When talking about strategy, most of the focus tends to be on crafting the strategy itself, by articulating the goals and objectives in as meaningful a way as possible. The strategy document may be considered a call to action, describing where the company wants to be, and the initiatives that can help it get there. But how do we know when we have reached our goals? How do we measure the success of our strategic initiatives? As the old business cliché goes, “You can’t manage what you can’t measure.” So how on earth do we measure a strategy, when many people even struggle to define what a strategy is in the first place? Luckily, there is a tool that does the job well, the Balanced Scorecard.
We’ll look at how the Balanced Scorecard can be used to measure the success of a strategy. And as our starting point, we’ll first take another look at defining our strategy that will make it easier to measure. For this we will use another tool, the Strategy Map.
Let’s start off then by considering what exactly we mean when we say “Strategy”. Basically, Strategy describes how any organization intends to create sustained value for its shareholders, customers, and employees. When armed with a comprehensive description of our strategy, an organization’s leadership can more easily communicate that strategy among themselves and to all stakeholders. And with a shared understanding, the whole organization can implement new projects and strategies even more effectively.
- When starting to formulate our strategy, there are a few key points that should be considered up front:
- Mission – Why we exist.
- Values – What we believe in and how we behave.
- Vision – What we aspire to be.
But the key question here of course is, how to clearly communicate a strategy based on such seemingly intangible concepts such as “Values” or “Aspirations”? And just as important, how to measure it? The Strategy Map can help us answer the first question.
The Strategy Map is a one-page systems model that articulates an organization’s strategy across the four Balanced Scorecard organizational perspectives:
- Financial – what are the financial objectives of the organization? What results do owners/stakeholders expect?
- Customer – What is the value proposition? What do customers expect our group to deliver?
- Internal Process – Shows the internal processes that the organization must excel at to deliver on the value proposition.
- Learning and growth – Lists the skills, knowledge, capabilities, and organizational capital that are needed to be successful. This can be split into two separate perspectives, innovations, and learning.
The Strategy Map can be our game plan for achieving our vision.
The strengths of the Strategy Map are:
- The ability to graphically represent our strategy.
- Clearly describes sets of cause-and-effect relationships i.e. shows how different elements of the strategy must work in concert
- Powerfully communicates complex concepts in a clear and concise manner.
So know we have learned how to articulate our strategy in such a way that we can clearly see the intended impact across every facet of the organization. Things are set up nicely so we can answer that second and most vital question, how do we measure our strategy?
The Balanced Scorecard is a performance measurement framework that adds strategic non-financial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance. It is the tool that will help us monitor and implement our game plan.
The balanced scorecard suggests that we view the organization from the four perspectives laid out in the Strategy Map, and to develop metrics, collect data and analyze it relative to each of these perspectives:
- Financial: “How do we look after our stakeholders’ interests?”
- Customer: “How do our customers see us?”
- Internal Process (Operational): “What must we excel at to do our jobs?”
- Learning & Growth (People) – “Can we continue to improve ourselves professionally and create value to TRS TD Securities”?
We can easily see that when combined with the Strategy Map, the Balanced Scorecard allows the effectiveness of the strategy to be constantly monitored and strategically aligned initiatives to be managed. Gaps between target performance and actual results can be closed.
The diagram below shows how the Strategy Map and Balanced Scorecard are aligned.
Tom Cremins 