The strategy map is designed and developed for each level in the organization with input from the respective leadership teams. Depending upon the business model, lower levels may adopt the corporate map in what is called a “replica” cascade model; in other cases the corporate map is broken down, distributed, and expanded at successive lower levels in what is referred to as a “contributory” cascade model. The strategy map is designed, tested, and refined until it tells the story of the organization's fundamental strategy. For the company in exhibit 1, the management team believes that its objectives have the following causal relationships: Objective L1 — Employ stable, high-talent workforce — enables the company to attain its internal process objective P1 — Execute world-class internal product development. Then achieving P1 enables the customer objective C1 — Provide innovative products, which (in turn) logically supports F1 — Grow new product revenue.

Exhibit 1 provides insight into one of the sample company's strategic themes: product development. In doing so, it shows us a vertical slice of the overall corporate strategy map. A company's strategy map usually consists of three or four such themes, containing a total of between 20 and 25 strategic objectives.

The horizontal view. Reading exhibit 1 from left to right reveals a description of each objective, the objective's key measures, and targets for those metrics. For example, the description of objective P1 — Execute world-class internal product development — is “accelerate new product development to bring new functionality to market before the competition.” Including a brief definition provides more insight into the strategic intent of the development of the objective.

As the corporate leadership team works with managers companywide to design the strategy map, they simultaneously identify one or two Balanced Scorecard measures that can show how effectively the company is executing each strategy map objective. For objective P1 in exhibit 1, the company came up with two measures: P1.1 — Product functionality, which rates the innovativeness of new products, and P1.2 — Time to market, which captures the company's ability to rapidly bring new products to market (in turn enabling premium pricing and a longer revenue cycle per product).

The targets for the strategy map's measures communicate performance expectations and enable color-coding of actual results against these targets on a balanced scorecard. The leadership team considers a number of factors in setting corporate, level-one Balanced Scorecard targets — factors such as competitors' performance, the company's experience and track record, market demand, and opportunity costs.

Back to the example in exhibit 1, the goal for P1.1 — Product functionality — is to be rated first or second in the market in terms of innovation in product functionality, a key differentiator in satisfying customer demand. In contrast, one of this company's competitors might consider a rating of third or fourth in the industry in terms of product innovation appropriate if its strategy is to imitate the leader. Yet another competitor's strategy might be to be the low-cost provider in the industry, so innovation ratings might not even make it onto that business' strategy map. Similarly, for the business in exhibit 1, the target for P1.2 — Time to market — is nine months from concept design to product commercialization and availability to customers. In contrast, one of this company's competitors, which is a “fast follower” rather than an innovator, might have an intentionally longer time-to-market target of 12 to 15 months. Clearly, targets that tie in with corporate strategy are essential in setting the bar for employee expectations and in managing performance.

Step 2: Creating Balanced Scorecards for All Levels

Because the last perspective in the strategy map's chain of causation is the financial, management teams may be tempted to track corporate performance using traditional management reports that focus on financial outcomes such as F1 — Grow new product revenue. However, the real power of the information sets within the Balanced Scorecard methodology lies in leading, nonfinancial indicators. These metrics can offer predictive capabilities into future performance, and this is where the Balanced Scorecard provides a competitive advantage. This is particularly true as corporate, level-one measures cascade down to levels two, three, four, and beyond, since the metrics become more operational in nature. While all four perspectives of the Balanced Scorecard remain important as strategy maps move down through the company, the mix of measures in product development (for example) typically becomes more concentrated in the process perspective, since the ability to execute on process goals becomes the key competitive differentiator and creator of value.

Exhibit 2, below, provides insight into the candidates that managers of our example company might consider in choosing metrics for levels two and three within the level-one P1.2 — Time to market measure. As you can see, the corporate-level P1.2 consists of many component, contributory measures, which can help executives understand it at lower, operational levels. How do companies choose metrics for lower-level scorecards? As we mentioned earlier, many today simply choose those for which information is easiest to obtain. The measures that populate an effective scorecard will require a BI solution for collection, collation, and queries. However, companies that want to tie strategy to action carefully review their choices of metrics, using a scoring mechanism to arrive at the final set, and determine their BI needs only after arriving at a list of metrics that reflect corporate strategy.