[Robert S. Kaplan, David P. Norton] Having Trouble(Bookos.org)

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HBR On Point FROM THE HARVARD BUSINESS REVIEW ARTICLE Having Trouble with Your Strategy? Then Map It by Robert S. Kaplan and David P. Norton New sections to guide you through the article: • The Idea in Brief • The Idea at Work • Exploring Further. . . PRODUCT NUMBER 5165 Your vision is sublime; your strategy, brilliant. So why are your troops lost? Maybe they need a map.

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Transcript of [Robert S. Kaplan, David P. Norton] Having Trouble(Bookos.org)

  • HBROnPoint

    F R O M T H E H A R V A R D B U S I N E S S R E V I E W

    A R T I C L E

    Having Trouble with YourStrategy? Then Map Itby Robert S. Kaplan and David P. Norton

    New sections to

    guide you through

    the article:

    The Idea in Brief

    The Idea at Work

    Exploring Further. . .

    P R O D U C T N U M B E R 5 1 6 5

    Your vision is sublime;

    your strategy, brilliant.

    So why are your troops lost?

    Maybe they need a map.

  • T H E I D E A

    How does Mobil make sure that every gasstation owner understands the companys strat-egyand implements it each time a customerdrives up to his pumps? How did Mobil becomethe industrys profit leader and boost its cashflow by $1 billion+ per year? By using a strategymapa powerful new tool built on the bal-anced scorecard.

    The balanced scorecard measures your com-panys performance from four perspectivesfinancial, customer, internal processes, and

    learning and growth. A strategy map is a visualframework for the corporate objectives withinthose four areas. The authors created strategymap templates for various industries, includingretail, telecommunications, and e-commerce.

    Strategy maps put into focus the often-blurryline of sight between your corporate strategyand what your employees do every daysignificantly enhancing collaboration and coordination.

    Having Trouble with Your Strategy? Then Map It

    WHY STRATEGY MAPS?

    Strategy maps are essential in the informationage, when intangible assetscustomer relation-ships, employee skills, the ability to innovateare competitive advantages. But these assetshave value only within the context of a strategy.

    For example, a growth-oriented strategy mightrequire in-depth customer knowledge, salestraining, and incentive-based compensation.But none of these, alone, would be enough toimplement that strategy. Strategy maps quantifythe value of tangible and intangible assetslinking them all to your overarching strategy.

    BUILDING YOUR STRATEGY MAP

    Step 1. Clarify your mission and strategicvision. Mobil sought to be the best integratedrefiner-marketer in the U.S. by efficiently deliv-ering unprecedented value to customers.

    Step 2. Specify objectives in the four scorecardareas to realize your companys vision.

    Financial. Balance revenue growth and produc-tivity improvement.

    E X A M P L E :Mobil grew revenue by selling more non-gasolineproducts and services and more premium gas. Itimproved productivity by slashing operatingexpenses (e.g., reducing refinery downtime).

    HBR OnPoint 2000 by Harvard Business School Publishing Corporation. All rights reserved.

    Customer. Differentiate your firm from com-petitors. Choose one of these value proposi-tions: operational excellence, customer inti-macy, or product leadership.

    E X A M P L E :Mobil emphasized customer intimacy, targetingpremium customers by offering fast, friendly, andsafe service. Satisfied customers gladly paid more.

    Internal Processes. Identify operational, cus-tomer-relationship, and innovation processesto support your customer and financial goals.

    E X A M P L E :Mobil reduced environmental and safety incidents(operational), built best-in-class franchise teams(customer relationships), and developed non-gasoline services (innovation).

    Learning and Growth. Define the skills, tech-nologies, and corporate culture needed to sup-port your strategy.

    E X A M P L E :Mobils objectives were: increase employee knowl-edge of refining business; nurture leadership skillsnecessary to articulate its vision.

    Mobils strategy map linked the four perspec-tives, providing all its business units clear direc-tion for creating their own more detailed maps.

    T H E I D E A A T W O R K

    I N B R I E F

  • magine that you are a generaltaking your troops into foreign terri-

    tory. Obviously, you would need detailedmaps showing the important towns andvillages, the surrounding landscape, keystructures like bridges and tunnels, andthe roads and highways that traverse theregion. Without such information, youcouldnt communicate your campaignstrategy to your eld officers and the restof your troops.

    Unfortunately, many top executivesare trying to do just that. When attempt-ing to implement their business strate-gies, they give employees only limiteddescriptions of what they should do andwhy those tasks are important. Withoutclearer and more detailed information,its no wonder that many companieshave failed in executing their strategies.After all, how can people carry out a plan that they dont fully understand?

    harvard business review SeptemberOctober 2000 Copyright 2000 by the President and Fellows of Harvard College. All rights reserved.

