences, and making the most out of dinner, making these meals a differentiating
the northern adventure. experience.This serves to create a new source of
non-hotel revenue. Another example might be ice
To deliver on these themes, Glacier must be
fishing or wilderness walks for day or overnight
organized internally to identify, design and
guests, promoting the back-to-nature theme, and
implement the key processes that will meet its
again creating new non-hotel revenue. Using the
customers’ demands for uniqueness. On the
strategy map to explain this can only add to
revenue growth side, these internal processes
employee clarity and understanding.
consist of developing a highly compelling
marketing story, and supporting it with exciting With employee clarity and understanding of what
outdoor activities and indoor experiences Glacier wants to accomplish, the stage is set to
delivered by enthusiastic and knowledgeable staff communicate how they can contribute.The
— all of which make Glacier an unforgettable importance of developing high quality unique
experience. On the productivity side, processes offerings to support the customer perspective, and
that lead to operating efficiencies and ice more specifically the need to generate non-hotel
preservation will assist Glacier to reach its revenue, will be much clearer to employees. In
financial targets. addition, they will likely better understand the
hiring and training processes that support the
Finally, Glacier recognizes the importance of the
themes being promoted, as well as the culture and
right human capital skills, the importance of
competencies plan on the strategy map. All of this,
seeking the latest ice technologies, and the role
coupled with the fact that employees are usually a
that organizational culture plays in putting the
major source of idea generation if asked, can
parts of the company together.As Glacier is a
greatly assist Glacier in generating the high quality
product leader in an annually changing
unique ideas necessary for strategy execution.
environment, these elements are critical to
ongoing success. Strategy maps, like the Glacier map, are
exceptionally helpful in communicating the intent
Communicating the strategy map: of the organization to all its stakeholders. Strategy
A sample walk-through maps not only keep the organization focused at
the executive level, they are also used for many
In addition to allowing the owner and her partners other purposes, including overviews to bankers,
to clearly tell a strategic story to the board and board of directors, and prospective employees.
the government, the map can be extremely useful They can also be extremely helpful in guiding the
in communicating the strategy to employees, most appropriate content (especially measures)
facilitating a new understanding of how they can for a balanced scorecard. Strategy maps really
contribute to strategy execution. A specific (yet stand out when used (a) to communicate with
simplified) example of how the Glacier strategy employees (who must, each day, perform the
map can be used in this manner is found in the activities that lead to successful strategy
two next paragraphs. Employees will generally implementation), and (b) as a guiding framework
understand the desire to increase cash flow and for developing strategy-critical measures.
profitability, and the part revenue growth plays in
24
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
CASCADING THE STRATEGY MAP cascading maps. First, there is the “within-
organization” type shown in Figure 11. Here the
Corporate-level strategy maps help organizations
corporate map is cascaded into a series of lower
effectively describe and communicate core
level maps, usually based on geographical, product,
strategies to their stakeholders. Executives report
service or group distinctions.
considerable satisfaction after completing this
stage because, often for the first time, the senior Second, there is the “within-perspective” type of
management team finds itself agreeing on high- map. Figure 12 provides an example of this kind of
level objectives, value proposition, and key decomposition, illustrating Glacier Inn’s value
strategies. Some firms have the simple objective of proposition broken down into specific
clarifying strategic direction and communicating a perspective-level strategies. For example, a Glacier
clear picture to stakeholders. Many strategy stakeholder might say that developing customer
mapping exercises stop at this “corporate strategy strategies around themes like adventure and
map” point. uncommon experiences sounds good, but what
does that really mean? “Within-perspective” drill-
However, most strategy mapping exercises use the
down maps convey this additional information.
corporate map as a starting point for developing
lower level maps and scorecards. As Figure 11 This can point employees to specific actions and
illustrates, there is a continuum of possible drill- accountabilities that will help in executing strategy.
down maps. For example, Mobil developed a For example, an employee in charge of the
corporate-level map for its North American wilderness walks can spend more time than
Manufacturing and Refining Group, then normal to create the most interesting and
encouraged its 18 business units and 14 support educational walks. She might do so by locating
groups to develop drill-down maps based on the interesting landmarks, such as attractive rocks and
corporate one. Interestingly, they did not insist that trees. She might also research the various types
the specifics in each divisional map roll up or are and ages of trees seen in the walk. Another
made consistent with the corporate map. ATS example is the employee taking guests ice fishing.
Automation Tooling Systems, on the other hand, He might do additional research on the types of
has encouraged lower level group, regions and fish usually caught, including tasting each, and
divisions to develop maps and scorecards that commenting on this to guests. Certainly, the
articulate with the corporate map. employee will need to understand any danger
signs (thin ice for example). The list of examples is
Organizations can employ different types of
Support
Department
Maps &
Scorecard
Maps and Scorecards of lower level maps may or may not roll up to higher level maps
25
infinite — these are just two simple examples to map as an important tool in helping the firm to
give the reader a sense for how employees can take implement its strategies.
action using the drill-down map. Management can
The cases differ, in the sense that one is in financial
convey to employees that this is the type of action
services, one in global manufacturing, and one in
they are expected to take and will be held
education.Two of the cases are for-profit, and the
accountable for.
third is an example of a cost-recovery organization.
A third type of cascading is the “across-function” One is publicly listed; the other two are privately
type. Figure 13 provides a simplified example of a held. One is a large multinational, and two are
drill down for this objective on the main strategy smaller units within large and mid-size organizations.
map:“Optimize capital employment” for three Each has developed/refined its own unique
functions.The Inventory Control section illustrates mission/vision/value statements.
how a subsequent drill down was conducted for
Despite these differences, each has used a strategy
“Super manage big dollar items”, because it is
map to communicate its strategic themes to
important to keep drilling until an actionable set of
stakeholders. Each has followed the six steps
tasks results.
described earlier, and identified an overriding objective
The most appropriate drill-down approach will vary and value proposition, and strategic objectives for their
from company to company, and from business unit financial, stakeholder, internal business process and
to business unit even within a company.The learning and growth perspectives.
important result is a set of actionable steps that
Figure 12:Value Proposition Drill Down for Glacier
Good ✙ Adventure
Wilderness
An all ice Walks Experience
26
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
Production, Project
Finance Inventory Control
Optimize Management
Capital
Employment Work With Big
$$ Suppliers
Reduce
Receivables Shorten Days
Inventory
Invest ONLY
Minimize WACC When Super-manage
ROI>WACC Big $$ Items
Internal
Manage Cash
Invest ALWAYS
When
ROI>WACC Determine Big
$$ Items
Optimize Risk Liquidate Idle
Assessment Capital
Activity Analysis
Remove
Constraints
Renewal
processes, such as the annual budget, monthly address the needs of policy owners and clients for
reviews, recruitment policies and continuous financial protection, capital accumulation, estate
improvement initiative have been incorporated preservation, and asset distribution. Life Wealth
into the measurement system. Planners (LWP) is a new group of advisors
investment branches of RBC Dominion Securities,
Spokespersons at these organizations believe
with offices in Kitchener and Cambridge, Ontario.
strongly that the use of the strategy map has
provided a number of positive results. Principal
among these is the ability to describe, Background
communicate, implement and monitor what must In the investment management field, the
be accomplished, and how specific individuals opportunity to branch out and become an
throughout the organization can be engaged to independent advisor under the corporate
achieve it. All are committed to continue working umbrella is usually available to those who have
with strategy maps. demonstrated excellence within the firm.
