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■■ Strategy Maps

In this issue: Converting Intangible Assets


■ Understand...
how you can use a revolu- into Trangible Outcomes
tionary new tool — the by Robert S. Kaplan and David P. Norton
strategy map — to reveal
links between intangible
assets and value creation. A summary of the original text.

n effective business That’s why there’s been little


■ Learn...
how to create value from
your strategy by managing
A strategy is a complex
series of interconnections —
emphasis on managing
intangible assets. However,
four key processes: opera- a set of cause-and-effect rela- they’re the resources that
tions; customer relationships;
innovation; and regulatory tionships. Employees must make up the foundation for
and social processes. know exactly what they’re tomorrow’s financial success.
supposed to accomplish.
■ Generate... They also need to know how Before we go further, let’s
superior performance by
aligning your company’s they’re doing, and that understand what we mean
strategy with the most means being able to measure by an intangible asset. It
important intangible assets: how well they’re achieving can be the knowledge that
human capital, information strategic objectives. exists in an organization to
capital, and organization
capital.
create differential advantage
And yet, the traditional ways — and to satisfy customer
■ Customize... to measure strategy have not needs.
your strategy map to each provided enough insight to
value proposition you can help leaders decide what to Intangible assets consist
use to generate profits: (1)
low total cost; (2) product do next. That’s because the of things like employee
leadership; (3) customer solu- usual measurements of a capabilities, databases,
tions; or (4) product lock-in. company’s success have been information systems, cus-
retrospective, looking back- tomer relationships, quality,
■ Energize...
everyone in your organiza- ward to previous quarterly responsiveness, and products
tion to achieve the perfor- and annual results rather or services.
mance targets of your than forward to the future.
strategy by taking advantage Generally, a company’s
of a six-step process that is Thus, many companies have intangible assets account for
spelled out in this summary.
suffered from concentrating 75 percent or more of its
■■ on what they had done. market value. Conversely,
They paid much less atten- its tangible assets represent
Volume 13, No. 2 (2 sections). Section 2, February 2004.
© 2004 Audio-Tech Business Book Summaries 13-4. tion to the intangibles that less than 25 percent.
No part of this publication may be used or reproduced
in any manner whatsoever without written permission.
determined what they have
to do now — and in the That reality has great
To order additional copies of this summary, reference
Catalog #2042.
future. implications for executives.
In order to create value for If your business strategy and aligning human cap-
shareholders and customers, isn’t working as well as it ital, information capital,
they must use strategy maps should, strategy maps can and organization capital.
to identify their critical help you figure out what
processes and to measure went wrong and make it A strategy map visualizes —
how well aligned their intan- right. from four perspectives — the
gible assets are to these cumulative process by which
processes. ■■ an organization creates value.
The perspectives, from top to
Why are strategy maps STRATEGIES AND STRATEGY bottom on the map, are:
important for you and your MAPS financial, customer, internal,
organization? and learning and growth.
This summary introduces the
The answer is that it’s following: You can think of the perspec-
critical for you and your tives as four building blocks,
employees to understand • First, strategy map with each perspective provid-
what the strategy is — and templates describing ing leverage for the one
why it makes business sense. the basic components of above it:
how value is created
The maps provide visual internally. • First, learning and
clarity to help your people see, growth is the foundation
discuss, and understand the • Second, themes that for the internal perspec-
strategy. On one page, the map articulate a strategy’s tive by asking the ques-
will highlight which process- dynamics. tion, "To achieve our
es and actions are critical, vision, how must our
and which are secondary. • Third, a new framework company learn and
for describing, measuring improve?"

