Strategy maps are single-page, visual representations of organizational strategy. Their simplicity makes them ideal for communicating big-picture objectives to every employee in an organization – regardless of seniority or project involvement level. A strategy map is a visual representation of organizational objectives and how they relate to one another.
| Component | Description |
|---|---|
| Definition | A Strategy Map is a visual representation of an organization’s strategic objectives and the cause-and-effect relationships among them. It is a critical component of the Balanced Scorecard framework, helping organizations translate their vision and mission into actionable strategies. Strategy Maps provide a clear view of how various strategic objectives are interconnected to achieve long-term success. |
| Purpose | The primary purpose of a Strategy Map is to communicate the organization’s strategy, align teams and departments with strategic goals, and facilitate performance measurement and improvement. It offers a comprehensive view of the strategic priorities, allowing leaders to make informed decisions and allocate resources effectively. |
| Development Process | – Define Strategic Objectives: The process begins with defining clear and specific strategic objectives. These objectives should align with the organization’s mission and vision. – Identify Cause-and-Effect Relationships: Determine how achieving one objective impacts another. Identify dependencies and linkages to create a cause-and-effect chain. – Select Key Performance Indicators (KPIs): For each strategic objective, choose relevant KPIs that measure progress and success. These KPIs should provide actionable insights. – Visualize the Map: Create a graphical representation of the Strategy Map. Typically, it is depicted as a visual diagram with objectives arranged in a hierarchical and interconnected manner. – Communicate and Cascade: Share the Strategy Map across the organization to ensure alignment and understanding. Cascade the objectives down to teams and individuals. – Implement and Monitor: Execute the strategies defined in the map and continuously monitor performance against KPIs. Make adjustments and improvements as needed. |
| Components | A Strategy Map typically comprises four essential components: – Financial Objectives: These are financial performance goals that reflect the organization’s long-term financial health and sustainability. – Customer Objectives: Focus on creating value for customers, improving satisfaction, and building loyalty. – Internal Process Objectives: Address the critical internal processes and operations that drive value creation. – Learning and Growth Objectives: Concentrate on developing human capital, fostering innovation, and enhancing organizational capabilities. These components are interconnected and contribute to achieving the organization’s overall mission and vision. |
| Cause-and-Effect | The Strategy Map emphasizes the cause-and-effect relationships among the four components. It illustrates how achieving objectives in one component influences and drives success in other areas. For example, improving internal processes may lead to higher customer satisfaction, resulting in increased financial performance. These causal linkages help organizations understand how various objectives contribute to overall success. |
| Metrics and KPIs | Each strategic objective in the Strategy Map is associated with specific Key Performance Indicators (KPIs). These metrics are used to measure progress and performance. For instance, a financial objective may be linked to KPIs such as revenue growth rate, return on investment (ROI), or profitability margins. Customer objectives may include KPIs like customer retention rate, Net Promoter Score (NPS), or market share. Internal process objectives could involve KPIs related to process efficiency, quality, or cycle times. Learning and growth objectives might be associated with KPIs like employee training hours, innovation success rate, or employee satisfaction scores. |
| Benefits | – Clarity and Alignment: Strategy Maps provide clarity by visualizing strategic priorities and aligning all levels of the organization with the overarching strategy. – Performance Measurement: They enable organizations to track and measure progress toward strategic objectives using KPIs. – Resource Allocation: Leaders can allocate resources more effectively by understanding which objectives have the most significant impact. – Communication: Strategy Maps facilitate communication of complex strategies to employees, stakeholders, and investors. – Strategic Focus: They help organizations stay focused on long-term goals and avoid distractions. – Decision Support: Strategy Maps assist leaders in making data-driven decisions based on strategic priorities. |
| Drawbacks | – Complexity: Developing and maintaining Strategy Maps can be complex and time-consuming. – Subjectivity: The selection of strategic objectives and KPIs may involve subjectivity and bias. – Implementation Challenges: Translating the map into actionable strategies can be challenging. – Resistance to Change: Employees may resist changes in alignment with the strategic objectives. – Resource Intensive: It may require significant resources to collect and analyze KPI data. – Risk of Misinterpretation: Misinterpretation of the Strategy Map’s components and cause-and-effect relationships can lead to misguided decisions. |
| Applications | Strategy Maps are widely used in various industries and organizations. Large corporations use Strategy Maps to align business units, track financial performance, and guide long-term growth. |
Generate a Strategy Map
Understanding strategy maps
Well-designed strategy maps articulate the role every employee will play in achieving the organizational strategy.