The three organizations are: Confident that they could achieve greater success
this way, in 2005 Dilk Dhanapala and Teri Cook
1. RBC Dominion Securities; (both certified financial planners) decided to
2. ATS Automation Tooling Systems; and, exploit this opportunity by co-founding Life
3. Master of Business, Entrepreneurship and Wealth Planners (LWP). The term LIFE is actually
Technology (MBET) Program. an acronym for the partners’ approach to clients:
1. Identifying a client’s Life goals and values;
RBC Dominion Securities’ Life Wealth 2. Gathering Information on clients;
Planners 3. Finding solutions for clients; and,
4. Evaluating and modifying plans.
Many clients have joined this group of advisors
because they feel they are obtaining objective and
comprehensive advice on their specific goals and
RBC Dominion Securities is one the oldest and values. Both of the founding members believe it is
pre-eminent providers of wealth management in their sincerity and execution of complete
Canada. Based in Toronto, Ontario, the company, comprehensive solutions focused at providing
with its subsidiaries and affiliates, offers insurance, value to their clients that truly sets them apart.
investment products, and advisory services to
27
MANAGEMENT
S T R AT E G Y
The new company’s vision was to leverage its 3. To enhance the productivity of representatives
MEASUREMENT strengths and strong network “to become the to maximize wealth generated for clients.
pre-eminent wealth management team in the The choice of these internal strategies is entirely
region.” Its business model was to create wealth consistent with LWP’s choice of a customer-
(its overriding objective) through a customer-intimacy intimate proposition. Successful implementation
value proposition that called for taking the of this theme results in a robust, integrated
necessary time to learn and understand client planning approach to maximizing client wealth and
goals and develop, for each client, an individual increasing the capabilities and productivity of all
plan that maximized the likelihood of achieving employees.
both financial and non-financial goals.The adopted
strategy focused on enhancing LWP’s core The second theme,“Process”, focuses on the
strengths in wealth management, and expanding “behind-the-scenes” activity that clients do not
its reach of expertise to cater to clients looking see directly, yet tends to affect their wealth-
for complete solutions to their wealth related goals immensely.The company expects
management needs. By building a network of employees to find new and more efficient ways of
specialists, including a Will and Estate Consultant working to maximize benefits to clients and the
and an Insurance Consultant, LWP was able to company.Three key needs were identified for this
identify solutions for clients with the most theme:
complex financial security needs. 1. Developing and maximizing efficiencies for all
LWP developed its strategy map to communicate internal processes;
and monitor the success of its strategy and 2. Supervising employees to ensure complete
aggressive growth plans.The co-founders also compliance and best practices; and,
used the strategy map to assist in the training and 3. Measuring service excellence in all areas by
engagement of new employees. Because of its using the balanced scorecard.
strong client focus and its desire to use the
The company fosters a culture of loyalty and
strategy map to convey the importance of client
commitment through strong hiring and
requirements, LWP created a map that placed the
orientation practices, and treating people as well-
financial and customer perspectives side-by-side
respected resources.To obtain the type of
(see Figure 14). The company’s stated overarching
employees needed to satisfy a customer-intimate
objective is to create wealth for the partners by
strategy, LWP recruited people using a three-step
increasing their financial returns. However, placing
system referred to as PIE (getting the appropriate
an equally high value on service — the theme of
pipeline of candidates; undertaking a structured
the customer perspective being to exceed clients’
approach to interviewing for the right fit; and,
wealth expectations — would help it to achieve
enabling new employees to prosper quickly
the desired level of profit. Placing the customer
through effective orientation). Again, the choice
perspective on an equal footing causes clients to
of employee and learning and growth strategies is
(a) feel that the company fully understands their
consistent with LWP’s value proposition.The
business and/or personal issues, and (b) trust the
dominant theme is to build clientele.The PIE
firm to develop customized solutions.
system is the learning and growth strategy that is
The LWP internal process perspective centers a key driver in accomplishing it.
around two primary themes.The first theme,
“Network”, focuses on three needs: Results
1. To establish a cutting-edge information The co-founders use the strategy map in several ways.
architecture that tracks key information on First,the balanced scorecard measures that flow from
clients as the company continues to build the the map to facilitate regular quarterly discussions about
client base and follow the customer-intimate the execution of the company strategy.
value proposition;
Second, the company uses the strategy map to
2. To optimize the management of what is
orient new staff to what the company is all about
referred to as the “Centres of Influence”. The
and what is expected of them, as well as to
focus here is on building partnerships with a
remind existing staff about their roles in executing
variety of key individuals and organizations that
company strategy.Through the map and the
can assist LWP in providing clients with the
balanced scorecard, employees are educated
best local professionals and the best relevant
about the tight connection to strategy and long-
advice; and,
term results.
28
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
The company intends to cascade and link the ATS AUTOMATION TOOLING
balanced scorecard to employee bonuses, to SYSTEMS INC.
reward employees for progress made toward
strategy achievement.Traditionally, the industry ATS Automation Tooling
links bonuses to short-term financial results and, Systems Inc. (ATS — see
since employees tend to act in a way that www.atsautomation.com) is one of the world’s
maximizes rewards, their behavior might not leading designers and producers of turnkey
always be in the best interests of clients.To foster automated manufacturing and test systems.
a culture of long-term client wealth maximization, Headquartered in Cambridge, Ontario and listed
LWP feels that use of the entire balanced on the Toronto Stock Exchange (symbol ATA),
scorecard is appropriate to measure and reward ATS serves a variety of industries, including
employees for helping to advance the company healthcare, computer/electronics, automotive, and
strategy. consumer products. ATS is also an emerging
leader within the solar industry with its energy
Overall, the company feels that its return on the cells and modules.
investment in the strategy mapping initiative has
been great and continues to grow, and the co-
Background
founders agree that their strategy mapping
initiative has played an integral role in its success. ATS began in 1978 when Klaus Woerner began
The company looks forward to many years of operations with a 2,800 sq. ft. special-purpose die
prosperity. shop and four employees. By the year 2000, under
Klaus’s drive and entrepreneurial leadership, the
Figure 14: RBC Dominions Securities’ Life Wealth Planners’ Strategy Map
Client Financial
To meet and exceed the wealth management To value service over profit and optimize financial
expectations of our clients, we will: returns, we will:
To achieve our client objectives and meet our financial objectives, we must
Internal Business
Network Process
Establish the Build and Enhance field Develop and Supervise for Measure
information optimize rep maximize compliance service
architecture management productivity internal and best excellence in
of the process practices all areas
“Centres of efficiencies
Influence”
29
MANAGEMENT
S T R AT E G Y
company had grown to nearly 4,000 employees at implement a differentiated strategy.
