T OOL K IT Having Trouble with Your Strategy? Then Map It · the balanced scorecard, ... excellence...

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Having Trouble with Your Strategy? Then Map It

by Robert S. Kaplan and David P. Norton

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.

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by Robert S. Kaplan and David P. Norton

harvard business review • september–october 2000 page 1

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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.

Imagine that you are a general taking yourtroops into foreign territory. Obviously, youwould need detailed maps showing the impor-tant towns and villages, the surrounding land-scape, key structures like bridges and tunnels,and the roads and highways that traverse theregion. Without such information, youcouldn’t communicate your campaign strat-egy to your field officers and the rest of yourtroops.

Unfortunately, many top executives are try-ing to do just that. When attempting to imple-ment their business strategies, they give em-ployees only limited descriptions of what theyshould do and why those tasks are important.Without clearer and more detailed informa-tion, it’s no wonder that many companies havefailed in executing their strategies. After all,how can people carry out a plan that theydon’t fully understand? Organizations needtools for communicating both their strategyand the processes and systems that will helpthem implement that strategy.

Strategy maps provide such a tool. They

give employees a clear line of sight into howtheir jobs are linked to the overall objectives ofthe organization, enabling them to work in acoordinated, collaborative fashion toward thecompany’s desired goals. The maps provide avisual representation of a company’s criticalobjectives and the crucial relationships amongthem that drive organizational performance.

Strategy maps can depict objectives for rev-enue growth; targeted customer markets inwhich profitable growth will occur; value prop-ositions that will lead to customers doing morebusiness and at higher margins; the key role ofinnovation and excellence in products, ser-vices, and processes; and the investments re-quired in people and systems to generate andsustain the projected growth.

Strategy maps show the cause-and-effectlinks by which specific improvements createdesired outcomes—for example, how fasterprocess-cycle times and enhanced employeecapabilities will increase retention of custom-ers and thus increase a company’s revenues.

From a larger perspective, strategy maps

Having Trouble with Your Strategy? Then Map It •

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Robert S. Kaplan

([email protected]) isthe Marvin Bower Professor of Leader-ship Development at Harvard BusinessSchool in Boston.

David P. Norton

([email protected]) is founder andpresident of the Balanced ScorecardCollaborative (www.bscol.com) basedin Lincoln, Massachusetts. This article isadapted from their book

The Strategy-Focused Organization: How BalancedScorecard Companies Thrive in theNew Business Environment

(HarvardBusiness School Press, September2000). The strategy maps concept wasintroduced in issues of

The BalancedScorecard Report,

a newsletter pub-lished jointly by the Balanced Score-card Collaborative and Harvard Busi-ness School Publishing.

show how an organization will convert its initi-atives and resources—including intangible as-sets such as corporate culture and employeeknowledge—into tangible outcomes.

Why Strategy Maps?

In the industrial age, companies created valueby transforming raw materials into finishedproducts. The economy was primarily basedon tangible assets—inventory, land, factories,and equipment—and an organization coulddescribe and document its business strategyby using financial tools such as general led-gers, income statements, and balance sheets.

In the information age, businesses must in-creasingly create and deploy intangible as-sets—for instance, customer relationships; em-ployee skills and knowledge; informationtechnologies; and a corporate culture that en-courages innovation, problem solving, andgeneral organizational improvements.

Even though intangible assets have becomemajor sources of competitive advantage, notools existed to describe them and the valuethey can create. The main difficulty is that thevalue of intangible assets depends on their or-ganizational context and a company’s strategy.For example, a growth-oriented sales strategymight require knowledge about customers, ad-ditional training for salespeople, new data-bases and information systems, a different or-ganizational structure, and an incentive-basedcompensation program. Investing in just oneof those items—or in a few of them but notall—would cause the strategy to fail. The valueof an intangible asset such as a customer data-base cannot be considered separately from theorganizational processes that will transform itand other assets—both intangible and tangi-ble—into customer and financial outcomes.The value does not reside in any individual in-tangible asset. It arises from the entire set ofassets and the strategy that links them to-gether.

To understand how organizations createvalue in the information age, we developedthe balanced scorecard, which measures acompany’s performance from four major per-spectives: financial, customer, internal process,and learning and growth.

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Briefly summarized,balanced scorecards tell you the knowledge,skills, and systems that your employees willneed (their learning and growth) to innovateand build the right strategic capabilities and ef-

ficiencies (the internal processes) that deliverspecific value to the market (the customers),which will eventually lead to higher share-holder value (the financials).

