Making strategies visible and understandable with the Strategy Map
Much more difficult than the strategy development is the strategy implementation. Companies often fail to implement their strategies, goals and strategic plans in everyday life and to anchor them in the minds of all employees in such a way that the goals are achieved and expectations are met. However, a strategy is of no use if it is only on paper. It is crucial that all (affected) employees, from the responsible manager to the clerk and worker, are familiar with the strategy and know what it means for their actions on a day-to-day basis.
Robert S. Kaplan and David P. Norton have therefore developed their management concept of the Balanced Scorecard: they not only want to show which goals are important for everyone, how these are measured and how well they are achieved. The Balanced Scorecard should also help with strategy implementation. Kaplan and Norton consider it to be an important building block on the way to becoming a "strategy-focused organization. To better achieve this purpose, they derived the strategy map model from the balanced scorecard.
Strategy Map
Robert S. Kaplan and David P. Norten have developed the strategy map tool as part of their balanced scorecard method. In the strategy map, strategic goals for the four levels of the balanced scorecard are depicted in a kind of map. Employees can see how financial performance measures (e.g., profit or sales) relate to performance measures for customer satisfaction, quality, or processes and procedures, and how innovations, process improvements, and employee training contribute to these measures.
Principles for strategy implementation
To ensure that strategies are observed and applied in the day-to-day work of a company, business administration, management and strategy research have developed many more or less useful tools. A useful tool that can help with strategy implementation is the strategy map. It supports the following principles, which are important when it comes to taking strategies from paper to practice:
- Managers need to mobilize and get employees excited about the (new) strategy and the changes it requires.
- They must simultaneously monitor progress and intervene if necessary.
- Strategy is a continuous process; managers must analyze their environment and learn from it to formulate strategies and goals correctly and adjust them as needed.
- Strategy is the daily task of every employee; everyone must be clear about their personal contribution to strategy implementation and the successes should be visible and tangible.
- The organizational form (the organization chart) and the organizational regulations must fit the strategy; there must be no contradictions or conflicts for the employee.
This is how a strategy map is structured
Within the framework of the Balanced Scorecard, different perspectives are considered which describe the performance of a company. The Strategy Map is also based on these perspectives. Usually, there are initially four perspectives of a strategy map, namely:
Financial perspective
It depicts the business-financial success of a company. It becomes visible in the classic financial indicators such as sales, profit, cash flow or return on investment. In the strategy map, strategies are presented in this perspective to help better achieve such financial goals; for example: increase sales with new products.
Market and customer perspective
It depicts how the company relates to its customers. Here, for example, customer satisfaction, customer opinion and customer attitude towards the company or the image are presented. Accordingly, a strategy at this level may be: Increase customer satisfaction through additional customer service.
Process and resource perspective
It reflects how well or poorly internal processes are running. Here, the success factors and key figures mostly relate to time (speed, meeting deadlines), quality (meeting targets, performance, results) and costs. In the Strategy Map, a strategy to this perspective can be: Reduce delivery times by optimizing logistics.
Learning and development perspective (innovation and employee perspective)
It maps how well the company is aligned to future developments and how it can build on its own employees and their commitment. In addition, knowledge, know-how, expertise, experience, use of patents and technologies become visible in this perspective. And finally, corporate culture or working climate are among the success factors that influence the long-term development of a company. Possible strategies in this perspective are: buying innovative companies (start-ups), acquiring competencies in special technologies or retaining employees through work-life balance offers.
These perspectives of the Balanced Scorecard are therefore also the basic framework for mapping the elements of a strategy map. It shows the cause-effect relationships. Figure 1 illustrates this with an example.
Precisely because the strategy map helps to make visible the strategic elements, the goals and strategies, and what really matters in the company, this instrument is suitable for both strategy development and strategy implementation. It helps with focus: highlighting and making visible what is really important – so that all employees can understand it.
However, the strategy map is not a guarantee that the strategy as such is correct and successful. Compared to other strategy planning tools with strategy development and strategy implementation, this tool is primarily aimed inward, at your own employees. Strategic and operational elements are linked.
Strategy maps are helpful for small and medium-sized companies
Working with strategy maps is not only reserved for large companies with specialized strategy departments. Strategy maps are simple in structure and can therefore also be used by small and medium-sized enterprises (SMEs) to develop their strategy.
Even micro-enterprises, service providers, craft businesses or retailers can use it to work out and make visible where and how they position themselves in the market, with customers and vis-à-vis competitors. Strategy maps are particularly helpful here in order to gain clarity about the most important goals and strategies – and to communicate this to all employees as well. Employees are usually happy to know why they should do something in the same way as their boss expects.
If you want to work out the central building blocks of your strategy for your company as part of strategic planning (strategy development) and then implement this strategy (strategy implementation), then use this approach as a guide:
- Derive the strategic foundations from your company’s vision, mission and guiding principles? What do you want to achieve with your strategies? What must be ensured? What must be observed or adhered to?
- What requirements do the important stakeholders place on your company in terms of strategic goals and strategies??
- What are your long-term and strategic goals?
- What strategy are you pursuing to achieve the goals and satisfy the stakeholders?? What do you want to be successful with your customers? How do you want to present and assert yourself in the market? How do you want to compete?
- Compile your goals in the form of a balanced scorecard. Name goals for the perspectives: Financial, Customer, Process, Learning and Development.
- Put together your strategic building blocks (individual strategies or strategically important activities) to achieve these goals.
- Depict these strategic building blocks in a strategy map with the four perspectives shown in Figure 2. Fill the empty spaces with your strategic building blocks. Arrange the building blocks as well as the effect connections suitably to your goals and strategies. (Draw the arrows to match your stratgies.)
Tip: Establish strategic goals and key performance indicators
Use the Balanced Scorecard to set the goals and metrics that are critical to the success of your business. To learn how to do this, see the Balanced Scorecard manual chapter. You then link these goals and metrics in the Strategy Map to strategies and key activities you want to implement in the medium and long term.
These steps are explained in detail in the template below. You can use the template to help you work out the basics that you will then use to present your strategy map. You use this in your company for strategy communication and strategy implementation:
To ensure that the strategy map is properly formulated and presented, you need to clarify the purposes for which you want to use it in the company. In the following section of this handbook chapter, you will learn why and how you can use a strategy to guide the activities of everyone in the company in a common direction.