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12 June 2009 • 12:21 pm

Vertical and Horizontal Dimensions of Strategy – Part II

In my earlier post on strategy map design, we examined the basic structure of strategy maps as originally described by Bob Kaplan and Dave Norton in their early work on balanced scorecard. While their four-perspective model has been effective in designing strategy maps in for-profit organizations, there has been much variation in the perspective (vertical) dimension of strategy maps in government and non-profit organizations. At the same time, there have been a number of approaches to organizing the thematic (horizontal) dimension of strategy maps, with no one approach having emerged as consistently effective. Today, I propose a generalized structural approach for both the vertical and horizontal dimensions of the strategy map.

I’ve asserted in this blog that the purpose of all organizations is to create value, whether they are for-profit businesses (that create value for customers and owners of the business), or government and non-profit organizations (that create value for citizens, communities, and society). Reading from bottom to top, successful strategy maps describe how an organization creates value. While the four perspectives described by Kaplan and Norton (Learning and Growth, Internal Business Process, Customer, and Financial) have worked well in for-profit businesses (in many hundreds of examples), the perspectives have often been renamed by leadership teams.

The Vertical Dimension: From Perspectives to Value Creation

Most often renamed has been the Learning and Growth perspective – sometimes as “People and Knowledge,” a clearer statement of the original intent. In their more recent writings, Kaplan and Norton have broadened that intent by applying multiple labels to the bottom perspective, such as Human capital, Information capital, and Organizational capital. The next perspective in the sequence had received a variety of names, but all are about the internal processes of the organization. The top two perspectives (originally named Customer and Financial) are sometimes renamed to agree with the organization’s language preferences (e.g. ‘Partner‘ for Customer, and ‘Business Results‘ for Financial). These may seem like trivial differences, but the precise language on the strategy map has been very important to the leaders creating them.

It is the top two perspectives that have proven most problematic for non-profit and government organizations. While nearly all have recognized that having a perspective named Financial at the top of the map is simply inappropriate, some have retained a Financial perspective at the top (or moved it to the bottom of the map)in a mis-guided attempt to remain true to Kaplan and Norton’s original writings. Most other of these organizations have simply renamed (and sometimes consolidated) the top two perspectives to reflect those who benefit from their value creation.

Generically, all these organizations develop and engage their resources (such as people, information, and knowledge), to perform actions that create immediate value for a targeted set of stakeholders (such as customers or citizens), which results in the creation of consequential value for stakeholders (such as investors or members of a community). Rather than attempting to force-fit the organizations’ strategy into a predefined set of strategy map perspectives, the process of strategy map design should begin by identifying the key resources it employs and explicitly identify, segment, and name the stakeholder groups who receive value from the organization. The perspectives should be simply structured and named to reflect the organization’s unique value proposition. This is the approached that most experienced facilitators already use today in practice. There is nothing revolutionary about this proposal; it simply codifies what often occurs.

stratregy-map-structure4

The Horizontal Dimension: From Themes to Organizational Change

There has been far more diversity in approach to organizing strategy maps on the horizontal dimension. Kaplan and Norton’s early work proposed a left-to right sequence based on a value chain from “customer need identified” on the left to “customer need satisfied” on the right that was seldom adopted in practice. As mentioned in the earlier post, Treacy and Wiersema’s three disciplines of market leaders has been a more successful organizing structure, but not consistently applied from left to right: examples published by Kaplan and Norton have shown an Operational Excellence theme place at the left, center and right of different maps. In short, there is no dimension that has consistently applied to the horizontal dimension of strategy maps.

But there is a fundamental organizing concept: change. The essence of strategy is change, and change is necessary for the survival of every organization. Maps that only capture the way in which an organization creates value today and contain objectives for process and quality improvement can hardly be called strategy maps; they don’t effectively paint a picture of a future different than today. Successful strategy maps present an image of a ‘desired future state’ for the organization; how the organization aspires to create value in the future. The view of the future is easily segmented into at least two broad themes; what we have to change (or ‘fix’) in the near term, and what we wish to be in the long term (usually between two to five years in the future). Maps that I and other practitioners have facilitated around the Competency to Contribution and the Treacy and Wiersema-influenced motifs of Operational Excellence (near term), Customer Intimacy (intermediate term) and Innovation (long term) have loosely followed this left to right thematic segmentation.

stratregy-map-structure5

Like the proposal above to name the horizontal perspectives in the context of the organization’s value proposition, I propose that during the strategy map design process, the organization’s leaders categorize their objectives (in the Resources and Actions regions on their maps) as near-, intermediate-, or long-term, and name the themes to reflect this. As an organizing discipline for the horizontal dimension, this will make clear the change imperative of the strategy; and properly reflect the essential purpose and necessity of the organization; to create value and to change.

Practitioners of balanced scorecard and strategy mapping facilitation are especially invited to comment.

5 comments to Vertical and Horizontal Dimensions of Strategy – Part II

  • Brilliant! This would immediately reduce some of the resistance to BSC and strategy mapping that I see.

  • Having spent substantial amount of time on the CIO core competencies, one of which is Performance Measurement of which BSC is an integral element, I’d say that any twisting or a revamping of the subject matter would not make any difference when it comes to its adoption “culturally” by the board and the executive. A practical analogy is to imagine BSC as a schedule posted on the refrigerator door in the kitchen to better manage the family’s time, budget or diet. And imagine members of that family, at first thrilled by the idea, but then a few days later became incapable of maintaining the regiment needed to follow it through consistently so that it yields the originally sought outcome; The same lack of motivational consistency that exists at that home would make its way to the board room since both places are occupied by the same people. What is the alternative? Go to Montana fishing…

  • Pascal:

    Thanks for your comment. To be clear, I am not advocating revamping any existing strategy maps in response to my ramblings here – only applying these ideas to new or evolving strategy maps. Your experience with adoption is not surprising; nearly every firm I’ve worked with has acknowledged under-investing in gaining and sustaining executive buy-in with the strategy program.

    Your metaphor about posting on the refrigerator door suggests passive communication of stategy and results; the firms that have had the most success sustaining effective strategy programs over time have integrated the language of strategy into nearly every communication and management process, right down to individual employee performance planning. You may want to check out the two posts I’ve already done on the topic of communications, you may find the ideas there a useful alternative to fishing in Montana.

  • Robert ~

    I had hoped to convey in my earlier response that your work is superb, and that it contributes greatly to enhancing strategic alignment to business processes whether the identified direction is horizontal or vertical. You have done a good work.

    Pascal Sossou, CGEIT, CISM, CNSS, CCIO-IA

  • Dr. Rajesh Cheerla

    Both the posts and responses by Mohammed, Bob and Pascal are very good and have highlighted important issues – the need for clearly illustrated link between objectives for all staff and corporate objectives as well as the importance of change management and top management buy in. As you mentioned, the maturity of the organization in using BSC makes a difference in how and what we use. However, I tend to lean more towards Bob’s observation regarding the motivational effects of strategic links. I might be wrong but a “clutter” of one to one relationships suggests lack of clarity in the objectives and how they can be achieved rather than the other way round. If I am right, the “deep dive” mentioned would concentrate on the areas which have/are falling behind which highlights one of the best functions of BSC. In any case, many thanks for the great post and for stimulating the discussion. Hope many more join in and we get to know many more view points.