Since we introduced the concept in 1992,we have worked with hundreds of executiveteams from various organizations, in both theprivate and public sectors. From this extensiveresearch, we have noticed certain patterns andhave brought them into a common visualframework—a strategy map—that embeds thedifferent items on an organization’s balancedscorecard into a cause-and-effect chain, con-necting desired outcomes with the drivers ofthose results.

We have developed strategy maps for com-panies in various industries, including insur-ance, banking, retail, health care, chemicals,energy, telecommunications, and e-commerce.The maps have also been useful for nonprofitorganizations and government units. Fromthis experience, we have developed a standardtemplate that executives can use to developtheir own strategy maps. (See the exhibit “TheBalanced Scorecard Strategy Map.”) The tem-plate contains four distinct regions—financial,customer, internal process, and learning andgrowth—that correspond to the four perspec-tives of the balanced scorecard.

The template provides a common frame-work and language that can be used to de-scribe any strategy, much like financial state-ments provide a generally accepted structurefor describing financial performance. A strat-egy map enables an organization to describeand illustrate, in clear and general language,its objectives, initiatives, and targets; the mea-sures used to assess its performance (such asmarket share and customer surveys); and thelinkages that are the foundation for strategicdirection.

To understand how a strategy map is built,we will study Mobil North American Market-ing and Refining, which executed a new strat-egy to reconstruct itself from a centrally con-trolled manufacturer of commodity productsto a decentralized, customer-driven organiza-tion. As a result, Mobil increased its operatingcash flow by more than $1 billion per year andbecame the industry’s profit leader.

From the Top Down

The best way to build strategy maps is fromthe top down, starting with the destination


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and then charting the routes that will leadthere. Corporate executives should first re-view their mission statement and their corevalues—why their company exists and what itbelieves in. With that information, managerscan develop a strategic vision, or what thecompany wants to become. This vision shouldcreate a clear picture of the company’s overallgoal—for example, to become the profitleader in an industry. A strategy must then de-fine the logic of how to arrive at that destina-tion.

Financial Perspective.

Building a strategymap typically starts with a financial strategyfor increasing shareholder value. (Nonprofitand government units often place their cus-tomers or constituents—not the financials—atthe top of their strategy maps.) Companieshave two basic levers for their financial strat-egy: revenue growth and productivity. Theformer generally has two components: buildthe franchise with revenue from new markets,new products, and new customers; and in-crease value to existing customers by deepen-ing relationships with them through expandedsales—for example, cross-selling products oroffering bundled products instead of singleproducts. The productivity strategy also usu-ally has two parts: improve the company’s coststructure by reducing direct and indirect ex-penses, and use assets more efficiently by re-ducing the working and fixed capital needed tosupport a given level of business.

In general, the productivity strategy yieldsresults sooner than the growth strategy. Butone of the principal contributions of a strategymap is to highlight the opportunities for en-hancing financial performance through reve-nue growth, not just by cost reduction and im-proved asset utilization. Also, balancing thetwo strategies helps to ensure that cost andasset reductions do not compromise a com-pany’s growth opportunities with customers.

Mobil’s stated strategic vision was “to be thebest integrated refiner-marketer in the UnitedStates by efficiently delivering unprecedentedvalue to customers.” The company’s high-levelfinancial goal was to increase its return on cap-ital employed by more than six percentagepoints within three years. To achieve that, ex-ecutives used all four of the drivers of a finan-cial strategy that we break out in the strategymap—two for revenue growth and two forproductivity. (See the financial portion of the

exhibit “Mobil’s Strategy Map.”)The revenue growth strategy called for

Mobil to expand sales outside of gasoline by of-fering convenience store products and ser-vices, ancillary automotive services (carwashes, oil changes, and minor repairs), auto-motive products (oil, antifreeze, and wiperfluid), and common replacement parts (tiresand wiper blades). Also, the company wouldsell more premium brands to customers, and itwould increase sales faster than the industryaverage. In terms of productivity, Mobilwanted to slash operating expenses per gallonsold to the lowest level in the industry and ex-tract more from existing assets—for example,by reducing the downtime at its oil refineriesand increasing their yields.

Customer Perspective.

The core of anybusiness strategy is the customer value propo-sition, which describes the unique mix ofproduct and service attributes, customer rela-tions, and corporate image that a company of-fers. It defines how the organization will dif-ferentiate itself from competitors to attract,retain, and deepen relationships with targetedcustomers. The value proposition is crucial be-cause it helps an organization connect its in-ternal processes to improved outcomes withits customers.

Typically, the value proposition is chosenfrom among three differentiators: operationalexcellence (for example, McDonald’s and DellComputer), customer intimacy (for example,Home Depot and IBM in the 1960s and 1970s),and product leadership (for example, Intel andSony).