M E A S U R E M E N T 26 manufacturing facilities around the world, with ● Results needed to be achieved quickly.
annual revenues approaching Cdn$700 million. As
During 2005, Ron put into motion a number of
the new millennium unfolded, however, ATS’s
directives and meetings designed to build on the
markets weakened and problems related to ATS’
significant strengths and reputation of ATS, by
entrepreneurial way of developing and managing
encouraging the executive team to revisit and
its business began to appear. Klaus became ill, and
refine the firm’s core mission, vision, and values.
when he passed away in early 2004, it was clear
These discussions led to explicit recognition of
that for many reasons, a new direction was
what the ATS overriding objective must be (this was
required.
framed in terms of (1) a desired share price
The problem was that the entrepreneurial culture within five years and (2) a financial benchmark
that had so successfully helped ATS to grow was against other competitors), and the value
limiting future growth. Even though ATS was twice proposition that would permit ATS to reach its
as big as its nearest competitor, customers began overriding objective. After considerable
expressing frustrations at the lack of integration discussion and analysis, ATS selected a customer-
across the company, and the ATS management intimate value proposition that revolved around
team started to realize that business the objective of becoming “a total solutions
opportunities were being missed. Customers provider” to its customers.
would say “we do business with your facilities in
Now the story of how ATS would implement its
Canada and Singapore and it’s like we’re dealing with
new strategy in terms of financial, customer, internal
two totally different companies.” Comments from
business process and employee growth and
ATS sales people included such complaints as,“our
development had to be articulated and
structure limits our ability to compete to a regional
communicated throughout the organization.To
level when in reality ATS could be capturing and
accomplish this, ATS first developed the
leveraging its much broader international presence
corporate strategy map shown as Figure 15.
and critical mass”.
Ron and his senior management team used this
Strategy and the ATS Strategy Map map as the basis for obtaining approval for the
new strategy from the Board of Directors, and
Following the death of the entrepreneurial then developed tentative “drill-down” strategy
founder, Ron Jutras, the former long-time CFO of maps for each of their three business groups. In
ATS took over as CEO. Under pressure for the months that followed, they visited each ATS
improved shareholder results, he made strategic region and had the regional VP present the
planning and execution within ATS a priority for corporate mission, vision, values, and map.These
the company.The time had come to evolve the presentations summarized the strategic planning
entrepreneurial approach into a more disciplined process at ATS. Along with the presentation, a
and systematic approach to running the business. communication workshop was conducted with
A decision was made in 2004 to leverage the skills the managers, and an electronic “toolkit” was
already in place, and to reshape ATS into a given to each business unit that included a soft
structured, results-driven machine that would copy of a video made by Ron Jutras reinforcing
deliver increased value to its stakeholders. the importance of the company’s new direction.
In many ways, ATS exhibited similarities to This drill-down map is shown in Figure 16.
organizations that benefit from a disciplined With strategy now in place and being
approach to strategy implementation. For communicated to increasingly lower levels,
example, balanced scorecard measurement is well under
● The company had implemented a number of way and being used to monitor the extent to
local initiatives, including a continuous which specific financial, customer, internal process
improvement process, that were not and learning and growth objectives are being
generating expected results. realized. Additionally, these measures have
become part of the regular ATS quarterly, annual
● The Board of Directors and senior managers
and long-range budget process, and newly
all had different ideas about what should be
instituted quarterly and annual operating plan
the company’s key strategic themes.
processes.
● The executive team knew it needed a roadmap
to effectively develop, communicate and
30
U S I N G S T R AT E G Y M A P S T O D R I V E P E R F O R M A N C E
LEARNING & EXECUTE OUR STRATEGY BY FOCUSED DEVELOPMENT IN OUR EMPLOYEE WORK ENVIRONMENT
GROWTH
PERSPECTIVE HAVE THE RIGHT PEOPLE IN
Aligning our THE RIGHT PLACES AT THE HAVE THE DATA AND TOOLS TO BE A GREAT PLACE TO WORK
intangible assets RIGHT TIME ACHIEVE OUR OBJECTIVES L3
L1 L2
to improve
critical processes
CELEBRATE SUCCESS LIVE OUR CORE VALUES DEVELOP A WINNING TEAM
L4 L5 L6 CULTURE
SOLAR
3.Translate the Group strategic
objectives, measures and targets into ASG
SYSTEMS
ASG ASG ASG COMPONENTS
PCG PCG PCG SSP
Scorecard
Photowatt
Scorecar
common Group regional specific N.A. East N.A.West Europe Asia N.A. Europe Asia
initiatives, driving integration & Scorecar Scorecard Scorecard Scorecard Scorecard Scorecard
GROUP
synergy within a geographical region.
GROUP GROUP
4.Translate the Group regional
strategic initiatives, measures and Divisional Divisional Divisional Divisional Divisional Divisional Divisional Divisional Divisional
targets into divisional initiatives, Score- Score- Score- Score- Score- Score- Score- Score- Score-
measures and targets. cards cards cards cards cards cards cards cards cards
31
MANAGEMENT
S T R AT E G Y
Results program that has been carefully designed to (1)
MEASUREMENT respond to Canada’s pressing need for more
In reflecting on ATS’s experience with its strategy
innovation, (2) build on the University of
map, Ron Jutras pointed out that that the challenge
Waterloo’s distinctive energies in technology and
for ATS in meeting its customer needs will be met
entrepreneurship, and (3) attract entrepreneurially
by its ability to convert an entrepreneurial, fire-
oriented individuals interested in changing
fighting culture to a more planned and disciplined
Canada’s business landscape.
