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Reading week04 kaplan_balanced_scorestrategymap Reading week04 kaplan_balanced_scorestrategymap Document Transcript

  • DONOTCOPYHaving Trouble with YourStrategy? Then Map Itby Robert S. Kaplan and David P. NortonReprint r00509
  • DONOTCOPYSEPTEMBER – OCTOBER 2000Reprint NumberWhy Should Anyone Be Led by You? R00506Networked Incubators: Hothouses of the New Economy R00507Managing Away Bad Habits R00512Will Disruptive Innovations Cure Health Care? R00501Getting the Attention You Need R00505Knowing a Winning Business Idea When You See One R00510Creating the Most Frightening Company on Earth: R00504An Interview with Andy Law of St. Luke’sFORETHOUGHTA Stealthier Way to Raise Money F00501Web Attack F00502Profiting from Open Source F00503David and Goliath, Reconsidered F00504Peer to Peer F00505Winning with the Big-Box Retailers F00506HBR CASE STUDYIt Wasn’t About Race. Or Was It? R00502FIRST PERSONHow We Went Digital Without a Strategy R00511BEST PRACTICECutting Costs Without Drawing Blood R00503TOOL KITHaving Trouble with Your Strategy? Then Map It R00509BOOKS IN REVIEWThe Bandwidth Bomb R00508ROBERT GOFFEEAND GARETH JONESMORTEN T. HANSEN ET AL.JAMES WALDROOPAND TIMOTHY BUTLERCLAYTON M. CHRISTENSEN,RICHARD BOHMER, AND JOHN KENAGYTHOMAS H. DAVENPORTAND JOHN C. BECKW. CHAN KIMAND RENÉE MAUBORGNEDIANE L. COUTUDAVID CHAMPIONSIMON BERKELEYA CONVERSATION WITH RAJIV GUPTAAMAR BHIDÉROBERTA FUSAROERIC SCHWALM AND DAVID HARDINGJEFFREY C. CONNORRICARDO SEMLERTOM COPELANDROBERT S. KAPLANAND DAVID P. NORTONDANNY HILLIS
  • DONOTCOPYmagine that you are a generaltaking your troops into foreign terri-tory. Obviously, you would need detailedmaps showing the important towns andvillages, the surrounding landscape, keystructures like bridges and tunnels, andthe roads and highways that traverse theregion. Without such information, youcouldn’t communicate your campaignstrategy to your field officers and the restof your troops.Unfortunately, many top executivesare trying to do just that. When attempt-ing to implement their business strate-gies, they give employees only limiteddescriptions of what they should do andwhy those tasks are important. Withoutclearer and more detailed information,it’s no wonder that many companieshave failed in executing their strategies.After all, how can people carry out aplan that they don’t fully understand?harvard business review September–October 2000 Copyright © 2000 by the President and Fellows of Harvard College. All rights reserved.T O O L K I THaving Trouble with Your Strategy?The key to executing your strategy isto have people in your organizationunderstand it – including the crucialbut perplexing processes by whichintangible assets will be convertedinto tangible outcomes. Strategy mapscan help chart this difficult terrain.by Robert S. Kaplan and David P. NortonIThen Map ItILLUSTRATIONBYLASZLOKUBINYI View slide
  • DONOTCOPYOrganizations need tools for communi-cating both their strategy and the pro-cesses and systems that will help themimplement that strategy.Strategy maps provide such a tool.They give employees a clear line of sightinto how their jobs are linked to theoverall objectives of the organization,enabling them to work in a coordinated,collaborative fashion toward the com-pany’s desired goals. The maps provide avisual representation of a company’scritical objectives and the crucial rela-tionships among them that drive organi-zational performance.Strategy maps can depict objectivesfor revenue growth; targeted customermarkets in which profitable growth willoccur; value propositions that will leadto customers doing more business andat higher margins; the key role of inno-vation and excellence in products, ser-vices, and processes; and the invest-ments required in people and systemsto generate and sustain the projectedgrowth.Strategy maps show the cause-and-effect links by which specific improve-ments create desired outcomes – forexample, how faster process-cycle timesand enhanced employee capabilities willincrease retention of customers andthus increase a company’s revenues.From a larger perspective, strategymaps show how an organization will con-vert its initiatives and resources – includ-ing intangible assets such as corporateculture and employee knowledge – intotangible outcomes.Why Strategy Maps?In the industrial age, companies createdvalue by transforming raw materials intofinished products. The economy was pri-marily based on tangible assets – inven-tory, land, factories, and equipment – andan organization could describe and doc-ument its business strategy by usingfinancial tools such as general ledgers,income