The Balanced Scorecard:
Translating Strategy into Action
&
Strategy Maps: Converting
Intangible Assets into Trangible
Outcomes
Robert S. Kaplan and David P. Norton
Balanced Scorecard
• A strategic management framework that translates an
organization's strategic objectives into a coherent set of
performance measures.
• Purpose
• Aims to provide a comprehensive view of the organization's
performance beyond traditional financial metrics.
• Helps in aligning business activities to the vision and
strategy of the organization.
• Key Elements
• Includes four perspectives: Financial, Customer, Internal
Business Processes, and Learning and Growth.
Why?
•Information age X Industrial age
•Limitations of Traditional Metrics:
•Traditional financial metrics focus on short-term outcomes, often neglecting long-term strategic goals.
•Organizations may face challenges in understanding the drivers of future performance.
•Strategic Alignment:
•A need exists for a system that integrates various performance measures to provide a holistic view of business
health.
•A balanced approach helps avoid "tunnel vision" that can result from focusing solely on financial results.
•Practical Framework:
• Organizations can adopt to measure and manage their strategic objectives. The structured approach is appealing
to operationalize strategies and improve organizational performance
•Strategic management system
•Clarify and translate vision and strategy
•Communicate and link strategic objectives and measures
•Plan, set targets, and align strategic initiatives
Four Perspectives
• Financial Perspective:
• Key Question: "How do we look to
shareholders?"
• Includes metrics like revenue growth,
profitability, and return on investment
(ROI).
• Customer Perspective:
• Key Question: "How do customers see
us?"
• Focuses on customer satisfaction,
retention, market share, and customer
Four Perspectives
• Internal Business Processes:
• Key Question: "What must we excel
at?"
• Measures the efficiency and quality of
internal processes that drive customer
satisfaction and financial performance.
• Learning and Growth
Perspective:
• Key Question: "How can we continue to
improve and create value?"
• Emphasizes employee training,
Implementation
• Identify Objectives:
• Define strategic objectives across all four perspectives.
• Measure Performance:
• Develop key performance indicators (KPIs) for each objective.
• Set Targets:
• Establish clear targets and benchmarks for performance.
• Establish Initiatives:
• Define initiatives and action plans to achieve the targets.
Implementat
ion
Challenges
Common obstacles include:
• resistance to change among employees,
• misalignment in performance measures with strategic
goals,
• the requirement for ongoing management support and
commitment.
Strategic positioning or core
competencies/capabilities-driven?
• “Companies deploying a strategy based on core competencies or
unique capabilities may wish to start their strategic planning process
by identifying these critical competencies and capabilities for their
internal-business process perspective, and then, for the customer
perspective, selecting customer and market segments where these
competencies and capabilities are most critical for delivering customer
value.”
• The Balanced Scorecard is primarily a mechanism for strategy
implementation, not for strategy formulation.
Strategy Maps
• Strategy maps are visual tools that illustrate
how an organization's intangible assets
contribute to achieving its strategic
objectives.
• Purpose:
• To provide a clear framework for aligning
intangible assets with tangible outcomes.
• To enhance the understanding and communication
of strategy across the organization.
• Components:
• Includes perspectives such as Financial, Customer,
Internal Process, and Learning and Growth.
Strategy Maps Illustrate How The
Organization Creates Value
Four Principles
• Must balance contradictory
forces
• Based on a differentiated
customer value proposition
• Low total cost, Product leadership, Complete
customer solution, System lock-in
Four Principles
• Value is created through
internal business processes
• Alignment determines the
value of intangible assets.
Intangible Assets
• Intangible assets like human capital, information, and
organizational culture are crucial for competitive advantage.
• Challenges:
• Difficulty in measuring and managing intangible assets.
• Need for a structured approach to link these assets to strategic
goals.
• Examples:
• Companies leveraging technology, brand reputation, and employee
skills to drive success.
Customer management
• Selecting customers by identifying important market
segments and crafting an appealing value proposition
for them.
• Acquiring customers by communicating the brand
message to the market, securing prospects, and
converting them to your products.
• Retaining customers by ensuring quality, correcting
problems, and transforming casual buyers into rabid
fans.
• Growing relationships with targeted customers by
gaining their trust and getting a bigger
Innovation
• Identifying opportunities for new products.
• Managing the R&D portfolio.
• Designing and developing the new products.
• Bringing new
Learning and growth
• Human capital (create strategic competencies)
• Information capital (strategic information)
Learning and growth
• Organizational
Creating and Using Strategy Maps
• Steps to Create a Strategy Map:
• Identify strategic objectives across different perspectives.
• Illustrate cause-and-effect linkages between objectives.
• Align initiatives and resources to support strategic goals.
• Benefits:
• Improved clarity and communication of strategy.
• Enhanced alignment of organizational activities with strategic
priorities.
“Not only a reflection and discussion.
It’s a call to action.”
• Define the shareholder/stakeholder value gap.
• Reconcile the value proposition for targeted customers.
• Establish the timeline needed to close the value gap.
• Identify the value-creating themes.
• Create strategic asset readiness.
• Identify and fund the strategic initiatives.
