Kaplan & Norton - Strategy Maps Converting Intangible Assets Into Tangible Outcomes

ssStrategy Maps Converting Intangible Assets into Trangible Outcomes by Robert S. Kaplan and David P. Norton A summary of the original text. In this issue: s Understand... how you can use a revolutionary new tool — the strategy map — to reveal links between intangible assets and value creation. s Learn... how to create value from your strategy by managing four key processes: operations; customer relationships; innovation; and regulatory and social processes. s Generate... superior performance by aligning your company’s strategy with the most important intangible assets: human capital, information capital, and organization capital. s Customize... your strategy map to each value proposition you can use to generate profits: (1) low total cost; (2) product leadership; (3) customer solutions; or (4) product lock-in. s Energize... everyone in your organization to achieve the performance targets of your strategy by taking advantage of a six-step process that is spelled out in this summary. ss Volume 13, No. 2 (2 sections). Section 2, February 2004. © 2004 Audio-Tech Business Book Summaries 13-4. No part of this publication may be used or reproduced in any manner whatsoever without written permission. To order additional copies of this summary, reference Catalog #2042. A n effective business strategy is a complex series of interconnections — a set of cause-and-effect relationships. Employees must know exactly what they’re supposed to accomplish. They also need to know how they’re doing, and that means being able to measure how well they’re achieving strategic objectives. And yet, the traditional ways to measure strategy have not provided enough insight to help leaders decide what to do next. That’s because the usual measurements of a company’s success have been retrospective, looking backward to previous quarterly and annual results rather than forward to the future. Thus, many companies have suffered from concentrating on what they had done. They paid much less attention to the intangibles that determined what they have to do now — and in the future. That’s why there’s been little emphasis on managing intangible assets. However, they’re the resources that make up the foundation for tomorrow’s financial success. Before we go further, let’s understand what we mean by an intangible asset. It can be the knowledge that exists in an organization to create differential advantage — and to satisfy customer needs. Intangible assets consist of things like employee capabilities, databases, information systems, customer relationships, quality, responsiveness, and products or services. Generally, a company’s intangible assets account for 75 percent or more of its market value. Conversely, its tangible assets represent less than 25 percent. That reality has great implications for executives. In order to create value for shareholders and customers, they must use strategy maps to identify their critical processes and to measure how well aligned their intangible assets are to these processes. Why are strategy maps important for you and your organization? The answer is that it’s critical for you and your employees to understand what the strategy is — and why it makes business sense. The maps provide visual clarity to help your people see, discuss, and understand the strategy. On one page, the map will highlight which processes and actions are critical, and which are secondary. If your business strategy isn’t working as well as it should, strategy maps can help you figure out what went wrong and make it right. ss and aligning human capital, information capital, and organization capital. A strategy map visualizes — from four perspectives — the cumulative process by which an organization creates value. The perspectives, from top to bottom on the map, are: financial, customer, internal, and learning and growth. You can think of the perspectives as four building blocks, with each perspective providing leverage for the one above it: • First, learning and growth is the foundation for the internal perspective by asking the question, "To achieve our vision, how must our company learn and improve?" STRATEGIES AND STRATEGY MAPS This summary introduces the following: • First, strategy map templates describing the basic components of how value is created internally. Second, themes that articulate a strategy’s dynamics. Third, a new framework for describing, measuring THE • • STRATEGY MAPS ILLUSTRATE HOW ORGANIZATION CREATES VALUE 2 AUDIO-TECH You must 3 • Each of these processes depends on several factors. "If we succeed. quality. and brand image. For example. employee alignment. 4. If your company is missing even one element. Secondly. "To satisfy our customers. It’s a roadmap to future financial success. Thus. acquisition. information. service. partnership. talent. Operations Customer management Innovation Regulatory and social success. • Human capital consists of employees’ skills. how must we look to our customers?" Fourth. the internal perspective provides the foundation for the customer perspective through the question. but you should pay attention to all of them. For example. the strategy should address the following elements: price. the learning and growth perspective encompasses three forms of intangible capital: human. functionality. the arrows show that sustaining longterm shareholder value depends on the following factors: Improving the cost structure. In turn. and brand image. 