    T O O L K I T

    Having Trouble with Your Strategy?

    The key to executing your strategy is

    to have people in your organization

    understand it including the crucial

    but perplexing processes by which

    intangible assets will be converted

    into tangible outcomes. Strategy maps

    can help chart this difficult terrain.

    by Robert S. Kaplan and David P. Norton

    I

    Then Map It

    ILLU

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    Y LA

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  • Organizations need tools for communi-cating both their strategy and the pro-cesses and systems that will help themimplement that strategy.

    Strategy maps provide such a tool.They give employees a clear line of sightinto how their jobs are linked to theoverall objectives of the organization,enabling them to work in a coordinated,collaborative fashion toward the com-panys desired goals. The maps provide avisual representation of a companyscritical objectives and the crucial rela-

    tionships among them that drive organi-zational performance.

    Strategy maps can depict objectivesfor revenue growth; targeted customermarkets in which protable growth will

    occur; value propositions that will leadto customers doing more business andat higher margins; the key role of inno-vation and excellence in products, ser-vices, and processes; and the invest-ments required in people and systems to generate and sustain the projectedgrowth.

    Strategy maps show the cause-and-effect links by which specic improve-ments create desired outcomes forexample, how faster process-cycle timesand enhanced employee capabilities willincrease retention of customers and thus increase a companys revenues.

    From a larger perspective, strategymaps show how an organization will con-vert its initiatives and resources includ-

    ing intangible assets such as corporateculture and employee knowledge intotangible outcomes.

    Why Strategy Maps?In the industrial age, companies createdvalue by transforming raw materials intonished products. The economy was pri-marily based on tangible assets inven-tory, land, factories, and equipment andan organization could describe and doc-ument its business strategy by usingnancial tools such as general ledgers,income statements, and balance sheets.

    In the information age, businessesmust increasingly create and deployintangible assets for instance, customerrelationships; employee skills and knowl-

    4 harvard business review SeptemberOctober 2000

    T O O L K I T Having Trouble with Your Strategy? Then Map It

    Product Leadership

    Customer Intimacy

    Operational Excellence

    Improve Shareholder Value

    Revenue Growth Strategy Productivity Strategy

    build the franchise

    revenue from new sources

    increase value to customers

    customer protability

    improve cost structure

    operating cost per unit produced

    share price return on capital employed

    improve use of assets

    asset utilization

    employee competencies technology corporate culture

    achieve operational excellence through operations and logistics processes

    increase customer value through customer management processes

    build the franchisethrough innovations

    become a good corporate citizen through regulatory and environmental processes

    Customer Value Proposition

    customer acquisition,retention, and satisfaction

    Financial Perspective

    Customer Perspective

    InternalProcess Perspective

    Learning and Growth Perspective

    The Balanced ScorecardStrategy Map

  • edge; information technologies; and acorporate culture that encourages inno-vation, problem solving, and generalorganizational improvements.

    Even though intangible assets havebecome major sources of competitiveadvantage, no tools existed to describethem and the value they can create. Themain difficulty is that the value of intan-gible assets depends on their organiza-tional context and a companys strategy.For example, a growth-oriented salesstrategy might require knowledge aboutcustomers, additional training for sales-people, new databases and informationsystems, a different organizational struc-ture, and an incentive-based compensa-tion program. Investing in just one of

    those items or in a few of them but notall would cause the strategy to fail. Thevalue of an intangible asset such as acustomer database cannot be consideredseparately from the organizational pro-cesses that will transform it and otherassets both intangible and tangible into customer and nancial outcomes.The value does not reside in any individ-ual intangible asset. It arises from theentire set of assets and the strategy thatlinks them together.

    To understand how organizations create value in the information age, wedeveloped the balanced scorecard, whichmeasures a companys performance fromfour major perspectives: nancial, cus-tomer, internal process, and learning and

    growth.1 Briey summarized, balancedscorecards tell you the knowledge, skills,and systems that your employees willneed (their learning and growth) to inno-vate and build the right strategic capa-bilities and efficiencies (the internalprocesses) that deliver specic value tothe market (the customers), which willeventually lead to higher shareholdervalue (the nancials).

