Session 7: Having trouble with Execution with Strategy Maps

Strategy Execution and Intangible Assets

• Strategy execution relies on people understanding the strategy and the processes that convert intangible assets into tangible results.
• Strategy maps can help in charting this difficult terrain.

The Importance of Strategy Maps

• Strategy maps provide a visual representation of a company's critical objectives and the crucial relationships among them that drive organizational performance.
• Strategy maps give employees a clear view of how their jobs link to the company's objectives, promoting a coordinated effort toward goals.
• These maps can depict objectives for revenue growth, customer markets, value propositions, innovation, and the necessary investments.
• Strategy maps illustrate the cause-and-effect links between improvements and desired outcomes.

Historical Context

• Industrial age companies created value by transforming raw materials into finished products.
• The economy was based on tangible assets.
• Financial tools such as general ledgers, income statements, and balance sheets were used to describe and document business strategy.
• In the information age, businesses must increasingly create and deploy intangible assets.
• Intangible assets are customer relationships, employee skills and knowledge, information technologies, and corporate culture.
• Competitive advantage is driven by intangible assets, yet no tools existed to describe them and the value they create.

Why Strategy Maps are needed

• The value of intangible assets depends on their organizational context and a company's strategy.
• The value does not reside in any individual intangible asset, it arises from the entire set of assets and the strategy that links them together.
• The balanced scorecard measures performance from four perspectives: financial, customer, internal process, and learning and growth.
• Balanced scorecards communicate the knowledge, skills, and systems employees need to innovate and build strategic capabilities.

Strategy Map Template

• A common visual framework, called a strategy map, integrates the items on a balanced scorecard into a cause-and-effect chain.
• The template contains four distinct regions: financial, customer, internal process, and learning and growth.
• The template provides a framework and language to describe any strategy.
• A strategy map enables an organization to describe its objectives, initiatives, and targets, and identify the links that form the strategic direction.

Creating the Strategy map

• Corporate executives need to review their mission statement and their core values.
• Managers can then develop a strategic vision, or what the company wants to become.
• This should create a clear picture of the company's overall goal.
• Companies have two levers for their financial strategy: revenue growth and productivity.
• The former generally has two components: build the franchise with revenue from new markets, new products, and new customers; and increase value to existing customers by deepening relationships with them through expanded sales.
• The productivity strategy also usually has two parts: improve the company's cost structure by reducing direct and indirect expenses, and use assets more efficiently by reducing the working and fixed capital needed to support a given level of business.

Core of the Strategy

• The core of any business strategy is the customer value proposition.
• It describes the unique mix of product and service attributes, customer relations, and corporate image that a company offers.
• The value proposition helps an organization connect its internal processes to improved outcomes with its customers.
• The value proposition is chosen from among three differentiators: operational excellence, customer intimacy and product leadership.
• Companies strive to excel in one of the three areas while maintaining threshold standards in the other two.

Strategy Implementation

• The internal process perspective captures critical organizational activities, which fall into four high-level processes.
• Build the franchise by innovating with new products and services and by penetrating new markets and customer segments.
• Increasing customer value by deepening relationships with existing customers.
• Achieve operational excellence by improving supply chain management, the cost, quality, and cycle time of internal processes, asset utilization, and capacity management.
• Becoming a good corporate citizen by establishing effective relationships with external stakeholders.
• Companies should measure not just cost and quality but also their innovations and customer management processes.
• Financial benefits from improved business processes typically reveal themselves in stages.

Mobil's Strategy Vision

• Mobil's stated strategic vision was "to be the best integrated refiner-marketer in the United States by efficiently delivering unprecedented value to customers."
• The company's high-level financial goal was to increase its return on capital employed by more than six percentage points within three years.

Mobil's Transformation

• Mobil North American Marketing and Refining reconstructed itself from a centrally controlled manufacturer of commodity products to a decentralized, customer-driven organization.
• Mobil targeted premium customer segments by offering immediate access to gasoline pumps, safe stations, clean restrooms, fresh merchandise, and friendly employees.
• The company invested in a system for measuring progress in the consumer experience.
• Mobil focused on building best-in-class franchise teams.
• Mobil's internal process objectives included building the franchise by developing new products and services, such as sales from convenience stores.
• Mobil wanted to eliminate environmental and safety accidents.

Key to a good Strategy

• Critical internal processes, the differentiated value proposition, and customer relationships are key to a good strategy.
• The "how" must include the value proposition in the customer perspective; the innovation, customer management, and operating processes in the internal process perspective; and the employee skills and information technology capabilities in the learning and growth perspective.

The Outcomes of the Strategy Map

• The division increased its return on capital employed from 6% to 16%.
• Sales growth exceeded the industry average by more than 2% annually.
• Cash expenses decreased by 20%.
• In 1998, the division’s operating cash flow was more than $1 billion per year higher than at the launch of the new strategy.

Conclusion

• Strategy maps help organizations view their strategies in a cohesive, integrated, and systematic way and often expose gaps in strategies.
• Strategy implies movement of an organization to a desirable but uncertain position, thus the pathway consists of a series of linked hypotheses.
• Since a strategy map specifies these cause-and-effect relationships, which are made explicit and testable, this implementation requires that everyone understand these hypotheses to align organizational units, to test the hypotheses and to use the results to adapt.