statements, and balance sheets.In the information age, businessesmust increasingly create and deployintangible assets – for instance, customerrelationships; employee skills and knowl-4 harvard business review September–October 2000T O O L K I T • Having Trouble with Your Strategy? Then Map ItProduct LeadershipCustomer IntimacyOperational ExcellenceImprove Shareholder ValueRevenue Growth Strategy Productivity Strategybuild thefranchise• revenue fromnew sourcesincrease valueto customers• customer profitabilityimprove coststructure• operating costper unit produced• share price • return on capital employedimprove useof assets• asset utilizationemployee competencies technology corporate cultureachieve operationalexcellence throughoperations andlogistics processesincrease customervalue through customermanagement processesbuild the franchisethrough innovationsbecome a goodcorporate citizenthrough regulatory andenvironmental processesCustomer ValueProposition• customer acquisition,retention, and satisfactionFinancialPerspectiveCustomerPerspectiveInternalProcessPerspectiveLearning andGrowth PerspectiveThe Balanced ScorecardStrategy Map View slide
  • DONOTCOPYedge; information technologies; and acorporate culture that encourages inno-vation, problem solving, and generalorganizational improvements.Even though intangible assets havebecome major sources of competitiveadvantage, no tools existed to describethem and the value they can create. Themain difficulty is that the value of intan-gible assets depends on their organiza-tional context and a company’s strategy.For example, a growth-oriented salesstrategy might require knowledge aboutcustomers, additional training for sales-people, new databases and informationsystems, a different organizational struc-ture, and an incentive-based compensa-tion program. Investing in just one ofthose items – or in a few of them but notall – would cause the strategy to fail. Thevalue of an intangible asset such as acustomer database cannot be consideredseparately from the organizational pro-cesses that will transform it and otherassets – both intangible and tangible –into customer and financial outcomes.The value does not reside in any individ-ual intangible asset. It arises from theentire set of assets and the strategy thatlinks them together.To understand how organizationscreate value in the information age, wedeveloped the balanced scorecard, whichmeasures a company’s performance fromfour major perspectives: financial, cus-tomer, internal process, and learning andgrowth.1Briefly summarized, balancedscorecards tell you the knowledge, skills,and systems that your employees willneed (their learning and growth) to inno-vate and build the right strategic capa-bilities and efficiencies (the internalprocesses) that deliver specific value tothe market (the customers), which willeventually lead to higher shareholdervalue (the financials).Since we introduced the concept in1992, we have worked with hundreds ofexecutive teams from various organiza-tions, in both the private and public sec-tors. From this extensive research, wehave noticed certain patterns and havebrought them into a common visualframework – a strategy map – that em-harvard business review September–October 2000 5Having Trouble with Your Strategy? Then Map It • T O O L K I TCustomer Value Proposition Strategies• measure of achievementOperational ExcellenceCustomer IntimacyProduct LeadershipRelationshipprice timequality selectionProduct/Service AttributessmartshopperImageCompanies excel at offering personalized service tocustomers and at building long-term relations with them.servicecustomerrelationsRelationshipProduct/Service AttributestrustedbrandImageCompanies excel at creating uniqueproducts that push the envelope.RelationshiptimefunctionalityProduct/Service Attributesbest inclassImagegeneral requirementdifferentiatorCompanies excel at competitive pricing,product quality, and on-time delivery.Strategy maps show how an organizationplans to convert its various assets intodesired outcomes. Companies can usethe template here to develop their ownstrategy maps, which are based on thebalanced scorecard. At far left, frombottom to top, the template shows howemployees need certain knowledge, skills,and systems (learning and growth per-spective) to innovate and build the rightstrategic capabilities and efficiencies(internal process perspective) so that theycan deliver specific value to the market(customer perspective), which will leadto higher shareholder value (financialperspective). For the customer perspec-tive, companies typically select one ofthree strategies: operational excellence,customer intimacy, or product leadership.
