MANAGEMENT STRATEGY MEASUREMENT MANAGEMENT ACCOUNTING GUIDELINE Using Strategy Maps to Drive Performance By Howard M. Armitage, Ph.D, CMA, FCMA and Cameron Scholey, MBA, CMA Published by The Society of Management Accountants of Canada,the American Institute of Certified Public Accountants and The Chartered Institute of Management Accountants. NOTICE TO READERS The material contained in the Management Accounting Guideline Using Strategy Maps to Drive Performance is designed to provide illustrative information with respect to the subject matter covered. It does not establish standards or preferred practices.This material has not been considered or acted upon by any senior or technical committees or the board of directors of either the AICPA, CIMA or The Society of Management Accountants of Canada and does not represent an official opinion or position of either the AICPA, CIMA or The Society of Management Accountants of Canada. Copyright © 2006 by The Society of Management Accountants of Canada (CMA-Canada),the American Institute of Certified Public Accountants,Inc. (AICPA) and The Chartered Institute of Management Accountants (CIMA). All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, without the prior written consent of the publisher or a licence from The Canadian Copyright Licensing Agency (Access Copyright). For an Access Copyright Licence, visit www.accesscopyright.ca or call toll free to 1-800-893-5777. ISBN 1-55302-193-2 STRATEGY USING STRATEGY MAPS TO DRIVE PERFORMANCE INTRODUCTION - 95% of a typical workforce does not understand its organization’s The business world today faces a crisis in strategy; strategy — but not because managers can’t formulate a good strategy...most - 90% of organizations fail to execute actually can.The core of the crisis lies their strategies successfully; within execution or,more accurately, its - 86% of executive teams spend less lack. In 1999, Fortune magazine claimed than one hour per month that “70% of strategic failures are due to discussing strategy; poor execution — not a lack of vision or - 70% of organizations do not link smarts”1. In 2003, it repeated this claim, middle management incentives to saying that less than 10% of effectively strategy; formulated strategies are effectively - 60% of organizations do not link executed. strategy to budgeting. Websites that focus on execution of This Management Accounting Guideline strategy routinely mention similar (MAG) is dedicated to helping implementation issues. One such website2 organizations achieve their vision, mission cited these statistics in 2006: CONTENTS EXECUTIVE SUMMARY Page INTRODUCTION 3 Strategy mapping has revolutionized the way that SCOPE AND AUDIENCE 5 strategy has been formulated and executed. A THE COMPELLING NEED FOR BETTER natural evolution that builds on the success of the EXECUTION OF STRATEGY 5 Balanced Scorecard, Strategy Mapping has been the subject of recent books, articles and CREATING STRATEGY MAPS - THE GUIDING discussions.This discourse has greatly raised SIX STEPS 8 practitioner awareness and interest in the value of CASCADING THE STRATEGY MAP 25 integrated strategic scorecard systems by focusing STRATEGY MAPPING CASE VIGNETTES 26 on what these tools are, why companies adopt RBC DOMINION SECURITIES’ LIFE them and by providing high level implementation WEALTH PLANNERS. 27 frameworks and examples from practice. ATS AUTOMATION TOOLING However,when it comes to actual implementation SYSTEMS INC. 30 detail, practitioners soon find there is currently no THE MASTER OF BUSINESS, detailed document, or set of guidelines, that ENTREPRENEURSHIP AND illustrate how to take advantage of the power of TECHNOLOGY (MBET) PROGRAM 32 Strategy Mapping in a straightforward, easy-to- THE BENEFITS OF STRATEGY MAPPING 34 understand format. VALIDATING THE MAP 35 The Strategy Mapping MAG fills this gap by INTEGRATING STRATEGY MAPPING, providing a set of guidelines that describe how to ACTION PLANS AND THE BUDGETING implement Strategy Mapping in a practical, step- PROCESS 36 by-step format.The Strategy Mapping MAG serves CONCLUSION 39 as a reference for four principle interest groups. First, many organizations are looking for guidance BIBLIOGRAPHY 43 and direction that will permit them to implement their own maps and scorecards.They will benefit from a resource that acts as a bridge between theory and implementation. Second, larger organizations that engage specific consultants will benefit from the framework provided by the guidelines. A third group that will benefit from the Strategy Mapping MAG will be consultants themselves. In addition, this MAG will be a resource for management accountants who often play a key role in developing strategy maps. 3 MANAGEMENT STRATEGY and