STRATEGY MAPS ILLUSTRATE HOW THE ORGANIZATION CREATES VALUE

2 AUDIO-TECH
• Second, the internal 1. Operations success. It’s a roadmap to
perspective provides the future financial success.
foundation for the cus- 2. Customer management
tomer perspective The map takes companies
through the question, "To 3. Innovation from strategy formulation to
satisfy our customers, strategy execution. If your
which processes must we 4. Regulatory and social company is missing even one
excel at?" element, it may have a
Each of these processes potentially crippling gap in
• Third, the customer depends on several factors. its strategy.
perspective supports the For example, the customer
financial perspective by management process rises or For example, in the customer
asking, "To achieve our falls depending on these fac- perspective, the strategy
vision, how must we look tors: selection, acquisition, should address the following
to our customers?" retention, and growth. elements: price, quality,
availability, selection, func-
• Fourth, the financial In turn, the elements in the tionality, service, partnership,
perspective supports the four processes — usually and brand image.
overall business strategy indicated on the strategy
by asking, "If we succeed, map by arrows — determine You probably won’t lead your
how will we look to our the customer value proposi- industry in every element,
shareholders?" tion. That includes product but you should pay attention
attributes, relationships with to all of them.
As the illustration on page customers, and brand image.
2 shows, the model can be A product without quality
broken down even further Finally, the strategic success probably can’t have a low
for more detailed insights. of an organization’s customer enough price to make it
For example, the learning value proposition determines attractive. Also, an other-
and growth perspective how well it contributes to key wise outstanding product
encompasses three forms objectives in its financial per- that’s unavailable has no
of intangible capital: human, spective, particularly growth real value to a customer.
information, and organization. in revenues and margins.
Beyond those considerations,
• Human capital consists The template indicates — the strategy map is based on
of employees’ skills, through the arrows — the four principles.
talent, and knowledge. relationships between vari-
ous company elements and One is that strategy must
• Information capital objectives. balance contradictory forces.
consists of databases, For example, companies
information systems, For example, the arrows must focus on creating sus-
and networks. show that sustaining long- tained growth in shareholder
term shareholder value value, which means they
• Organization capital depends on the following need to make a commitment
consists of culture, lead- factors: Improving the cost to the long term. At the
ership, employee align- structure, strengthening same time, however, they
ment, teamwork, and asset utilization, expanding need to show improved
knowledge management. revenue opportunities, and results in the short term.
enhancing customer value. The strategy has to balance
Learning and growth drive both of these forces.
the internal perspective, Thus, a strategy map outlines
consisting of the four key the cause-and-effect relation- Secondly, strategy is based on
internal processes: ship among the factors critical a differentiated customer
to a company’s financial value proposition. You must
BUSINESS BOOK SUMMARIES 3
articulate clearly the distinc- fy and then focus on the criti- their investments.
tive customer segments you cal few internal processes
target and the specific value that deliver the differentiat- ■■
proposition that will please ing value proposition.
each of them. There are four THE BALANCED SCORECARD:
major value propositions: Finally, the fourth principle AN INDISPENSABLE
states that strategic align- COMPONENT OF STRATEGY
1. Low total cost ment determines the value of MAPS
intangible assets. As we’ve
2. Product leadership already discussed, intangible The strategy map translates
assets consist of human capi- the strategy and opens it
3. Complete customer tal, information capital, and up for discussion and fine-
solution organization capital. The tuning. In combination with
point is that none of these the Balanced Scorecard, it
4. System lock-in assets is valuable by itself; enables focusing and measur-
the value comes from its ing the various components
Each of these value proposi- ability to help the company of the strategy.
tions clearly defines the implement its strategy. The
attributes that the strategy authors’ research, however, The Balanced Scorecard is a
must deliver in order to shows that two-thirds of step in a continuum that
satisfy the customer. companies do not create describes how a company
strong alignment between defines value, how it creates
The third principle is that their strategies and their it, and how it measures it.
value is created through HR and IT programs. As
internal business processes. a result, they are not The objectives in the learning
Companies must first identi- getting a good return on and growth perspective are to

