cgma - strategy mapping tool final

7/27/2019 CGMA - Strategy Mapping Tool FINAL

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CGMA TOOL

Ho to Developa Stateg Map


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Itodctio 2

The Stateg Pamid 3

Step 1: Specif a Oveidig Oective 5

Step 2: Choose the Vale Popositio 6

Step 3: Choose the Fiacial Stategies 7

Step 4: Choosig the Cstome Stategies 8

Step 5: Eecte Thogh the Iteal Pespective Stategies 9

Step 6: Pla the Leaig ad Goth Stategies 10

Validatig ad Cascadig the Stateg Map 11

Coclsio 12

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COnTEnTS

To of the olds most pestigios accotig odies, the AICPA

ad CIMA, have fomed a oit vete to estalish the ChateedGloal Maagemet Accotat (CGMA) desigatio to elevate thepofessio of maagemet accotig. The desigatio ecogisesthe most taleted ad committed maagemet accotats ith thedisciplie ad skill to dive stog siess pefomace.


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CGMA TOOL How to Develop a Strategy Map

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InTrODuCTIOn

The vast majority o organisations have well-defned procedures

or developing strategic plans. And or the most part, the resulto their planning exercises are good, solid, strategies designedto move the entity orward and provide sustainable, even superior,returns. But there is oten a major disconnect between the ormulationand execution phases o strategy. The ability to cascade an organisationsvision, mission and core strategies into actionable behavioursthat achieve critical objectives continues to be a challenge ormost organisations.

As the saying goes, a picture is worth a thousand words. Strategymaps, pioneered by Balanced Scorecardounders Robert Kaplan

and David Norton, allow organisations to describe and communicatetheir strategies concisely and succinctly and close the gap betweenormulation and successul implementation o strategy. Strategymaps describe how organisations create value by building on strategicthemes such as growth or productivity. These themes determinewhat specifc strategies organisations will adopt at their customer,process, and learning and growth levels. Well-constructedmaps describe how the organisation plans to meet its specifccustomer promises through a combination o employee, technologyand business processes that satisy customer expectations

and meet shareholder demands.


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THE STrATEGy PyrAMID

MissionWhy We Exist

ValuesWhats Important to Us

VisionWhat We Want to Be

StrategyOur Game Plan

Strategy MapTranslate the Strategy

Balanced Scorecard

Measure and Focus

Targets and InitiativesWhat We Need to Do

SatisfedShareholders

Efcient andEective Processes

DelightedCustomers

Motivated andPrepared Workorce

Fige 1: Stateg Pamid

Strategy maps can be, and oten are, used as standalone tools that

organisations employ to develop, understand and convey their strategicstory. To maximise their value, however, they need to be seen andused as core building blocks in an aligned strategy initiative. Figure 1highlights where the strategy map and Balanced Scorecard ft in theoverall strategic management process.

Personal Objectives

Strategic Outcomes


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Maximise Organisational Value

Revenue Growth Strategy Productivity Strategy

IncreaseRevenue per

Customer

Add/RetainHigh-ValueCustomers

Current Migrated New New Offerings Scalability Strategies(eg Web)

CustomerManagementLeadership

Innovation &Commercialisation

Supremacy

InternalOperationsExcellence

EffectiveGovernance &

Control

Perception;Public

Relations

Reduce Costper Customer

1) Human Capital

(Staff competencies)

2) Information Capital

(Technology infrastructure)

3) Organisation Capital

(Climate for action)

Financial

Whatwewanttoaccomplish

Howweplantoaccomplishit

Customer

Internal

Learning&

Growth

SolutionsFocus

Completed Generic Strategy Map

Asset Utilisation

Fige 2: Geeic Stateg Map

This tool provides an integrated view o the development

o a strategy map. The steps are:

1. Speciy an overriding objective.

2. Choose the va lue proposition.

3. Choose the nancial strategies.

4. Choose the customer strategies.

5. Execute through the internal perspective strategies.

6. Plan the learning and growth strategies.

Steps 1 through 4 o the strategy mapping process

address the question, What do we want to accomplish?

Steps 5 and 6 address the question, How do we plan

to accomplish our objectives? The completed generic

strategy map (Figure 2) illustrates how the nancial and

customer-ocused goals o the organisat ion are linked

to the underlying internal processes and learning and

growth strategies necessary to deliver on those goals.

Stateg Mappig A Si-Step Pocess


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There is considerable conusion on this point.

Many mission and vision statements are oten

mistakenly portrayed as the ultimate objective

to be achieved satised customers, service excellence,

best-in-eld, market leader, low-cost provider andso on. Indeed, these are critical outcomes and are

highly desired by all organisations. However,

or prot-making organisations, the overriding

objective must be economic.