  • DONOTCOPYbeds the different items on an organiza-tion’s balanced scorecard into a cause-and-effect chain, connecting desired out-comes with the drivers of those results.We have developed strategy maps forcompanies in various industries, includ-ing insurance, banking, retail, healthcare, chemicals, energy, telecommunica-tions, and e-commerce. The maps havealso been useful for nonprofit organiza-tions and government units. From thisexperience, we have developed a stan-dard template that executives can use todevelop their own strategy maps. (Seethe exhibit “The Balanced ScorecardStrategy Map.”) The template containsfour distinct regions – financial, cus-tomer, internal process, and learning andgrowth – that correspond to the four per-spectives of the balanced scorecard.The template provides a commonframework and language that can beused to describe any strategy, much likefinancial statements provide a generallyaccepted structure for describing finan-cial performance. A strategy map enablesan organization to describe and illus-trate, in clear and general language, itsobjectives, initiatives, and targets; themeasures used to assess its performance(such as market share and customer sur-veys); and the linkages that are the foun-dation for strategic direction.To understand how a strategy map isbuilt, we will study Mobil North Ameri-can Marketing and Refining, which exe-cuted a new strategy to reconstruct itselffrom a centrally controlled manufacturerof commodity products to a decentral-ized, customer-driven organization. As aresult, Mobil increased its operating cashflow by more than $1 billion per year andbecame the industry’s profit leader.From the Top DownThe best way to build strategy maps isfrom the top down, starting with the des-tination and then charting the routesthat will lead there. Corporate executivesshould first review their mission state-ment and their core values – why theircompany exists and what it believes in.With that information, managers candevelop a strategic vision, or what thecompany wants to become. This visionshould create a clear picture of the com-pany’s overall goal – for example, tobecome the profit leader in an industry.A strategy must then define the logic ofhow to arrive at that destination.Financial Perspective. Building astrategy map typically starts with a finan-cial strategy for increasing shareholdervalue. (Nonprofit and government unitsoften place their customers or consti-tuents – not the financials – at the top oftheir strategy maps.) Companies havetwo basic levers for their financial strat-egy: revenue growth and productivity.The former generally has two compo-nents: build the franchise with revenuefrom new markets, new products, andnew customers; and increase value toexisting customers by deepening rela-tionships with them through expandedsales – for example, cross-selling productsor offering bundled products instead ofsingle products. The productivity strat-egy also usually has two parts: improvethe company’s cost structure by reduc-ing direct and indirect expenses, and useassets more efficiently by reducing theworking and fixed capital needed to sup-port a given level of business.In general, the productivity strategyyields results sooner than the growthstrategy. But one of the principal contri-butions of a strategy map is to highlightthe opportunities for enhancing financialperformance through revenue growth,not just by cost reduction and improvedasset utilization. Also, balancing the twostrategies helps to ensure that cost andasset reductions do not compromise acompany’s growth opportunities withcustomers.Mobil’s stated strategic vision was “tobe the best integrated refiner-marketerin the United States by efficiently deliver-ing unprecedented value to customers.”The company’s high-level financial goalwas to increase its return on capital6 harvard business review September–October 2000T O O L K I T • Having Trouble with Your Strategy? Then Map ItRobert S. Kaplan (rkaplan@hbs.edu) is theMarvin Bower Professor of Leadership De-velopment at Harvard Business School inBoston. David P. Norton (dnorton@bscol.com) is founder and president of the Bal-anced Scorecard Collaborative (www.bscol.com) based in Lincoln, Massachusetts. Thisarticle is adapted from their book TheStrategy-Focused Organization: How Bal-anced Scorecard Companies Thrive inthe New Business Environment (HarvardBusiness School Press, September 2000).The strategy maps concept was introducedin issues of“The Balanced Scorecard Report,”a newsletter published jointly by the Bal-anced Scorecard Collaborative and HarvardBusiness School Publishing.Mobil’sStrategyMap**To account for Mobil’s indepen-dent-dealer customers – not justconsumers – the company adapt-ed the strategy map template tofactor in dealer relationships.Shown here is a map for thestrategy that Mobil North AmericanMarketing and Refining used totransform itself from a centrally con-trolled manufacturer of commodityproducts to a decentralized customer-driven organization. A major part ofthe strategy was to target consumerswho were willing to pay price premi-ums for gasoline if they could buy atfast, friendly stations that were outfit-ted with excellent convenience stores.Their purchases enabled Mobil toincrease its profit margins and itsrevenue from nongasoline products.Using the strategy map shown here,Mobil increased its operating cashflow by more than $1 billion per year.• measure of achievementgeneral requirementdifferentiator