THE BALANCED SCORECARD FRAMEWORK

4 AUDIO-TECH
identify the jobs — or human Building a good strategy map sustain a strategy. However,
capital — the systems — the requires intense reflection on without such excellence, com-
information capital — and how a company really creates panies will have trouble with
the work climate — the orga- value. That’s not always strategic execution.
nization capital — needed to self-evident.
support the value-creating Operations management
internal processes. Consider the situation at involves four important
Gray-Syracuse, a maker elements:
Here, the measurements will of precision casting parts.
be difficult, but not unattain- In developing its strategy 1. Develop financially
able. For example, retention map, the company learned strong supplier
rates, new products, and the something surprising. Its relationships
number of new patents are front-line production workers
highly measurable. were best able to reduce 2. Produce good products
expensive reworks, improve
Of course, a major purpose of quality, and increase 3. Distribute and deliver
strategy maps is to facilitate customer satisfaction. those products to
discussions among managers. customers
The maps enable them to see Gray-Syracuse directed its
and connect relationships limited training dollars to 4. Manage risk
among the objectives. There its entry-level people, the
may be disagreements, but mold assemblers. In so For many world-class compa-
they should be matters of doing, the company cut in nies, the ability to develop and
degree. half the time required to sustain supplier relationships
achieve its strategic objectives. is essential to creating value.
Achieving objectives doesn’t For example, Toyota and
just happen by accident. Strategy maps link desired Wal-Mart require their sup-
They’re the effects that derive outcomes in the customer pliers to produce high-quality
from specific causes. Also, and financial perspectives products on short notice and
fulfilling one objective allows to outstanding performance deliver them reliably.
the fulfillment of others. in four critical internal
processes — operations Having effective supplier
For example, improving management, customer relationships means the
employee capabilities in cer- management, innovation, company will have lower
tain job positions — coupled and regulatory and social total cost to acquire the
with new technology — processes. goods, materials, and ser-
should enable improvement vices it needs. The total cost
in a critical internal process. The next section will look in includes the purchase prices,
depth at the first two of as well as costs related to
Additionally, the stronger these value-creating process- procurement, moving, inspec-
processes should lead to es: operations management tion, payment, and storage
better products. That would and customer management. costs.
enhance the value proposi-
tion for customers, increasing ■■ Among the ways to lower
their satisfaction, loyalty, such costs include finding
and willingness to buy more VALUE-CREATING PROCESSES: suppliers that accept elec-
products. OPERATIONS MANAGEMENT tronic orders and payments
AND CUSTOMER MANAGEMENT — and that deliver products
These improved customer just-in-time. At Wal-Mart,
outcomes should result in Operating processes produce point-of-sale terminals
increased revenues and and deliver goods and services trigger production runs at
enhanced shareholder value. to customers. By itself, vendor locations.
operational excellence won’t
BUSINESS BOOK SUMMARIES 5
OPERATIONS MANAGEMENT STRATEGY MAP TEMPLATE

The second important opera- In each operations process, organization’s activities.


tional process is to produce it’s essential to have value-
products. The key objectives creating objectives and sound There are various ways in
include: lowering production measurement tools. For which strategy maps can pro-
costs; continuously upgrading example, with suppliers, you vide significant value — even
processes and responsiveness; should measure the percentage to companies that are far
strengthening fixed asset of on-time deliveries. along in their quality efforts.
utilization; and improving
working capital efficiency. There are two initiatives that • First, providing clear
can help companies make causal linkages from
The third key operations fundamental improvements quality improvements to
process is to distribute in operating processes: measurable customer and
and deliver products and activity-based management, financial outcomes.
services to customers. The or ABM, and total quality
objectives are to reduce management, or TQM. • Second, establishing
cost and time, while mini- targets for breakthrough,
mizing product defects and ABM enables managers to industry-leading
customer complaints. get good results from an performance.
activity-based costing system.
The fourth critical operations As you learn each activity’s • Third, identifying entirely
process is managing risk. cost, it will help you attack new processes to help
That’s particularly important the costs of inefficiency and achieve strategic objectives.
for companies facing interest low-value activities. TQM is
rate movements and foreign an effort to improve quality • Fourth, setting strategic
exchange fluctuations. in every aspect of your priorities for process

6 AUDIO-TECH
enhancements. internal processes, including: share of their business.

The second key operations 1. Selecting customers by It’s true that some companies’
management process is cus- identifying important internal processes concentrate
tomer management. In the market segments and only on quality, cost reduc-
Industrial Era, products crafting an appealing tion, and efficiency. But
were primary, and customers value proposition for they’re neglecting customer-
were secondary. them. centered processes that can
produce higher margins.
Now, however, building 2. Acquiring customers by
customer relationships is communicating the The figure shown below
increasingly important. At brand message to the summarizes the elements
companies like Levi Strauss market, securing involved in a strong customer
and Dell Computer, cus- prospects, and converting management strategy.
tomers can design their own them to your products.
product configurations. The customer management
3. Retaining customers by template looks at customer
Increasingly, customer ensuring quality, correct- management from the usual
management processes are ing problems, and trans- four perspectives: learning
essential to help companies forming casual buyers and growth, internal,
acquire, sustain, and grow into rabid fans. customer, and financial.
long-term relationships with
customers. 4. Growing relationships The template goes far beyond
with targeted customers general statements about
Customer management by gaining their trust building strong relationships.
consists of four generic and getting a bigger For example, it segments the

