25 year history of Balanced Scorecard: Strategy maps – part three
James Creelman and Elena Gómez Domenech. Reviewed and approved by Drs Kaplan and Norton
The previous two articles described the origins of the Balanced Scorecard and the development of the principles of the Strategy Focused Organization (SFO). The SFO principles introduced the notion of a Strategy Map, which was the topic of the third of Kaplan and Norton’s five books.
The first two chapters of the book provide an introduction and an overview of the Strategy Map.
Why strategy maps?
Kaplan and Norton provide two main reasons:
First is their uniqueness in linking intangible assets (human, information and organizational capital) to value creation. They explain that value creation from intangible assets is very different from value created by tangible and financial assets. Major differences are that:
- intangible assets do not produce a direct, bottom-line value
- their value is contextual, only happens if it is aligned to strategy
- they usually do not have a market value nor a stand-alone value in isolation of the other intangible assets (only when properly combined and aligned to the strategy do they become valuable to their organization).
In this context, the Strategy Map is innovative in providing a framework to illustrate how strategy links intangible assets to value-creating processes.
The second reason is the lack of a standardized, consistent and comprehensive way to describe strategy. A simple but powerful description of the strategy is a requirement for strategy to be implemented: Kaplan and Norton introduce the Strategy Maps to address this need.
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Strategy maps described
A Strategy Map can be defined as the visual representation of an organization’s strategy. It represents in just a single page how the objectives in the four perspectives link to each other to describe a strategy. Through cause-and-effect relationships, the desired outcomes in the financial and customer perspectives become connected to the critical few internal processes in which the organization must excel. In the learning and growth perspective, the Strategy Map identifies the specific capabilities required to deliver outstanding performance in the critical internal processes.
Although each organization creates their customized set of objectives based on their strategy, Kaplan and Norton detect a common structure in their maps when observing dozens of organizations using Strategy Maps. They capture this pattern in the Strategy Map template.