  • DONOTCOPYharvard business review September–October 2000 7Increase Mobil’s Return on Capital EmployedCustomerIntimacyPropositionunderstand customers’ needsand differentiate accordinglymaximize the use of existing assets;integrate the business to reducetotal delivered costintroduce new sourcesof nongasoline revenuethrough expandedconvenience storepresence• revenue fromnongasoline products• profit margincreate nongasolineproducts and services• new productacceptance rate• new productreturn on investmentsell more premiumbrands to increasecustomer profitability• sales volume comparedwith the rest of the industry• ratio of premium products soldto regular products soldbecome the industrycost leader in everysupply chain category• Mobil’s cost per galloncompared with the restof the industry• company’s actual return on capital• net margin compared with rest of the industrymaximize the useof existing assets• actual cash flowcompared with thebusiness plan• dealer profitability• dealer satisfaction• share of targeted customer segments• mystery shopper ratingfriendly,helpfulworkersrecognizecustomerloyaltyRelationshipclean safequalityproductspeedypurchaseProduct/Service Attributesunderstand customersegments better andbuild best-in-classfranchise teams• share of target market• dealer quality ratingpromote functional excellence,develop leadership skills, andcreate an integrated view of thecompany among employees• ratio of strategic skillsto job coverageadopt new technology thatencourages and aids processimprovements• on-time deploymentof systemsalign business andpersonal goals• personal balanced scorecards• employee feedbackimprove environmentalhealth and safety• reduced number ofenvironmental incidentsand safety incidentsimprove hardwareperformance andinventory management,deliver products on specand on time, and becomethe industry cost leader• refinery yield gap• unplanned downtime• inventory levels• stockout rate• activity-based costsversus the competitionoffer moreconsumerproductshelp dealersdevelop theirbusinessskillsWin-Win Dealer Relations**trustedbrandImageRevenue Growth Strategy Productivity Growth StrategyFinancialPerspectiveCustomerPerspectiveInternalProcessPerspectiveLearningand GrowthPerspectiveDelight the consumer
  • DONOTCOPYemployed by more than six percentagepoints within three years. To achievethat, executives used all four of thedrivers of a financial strategy that webreak out in the strategy map – two forrevenue growth and two for productivity.(See the financial portion of the exhibit“Mobil’s Strategy Map.”)The revenue growth strategy called forMobil to expand sales outside of gaso-line by offering convenience store prod-ucts and services, ancillary automotiveservices (car washes, oil changes, andminor repairs), automotive products (oil,antifreeze, and wiper fluid), and com-mon replacement parts (tires and wiperblades). Also, the company would sellmore premium brands to customers, andit would increase sales faster than theindustry average. In terms of produc-tivity, Mobil wanted to slash operatingexpenses per gallon sold to the lowestlevel in the industry and extract morefrom existing assets – for example, byreducing the downtime at its oil refiner-ies and increasing their yields.Customer Perspective. The core ofany business strategy is the customervalue proposition, which describes theunique mix of product and service attri-butes, customer relations, and corporateimage that a company offers. It defineshow the organization will differentiateitself from competitors to attract, retain,and deepen relationships with targetedcustomers. The value proposition is cru-cial because it helps an organization con-nect its internal processes to improvedoutcomes with its customers.Typically, the value proposition is cho-sen from among three differentiators:operational excellence (for example,McDonald’s and Dell Computer), cus-tomer intimacy (for example, HomeDepot and IBM in the 1960s and 1970s),and product leadership (for example,Intel and Sony).2Companies strive toexcel in one of the three areas whilemaintaining threshold standards in theother two. By identifying its customervalue proposition, a company will thenknow which classes and types of cus-tomers to target. In our research, wehave found that although a clear defini-tion of the value proposition is the singlemost important step in developing astrategy, approximately three-quarters ofexecutive teams do not have consensusabout this basic information.The inset of the exhibit “The Balanced8 harvard business review September–October 2000T O O L K I T • Having Trouble with Your Strategy? Then Map Itcustomers are the independent ownersof gasoline stations. These franchisedretailers purchase gasoline and otherproducts from Mobil and sell them toconsumers in Mobil-branded stations.Because dealers were such a critical partof the new strategy, Mobil included twoadditional metrics to