CUSTOMER MANAGEMENT SCORECARD TEMPLATE

BUSINESS BOOK SUMMARIES 7


internal process into selection, fire. They will allow you to cheaper, smaller, and better
acquisition, retention, and determine once and for all than the products that were
growth. whether your strategy is just introduced.
really working.
It then divides the processes Managing innovation
into various objectives, ■■ includes four important
including: understanding internal processes:
segments, screening out INNOVATION PROCESSES AND
unprofitable customers, tar- SOCIAL AND REGULATORY 1. Identifying opportunities
geting high-value customers, PROCESSES for new products.
and managing the brand.
Now that we’ve explored 2. Managing the R&D
Measurements are equally the first two types of value- portfolio.
distinctive. They include: creating processes, let’s
determining the profits from discuss the other two types: 3. Designing and develop-
each customer segment; cal- innovation processes and ing the new products.
culating the percentage of social and regulatory
unprofitable customers; processes. 4. Bringing new products to
adding up the number of market.
strategic accounts; and eval- Innovation is particularly
uating the customers’ degree important in industries — In identifying opportunities
of brand preference. such as semiconductors, soft- for new products, the
ware, and telecommunica- objectives for the idea and
In each perspective, the tions — where customers opportunity innovation
careful measurements will constantly demand new process include: (1) antici-
hold everyone’s feet to the products that are faster, pating future customer

INNOVATION MANAGEMENT STRATEGY MAP TEMPLATE

8 AUDIO-TECH
needs; and (2) discovering and development. But all organizations need at
and developing new products. least one innovation objective
The third innovation process on their strategy maps.
Measures for those objectives is to design and develop
would include: time spent truly new products. That And, for companies whose
learning targeted customers' typically consists of a series strategies require they be
needs, the number of client- of stages: concept develop- product leaders, innovation
driven new projects ment, product planning, and can be crucial to their
launched, and the number of detailed product and process success.
new projects presented for engineering.
development. Of course, the benefits of
This effort tests whether innovation won’t be fully
The second innovation the new manufacturing achievable for companies
process — managing the processes can bring about operating in restrictive
R&D portfolio — should the finished product at com- regulatory and social envi-
include a mix of different mercial volume levels, and ronments. To avoid shut-
types of projects from the meet functional and quality downs, community ill will,
following categories: basic standards. and expensive litigation,
R&D, breakthrough projects, companies must comply
next-generation development Of course, companies usually with social and regulatory
projects, development do not innovate simply for obligations.
projects, and alliance the sake of creating interest-
projects. ing new ideas. There must In fact, there can be benefits
be a linkage between the to leading in this area. Such
To illustrate these projects, innovations and the goals in companies tend to become
consider the product portfolio the customer perspective, employers-of-choice and
of an automobile company: such as: beneficiaries of community
goodwill.
• A basic research project • Offering superior product
might be a fuel cell performance compared to Companies manage their
to replace the gasoline- earlier versions. regulatory and social
powered engine. performance along several
• Getting to the market dimensions, including: envi-
• A breakthrough develop- first with a new product ronment, health and safety,
ment project would or service. employment practices, and
produce a hybrid auto community investment.
capable of running either • Expanding products
on a battery or gasoline. into new market In each area, creative
segments. companies generally can
• A next-generation project leverage their capabilities
would be a new line of Naturally, these outcomes to create shareholder value.
hybrid cars. are also linked to financial In other words, they can do
objectives on the strategy well financially by doing
• Development projects map. Innovation should good things, ethically and
would develop different produce a solid return on socially.
models of the hybrid car, R&D investments, as well as
such as two-door, four- revenue growth from new In the Regulatory and Social
door, and convertible. and existing customers. Strategy Map Template
shown on page 10, these
• An alliance project would Innovation processes often activities can be linked to
occur when the company receive less management financial objectives, such as
turns to another attention than operations reducing the risk of doing
automaker for design and customer management. business and attracting
BUSINESS BOOK SUMMARIES 9
REGULATORY AND SOCIAL STRATEGY MAP TEMPLATE