    Since we introduced the concept in1992, we have worked with hundreds ofexecutive teams from various organiza-tions, in both the private and public sec-tors. From this extensive research, wehave noticed certain patterns and havebrought them into a common visualframework a strategy map that em-

    harvard business review SeptemberOctober 2000 5

    Having Trouble with Your Strategy? Then Map It T O O L K I T

    Customer Value Proposition Strategies

    measure of achievement

    Operational Excellence

    Customer Intimacy

    Product Leadership

    Relationship

    price time

    quality selection

    Product/Service Attributes

    smartshopper

    Image

    Companies excel at offering personalized service to customers and at building long-term relations with them.

    service customer relations

    RelationshipProduct/Service Attributes

    trustedbrand

    Image

    Companies excel at creating unique products that push the envelope.

    Relationship

    time

    functionality

    Product/Service Attributes

    best in class

    Image

    general requirement

    differentiator

    Companies excel at competitive pricing, product quality, and on-time delivery.

    Strategy maps show how an organization

    plans to convert its various assets into

    desired outcomes. Companies can use

    the template here to develop their own

    strategy maps, which are based on the

    balanced scorecard. At far left, from

    bottom to top, the template shows how

    employees need certain knowledge, skills,

    and systems (learning and growth per-

    spective) to innovate and build the right

    strategic capabilities and efficiencies

    (internal process perspective) so that they

    can deliver specic value to the market

    (customer perspective), which will lead

    to higher shareholder value (nancial

    perspective). For the customer perspec-

    tive, companies typically select one of

    three strategies: operational excellence,

    customer intimacy, or product leadership.

  • beds the different items on an organiza-tions balanced scorecard into a cause-and-effect chain, connecting desired out-comes with the drivers of those results.

    We have developed strategy maps forcompanies in various industries, includ-ing insurance, banking, retail, healthcare, chemicals, energy, telecommunica-tions, and e-commerce. The maps havealso been useful for nonprot organiza-tions and government units. From thisexperience, we have developed a stan-dard template that executives can use todevelop their own strategy maps. (Seethe exhibit The Balanced ScorecardStrategy Map.) The template containsfour distinct regions nancial, cus-tomer, internal process, and learning andgrowth that correspond to the four per-spectives of the balanced scorecard.

    The template provides a commonframework and language that can beused to describe any strategy, much likenancial statements provide a generallyaccepted structure for describing nan-cial performance. A strategy map enablesan organization to describe and illus-trate, in clear and general language, itsobjectives, initiatives, and targets; themeasures used to assess its performance(such as market share and customer sur-veys); and the linkages that are the foun-dation for strategic direction.

    To understand how a strategy map isbuilt, we will study Mobil North Ameri-can Marketing and Rening, which exe-cuted a new strategy to reconstruct itselffrom a centrally controlled manufacturerof commodity products to a decentral-ized, customer-driven organization. As aresult, Mobil increased its operating cashow by more than $1 billion per year andbecame the industrys prot leader.

    From the Top DownThe best way to build strategy maps isfrom the top down, starting with the des-tination and then charting the routesthat will lead there. Corporate executivesshould rst review their mission state-ment and their core values why theircompany exists and what it believes in.With that information, managers candevelop a strategic vision, or what thecompany wants to become. This visionshould create a clear picture of the com-panys overall goal for example, tobecome the prot leader in an industry.A strategy must then dene the logic ofhow to arrive at that destination.

    Financial Perspective. Building astrategy map typically starts with a nan-cial strategy for increasing shareholdervalue. (Nonprot and government unitsoften place their customers or consti-tuents not the nancials at the top oftheir strategy maps.) Companies havetwo basic levers for their nancial strat-egy: revenue growth and productivity.The former generally has two compo-nents: build the franchise with revenuefrom new markets, new products, andnew customers; and increase value toexisting customers by deepening rela-tionships with them through expandedsales for example, cross-selling productsor offering bundled products instead ofsingle products. The productivity strat-egy also usually has two parts: improvethe companys cost structure by reduc-ing direct and indirect expenses, and useassets more efficiently by reducing theworking and xed capital needed to sup-port a given level of business.

    In general, the productivity strategyyields results sooner than the growthstrategy. But one of the principal contri-butions of a strategy map is to highlightthe opportunities for enhancing nancialperformance through revenue growth,not just by cost reduction and improvedasset utilization. Also, balancing the twostrategies helps to ensure that cost andasset reductions do not compromise acompanys growth opportunities withcustomers.

