Strategy Maps: Converting Intangible Assets into Tangible Outcomes

Kaplan and Norton co-authored an article which was published in the Harvard Business Review (January/February 1992). In it they introduce an exciting new concept: the balanced scorecard. They have since published three books: this one, preceded by The Balanced Scorecard: Translating Strategy into Action (1996) and The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (2000). Here's some background on the two books before we shift our attention to Strategy Maps.

In The Balanced Scorecard, as Kaplan and Norton explain in their Preface, "the Balanced Scorecard evolved from an improved measurement system to an improved management system." The distinction is critically important to understanding this book. Senior executives in various companies have used the Balanced Scorecard as the central organizing framework for important managerial processes such as individual and team goal setting, compensation, resource allocation, budgeting and planning, and strategic feedback and learning. When writing this book, it was the authors' hope that the observations they share would help more executives to launch and implement Balanced Scorecard programs in their organizations.

Then in The Strategy-Focused Organization, Kaplan and Norton note that, according to an abundance of research data, only 5% of the workforce understand their company's strategy, that only 25% of managers have incentives linked to strategy, that 60% of organizations don't link budgets to strategy, and 85% of executive teams spend less than one hour per month discussing strategy. These and other research findings help to explain why Kaplan and Norton believe so strongly in the power of the Balanced Scorecard. As they suggest, it provides "the central organizing framework for important managerial processes such as individual and team goal setting, compensation, resource allocation, budgeting and planning, and strategic feedback and learning." After rigorous and extensive research of their own, obtained while working closely with several dozen different organizations, Kaplan and Norton observed five common principles of a Strategy-Focused Organization:

1. Translate the strategy to operational terms

2. Align the organization to the strategy

3. Make strategy everyone's job

4. Make strategy a continual process

5. Mobilize change through executive leadership

The first four principles focus on the the Balanced Scorecard tool, framework, and supporting resources; the importance of the fifth principle is self-evident. "With a Balanced Scorecard that tells the story of the strategy, we now have a reliable foundation for the design of a management system to create Strategy-Focused Organizations."

Those who have not as yet read The Balanced Scorecard and/or The Strategy-Focused Organization are strong urged to do so. Brief comments about them in commentaries such as these merely indicate the nature and extent of the brilliant thinking which Kaplan and Norton provide in each.

What we have in Strategy Maps are two separate but related components: Further development and refinement of core concepts introduced in the earlier two books, and, a rigorous examination of new ideas and new applications by which to convert intangible assets into tangible outcomes. In the Introduction, Kaplan and Norton explain that their direct involvement with more than 300 organizations provided them with an extensive database of strategies, strategy maps, and balanced scorecards. This abundance of material has revealed a number of strategies and tactics by which literally any organization (regardless of size or nature) can create and then increase value. The strategies and tactics are embraced within three targeted approaches for aligning intangible assets to strategy:

"1. Strategic job families that align human capital to the strategic themes

2. The strategic IT portfolio that aligns information capital to the strategic themes

3. An organization change agenda that integrates and aligns organizational capital for continued learning and improvement in the strategic themes."

Kaplan and Norton carefully organize their material within five Parts. I presume to suggest that Part I be read and then re-read before proceeding to Value-Creating Processes, Intangible Assets, and Building Strategies and Strategy Maps. Part Five provides a number of case files generated by private-sector, public-sector, and nonprofit organizations. In fact, I strongly suggest that Chapter 2 be re-read several times because it offers an invaluable primer on strategy maps. When reading and then re-reading Chapter 2, be sure to check back on Figure 1-2 (Page 8) and Figure 1-3 (Page 11) in the Introduction.

One word of caution from Kaplan and Norton: "It is important (if not imperative) to describe an organization's strategy with word statements of strategic objectives in the four linked perspectives BEFORE turning to measurements. Many organizations building BSCs attempt to go directly from somewhat vague strategy statements to measures without this step, and often omit critical aspects of the strategy or else select from measures that are already available, rather than selecting measures that quantify their strategic objectives."

This is a much longer review than I usually compose because I am convinced that only what is measurable is manageable. Also because, after extensive prior experience helping corporate clients with formulating process maps of various kinds, I am convinced that organizational "journeys" to increased sales, profits, and value need maps by which to reach those destinations just as those who drive vehicles do when seeking their own destinations. One of the greatest benefits of strategy maps is that the process by which they are devised helps to ensure that the most appropriate destination is identified. Think of Kaplan and Norton as travel agents and cartographers, to be sure, but also as consultants whose services you can retain merely by purchasing their three books, then by absorbing and digesting the information and counsel those three books provide. For many decision-makers in all manner of organizations, Strategy Maps may well prove to be the most valuable business book they ever read.

Packed with Knowledge! (3/3 people found this helpful)

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.

The best practical business book you'll ever buy (12/13 people found this helpful)

I'm quite fond of dreamy manifesto-style business books- they accept the limitations of what you can learn from a book and have no other aspirations.

Many so-called paractical business books leave me cold- they are unreasonable, impractical and often impossible to apply to your own organisation. "Strategy maps" is different. The principles within apply to ALL organisations- charities, big banks, small start-ups, widget manufacturers. Crucially it gives a way of measuring and assessing your intangible assets, which is brilliantly useful. The principle of "what can't be described can't be measured" is a great jolt for the imagination.