There is no question that serving customers eectively,

developing new and unique products and achieving

market dominance are worthy objectives. But in a

prot-making environment, these are all the ingredients

or success, not success itsel. Success is achieved by

signicant revenues and/or cost containment that lead to

superior economic returns the overriding objective.

The overriding objective should be the rst element o

the strategy map. It should contain a nancial target and

a time dimension. Examples o an overriding objective

could be:

Increase return on capital employed by 6% withinthree years

Increase prot margin rom 8 to 12% and net cash fow

rom $500,000 to $750,000 within ve years

Increase target share price by 20% by next reporting date

Increase total shareholder return relative to benchmark

by 10% within two years

Overriding objectives are the rst item to appear

on a strategy map.

STEP 1: SPECIFy An OVErrIDInG ObjECTIVE

In the next ew years, what will it take to succeed? This frst step

is critical because it links the strategy map to the earlier phaseo creating/reafrming an organisations mission, core valuesand vision. This step must dierentiate between what theorganisation truly understands as its overriding objectiveand the strategies it plans to implement.


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1. Operational excellence

(also reerred to as best tota l cost)

2. Product leadership

3. Customer intimacy

(also reerred to as customer solutions)

As Table 1 indicates, three images can make an

organisation stand out. Companies ocused on

operational excellence will use price as the key driver

o the best deal image. The next image is the

best product or service. Companies that decide to

compete here are using the product leadership value

proposition, and will use unique attributes and eaturesin their products and services as their main image

driver. The third and nal image is that o the best

riend. Companies that compete in this area ollow

the customer intimacy value proposition, providing

solutions to their customers.

Tale 1: The Vale Popositios

STEP 2: CHOOSE THE VALuE PrOPOSITIOn

Operational Excellence Product Leadership Customer Intimacy

PricePrimary focus: very lowprices; Image: Best deal

High end o pricing High end o pricing

Unique attributesMeets thresholdstandards

Primary focus: veryunique attributes;Image: Best product/service

Meets thresholdstandards

Relationship levelLow end o thresholdstandards

Meets thresholdstandards

Primary focus: very highcustomer intimacy;Image: Best friend

ValueProposition

ExternalImage

The second step in strategy mapping is to choose the value proposition

that will help the organisation win the market. The idea behind the valueproposition approach is to choose one dominant value proposition,and provide breakthrough customer value in it. For the two propositionsnot chosen, it is imperative not to lead but to compete, at least to somethreshold level. The three value propositions put orth by Treacy andWiersema provide an excellent ramework or competingin todays markets:


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1. Revenue growth

2. Productivity

3. Asset utilisation

All organisations must pay some level o attention to

each o these strategies. However, the choice o value

proposition in Step 2 helps dictate which o the three

will dominate and where to spend most o the eort andactivity. Table 2 below indicates the types o nancial

strategies companies pursue based on the choice o value

proposition. By aligning nancial strategies with the

value proposition, companies can position themselves to

properly decide what customers are willing to purchase.

Knowledge o the va lue proposition assists

organisations to pinpoint which o the three

nancial strategies will dominate. Table 2 illustrates

that organisations pursuing operational eciency

propositions will ocus on reaching their overriding

objectives primarily through productivity and

asset utilisation strategies. Organisations ollowing

customer-intimate or product leadership propositions

will put less ocus on these eciency strategies, instead

attempting to grow revenue through unique product

or customer eatures.

STEP 3: CHOOSE THE FInAnCIAL STrATEGIES


Revenue GrowthCompetitive prices

Volume

Premium pricing

New eatures

Bundling

Cross-selling

ProductivityTight variable anddiscretionary cost control

Control but also spendon R&D and marketing

Control but also spendon solution selling

Asset utilisation

Maximise inventoryturnover

Utilise fxed assets toreduce product cost

Utilise fxed assetsin pursuit oproduct leadership

Utilise fxed assetsin pursuit ocustomer intimacy

Value

PropositionFinancialStrategy

Tale 2: Fiacial Stateg Chat

Having established the value proposition, organisations next ormalise

their plans and strategies around revenues and costs. Financialstrategies can be categorised into three key areas:


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1. Retaining and adding customers

2. Increasing revenue per customer

3. Reducing cost per customer

Organisations must pay attention to each o these

strategies. However, the choice o value proposition once

again dictates where the rm should ocus its eort and

activity. Table 3 indicates the types o customer-ocused

strategies companies tend to pursue based on the value

proposition chosen.