    Mobils stated strategic vision was tobe the best integrated rener-marketerin the United States by efficiently deliver-ing unprecedented value to customers.The companys high-level nancial goalwas to increase its return on capital

    6 harvard business review SeptemberOctober 2000

    T O O L K I T Having Trouble with Your Strategy? Then Map It

    Robert S. Kaplan ([email protected]) is theMarvin Bower Professor of Leadership De-velopment at Harvard Business School inBoston. David P. Norton ([email protected]) is founder and president of the Bal-anced Scorecard Collaborative (www.bscol.com) based in Lincoln, Massachusetts. Thisarticle is adapted from their book TheStrategy-Focused Organization: How Bal-anced Scorecard Companies Thrive inthe New Business Environment (HarvardBusiness School Press, September 2000).The strategy maps concept was introducedin issues of The Balanced Scorecard Report,a newsletter published jointly by the Bal-anced Scorecard Collaborative and HarvardBusiness School Publishing.

    Mobil sStrategy Map

    **To account for Mobils indepen-dent-dealer customers not justconsumers the company adapt-ed the strategy map template tofactor in dealer relationships.

    Shown here is a map for the

    strategy that Mobil North American

    Marketing and Rening used to

    transform itself from a centrally con-

    trolled manufacturer of commodity

    products to a decentralized customer-

    driven organization. A major part of

    the strategy was to target consumers

    who were willing to pay price premi-

    ums for gasoline if they could buy at

    fast, friendly stations that were outt-

    ted with excellent convenience stores.

    Their purchases enabled Mobil to

    increase its prot margins and its

    revenue from nongasoline products.

    Using the strategy map shown here,

    Mobil increased its operating cash

    ow by more than $1 billion per year.

    measure of achievement

    general requirement

    differentiator

  • harvard business review SeptemberOctober 2000 7

    Increase Mobils Return on Capital Employed

    CustomerIntimacyProposition

    understand customers needs and differentiate accordingly

    maximize the use of existing assets;integrate the business to reduce

    total delivered cost

    introduce new sources of nongasoline revenue through expanded convenience store presence

    revenue from nongasoline products

    prot margin

    create nongasoline products and services

    new product acceptance rate

    new product return on investment

    sell more premium brands to increase customer protability

    sales volume comparedwith the rest of the industry

    ratio of premium products soldto regular products sold

    become the industry cost leader in every supply chain category

    Mobils cost per gallon compared with the rest of the industry

    companys actual return on capital net margin compared with rest of the industry

    maximize the use of existing assets

    actual cash owcompared with the business plan

    dealer protability dealer satisfaction

    share of targeted customer segments mystery shopper rating

    friendly, helpful workers

    recognize customer loyalty

    Relationship

    clean safe

    quality product

    speedy purchase

    Product/Service Attributes

    understand customer segments better and build best-in-class franchise teams

    share of target market dealer quality rating

    promote functional excellence, develop leadership skills, and create an integrated view of the company among employees

    ratio of strategic skillsto job coverage

    adopt new technology that encourages and aids process improvements

    on-time deployment of systems

    align business and personal goals

    personal balanced scorecards employee feedback

    improve environmental health and safety

    reduced number ofenvironmental incidentsand safety incidents

    improve hardware performance and inventory management, deliver products on spec and on time, and become the industry cost leader

    renery yield gap unplanned downtime inventory levels stockout rate activity-based costs

    versus the competition

    offer more consumer products

    help dealers develop their business skills

    Win-Win Dealer Relations**

    trusted brand

    Image

    Revenue Growth Strategy Productivity Growth StrategyFinancial Perspective

    Customer Perspective

    InternalProcess Perspective

    Learning and Growth Perspective

    Delight the consumer

  • employed by more than six percentagepoints within three years. To achievethat, executives used all four of the drivers of a nancial strategy that webreak out in the strategy map two forrevenue growth and two for productivity.(See the nancial portion of the exhibitMobils Strategy Map.)

    The revenue growth strategy called forMobil to expand sales outside of gaso-line by offering convenience store prod-ucts and services, ancillary automotiveservices (car washes, oil changes, andminor repairs), automotive products (oil,antifreeze, and wiper uid), and com-mon replacement parts (tires and wiperblades). Also, the company would sellmore premium brands to customers, andit would increase sales faster than theindustry average. In terms of produc-tivity, Mobil wanted to slash operatingexpenses per gallon sold to the lowestlevel in the industry and extract morefrom existing assets for example, byreducing the downtime at its oil rener-ies and increasing their yields.

    Customer Perspective. The core ofany business strategy is the customervalue proposition, which describes theunique mix of product and service attri-butes, customer relations, and corporateimage that a company offers. It deneshow the organization will differentiateitself from competitors to attract, retain,and deepen relationships with targetedcustomers. The value proposition is cru-cial because it helps an organization con-nect its internal processes to improvedoutcomes with its customers.

