Defining Strategies, Processes, and Systems Chapter 2
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Road Map for Enterprise Architecture
Part I covers methods for enterprise architecture that
provide information needed by senior and middle
managers in the enterprise. Chapter 1 covered the basic
concepts of enterprise architecture and enterprise
engineering.
In this chapter we discuss balanced scorecard and strategy
maps. We will see how these tools assist management by
representing business plans visually.
We will see the need for strategy analysis methods, which
we cover in detail in Chapter 3.
In
Chapter 4 we will see how enterprise architecture can be
used for governance analysis.
Introduction to Balanced Scorecard and Strategy Maps
Strategic business planning has been the emphasis of good management since the 1960s
However a problem with most strategic planning methods has been in translating the plans into action, as most memorably summarized by Ackoff.
Introduction to Balanced Scorecard and Strategy Maps
Most corporate planning is like a ritual rain dance: it has no effect on the weather that follows, but makes those who engage in it feel that they are in control. Most discussions of the role of models in planning are directed at improving the dancing, not the weather.
Basic Concepts of Balanced Scorecard
An integrated strategic planning and performance management system that:
Communicates with clarity an organization’s vision, mission, and strategy to employees and other stakeholders
•Aligns day-to-day work to vision and strategy
•Provides a framework for prioritizing programs, projects, services, products and resources
•Uses strategic performance measures and targets to measure progress
Balanced scorecard concepts were introduced in 1992. A balanced scorecard clearly shows the important aspects of each strategy in a consistent way.
An example is discussed later in relation to Mobil Corporation, as illustrated in following Figure.
In designing a scorecard, the first question is: What is the strategy? From this, it is illustrated in a strategy map; this clearly shows the dependent aspects in a strategy.
Translate the Strategy to Operational Terms
Balanced Score Card
“the measurement linkages of cause-and-effect
relationships in strategy maps show how
intangible assets are transformed into tangible
(financial) outcomes.”
They state: “Intangible assets …usually have little
standalone value; their value arises from being
embedded in coherent, linked strategies.”
They emphasize that [11]:
The scorecard’s use of quantitative, but non-financial,
measures—such as cycle time, market share, innovation,
satisfaction, and competencies—allows the value-creating
process to be described and measured, rather than
inferred.… The Strategy Map and its corresponding
Balanced Scorecard measurement program provide a tool
to describe how shareholder value is created from
intangible assets. Strategy maps and Balanced Scorecards
constitute the measurement technology for managing in a
knowledge-based economy.
Align the Organization to the Strategy
From the definition of balanced scorecards and strategy
maps, Kaplan and Norton make the logical point that the
organization should then be aligned to the strategy.
Organizations are traditionally designed around functional
specialties such as finance, manufacturing, marketing,
sales, engineering and purchasing. Each function has its
own body of knowledge, language, and culture. Functional
silos arise and become a major barrier to strategy
implementation, as most organizations have great
difficulty communicating and coordinating across these
specialty functions.
Strategy-focused organizations, however, break
this barrier. Executives replace formal reporting
structures with strategic themes and priorities
that enable a consistent message and consistent
set of priorities to be used across diverse and
dispersed organizational units.…
Business units and shared service units become
linked to the strategy through the common
themes and objectives that permeate their
scorecards.
Make Strategy Everyone’s Everyday
Job
The implementation of new strategies requires the
cooperative efforts of all managers and their staffs in an
organization.
Question is
“How do you move strategy from the boardroom to the
backroom and thus to the front lines of daily operations and
customer service?”
“Balanced scorecards and strategy maps clearly
communicate the new strategy to the organization. But
should this be done?”
In discounting this fear, they quote Brian Baker from
Mobil,
“Knowing your strategy will do them little good
unless they can execute it.
On the other hand, we have no chance of
executing our strategy unless our people know it.
It’s a chance we’ll have to take.”
Kaplan and Norton discuss organizations that were
successful in implementing balanced scorecards and
strategy maps. They found many of these organizations
had cascaded high-level corporate and business unit
scorecards to lower levels of the organization, through the
definition of personal scorecards and personal objectives.
They said that: “... instead of cascading objectives
through the chain of command, as is normally done, the
complete strategy was communicated in a top-down
fashion.”
