The issue of strategy map weighting has raised its ugly head again recently in some LinkedIn balanced scorecard and strategy forums.
And while the topic itself isn’t ugly, some of the exchanges have been. While some commentators have declared strategy map weighting “stupid”, I want to encourage practitioners not to throw an important concept out without further exploration and discussion because, in my experience, when applied in a specific way with a specific objective in mind, the idea of strategy map “weighting” can address a critical problem I see in 100% of the clients I work with – a lack of prioritization in organizational work effort, resource allocation, and operational and strategic decision-making.
First, let’s talk about the concept of weighting from a historical and technical perspective because it’s always good to know where we’ve been.
Weighting and the Balanced Scorecard
Back in the 1990’s when the balanced scorecard was new and we all thought that it was a performance measurement framework and activity, weighting your balanced scorecard indicators was very much in vogue. Balanced scorecard weighting was generally done in an effort to calculate an overall score for balanced scorecard performance. I even saw some executives being incented on increasing the overall balanced scorecard score for their organization over time because an improving score was considered evidence that the business unit’s overall performance capabilities were improving. At that time, we weren’t thinking about what “improvement” really meant (or whether increasing your overall balanced scorecard was even a good indicator of progress in the first place!). In the early days the concept of keeping score and improving on that score was seen as the primary goal of balanced scorecard utilization. Needless to say, the understanding and use of the balanced scorecard by many practitioners was formative and immature at that time!
In order to calculate an overall balanced scorecard score, everything needed to be given a weighting. The easiest approach was to begin by weighting the four balanced scorecard perspectives by allocating 100% over the various perspectives. From there the percentage given to a perspective was allocated amongst the indicators housed within the perspective (back in the 1990’s, it was rare to see strategic objectives included on a balanced scorecard). Weighting was often applied based on an unscientific assessment of the relative contribution of various perspectives and indicators to business performance results. Sometimes, thought was given to the concept of cause and effect in the balanced scorecard and greater weighting was applied in the “lower” perspectives and their associated indicators but let’s be honest – cause and effect was a new concept back then and we were still figuring out what the idea really meant in practice. Back then I saw weighting being applied to gap areas (i.e. opportunities for improvement), perspectives and indicators that had the highest external visibility, and a whole host of other, opinion-based/subjective reasons.
As our use of the balanced scorecard has matured, much has changed. The use of balanced scorecard “weighting” is rarely suggested these days because we generally use the balanced scorecard as a performance management tool that uses measures as indicators of organizational performance. That is, they are not diagnostic and, when approaching it as an internal strategy management tool, the balanced scorecard is best used as a facilitator of organizational analysis, dialogue, action, and change.
With this change in mindset, the concept of rolling up overall balanced scorecard performance into a score no longer makes much sense. Furthermore, the idea of weighting an indicator’s contribution to the color coding of the strategic objective it supports (assuming that you have progressed to including strategic objectives on your balanced scorecard) doesn’t add value to the role of the balanced scorecard as a performance management tool. In fact, in this context, balanced scorecard weighting can actually get in the way. That’s because weighting one indicator’s contribution significantly over another can actually mask areas of underperformance when looking at strategy execution capabilities and strategic progress.
As a result, I usually advise weighting all balanced scorecard indicators equally in relation to their contribution to their associated strategic objective unless there is fact-based evidence or a very clear business rationale to do otherwise. For example, 100% weighting is given in the case of just one indicator, 50% is given to each in the case of two indicators, etc. – you see what I mean. In my experience, there is rarely a clear rationale to approach weighting otherwise.
The only time that the balanced scorecard and/or balanced scorecard indicators may be weighted is when it is being used for the purpose of incentive compensation. There are lots of different factors that go into weighting a balanced scorecard for incentive compensation purposes – some of them related to areas of strategic focus and some of them related to the financials associated with the probability and size of the potential payout. Incentive compensation and indicator weighting is a complex topic best left to another discussion.
So, where are we now when it comes to balanced scorecard weighting? Generally, it really comes down to purpose. And, when the balanced scorecard is being used for the purposes of internal strategy management, weighting is generally not applicable because it just doesn’t make sense or add value.
Weighting and Strategy Maps
As you know, strategy maps were a later evolution in the balanced scorecard story. And while they were formally introduced to the world in 2001 and then again, more thoroughly, in 2004, many of us practitioners actually started creating our own strategy maps as early as the late 1990’s. Strategy maps were the missing link for many of us in building the bridge between strategy creation and execution and in maximizing the power of the balanced scorecard as a strategy management tool.
By the time strategy maps came into greater use, our understanding of the relationship between the purpose of strategy management tools, cause and effect relationships, and weighting concepts had matured. As a result, strategy map weighting in the old sense was never a part of the package – it just wasn’t seen as relevant.
