Choosing Strategic Objectives
Strategy mapping is the most important task in building a Balanced Scorecard. Get the map right and it becomes much simpler to select meaningful measures, targets and initiatives. Unfortunately many companies stymie their scorecard efforts because they make basic mistakes in mapping. Just a few examples follow.
The Number of Objectives
Most importantly, there is a tendency to choose too many objectives – 40, 50 or even 60+ is not uncommon. The result is an organization map that describes everything the company does rather than a Strategy Map that hones in on the critical few objectives that will successfully deliver the strategy. When there are too many objectives the scorecard becomes unmanageable and the program eventually dies, or if kept alive becomes a lower priority because people find it too exhausting to manage on an ongoing basis.
From our observations, 15 to 20 objectives should be sufficient for any organization. About 40% of these should be located in the internal process perspective – where the real work in strategy execution gets done.
When working with a critical few objectives it becomes important to choose those that are meaningful, highly focused, and that can really drive step changes in performance. Choosing 15-20 ‘vague’ objectives is of little value.
For instance, consider the Customer Perspective. Too many organizations opt for objectives such as improve customer loyalty and/or satisfaction. By selecting such simple and generic objectives, organizations will derive little value and more importantly will miss a golden opportunity to really think through what delivers value ‘in the eyes of the customer’. Customers rarely procure a service or buy a product because they want to be satisfied (that’s a given) and they certainly do not want to be loyal. Going beyond satisfaction and loyalty means understanding the essence of that value proposition (which is typically something to do with brand and experience) and capturing it in specific objectives. This is a difficult task and so is usually avoided. Those that accept the challenge reap substantial rewards.
More than a Perspective: A Customer Theme
But truly understanding the customer cannot be a one-off exercise. Shaping permanent learning channels between the organization and its customers (and indeed stretching out to partners) is becoming a success pre-requisite in most industries. Most companies should capture this customer/organizational interface on their Strategy Map, maybe as a strategic theme that runs through the internal process and learning and growth perspectives.
Although objectives around service, price, and quality are typically located in the internal process perspective, organizations need to ensure that objectives here support how the organization differentiates itself in the marketplace. For instance, objectives around cost and quality may be more critical to an organization that competes from a standpoint of operational excellence than one that competes from a position of customer intimacy, whereas service will predominate for the latter.
Learning and Growth
By some distance, Learning and Growth is the least understood of all the perspectives. Typically it is no more than an add-on, when the ‘real scorecard work’ of populating the other three perspectives has been done. Usually, Learning and Growth contains objectives that focus on ‘creating a high-performing culture’, ‘employee satisfaction’ or ‘live the values’. Again, these can be so generic as to be worthless and once more managers miss a golden opportunity – this time to really think through the key people objectives that must be developed and nurtured as a strategic necessity.
What’s more, selecting an objective such as ‘create a high-performance culture’ is pointless unless it is recognized that for most organizations this is a huge undertaking that will require massive resourcing. Large-scale funding is never given to objectives that are no more than a passing thought.
And finally, there are often mistakes with the financial, or shareholder, perspective. Although this seems a simple collocation of key financial outcomes, it might be sensible to ask shareholders to describe what they want from the organization. In some cases they will want more than short-term gains, and they may also have other concerns - around governance for instance. Such input can be invaluable steers for scorecard creation.
Of course, even if objectives are well thought-out and described, it is also important to think about causality between and within the perspectives. And this belongs to the topic of strategy mapping, something we will return to on a regular basis.
Keep the number of strategic objectives to the critical few
Avoid generic objectives
Take time to truly understand the value proposition from the viewpoint of the customer
Capture customer learning, perhaps as a strategic theme
Ensure that internal process objectives support how the organization competes
Treat the learning and growth perspective as more than an ‘add-on’ and fully understand the people skills you require going forward