its customer per-spective: dealer profitability and dealersatisfaction.Thus, Mobil’s complete customerstrategy motivated independent dealersto deliver a great buying experiencethat would attract an increasing share oftargeted consumers. These consumerswould buy products and services at pre-mium prices, increasing profits for bothMobil and its dealers, who would thencontinue to be motivated to offer thegreat buying experience. And this virtu-ous cycle would generate the revenuegrowth for Mobil’s financial strategy.Note that the objectives in the customerperspective portion of Mobil’s strategymap were not generic, undifferentiateditems like “customer satisfaction.” Instead,they were specific and focused on thecompany’s strategy.Internal Process Perspective. Oncean organization has a clear picture of itscustomer and financial perspectives, itcan then determine the means by whichit will achieve the differentiated valueproposition for customers and the pro-ductivity improvements to reach itsfinancial objectives. The internal processperspective captures these critical orga-nizational activities, which fall into fourhigh-level processes: build the franchiseby innovating with new products andservices and by penetrating new marketsand customer segments; increase cus-tomer value by deepening relationshipswith existing customers; achieve opera-tional excellence by improving supplychain management, the cost, quality, andcycle time of internal processes, assetutilization, and capacity management;and become a good corporate citizen byestablishing effective relationships withexternal stakeholders.An important caveat to rememberhere is that while many companiesespouse a strategy that calls for innova-tion or for developing value-adding cus-tomer relationships, they mistakenlychoose to measure only the cost andquality of their operations – and not theirinnovations or their customer manage-ment processes. These companies haveScorecard Strategy Map” highlights thedifferent objectives for the three genericstrategy concepts of operational excel-lence, customer intimacy, and productleadership. Specifically, companies thatpursue a strategy of operational excel-lence need to excel at competitive pric-ing, product quality and selection, speedyorder fulfillment, and on-time delivery.For customer intimacy, an organizationmust stress the quality of its relation-ships with customers, including excep-tional service and the completeness ofthe solutions it offers. And companiesthat pursue a product leadership strat-egy must concentrate on the functional-ity, features, and overall performance ofits products or services.Mobil, in the past, had attempted tosell a full range of products and servicesto all consumers, while still matching thelow prices of nearby discount stations.But this unfocused strategy had failed,leading to poor financial performance inthe early ’90s. Through market research,Mobil discovered that price-sensitiveconsumers represented only about 20%of gasoline purchasers, while consumersegments representing nearly 60% of themarket might be willing to pay signifi-cant price premiums for gasoline if theycould buy at stations that were fast,friendly, and outfitted with excellent con-venience stores. With this information,Mobil made the crucial decision toadopt a “differentiated value proposi-tion.” The company would target thepremium customer segments by offer-ing them immediate access to gasolinepumps, each equipped with a self-pay-ment mechanism; safe, well-lit stations;clean restrooms; convenience storesstocked with fresh, high-quality mer-chandise; and friendly employees.Mobil decided that the consumer’sbuying experience was so central to itsstrategy that it invested in a new systemfor measuring its progress in this area.Each month, the company sent “mysteryshoppers” to purchase fuel and a snackat every Mobil station nationwide andthen asked the shoppers to evaluatetheir buying experience based on 23 spe-cific criteria. Thus, Mobil could use afairly simple set of metrics (share oftargeted customer segments and a sum-mary score from the mystery shoppers)for its consumer objectives.But Mobil does not sell directly toconsumers. The company’s immediate
  • DONOTCOPYa complete disconnect between theirstrategy and how they measure it. Notsurprisingly, these organizations typicallyhave great difficulty implementing theirgrowth strategies.The financial benefits from improvedbusiness processes typically reveal them-selves in stages. Cost savings fromincreased operational efficiencies andprocess improvements create short-termbenefits. Revenue growth from enhancedcustomer relationships accrues in theintermediate term. And increased inno-vation can produce long-term revenueand margin improvements.Thus, a complete strategy should in-volve generating returns from all threeof these internal processes. (See theinternal process portion of the exhibit“Mobil’s Strategy Map.”)Mobil’s internal process objectivesincluded building the franchise by devel-oping new products and services, suchas sales from convenience stores; andenhancing customer value by trainingdealers to become better managers andby helping them generate profits fromnongasoline