management style.The strategy map has assisted
this transition in several ways. In talking about the
process of developing and communicating the Background
strategy throughout ATS via the strategy map, Ron Despite the existence of numerous excellent
explained: business programs, Canada’s record has been
It has brought our organization together more weak on managing and mobilizing entrepreneurial
globally.There is no question in my mind that and technological opportunities into commercially
our regional people are now more closely viable products and businesses. Responding to this
integrated.The strategy map has encouraged the need, in early 2000 the University of Waterloo,
regions to be more closely joined at the hips, to well known for its distinct policies on intellectual
consider the organization as a whole and to capital and success at technological
focus on strategy rather than just day-to-day commercialization, created the Centre for
events. As a result, we have more coordination, Business, Entrepreneurship and Technology
better alignment and better understanding. For (CBET) (www.cbet.uwaterloo.ca).The objective of
example, we are beginning to see the early the Centre was to (a) improve the quality of
benefits of us doing a much better job at future business leaders through focused programs
leveraging our global purchasing power. that would attract more innovative students, (b)
improve training, and (c) develop the managerial
We are also bubbling up issues such as how skills that would assist in converting opportunities
does this business unit/strategy/initiative fit into viable commercial businesses. MBET was the
within our overall organization — when we Centre’s flagship program.
meet you can see “strategy” coming across in
our meetings.We are getting a much clearer
picture of where we will be going and why we
Strategy and the MBET Strategy Map
are going there.When you talk to the MBET represents a combination of private and
operational people, they are beginning to outline public sector interests. It exists within a publicly
where they see the future. funded university but, as is increasingly the case
with new professional programs in Ontario
Without doubt, people still say that our desire to
universities, its funding comes almost entirely from
make strategy everyone’s job increases what
student tuition and externally raised money. In
they have to do on top of their day-to-day
other words, MBET must be financially viable or,
business. However, I believe they will soon view it
like any private sector organization, it will cease to
as an empowering tool to allow them to make
exist.
better and faster decisions and allow us to free
our time for more important matters like taking MBET designers believed they knew how to
advantage of growth opportunities to accelerate develop a first-class curriculum to attract
our business. entrepreneurs, and to provide the type of
“knowing-doing” educational program that would
The strategy map has played a significant role in
help overcome Canada’s innovation gap. However,
helping us understand, communicate and
they needed to be able to quickly tell the MBET
execute our strategy. We are committed to it.
story to prospective faculty, students, advisory
council members, potential donors and mentors,
THE MASTER OF BUSINESS, and other educational and administrative units on
ENTREPRENEURSHIP AND campus.The strategy map proved to be an ideal
way to communicate the university’s chosen
mission, vision, and strategies.
MBET’s overriding objective was social in nature —
the number of new ventures it planned to spin out
TECHNOLOGY (MBET) PROGRAM of the program in the next few years. Recognizing
MBET is a distinctively different graduate business that the graduate business education field was
32
Using Strategy Maps to Drive Performance
already filled with literally thousands of MBA objective to create “a differentiated educational
programs, the university consciously chose a adventure designed to produce tomorrow’s
different name, MBET, and adopted a value innovators”. Figure 18 portrays, in more detail, how
proposition clearly focused on product or educational the program would attract entrepreneurial students
leadership. Its corporate-level strategy map is shown by promising and delivering on a number of key
in Figure 17. educational components. Note that only certain
components are true differentiators.Things such as
Because of its joint public/private sector objectives,
simple admission procedures were taken as
MBET’s strategy map puts its financial and
necessary but not sufficient conditions for mounting
stakeholder perspectives on an equal footing, to
the program.The real differentiators are those
denote that, not only must it satisfy its stakeholders,
components not easily found in other programs.
it had to do so in an economically sustainable way.
The educational leadership value proposition is in Results
evidence in the stakeholder perspective. Here, the
MBET strategy is to create an “educational According to the program designers, the MBET
To be an entrepreneurship program of local and international renown, where the exceptional talents of graduates, and an
international community of committed stakeholders, leverage technology to create breakthrough opportunities that result in new,
market-leading businesses
To meet and exceed the expectations of entrepreneurial students, faculty, To achieve financial self-sufficiency,
capital providers and program supporters, we provide:
Stakeholder Satisfaction
we:
Financial Obligation
Set realistic
A differentiated educational A learning/doing environment that Maximize financial
tuition fees
adventure designed to produce positions CBET as a choice UW and moral support
tomorrow’s innovators initiative in which to work, from university,
contribute and support donor groups and
Seek out revenue
government
generating mission-
agencies
consistent
opportunities
To achieve our stakeholder objectives and meet our financial obligations, we must:
Internal Processes
Build the right program Build the right faculty Build the necessary Achieve operating
support system efficiencies
To create and maintain a culture of innovation with our faculty, staff and external stakeholders, we:
Renewal
adventure” and a “choice” working environment for strategy map has been extremely helpful in
faculty and other stakeholders.The internal and executing the strategy the university believed would
learning and growth perspectives indicate how this, result in a high quality, differentiated, program — a
and meeting its financial obligations, are to be program that could leverage Waterloo’s
accomplished. entrepreneurial and technological advantages and
provide an alternative to Canada’s existing
The corporate map provides a snapshot of the high- landscape of graduate business programs.
level strategies MBET selected to achieve its
overriding objective and mission. However, similar First, the choice of the name on the map sends a
to other strategy maps, each strategic objective on signal that MBET is clearly a niche program. For
the map can be “drilled down” to provide additional those who are (E)ntrepreneurial and have a
information.This is illustrated by the stakeholder (T)echnological background, it promises to provide
a set “knowing-doing” (B)usiness skills that will
33
Figure 18 — An MBET Drill Down
The Value Proposition
A differentiated educational
adventure focused designed to
produce tomorrow’s innovators
Student-Focused Attributes
Simple Admission ✙
_ Professional
✙ Unique design Uncommon Inspiration
Industry Nurturing
Clear roles, experiences Participation Environment
Education
expectations ✙ Adventure
Inspired Local
Program Faculty, staff Community
Build your own Student
Modules for and mentors Support
business Networking
Innovators
Reputable and
engaged
advisory
Build on UW brand council
Combine both “knowing Designed for
and doing” opportunities innovators for innovation (e.g. IP, Alumni
across multiple disciplines CP, spin-offs) Networking
Commercialization
Simulates the Practicum
entrepreneurial
Mentorship (faculty, industry)
process
assist individuals to commercialize their ideas and other hand, if MBET is sufficiently differentiated
create new ventures. from other graduate business programs, the
acceptance to offers ratio should be much higher.To
More importantly, the map was used to
MBET staff, a ratio below 75% indicates that either
communicate the differentiators to stakeholders.