3. however. the financial perspective supports the overall business strategy by asking. a strategy map outlines the cause-and-effect relationship among the factors critical to a company’s financial • As the illustration on page 2 shows. Information capital consists of databases. strategy is based on a differentiated customer value proposition. For example. and organization. and growth. the strategic success of an organization’s customer value proposition determines how well it contributes to key objectives in its financial perspective. which processes must we excel at?" Third. relationships with customers. Organization capital consists of culture. consisting of the four key internal processes: BUSINESS BOOK SUMMARIES . For example. leadership. The strategy has to balance both of these forces.• Second. the strategy map is based on four principles. the model can be broken down even further for more detailed insights. the customer management process rises or falls depending on these factors: selection. retention. Also. and networks. strengthening asset utilization. At the same time. "To achieve our vision. selection. You probably won’t lead your industry in every element. information systems. expanding revenue opportunities. The map takes companies from strategy formulation to strategy execution. availability. which means they need to make a commitment to the long term. the elements in the four processes — usually indicated on the strategy map by arrows — determine the customer value proposition. they need to show improved results in the short term. and enhancing customer value. it may have a potentially crippling gap in its strategy. particularly growth in revenues and margins. and knowledge management. an otherwise outstanding product that’s unavailable has no real value to a customer. how will we look to our shareholders?" 1. teamwork. One is that strategy must balance contradictory forces. 2. in the customer perspective. the customer perspective supports the financial perspective by asking. The template indicates — through the arrows — the relationships between various company elements and objectives. A product without quality probably can’t have a low enough price to make it attractive. Beyond those considerations. For example. companies must focus on creating sustained growth in shareholder value. • • Learning and growth drive the internal perspective. and knowledge. That includes product attributes. Finally. Companies must first identi- THE BALANCED SCORECARD FRAMEWORK 4 AUDIO-TECH . The third principle is that value is created through internal business processes. 3. The objectives in the learning and growth perspective are to Each of these value propositions clearly defines the attributes that the strategy must deliver in order to satisfy the customer. As we’ve already discussed. the fourth principle states that strategic alignment determines the value of intangible assets. and how it measures it. The authors’ research. the value comes from its ability to help the company implement its strategy. information capital. however. it enables focusing and measuring the various components of the strategy. The Balanced Scorecard is a step in a continuum that describes how a company defines value. 4. intangible assets consist of human capital. and organization capital. Low total cost Product leadership Complete customer solution System lock-in fy and then focus on the critical few internal processes that deliver the differentiating value proposition. 2. how it creates it.articulate clearly the distinctive customer segments you target and the specific value proposition that will please each of them. shows that two-thirds of companies do not create strong alignment between their strategies and their HR and IT programs. As a result. ss THE BALANCED SCORECARD: AN INDISPENSABLE COMPONENT OF STRATEGY MAPS The strategy map translates the strategy and opens it up for discussion and finetuning. Finally. There are four major value propositions: 1. they are not getting a good return on their investments. In combination with the Balanced Scorecard. The point is that none of these assets is valuable by itself. the company learned something surprising. There may be disagreements. In developing its strategy map. The total cost includes the purchase prices. For example. inspection. Operations management involves four important elements: 1. Strategy maps link desired outcomes in the customer and financial perspectives to outstanding performance in four critical internal processes — operations management. companies will have trouble with strategic execution. and increase customer satisfaction. but they should be matters of degree. a maker of precision casting parts. and willingness to buy more products. and storage costs. The maps enable them to see and connect relationships among the objectives. improve quality. Develop financially strong supplier relationships Produce good products Distribute and deliver those products to customers Manage risk 2. Additionally. the ability to develop and sustain supplier relationships is essential to creating value. Consider the situation at Gray-Syracuse. The next section will look in depth at the first two of these value-creating processes: operations management and customer management. increasing their satisfaction. However. innovation. Achieving objectives doesn’t just happen by accident. Here. without such excellence. and services it needs. retention rates. the company cut in half the time required to achieve its strategic objectives. That’s not always self-evident. 