Strategic conversation: Do you all understand each other when you meet to discuss strategy?
How broad and deep is your strategic conversation? Engaging everyone in the strategy is a common problem common to most organisations. It is a problem begins in your leadership team where each person may speak a different strategy language. The CFO focusses on finances. Sales and Marketing focus on products, services and branding. Operations focus on quality, cycle-time and other process perspectives. HR focusses on investments in people and culture. The CIO talks about information technology. Each perspective has its own terminology. And as a result there has been no generally accepted representation of strategy. As companies decentralise it is perhaps not surprising that fewer than 10% of teams execute the strategy set by the executive team.
Now there is a framework to describe strategy
Strategy Map is the strategic configuration of the Balanced Scorecard. In the early 90s Kaplan and Norton showed how their measuring tool, the Balanced Scorecard, with a small adjustment, could deliver massive benefit in defining strategy. They called this strategy tool ‘Strategy Map’. In the 90s they used Strategy Map and Balanced Scorecard to manage the turnaround of Mobil North America Marketing and Refining. The new management team implemented a decentralised structure with shared services to create a new customer-focussed strategy. NAM&R went from a profitability position 92% below the industry average to leading the industry for an unprecedented four years. Executive vice president Brian Baker gave the Balanced Scorecard, which was used to communicate the strategy throughout the organisation, with “the lion’s share of the credit”.
What is the organisational context for this story?
Many organisations today are not managing their critical assets. In the early 1980s the value of assets of companies could easily be read off balance sheets and the expenses off the income statements. These tangible assets represented 62% of the organisation’s market value. By the 90s this ratio had dropped to 38%. By the turn of the century stood at 10%*. Today intangible assets such as customer relationships, high quality operating processes, information technology and employee skills and motivation are major sources of competitive advantage. Do your strategic tools describe, measure and manage these knowledge-based assets and value-creating strategies?
*(Brookings Institute study quoted by Kaplan and Norton)
Success may be managed over a broad range of criteria
Success may be measured in more dimensions than income statement and balance sheet. About 20 years ago Kaplan and Norton met the growing call to measure other criteria when they published their ‘Balanced Scorecard’, including measures for the success of the value proposition (Customer perspective), the process used to deliver the offer (Internal Process perspective) and intangible assets (Learning and Growth perspective). The Balanced Scorecard was an immediate hit in planning circles. Kaplan and Norton developed a pictorial view of the Balanced Scorecard which they called ‘Strategy Map’. It is a very useful tool to layout the broad brush-strokes of your strategic business model. You can show the critical resources, processes and components of your value proposition on which you intend to differentiate yourself in your market place.
These tools can play a crucial modelling, storage and communication role in the strategy process. As you engage with various conversation tools in your strategic discourse Strategy Map can provide a single repository for your strategic decisions. This container may then provide the source for all of your detailed plans including your budget, project portfolio, sales plan and resource capacity plan. Strategy Map is a powerful tool to converge all the strategic issues onto a foundation for planning, an excellent pivot point to the strategic conversation. Because it is a data-structure you can use the same layout for an enriched view of your vision, a perspective on the relationship between components of your business model, a forthright perspective on your current situation and a view of the strategic initiatives in which you will engage to implement your strategy. These are shown in the following view:
Strategy Map is both simple and profound
Strategy Map may take a little getting used to. Strategy Map provides a rich, systemic view of your organisation. The categories of information may be interpreted differently at first. You may understand it clearly. But until your whole team comes to grips with how you choose to use it, you run the risk of creating shelf-ware. It is therefore useful to have guidance as you discuss your strategy and fill out the Strategy Map.
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Stephen has been using Strategy Map and Balanced Scorecard since the turn of the century to shape and focus the strategic delivery in large organisations. Send an email from this site to discuss how he can help you with your strategy challenges.