(1) the differentiated message is not getting through
As used in presentations to potential students,
and/or (2) other universities are beginning to
future donors, interested faculty and advisory
compete in the same market by replicating the
council members, the map indicates how each
MBET program. Either situation is cause for
stakeholder group fits into the MBET vision. For
reviewing its strategies.
example, Figure 18 illustrates the MBET value
proposition for the prospective student. Faculty also To date, however, the niche strategy appears to be
used this map to create a curriculum entirely working. MBET has attracted an increasing number
consistent with these propositions. Similarly, the of entrepreneurially oriented students. Students
corporate MBET map shows strategy at the internal actively participate in business competitions. New
process perspective level, called “Build Support companies are being formed. Faculty with
System”. A drill down of this objective shows a entrepreneurial interests are part of the program.
secondary map for the roles and responsibilities of Advisory council members actively assist young
the Advisory Council they are expected to students to move forward on their business ideas.
implement to achieve the CBET vision. Donors are being attracted to the CBET vision.
After the map was created, balanced scorecard These results have been made easier by the use of
measures were developed and collected for each of the strategy map, which has provided guidance for
the four perspectives.The map has been highly all those involved in implementing MBET’s
useful in determining what measures will determine differentiated educational strategy, and helping to
if the strategy is working. For example, one strategic achieve its goal of improving Canada’s innovative
measure at the stakeholder level is the ratio of capacity.
acceptances to offers.The designers pointed out
that since many MBA programs are general in THE BENEFITS OF STRATEGY
nature and not highly differentiated, many students
MAPPING
apply to several programs to increase their
probability of acceptance at one. Consequently, the From these three case vignettes, it is apparent that
actual ratio of acceptances to offers is often quite those responsible for developing, communicating
low in many university MBA programs. On the and executing their strategy maps believe strongly
34
Using Strategy Maps to Drive Performance
in their benefits. Beyond these case examples, Bank, Mobil USM&R, AT & T Canada, Hilton
however, how strong is the evidence that the Hotels, Ricoh, BMW,Tata Motors and GTE.
use of strategy maps has had a positive Many of these organizations claim impressive
operating and financial impact on organizations operating and financial improvements from the
adopting them? Here are some observations adoption of strategy maps and resultant
from practice and from the performance scorecards.
measurement literature.
Little in the academic literature proves or VALIDATING THE MAP
disproves the hypothesis that adoption of The previous section highlights the critical
balanced scorecard and strategy mapping importance of “validating” the strategy map.
systems is positively associated with superior Once the map is developed, goals and
financial returns. Hoque and James (2000)16 measures that are consistent with and advance
documented a positive association between the chosen strategy must be specified.
BSC use and organizational performance. On Validation refers to verifying the cause-and-
the other hand, Ittner and Larcker (2003)17 effect linkages between the various
showed that BSC use had no impact on perspectives on the strategy map.Validation
performance unless organizations established only occurs when management can track how
causal linkages between their non-financial improving the measures at one level of the
measures and financial outcomes.Those that map create improvements in other
did produced significantly higher returns on perspectives and contribute to achieving the
assets and equity than those that did not. overriding objective.
Perhaps these mixed results are not surprising. For example, some years ago Sears19, claimed
With all that is going on inside modern to be able to track the impact of a change in
organizations, it is extremely difficult for its Learning and Growth actions on the
academic studies to tease out the effects of a financial returns of the organization as a
single initiative on the financial performance of whole. Specifically, they claimed that a 5 point
an entity. improvement in “employee attitudes” led to a
Despite this lack of general empirical evidence, 1.3 point improvement in “customer
it is noteworthy that a large number of satisfaction”, which led to a 0.5% improvement
organizations themselves claim significant in “revenue”.
financial or market share gains as a result of Unfortunately, current experience strongly
adopting strategy mapping/balanced scorecard suggests that most organizations have not yet
initiatives.The best evidence of this comes used their measures in a robust way that
from the approximately 70 “Hall of Fame” would verify that if they do action “X” in
companies from around the world that claim Perspective “A”, they will see result “Y” in
to have achieved breakthrough results after Perspective “B”. Ittner and Larcker20 claim that
implementing strategy maps and balanced this is partially due to corporate laziness or
scorecards. Readers can view these thoughtlessness.To some extent, this may be
organizations and their testimonials by going the case, but in the dynamic world of business,
to http://www.bscol.com/bscol/hof/ and it is very difficult to precisely determine the “if
looking at current members. In addition, we do this here, then we should see that
readers can peruse some additional sample there” link. Ittner and Larcker’s study claimed
strategy maps developed by these companies. that only 23% of the studied organizations
To become a “Hall of Fame” company, seriously attempted to validate the linkages
organizations must meet certain conditions, suggested by the strategy map. Interestingly,
including (1) the adoption of the “principles of however, those 23% achieved 3% higher ROA’s
a Strategy-Focused Organizations” (which and 5% higher ROE’s than organizations that
includes a strategy map), and (2) the did not attempt to validate their models. As
achievement of significant financial or market difficult as validation may be, it appears there is
share gains.18 Examples of well-known a benefit to those who spend time evaluating
organizations that meet these criteria and the quality of their hypothesized map linkages.
have been selected for membership in the In general, then, organizations wishing to
“Hall of Fame” include CIGNA P&C, UPS, validate their maps tend to follow these steps:
Royal Canadian Mounted Police,Wells Fargo 1. Develop the model to be tested (this is the
35
MANAGEMENT
S T R AT E G Y
creation of an agreed-upon strategy map); they promise to make their users more successful.
MEASUREMENT 2. Add data to the model (this is the development And beleaguered managers — struggling to
of the balanced scorecard targets and measures demonstrate that they can adapt to rapid change
for each perspective); in an increasingly competitive world — have
turned to management tools in unprecedented
3. Assess the results periodically (this involves
numbers. Keeping up with these techniques and
comparing BSC actual results to targets and
deciding which ones to use are important parts of
determining whether results in one perspective
a manager’s responsibilities. But there has been
are statistically linked to results in others);
little guidance on assessing whether a tool is
4. Refine the model (this may mean revisiting the appropriate for a particular situation or
measure or the strategic objective to organization, or if it will help truly differentiate a
determine if the proposed linkage is correct, or company from competitors.The reality is that
to improve its predictability); and, most of these tools have failed to live up to their
5. Plan action based on verified results (this would billing — not necessarily because they were poor
result in resources being directed to actions tools but because they have been applied
leading to improved operating and financial inappropriately. Estimates are that the average
performance). failure rate of these management initiatives
The effort of validating the map brings huge exceeds 80%.Years ago, a seminal article22 argued
benefits. In addition to the Ittner and Larcker that most organizations adopt new management
findings, other researchers have found similar initiatives, not on the basis of need, nor on the
cause-and-effect outcomes. For example, in the basis of a well thought through strategy, but for
area of customer-related strategies, Castellano the following reasons.