5 VALUE-CREATING PROCESSES: OPERATIONS MANAGEMENT AND CUSTOMER MANAGEMENT Operating processes produce and deliver goods and services to customers. payment. moving.identify the jobs — or human capital — the systems — the information capital — and the work climate — the organization capital — needed to support the value-creating internal processes. For example. the mold assemblers. new products. ss sustain a strategy. the stronger processes should lead to better products. Building a good strategy map requires intense reflection on how a company really creates value. 4. 3. These improved customer outcomes should result in increased revenues and enhanced shareholder value. At Wal-Mart. Of course. Having effective supplier relationships means the company will have lower total cost to acquire the goods. That would enhance the value proposition for customers. Gray-Syracuse directed its limited training dollars to its entry-level people. By itself. and regulatory and social processes. For example. Its front-line production workers were best able to reduce expensive reworks. fulfilling one objective allows the fulfillment of others. They’re the effects that derive from specific causes. operational excellence won’t BUSINESS BOOK SUMMARIES . the measurements will be difficult. customer management. as well as costs related to procurement. materials. Also. but not unattainable. In so doing. and the number of new patents are highly measurable. a major purpose of strategy maps is to facilitate discussions among managers. For many world-class companies. point-of-sale terminals trigger production runs at vendor locations. loyalty. Toyota and Wal-Mart require their suppliers to produce high-quality products on short notice and deliver them reliably. Among the ways to lower such costs include finding suppliers that accept electronic orders and payments — and that deliver products just-in-time. improving employee capabilities in certain job positions — coupled with new technology — should enable improvement in a critical internal process. The key objectives include: lowering production costs. and total quality management. it will help you attack the costs of inefficiency and low-value activities. establishing targets for breakthrough. strengthening fixed asset utilization. it’s essential to have valuecreating objectives and sound measurement tools. setting strategic priorities for process AUDIO-TECH • • • . The fourth critical operations process is managing risk. The objectives are to reduce cost and time. ABM enables managers to get good results from an activity-based costing system. Third. The third key operations process is to distribute and deliver products and services to customers. 6 In each operations process. For example. That’s particularly important for companies facing interest rate movements and foreign exchange fluctuations. industry-leading performance. Second. identifying entirely new processes to help achieve strategic objectives.OPERATIONS MANAGEMENT STRATEGY MAP TEMPLATE The second important operational process is to produce products. or ABM. providing clear causal linkages from quality improvements to measurable customer and financial outcomes. • First. As you learn each activity’s cost. There are two initiatives that can help companies make fundamental improvements in operating processes: activity-based management. while minimizing product defects and customer complaints. you should measure the percentage of on-time deliveries. There are various ways in which strategy maps can provide significant value — even to companies that are far along in their quality efforts. or TQM. TQM is an effort to improve quality in every aspect of your organization’s activities. Fourth. continuously upgrading processes and responsiveness. with suppliers. and improving working capital efficiency. Growing relationships with targeted customers by gaining their trust and getting a bigger share of their business. Now.enhancements. CUSTOMER MANAGEMENT SCORECARD TEMPLATE BUSINESS BOOK SUMMARIES 7 . it segments the 2. Customer management consists of four generic internal processes. products were primary. But they’re neglecting customercentered processes that can produce higher margins. The figure shown below summarizes the elements involved in a strong customer management strategy. and efficiency. customer. customer management processes are essential to help companies acquire. The customer management template looks at customer management from the usual four perspectives: learning and growth. and financial. customers can design their own product configurations. Selecting customers by identifying important market segments and crafting an appealing value proposition for them. The second key operations management process is customer management. however. 