Strategy Maps: Converting Intangible Assets into Tangible Outcomesby Robert S. Kaplan, David P. Norton
More than a decade ago, Robert S. Kaplan and David P. Norton introduced the Balanced Scorecard, a revolutionary performance measurement system that allowed organizations to quantify intangible assets such as people, information, and customer relationships. Then, in The Strategy-Focused Organization, Kaplan and Norton showed how organizations achieved breakthrough performance with a management system that put the Balanced Scorecard into action.
Now, using their ongoing research with hundreds of Balanced Scorecard adopters across the globe, the authors have created a powerful new tool--the "strategy map"--that enables companies to describe the links between intangible assets and value creation with a clarity and precision never before possible. Kaplan and Norton argue that the most critical aspect of strategy--implementing it in a way that ensures sustained value creation--depends on managing four key internal processes: operations, customer relationships, innovation, and regulatory and social processes. The authors show how companies can use strategy maps to link those processes to desired outcomes; evaluate, measure, and improve the processes most critical to success; and target investments in human, informational, and organizational capital. Providing a visual "aha!" for executives everywhere who can't figure out why their strategy isn't working, Strategy Maps is a blueprint any organization can follow to align processes, people, and information technology for superior performance.
The strategy map allows managers to align investments in people, technology and organization capital for the greatest impact. By paying close attention to improving internal processes such as operations, customer relationships, innovation and culture - and making proper investments in intangible assets - human capital, information capital, and organization capital management can implement a structured plan to achieve strategic success.
A strategy describes how an organization can create sustained value for its shareholders, customers and communities. Most organizations have different methods of communication, alignment and implementation, but the Balanced Scorecard (BSC) is an effective way for nonprofits and public-sector organizations to describe strategies for creating value. The BSC includes the lagging indicators of financial performance and customer value proposition, and the leading indicators of internal processes as well as learning and growth.
Measure With the Strategy Map
The strategy map is a visual framework of the cause-and-effect relationships among the components of an organization's strategy, and it is used to integrate the four perspectives of a BSC - financial, customer, internal, and learning and growth. It provides a uniform and consistent way to describe strategy so the objectives and measures on the BSC can be established and managed. It illustrates the time-based dynamics of a strategy and the relationships that link desired outcomes in the customer and financial perspectives to outstanding performance in critical internal processes. These processes in turn create and deliver the organization's value proposition to targeted customers and promote productivity objectives in the financial perspective. The strategy map also identifies the specific capabilities in the organization's intangible assets that are required for delivering exceptional performance in critical internal processes. The strategy map is based on several principles, including the following:
- Strategy balances the contradictory forces of short-term financial objectives for cost reduction and increased productivity, and the long-term objective of profitable revenue growth.
- Strategy is based on a differentiated customer value proposition, because satisfying customers is the source of sustainable value creation.
- Value is created through internal business processes. Strategy maps and BSCs describe what the organization hopes to achieve, that is, strategic themes.
- Strategy consists of simultaneous, complementary themes or clusters of internal processes that deliver benefits at different points in time.
- Strategic alignment determines the value of intangible assets. The three components in the learning and growth perspective are human, information and organization capital.
Intangible assets are invaluable to sustainable value creation, but their value derives from their interrelation and cannot be measured independently. Their soft nature makes measurement more subjective than financial measurements of organizational performance. The learning and growth perspective of the BSC shows how an organization can align its intangible assets to its strategy. There are objectives and measures for three components of intangible assets: human capital, information capital, and organization capital. They must be aligned with the objectives for the internal processes and integrated with each other so there are synergies among them. Three targeted approaches are strategic job families, the strategic IT portfolio, and the organization change agenda.
Aligning Intangible Assets to Strategy
Strategic alignment is the dominant principle in creating value from intangible assets. Even if IT and HR are both well developed in your company, they are probably not strategically aligned. The strategy map and BSC enable organizations to describe intangible assets, align and integrate them to the strategy, and measure the assets and their alignment.
The typical strategy maps and BSC focus on strategic competencies, strategic information, culture, leadership, alignment and teamwork. The strategy map creates alignment and integration by providing a common point of reference for the enterprise strategy. The internal perspective identifies the critical few processes that create desired outcomes for customers and shareholders. Identify the strategic job families, define their competencies, their portfolio of technology investments, and the culture they need. Then, by developing, aligning and integrating your intangible assets to these few strategic processes, you can create the greatest returns.
Finally, you measure the intangible assets. Their value does not come from how much they cost, but how well they align to the strategic priorities of the enterprise. Prepare a Strategic Readiness Profile based on the principles of a balance sheet, where assets are ranked by their liquidity. Strategic readiness, analogous to liquidity, describes the status of intangible assets and their ability to convert to higher sales and lower spending - cash. Strategic readiness is converted into tangible value when internal processes increase revenue and profit. A Strategic Readiness Report shows consolidated snapshots of the ability of each class of intangible asset to fulfill its strategic role by defining the asset, aligning it to the strategy, and measuring the degree of readiness. Copyright © 2004 Soundview Executive Book Summaries
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Meet the Author
Robert S. Kaplan is the Marvin Bower Professor of Leadership Development at Harvard Business School and chairman of the Balanced Scorecard Collaborative. David P. Norton is founder and president of the Balanced Scorecard Collaborative.