(2006) found that a five percent increase in ● Mimetic — organizations adopt initiatives
customer loyalty results in a staggering lifetime because they see others doing it and do not
profit increase of 95 percent, and that a two wish to be left behind. Such examples would
percent increase in customer loyalty is the include just-in-time manufacturing (JIT), activity-
equivalent to a ten percent cost reduction 21. based costing (ABC), customer relationship
management (CRM), etc. As has been
INTEGRATING STRATEGY demonstrated over time, many firms adopted
MAPPING, ACTION PLANS AND such techniques only to find that they were not
THE BUDGETING PROCESS the magic bullet they were seeking, and ended
up dropping them.
This section discusses how different types of ● Regulatory — organizations are forced to
management initiatives can be integrated with the
adopt new initiatives because of political or
strategy map. It first focuses on how the strategy
corporate pressure, regardless of the chosen
map can assist in selecting the appropriate
strategy. An example of the former would be
management tool from the wide spectrum of
the recommendations of the Sarbanes-Oxley
available tools.We then discuss the symbiosis
Act in the USA and Bill 198 in Canada. An
between the strategy map, balanced scorecard, and
example of the latter would be the pressure
one management tool used almost universally —
that organizations will often place on their
the budget and annual review procedure.
suppliers to be ISO 9000 compliant. In these
cases, initiatives are implemented not because
Using the Strategy Map to Select the firm believes it is right for them, but
Appropriate Management Initiatives because they have little choice in the matter.
Over the past two decades, executives have There is little doubt that these same situations
witnessed an explosion of management initiatives, prevail today and, as new programs/tools/initiatives
tools, and techniques.The term “management come to light, may even be getting worse.There
tool” now encompasses a broad spectrum of are no “Consumer Reports” on management
approaches to management — from simplistic to tools to help managers sort fact from fiction, nor
complex — that promise to improve to decide where to use a tool most effectively. In
organizational results. Many of these tools are the absence of a selection framework, groundless
extremely helpful, but many also offer conflicting hype surrounding the promotion of certain of
advice. these tools can make choosing and using
management tools a dangerous game of chance.
All management tools have one thing in common:
Strategy map adopters gain a tremendous
36
Using Strategy Maps to Drive Performance
advantage by gaining insight into the most strategy map provides an important framework that
appropriate initiative for them.The reason simply is (a) permits this choice to be systematically made
that construction of the strategy map forces and (b) in so doing, avoids many of the costly errors
organizations to carefully consider their value firms have traditionally made in selecting
proposition. In turn, the value proposition limits the management initiatives/tools.
type of strategies that will be implemented and
To illustrate this, Figure 19 first shows the
pursued at the financial, customer, internal business
progression of events that would take place in a
process and learning and growth levels. Knowledge
well thought-through strategy process. Event 1 —
of the primary value proposition and of the
The management team arrives at a statement of its
targeted strategies leads naturally to the type of
core mission/vision/values. Event 2 — The strategy
strategic management initiatives and tactics that
map builds on this using the steps outlined earlier in
should be selected to support the chosen
the MAG. Specifically, the executive team agrees on
strategies. For example, a firm that develops
an overriding objective and selects a dominant value
strategies to support a product leadership value
proposition.
proposition should be much less likely to adopt a
CRM initiative than a customer-intimate firm, whose This sets the stage for selecting strategies at each
strategies are built on understanding and quickly perspective that are designed to achieve the vision
responding to customer needs. An operationally and mission. Event 3 — Through the balanced
excellent firm should be far more likely to consider scorecard, strategic goals, measures, targets and
JIT than a customer-intimate firm, because the weights are then developed around the key
strategy of the OE firm is far more dependent on strategies. Event 4 — The new strategy and
creating the maximum possible efficiencies and cost strategic goals are communicated throughout the
savings in its internal business processes. A product organization, and local managers/employees are
leadership firm will be more disposed to initiatives asked to consider what they must do to implement
that promote creativity and speed to market than the core strategies.
ensuring 100% quality.
At this point, a series of action plans and tactics are
In short, to achieve the objectives on the strategy proposed and selected — and it is at this point
map and its related balanced scorecard targets, an where things can go badly wrong. Many of these
organization must choose the right initiatives.The action plans will call for the selection of specific
1 Mission,Vision
Statements Communicate strategy map (SM) and
specify the scorecard that will monitor
strategies
3
Strategy Map
2 Goals and
measures
selection
Cascade to 4
divisions,
employees Communicate balanced scorecard (BSC)
and specify the action plans required to
meet targets and objectives
Initiatives and
actions
selection
37
MANAGEMENT
S T R AT E G Y
management tools to assist in the required team estimated it had over 70 initiatives under
MEASUREMENT transformation. And while many management way. Not surprisingly, it turned out that many of
initiatives appear to claim that “one size fits all”, these had no connection to the company’s newly
most do not — the success of the action plan will developed core strategies or scorecard measures.
depend, largely, on the quality of choice and Without the insight provided by the strategy map
implementation of the right management initiative. and related measures, the Bank had no framework
for deciding on and prioritizing the most
Since strategy maps and the balanced scorecard
appropriate initiatives. Introducing the strategy
are integrating frameworks, they facilitate the
map allowed Chemical Bank to dramatically
choice and incorporation of management tools
reduce the number of existing initiatives, and to
quite well.Table below indicates the most
introduce new initiatives more aligned with the
appropriate types of initiatives for each of the
firm’s strategic objectives.
chosen value propositions.
The point of Table 6 is to show that the choice of Strategy Mapping and the Budgetary
the value proposition leads to choosing
Process
management initiatives that more naturally fit the
type of business activities that should occur once It may be noted that initiatives belonging to the
the proposition is chosen. It also indicates the financial perspective in Table 6 were listed under
strategic perspective most consistent with the “all propositions”. The reason is that some
chosen initiatives. Simply stated, organizations that initiatives are so pervasive that they exist in
have chosen their value proposition well will not virtually all firms, irrespective of the chosen value
get distracted by management tools whose proposition. Examples include financial measures
function is primarily to support other and tools such as profit, return on investment, cash
propositions. flow statements, and EVATM.These are found, in
one form or another, in all for-profit organizations.