products and services. Theplan was that if dealers could captureincreased revenues and profits fromproducts other than gasoline, they couldthen rely less on gasoline sales, allowingMobil to capture a larger profit share ofits sales of gasoline to dealers.For its customer intimacy strategy,Mobil had to excel at understanding itsconsumer segments. And because Mobildoesn’t sell directly to consumers, thecompany also had to concentrate onbuilding best-in-class franchise teams.Interestingly, Mobil placed a heavyemphasis on objectives to improve itsbasic refining and distribution opera-tions, such as lowering operating costs,reducing the downtime of equipment,and improving product quality and thenumber of on-time deliveries.When a company such as Mobiladopts a customer intimacy strategy, itusually focuses on its customer manage-ment processes. But Mobil’s differentia-tion occurred at the dealer locations, notat its own facilities, which basically pro-duced commodity products (gasoline,heating oil, and jet fuel). So Mobil couldnot charge its dealers higher prices tomake up for any higher costs incurred inits basic manufacturing and distributionoperations. Consequently, the companyhad to focus heavily on achieving opera-tional excellence throughout its valuechain of operations.Finally, as part of both its operational-excellence and corporate-citizen themes,Mobil wanted to eliminate environ-mental and safety accidents. Executivesbelieved that if there were injuries andother problems at work, then employeeswere probably not paying sufficientattention to their jobs.Learning and Growth Perspective.The foundation of any strategy map is therevenue growthdelight theconsumerproductson spec,on timerevenue growthvolume growth net margindelight theconsumerwin-win dealerrelationsnongasolineproductsand servicesbest-in-classfranchiseteamfunctionalexcellencepersonalgrowthprocessimprovementproductson spec,on timevolume growth net marginwin-win dealerrelationsnongasolineproductsand servicesbest-in-classfranchiseteamfunctionalexcellencepersonalgrowthprocessimprovementFinancialPerspectiveCustomerPerspectiveInternalProcessPerspectiveLearningand GrowthPerspectiveStrategy maps can help a companydetect major gaps in the strategiesbeing implemented at lower levels inthe organization. At Mobil, senior man-agers noticed that one business unit hadno objectives or metrics for dealers, asshown below left. Had this unit discov-ered how to bypass Mobil dealers and sellgasoline directly to consumers? Anotherbusiness unit had no measure for quality,as shown below right. Had this unit some-how perfected its operations?What’s Missing?Having Trouble with Your Strategy? Then Map It • T O O L K I Tharvard business review September–October 2000 9
  • DONOTCOPYlearning and growth perspective, whichdefines the core competencies and skills,the technologies, and the corporate cul-ture needed to support an organization’sstrategy. These objectives enable a com-pany to align its human resources andinformation technology with its strategy.Specifically, the organization must deter-mine how it will satisfy the requirementsfrom critical internal processes, the differ-entiated value proposition, and customerrelationships. Although executive teamsreadily acknowledge the importance ofthe learning and growth perspective,they generally have trouble defining thecorresponding objectives.Mobil identified that its employeesneeded to gain a broader understandingof the marketing and refining businessfrom end to end. Additionally, the com-pany knew it had to nurture the leader-ship skills that were necessary for itsmanagers to articulate the company’svision and develop employees. Mobilidentified key technologies that it had todevelop, including automated equipmentfor monitoring the refining processesand extensive databases and tools toanalyze consumers’ buying experiences.Upon completing its learning andgrowth perspective, Mobil now had acomplete strategy map linked across thefour major perspectives, from whichMobil’s different business units and ser-vice departments could develop theirown detailed maps for their respectiveoperations. This process helped the com-pany detect and fill major gaps in thestrategies being implemented at lowerlevels of the organization. For example,senior management noticed that onebusiness unit had no objectives or met-rics for dealers (see the exhibit “What’sMissing?”). Had this unit discovered howto bypass dealers and sell gasolinedirectly to consumers? Were dealer rela-tionships no longer strategic for thisunit? Another business unit had no mea-sure for quality. Had the unit achievedperfection? Strategy maps can helpuncover and remedy such omissions.Strategy maps also help identify whenscorecards are not truly strategic. Manyorganizations have built stakeholderscorecards, not strategy scorecards, bydeveloping a seemingly balanced mea-surement system around three dominantgroups of constituents: employees, cus-tomers, and shareholders. A strategy,however, must describe how a company10 harvard business review September–October 2000T O O L K I T • Having Trouble with Your Strategy? Then Map Ita strong differentiator for Mobil’s valueproposition