Using Strategy Mapping to Drive Performance - CIMA

1 MANAGEMENTSTRATEGYMEASUREMENTU sing StrategyMaps to DrivePerformanceByHoward M. Armitage, , CMA, FCMAandCameron Scholey, MBA, CMAMANAGEMENT ACCOUNTING GUIDELINEP ublished by The Society of Management Accountants of Canada, the AmericanInstitute of Certified Public Accountants and The Chartered Institute ofManagement Accountants. Copyright 2006 by The Society of Management Accountants of Canada (CMA-Canada), the American Institute of CertifiedPublic Accountants, Inc. (AICPA) and The Chartered Institute of Management Accountants (CIMA). All Rights part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, withoutthe prior written consent of the publisher or a licence from The Canadian Copyright Licensing Agency (Access Copyright). Foran Access Copyright Licence, visit or call toll free to 1-55302-193-2 NOTICE TO READERSThe material contained in the Management Accounting Guideline Using Strategy Maps to Drive Performanceis designed to provideillustrative information with respect to the subject matter covered.

2 It does not establish standards or preferred has not been considered or acted upon by any senior or technical committees or the board of directors of either theAICPA, CIMA or The Society of Management Accountants of Canada and does not represent an official opinion or position ofeither the AICPA, CIMA or The Society of Management Accountants of business world today faces a crisis instrategy but not because managerscan t formulate a good core of the crisis lieswithin execution or, more accurately, itslack. In 1999, Fortune magazine claimedthat 70% of strategic failures are due topoor execution not a lack of vision orsmarts 1. In 2003, it repeated this claim,saying that less than 10% of effectivelyformulated strategies are that focus on execution ofstrategy routinely mention similarimplementation such website2cited these statistics in 2006:- 95% of a typical workforce doesnot understand its organization sstrategy;- 90% of organizations fail to executetheir strategies successfully;-86% of executive teams spend lessthan one hour per monthdiscussing Strategy ;- 70% of organizations do not linkmiddle management incentives tostrategy.

3 - 60% of organizations do not linkstrategy to Management Accounting Guideline(MAG) is dedicated to helpingorganizations achieve their vision, missionUSING Strategy MAPS TO DRIVEPERFORMANCECONTENTS EXECUTIVE SUMMARYS trategy Mapping has revolutionized the way thatstrategy has been formulated and evolution that builds on the success of theBalanced Scorecard, Strategy Mapping has beenthe subject of recent books,articles discourse has greatly raisedpractitioner awareness and interest in the value ofintegrated strategic scorecard systems by focusingon whatthese tools are,whycompanies adoptthem and by providing high level implementationframeworks and examples from , when it comes to actual implementationdetail, practitioners soon find there is currently nodetailed document, or set of guidelines, thatillustrate how to take advantage of the power ofStrategy Mapping in a straightforward.

4 Easy-to-understand Strategy Mapping MAGfills this gap byproviding a set of guidelines that describe how toimplement Strategy Mapping in a practical, step-by-step Strategy Mapping MAGservesas a reference for four principle interest , many organizations are looking for guidanceand direction that will permit them to implementtheir own maps and will benefitfrom a resource that acts as a bridge betweentheory and implementation. Second, largerorganizations that engage specific consultants willbenefit from the framework provided by theguidelines. A third group that will benefit from theStrategy Mapping MAG will be addition,this MAG will be aresource for management accountants who oftenplay a key role in developing Strategy AND AUDIENCE5 THE COMPELLING NEED FOR BETTEREXECUTION OF STRATEGY5 CREATING Strategy MAPS - THE GUIDINGSIX STEPS8 CASCADING THE Strategy MAP25 Strategy Mapping CASE VIGNETTES26 RBC DOMINION SECURITIES LIFE WEALTH AUTOMATION TOOLING SYSTEMS MASTER OF BUSINESS,ENTREPRENEURSHIP AND TECHNOLOGY (MBET) PROGRAM32 THE BENEFITS OF Strategy MAPPING34 VALIDATING THE MAP35 INTEGRATING Strategy Mapping ,ACTION PLANS AND THE BUDGETINGPROCESS36 CONCLUSION39 BIBLIOGRAPHY43 PageSTRATEGY3and strategies, and to achieve breakthroughresults.

5 Its focus is based on the followingpremise:Although formulating robust and meaningfulstrategies is a fundamental part of a successfulbusiness process, it is at the implementationand executionphase of Strategy not at theplanning or formulation phase, where majorimpediments to desired outcomes are recent approach to improving strategyimplementation and execution is called strategymapping. Pioneered by Robert Kaplan and DavidNorton (also the founders of the BalancedScorecard movement), Strategy Mapping is acutting-edge approach to the art of strategyexecution. In that approach, an organizationdepicts its key objectives in a graphical andillustrative ( picture ) the saying goes, a picture is worth a thousandwords. Well-conceived Strategy maps assistorganizations to tell their Strategy story concisely and succinctly. Figure 1 illustrates thevisual roadmap this MAG will follow. Its overriding objective is to assist organizations toimprove the probability of successfullyimplementing their Strategy (ies).