    Typically, the value proposition is cho-sen from among three differentiators:operational excellence (for example,McDonalds and Dell Computer), cus-tomer intimacy (for example, HomeDepot and IBM in the 1960s and 1970s),and product leadership (for example,Intel and Sony).2 Companies strive toexcel in one of the three areas whilemaintaining threshold standards in theother two. By identifying its customervalue proposition, a company will thenknow which classes and types of cus-tomers to target. In our research, wehave found that although a clear deni-tion of the value proposition is the singlemost important step in developing astrategy, approximately three-quarters ofexecutive teams do not have consensusabout this basic information.

    The inset of the exhibit The Balanced

    8 harvard business review SeptemberOctober 2000

    T O O L K I T Having Trouble with Your Strategy? Then Map It

    customers are the independent ownersof gasoline stations. These franchisedretailers purchase gasoline and otherproducts from Mobil and sell them toconsumers in Mobil-branded stations.Because dealers were such a critical partof the new strategy, Mobil included twoadditional metrics to its customer per-spective: dealer protability and dealersatisfaction.

    Thus, Mobils complete customerstrategy motivated independent dealersto deliver a great buying experience that would attract an increasing share oftargeted consumers. These consumerswould buy products and services at pre-mium prices, increasing prots for bothMobil and its dealers, who would thencontinue to be motivated to offer thegreat buying experience. And this virtu-ous cycle would generate the revenuegrowth for Mobils nancial strategy.Note that the objectives in the customerperspective portion of Mobils strategymap were not generic, undifferentiateditems like customer satisfaction. Instead,they were specic and focused on thecompanys strategy.

    Internal Process Perspective. Oncean organization has a clear picture of itscustomer and nancial perspectives, itcan then determine the means by whichit will achieve the differentiated valueproposition for customers and the pro-ductivity improvements to reach itsnancial objectives. The internal processperspective captures these critical orga-nizational activities, which fall into fourhigh-level processes: build the franchiseby innovating with new products andservices and by penetrating new marketsand customer segments; increase cus-tomer value by deepening relationshipswith existing customers; achieve opera-tional excellence by improving supplychain management, the cost, quality, andcycle time of internal processes, assetutilization, and capacity management;and become a good corporate citizen byestablishing effective relationships withexternal stakeholders.

    An important caveat to rememberhere is that while many companiesespouse a strategy that calls for innova-tion or for developing value-adding cus-tomer relationships, they mistakenlychoose to measure only the cost andquality of their operations and not theirinnovations or their customer manage-ment processes. These companies have

    Scorecard Strategy Map highlights thedifferent objectives for the three genericstrategy concepts of operational excel-lence, customer intimacy, and productleadership. Specically, companies thatpursue a strategy of operational excel-lence need to excel at competitive pric-ing, product quality and selection, speedyorder fulllment, and on-time delivery.For customer intimacy, an organizationmust stress the quality of its relation-ships with customers, including excep-tional service and the completeness ofthe solutions it offers. And companiesthat pursue a product leadership strat-egy must concentrate on the functional-ity, features, and overall performance ofits products or services.

    Mobil, in the past, had attempted tosell a full range of products and servicesto all consumers, while still matching thelow prices of nearby discount stations.But this unfocused strategy had failed,leading to poor nancial performance inthe early 90s. Through market research,Mobil discovered that price-sensitiveconsumers represented only about 20%of gasoline purchasers, while consumersegments representing nearly 60% of themarket might be willing to pay signi-cant price premiums for gasoline if theycould buy at stations that were fast,friendly, and outtted with excellent con-venience stores. With this information,Mobil made the crucial decision toadopt a differentiated value proposi-tion. The company would target the premium customer segments by offer-ing them immediate access to gasolinepumps, each equipped with a self-pay-ment mechanism; safe, well-lit stations;clean restrooms; convenience storesstocked with fresh, high-quality mer-chandise; and friendly employees.

    Mobil decided that the consumersbuying experience was so central to itsstrategy that it invested in a new systemfor measuring its progress in this area.Each month, the company sent mysteryshoppers to purchase fuel and a snackat every Mobil station nationwide andthen asked the shoppers to evaluatetheir buying experience based on 23 spe-cic criteria. Thus, Mobil could use afairly simple set of metrics (share of targeted customer segments and a sum-mary score from the mystery shoppers)for its consumer objectives.

    But Mobil does not sell directly toconsumers. The companys immediate

  • a complete disconnect between theirstrategy and how they measure it. Notsurprisingly, these organizations typicallyhave great difficulty implementing theirgrowth strategies.