3. Increasingly. At companies like Levi Strauss and Dell Computer. including: 1. securing prospects. and transforming casual buyers into rabid fans. and customers were secondary. and grow long-term relationships with customers. sustain. Acquiring customers by communicating the brand message to the market. cost reduction. The template goes far beyond general statements about building strong relationships. internal. correcting problems. For example. building customer relationships is increasingly important. It’s true that some companies’ internal processes concentrate only on quality. and converting them to your products. Retaining customers by ensuring quality. 4. In the Industrial Era. ss cheaper. adding up the number of strategic accounts. 2. and better than the products that were just introduced. calculating the percentage of unprofitable customers. Managing innovation includes four important internal processes: 1. 3. In identifying opportunities for new products. They will allow you to determine once and for all whether your strategy is really working. and growth. and telecommunications — where customers constantly demand new products that are faster. Managing the R&D portfolio. 4. Innovation is particularly important in industries — such as semiconductors. smaller. the objectives for the idea and opportunity innovation process include: (1) anticipating future customer INNOVATION MANAGEMENT STRATEGY MAP TEMPLATE 8 AUDIO-TECH . targeting high-value customers. They include: determining the profits from each customer segment. and managing the brand. Measurements are equally distinctive.internal process into selection. INNOVATION PROCESSES AND SOCIAL AND REGULATORY PROCESSES Now that we’ve explored the first two types of valuecreating processes. Bringing new products to market. Identifying opportunities for new products. acquisition. Designing and developing the new products. It then divides the processes into various objectives. software. retention. the careful measurements will hold everyone’s feet to the fire. let’s discuss the other two types: innovation processes and social and regulatory processes. In each perspective. including: understanding segments. and evaluating the customers’ degree of brand preference. screening out unprofitable customers. they can do well financially by doing good things. • BUSINESS BOOK SUMMARIES . community ill will. A breakthrough development project would produce a hybrid auto capable of running either on a battery or gasoline. But all organizations need at least one innovation objective on their strategy maps. innovation can be crucial to their success. and expensive litigation. companies must comply with social and regulatory obligations. Innovation should produce a solid return on R&D investments. Expanding products into new market segments. Innovation processes often receive less management attention than operations and customer management. ethically and socially. In the Regulatory and Social Strategy Map Template shown on page 10. and detailed product and process engineering.needs. And. That typically consists of a series of stages: concept development. there can be benefits to leading in this area. the benefits of innovation won’t be fully achievable for companies operating in restrictive regulatory and social environments. Development projects would develop different models of the hybrid car. employment practices. such as reducing the risk of doing business and attracting 9 • • • • • Naturally. In each area. An alliance project would occur when the company turns to another automaker for design and development. companies usually do not innovate simply for the sake of creating interesting new ideas. Of course. and alliance projects. This effort tests whether the new manufacturing processes can bring about the finished product at commercial volume levels. Of course. the number of clientdriven new projects launched. consider the product portfolio of an automobile company: • A basic research project might be a fuel cell to replace the gasolinepowered engine. such as two-door. In other words. Such companies tend to become employers-of-choice and beneficiaries of community goodwill. and community investment. Getting to the market first with a new product or service. next-generation development projects. Companies manage their regulatory and social performance along several dimensions. To avoid shutdowns. such as: • Offering superior product performance compared to earlier versions. To illustrate these projects. health and safety. and meet functional and quality standards. Measures for those objectives would include: time spent learning targeted customers' needs. product planning. The second innovation process — managing the R&D portfolio — should include a mix of different types of projects from the following categories: basic R&D. and (2) discovering and developing new products. and convertible. fourdoor. for companies whose strategies require they be product leaders. including: environment. these outcomes are also linked to financial objectives on the strategy map. breakthrough projects. There must be a linkage between the innovations and the goals in the customer perspective. The third innovation process is to design and develop truly new products. and the number of new projects presented for development. creative companies generally can leverage their capabilities to create shareholder value. as well as revenue growth from new and existing customers. In fact. A next-generation project would be a new line of hybrid cars. development projects. these activities can be linked to financial objectives. With organization capital. Xerox reduced costs by paying more attention during the design stage to