Why the financial perspective ‘should not be on top’ in your strategy map…!

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Kaplan & Norton put the financial perspective as the first perspective – on top – in their strategy maps. Their model is applied in that way since the balanced scorecard and the strategy mapping model has been published, about 20 years ago, in the mid-90ties of the last century. And indeed, many thousands of companies and institutions have applied the model successfully, and still do! Strategy mapping is ‘by far’ the most interesting and qualitative framework available for strategy development. So far so good. But…

FirstThe ambition to grow shareholder value – or stakeholder value for public institutions or non-profit organizations – is in my opinion ‘trivial’: it is the bottom-line of every private company and something we even don’t have to argue about. It ‘is’ the ambition of company-owners and entrepreneurs. And in this ambition, non-profits follow ‘by nature’.

SecondOn the other hand, to grow shareholder value, you need – first of all – a business model that is appealing to the customers you want to target… customers will choose for your product or service when it is brought to market in a way and with a customer value that will outperform, compared to the closest competitors. This can be obtained in may different ways: better product or service quality, a differentiating service model, a cheaper product or service, something with more character, faster delivery, better adapted to the needs of the buyer, easier to buy, and so on… Michael Porter’s Harvard Business Review article “How Competitive Forces Shape Strategy” from 1979 describes this obviously. This actually means that ‘the added value for your customer’ should be considered as the most important perspective… Without a strong vision on the way your company wants to serve its customers, no company whatsoever will be able to produce the turnover, nor the profits it has in mind…

Conclusion

Profitability is nothing more than the result – or rather the ‘collateral advantage’ if you wish – of the way your company is managing the value it want’s to create for its customers. The return on shareholder value is rather a wish than a goal (1)! The better your business model is appealing to your customer and the better you manage your operations, the higher your margins and profitability will be…! So, do not hesitate and put ‘customer results’ on top in your strategy map! It will open up a new world of perspectives and opportunities in managing your business… © Peter Buelens, april 2015

(1) Gary Cokins, Performance management, John Wiley & Sons Inc., 2009

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