    The nancial benets from improvedbusiness processes typically reveal them-selves in stages. Cost savings fromincreased operational efficiencies andprocess improvements create short-termbenets. Revenue growth from enhancedcustomer relationships accrues in theintermediate term. And increased inno-vation can produce long-term revenueand margin improvements.

    Thus, a complete strategy should in-volve generating returns from all threeof these internal processes. (See theinternal process portion of the exhibitMobils Strategy Map.)

    Mobils internal process objectivesincluded building the franchise by devel-oping new products and services, suchas sales from convenience stores; and

    enhancing customer value by trainingdealers to become better managers andby helping them generate prots fromnongasoline products and services. Theplan was that if dealers could captureincreased revenues and prots fromproducts other than gasoline, they couldthen rely less on gasoline sales, allowingMobil to capture a larger prot share ofits sales of gasoline to dealers.

    For its customer intimacy strategy,Mobil had to excel at understanding itsconsumer segments. And because Mobildoesnt sell directly to consumers, thecompany also had to concentrate onbuilding best-in-class franchise teams.

    Interestingly, Mobil placed a heavyemphasis on objectives to improve itsbasic rening and distribution opera-tions, such as lowering operating costs,reducing the downtime of equipment,and improving product quality and thenumber of on-time deliveries.

    When a company such as Mobil

    adopts a customer intimacy strategy, itusually focuses on its customer manage-ment processes. But Mobils differentia-tion occurred at the dealer locations, notat its own facilities, which basically pro-duced commodity products (gasoline,heating oil, and jet fuel). So Mobil couldnot charge its dealers higher prices tomake up for any higher costs incurred inits basic manufacturing and distributionoperations. Consequently, the companyhad to focus heavily on achieving opera-tional excellence throughout its valuechain of operations.

    Finally, as part of both its operational-excellence and corporate-citizen themes,Mobil wanted to eliminate environ-mental and safety accidents. Executivesbelieved that if there were injuries andother problems at work, then employeeswere probably not paying sufficientattention to their jobs.

    Learning and Growth Perspective.The foundation of any strategy map is the

    revenue growth

    delight theconsumer

    products on spec,on time

    revenue growth

    volume growth net margin

    delight theconsumer

    win-win dealerrelations

    nongasoline products and services

    best-in-classfranchiseteam

    functionalexcellence

    personal growth

    processimprovement

    products on spec,on time

    volume growth net margin

    win-win dealerrelations

    nongasoline products and services

    best-in-classfranchiseteam

    functionalexcellence

    personal growth

    processimprovement

    FinancialPerspective

    CustomerPerspective

    InternalProcessPerspective

    Learningand GrowthPerspective

    Strategy maps can help a company

    detect major gaps in the strategies

    being implemented at lower levels in

    the organization. At Mobil, senior man-

    agers noticed that one business unit had

    no objectives or metrics for dealers, as

    shown below left. Had this unit discov-

    ered how to bypass Mobil dealers and sell

    gasoline directly to consumers? Another

    business unit had no measure for quality,

    as shown below right. Had this unit some-

    how perfected its operations?

    What s Missing?

    Having Trouble with Your Strategy? Then Map It T O O L K I T

    harvard business review SeptemberOctober 2000 9

  • learning and growth perspective, whichdenes the core competencies and skills,the technologies, and the corporate cul-ture needed to support an organizationsstrategy. These objectives enable a com-pany to align its human resources andinformation technology with its strategy.Specically, the organization must deter-mine how it will satisfy the requirementsfrom critical internal processes, the differ-entiated value proposition, and customerrelationships. Although executive teamsreadily acknowledge the importance ofthe learning and growth perspective,they generally have trouble dening thecorresponding objectives.

    Mobil identied that its employeesneeded to gain a broader understandingof the marketing and rening businessfrom end to end. Additionally, the com-pany knew it had to nurture the leader-ship skills that were necessary for itsmanagers to articulate the companysvision and develop employees. Mobilidentied key technologies that it had todevelop, including automated equipmentfor monitoring the rening processesand extensive databases and tools toanalyze consumers buying experiences.

    Upon completing its learning andgrowth perspective, Mobil now had acomplete strategy map linked across thefour major perspectives, from whichMobils different business units and ser-vice departments could develop theirown detailed maps for their respectiveoperations. This process helped the com-pany detect and ll major gaps in thestrategies being implemented at lowerlevels of the organization. For example,senior management noticed that onebusiness unit had no objectives or met-rics for dealers (see the exhibit WhatsMissing?). Had this unit discovered howto bypass dealers and sell gasolinedirectly to consumers? Were dealer rela-tionships no longer strategic for thisunit? Another business unit had no mea-sure for quality. Had the unit achievedperfection? Strategy maps can helpuncover and remedy such omissions.

