Key problems in development of strategy maps
Successful implementation of Balanced Scorecard implies development of transparent and comprehensive strategic maps. In fact, a corporate strategy map can be developed in different ways. This article focuses on key problems arising at the stage of strategy map development and possible solutions. Very often these problems are reflected in business experience of world’s major companies that have successfully implemented Balanced Scorecard.
Depending on what solution the company chooses, it reflects unique peculiarities of Balanced Scorecard implementation. They will be also analyzed in this article, namely:
• How is strategy map implemented in the company and what is its decomposition to the lowest level of organization hierarchy?
• Some companies are talking about key activities aspects/perspectives while others stress the importance of activity focus. What are differences between these notions? Should every company develop its Balanced Scorecard and strategy map based on the four categories offered by Norton and Kaplan, or can maybe top managers and business owners have some freedom regarding this issue?
• What are strategic maps? How many strategic maps does the company need? Who chooses strategic maps?
• How deep should decomposition of strategic maps be? Should it necessarily come down to the level of an individual employee? Can all indicators in the strategic map be used to set company’s goals?
Organization process for strategy maps development
It has been repeatedly stressed in specialized literature and studies that is very important to create initiative group that would devote its entire time and efforts to implementation of strategic maps in the company. Group members should be trusted by company officials and be independent from heads of separate departments and business units. They should be also open for any ideas that may come from the lowest company levels. It is not an easy task to form such a group. Most managers have a very busy working schedule. Sometimes managers are reluctant to freely express their thoughts and opinions to all group members.
The solution may be the employment of an external advisor who will be appointed a project manager. Advantages of such decision are obvious in the situation when company employees want to preserve current management and control system. At that, it is unacceptable that project manager is the only person who creates and chooses key performance indicators for strategy maps. Decision-making should be a collective process. Project manager’s role is to organize the process and implement strategic maps. The initiative group should hold regular meetings to discuss urgent issues.
Organization of strategy maps implementation is a decisive success factor. Managers and top specialists, who are rather authoritative in the company, must promote the project in every way and get personnel involved and interested in it. At the same time, the innovative nature of the project pretty much depends on chances for personnel to get involved and contribute to its implementation. That’s why, the manager in charge of implementation of strategic maps should be very attentive to every opinion and suggestion coming from every individual employee in the company. The manager should initiate discussion of innovation, but in no way he should offer “already made” decisions.
Key activity aspects and focuses
Initially, Norton and Kaplan introduced the term of key activities aspects: how is company looking in the eyes of customers or what are peculiarities of business processes organization? Later on, authors and scholars started talking about focus of activity. These notions are not always identical. Such activity aspect as customer relations includes perception of the company by customers from the position of quality service, positive image of individual products or product lines offered by the company. Customer relations as focus of activity may mainly include company’s image and concept of its customers. What is the penetration rate of company’s products to different market segments? Is the number of customer growing? How much is the company dependent on non-numerous core customer group? But still, despite such difference, very often the above terms are used as synonyms.
Of course, the company should take into account both positions “how customers view the company” and “how the company views its customers.” Such indicators as operation cycles and number of products are simultaneously representing company competitive advantage as compared to other market players and conformity to internal standards. What internal standards should be set to secure company success in the market? The final verdict in this issue is left for customers and competitors. Still, it is very difficult to forecast this verdict at implementation stage of Balanced Scorecard and investment in development of new products.
It is believed that a good strategy map implies balance between several activity aspects of the company, primarily between the four perspectives. Besides, the company strives to get the best ratio of long- and short-term indicators, instead of getting the best values for current financial indicators. The balance varies. In particular, it can be a balance between assessment of the company by external persons (in all perspectives) and by company employees (in various activity focuses).
Based on the strategy map it is possible to get another balance which is balance between statistics and dynamics, i.e. between static goal situation and changes tempos. Balanced Scorecard characterizes company both at a given moment and tracks changes over a certain period of time. For example, it is possible to introduce to strategic map indicators that represent number of customers at a certain moment, and at the same time changes in the number of customers for a certain period of time. Evaluation of intellectual capital may serve as another good example. Evaluation of such capital represents its condition at a certain moment, but it is very interesting to learn how it changed for the reporting period. Strategic maps do not allow evaluation of company based on short term results. Balance between static and dynamic figures as one of the greatest advantage of strategy maps. Without strategy maps most investments are shown as expenses for the reporting period until the moment when first return on investment is achieved. But evaluation of investments and their inclusion to strategy maps and attracts managers’ attention as well as improves management process.
Can company choose key activity aspects/perspectives by itself?
Strategic maps in Norton and Kaplan model include four perspectives: financial, customer, internal processes, learning and growth. But some major companies have added the fifth perspective – human capital. Sometimes additional perspectives are developed to solve a particular problem. Let’s analyze indicators related to employee relations and development of IT technologies. Can they be included to traditional perspectives/key activity aspects or should they be assigned a separate category?
The major peculiar feature of a strategic map is the focus on business strategic development. If relations with employees or IT technologies are being the key focus in company strategic development, than these key activity aspects should be assigned special indicators to be evaluated and controlled. Indicators related to IT technologies or relations with employees can be applied at any level – department, branch, company or corporation as a whole. It is also very important to identify ties and relations of such indicators with other key activity aspects like innovation and development, relations with customers etc.
As already said above, strategic maps are designed to manage business development, that’s why emergence of new categories/key activity aspects is quite logical. The appearance of human resource perspective is explained by a special concept of human resource management. There are many companies that believe human resource capital has a great impact on material assets and company capability for development. At the same time, there are many scholars and business gurus who suggest that Norton and Kaplan model should be used without any changes as company managers and those in charge of implementation of Balanced Scorecard have every chance to expand categories to add additional indicators.
Norton and Kaplan model has mobilizing features as one of its goals is to focus company efforts on solving a limited number of problems. Since the strategic map contains last year’s results in its upper part, current goals and objectives in the middle, and strategic goals in the bottom, it is very easy to identify ties between short- and long-term goals. Last year’s results are presented in the form of traditional financial indicators. Key performance indicators related to internal processes and customer relations reflect ratio between internal and external factors in company activity at a present time. Besides, they show that current company’s position in the market and direction of company development depend both on internal and external factors, and this is understood both for company employees and its customers.
For example, the company may improve its current market position at the account of internal factors, as well as through an effective use of external environment factors. Human capital has an exceptional importance in all four perspectives. If the company adds an additional human resource perspective, then it will be difficult to formulate contents of learning and growth perspective which is located in the bottom of the strategy map. Thus, it is recommended to stay with the traditional BSC model, and if any amendments and additions are introduced they should be well integrated into the system of company strategic goals, mission, values, organization structure etc.
