Strategy is all about creating value for your shareholders. A strategy map is your guide to getting there.
Strategy is all talk, no action. Every company is certain it has a rock-solid strategy (see, it's right there in the company newsletter!). But going from paper to execution is where most companies fail - nine out of 10, to be exact, according to Robert Kaplan and David Norton, who in 1990 developed the Balanced Scorecard concept - a set of measures to track customers, internal processes, learning and growth. Kaplan and Norton started with metrics, but they have been gradually working their way up toward the ethereal realm of strategy. They've made the trip slowly and deliberately, using the cult-like group of followers and customers (Kaplan and Norton are happy to help you with your strategy) that has coalesced around the Balanced Scorecard.
There is very little that is new in Kaplan and Norton's ideas - you hear the competitive advantage themes developed by strategy guru Michael Porter in the 80s and the value disciplines pushed by Michael Treacy and Fred Wiersema in the 90s. But the good news about Kaplan and Norton is that they have created a continuum from the lowest-level measures of the Balanced Scorecard to the highest precepts of business strategy. They call this top-to-bottom approach the strategy map and have outlined it in their third book, Strategy Maps, which is due out in this month. US CIO executive editor Christopher Koch sat down with Kaplan, Harvard Business School professor and chairman of the Balanced Scorecard Collaborative (BSC), and Norton, president of BSC, to discuss strategy and its link to IT.
CIO: Some CIO readers are sceptical of strategy. Give me an example of a company whose business strategy wasn't: "We are going to be number one in our market."
Robert Kaplan: That's not a strategy; that's a prayer. [Laughs.] Strategy is really about positioning yourself and differentiating yourself - what is going to make you different from or better than competitors. Just a vague statement about being number one is not a strategy. It's not saying what's the strategic value proposition you are offering your customers.
CIO:Well, GE is lauded for its strategy, but its strategy boils down to: "We will be number one or two in our markets, or we will get out."
David Norton: Being number one or number two in a market is an objective; it's not a strategy. Strategy is how you intend to do those things. I think that most organisations have strategies. Sceptics say: "We don't have a strategy", but what they're really saying is: "I don't understand the strategy. It hasn't been communicated to me in a way that I can understand."
If you want to describe the financial status of the company, you build an income statement and a balance sheet, and everyone understands it. But if you want to describe your business strategy, there is no general way to do that. So as a result, executives, even when they have a strategy, can't really communicate it to their peers and get consensus on it, and they have no hope of communicating it to the thousands of people who work for them.
And that's where the idea of the strategy map comes into play.
CIO:Define a strategy map.
Norton: A strategy map is a model of how an organisation creates value. Strategy is how you intend to create value for your shareholders. The "how" is different for every organisation. The strategy map at the highest level defines the shareholders' objectives for long-term value, for growth and for productivity. The second level of the strategy map has to do with the customer and a value proposition. If you're going to please your shareholder by growing, you have to appeal to a unique value proposition of price, quality, relationship, brand and so forth. So the strategy then forces you to be very clear about segmenting the market, understanding your customers and what they want.
Then the third level defines the processes you are going to emphasise to satisfy that customer. So how am I going to innovate and build new products? How am I going to manage the customer interface? How am I going to build and deliver the products? How am I going to function as a positive member of the community - what are my social responsibilities?
Finally, the foundation is the people, the technology and the organisational climate - the intangible assets. So it's really defining the logic of how you will go about finding the skills and technologies you need to support a process that is going to create new products that are going to satisfy a customer and create profit for the shareholder.
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