Balanced Scorecard and Strategy Maps

The development of modern companies takes place in line with a significant number of business processes. The manager faces the difficult task of managing these processes as a whole and assessing their effectiveness, while taking into account the uniqueness of each of them and its role in the development of the entire company. To manage a company, various strategies are traditionally used, used by managers to rationally distribute resources and responsibilities in the company.

The strategy determines the general directions and priorities in the development of the company. It should not just contain formal plans, but involve the practical implementation of its provisions by company employees at all levels of the hierarchy. Unfortunately, in practice one can often see a situation where the developed strategy remains the prerogative of top management and is not understood and not used by the rest of the company’s employees. Ordinary employees and line managers may not even know its basic provisions, performing routine operations that they had previously learned. Also a negative factor is mutual misunderstanding about the company’s strategic alternatives among senior levels of management, associated with various reasons. For example, such a reason may be the focus of board members on their functional areas and the desire to develop only them. This situation leads to a breakdown in communications between them, a loss of synergistic effect and the emergence of systematic conflicts, during which each of the participants strives to promote their own position.

The second significant problem is the task of assessing the effectiveness of business processes, which allows us to identify the need and opportunities for their optimization in accordance with the company's goals. The traditional approach, used for several decades, involves the use of financial performance indicators for this purpose. When using financial indicators, specialists from a company's financial or analytical department strive to translate all the results of its activities into quantitative indicators that allow them to identify a specific financial result from each business process. This approach is imperfect in terms of real results. As you know, the activities of each company have both quantitative and qualitative dimensions. Qualitative indicators include those that are not directly measured by financial values: the level of intellectual development of personnel, the level of product quality, customer loyalty, etc. Critics of the traditional approach, which relies solely on financial indicators, point out that such attempts often lead to inaccuracies and significant bias in assessing company performance.

This task seemed insoluble until 1990, when American scientists D. Norton and R. Kaplan conducted research in the field of assessing the effectiveness of companies. As a result, a unique system for transforming the strategy into sequences of actions and procedures that are understandable to all employees of the company was developed, and a qualitatively new system for assessing its effectiveness was formed. The authors named it Balanced Scorecard (BSS). The main goal of developing this system is to solve the two problems discussed above:

transforming the company’s corporate strategy into specific and clear strategic plans for all levels of management;
formation of a balanced system of performance assessment indicators, including assessment of the quantitative and qualitative results of the company’s activities.

Let's look at these branches.

Clients – the market segment in which the enterprise operates, or the customer base (depending on the chosen terminology). This is an important part of the company’s work, on which the level of customer loyalty, consumer satisfaction, as well as the influx of new customers from the external environment depends. This branch assumes that the main direction of work is increasing the market share (customer base) of the company. The focus of managers here is on customer expectations and the enterprise’s ability to satisfy

Rice. 2.9.

satisfy them taking into account existing economic and technological capabilities.

Internal business processes – here we mean the effectiveness of the development of those internal processes of the company that will help increase the number of its clients, increase its influence in the market, i.e. ultimately aimed at the growth of the company. The creators of the BSC especially note that in this case we are talking not only about existing business processes, but also about the possibility of creating new processes in accordance with emerging tasks. The second difference between the approach declared by the BSC is the mandatory presence at the enterprise of innovative business processes that form the basis of its competitiveness in the market and allow increasing the value added chain.

Financial indicators – various indicators of the company’s financial performance, for example, the level of its profitability, liquidity, etc.

Training and career development – the goal of the development of this area is to increase the efficiency of personnel as the most important component of the competitiveness of an enterprise, on the development of which all areas of its activities depend. Competition in global markets requires manufacturers to take into account and use all resources available to them, including human ones. The professional, intellectual and creative potential of employees largely determines their personal effectiveness and affects the overall level of socio-economic efficiency of the entire enterprise.