STEP 4: CHOOSInG THE CuSTOMEr STrATEGIES


Retain and addcustomers

Competitive pricesLatest technologies

Newest eatures

Loyalty programs

Word-o-mouth

Increase revenue percustomer

Competitive prices

New eatures

Add-on products and

services

Solution selling

Bundling

Reduce cost per customerTight process and supplychain management

Spending and costcontrol policies in pursuito product leadership

Spending and costcontrol policies in pursuito customer intimacy

ValueProposition

CustomerStrategy

Tale 3: Cstome Stateg Chat

Those pursuing operational excellence will use

competitive prices to retain and add customers,

in addition to increasing revenue per customer. Tight

process and supply chain management will assist in its

ongoing eorts to reduce costs per customer. Product

leaders will oer the latest o technologies and eatures,

including add-on products and services, to increase

customer volume and revenue per customer. To retain

and add customers, customer-intimate companies

will tend to use strategies such as promoting

word-o-mouth marketing and loyalty programmes.

By oering complete solutions and bundling packages,

these companies attempt to increase revenue per customer.

Having established fnancial strategies, organisations must ormalise

their plans and strategies to win the marketplace. In other words, theymust clearly establish and articulate their customer strategies. Customerstrategies can be categorised into three key areas:


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The internal perspective is all about choosing and

executing the r ight business processes to achieve

the desired customer and nancial strategies the

organisation believes will lead to the accomplishment

o the overriding objective. Consequently, organisations

must consciously choose internal business processes that

link directly to the earlier steps. Table 4 below indicates

how a company could ocus its processes, given its

value proposition.

To endure, all organisations must have solid internal

operations. However, companies ollowing an

operational excellence value proposition must make

internal operations a very high priority, eliminating

non-value-adding activities, reducing cost, and

delivering low prices. Organisations pursuing product

leadership must mainly ocus on processes that

motivate, identiy, develop and launch commercial

innovations because the leadership proposition is to

bring cutt ing-edge technologies, designs or services

rst to market. Customer-intimate organisations

tend to ocus on those processes most closely linked

to customer management: selection, acquisition,

preservation and growth. The ocus here is on

developing knowledge o customers and building

strong relationships.

STEP 5: ExECuTE THrOuGH THE InTErnALPErSPECTIVE STrATEGIES


Internal operationsPrimary ocusmust excel

Meets or maintainsthreshold standards


InnovationLow end o thresholdstandards

Primary ocusmust excel


Customer managementMeets or maintainsthreshold standards


Primary ocusmust excel

ValuePropositionProcess

to exceland lead at

Tale 4: Ke Pocess Chat

Having established fnancial and customer strategies, organisations nextestablish those important actions that will realise the plans and strategiesto win the marketplace. On the right hand side o the strategy map, theocus changes rom What do we want to accomplish? to How weplan to accomplish it. In other words, the frm must execute the storythat has been developed and revealed in Steps 14.


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STEP 6: PLAn THE LEArnInG AnD GrOwTHSTrATEGIES

In this nal strategy mapping step, companies develop

the appropriate learning and growth strategies. The

learning and growth perspective is about identiying and

bridging gaps that could limit the organisations ability

to execute the key processes identied in the internal

perspective. Learning and growth can be classied into

three primary areas:

1. Human capital

2. Inormation capital

3. Organisational capital

Human capital is the economic value an organisation

derives rom (a) application o knowledge,

(b) collaboration and (c) engaged individuals. Managed

well, human capital is an enormous source o value that

comes rom committed individuals making inormed

decisions on service, quality, eectiveness, creativity,

goal alignment and productivity.

Information capital relates to how organisations utilise

their inormation systems, networks, manuals, databases,

les and inrastructure to gain competitive advantage

and to execute strategy.

Organisational capital is the rms ability to connect

employee goals to corporate goals. Companies with

high levels o organisational capital are ones that exhibit

complementary team memberships, open communication

channels, shared visions, trust in leaders and common

bonds usual ly leading to greater employee retention

and superior perormance. Leadership, teamwork and

communication are important ingredients in

organisational capital.

Companies need to take dierent approaches to

learning and growth because o their specic

circumstances, customer expectations and internal

business requirements. In short, the rms human,

inormational and organisational capital policies must

be aligned to the chosen value proposition.

Having established fnancial and customer strategies and developedan execution plan, organisations will inevitably notice some gaps inknowledge, skills and abilities necessary to execute the chosen strategy.


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Corporate-level strategy maps help organisations

eectively describe and communicate core strategies

to their stakeholders. Executives report considerable

satisaction ater completing this stage because, oten orthe rst time, the senior management team nds itsel

agreeing on high-level objectives, value proposition and

key strategies.