However, some practitioners did bring the concept of weighting back into play after we started using strategy maps with our clients but in a different way for a different reason and here’s why.
If you are an experienced practitioner, you know that, no matter how much you try to focus on “the vital few”, most initial strategy maps begin with upwards of 24 strategic objectives. While in theory we want to keep a company’s strategy map focused, reality is much messier. Many organizations just aren’t sure what their true value drivers are and/or organizational leaders can’t come to consensus on them. As a result, they are afraid to leave many business objectives off of their strategy map. And, no matter how much you want organizations to develop their strategy map based on hard evidence, most companies just don’t have the cause and effect data available to map out a sure-fire value chain (they need a draft strategy map and balanced scorecard to start testing this out!). As a result, most companies begin with a strategy map with a high number of strategic objectives.
When this happens, a strategy map can magnify a critical business problem – the failure to establish business priorities.
This is one of the biggest business problems today – the struggle to identify and focus on a few relevant strategic imperatives in the context of the bigger, long-term picture. Many organizations strive to put equal effort on all strategic objectives at the same time and end up achieving mediocre success in all areas. Unfortunately, a strategy map with 24 strategic objectives can cripple an organization that avoids making prioritizing decisions – no business can successfully work on 24 key strategic objectives simultaneously.
I personally saw many clients struggle with this challenge so, some years ago, I, and several of my colleagues, brought back the old idea of weighting and applied it to strategy mapping but in a new way – to identify subsets of strategic objectives having different levels of strategic priority over a period of time. Taking this approach has given strategy map users a way of identifying a few critical strategic imperatives in their business in a thoughtful and manageable way.
When I get my clients to do strategy map “weighting” or prioritization, I get them to ask this question: “Where should we put relatively greater work effort and priority over the next X months (usually 12 – 18 months)?” With this question in mind, participants apply weighting in a way that technically looks similar to the old balanced scorecard weighting approach – the key difference is in the question and purpose behind the weighting exercise.
Strategy map prioritization is an interesting exercise. There is almost always a 50/50 split in the approach participants take to applying their relative weightings. Half of the participants are guaranteed to leverage cause and effect concepts and select strategic objectives with the biggest performance gaps (current state versus vision state) lower down in the strategy map hierarchy. Others will select gap areas that represent high visibility outcomes (usually in the internal process, customer, and financial perspectives). The main thing the different approaches seem to have in common is that they focus on performance gap areas.
Talking about their different approaches to strategy map prioritization always allows members of an organization to really explore cause and effect concepts and come to consensus on (1) the way they want to think about the way their business works to produce results; and (2) where the most critical strategic gaps are in the business. The usual result is agreement on four to six strategic objectives that have clearly higher weighting or priority over the other strategic objectives on an organization’s strategy map over a defined period of time. And while all objectives will get some attention over the time period in question, members of the organization reach agreement that, when a decision must be made regarding work effort and the allocation of time and resources, the top four to six priorities will win out over the other objectives.
Strategy map prioritization is not a theoretical exercise – it’s a very practical one. Once they have weighted/prioritized their strategy map, my clients have used the weighting in many ways: to create multiple tiers of projects with tier 1 projects having the highest priority in budgeting and resource allocation; to evaluate and prioritize projects and work requests (i.e. work aligned with the top strategic objectives gets priority over other work); to evaluate the importance and impact of balanced scorecard results and to prioritize resulting corrective active plans; and in defining and weighting decision-making criteria. These are just a few examples.
The beauty of strategy map weightings is that they can be changed as required based on business conditions and learnings. Most importantly, this information provides guidance to managers and employees about prioritization decisions in their day to day work.
As my thinking about prioritization concepts has evolved, I have progressed on from having my clients weight the entire strategy map to having a fact-based discussion that asks each participant to identify the top three or four priority strategic objectives for the defined period of time. I have found that this more focused approach enables the same discussion and learning points and gets clients to the same result without the complexity of assigning weightings. And while there are a few downsides to this approach, the result is still the identification of relative work priorities for an organization within the context of all the strategic objectives on their strategy map and, most importantly, better, more successful strategy execution over the long term.
When considering weighting in the context of both the balanced scorecard and the strategy map it is important to avoid thinking about these concepts in purely black and white terms. However, over time, we have learned that some purposes and concepts just don’t go together in the case of some tools and we need to keep this information in mind as we move forward.
For example, the concept of strategy management and performance scoring are not a good match – they actually work at cross purposes. In contrast, the concept of strategy management and weighting for work prioritization appear to be in harmony because they share a common objective: excellence in strategy execution.
It is wiser, in my opinion, to think more deeply about the purpose of the tool in question and the purpose of a specific or associated activity. Taking this approach will set a better stage for the future evolution and practical application of strategy management tools in business.