    Strategy maps also help identify whenscorecards are not truly strategic. Manyorganizations have built stakeholderscorecards, not strategy scorecards, bydeveloping a seemingly balanced mea-surement system around three dominantgroups of constituents: employees, cus-tomers, and shareholders. A strategy,however, must describe how a company

    10 harvard business review SeptemberOctober 2000

    T O O L K I T Having Trouble with Your Strategy? Then Map It

    a strong differentiator for Mobils valueproposition of fast, friendly service. From1997 on, executives modied Mobils bal-anced scorecard to include new objec-tives for the number of consumers anddealers that adopted Speedpass.

    With all its employees now aligned tothe new strategy, Mobil North AmericanMarketing and Rening executed aremarkable turnaround in less than twoyears to become the industrys protleader from 1995 up through its mergerwith Exxon in late 1999. The divisionincreased its return on capital employedfrom 6% to 16%; sales growth exceededthe industry average by more than 2%annually; cash expenses decreased by20%; and in 1998, the divisions operat-ing cash ow was more than $1 billionper year higher than at the launch of thenew strategy.

    These impressive nancial resultswere driven by improvements through-out Mobils strategy map: mystery-shop-per scores and dealer quality increasedeach year; the number of consumersusing Speedpass grew by one millionannually; environmental and safety acci-dents plunged between 60% and 80%;lost oil-renery yields due to systemsdowntime dropped by 70%; and em-ployee awareness and commitment tothe strategy more than quadrupled.

    Not an Art FormWe do not claim to have made a scienceof strategy; the formulation of greatstrategies is an art, and it will alwaysremain so. But the description of strat-egy should not be an art. If people candescribe strategy in a more disciplinedway, they will increase the likelihood ofits successful implementation. Strategymaps will help organizations view theirstrategies in a cohesive, integrated, andsystematic way. They often expose gapsin strategies, enabling executives to takeearly corrective actions. Executives canalso use the maps as the foundation fora management system that can help anorganization implement its growth ini-tiatives effectively and rapidly.

    Strategy implies the movement of anorganization from its present positionto a desirable but uncertain future posi-tion. Because the organization has neverbeen to this future place, the pathway toit consists of a series of linked hypothe-ses. A strategy map species these cause-and-effect relationships, which makes

    will achieve its desired outcome of satis-fying employees, customers, and share-holders. The how must include thevalue proposition in the customer per-spective; the innovation, customer man-agement, and operating processes in theinternal process perspective; and theemployee skills and information tech-nology capabilities in the learning andgrowth perspective. These elements areas fundamental to the strategy as theprojected outcome of the strategy.

    Another limitation occurs when com-panies build key performance indicator(KPI) scorecards. For example, one nan-cial services organization identied thefour Ps in its balanced scorecard: prots,portfolio (the volume of loans), process(the percentage of processes that are ISOcertied), and people (the diversity ofnew employees). Although this approachwas more balanced than using justnancial measures, a comparison of thefour Ps with a strategy map revealed several missing components: no cus-tomer measures, only a single internal-process metric which was focused onan initiative, not an outcome and nodefined role for information technol-ogy, a strange omission for a nancialservices organization. In actuality, KPIscorecards are an ad hoc collection ofmeasures, a checklist, or perhaps ele-ments in a compensation plan, but theydont describe a coherent strategy. Un-less the link to strategy has been clearlythought through, a KPI scorecard can bea dangerous illusion.

    Perhaps the greatest benet of strat-egy maps is their ability to communicatestrategy to an entire organization. Thepower of doing so is amply demon-strated by the story of how Mobil devel-oped Speedpass, a small device carriedon a keychain that, when waved in frontof a photocell on a gasoline pump, iden-ties the consumer and charges the ap-propriate credit or debit card for thepurchase. The idea for Speedpass camefrom a planning manager in the market-ing technology group who learned fromMobils balanced scorecard about theimportance of speed in the purchasingtransaction. He came up with the con-cept of a device that could automaticallyhandle the entire purchasing transac-tion. He worked with a gasoline-pumpmanufacturer and a semiconductor com-pany to turn that idea into reality. Afterits introduction, Speedpass soon became

  • them explicit and testable. The key, then,to implementing strategy is to have every-one in the organization clearly under-stand the underlying hypotheses, to alignall organizational units and resourceswith those hypotheses, to test the hypoth-eses continually, and to use those resultsto adapt as required.

    1. See Robert S. Kaplan and David P. Nortons, TheBalanced Scorecard: Translating Strategy into Action(Harvard Business School Press, 1996).