environmental impacts. that build long-term shareholder value. but also a cost — for example. Their alignment with strategy is what creates value. workforce knowledge. INFORMATION CAPITAL. ss All intangible assets succeed or fail based on their synergies. Such efforts can lower the total cost of producing and recycling products. the objective is strategic information. in shipping materials to landfills. and work processes. there are four parts. so the AUDIO-TECH ALIGNMENT IN HUMAN CAPITAL. The assets central to implementing any strategy are: human capital. Second. leadership. Consider environmental practices. information capital. information systems. AND ORGANIZATION CAPITAL Good places to work embrace more than social responsibility. with information capital. The learning and growth perspective highlights the need to align intangible assets with strategy. copyrights. in human capital. In the learning and growth perspectives. the objective is to create strategic competencies. Companies like Xerox have found that waste isn’t only a nuisance. . They also manifest a willingness to train their people in ways that allow them to execute the organization’s strategy. And they can improve the company’s reputation as an environmentally friendly 10 business and a good place to work. and by operating effective programs in product take-backs. six objectives consistently appear: First. and organization capital. Remember: Intangible assets encompass such items as: patents.REGULATORY AND SOCIAL STRATEGY MAP TEMPLATE socially conscious customers and investors. the sharing of strategically important knowledge and staff assets. libraries. It consists of systems. they must estimate the gap between the human capital requirements and current employee readiness. It had failed miserably to deliver the right services needed for the bank’s strategy. the availability of leaders to mobilize the organization. Assessment processes define the current capabilities — in light of the competency profiles — in each job family. Organizations need to identify human capital requirements for the strategy. the highest returns come from information systems that focus on the following: quality. they must build requirements and improve readiness to execute the strategy. and workforce productivity. For example: • With a strategy based on low costs. alignment. It was a system designed not to support its own company’s needs. Competency profiles describe in detail their job requirements for employees in the strategic job families. teamwork. Companies need to develop. That’s because a firm’s strategy map provides a common point of reference for employees and units to see how clearly their roles dovetail with the business strategy. The process of measuring human capital readiness starts by identifying key competencies — those required to perform each critical internal process in the map.third objective is culture. all intangibles in a strategy map are worthy of support. The competency gap is the difference between the requirements and the current capabilities. databases. The strategy failed because the complex information technology needed to implement it wasn’t made available in a timely fashion. but to match the performance of similar units in other companies it had benchmarked. the awareness and internalization of the shared mission. Organizations should build their human capital development programs using two highly useful tools: the strategic job family approach to develop specific competencies. and organization capital to the critical few strategic processes. That will allow them to create the greatest returns from their intangible assets. it must be world-class itself. and strategic values to make the strategy everyone’s job. reveal 11 • BUSINESS BOOK SUMMARIES . leadership. With a strategy based on building strong relationships with customers. Finally. he was right. One global bank attempted to differentiate itself by offering sophisticated financial products to customers. vision. Of course. information. Fourth. Strategy maps — and the discussion they encourage — could help save companies from such a fate. Strategic job families are the positions with employees who will have the greatest influence on enhancing these internal processes. right? Not exactly. Yet the firm’s CEO insisted the information services system was performing well. That shows the organization’s human capital readiness. Fifth. Sixth. So. The second essential intangible asset is information capital readiness. In one sense. Alignment and integration aren’t as easy as they might seem. The unit had benchmarked itself against world-class information services operations. However. the level of support will depend on your strategy. Then. the combining — company-wide — of goals and incentives with the strategy. align. process improvement. Information capital is the raw material for creating value in a modern economy. and values. and networks. and integrate their human. the greatest benefits come from information systems that do two things: first. One relates to Information capital has value only in the context of the strategy. A strategy often requires changes that may include: new products. It must be managed to align with the strategy. and good strategies include a change agenda. alignment. That refers to the company’s ability to mobilize — and sustain — the process of change required to execute the