Product Details

March 2004 - Strategic Finance

a useful resource for any manager who is or will be leading a balanced scorecard initiative.

Publishers Weekly

Over a decade ago, Kaplan and Norton struck a business consulting gold mine with the Balanced Scorecard (later turned into an eponymous book), which permits executives to list their targets for various "measures," i.e., the numbers they'd like to hit on various performance goals. Building off that earlier success, they introduce the strategy map, a flow chart to help businesses figure out who needs to do what by offering a "holistic perspective" on the individual goals of each department and how they interact with one another. Kaplan and Norton are gung-ho about the power of strategy maps to provide a conceptual framework for understanding any corporation, public institution or nonprofit organization, but general readers are likely to shake their head at jargon-heavy reformulations of the obvious like "the ideal customer experience is a product that meets customer specifications and is suitable for immediate use by the customer." And though the book is laden with case studies, it doesn't even begin to scratch the surface of their interesting stories. When one reads about the Royal Canadian Mounted Police, for example, one expects a more engaging outcome than "a significant breakthrough in how strategy maps are designed and used in large, matrixed public-sector institutions." Similar missed narrative opportunities involving outfits like the U.S. Army and the Boston Lyric Opera may keep even readers with strong business backgrounds from appreciating the full potential of the strategy map by focusing on those maps at the expense of the territory they were developed to represent. (Feb. 2) Copyright 2004 Reed Business Information.

Soundview Executive Book Summaries

More than 75 percent of the average company's market value comes from intangible assets that traditional metrics don't measure. The Balanced Scorecard is a revolutionary performance measurement system that allows organizations to quantify critical intangible assets, such as people, information and culture. Now the people who first developed the Balanced Scorecard, Robert S. Kaplan and David P. Norton, have created a powerful new tool based on their ongoing research. The strategy map allows companies to describe the links between intangible assets and value creation so all aspects of strategy can be implemented in a manner that ensures sustained value creation.

The strategy map allows managers to align investments in people, technology and organization capital for the greatest impact. By paying close attention to improving internal processes such as operations, customer relationships, innovation and culture - and making proper investments in intangible assets - human capital, information capital, and organization capital management can implement a structured plan to achieve strategic success.

A strategy describes how an organization can create sustained value for its shareholders, customers and communities. Most organizations have different methods of communication, alignment and implementation, but the Balanced Scorecard (BSC) is an effective way for nonprofits and public-sector organizations to describe strategies for creating value. The BSC includes the lagging indicators of financial performance and customer value proposition, and the leading indicators of internal processes as well as learning and growth.

Measure With the Strategy Map

The strategy map is a visual framework of the cause-and-effect relationships among the components of an organization's strategy, and it is used to integrate the four perspectives of a BSC - financial, customer, internal, and learning and growth. It provides a uniform and consistent way to describe strategy so the objectives and measures on the BSC can be established and managed. It illustrates the time-based dynamics of a strategy and the relationships that link desired outcomes in the customer and financial perspectives to outstanding performance in critical internal processes. These processes in turn create and deliver the organization's value proposition to targeted customers and promote productivity objectives in the financial perspective. The strategy map also identifies the specific capabilities in the organization's intangible assets that are required for delivering exceptional performance in critical internal processes. The strategy map is based on several principles, including the following:

• Strategy balances the contradictory forces of short-term financial objectives for cost reduction and increased productivity, and the long-term objective of profitable revenue growth.
• Strategy is based on a differentiated customer value proposition, because satisfying customers is the source of sustainable value creation.
• Value is created through internal business processes. Strategy maps and BSCs describe what the organization hopes to achieve, that is, strategic themes.
• Strategy consists of simultaneous, complementary themes or clusters of internal processes that deliver benefits at different points in time.
• Strategic alignment determines the value of intangible assets. The three components in the learning and growth perspective are human, information and organization capital.

Intangible assets are invaluable to sustainable value creation, but their value derives from their interrelation and cannot be measured independently. Their soft nature makes measurement more subjective than financial measurements of organizational performance. The learning and growth perspective of the BSC shows how an organization can align its intangible assets to its strategy. There are objectives and measures for three components of intangible assets: human capital, information capital, and organization capital. They must be aligned with the objectives for the internal processes and integrated with each other so there are synergies among them. Three targeted approaches are strategic job families, the strategic IT portfolio, and the organization change agenda.

Aligning Intangible Assets to Strategy
Strategic alignment is the dominant principle in creating value from intangible assets. Even if IT and HR are both well developed in your company, they are probably not strategically aligned. The strategy map and BSC enable organizations to describe intangible assets, align and integrate them to the strategy, and measure the assets and their alignment.

The typical strategy maps and BSC focus on strategic competencies, strategic information, culture, leadership, alignment and teamwork. The strategy map creates alignment and integration by providing a common point of reference for the enterprise strategy. The internal perspective identifies the critical few processes that create desired outcomes for customers and shareholders. Identify the strategic job families, define their competencies, their portfolio of technology investments, and the culture they need. Then, by developing, aligning and integrating your intangible assets to these few strategic processes, you can create the greatest returns.

Finally, you measure the intangible assets. Their value does not come from how much they cost, but how well they align to the strategic priorities of the enterprise. Prepare a Strategic Readiness Profile based on the principles of a balance sheet, where assets are ranked by their liquidity. Strategic readiness, analogous to liquidity, describes the status of intangible assets and their ability to convert to higher sales and lower spending - cash. Strategic readiness is converted into tangible value when internal processes increase revenue and profit. A Strategic Readiness Report shows consolidated snapshots of the ability of each class of intangible asset to fulfill its strategic role by defining the asset, aligning it to the strategy, and measuring the degree of readiness. Copyright © 2004 Soundview Executive Book Summaries

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