    2. These three generic value propositions wereinitially articulated in Michael Treacy and FredWiersemas The Discipline of Market Leaders(Addison-Wesley, 1995).

    To place an order, call 1-800-988-0886.

    Having Trouble with Your Strategy? Then Map It T O O L K I T

    harvard business review SeptemberOctober 2000 11

    Product no. 5165

  • ARTICLES

    The Balanced ScorecardMeasures thatDrive Performance by Robert S. Kaplan andDavid P. Norton (Harvard Business Review,JanuaryFebruary 1992, Product no. 4096)This article introduced the balanced score-cardand lays the foundation for under-standing strategy maps. It clarifies why nosingle perspective fully captures a companyshealth. Instead, balance four perspectivesfinancial, customer, internal businessprocesses, and innovation and learningandtrack performance in each.

    Putting the Balanced Scorecard to Work byRobert S. Kaplan and David P. Norton (Har-vard Business Review, SeptemberOctober1993, Product no. 4118)Before building your strategy map, learn howto create a balanced scorecard that reflectsyour companys mission and strategy. Definecorporate objectives and metrics within eachof the four scorecard perspectives. These met-rics will clarify how different youll look tocustomers and shareholders when you reachyour goals. They will also indicate how yourinternal processes, as well as your ability toinnovate and grow, should change.

    Using the Balanced Scorecard as a StrategicManagement System by Robert S. Kaplanand David P. Norton (Harvard BusinessReview, JanuaryFebruary 1996, Product no.4126)A strategy map helps employees know howtheir everyday actions support the companysgoals. This article outlines four steps forensuring that those short-term actions leadto the right outcomes: 1) Communicate strat-egy throughout the organization. 2) Alignunit and individual goals with the strategy. 3)Link strategic objectives to long-term targetsand budgets. 4) Conduct performance reviewsto hone the strategy.

    BOOKS

    The Balanced Scorecard: Translating Strategyinto Action by Robert S. Kaplan and David P.Norton (Harvard Business School Press, 1996,Product no. 6513)Your balanced scorecard and strategy maphelp you focus on implementing strategy. Thisbook provides greater insight into how tochoose objectives and metrics to guide yourstrategy execution. Extended examples showhow actual companies have used these tools.

    The Strategy-Focused Organization: HowBalanced Scorecard Companies Thrive in theNew Business Environment by Robert S.Kaplan and David P. Norton (Harvard BusinessSchool Press, 2000, Product no. 2506)This latest book by Kaplan and Nortonexpands on the theme of strategy focus andexecution. They emphasize the importanceof making strategy absolutely clear toand acontinuous process foreveryone. Drawingon 10 years of research into more than 200companies, the authors use in-depth caseexamples to show how balanced scorecardadopters have taken this groundbreaking toolto the next levelputting strategy at the cen-ter of management processes and systems.This research resulted in a series of industry-specific strategy maps that any company canuse to build its own.

    NEWSLET TER

    Balanced Scorecard ReportThis newsletter is published by the BalancedScorecard Collaborative and HarvardBusiness School Publishing. It brings you themost current thinking of scorecard origina-tors Robert S. Kaplan and David P. Norton,along with exclusive field reports, case stud-ies, and analysis.

    Having Trouble with Your Strategy? Then Map ItE X P L O R I N G F U R T H E R . . .

    more . . .

  • VIDEO

    Measuring Corporate Performance: The Bal-anced ScorecardManaging Future Perfor-mance by Robert S. Kaplan and David P.Norton (Harvard Business School Publishing,1993, Product no. 5444A (VHS), 5444B (PAL))Released soon after the publication of thefirst balanced scorecard article, TheBalanced Scorecard: Measures that DrivePerformance, this video uses in-depth com-pany examples (including an underwater construction company and a financial ser-vices firm) to demonstrate the basic conceptsand value of the balanced scorecard and its four perspectives. It also shows theprocesses these companies used to createtheir scorecards.

    CD-ROM

    Balancing the Corporate Scorecard 2.0 byRobert S. Kaplan and David P. Norton(Harvard Business School Publishing, 1999,Product no. 2271)This CD-ROM interactive simulation allowsyou to practice building and using a balancedscorecard by running the fictitious SentraSoftware company. You first receive a tutorialon the balanced scorecard. Then you runthe company from a control panel, makingpricing, headcount, and investment decisions,while building your own scorecard. Coachingand debriefing segments augment your learn-ing experience.

    Having Trouble with Your Strategy? Then Map ItE X P L O R I N G F U R T H E R . . .

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