A Summary of the Book – Strategy Maps by Robert S. Kaplan and David P. Norton

Strategy Maps is a book by Robert S. Kaplan and David P. Norton, the authors of the worldwide bestseller The Balanced Scorecard. Published in 2004, the book is about the concept of “strategy maps” and how they are vital to a company’s development. The book is divided into six parts, each one containing a number of chapters that explore strategy maps in some way.

The first part of the book is the overview, which features an introduction as chapter 1 and an in-depth description of what strategy maps are in chapter 2. The introduction discusses the importance of strategy to a company creating value; after all, how you set about accomplishing your goals is just as important as having goals in the first place. In a call back to The Balanced Scorecard, Kaplan and Norton observe that no two companies view strategies the same way. Some view strategies as financial plans for profit growth, while others would view it as human resources. Going further, Kaplan and Norton state that it is important for a company to build a measurement system to describe their strategy by creating a model of said strategy. The Balanced Scorecard, a concept created by the authors in their previous book is an example; this is a report that managers use to keep track of their staff’s performance and the consequences of the actions they take. The important elements of the Balanced Scorecard are as follows:

• Financial performance, which provides the ultimate definition of an organization’s success.
• Success with targeted customers provides a principal component for improved financial performance.
• Internal processes create and deliver the value proposition for customers.
• Intangible assets are the ultimate source of sustainable value creation.
• Objectives in the four previous perspectives link together in a chain of cause-and-effect relationships.

This leads into chapter 2, where strategy maps are officially explained. in short, a strategy map is a visual framework for integrating the organization’s objectives in the four perspectives in the Balanced Scorecard; the financial performance, success with customers, the internal process and the intangible assets. At the end of the chapter, the book features a case study of St. Mary’s Duluth Clinics which used a strategy map to deliver a different value proposition to each customer: customer intimacy for patients, product leadership for physicians, and low total costs to payers.

Part 2 is titled “Value-Creating Processes” and contains chapters 3 through 6. In each chapter, part 2 looks at the four processes that companies must focus on to maintain productivity. Chapter 3 focuses on “Operations Management Processes”; this refers to the process by which goods are produced and delivered. The four important stages of this process are; developing and sustaining supplier relationships; producing products and services; distributing products and services to customers; and finally, risk management, which is about doing things to increase value while avoiding issues such as bankruptcy and overspending.

Chapter 4 deals with “Customer Management Processes”, a company’s establishing and leveraging of its relationships with customers. The chapter points out how in modern times, customer relationships have increased in importance, with developments in computer and communications technology having shifted power from producers to customers. An example it lists is how customers of Dell and Levi Strauss can design their own product configurations using the companies’ respective websites – Dell.com and IC3D.com (for jeans).

Chapter 5 focuses on the “Innovation Processes”, the means by which companies sustain competitive advantages in the market by creating or utilizing new products, services and processes. Successful innovation not only ensures customer loyalty but also leads to customer growth.

Chapter 6 closes out part 2 with “Regulatory and Social Processes”. This chapter reminds us of the rules and regulations that companies must follow if they are to remain operational and avoid getting shut down. The chapter does acknowledge that some companies have tried to break these rules in the name of profit. Kaplan and Norton also offer ways to integrate following rules and regulations into a company’s strategy.

Part 3 is titled “Intangible Assets” and covers the assets in question across chapters 7 through 10. As described in chapter 7, intangible assets encompass diverse items such as patents, copyrights, workforce knowledge, information systems and work processes. In other words, intangible, or non-physical assets, that are vital to a company’s performance. The remaining three chapters are dedicated to the three components of intangible assets, and the measures and objectives for them.

“Human Capital” (Chapter 8) deals with the availability of employee skills, talent and knowledge to perform the process critical to the company strategy’s success. The measuring of this capital involves with identifying the competencies of the employees performing certain duties on the strategy map. “Information Capital” (Chapter 9) consists of the company’s systems, databases, libraries, and networks. Information capital is measured by how prepared the company’s information capital is to support a company’s strategy. And finally, we have “Organization Capital” (Chpater 10), is the ability of the company or organization to mobilize and sustain the process of change required to execute the strategy. This is built on culture (awareness of the core values of the strategy), leadership (availability of qualified leaders), alignment (individual and team goals linked to attain strategic objectives), and teamwork (knowledge with strategic potential shared throughout the organization).

Part 4 is titled “Building Strategies and Strategy Maps”, and consists of chapters 11 and 12. Chapter 11 is “Customizing Your Strategy Map To Your Strategy”. The chapter features a quote from American economics and business strategy academic, Michael Porter; “the essence of strategy is in the activities – choosing to perform activities differently or to perform different activities than rivals.” As Kaplan and Norton argue, an organization’s strategy map must follow this prescription. As chapter 11 also states, a sustainable strategy seeks to capture the most value from a value chain. This creation of total value is split into three parts:

• Value captured by supplier: The prices paid to employees and suppliers less opportunity cost for providing products and services to the company.
• Value captured by company: The net price received from customers less the prices paid to employees and suppliers for the products or services sold.
• Value captured by customers: The difference between the maximum price customers are willing to pay for products and services, and the actual prices that they end up paying.

Value is distributed among these three value participants depending on their relative strength and bargaining power.

Chapter 12 is titled “Planning the Campaign”. This refers to the six-step process to conducting scenario planning while the strategy map is being built:

• Define the shareholder/stakeholder value gap: Define the overarching objectives and measures, identify the targets and value gap, and allocate the value gap to growth and productivity goals. 
• Reconcile the customer value proposition: Clarify target customer segments and customer value propositions, select measures, and reconcile customer objectives with financial growth goals.
• Establish the value time line: Show how the value gap will be closed over the established planning horizon by allocating it to different themes.
• Identify strategic themes: Identify the critical few processes that have the greatest impact and establish measures and targets.
• Create strategic asset readiness: After defining the human, information and organization capital required to support the strategy, assess the readiness of the assets to support the strategy, and establish measures and targets.  
• Identify and fund the strategic initiatives: Clarify and secure funding for the strategy after establishing specific initiatives required to support the processes and to develop the intangible assets.

Part 5 is the final part of the book and is labeled “The Case Files”. It consists of three chapters, each one looking at case study of the application strategy maps to a different type of organization. Chapter 13 is focused on private sector organizations and finds that the strategy map brought culture change and a better understanding of customer needs. Chapter 14 is focused on the public sector, and found the strategy maps to be useful for building communication and teamwork. And finally, chapter 15 helped non-profit organizations such as “Teach For America” to better communicate its intended direction.

Strategy Maps is an excellent book for those in the corporate world and those who seek to enter it. The book is a detailed explanation of the concept of strategy maps, and is quite informative on how companies can achieve their goals through planning, communication and staying informed.