strategies, and to achieve breakthrough strategy execution.The MAG describes the MEASUREMENT results. Its focus is based on the following importance of (a) setting appropriate overriding premise: objectives in a corporate setting, (b) establishing a dominant value proposition that will set the Although formulating robust and meaningful direction for achieving those objectives, and strategies is a fundamental part of a successful (c) using that proposition to guide the selection of business process, it is at the implementation critical financial, customer,internal process, and and execution phase of strategy — not at the learning and growth strategies. planning or formulation phase, where major impediments to desired outcomes are found. Those familiar with Balanced Scorecards (BSC for short) will note that strategy mapping is closely A recent approach to improving strategy related to the BSC — in fact, it evolved from the implementation and execution is called strategy experiences of early BSC adoptersi. In many ways, mapping. Pioneered by Robert Kaplan and David however,strategy maps are more innovative than Norton (also the founders of the Balanced the BSC.While the BSC is best known for Scorecard movement), strategy mapping is a enhancing an organization’s performance cutting-edge approach to the art of strategy Figure 1:A Strategy Map for this Guideline A Strategy Map for this Guideline W h MAG Overriding Objective: a l t a w i Maximize Company Value through Improved Strategy Execution c e n w a a n i Learn how to select key financial strategies that will lead to achieving n t F t the overriding objective o a c r c e o m m Learn how to select key customer strategies that will lead to superior p o t l i s financial results and achieve the overriding objective s h u C H o l w a Learn how to select key internal processes that support the customer n w r strategies that will lead to superior financial results and achieve the e e t overriding objective p n l I a n t o h a t Learn how to select key learning and growth processes that support the c w c o o internal strategies that will lead to superior customer and financial r m G results and achieve the overriding objective p l i & s h g i n t i n MAG Value Proposition: r a e Provide readers with an innovative set of guidelines to create effective strategy maps L measurement system, strategy maps are the execution. In that approach, an organization instruments that tie BSC measures directly to depicts its key objectives in a graphical and strategic objectives and outcomes and, in the illustrative (i.e.“picture”) format. process, improve strategy implementation and As the saying goes,“a picture is worth a thousand corporate operating and financial results. words.” Well-conceived strategy maps assist Although the BSC was introduced several years organizations to tell their “strategy story” before strategy mapping, strategy mapping actually concisely and succinctly. Figure 1 illustrates the precedes the BSC and in fact can provide much of visual roadmap this MAG will follow. Its its content. “overriding objective” is to assist organizations to Strategy maps allow organizations to describe improve the probability of successfully and communicate their strategies.This guideline implementing their strategy(ies). Its “value describes a model for strategy mapping that proposition” is to provide a systematic process managers can use to effectively create and that will permit readers of this MAG to build implement strategy maps step-by-step.While no effective strategy maps that lead to improved 4 USING STRATEGY MAPS TO DRIVE PERFORMANCE one suggests that strategy maps are the complete sponsorship support at the senior level answer to strategy execution, they are a promising (CEO/president and board) leads to the creation solution to the compelling need for better of strategy mapping champions and teams that execution of strategy. Strong anecdotal evidence can use this process to begin developing and suggests that such maps assist organizations to communicating their corporate and divisional achieve better results. In addition, well-crafted maps. strategy maps improve the alignment of other The guideline should also be useful to consultants corporate functions, such as strategy planning, intending to implement strategy maps for clients. budgeting, monitoring, operations, and compensation. By so doing, they can improve the In short, the guideline will assist strategy mapping probability of successful execution of strategy and advocates, sponsors, champions and superior operating and financial performance. implementation teams to: In the following sections, this MAG will describe G Understand the benefits of strategy mapping; (a) the scope