strategy. The first step in developing an organization capital strategy is to define the change agenda. leadership. This is illustrated in the Organization Change Agenda figure that is shown below. or new customers. The new mind-set emphasizes evaluation based on strategic alignment. second. and retention. service. Improvement generally means change. There are four elements that enable organization capital to play a key role in executing the strategy. enhance customer contact. and CAD/CAM. organizations must manage information capital not as a cost. Companies must also develop organization capital. and teamwork. but as an asset — one whose value depends on how it contributes to executing the institution’s strategy. virtual prototyping. • With a strategy based on product superiority. The objectives fall into two categories of behavioral change. These are culture. The old mind-set for managing THE ORGANIZATION CHANGE AGENDA 12 AUDIO-TECH . these changes define new behaviors and values needed by the workforce. new processes.knowledge about customer preferences and behavior and. information capital will enhance the product design and development process. It will accomplish that through tools such as three-dimensional modeling. In turn. In other words. information capital was to evaluate performance by cost and reliability. Dell • Focusing on the company competing on prod. providing 2. cus• Understanding the tomers. It communicates the company that uses a low motivated. and host communiAn effective low total cost mission. assets. Low total cost required to order and to human capital. • Working as a team that companies can use to McDonald’s. and combines to reinvest in itself and to them with consistent quality.changes required to create customer and shareholder value. suppliers. ss Then. • Communicating openly Let’s discuss each of the four types of value propositions Companies like Wal-Mart. and decent product selection. ducts tough negotiations Learning and growth meawith vendors. They do shy away from managing that by reducing the time hard-to-measure factors like 1. Product lock-in objectives: efits just from the good faith effort to measure intangible A classic example of a 1. Toyota. the meaThe best low total cost sures will be softer than the 3. Granted. But the company strategy offers highly comvalues absolutely must create value petitive prices. and Dell keep generate attractive profits. and in internal processes that low costs. Complete customer companies generally financial variety. customers’ costs down by Of course. employees. CUSTOMIZING YOUR STRATEGY MAP TO YOUR STRATEGY In addition to Wal-Mart. are necessary to become a BUSINESS BOOK SUMMARIES 13 . remember the Yugo — a Four additional behaviors Regardless of its strategy. information receive the product. In that regard. and McDonald’s. At the same time. capital. Offering products sures of the intangible assets them with very high volume and services that are stimulate the improvements purchases in exchange for consistent. other strong companies Your own specific strategy pursuing a low total cost will determine your organistrategy include: Southwest zation’s strategic thrust.Computer. Product leadership capital. innovation. three kinds of behavior changes are especially important for value creation: successful strategy-focused organization. some companies They are: saving them time. it transfers some of the value to customers through low prices. and organization 2. Having a capable. The second consists of changes needed to execute the strategy. Vanguard Mutual customer uct leadership will highlight Funds. fully is Wal-Mart. while a company • Innovating competing mainly on cost These companies do more will emphasize operations than provide very competi• Delivering results management. Generally. and technoimportance of these drivers total cost strategy successlogically enabled to value creation. strategy. • Creating accountability reward its shareholders. low-cost. ease and speed of purchase. A Airlines. a low-priced car whose poor are critical to executing successful company is one quality turned off potential strategy: that creates value for its buyers. and ties. it retains attractive margins for itself.4. solutions organize their strategy maps to support two general But there are significant ben. tive pricing. It conworkforce. timely. STRATEGY MAP TEMPLATE: LOW TOTAL COST STRATEGY MAP TEMPLATE: PRODUCT LEADERSHIP 14 AUDIO-TECH . In the strategy map template for product leadership companies shown on page 14. The second type of value proposition. System lock-in occurs mainly when a company’s core products become the industry standard. this strategy characterized IBM. That’s because many application programs run only on Windows. Companies in this category emphasize customer retention more than customer acquisition. Mercedes. 2. That requires companies to develop customized solutions. Your organization’s strategy map should tell the unique 15 BUSINESS BOOK SUMMARIES . and rapid inventory turnover. Discovering new opportunities for superior products and services. is used by companies such as Sony. Why? Because that allows them to command high prices from early adopters. Lower potential customers’ switching costs. The final value proposition deals with lock-in strategies. accessible ordering processes. or the most reliable delivery. Overall. For that reason. Moreover. a company’s strategy will contain many objectives. people who consider switching from the widely used Microsoft Windows operating system to the user-friendly Apple system can’t do so with impunity. They recognize that retention typically costs much less than acquisition. and Intel that emphasize product innovation and leadership. They need to: 1. It will be most successful when integrated. 