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Does the Idea of “Value Creation” Work in the Public Sector World?

As you know, when we talk about business strategy and, more specifically, using the strategy map, the discussion is often all about your “value creating” strategy. That is, the key strategic objectives your organization is going to focus on to create and deliver value to your stakeholders as you work towards achieving your mission and vision.

I think that all of us understand the idea of value creation when it comes to private sector organizations. How many times have you heard a reference being made to the goal of “creating shareholder value” (whatever that really means!) for private sector companies? I know that I hear it a lot. And because of this association, I think that we have come to think of value and value creation in strictly financial terms (i.e. cost savings, increased revenues, earnings growth, and rising share price). If you think of value in these terms alone, then you might be tempted to conclude that value creation concepts, and possibly the use of the strategy map to describe your business strategy, might be relevant for the private sector alone.

I, however, prefer to think of value and value creation on a broader scale. While the financial dimension is an important component of the value equation for all sectors (it always has been for the public sector but it will be increasingly important as governments seek to reel in ballooning deficits), there are many different aspects to the concept of value – for all organizations, regardless of the sector.

I think the key is in the definition of your stakeholders. That is, if you expand your definition of stakeholders beyond shareholders to include customers, employees, business partners, society, and anyone else your organization serves or works with, AND remember that the work your organization does is centred on achieving its mission and purpose (which, no matter how much they say otherwise in private sector companies, is not just making money), it isn’t hard to come around to the idea that creating value is bigger than the financial/money stuff.

Once you agree that value creation is a multi-dimensional concept then it’s not hard to see that the idea of value creation applies in the public sector world and that the strategy map is a great tool for crafting and displaying the value creating strategy for your public sector organization.

Let’s look at how the strategy map can work in a public sector organization to map out a value creating strategy.

Setting the Stage – Defining Your Strategy Map Framework

The first step when creating a strategy map for a public sector organization is to look at the “classic” perspective names (i.e. financial, customer, internal process, and learning and growth/organizational capabilities) and determine whether they will apply for your organization. Sometimes, organizations customize the perspective names using more familiar terms or language. In my experience, the customer perspective usually gets changed to something like stakeholders and the financial perspective changes to financial/resource management or simply resources. The bottom line is to give the perspectives names that make sense for your organization but I encourage you to consider sticking with the concepts behind the classic perspectives – they have stood up over thousands of organizations in all sectors and they are designed to give balance to your value creating business strategy (an important success factor!).

The next step is deciding on the arrangement of your strategy map perspective hierarchy. In the private sector, the strategy map perspectives are always organized in the following way (from the top to the bottom): financial – customer – internal process – organizational capabilities/learning and growth. This arrangement essentially follows the natural flow of most profit-based businesses in creating value, producing the ultimate financial objectives, and achieving the company’s mission and vision.

In the public sector, there is often more variation in the arrangement of the strategy map perspectives but the final hierarchy is still driven by your view of how your organization works to create value, produce results, and achieve your mission. The most mobile perspective on a public sector strategy map is the financial perspective and the key to determining the best place for it is, again, based on your beliefs about how your organization works to achieve its mission.

For example, when organizations have a mission of generating lots of money for a cause, I usually see the stakeholder and financial perspectives sitting side by side at the top of the strategy map. What this is saying is that delivering to stakeholder needs and expectations and achieving great financial results are equally important in achieving the mission.

In contrast, many public sector organizations are given a budget to work with and they have no opportunity to generate additional revenues. In these organizations, I often see the financial perspective sitting at the bottom or foundation of their strategy map because the money they have allotted to them is all they have to work with to accomplish everything else they must do to successfully achieve their mission.

Finally, some public sector organizations will set the organizational capabilities and the financial/resource management perspectives up side by side at the bottom of their strategy map. This is often the case when organizations see their ability to optimize their use of their financial resources as a foundational capability on par with the other capabilities usually included in the organizational capabilities perspective (i.e. those related to critical employee attributes, strategic skills and capabilities building, culture/team profile and development, and the use of strategic technologies, tools, and information).

The best advice for deciding how to establish your strategy map perspective framework is to allow yourself to be guided by your organization’s core values as well as your ideas about how these elements of your business really work together to serve your stakeholders, produce results, and, ultimately, achieve your mission.

Defining Your Value Creating Business Strategy

Once your strategy map framework and hierarchy have been determined, there are a series of questions you can ask that are conveniently designed to produce value creating answers. Here are those questions by perspective:

Stakeholder: To achieve our mission and vision, what must we deliver to/what must we do for our stakeholders?

Internal Process: To give our stakeholders what they expect, what business processes must we focus on and excel at/what business process capabilities must we have?

Organizational Capabilities: To execute our businesses processes at the required level, what skills and capabilities, employee attitudes, engagement, and culture, and tools, technologies, and information must we have in place?

Financial/Resource Management: To achieve our mission and vision, how must we use our financial and non-financial resources and demonstrate fiscal responsibility, and what financial results must we produce? (note: this question stays the same regardless of the positioning of this perspective on your strategy map)

Essentially, these answers lead you to generate the strategic objectives by perspective for your strategy map. And when your strategy map includes arrows that show the direct cause and effect relationships between strategic objectives, your strategy map effectively shows the value creating strategy your public sector organization intends to pursue/execute to achieve its mission and vision.

Thinking big about the real meaning and essential elements of value and value creation is essential for both public AND private sector organizations. I believe that private sector organizations would do well to think beyond the financial by looking at the value question from the perspective of all of their key stakeholders and including mission or purpose in the picture when thinking about value creation. On the other hand, public sector organizations would benefit from including the financial dimension, and not just mission achievement, in their conceptualization of value creation.

Great organizations, regardless of the sector, are the ones that are focused on creating and delivering value every day. If you believe, as I do, that our public sector organizations can be great then it is clear that the concept of value creation has a role to play in the public sector world.

Interested in learning more about how strategy maps help organizations achieve strategy execution excellence? Check out my other blog posts and, to download some sample strategy maps, just go to http://www.jetrichardson.ca/publications.htm 

3 Comments

  1. Donna Wies
    Feb 9, 2012

    Great article. I’ve been helping government and nonprofit organizations create strategy maps and balanced scorecards for over 10 years, and this is the best overview of the differences and similarities between for-profit and non-profit scorecards that I’ve read.

  2. Sandy Richardson
    Feb 16, 2012

    Hi Donna – glad you liked the post and thank you for the positive feedback!

  3. Aleksey Savkin
    May 11, 2015

    Hi Sandy,

    Thank you for sharing some great ideas! Sometimes with our clients it helps to replace “value creation” with “problem solving.” In other words when people start abusing some business jargon (value/mission/strategic/…) I try to reduce complexity by asking:
    1. What are the problems of your customer group? (the value proposition)
    2. How you are going to solve those problems in an effective and efficient way? (basically this question is the beginning of the discussion around strategy).