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Strategy Maps: Converting Intangible Assets into Tangible Outcomes by Robert S. Kaplan and David P. Norton reveals how an organization can link performance measures covering the areas of operations, customer relationships, innovation, and regulatory and social processes to its mission and then leverage these `strategy maps' to drive performance improvements. I like this reference because it illustrates how an integrated performance measurement system can be leveraged to drive organizational performance toward desired outcomes. This book is thorough in its discussions and provides the visual aids needed to make the concepts real to the reader. All the Best, Nathan Ives StrategyDriven Principal
If this book were a Hollywood film, it might be titled 'Son of Balanced Scorecard' or even 'Balanced Scorecard III.' This book, however, is no mere spin-off or sequel. In two prior works, 'The Balanced Scorecard' (which you may wish to read before reading this book) and 'The Strategy-Focused Organization', authors Robert S. Kaplan and David P. Norton introduced the powerful concept of measuring the elusive intangibles that affect organizations. This information-dense book was born when the authors observed that CEOs instinctively draw arrows to explain their goals. This led to a breakthrough realization: 'Objectives should be linked in cause-and-effect relationships.' The graphic display of these relationships is a 'strategy map.' This book breaks new ground by providing a template so executives can be sure that their strategic planning omits nothing. It expands the concepts of 'strategic themes' and 'value-creating processes,' and explains a system for aligning your organization¿s strategy with its intangible assets. However, the real-world examples may be lost on CEOs who are unfamiliar with MBA-style case studies. If you¿re implementing a 'Balanced Scorecard' initiative or planning your firm¿s future, we say this is a blockbuster you don¿t want to miss.
Whether you like Kaplan & Norton's concept of the balanced scorecard or not, we probably can agree that they have had huge adoption of their ideas in many of the biggest firms in the world. Kaplan & Norton's focus on creating easy-to-understand frameworks for implementing strategy is admirable. They have published their ideas in articles and books over they last 10 years. This book - Strategy Maps - is the third book in their campaign for making strategy happen. The first book from 1996 introduced the BALANCED SCORECARD (BSC). A tool that translates an organization's mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system. The performance measures were arranged into four PERSPECTIVES. Viewed horizontally, like in a grid, each perspective represents the set of objectives desired by a particular stakeholder (Financial, Customer, Internal Process/Organization, Learning & Growth/Employees). The perspectives, when taken together, permit a complete view of the strategy and 'tell the story of a strategy' in a clearly understandable framework. In 2001, the second book introduced the STRATEGY-FOCUSED ORGANIZATION that places strategy at the centre of its management processes - not only for measurement purposes. Strategy is now central to the firm's agenda. There are five principles to a Strategy-Focused Organization: Mobilize Change through Executive Leadership; Translate the Strategy to Operational Terms [that is, balanced scorecard and strategy map]; Align the Organization to the Strategy; Make Strategy Everyone's Job; Make Strategy a Continual Process. Finally in 2004, this book expands the concept of the STRATEGY MAP, which is a visual representation of an organization's strategy and the processes and systems necessary to implement that strategy. A strategy map is basically a one-page graphical summary, showing employees how their jobs are linked to the organization's overall objectives. This book adds some new contributions to the concept of strategy maps: TEMPLATES. The main benefit of this book may be the (very) many templates that should stimulate most readers to build their own customised strategy map. Being a relatively experienced balanced scorecard practitioner myself, I certainly enjoyed the inspiration from the templates. Most benefit is derived from the templates that describe the basic components of how value gets created in the internal process perspective as well as the learning and growth perspective. I can highly recommend the strategy map templates reflecting the firm's generic competitive strategy - lowest-cost vs. product leader vs. customer intimacy. STRATEGIC THEMES, which are based on a few selected key value-creating processes. The authors introduce a taxonomy that classifies internal value-creating processes into four clusters that each may have literally hundreds of sub-processes that create value in some way: - operations management (i.e. producing and delivering. Also known as supply chain management) - customer management (or CRM) - innovation of products and processes (such as Product-Lifecycle Management etc.) - regulatory and social: conforming to regulations and societal expectations INTANGIBLE ASSETS FRAMEWORK, which attempts to describe, measure, and align the three intangible assets in the learning and growth perspective to the strategic processes and objectives in the internal perspectives. The three types of intangible assets are: - Human capital: employees' skills, talent, and knowledge. - Organization capital: culture, leadership, employee alignment, teamwork, and knowledge management - Information capital: Databases, information systems, network, and technology infrastructure I have worked in practice with the balanced scorecard since 1998. This book is a natural follow-up to the authors' previous work. I fully acknowledge the critical issues mentioned