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.

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.

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.