socially conscious customers business and a good place to All intangible assets succeed
and investors, that build work. or fail based on their syner-
long-term shareholder gies. Their alignment with
value. ■■ strategy is what creates
value.
Consider environmental ALIGNMENT IN HUMAN
practices. Companies like CAPITAL, INFORMATION Remember: Intangible
Xerox have found that waste CAPITAL, AND ORGANIZATION assets encompass such items
isn’t only a nuisance, but CAPITAL as: patents, copyrights,
also a cost — for example, workforce knowledge, leader-
in shipping materials to Good places to work embrace ship, information systems,
landfills. more than social responsibili- and work processes.
ty. They also manifest a
Xerox reduced costs by willingness to train their In the learning and growth
paying more attention during people in ways that allow perspectives, six objectives
the design stage to environ- them to execute the consistently appear:
mental impacts, and by organization’s strategy.
operating effective programs First, in human capital, the
in product take-backs. The learning and growth objective is to create strategic
perspective highlights the competencies.
Such efforts can lower the need to align intangible
total cost of producing and assets with strategy. The Second, with information
recycling products. And assets central to implement- capital, the objective is
they can improve the ing any strategy are: human strategic information.
company’s reputation as an capital, information capital, With organization capital,
environmentally friendly and organization capital. there are four parts, so the
10 AUDIO-TECH
third objective is culture, the Strategy maps — and the in light of the competency
awareness and internaliza- discussion they encourage — profiles — in each job family.
tion of the shared mission, could help save companies
vision, and values. from such a fate. The competency gap is the
difference between the
Fourth, leadership, the avail- That’s because a firm’s strat- requirements and the cur-
ability of leaders to mobilize egy map provides a common rent capabilities. That
the organization. point of reference for employ- shows the organization’s
ees and units to see how human capital readiness.
Fifth, alignment, the combin- clearly their roles dovetail
ing — company-wide — of with the business strategy. Organizations should build
goals and incentives with the their human capital develop-
strategy. Companies need to develop, ment programs using two
align, and integrate their highly useful tools: the
Sixth, teamwork, the sharing human, information, and strategic job family approach
of strategically important organization capital to the to develop specific competen-
knowledge and staff assets. critical few strategic process- cies, and strategic values to
es. That will allow them to make the strategy everyone’s
Alignment and integration create the greatest returns job.
aren’t as easy as they might from their intangible assets.
seem. One global bank The second essential intangi-
attempted to differentiate Organizations need to ble asset is information
itself by offering sophisticated identify human capital capital readiness.
financial products to requirements for the strategy.
customers. Then, they must estimate the Information capital is the
gap between the human capi- raw material for creating
The strategy failed because tal requirements and current value in a modern economy.
the complex information employee readiness. Finally, It consists of systems,
technology needed to imple- they must build require- databases, libraries, and
ment it wasn’t made available ments and improve readiness networks.
in a timely fashion. Yet the to execute the strategy.
firm’s CEO insisted the infor- Of course, all intangibles in a
mation services system was The process of measuring strategy map are worthy of
performing well. human capital readiness support. However, the level
starts by identifying key of support will depend on
In one sense, he was right. competencies — those your strategy. For example:
The unit had benchmarked required to perform each
itself against world-class critical internal process in • With a strategy based
information services the map. on low costs, the highest
operations. So, it must be returns come from
world-class itself, right? Strategic job families are the information systems
positions with employees that focus on the follow-
Not exactly. It had failed who will have the greatest ing: quality, process
miserably to deliver the right influence on enhancing these improvement, and
services needed for the internal processes. workforce productivity.
bank’s strategy. It was a
system designed not to sup- Competency profiles describe • With a strategy based
port its own company’s in detail their job require- on building strong rela-
needs, but to match the ments for employees in the tionships with customers,
performance of similar strategic job families. the greatest benefits
units in other companies it come from information
had benchmarked. Assessment processes define systems that do two
the current capabilities — things: first, reveal
BUSINESS BOOK SUMMARIES 11
knowledge about cus- information capital was to There are four elements that
tomer preferences evaluate performance by cost enable organization capital
and behavior and, sec- and reliability. The to play a key role in execut-
ond, enhance customer new mind-set emphasizes ing the strategy. These
contact, service, and evaluation based on strategic are culture, leadership,
retention. alignment. alignment, and teamwork.