of fast, friendly service. From1997 on, executives modified Mobil’s bal-anced scorecard to include new objec-tives for the number of consumers anddealers that adopted Speedpass.With all its employees now aligned tothe new strategy, Mobil North AmericanMarketing and Refining executed aremarkable turnaround in less than twoyears to become the industry’s profitleader from 1995 up through its mergerwith Exxon in late 1999. The divisionincreased its return on capital employedfrom 6% to 16%; sales growth exceededthe industry average by more than 2%annually; cash expenses decreased by20%; and in 1998, the division’s operat-ing cash flow was more than $1 billionper year higher than at the launch of thenew strategy.These impressive financial resultswere driven by improvements through-out Mobil’s strategy map: mystery-shop-per scores and dealer quality increasedeach year; the number of consumersusing Speedpass grew by one millionannually; environmental and safety acci-dents plunged between 60% and 80%;lost oil-refinery yields due to systemsdowntime dropped by 70%; and em-ployee awareness and commitment tothe strategy more than quadrupled.Not an Art FormWe do not claim to have made a scienceof strategy; the formulation of greatstrategies is an art, and it will alwaysremain so. But the description of strat-egy should not be an art. If people candescribe strategy in a more disciplinedway, they will increase the likelihood ofits successful implementation. Strategymaps will help organizations view theirstrategies in a cohesive, integrated, andsystematic way. They often expose gapsin strategies, enabling executives to takeearly corrective actions. Executives canalso use the maps as the foundation fora management system that can help anorganization implement its growth ini-tiatives effectively and rapidly.Strategy implies the movement of anorganization from its present positionto a desirable but uncertain future posi-tion. Because the organization has neverbeen to this future place, the pathway toit consists of a series of linked hypothe-ses. A strategy map specifies these cause-and-effect relationships, which makeswill achieve its desired outcome of satis-fying employees, customers, and share-holders. The “how” must include thevalue proposition in the customer per-spective; the innovation, customer man-agement, and operating processes in theinternal process perspective; and theemployee skills and information tech-nology capabilities in the learning andgrowth perspective. These elements areas fundamental to the strategy as theprojected outcome of the strategy.Another limitation occurs when com-panies build key performance indicator(KPI) scorecards. For example, one finan-cial services organization identified thefour Ps in its balanced scorecard: profits,portfolio (the volume of loans), process(the percentage of processes that are ISOcertified), and people (the diversity ofnew employees). Although this approachwas more balanced than using justfinancial measures, a comparison of thefour Ps with a strategy map revealedseveral missing components: no cus-tomer measures, only a single internal-process metric – which was focused onan initiative, not an outcome – and nodefined role for information technol-ogy, a strange omission for a financialservices organization. In actuality, KPIscorecards are an ad hoc collection ofmeasures, a checklist, or perhaps ele-ments in a compensation plan, but theydon’t describe a coherent strategy. Un-less the link to strategy has been clearlythought through, a KPI scorecard can bea dangerous illusion.Perhaps the greatest benefit of strat-egy maps is their ability to communicatestrategy to an entire organization. Thepower of doing so is amply demon-strated by the story of how Mobil devel-oped Speedpass, a small device carriedon a keychain that, when waved in frontof a photocell on a gasoline pump, iden-tifies the consumer and charges the ap-propriate credit or debit card for thepurchase. The idea for Speedpass camefrom a planning manager in the market-ing technology group who learned fromMobil’s balanced scorecard about theimportance of speed in the purchasingtransaction. He came up with the con-cept of a device that could automaticallyhandle the entire purchasing transac-tion. He worked with a gasoline-pumpmanufacturer and a semiconductor com-pany to turn that idea into reality. Afterits introduction, Speedpass soon became
  • DONOTCOPYthem explicit and testable. The key, then,to implementing strategy is to have every-one in the organization clearly under-stand the underlying hypotheses, to alignall organizational units and resourceswith those hypotheses, to test the hypoth-eses continually, and to use those resultsto adapt as required.1. See Robert S. Kaplan and David P. Norton’s, TheBalanced Scorecard: Translating Strategy into Action(Harvard Business School Press, 1996).2. These three generic value propositions wereinitially articulated in Michael Treacy and FredWiersema’s The Discipline of Market Leaders(Addison-Wesley, 1995).Reprint R00509To place an order, call 1-800-988-0886.Having Trouble with Your Strategy? Then Map It • T O O L K I Tharvard business review September–October 2000 11