The field of strategy is undoubtedly the most chronicled subject in the world of business. What’s amazing is that the disciplined study of business strategy has really only been with us for a few decades, but in that time has spawned literally thousands of works. An additional challenge to discussing strategy is the fact that it has relevant connections with numerous other areas of study. Who among us doesn’t know at least one person proudly displaying a copy of “The Art of War” in their office? Of course, military strategy has been with us for thousands of years, but historians, physicists, biologists, psychologists, and anthropologists, to name but a few, have also made significant contributions to the field of strategy.
From the huge mountain of information that exists we must distill what is most critical to the discussion at hand. Developing a comprehensive strategy for your organization is beyond the scope of my books. Many well written and cogent texts are available on the subject. In this article I will focus on a review of the common elements of strategy, and most importantly for us, will outline why strategy and the Balanced Scorecard must be woven together to get the maximum benefit from both.
A prolific writer on the subject of strategy, Henry Mintzberg, provides this excellent synopsis of the subject to begin our discussion. “My research and that of many others demonstrates that strategy making is an immensely complex process, which involves the most sophisticated, subtle, and, at times, subconscious elements of human thinking.”
The Balanced Scorecard provides the framework for an organization to move from deciding to live their strategy to doing it. The Scorecard describes the strategy, breaking it down into its component parts through the objectives and measures chosen in each of the four perspectives. The Balanced Scorecard is ideally created through a shared understanding and translation of the organization’s strategy into objectives, measures, targets, and initiatives in each of the four Scorecard perspectives. The translation of vision and strategy forces the executive team to specifically determine what is meant by sometimes imprecise terms contained in the strategy, for example: “world class,” “top-tier service” and “targeted customers.” Through the process of developing the Scorecard an executive group may determine “world class” translates to means zero manufacturing defects. All employees can now focus their energies and day-today activities toward the crystal-clear goal of zero defects rather than wondering about, and debating the definition of “world class.” Using the Balanced Scorecard as a framework for translating the strategy these organizations create a new language of measurement that serves to guide all employees’ actions toward the achievement of the stated direction.
A key attribute of strategy formation is performing a different set of activities than your rivals. By choosing a distinct set of related activities you have the opportunity to create unique value propositions for your customers and thus separate yourself from competitors. These activities must be reflected in the Balanced Scorecard, which should parallel the strategy. In other words, if you wish to distinguish yourself by engaging in a series of activities aimed at creating customer intimacy, then your Balanced Scorecard should reflect this strategic direction. We would expect to see linked measures through the four perspectives which when taken together will drive this strategy. Measures related to service of targeted customers should appear prominently in the Customer perspective, linked to relationship management metrics in the Internal Process perspective, and perhaps selling skill measures in the Employee Learning and Growth perspective. This chain of linked measures which mirrors your chosen activities is hypothesized to drive revenue growth in the Financial perspective. Again, the Balanced Scorecard provides the means to describe and articulate the activities separating you from your competition.
It is possible to develop a Scorecard-like system without a clear and concise strategy, and many organizations do just that. However, this mix of financial and non-financial measures is better termed a key performance indicator Scorecard, or key stakeholder Scorecard rather than a Balanced Scorecard. The problem with this approach is that you simply cannot harness the true power of the Balanced Scorecard without a strategy driving its construction. KPI or constituent Scorecards lack the ability to align an entire organization around a set of complementary themes which drive the organization toward its overall vision and mission. Instead they often reflect a number of good ideas that lack a coherent story or direction. The Balanced Scorecard and strategy truly go hand in hand. I believe Kaplan and Norton sum up this subject very well. “The formulation of strategy is an art. The description of strategy, however, should not be an art, If we can describe strategy in a more disciplined way, we increase the likelihood of successful implementation. With a Balanced Scorecard that tells the story of the strategy, we now have a reliable foundation.”
“The Balanced Scorecard provides the framework for an organization to move from deciding to live their strategy to doing it.”
“The translation of vision and strategy forces the executive team to specifically determine what is meant by sometimes imprecise terms contained in the strategy.”Back to articles