• With a strategy based In other words, organizations A strategy often requires


on product superiority, must manage information changes that may include:
information capital will capital not as a cost, but new products, new processes,
enhance the product as an asset — one whose or new customers. In turn,
design and development value depends on how it these changes define new
process. It will accom- contributes to executing the behaviors and values needed
plish that through tools institution’s strategy. by the workforce.
such as three-dimension-
al modeling, virtual Companies must also develop The first step in developing
prototyping, and organization capital. That an organization capital
CAD/CAM. refers to the company’s abili- strategy is to define the
ty to mobilize — and sustain change agenda. This is illus-
Information capital has — the process of change trated in the Organization
value only in the context of required to execute the strat- Change Agenda figure that is
the strategy. It must be egy. Improvement generally shown below.
managed to align with the means change, and good
strategy. strategies include a change The objectives fall into two
agenda. categories of behavioral
The old mind-set for managing change. One relates to

THE ORGANIZATION CHANGE AGENDA

12 AUDIO-TECH
changes required to create successful strategy-focused Then, it transfers some of
customer and shareholder organization. the value to customers
value. The second consists of through low prices. At
changes needed to execute ■■ the same time, it retains
the strategy. attractive margins for itself.
CUSTOMIZING YOUR STRATEGY
Generally, three kinds of MAP TO YOUR STRATEGY In addition to Wal-Mart,
behavior changes are espe- other strong companies
cially important for value Your own specific strategy pursuing a low total cost
creation: will determine your organi- strategy include: Southwest
zation’s strategic thrust. A Airlines, Toyota, Dell
• Focusing on the company competing on prod- Computer, Vanguard Mutual
customer uct leadership will highlight Funds, and McDonald’s.
innovation, while a company
• Innovating competing mainly on cost These companies do more
will emphasize operations than provide very competi-
• Delivering results management. tive pricing. In that regard,
remember the Yugo — a
Four additional behaviors Regardless of its strategy, a low-priced car whose poor
are critical to executing successful company is one quality turned off potential
strategy: that creates value for its buyers.
suppliers, employees, cus-
• Understanding the tomers, and host communi- An effective low total cost
mission, strategy, and ties. But the company strategy offers highly com-
values absolutely must create value petitive prices, and combines
to reinvest in itself and to them with consistent quality,
• Creating accountability reward its shareholders. ease and speed of purchase,
and decent product selection.
• Communicating openly Let’s discuss each of the four
types of value propositions Companies like Wal-Mart,
• Working as a team that companies can use to McDonald’s, and Dell keep
generate attractive profits. customers’ costs down by
Of course, some companies They are: saving them time. They do
shy away from managing that by reducing the time
hard-to-measure factors like 1. Low total cost required to order and to
human capital, information receive the product.
capital, and organization 2. Product leadership
capital. Granted, the mea- The best low total cost
sures will be softer than the 3. Complete customer companies generally
financial variety. solutions organize their strategy
maps to support two general
But there are significant ben- 4. Product lock-in objectives:
efits just from the good faith
effort to measure intangible A classic example of a 1. Having a capable,
assets. It communicates the company that uses a low motivated, and techno-
importance of these drivers total cost strategy success- logically enabled
to value creation. fully is Wal-Mart. It con- workforce.
ducts tough negotiations
Learning and growth mea- with vendors, providing 2. Offering products
sures of the intangible assets them with very high volume and services that are
stimulate the improvements purchases in exchange for consistent, timely, and
in internal processes that low costs. low-cost.
are necessary to become a
BUSINESS BOOK SUMMARIES 13
STRATEGY MAP TEMPLATE: LOW TOTAL COST

STRATEGY MAP TEMPLATE: PRODUCT LEADERSHIP

14 AUDIO-TECH
A strategy map template for 1. Anticipating customers’ Such companies’ deep
a low total cost strategy needs. understanding of their
shows that key internal customers leads to lasting
processes occur within the 2. Discovering new oppor- relationships.
operations management area tunities for superior
of the internal perspective. products and services. The final value proposition
They include: good relation- deals with lock-in strategies.
ships with suppliers; highly Other essential objectives Under that approach, com-
efficient operating processes; include superb product panies generate long-term
and rapid inventory development processes, sustainable value by creat-
turnover. and excellence in patenting, ing high switching costs for
regulatory, and branding customers.
Other factors include: processes.
simple, accessible ordering For example, people who
processes; a willingness The third value proposition consider switching from the
to be product followers is complete customer solu- widely used Microsoft
rather than leaders; a will- tions — basically, building Windows operating system
ingness to embrace continu- long-lasting relationships to the user-friendly Apple
ous process improvement; with customers. That system can’t do so with
and an emphasis on compa- requires companies to impunity. That’s because
ny-wide sharing of best develop customized many application programs
practices. solutions. run only on Windows.