This does not mean that a customer-intimate firm
In essence, these are the lagging, aggregate, financial
cannot benefit from benchmarking, or a product
measures that evidence how well individual
leadership firm from data mining. Nor does it mean
initiatives within learning and growth, internal
that an operationally excellent firm is the only type
processes and customers have been executed.
of organization that will use BPR to improve its
internal business processes. In all cases they To benefit most from the strategy map,
probably can, but they are secondary to initiatives organizations have learned that, in addition to
means that organizations need to (a) tie their In terms of communication, linking strategy
balanced scorecard reporting system to their mapping to budgeting can very effectively indicate
planning, budgeting, and review process — and to employees where new initiatives can be most
(b) include in this process both the expected valuable. Since employees are an important source
operating costs and strategic investments required of new ideas and initiatives, the opportunity to link
for the activities that will take place in their the strategy map to the budget to execute on the
customer, process management, human relations, chosen strategy is immense. For example,
information technology, and knowledge creation companies like Saint Mary’s Duluth Clinic reviews
activitiesxiv. and refreshes its strategy map each year at budget
time.This helps reaffirm that it is measuring and
The key here is to recognize how the new
communicating the right things27.
strategy mapping and balanced scorecard system is
linked to the existing budgeting system.The
answer is that the budget, in addition to CONCLUSION
forecasting revenues and costs from ongoing Strategy mapping is an effective and powerful
activities, now explicitly recognizes new initiatives initiative that can help keep a company at its
prompted from the strategic objectives and competitive peak.The tools, techniques and steps
targets of the firm.While this may seem self provided in this guideline enable organizations to
evident, strategy-based budgets, informed by the effectively and efficiently conduct their own
strategy map and its measures, are seldom strategy mapping initiative and to successfully
integrated into ongoing budgeting activities. implement strategy where others have failed.
This integration offers several benefits. For Companies struggling with strategy execution will
example, Chemical Retail Bank screened find maps a compelling way to think about, agree
investments for their potential impact on their upon, and communicate their strategic initiatives
balanced scorecard. Over 50% of investment to various stakeholder communities.This can only
requests were discarded as “non-strategic” (i.e. the promote better execution. In addition, strategy
impact on the balanced scorecard was simply not maps form the appropriate basis for (a) balanced
great enough)24.This helped free resources for scorecard performance measures, (b) linkages to
those initiatives deemed truly strategic. appropriate management and validation
The potential to use the strategy map for making techniques, and (c) allocating resources to
budgeting decisions is immense. Each line item and initiatives and strategies that support its value
investment can be considered in the context of its propositions and overriding objectives.This has
impact on achieving strategy map components. For proven to lead to better performance for many
this reason, we can expect to see more and more organizations, including those in the “Hall of
strategy maps and balanced scorecards as Fame”.
prominent parts of the annual planning cycle. For Realizing the full power of a strategy mapping
example, Northwestern Mutual, one of the oldest initiative calls on top managers to commit to
and most respected companies in the United describing and communicating strategy in a way
States, links all new project-funding proposals to that will guide decision making away from a short-
the company’s strategic objectives, with impressive term focus on financial figures. As employees at all
results.Within one year of aligning projects to the levels learn to use the strategy map to guide their
balanced scorecard, the company saw a 21 percent actions, they will align themselves, and their
improvement in the number of projects meeting company, to execute strategy in a manner never
scope, schedule, and budget goals25. before experienced. In doing so, the company will
Some companies, like IKEA, have gone one step position itself to generate the profitability and to
further and eliminated the traditional budgeting demonstrate the accountability demanded by
process, replacing it with balanced scorecard-like customers, shareholders, employees, and the
approaches for target setting.While this step may communities around them.
be extreme and inappropriate for most
companies, it does demonstrate the power of
these tools to affect performance26.
39
MANAGEMENT
S T R AT E G Y ENDNOTES
MEASUREMENT 1
R. Charan and G. Colvin, “Why CEOs Fail”, Fortune, June 21, 1999.
2
Balanced Scorecard Collaborative — bscol.com, May 23, 2006.
3
Michael Porter, Competitive Strategy:Techniques for Analysing Industries and Competitors,The Free Press, 1980
(5-Forces); P. Selznick, (1957) Leadership in Administration: A Sociological Interpretation. Row, Peterson,
Evanston Il. 1957 (SWOT) (PEST); E. de Bono, de Bono’s Thinking Course, London,1982, British Broadcasting
Corporation, (PMI);W. Chan Kim and Renee Mauborgne,“Blue Ocean Strategy”, Harvard Business Review,
Oct. 2004.
4
Larry Bossidy, Ram Charan and Charles Burck, Execution:The Discipline of Getting Things Done, Crown
Business, New York, 2002, p. 5.
5
Michael Roach, quoted in Corner Office, Globe and Mail, Aug 21, 2006, p. B10.
6
Jeffrey Pfeffer and Robert Sutton,The Knowing-Doing Gap: How Smart Companies Turn Knowledge into Action,
Harvard Business School Press, 2000, p.3.
7
J. Low and T. Siesfield, Measures That Matter, Boston: Ernst & Young, 1998 and Measures That Matter: An
outside-in perspective on shareholder value recognition, UK: Ernst & Young, 2000.
8
David P. Norton, https://www.bscol.com/bsc_online/learning/sfo/
9
Adapted from R. S. Kaplan, and D. P. Norton. The Strategy-Focused Organization: How Balanced Scorecard
Companies Thrive in the New Business Environment. Harvard Business School Press, 2000, p. 73.
10
Michael Porter,“Strategy and the Internet”, Harvard Business Review, March 2001, p. 71.
11
Tom Peters,“Tom Peter’s True Confessions”, Fast Company, December 2001.
12
M.Treacy and F.Wiersema,“The Discipline of Market Leaders: Choose Your Customers, Narrow Your
Focus, Dominate Your Market”, (Cambridge: Perseus Books, 1995).
13
Wal-mart, 2006, Quarter 1 release.
14
“Beat China on Cost”, Canadian Business, Nov 7-20, 2005.
15
M. Huselid, B. Becker and R. Beatty, The Workforce Scorecard: Managing Human Capital To Execute Strategy
(Harvard Business School Press) 2005.
16
Z. Hoque and W. James. 2000. Linking the balanced scorecard measures to size and market factors:
Impact on organizational performance. Journal of Management Accounting Research (12): p.p. 1-17
Christopher Ittner and D. Larcker,“Coming Up Short on Non-Financial Performance Measurement.
17
www.iccm.com.
22
Paul J. DiMaggio and Walter Powell,“The Iron Cage Revisited: Institutional Isomorphism and Collective
Rationality in Organizational Fields,” American Sociological Review,Vol 48, April 1983.
40
Using Strategy Maps to Drive Performance
R.S. Kaplan and D.P. Norton,“Linking Strategy to Planning and Budgeting”, Balanced Scorecard, Article
23
i
A good review of BSC principles is found in R. B. Kaplan and D. P. Norton. The Balanced Scorecard:
Translating Strategy into Action. Harvard Business School Press, 1996.
A future MAG may address the specific concerns of developing strategy maps for not-for-profit and
ii
“Why CEOs Fail”, Fortune, June 21, 1999, pointed out that in one organization, the five top executives
were asked to list the company’s ten highest priorities. Only two appeared on more than one list.