They also produce clearly defined objectives with measurable results. Importantly, strategy maps are built from the top down.
The organization must first define an overarching strategic objective before identifying the strategy and key performance indicators that will play a role in its achievement.
Most strategy maps are based on the four balanced scorecard perspectives of financial, customer, internal processes, and learning and growth.
We will take a look at these perspectives in more detail in the next section.
Using the four perspectives to construct a strategy map
On a strategy map, each strategic objective is represented by an oval or circle.
The number of strategic objectives must be kept under twenty since tracking too many objectives risks diluting the message or making the strategy difficult to communicate.
Each of the objectives is then grouped according to the four perspectives of the balanced scorecard.
This helps the business develop predictive, forward-looking strategies that are not solely based on financial performance.
The four perspectives are:
Finances
Encompassing strategies designed to increase shareholder value. Revenue growth and productivity are the two primary objectives measured under this perspective for most companies.
For non-profits, the customer or company mission is most important – financial performance is simply a means to an end.
Customers
Directly under the finances or mission is the customer value proposition.
For-profit companies tend to focus on either product leadership, operational excellence, or customer intimacy.
Processes
Which describe how financial and customer goals will be achieved.
Examples include innovation, market expansion, working toward operational excellence, improving customer relationships, and productive stakeholder relationships.
Learning and growth
The part of a strategy map detailing the employee skills and experience necessary to ensure processes run efficiently.
Company culture and intellectual capital are also important.
How to connect the four perspectives within the strategy map?
Arrows can then be used to illustrate the cause-and-effect relationship between strategic objectives.
Consider the example of an airline company strategy map.
With a properly trained ground crew (learning and growth), each flight has a faster turnaround time (processes).
Faster turnaround times then result in lower prices and fewer delayed passengers (customers), which increases profitability and lowers operating costs (financial).
When completing the strategy map, teams may find that some objectives do not fit neatly into a single perspective.
In this case, it may make sense to have them straddling two perspectives.
Teams should also realize that it is perfectly acceptable to deviate from the traditional strategy map framework to accommodate unique or particular goals.
Strategy Map vs. Balanced Scorecard
Within a balanced scorecard, the strategy map can be used to as a visual representation of organizational objectives and how they relate to one another.
Thus, the tools can be used to assess an organization’s performance better.
Case Studies
Retail Company Strategy Map:
- Financial Perspective:
- Objective: Increase profitability.
- KPIs: Gross margin, net profit margin, return on assets.
- Customer Perspective:
- Objective: Enhance customer satisfaction.
- KPIs: Customer Net Promoter Score (NPS), customer retention rate, average transaction value.
- Internal Processes Perspective:
- Objective: Optimize supply chain efficiency.
- KPIs: Inventory turnover, order fulfillment time, on-time delivery.
- Learning and Growth Perspective:
- Objective: Develop employee skills.
- KPIs: Employee training hours, employee turnover rate, skill development assessments.
Healthcare Organization Strategy Map:
- Financial Perspective:
- Objective: Achieve financial sustainability.
- KPIs: Operating margin, revenue per patient, cost per patient.
- Patient Perspective:
- Objective: Improve patient outcomes.
- KPIs: Patient satisfaction scores, readmission rates, mortality rates.
- Internal Processes Perspective:
- Objective: Enhance clinical processes.
- KPIs: Wait times, appointment scheduling efficiency, compliance with clinical protocols.
- Learning and Growth Perspective:
- Objective: Develop healthcare professionals.