6 Its valueproposition is to provide a systematic processthat will permit readers of this MAG to buildeffective Strategy maps that lead to improvedstrategy MAG describes theimportance of (a) setting appropriate overridingobjectives in a corporate setting, (b) establishing adominant value proposition that will set thedirection for achieving those objectives, and (c) Using that proposition to guide the selection ofcritical financial, customer, internal process, andlearning and growth familiar with Balanced Scorecards (BSC forshort) will note that Strategy Mapping is closelyrelated to the BSC in fact, it evolved from theexperiences of early BSC adoptersi. In many ways,however, Strategy maps are more innovative thanthe the BSC is best known forenhancing an organization s performancemeasurement system, Strategy maps are theinstruments that tie BSC measures directly tostrategic objectives and outcomes and, in theprocess,improve Strategy implementation andcorporate operating and financial the BSC was introduced several yearsbefore Strategy Mapping , Strategy Mapping actuallyprecedes the BSC and in fact can provide much ofits maps allow organizations to describeand communicatetheir guidelinedescribes a model for Strategy Mapping thatmanagers can use to effectively create andimplement Strategy maps no4 MANAGEMENTSTRATEGYMEASUREMENTA Strategy Map for this GuidelineMAG Overriding Objective.

7 Maximize Company Value through Improved Strategy ExecutionLearn how to select key financial strategies that will lead to achievingthe overriding objectiveLearn how to select key customer strategies that will lead to superiorfinancial results and achieve the overriding objectiveLearn how to select key internal processes that support the customerstrategies that will lead to superior financial results and achieve theoverriding objectiveLearn how to select key learning and growth processes that support theinternal strategies that will lead to superior customer and financialresults and achieve the overriding objectiveMAG Value Proposition:Provide readers with an innovative set of guidelines to create effective Strategy mapsFinancialCustomer InternalLearning & GrowthWhat we want to accomplishHow we plan to accomplish itFigure 1: A Strategy Map for this GuidelineUSING Strategy MAPS TO Drive PERFORMANCE5one suggests that Strategy maps are the completeanswer to Strategy execution, they are a promisingsolution to the compelling need for betterexecution of Strategy .

8 Strong anecdotal evidencesuggests that such maps assist organizations toachieve better results. In addition, well-craftedstrategy maps improve the alignment of othercorporate functions, such as Strategy planning,budgeting, monitoring, operations, andcompensation. By so doing, they can improve theprobability of successful execution of Strategy andsuperior operating and financial the following sections, this MAG will describe(a) the scope of, and reasons for the MAG, (b) asix-step methodology for developing andimplementing a corporate-level Strategy map,(c) how to cascade the map to lower level businessunits and support groups, and (d) the importanceof validating the map and its associated measureswith ongoing strategic AND AUDIENCE The MAG discusses the compelling need forbetter Strategy execution, and provides aframework for implementing a Strategy excellent literature clearlyarticulates whatstrategy Mapping is, and whyacompany should adopt guideline focuses onhowto implement a Strategy Mapping maps have proven useful in public, not-for-profit and private sector organizations.

9 Indeed,many principles underlying the construction, roll-out and communication of Strategy maps aresimilar for a wide variety of entities. Sectors differin several important ways. This MAG providesuseful insight for a broad cross-section of , its primary audience is the privatesector, and the construction of the map thatfollows assumes a private sector Strategy maps will pervade theorganization. Consequently, the MAG will be ofinterest to several levels of organizationalpersonnel, including the professional accountant inbusiness. First, there are many mid- to senior levelindividuals who have read about Strategy maps (orhave been to conferences describing them), andhave become Strategy Mapping come from various corporatefunctions, including finance, accounting, marketing,manufacturing,and head office MAGprovides advocates with the reasons and aprocess for implementing a Strategy map that canconvince corporate sponsorsto provide financialand moral support for the initiative.

10 In turn,sponsorship support at the senior level(CEO/president and board) leads to the creationof Strategy Mapping championsand teamsthatcan use this process to begin developing andcommunicating their corporate and guideline should also be useful to consultantsintending to implement Strategy maps for short, the guideline will assist Strategy mappingadvocates, sponsors, champions andimplementation teams to:lUnderstand the benefits of Strategy Mapping ;lUnderstand the steps in the Strategy mappingprocess;lEffectively participate in developing, validating,integrating and rolling out processes necessaryfor a successful Strategy Mapping COMPELLING NEED FORBETTER EXECUTION OFSTRATEGYThe vast majority of organizations have well-defined procedures for developing strategic planning concepts including (but notlimited to) Porter s 5-Forces, STEEP (Social,Technological, Economic, Environmental andPolitical) analysis and SWOT (Strength,Weakness,Opportunity,Threat) analysis,PMI (Plus,Minus,Interesting)