3. In many cases. the key internal processes are in the innovation area of the internal perspective. Under that approach. 2. companies generate long-term sustainable value by creating high switching costs for customers. A strategy map template for firms that follow this strategy is illustrated on page 16 and shows that the key internal processes are in the customer management area of the internal perspective. Other factors include: simple. a willingness to embrace continuous process improvement. Develop and enhance proprietary standards. But it did offer its customers complete solutions — hardware. it personalized the services to meet the customer’s unique needs. companies that pursue a lock-in strategy focus on the innovation area of the internal perspective. being first-tomarket can impose high switching costs that let companies defend their market positions without major cost cutting. Increase the breadth and application of those standards. Anticipating customers’ needs. field service. training. installation. or the most functional products. From about 1960 to 1980. product leadership. and excellence in patenting. aligned activities allow the company to offer a unique value proposition. The companies must excel at: 1. For example. and consulting. It didn’t offer the lowest prices. and branding processes. a willingness to be product followers rather than leaders. regulatory. software. They include: good relationships with suppliers. building long-lasting relationships with customers. Such companies’ deep understanding of their customers leads to lasting relationships. and an emphasis on company-wide sharing of best practices. highly efficient operating processes. The third value proposition is complete customer solutions — basically. Other essential objectives include superb product development processes.A strategy map template for a low total cost strategy shows that key internal processes occur within the operations management area of the internal perspective. education. Product leadership companies want to be first-to-market with their innovations or enhancements. STRATEGY MAP TEMPLATE: COMPLETE CUSTOMER SOLUTIONS STRATEGY MAP TEMPLATE: LOCK-IN 16 AUDIO-TECH . targeted customers. Selecting the measures. employees would become comfortable introducing customers to a package of integrated services. discover a planning gap. six-step process: Consumer Bank set three • First. Clarifying the customer value proposition. identify the value-creating themes. identify and fund the strategic initiatives. it set a exactly what strategy maps stretch target of increasing can encourage. Achieving the three subobjectives was necessary for the bank to reach its overall goal of improving net income by $100 million. BUSINESS BOOK SUMMARIES .story of your strategy — one that differentiates you from the competition. But that’s often not the case with revenue growth. $200 to $300. reconcile the value proposition for targeted customer segments. In the case of discussion. net income by a whopping $100 million within five But remember that a years. With Consumer Bank. gap shows everyone involved that dramatic change is necYour strategy requires a con. not static — viable and current reality. Identifying target customers. It usually includes selling more to existing customers. Balancing customer objectives with financial growth goals. The bank directed its learning and growth objectives toward teaching and motivating employees to cross-sell its other offerings. Next. • Improving productivity by reducing cost per • Second. you can often action. The second step. has four dimensions: 1. determining the shareholder value gap. Clearly. That requires explicit attention to targeted customer groups. • • Fourth. Let’s look at the process STRETCH TARGETS AND SUB. establish the timeincreasing revenue per line needed to close the customer from about value gap. 3. you need to tinuing campaign designed allocate the overall planning to inform and energize gap to different financial everyone in an organization. sures. Fifth. developing your begins with defining the distinctive strategy requires overall objectives and meaa good deal of thought. 4. ss asset readiness. reconcile the customer from $100 to value proposition for $75. That means breaking the high-level Planning the strategic objective into manageable campaign means taking a steps. and debate — Consumer Bank. increasing sales to existing customers involved turning the bank’s employees into trusted financial advisors. • Improving growth by • Third.more closely. and selling products to entirely new customers. define the sharesub-objectives: holder/stakeholder value gap. sub-objectives. which is the difference Strategy maps must be between future aspirations dynamic.essary. Opportunities for cost and productivity improvements generally are relatively clear. in the workplace and workIdentifying the planning able in the marketplace. 