Some rms have the simple objective o clariying

strategic direction and communicating a clear picture

to stakeholders. Many strategy mapping exercises stop

at this corporate strategy map point. However, most

strategy mapping exercises use the corporate map

as a starting point or developing lower level maps and

scorecards. As Figure 3 illustrates, there is a continuum

o possible drilldown maps.

Organisations can employ dierent types o cascading

maps. First, there is the within organisation type

shown in Figure 3. Here the corporate map is cascaded

into a series o lower level maps, usual ly based ongeographical, product, service or group distinctions.

Second, there is the within-perspective type o map.

Within-perspective drilldown maps convey additional

inormation that can point employees to specic actions

and accountabilities that will help in executing strategy.

A third type o cascading is the across-unction type.

The most appropriate drill-down approach will vary

rom company to company, and rom business unit

to business unit even within a company. The important

result is a set o actionable steps that employees

understand and are equipped to act on.

VALIDATInG AnD CASCADInG THE STrATEGy MAP

Fige 3: Dill-Do Map Cotim

Cascading the Map

Stateg Map Cotim

Maps ad Scoecads of loe-level maps ma o ma ot oll p to highe-level maps

CopoateMap &

Scoecad

DepatmetMaps &

Scoecad

DivisioMaps &

Scoecad

PesoalScoecad

SppotDepatmet

Maps &Scoecad

Once the map is developed, goals and measures that are consistent

with and advance the chosen strategy must be specifed. Validationreers to veriying the cause-and-eect linkages between the variousperspectives on the strategy map. Validation only occurs whenmanagement can track how improving the measures at one levelo the map create improvements in other perspectives and contributeto achieving the overriding objective.


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COnCLuSIOn

Strategy mapping is an eective and powerul initiative that can help

keep a company at its competitive peak. The steps provided in this toolenable organisations to eectively and efciently conduct their ownstrategy mapping initiative and to successully implement strategy whereothers have ailed. Companies struggling with strategy execution will fndmaps a compelling way to think about, agree upon and communicatetheir strategic initiatives to various stakeholder communities. This canonly promote better execution. In addition, strategy maps orm theappropriate basis or (a) balanced scorecard perormance measures,(b) linkages to appropriate management and validation techniques, and(c) allocating resources to initiatives and strategies that support its valuepropositions and overriding objectives. This has proven to lead to betterorganisational perormance.


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Distribution o this material via the Internet does not

constitute consent to the redistr ibution o it in any orm.

No part o this material may be otherwise reproduced,

stored in third party platorms and databases,

or transmitted in any orm or by any printed, electronic,

mechanical, digital or other means without the written

permission o the owner o the copyright as set orth

above. For inormation about the procedure or

requesting permission to reuse this content please email

[email protected]

The inormation and any opinions expressed in this

material do not represent ocial pronouncements o

or on behal o AICPA, CIMA, the CGMA designation

or the Association o International Certied

Proessional Accountants. This material is oered with

the understanding that it does not constitute legal,

accounting, or other proessional services or advice. I

legal advice or other expert assistance is required, the

services o a competent proessional should be sought.

The inormation contained herein is provided to assist

the reader in developing a general understanding o the

topics discussed, but no attempt has been made to cover

the subjects or issues exhaustively. While every attempt

to veriy the timeliness and accuracy o the inormation

herein as o the date o issuance has been made, no

guarantee is or can be given regarding the applicability

o the inormation ound within to any given set o acts

and circumstances.

The inormation herein was adapted rom Using

Strategy Maps to Drive Performanceby Howard M.

Armitage, Ph.D, CMA, FCMA and Cameron Scholey,

MBA, CMA. Copyright 2006 by The Society o

Management Accountants o Canada (CMA Canada),

the American Inst itute o CPAs, Inc. (AICPA)

and The Chartered Institute o Management

Accountants (CIMA).

Copyright 2012 American Institute o CPAs. All r ights reserved.

1M. Treacy and F. Wiersema,The Discipline o Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market,

(Cambridge: Perseus Books, 1995).

Edote


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The Association o International Certifed Proessional Accountants,

a joint venture o AICPA and CIMA, established the CGMA designa

American Institute o CPAs1211 Avenue o the AmericasNew York, NY 10036-8775

T. +1 212 596 6200F. +1 212 596 6213

Chartered Institute oManagement Accountants26 Chapter StreetLondon SW1P 4NPUnited KingdomT. +44 (0)20 7663 5441F. +44 (0)20 7663 5442

cgma.org

October 2012CIMA has ofces in the ollowing locations: Australia, Bangladesh, Botswana, China,Ghana, Hong Kong SAR, India, Ireland, Malaysia, Nigeria, Pakistan, Poland, Russia,Singapore, South Arica, Sri Lanka, UAE, UK, Zambia and Zimbabwe.

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