What Is a Strategy Map and Balanced Scorecard
What is a Strategy Map?
A strategy map provides an overall view of an organization's strategic priorities€"it is a visual representation of an organization's strategy. The strategy map is used to communicate context and to illustrate the measures that will be used to achieve an organization's strategy. It is utilized by management as the basis for choosing a subset of available measures that are used in reporting an organization's progress in its strategy implementation. The indicators in the strategy map are then used to derive the performance indicators used in the balanced scorecards.
Strategy maps are in use in a wide variety of organizations including financial institutions, government agencies, hospitals, and manufacturing. While each industry chooses different key performance indicators to pursue, the key to a successful strategy map is to ensure that the key performance indicators have a strong causal relationship with an organization's strategic objectives. If a strategy map is created via collaborative processes, buy-in and commitment toward the strategy may be enhanced. Through strategy maps, it is possible to visualize how different parts of the organization contribute - €"directly or indirectly - €"to the organization's overall performance.
The goal of a strategy map is to help execute strategy and bring predictive qualities to key performance indicators. This can be done by linking them according to perceived cause and effect relationships of past performance. However, in our experience strategy maps that are extrapolations of past performance are seldom sufficiently linked to possible future states. Having a fully integrated strategy with a robust performance management system will ensure success and achievement of an organization's strategic goals.
What is a Balanced Scorecard?
Before we start describing what a balanced scorecard is, I think it's necessary to discuss the purpose and benefits of a balanced score card.
Purpose
The purpose of a balanced scorecard is to translate an organizations vision and strategy into objectives, measures, and targets in four perspectives: financial, customer, internal business processes and learning & growth*. Basically, the Balanced Scorecard is about creating a strategic framework, where all actions ¬t together in a cause and effect chain, setting goals and measuring performance, and communicating with everyone a clear understanding of the effects of their contribution to achieving this vision.
Benefits
First, the balanced scorecard operates according to a simple, straightforward and effective logic that can be learned and applied throughout an organization. Second, it establishes clear relationships between the financial performance and key performance indicators (KPI)**. Third, it provides a clear understanding of the effects of each individual's actions on the organizations vision and strategy.
So what is a balanced scorecard?
As stated before the balanced scorecard is divided into four perspectives. Within each of the perspectives there are four categories: objectives, KPIs, targets/goals, and initiatives/action plans. Objectives state what the outcomes should be, the critical success factors and the drivers. The KPIs are clearly linked with objectives and should be tested to ensure that the cause and effect of each is present. The targets/goals are set on each KPI to ensure objectives are met. Lastly, initiatives/action plans are how each objective will be met. The balanced scorecard can be used at both an organization and individual level. At a high level the process for balanced scorecards is: the KPIs are updated and reviewed against goals to ensure objectives will be met at a set interval and initiatives/action plans are created to achieve the target/goals.
*the four perspectives are fluid from organization to organization but differences are usually nominal
**the indicators can be financial but the key is to relate the small indicator to the larger organization.
A strategy map provides an overall view of an organization's strategic priorities€"it is a visual representation of an organization's strategy. The strategy map is used to communicate context and to illustrate the measures that will be used to achieve an organization's strategy. It is utilized by management as the basis for choosing a subset of available measures that are used in reporting an organization's progress in its strategy implementation. The indicators in the strategy map are then used to derive the performance indicators used in the balanced scorecards.
Strategy maps are in use in a wide variety of organizations including financial institutions, government agencies, hospitals, and manufacturing. While each industry chooses different key performance indicators to pursue, the key to a successful strategy map is to ensure that the key performance indicators have a strong causal relationship with an organization's strategic objectives. If a strategy map is created via collaborative processes, buy-in and commitment toward the strategy may be enhanced. Through strategy maps, it is possible to visualize how different parts of the organization contribute - €"directly or indirectly - €"to the organization's overall performance.
The goal of a strategy map is to help execute strategy and bring predictive qualities to key performance indicators. This can be done by linking them according to perceived cause and effect relationships of past performance. However, in our experience strategy maps that are extrapolations of past performance are seldom sufficiently linked to possible future states. Having a fully integrated strategy with a robust performance management system will ensure success and achievement of an organization's strategic goals.
What is a Balanced Scorecard?
Before we start describing what a balanced scorecard is, I think it's necessary to discuss the purpose and benefits of a balanced score card.
Purpose
The purpose of a balanced scorecard is to translate an organizations vision and strategy into objectives, measures, and targets in four perspectives: financial, customer, internal business processes and learning & growth*. Basically, the Balanced Scorecard is about creating a strategic framework, where all actions ¬t together in a cause and effect chain, setting goals and measuring performance, and communicating with everyone a clear understanding of the effects of their contribution to achieving this vision.
Benefits
First, the balanced scorecard operates according to a simple, straightforward and effective logic that can be learned and applied throughout an organization. Second, it establishes clear relationships between the financial performance and key performance indicators (KPI)**. Third, it provides a clear understanding of the effects of each individual's actions on the organizations vision and strategy.
So what is a balanced scorecard?
As stated before the balanced scorecard is divided into four perspectives. Within each of the perspectives there are four categories: objectives, KPIs, targets/goals, and initiatives/action plans. Objectives state what the outcomes should be, the critical success factors and the drivers. The KPIs are clearly linked with objectives and should be tested to ensure that the cause and effect of each is present. The targets/goals are set on each KPI to ensure objectives are met. Lastly, initiatives/action plans are how each objective will be met. The balanced scorecard can be used at both an organization and individual level. At a high level the process for balanced scorecards is: the KPIs are updated and reviewed against goals to ensure objectives will be met at a set interval and initiatives/action plans are created to achieve the target/goals.
*the four perspectives are fluid from organization to organization but differences are usually nominal
**the indicators can be financial but the key is to relate the small indicator to the larger organization.
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