But what is not clear from their books is how to
implement the new strategy and how to
determine the areas of implementation
responsibility for each manager and staff member.
They refer to the need for strategy analysis to
achieve this implementation, but provide little
guidance in how this is achieved.
Make Strategy a Continual Process
Quite independent of a balanced scorecard, government
departments in many countries have linked strategy to the
budget process.
Each department is required to show how next year’s
budget is linked to the strategic plans for that same
period.
This has had great effect of improving the strategic
planning process in these departments.
In many countries, however, there has not been any
review of the effectiveness of implementation of the
previous year’s budget against the relevant plans, before
a new budget is approved for the next year’s plans. There
is no effective accountability.
Kaplan and Norton found that many companies that had
achieved success with balanced scorecards had linked
strategy to the budgeting process.
A balanced scorecard “provided the yardstick for
evaluating potential investments and initiatives.…
Companies have discovered that they needed two kinds of
budgets: a strategy budget and an operational budget”
Role of scorecard in making
strategy
Finally a process for learning and adapting the
strategy evolved.… The scorecard design process
helped to make the cause-and-effect linkages in
the strategic hypotheses explicit.
As the scorecard was put into action and feedback
systems began reporting progress, the
organizations could test the strategies’
hypotheses.… Instead of being an annual event,
strategy became a continual process.
Mobilize Change Through Executive
Leadership
From the organizations that were successful in
implementing balanced scorecard and strategy
maps, the authors found that “the single most
important condition for success is the ownership
and active involvement of the executive team…. A
successful
Balanced Scorecard program starts with the
recognition that it is not a ‘metrics’ project; it’s a
change project.”
By linking traditional processes such as
compensation and resource allocation to a
Balanced Scorecard that described the strategy,
they created a strategic management system.
The scorecard described the strategy while the
management system wired every part of the
organization to the strategy scorecard.
By linking traditional processes such as compensation and
resource allocation to a Balanced Scorecard that
described the strategy, they created a strategic
management system.
The scorecard described the strategy while the
management system wired every part of the organization
to the strategy scorecard.
Basic Concepts of Strategy Maps
The balanced scorecard was first introduced “to
overcome the limitations of managing only with
financial measures. Financial measures reported
on outcomes and lagging indicators, but did not
communicate the drivers of future performance.”
We will now look at the structure and content of
strategy maps and see how they make strategies
for value creation more explicit from four
different perspectives:
1.Financial: The strategy for growth, profitability and risk
viewed from the perspective of the shareholder.
2. Customer: The strategy for creating value and
differentiation from the perspective of the customer.
3. Internal Business Processes: The strategic priorities for
various business processes, which create customer and
shareholder satisfaction.
4. Learning and Growth: The priorities to create a climate
that supports
organizational change, innovation and growth.
Steps to Develop Balanced Scorecards
and Strategy Maps
1. Assess the competitive environment.
2. Learn about customer preferences and segments.
3. Define a strategy to generate breakthrough financial performance.
4. Articulate the balance between growth and productivity.
5. Select the targeted customer segments.
6. Determine the value proposition for the targeted customers.
7. Identify the critical internal business processes to deliver the value
proposition to customers and for the financial and productivity
objectives.
8. Develop the skills, competencies, motivation, databases, and
technology required to excel at internal processes and customer value
delivery.
Methods for Defining Strategies,
Processes, and Systems
As discussed earlier, very little guidance was provided by
Kaplan and Norton regarding the methods to be used to
define the strategies needed to address the steps just
listed.
They defined what had to be done to develop strategies,
but did not indicate how to do this. Many strategy
methods that are used depend on the internal
environment and culture of each individual organization.
However, a wide body of knowledge exists about methods
to define strategies that can be used as a starting for this
guidance.
Using Strategy Analysis to Define the Future.
Governance Analysis Using Enterprise Architecture.
Methods for Building Enterprise Architecture.
Strategic Modeling for Rapid Delivery of Enterprise
Architecture
Strategic Alignment, Activity and Workflow Modeling, and
Business Rules.
Using Business Normalization for Future Business Needs.
Menu Design, Screen Design, Performance Analysis, and
Process Modeling.
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