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Companies strive to excel in one of thethree areas while maintaining threshold stan-dards in the other two. By identifying its cus-tomer value proposition, a company will thenknow which classes and types of customers totarget. In our research, we have found that al-though a clear definition of the value proposi-tion is the single most important step in devel-oping a strategy, approximately three-quartersof executive teams do not have consensusabout this basic information.

The inset of the exhibit “The BalancedScorecard Strategy Map” highlights the differ-ent objectives for the three generic strategyconcepts of operational excellence, customerintimacy, and product leadership. Specifically,companies that pursue a strategy of opera-tional excellence need to excel at competitivepricing, product quality and selection, speedy


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order fulfillment, and on-time delivery. Forcustomer intimacy, an organization muststress the quality of its relationships with cus-tomers, including exceptional service and thecompleteness of the solutions it offers. Andcompanies that pursue a product leadershipstrategy must concentrate on the functional-ity, features, and overall performance of itsproducts or services.

Mobil, in the past, had attempted to sell afull range of products and services to all con-sumers, while still matching the low prices ofnearby discount stations. But this unfocusedstrategy had failed, leading to poor financialperformance in the early ’90s. Through mar-ket research, Mobil discovered that price-sensi-tive consumers represented only about 20% ofgasoline purchasers, while consumer segments

representing nearly 60% of the market mightbe willing to pay significant price premiumsfor gasoline if they could buy at stations thatwere fast, friendly, and outfitted with excellentconvenience stores. With this information,Mobil made the crucial decision to adopt a“differentiated value proposition.” The com-pany would target the premium customer seg-ments by offering them immediate access togasoline pumps, each equipped with a self-pay-ment mechanism; safe, well-lit stations; cleanrestrooms; convenience stores stocked withfresh, high-quality merchandise; and friendlyemployees.

Mobil decided that the consumer’s buyingexperience was so central to its strategy that itinvested in a new system for measuring itsprogress in this area. Each month, the com-


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pany sent “mystery shoppers” to purchase fueland a snack at every Mobil station nationwideand then asked the shoppers to evaluate theirbuying experience based on 23 specific criteria.Thus, Mobil could use a fairly simple set ofmetrics (share of targeted customer segmentsand a summary score from the mystery shop-pers) for its consumer objectives.

But Mobil does not sell directly to consum-ers. The company’s immediate customers arethe independent owners of gasoline stations.These franchised retailers purchase gasolineand other products from Mobil and sell themto consumers in Mobil-branded stations. Be-cause dealers were such a critical part of thenew strategy, Mobil included two additionalmetrics to its customer perspective: dealerprofitability and dealer satisfaction.

Thus, Mobil’s complete customer strategymotivated independent dealers to deliver agreat buying experience that would attract anincreasing share of targeted consumers. Theseconsumers would buy products and services atpremium prices, increasing profits for bothMobil and its dealers, who would then con-tinue to be motivated to offer the great buyingexperience. And this virtuous cycle would gen-erate the revenue growth for Mobil’s financialstrategy. Note that the objectives in the cus-tomer perspective portion of Mobil’s strategymap were not generic, undifferentiated itemslike “customer satisfaction.” Instead, they werespecific and focused on the company’s strat-egy.

Internal Process Perspective.

Once an or-ganization has a clear picture of its customer

The Balanced Scorecard

Strategy Map

Strategy maps show how an organi-zation plans to convert its various assets into desired outcomes. Com-panies 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 em-ployees need certain knowledge, skills, and systems (learning and growth perspective) to innovate and build the right strategic capabilities and efficiencies (internal process perspective) so that they can deliver specific value to the market (cus-tomer perspective), which will lead to higher shareholder value (finan-cial perspective). For the customer perspective, companies typically se-lect one of three strategies: opera-tional excellence, customer inti-macy, or product leadership.


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and financial perspectives, it can then deter-mine the means by which it will achieve thedifferentiated value proposition for customersand the productivity improvements to reachits financial objectives. The internal processperspective captures these critical organiza-tional activities, which fall into four high-levelprocesses: build the franchise by innovatingwith new products and services and by pene-trating new markets and customer segments;increase customer value by deepening rela-tionships with existing customers; achieve op-erational excellence by improving supplychain management, the cost, quality, andcycle time of internal processes, asset utiliza-tion, and capacity management; and becomea good corporate citizen by establishing effec-tive relationships with external stakeholders.