For each of these branches, the company’s top management, together with specialists, forms groups of unique indicators, which are called “key performance indicators” (from the English. key performance indicators – KRG ). Each of the KPIs allows you to comprehensively and clearly assess a separate parameter of the development of the company and its employees within the listed branches of development. At the same time, there is no universal set of KPIs “for all occasions”; their development is the task of every company that introduces BSC into its practice. To solve this problem, most companies invite consultants who specialize in the implementation of BSC and have extensive knowledge in the field of business process reengineering.

According to the creators of the BSC, this system should not only help improve existing processes, but also form new ones in accordance with the identified gaps between the current performance indicators of the enterprise and the level that is necessary to achieve the goals stated in the strategy. Improving the enterprise's business process system is one of the priority areas of the BSC. The system in this sense stimulates the evolution of various areas of activity of the enterprise, the final goal of which is to achieve its strategic goals.

Each of the branches of the BSC contains a matrix (Goals, Indicators, Tasks, Initiatives), which reflects the sequence of necessary actions that result in the deployment of the BSC in the company. Below is a description of these elements.

Goals - management needs to clearly formulate the strategy of the company or enterprise and translate it into specific tasks that can be communicated to department heads.
Indicators – next, a relationship is established between the goals defined at the previous stage and indicators with the help of which the degree of their achievement can be assessed. These indicators are also communicated to the heads of departments of the enterprise or company.
Tasks – distribution of tasks between top and line management to determine the development goals of their departments and areas.
Initiatives – the formation of a developed feedback mechanism from line management and personnel of a company or enterprise in order to collect information on possible areas for improving the performance of the organizational structure.

One of the main working tools used within the framework of the BSC is strategic cards. These maps represent graphical diagrams that visually reflect the strategic goals of the enterprise along the four branches listed above, linking them with existing business processes, as well as with indicators that help identify the degree of their achievement. A strategic map allows managers to translate complex and abstract goals into specific and clearly visualized tasks that are understandable to all participants in business processes. An example of such a map is shown in Fig. 2.10.

Rice. 2.10.

The presented diagram shows a strategic map reflecting all four branches of the BSC. In the terminology used when constructing strategic maps, these branches are called projections. The projection “Component of training and development” contains the basic basis for the development of an enterprise: intangible assets that form the foundation of its competitiveness. These include human capital, information capital (patents, know-how, rights to innovative developments, etc.) and organizational capital (enterprise reputation or goodwill). Within the framework of this map, the development of this projection is a necessary condition for the effective development of the next projection (level) “Component of internal processes”. The internal processes include the following groups:

operations management;
customer management (marketing mix);
innovation management;
management of regulatory and social processes.

As we have already mentioned, all these four groups of processes must be developed with clearly defined goals of increasing the capitalization of a company or enterprise, increasing its market share and the number of segments it occupies. Next comes the “Customer Component” projection, which contains goals and performance indicators designed to increase the value of the organization’s products or services for end users: price, quality, availability, functionality, choice, additional services, etc. A separate item is the brand, which combines the total intangible value of the enterprise in the perception of market participants.

The fourth projection is the “Financial component”, which includes the following goals:

improving the cost structure;
improvement of user assets;
expanding income opportunities;
increasing value for customers.

Financial goals are the highest level of this

maps, summarizing the previous three projections in the context of the overall strategic goal of any enterprise: increasing its capitalization and profit.

The considered diagram is a simplified example of strategic maps, allowing you to get a general idea of their structure and main elements. Strategy maps are not only effective as a planning tool for senior management. They can be created for any level of the enterprise hierarchy in order to involve line managers and company specialists in their development. These measures are implied by the principle of feedback discussed above in this paragraph, designed to awaken the personal initiative of representatives of various levels of its hierarchy.

Processes play a key role in Kaplan and Norton's strategy map method because they enable the organization to achieve its goals and provide the basis for planning, acting, measuring and reviewing performance.

Kuzmin A. M. Method "Strategic maps". URL inventech.ru/ pub/methods/metod-0032/