Change Implementation Techniques for Creating a Sense of Urgency

Technique 2.45 Strategy Mapping

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(Balanced Scorecard)

Introduction

. This is a variation of the balanced scorecard approach and shows how an organisation plans to convert its various assets into desired outcomes.

. Strategy maps aim at helping people in an organisation who are going to implement the strategy to understand and have ownership of the strategy. They can help in detecting gaps in strategies being implemented at all levels of an organisation

. Organisations need techniques for communicating both their strategy and processes, and systems that will help with the implementation of the strategy.

"...Strategy maps..give employees an understanding of how the other jobs are linked to the overall objectives of the organisation, enabling them to work in a coordinated, collaborative fashion towards the company's desired goals. The maps provide a visual 90 of a company's critical objectives and the critical relationships...that drive organisational performance..."

Robert Kaplan et al, 2000

Strategy maps

They can

- depict objectives for revenue growth

- target customer markets in which probable growth will occur

- value propositions that will lead to customers doing more business and at high margins

- play a key role in innovation and excellence in products, services and processes

- demonstrate the investment required in people and systems to generate and sustain the projected growth

. Strategic maps will show cause-and-effect links by which specific improvements create desired outcomes; for example, faster process cycle times and enhanced employee capabilities will increase retention of staff.

. Furthermore, they can show how an organisation will convert its initiatives and resources (including intangible assets such as corporate culture that encourages innovation, problem solving and organisational improvements, customer relationships, information technologies, employee skills and knowledge) into tangible outcomes.

. These intangible assets have become a major source of competitive advantage. For example, a growth-orientated sales strategy might require knowledge about customers, additional training for sales people, new databases and information systems, a different organisational structure, and an incentive-based compensation program. The value does not reside in any individual intangible asset; it arises from the entire set of assets and the strategy that links them together

Methodology

. The accompanying chart and the use of the balanced scorecard's 4 perspectives (financial, customer, internal processes, and learning and growth), allows one to appreciate the knowledge, skills and systems that staff will need (learning and growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver specific value to the market (customer), which will eventually lead to higher shareholder value (financials).

. For the customer's perspective, organisations typically select 1 of 3 strategies: operational excellence, customer intimacy or product leadership

. In other words, a strategy map demonstrates the different items on an organisational balanced scorecard into a cause-and-effect chain, connecting desired outcomes with the drivers of those results

. The best way to build strategy maps is from the top down, starting with the destination and charting the routes that will lead there. First, review statements (vision and mission) and core values (why the organisation exists and what it believes in). Then look at the perspectives in the following order: financial, customer, internal process, and learning and growth.

Financial perspective

. Building a financial strategy involves increasing shareholder value for businesses; for public and not-for-profit sectors, their customers and constituents are at the top of the strategy map

. There are 2 basic drivers for financial strategy, ie revenue growth and productivity. Revenue growth has 2 components,

i. building revenue from new markets, new products and new customers

ii. increasing the value to existing customers by deepening relationships with them through expanded styles, such as cross-selling products or offering bundled products instead of single products

Productivity strategy has 2 parts

i. improving the company's cost structure by reducing direct and indirect expenses

ii. using assets more efficiently by reducing the working and fixed capital needed to support a given level of business

Generally, the productivity strategy yields results quicker than the growth strategy. One of the advantages of the strategic map is to highlight the financial benefits through revenue growth rather than just cost reduction and improved asset utilisation. The 2 strategies of revenue growth and productivity need to be balanced.

Customer perspective

. The core of any business strategy is the customer value proposition. This describes the unique mix of product and service attributes, customer relations and corporate image that an organisation offers.

. It defines how the organisation will differentiate itself from competitors to attract, retain and deepen relationships with targeted customers. It is crucial as it helps an organisation connect its internal processes to improved outcomes with its customers.

. Furthermore, customer retention and profitability are elements of a customer value proposition

. There are 3 differentiators to value propositions

i) operational excellence, such as McDonald's and Dell computer - to excel in this area, need to concentrate on competitive pricing, product quality and selection, speedy order fulfilment and on-time delivery

ii) customer intimacy, such as IBM in the 1960s and 1970s - to excel in this area, need to stress the quality of relationships with customers, including exceptional service and providing solutions

iii) product leadership, such as Intel and Sony - to excel in this area, need to concentrate on functionality, features for overall performance of its products and services

. Generally, organisations strive to excel in 1 of the 3 areas, while maintaining threshold standards in the other 2. By identifying its customer then value proposition, an organisation will then know which classes and types of customers to target. This is the single most important step in determining a strategy.

Internal process perspective

. After developing a clear picture of customer and financial perspectives, the internal processes should be investigated. Internal processes will achieve the differentiated value proposition for customers and productivity improvements to reach financial objectives

. There are 4 high level processes

i) build the franchise by innovating with new products and services and by penetrating new markets and customer segments

ii) increase customer value by deepening relationships with existing customers

iii) achieve operational excellence by improving supply chain management, the cost, quality and cycle time of internal processes, asset utilisation and capacity management

iv) become a good corporate citizen by establishing effective relationships with external stakeholders

. In addition to measuring the cost and quality of operations, there is a need to measure innovation and customer management processes and include them in the strategy.

. Financial benefits from improving the business processes are shown by

- cost savings from increased operational efficiency

- process improvements that create short-term benefits

- revenue growth from enhanced customer relationships in the medium-term

- increased innovation that produces long-term growth and margin improvements

Learning and growth perspective

. This defines the core competencies and skills, the technologies and corporate culture that are needed to support the organisation's strategy. This enables an organisation to align its human resources and information technology with its strategy

. An organisation needs to determine how it will satisfy the requirements from critical internal processes, the differentiated value proposition and customer relationships

Summary

. The strategies need to have a balanced measurement system around the 3 dominant groups of constituents: employees, customers and shareholders. A strategy needs to describe how an organisation will achieve its desired outcome of satisfying employees, customers and shareholders. The how must include the value proposition in the customer perspectives; innovation, customer management; running processes in internal process perspective; employee skills and information technology capabilities in the learning and growth perspective

organisational development change management

organisational development change management

(source: Robert Kaplan et al, 2000)

 

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