The second type of value From about 1960 to 1980, System lock-in occurs mainly
proposition, product leader- this strategy characterized when a company’s core prod-
ship, is used by companies IBM. It didn’t offer the ucts become the industry
such as Sony, Mercedes, and lowest prices, or the most standard. For that reason,
Intel that emphasize product reliable delivery, or the most companies that pursue a
innovation and leadership. functional products. lock-in strategy focus on
the innovation area of the
Product leadership compa- But it did offer its customers internal perspective. They
nies want to be first-to-mar- complete solutions — hard- need to:
ket with their innovations or ware, software, installation,
enhancements. field service, training, educa- 1. Develop and enhance
tion, and consulting. proprietary standards.
Why? Because that allows Moreover, it personalized
them to command high the services to meet the 2. Increase the breadth
prices from early adopters. customer’s unique needs. and application of those
In many cases, being first-to- standards.
market can impose high Companies in this category
switching costs that let com- emphasize customer reten- 3. Lower potential cus-
panies defend their market tion more than customer tomers’ switching costs.
positions without major cost acquisition. They recognize
cutting. that retention typically costs Overall, a company’s
much less than acquisition. strategy will contain many
In the strategy map tem- objectives. It will be most
plate for product leadership A strategy map template for successful when integrated,
companies shown on page firms that follow this strate- aligned activities allow the
14, the key internal process- gy is illustrated on page 16 company to offer a unique
es are in the innovation area and shows that the key value proposition.
of the internal perspective. internal processes are in the
The companies must excel customer management area Your organization’s strategy
at: of the internal perspective. map should tell the unique
BUSINESS BOOK SUMMARIES 15
STRATEGY MAP TEMPLATE: COMPLETE CUSTOMER SOLUTIONS

