Implementing Strategy – Part 4-2: The Balanced Scorecard & The Strategy Map

Will Banks' Blog 2013-06-11

The strategy map is a cause-and-effect diagram of the four perspectives of the BSC. Managers use it to show how the achievement of goals in each perspective affect the achievement of goals in other perspectives, and finally the overall success of the firm. Since the top priority for most firms is  financial performance (shareholder value in respect to public firms), the aim of the strategy map is financial performance with the other perspectives contributing to the financial performance in a cause and effect way. For many firms, learning and growth are the base upon which the firm is built. The reason is that learning and growth contributes to more knowledgeable employees that drive performance. Hence,  these employees are better satisfied, are prepared to provide a higher level of customer service, resulting in customer loyalty and higher profits (the service-profit chain).

Strategy Map

Strategy Map. Source: Forrester Research adapted from Robert S. Kaplan and David P. Norton

Steps in defining the strategy:

  1. Determine the mission of the company and its competitive strategy based on shared corporate values.
  2. Use the SWOT analysis and value chain analysis to further refine the strategy.
  3. Create a balanced scorecard and strategy map for the company that identifies and links goals, management techniques, and critical success factors.
  4. Determine how to achieve these measures using tried and true tools, i.e;
    • Activity based costing to determine the profitability of customers and distribution channels, used with business intelligence to manage customer relationships
    • Theory of constraints and lean manufacturing
    • Target costing
    • Total quality management
    • Lean accounting, business process improvement
    • Strategy map and balanced scorecard
    • Business intelligence, enterprise risk management
  5. Determine the measures, that when achieved, will show progress toward the desired goals.

Below is a list of a few measures and techniques, although in practice there may be 100 or more measures. Additionally, the strategy map can be integrated into lean accounting or enterprise risk management.

GoalsTechniquesBalanced Scorecard: MeasuresFinancialIncrease return on investmentReturn on investmentRevenue growthPercentage in crease in sales by product lineReduce cost fore each unit and each value streamCost per unity, by product lineCustomerImprove customer profitabilityActivity-based costing used to determine profitability of customers and distribution channels, used with business intelligence to manage customer relationshipsCustomer profitability by distribution channel and customer groupsImprove customer satisfactionSurvey customer satisfactionReduce order-filling timeTheory of constraints and lean manufacturingLead time, the difference between when the order is received and deliveredInternal ProcessesEnhance product innovationTarget costingNumber of profitable new products or product featuresImprove qualityTotal Quality Management (TQM)Number of defects detectedImprove productivityLean accounting, business process improvementInventory level, process speedLearning and GrowthCommunicate strategy throughout the organizationStrategy map and balanced scorecardPercentage of employees trained on the firm’s strategy mapImprove use of technologyBusiness intelligence, enterprise risk managementNumber of business risks discoveredEnhance employee skillsTraining hours in skill development