A completed strategy map allows everyone within any organisation to figure out exactly how they add value and what their contribution can be. On one page of A4 it is possible to describe everything an organisation does- makes you wish more companies would give them out with annual reports :-) it also allows you describe current strategy and gives you tools to analyse it. I found the book particularly useful for my own startup- it made me think clearly about what exactly i had to do, even giving me hints on strategy formulation.

I really can't recommend this book highly enough- clealry written, easy to understand, provocative and actually genuinely useful. This is especially recommended for start-ups, of those thinking about start-ups.

Essential Reading for Those Who Want to Implement Strategy! (19/22 people found this helpful)

Robert S. Kaplan and David P. Norton are the innovators behind the Balanced Scorecard, which has proven to be a potent way of turning strategy into reality. Before the Balanced Scorecard, most strategies failed in execution . . . because people didn't know what they were supposed to do. With the Balanced Scorecard, a very high percentage of strategies are implemented and do succeed. In The Strategy-Focused Organization, Professor Kaplan and Dr. Norton explained the management processes that make implementing the Balanced Scorecard most successful.

Strategy Maps now becomes another essential building block in strategy implementation. Importantly, this building block should be the starting point in your search for success. In the preface, the authors describe the three essential elements behind breakthrough results:

You must first describe the strategy, then measure the strategy for what needs to be executed and then manage the strategy by the measurements. Describing the strategy is the task addressed in Strategy Maps, measuring the strategy is addressed in the Balanced Scorecard, and The Strategy-Focused Organization looks at managing the strategy by the measurements.

"You can't manage (third component) what you can't measure (second component) [and] [y]ou can't measure what you can't describe (first component)."

In Strategy Maps, the authors have shown the way to communicate how each element of a company's activities contributes to the overall success of the strategy. Using the Balanced Scorecard, everyone in the organization knows what to be done. With Strategy Maps, each person will understand the context of what they must do and implementation improves.

Here's what a template of a typical strategy map includes for a for-profit company in Strategy Maps. First, all of the information is contained on one page. Second, that page has four perspectives: Financial; Customer; Internal; Learning and Growth. Third, the financial perspective looks at creating long-term shareholder value, and builds from a productivity strategy of improving cost structure and asset utilization and a growth strategy of expanding opportunities and enhancing customer value. Fourth, these last four elements of strategic improvement are aided by changes in price, quality, availability, selection, functionality, service, partnerships and branding. Fifth, from an internal perspective, operations and customer management processes help create product and service attributes while innovation, regulatory and social processes help with relationships and image. Sixth, all of these processes are enriched by the proper allocation of human, information and organizational capital. Organizational capital is comprised of company culture, leadership, alignment and teamwork capabilities. Seventh, the cause and effect relationships are describe by connecting arrows.

The book is a marvel of clarity. The authors describe what a strategy map is and proceed to share dozens of examples that have been successfully used in both for-profit and non-profit organizations around the world. The examples are carefully chosen to illuminate each element of the strategy map template that they suggest you begin with. In Part IV, they make the task of strategy map building even easier by taking typical strategies that are most often employed and showing how to build a strategy map that characterizes such a strategy. Finally, every chapter also refers to the best published work on what strategies and actions are most likely to succeed. So even if you are not familiar with the literature of creating and implementing successful strategies, you can use Strategy Maps to learn what you need to know.

Strategy Maps will be as valuable for small organizations as for large ones. All organizations need to have a better understanding of how all the pieces of a strategy need to fit together. In fact, if you only read one book written about strategy in 2004, you would be wise to choose this one.

As a student of continuing business model innovation, I was particularly pleased to see the authors explain how processes can be put in place to improve business models as part of a strategy map.

The only missing element in the book from my perspective is how to make strategy maps more compelling for the viewers. In strategy presentations across the country, I've often seen strategy maps that use colorful illustrations and enticing numerical relationships to help those in the trenches to grasp the full scope of how their work connects to everything else. When Strategy Maps is ready for its next edition, I hope the authors will consider adding a section in this regard. In the meantime, they offer a look at this element in the software they advertise for making strategy maps. See their on-line offering for more details.

If you have not yet read The Balanced Scorecard and The Strategy-Focused Organization, I strongly encourage you to read those outstanding books as well after you finish Strategy Maps. With the combined perspective of the three books, you should easily outdistance the competition!

As I finished the book, I thought about what else keeps strategies from being successful. In my experience, the typical remaining problem other than miscommunication is setting a direction that cannot be implemented in the appropriate time frame. I strongly encourage those who are planning new strategies to develop a strategy map before committing to the new strategy. Then use that strategy map to ask those who would have to implement the strategy what problems they foresee in implementation. In this way, you can adapt the strategy to what you can reasonably hope to execute.

This book also made me realize that drawing such a system effects graphic can help explain anything to others. I plan to do so much more often.

Excellent (8/20 people found this helpful)

Now this is an excellent book to read! Real life examples, well written and easy to grasp. Money well spent.

Strategy Maps: Converting Intangible Assets into Tangible Outcomes

Robert S. Kaplan, David P Norton

Reader Reviews:

Organizational Cartography of the Highest Order (15/18 people found this helpful)

Packed with Knowledge! (3/3 people found this helpful)

The best practical business book you'll ever buy (12/13 people found this helpful)

Essential Reading for Those Who Want to Implement Strategy! (19/22 people found this helpful)

Excellent (8/20 people found this helpful)

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