An important caveat to remember here isthat while many companies espouse a strategythat calls for innovation or for developingvalue-adding customer relationships, they mis-takenly choose to measure only the cost andquality of their operations—and not their in-novations or their customer management pro-cesses. These companies have a complete dis-connect between their strategy and how theymeasure it. Not surprisingly, these organiza-tions typically have great difficulty implement-ing their growth strategies.

The financial benefits from improved busi-ness processes typically reveal themselves instages. Cost savings from increased operationalefficiencies and process improvements createshort-term benefits. Revenue growth from en-hanced customer relationships accrues in theintermediate term. And increased innovationcan produce long-term revenue and marginimprovements.

Thus, a complete strategy should involvegenerating returns from all three of these in-ternal processes. (See the internal process por-tion of the exhibit “Mobil’s Strategy Map.”)

Mobil’s internal process objectives includedbuilding the franchise by developing newproducts and services, such as sales from con-venience stores; and enhancing customervalue by training dealers to become bettermanagers and by helping them generate prof-its from nongasoline products and services.The plan was that if dealers could capture in-creased revenues and profits from productsother than gasoline, they could then rely lesson gasoline sales, allowing Mobil to capture a

Mobil’s Strategy Map

Shown here is a map for the strategy that Mobil North American Marketing and Re-fining used to transform itself from a cen-trally controlled manufacturer of com-modity products to a decentralized customer-driven organization. A major part of the strategy was to target consum-ers who were willing to pay price premi-ums for gasoline if they could buy at fast, friendly stations that were outfitted with excellent convenience stores. Their pur-chases enabled Mobil to increase its profit margins and its revenue from nongaso-line products. Using the strategy map shown here, Mobil increased its operating cash flow by more than $1 billion per year.

**To account for Mobil’s independent-dealer customers—not just consum-ers—the company adapted the strategy map template to factor in dealer rela-tionships.


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larger profit share of its sales of gasoline todealers.

For its customer intimacy strategy, Mobilhad to excel at understanding its consumersegments. And because Mobil doesn’t sell di-rectly to consumers, the company also had toconcentrate on building best-in-class franchiseteams.

Interestingly, Mobil placed a heavy empha-sis on objectives to improve its basic refiningand distribution operations, such as loweringoperating costs, reducing the downtime ofequipment, and improving product qualityand the number of on-time deliveries.

When a company such as Mobil adopts acustomer intimacy strategy, it usually focuseson its customer management processes. ButMobil’s differentiation occurred at the dealerlocations, not at its own facilities, which basi-cally produced commodity products (gasoline,heating oil, and jet fuel). So Mobil could notcharge its dealers higher prices to make up for

any higher costs incurred in its basic manufac-turing and distribution operations. Conse-quently, the company had to focus heavily onachieving operational excellence throughoutits value chain of operations.

Finally, as part of both its operational-excel-lence and corporate-citizen themes, Mobilwanted to eliminate environmental and safetyaccidents. Executives believed that if therewere injuries and other problems at work,then employees were probably not paying suf-ficient attention to their jobs.

Learning and Growth Perspective.

Thefoundation of any strategy map is the learningand growth perspective, which defines thecore competencies and skills, the technolo-gies, and the corporate culture needed to sup-port an organization’s strategy. These objec-tives enable a company to align its humanresources and information technology with itsstrategy. Specifically, the organization mustdetermine how it will satisfy the requirements


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from critical internal processes, the differenti-ated value proposition, and customer relation-ships. Although executive teams readily ac-knowledge the importance of the learning andgrowth perspective, they generally have trou-ble defining the corresponding objectives.

Mobil identified that its employees neededto gain a broader understanding of the market-ing and refining business from end to end. Ad-ditionally, the company knew it had to nurturethe leadership skills that were necessary for itsmanagers to articulate the company’s visionand develop employees. Mobil identified keytechnologies that it had to develop, includingautomated equipment for monitoring the re-fining processes and extensive databases andtools to analyze consumers’ buying experi-ences.

Upon completing its learning and growthperspective, Mobil now had a complete strat-egy map linked across the four major perspec-tives, from which Mobil’s different businessunits and service departments could developtheir own detailed maps for their respectiveoperations. This process helped the companydetect and fill major gaps in the strategiesbeing implemented at lower levels of the orga-nization. For example, senior management no-ticed that one business unit had no objectivesor metrics for dealers (see the exhibit “What’sMissing?”). Had this unit discovered how to by-pass dealers and sell gasoline directly to con-sumers? Were dealer relationships no longerstrategic for this unit? Another business unithad no measure for quality. Had the unitachieved perfection? Strategy maps can helpuncover and remedy such omissions.