The term “strategy map” is the most common term to describe cause and effect relationships among
iv
various balanced scorecard perspectives. However, other terms that have been used to express the same
kind of visual phenomenon include,“knowledge maps”,“transformation maps”,“strategy cause and effect
tree”, and “concept maps”.
v
While solid academic evidence has yet to fully justify the attention received by the balanced scorecard
movement, there is no question about its popularity in practice.There are now literally hundreds of
testimonials from organizations of all sizes and from all sectors that claim that the discipline and the
understanding provided by the strategy map, the hypotheses that can be generated (and tested) and the
measures that are used to monitor it, have lead to breakthrough results in implementation.
Two recent webcasts shed some light on the extent to which Strategy Mapping is recognized and
vi
practiced by practitioners. In 2003, Armitage and Turney conducted a webcast on Strategy Mapping to
over 600 participants. Participants were asked how many of their organizations had adopted (1) the BSC
and (2) strategy mapping as part of their BSC. Over 50% had adopted some form of scorecarding but
only 15% were aware of strategy maps. (H.Armitage and P.Turney,“Strategy Management”,
BetterManagement.com, August 2003). In 2006, a similar webcast found that 51% of listeners had heard
of strategy mapping but knew very little about it and 36% of the participants knew nothing about it.
(G. Lawrie,“Balanced Scorecard Best Practices: How to Create and Use Strategy Maps”,
BetterManagement.com, February 2006).
The Glacier Inn is a hypothetical example of an ice hotel that has been designed to illustrate how
vii
strategy mapping can be applied.To keep the example simple and take emphasis off of financial figures,
cash flow increase is referred to as “CF $XXX” and profit increase is referred to as “Y%”.
There are many organizations that have espoused quality and claim that it has lead to superior returns.
viii
This is true but successful firms in this category such as GE, Motorola, IBM, Kodak, and Westinghouse
implemented TQM as a means to the end — economic sustainability, rather than as the end itself.
41
MANAGEMENT
S T R AT E G Y
A fourth value proposition, called the “system lock-in” strategy, has been put forward by Arnoldo Hax and
ix
MEASUREMENT Dean Wilde (The Delta Project: Discovering New Sources of Profitability in the New Business
Environment. New York: Palgrave, 2001). With this strategy, firms deliver products and services that
enhance the organization’s own product and service offerings. Microsoft is the best example of a company
that is in the position to compel others to accept their standards. Kaplan and Norton refer to this as
“system platform” in their new book, Alignment.
x
We have chosen to describe value propositions in terms of product, customer or operational leadership.
Another approach to thinking about value propositions comes from David Thomson in Blueprint to a Billion,
John Wiley, 2006.Thomson describes three types of propositions: Shapers of a New World (eBay,Yahoo),
Niche Shapers (Starbucks,Veritas), and Category Killers (Wal-mart, Home Depot).While the classifications
differ, the sources of competition are very similar to the propositions described above.
xi
UPS has taken customer service to new levels including reducing the time for computer repairs by
designing, with Toshiba, an improved logistics system and acting as the dispatcher for companies that range
from Nike to Papa John’s Pizza. See,T. Friedman, The World is Flat, Farrar, Straus and Giroux, New York, NY,
2005, p.p.141-143.
Readers will note that the Glacier map does not contain an “asset utilization” strategy. Since an ice hotel
xii
is forced by Mother Nature to rebuild every year, it does not have the same “long-term” asset investment
as would exist in typical organizations.
Each year Fortune produces a list of the “100 Best Companies to Work For”.These are organizations that
xiii
excel in creating an environment where human and organizational capital are highly developed. It is no
surprise that, in general, firms that make it to the top 100 are also firms that have demonstrated superior
financial returns.
There are several references that describe the organizations that have earned the BSC Hall of Fame
xiv
Award (see bscol.com). Virtually all of these organizations have integrated strategy into their regular
operating procedures.
42
Using Strategy Maps to Drive Performance
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Olve, N., J. Roy and M.Wetter. “Performance Selznick, P. Leadership in Administration: A
MEASUREMENT Drivers: A Practical Guide to the Balanced Sociological Interpretation. 1957.
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Thomson, D., Blueprint to a Billion, John Wiley,
Peters,T.“Tom Peter’s True Confessions.” Fast 2006.
Company, December 2000.
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Rucci,A., Kirn and Quinn.“The Employee- The Balanced Scorecard Collaborative
Customer-Profit Chain at Sears.” Harvard Business www.bscol.com is one of the world’s foremost
Review, January-February 1998. authorities on strategy mapping and the balanced
scorecard. It provides a host of offerings,
Scholey, C. A Practical Guide to the Balanced including free reports and online events.
Scorecard. CCH Canadian, 2002.
BetterManagement.com
Scholey, C.“Capturing the Value of Strategy Maps, www.bettermanagement.com offers general
Step-By-Step.” Journal of Business Strategy. management advice by offering online seminars.
May/June, 2005. It has a diverse range of topics, including strategy
Scholey, C. and H.M.Armitage.“Clear Trails: mapping and the balanced scorecard
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organizational performance.” CMA Management,
April 2003.
Scholey, C.“Targeted marketing with value
propositions: Leadership is all in the image” CMA
Management, October 2002.
44
Using Strategy Maps to Drive Performance
This Management Accounting Guideline was prepared with the advice and counsel of:
45
MANAGEMENT
S T R AT E G Y
THE AUTHORS:
MEASUREMENT Howard M.Armitage, Ph.D, FCMA and Cam Scholey, MBA, CMA have worked together for several
years advancing the theory and implementation of Strategy Mapping and Balanced Scorecards.
Individually and collectively, they have offered numerous seminars to both the Society of
Management Accountants and the American Institute of Certified Public Accountants as well as to
numerous other groups in Canada, USA, Central America, Europe and Asia.They have extensive
experience in implementing these systems in a variety of organizations.
They have published several articles in recent years including:
Scholey, C.,“Strategy maps: a step-by-step guide to measuring, managing and communicating the
plan” Journal of Business Strategy, May/June 2005.
Armitage, H.M., and C. Scholey,“Strategy Mapping: Avoiding Costly (and Unnecessary) Strategic
Failures”, Chapter 7 in Handbook of Cost Management,Warren, Gorham & Lamont, January 2004
Armitage, H.M. and C. Scholey,“Hands-on Scorecarding: How strategy mapping has helped one
organization see better its successes and future challenges”, CMA Management, October 2004.
Scholey, C. and H.M.Armitage,“Clear Trails: Strategy Mapping may be the key to improving
organizational performance”, CMA Management, April 2003.
Armitage, H.M., and C. Scholey,“Mapping Mavens: How private and public companies gain from
strategy mapping”, CMA Management, May 2003.
Cam Scholey is also the author of “A Practical Guide to the Balanced Scorecard” (CCH Canadian,
2002).
Curriculum vitae and biographical sketches of each author are available on request.
46
Using Strategy Maps to Drive Performance
47