- KPIs: Staff training hours, physician satisfaction, nurse-patient ratio.
Technology Startup Strategy Map:
- Financial Perspective:
- Objective: Achieve rapid revenue growth.
- KPIs: Monthly recurring revenue (MRR), customer acquisition cost (CAC), customer lifetime value (CLV).
- Product Perspective:
- Objective: Deliver innovative solutions.
- KPIs: Product release cycle time, feature adoption rate, user feedback.
- Operational Excellence Perspective:
- Objective: Streamline operations.
- KPIs: Burn rate, operational efficiency ratio, support ticket resolution time.
- Learning and Growth Perspective:
- Objective: Foster a culture of innovation.
- KPIs: Employee idea submissions, innovation workshops, employee engagement.
Manufacturing Company Strategy Map:
- Financial Perspective:
- Objective: Maximize shareholder value.
- KPIs: Return on equity (ROE), earnings per share (EPS), market share.
- Operational Excellence Perspective:
- Objective: Improve production efficiency.
- KPIs: Manufacturing cycle time, defect rate, capacity utilization.
- Customer Perspective:
- Objective: Deliver superior product quality.
- KPIs: Customer complaints, product returns, on-time delivery.
- Learning and Growth Perspective:
- Objective: Develop a skilled workforce.
- KPIs: Employee training, safety incidents, employee turnover.
Key takeaways:
- A strategy map is a visual representation of organizational objectives and how they relate to one another.
- A strategy map defines strategic objectives according to the four perspectives of the balanced scorecard: finances, customers, processes, and learning and growth. By analyzing the cause and effect relationships between different objectives, teams can develop forward-looking strategies free from a myopic focus on financial performance.
- A strategy map must be built from the top down. With a primary goal or outcome identified, the business must work backward to identify how it will be achieved.
Key Highlights
- Strategy Maps: Strategy maps are visual representations of organizational strategy that communicate big-picture objectives to all employees, regardless of their role or seniority.
- Purpose of Strategy Maps: Well-designed strategy maps help employees understand their role in achieving organizational strategy, provide clear and measurable objectives, and are built from top to bottom.
- Balanced Scorecard Perspectives: Strategy maps are often based on the four balanced scorecard perspectives: financial, customer, internal processes, and learning and growth.
- Four Perspectives in Detail:
- Finances: Focus on strategies to increase shareholder value, revenue growth, and productivity.
- Customers: Directly relate to the customer value proposition, emphasizing product leadership, operational excellence, or customer intimacy.
- Processes: Describe how financial and customer goals will be achieved, including innovation, market expansion, and stakeholder relationships.
- Learning and Growth: Detail employee skills, experience, company culture, and intellectual capital necessary for efficient processes.
- Connecting Perspectives: Strategy maps use arrows to illustrate cause-and-effect relationships between strategic objectives. For instance, well-trained ground crews lead to faster flight turnaround times, resulting in lower prices, fewer delays, and increased profitability.
- Flexibility: Strategy maps may involve objectives that straddle two perspectives or deviate from the traditional framework to accommodate unique goals.
- Strategy Map vs. Balanced Scorecard: The balanced scorecard is a management system proposed by Robert Kaplan, while the strategy map serves as a visual representation of organizational objectives within the balanced scorecard framework.
- Building a Strategy Map: Strategy maps are constructed by identifying a primary goal and working backward to define how it will be achieved through the four perspectives.
What are the four 4 perspectives in a strategy map?
The four perspectives of a strategy map comprise:
What is the goal of a strategy map?
Well-designed strategy maps articulate every employee’s role in achieving the organizational strategy through four perspectives (finances, customers, processes, and learning & growth). The strategy map, combined with other organizational structure tools, can help better define and monitor the achievements of a company.
Connected Strategy Frameworks
Main Guides:
- Business Models
- Business Strategy
- Marketing Strategy
- Business Model Innovation
- Platform Business Models
- Network Effects In A Nutshell
- Digital Business Models