STRATEGY MAP TEMPLATE: LOCK-IN

16 AUDIO-TECH
story of your strategy — one asset readiness. Achieving the three sub-
that differentiates you from objectives was necessary for
the competition. • Sixth, identify and fund the bank to reach its overall
the strategic initiatives. goal of improving net income
■■ by $100 million.
Let’s look at the process
STRETCH TARGETS AND SUB- more closely. The second step, reconcile
TARGETS FOR PERFORMANCE the value proposition for tar-
BREAKTHROUGHS The first step, determining geted customer segments, has
the shareholder value gap, four dimensions:
Clearly, developing your begins with defining the
distinctive strategy requires overall objectives and mea- 1. Identifying target
a good deal of thought, sures. In the case of customers.
discussion, and debate — Consumer Bank, it set a
exactly what strategy maps stretch target of increasing 2. Clarifying the customer
can encourage. net income by a whopping value proposition.
$100 million within five
But remember that a years. 3. Selecting the measures.
strategy isn’t merely an
opportunity for reflection Once you’ve established a 4. Balancing customer
and discussion. It’s a call to stretch target, you can often objectives with financial
action. discover a planning gap, growth goals.
which is the difference
Strategy maps must be between future aspirations Opportunities for cost and
dynamic, not static — viable and current reality. productivity improvements
in the workplace and work- Identifying the planning generally are relatively clear.
able in the marketplace. gap shows everyone involved But that’s often not the case
that dramatic change is nec- with revenue growth.
Your strategy requires a con- essary. Next, you need to
tinuing campaign designed allocate the overall planning That requires explicit atten-
to inform and energize gap to different financial tion to targeted customer
everyone in an organization. sub-objectives. That means groups. It usually includes
breaking the high-level selling more to existing cus-
Planning the strategic objective into manageable tomers, and selling products
campaign means taking a steps. to entirely new customers.
six-step process:
Consumer Bank set three With Consumer Bank,
• First, define the share- sub-objectives: increasing sales to existing
holder/stakeholder value customers involved turning
gap. • Improving productivity the bank’s employees into
by reducing cost per trusted financial advisors.
• Second, reconcile the customer from $100 to By building such relation-
value proposition for $75. ships, employees would
targeted customers. become comfortable intro-
• Improving growth by ducing customers to a
• Third, establish the time- increasing revenue per package of integrated
line needed to close the customer from about services.
value gap. $200 to $300.
The bank directed its
• Fourth, identify the • Improving the customer learning and growth objec-
value-creating themes. base by tripling its tives toward teaching and
number of high value motivating employees to
• Fifth, create strategic customers. cross-sell its other offerings.
BUSINESS BOOK SUMMARIES
Step three, establish the the strategic drivers to fund the strategic initiatives,
time-line for closing the achieve the financial and consists of two elements:
value gap, has two elements: customer objectives.
1. Defining the specific
• First, setting deadlines Consumer Bank selected two initiatives required to
for results. operations management support processes and
processes essential to mak- develop intangible
• Second, allocating the ing the strategy work. assets.
planning gap to different
strategic themes. One was to provide rapid 2. Determining and
response — measured by securing the funding.
As we’ve seen, Consumer request fulfillment time. It
Bank established a time-line did this by shifting more Of course, the initiatives are
for its strategy of five years. of its customer support to where the rubber meets the
It focused processes on Web-based technology. road. Supporting processes
achieving results within that and developing intangible
time. Another was to minimize assets are the result of those
problems for customers initiatives.
Instead of aiming for an and employees by simplify-
immediate — and impossible ing and clarifying processes. ■■
— leap forward, the That would increase cus-
Consumer Bank team trans- tomer satisfaction and STRATEGY MAPS AS
lated the vision into one improve productivity. FRAMEWORKS FOR ACHIEVING
consisting of manageable, CRITICAL OBJECTIVES
time-phased steps. They The fifth step, create strate-
established a realistic path gic asset readiness, involves Your organization’s strategy
to an ambitious goal. three elements: must be more than a set of
initiatives — no matter how
Operations processes would 1. Identifying the human, bold they might be. A strate-
reduce cost per customer. information, and organi- gy contains a multitude of
Customer management zation capital required to related elements.
processes would increase the support the strategic
number of income-boosting process. Strategy maps can literally
relationship customers. And put everyone in your organi-
innovation processes would 2. Assessing the readiness zation on the same page.
introduce new products and of these assets to They give you a vehicle
services to increase annual support the strategy. to discuss your strategy
revenue per customer by 50 fully, and develop it
percent. 3. Establishing measures systematically.
and targets.
Step four, identify the strate- The strategy map can help
gic themes, consists of two Consumer Bank identified you avoid the trap of creat-
elements: seven value-creating ing a strategy that exists
processes. For each one, more in words than in execu-
1. Identifying the critical the management team asked tion. It can help make your
few processes, or themes, two questions: (1) "Which strategy one that drives the
that have the greatest job families are critical to entire organization.
effect. managing this process?"
and (2) "Which information It will help you and your
2. Establishing measures systems are critical for people identify powerful
and targets. improving this process?" assets — most of them
intangible — that are vital
This step involves aligning Finally, step six, identify and sources of value creation.
18 AUDIO-TECH
It will show you how to
align those key intangible NOTES
assets with critical process-
es, including: operations
management, customer
management, innovation,
and regulatory and social
processes.

Of course, it’s up to you to


take the steps necessary to
make the strategy map truly
a dynamic tool. Actions and
solid management are the
ultimate drivers of change.

The point is this: Your strat-


egy is the essence of what
your company is. It is the
source of competitive advan-
tage, financial success, and
industry leadership. Your
strategy map will show you
the way to the destination.
Now it is up to you to begin
the journey.

■■

BUSINESS BOOK SUMMARIES


ABOUT THE AUTHORS

Robert S. Kaplan is the creator of the Harvard Business School video series Measuring
Corporate Performance and the author or coauthor of thirteen Harvard Business Review
articles, more than 100 other papers, and eleven books, including three with David
Norton. Dr. Kaplan is Chairman of the Balanced Scorecard Collaborative. He can be
reached at rkaplan@hbs.edu.

David P. Norton is President of Balanced Scorecard Collaborative, Inc., a professional


services firm that facilitates the worldwide awareness, use, enhancement, and integrity
of the Balanced Scorecard. With Robert Kaplan, he is the cocreator of the Balanced
Scorecard, coauthor of four Harvard Business Review Articles, and coauthor of The
Balanced Scorecard and The Strategy-Focused Organization.

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Strategy Maps, summarized by arrangement with Harvard Business School Press, from Strategy Maps:
Converting Intangible Assets into Tangible Outcomes by Robert S. Kaplan and David P. Norton.
Copyright 2004 by Harvard Business School Publishing Corporation.

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