2. It’s a call to stretch target. strategy isn’t merely an opportunity for reflection Once you’ve established a and discussion. TARGETS FOR PERFORMANCE BREAKTHROUGHS The first step. create strategic • Improving the customer base by tripling its number of high value customers. • Sixth. By building such relationships. Identifying the human. allocating the planning gap to different strategic themes. Another was to minimize problems for customers and employees by simplifying and clarifying processes. For each one. Of course. Operations processes would reduce cost per customer. and organization capital required to support the strategic process. create strategic asset readiness. Supporting processes and developing intangible assets are the result of those initiatives. fund the strategic initiatives. 2. consists of two elements: 1. step six. the Consumer Bank team translated the vision into one consisting of manageable. has two elements: • • First. 3. or themes. Establishing measures and targets. Instead of aiming for an immediate — and impossible — leap forward. Second. ss STRATEGY MAPS AS FRAMEWORKS FOR ACHIEVING CRITICAL OBJECTIVES Your organization’s strategy must be more than a set of initiatives — no matter how bold they might be. They give you a vehicle to discuss your strategy fully. One was to provide rapid response — measured by request fulfillment time. Consumer Bank identified seven value-creating processes. It can help make your strategy one that drives the entire organization. identify the strategic themes. It focused processes on achieving results within that time. Customer management processes would increase the number of income-boosting relationship customers. Defining the specific initiatives required to support processes and develop intangible assets. AUDIO-TECH 2. Assessing the readiness of these assets to support the strategy. information. identify and This step involves aligning 18 . As we’ve seen. Strategy maps can literally put everyone in your organization on the same page. the initiatives are where the rubber meets the road. involves three elements: 1. and develop it systematically. Determining and securing the funding. They established a realistic path to an ambitious goal. The fifth step. Consumer Bank established a time-line for its strategy of five years. Establishing measures and targets. It did this by shifting more of its customer support to Web-based technology. Consumer Bank selected two operations management processes essential to making the strategy work. That would increase customer satisfaction and improve productivity. that have the greatest effect. the strategic drivers to achieve the financial and customer objectives. It will help you and your people identify powerful assets — most of them intangible — that are vital sources of value creation. 2. time-phased steps. establish the time-line for closing the value gap. the management team asked two questions: (1) "Which job families are critical to managing this process?" and (2) "Which information systems are critical for improving this process?" Finally. Identifying the critical few processes. The strategy map can help you avoid the trap of creating a strategy that exists more in words than in execution.Step three. A strategy contains a multitude of related elements. And innovation processes would introduce new products and services to increase annual revenue per customer by 50 percent. Step four. consists of two elements: 1. setting deadlines for results. it’s up to you to take the steps necessary to make the strategy map truly a dynamic tool. ss NOTES BUSINESS BOOK SUMMARIES .It will show you how to align those key intangible assets with critical processes. Now it is up to you to begin the journey. and regulatory and social processes. customer management. The point is this: Your strategy is the essence of what your company is. Your strategy map will show you the way to the destination. innovation. Of course. including: operations management. and industry leadership. Actions and solid management are the ultimate drivers of change. It is the source of competitive advantage. financial success. Illinois 60527 1-800-776-1910 • 1-630-734-0600 (fax) • www. Copyright 2004 by Harvard Business School Publishing Corporation. more than 100 other papers.00. Norton is President of Balanced Scorecard Collaborative. a professional services firm that facilitates the worldwide awareness. HOW TO ADD THIS BOOK TO YOUR LIBRARY To order this book. he is the cocreator of the Balanced Scorecard. David P.ABOUT THE AUTHORS Robert S. Kaplan is Chairman of the Balanced Scorecard Collaborative.. 825 75th Street. and integrity of the Balanced Scorecard. and eleven books. use. Kaplan and David P. Willowbrook. coauthor of four Harvard Business Review Articles. Norton. Kaplan is the creator of the Harvard Business School video series Measuring Corporate Performance and the author or coauthor of thirteen Harvard Business Review articles. and coauthor of The Balanced Scorecard and The Strategy-Focused Organization. plus $3. enhancement. summarized by arrangement with Harvard Business School Press. Dr. He can be reached at rkaplan@hbs. including three with David Norton. please send check or money order for $35.audiotech. Inc.com . IL 60527 Strategy Maps.edu. With Robert Kaplan.50 shipping and handling to: Audio-Tech Business Book Summaries 825 75th Street Willowbrook. from Strategy Maps: Converting Intangible Assets into Tangible Outcomes by Robert S.