Strategy maps also help identify whenscorecards are not truly strategic. Many organi-zations have built stakeholder scorecards, notstrategy scorecards, by developing a seeminglybalanced measurement system around threedominant groups of constituents: employees,customers, and shareholders. A strategy, how-ever, must describe

how

a company willachieve its desired outcome of satisfying em-ployees, customers, and shareholders. The“how” must include the value proposition inthe customer perspective; the innovation, cus-tomer management, and operating processesin the internal process perspective; and theemployee skills and information technologycapabilities in the learning and growth per-spective. These elements are as fundamental

to the strategy as the projected outcome of thestrategy.

Another limitation occurs when companiesbuild key performance indicator (KPI) score-cards. For example, one financial services orga-nization identified the four Ps in its balancedscorecard: profits, portfolio (the volume ofloans), process (the percentage of processesthat are ISO certified), and people (the diver-sity of new employees). Although this ap-proach was more balanced than using just fi-nancial measures, a comparison of the four Pswith a strategy map revealed several missingcomponents: no customer measures, only asingle internal-process metric—which was fo-cused on an initiative, not an outcome—andno defined role for information technology, astrange omission for a financial services orga-nization. In actuality, KPI scorecards are an adhoc collection of measures, a checklist, or per-haps elements in a compensation plan, butthey don’t describe a coherent strategy. Unlessthe link to strategy has been clearly thoughtthrough, a KPI scorecard can be a dangerous il-lusion.

Perhaps the greatest benefit of strategymaps is their ability to communicate strategyto an entire organization. The power of doingso is amply demonstrated by the story of howMobil developed Speedpass, a small device car-ried on a keychain that, when waved in frontof a photocell on a gasoline pump, identifiesthe consumer and charges the appropriatecredit or debit card for the purchase. The ideafor Speedpass came from a planning managerin the marketing technology group wholearned from Mobil’s balanced scorecardabout the importance of speed in the purchas-ing transaction. He came up with the conceptof a device that could automatically handle theentire purchasing transaction. He worked witha gasoline-pump manufacturer and a semicon-ductor company to turn that idea into reality.After its introduction, Speedpass soon becamea strong differentiator for Mobil’s value propo-sition of fast, friendly service. From 1997 on,executives modified Mobil’s balanced score-card to include new objectives for the numberof consumers and dealers that adopted Speed-pass.

With all its employees now aligned to thenew strategy, Mobil North American Market-ing and Refining executed a remarkable turn-around in less than two years to become the in-


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dustry’s profit leader from 1995 up through itsmerger with Exxon in late 1999. The divisionincreased its return on capital employed from6% to 16%; sales growth exceeded the industryaverage by more than 2% annually; cash ex-penses decreased by 20%; and in 1998, the divi-sion’s operating cash flow was more than $1billion per year higher than at the launch ofthe new strategy.

These impressive financial results weredriven by improvements throughout Mobil’sstrategy map: mystery-shopper scores anddealer quality increased each year; the numberof consumers using Speedpass grew by onemillion annually; environmental and safety ac-cidents plunged between 60% and 80%; lostoil-refinery yields due to systems downtimedropped by 70%; and employee awareness andcommitment to the strategy more than qua-drupled.

Not an Art Form

We do not claim to have made a science ofstrategy; the formulation of great strategies isan art, and it will always remain so. But thedescription of strategy should not be an art. Ifpeople can describe strategy in a more disci-plined way, they will increase the likelihood ofits successful implementation. Strategy mapswill help organizations view their strategies ina cohesive, integrated, and systematic way.They often expose gaps in strategies, enabling

executives to take early corrective actions. Ex-ecutives can also use the maps as the founda-tion for a management system that can helpan organization implement its growth initia-tives effectively and rapidly.

Strategy implies the movement of an orga-nization from its present position to a desir-able but uncertain future position. Becausethe organization has never been to this futureplace, the pathway to it consists of a series oflinked hypotheses. A strategy map specifiesthese cause-and-effect relationships, whichmakes them explicit and testable. The key,then, to implementing strategy is to have ev-eryone in the organization clearly understandthe underlying hypotheses, to align all organi-zational units and resources with those hy-potheses, to test the hypotheses continually,and to use those results to adapt as required.

1. See Robert S. Kaplan and David P. Norton’s,

The BalancedScorecard: Translating Strategy into Action

(Harvard Busi-ness School Press, 1996).

2. These three generic value propositions were initially ar-ticulated in Michael Treacy and Fred Wiersema’s

The Disci-pline of Market Leaders

(Addison-Wesley, 1995).

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