Strategy maps need a clear and explicit Business Model

Working with a client last year I placed a draft strategy map on the wall. Actually I placed their business model so that they could start to develop their strategy over the top of their business model, once we had the business model correct.  The reaction from the Managing Director was “Ah ah, that is really useful – I can use this to explain what we do to clients and partners”.  He spent the next 10 minutes running through it in his mind, thinking about how he would explain it, in his words.

Just bear in mind, that this was not even their strategy map yet: it was only their business model, an interim step I use in the development of a client’s strategy map, and eventually their balanced scorecard.

When working with a Chief Executive in the NHS, I had a similar reaction. She decided to keep the strategy map with the business model on her office wall so she could explain to her visitors how her organisation contributed to the wider context of the NHS.  As she put it, “I used to think what we did, who we served and how we added value, was complex.  Our strategy map is really valuable because allows me to explain it in a few minutes.”

These are just two examples from many clients I have worked with.  I have seen clients use the business model and strategy map to explain the organisation to their Boards, and to their front line staff.

In my experience you have to get the business model correct before you start developing strategies, otherwise you are developing on sand; quick-sand at that.  In my clients’ experience, this intermediate model of the business creates a really useful communication tool.

The secret of a good strategy map – develop the business model first.

The secret to a good strategy map is actually in the under pinning, the foundations.  Yes you need a good clear cause and effect model.  However you also have to capture the business model of the organisation before you start laying strategic themes and objectives over the top.  Miss out that step and you will have a quite generic strategy but one that is hard for people to relate to.

In today’s environment especially, new business models are being introduced and existing models are changing so fast  that it is vital that you explicitly identify the business model and any changes. Handing the variety of new and different business models in strategy maps is an explicit part of the Fourth Generation Strategic Balanced Scorecard approach.

Beware generic strategy maps

I see a lot of variations on strategy maps:  I often see some very generic strategy maps, or ones that simply got copied from a book (or a previous client).  They don’t work.  They don’t work for three main reasons:

1. They are copying, stealing someone else’s strategy and trying to apply that to the current organisation.  Being a copy cat is not a strategy. Your situation and performance gaps are likely to be different.
2. There is no ownership and no sense of ownership.  Ticking a box labelled “Strategy Map: That will do” is not ownership and usefulness.  The process of a management team creating their strategy map with their nuances in it is part of what makes it useful (and therefore owned).
3. The organisation they are copying it from has a different business model.  (Or they have ignored the business model completely)

In any of these cases the strategy map is irrelevant to that current organisation client and will not stick.  It does not represent their thinking and mental models of how the organisation should work now or in the future.  The role of the business model in a strategy map is one that is frequently overlooked.

Complex and diverse business models

Making sure you have the right business model is vital with organisations who work through others, perhaps partners and channels.   We have applied this in all sorts of situations:

• In a European Bank, being clear how and where they play in their clients minds, and exploring how Fin-techs were seeking to disrupt the bank’s business model, together with possible business model responses to that disruption.
• In a water companies, being clear that their delivery was actually the quality of the water infrastructure, the effectiveness of which in turn provided the services to their end customers.  This also included the wider environment implications of their business model, recycling waste and protecting the environment.
• Networked organisations and membership organisations often have complex relationships supporting a variety of types of members and partners, with conflicting needs and demands.
• In a hospice, that used three different fund-raising models, work with NHS as a channel to people they could help, and also offered widely different core hospice services to children and adults. (Hospice strategic balanced scorecard case study)

In these three contrasting examples, a failure to develop the business model and value chain, would have led to simplistic strategies and therefore scorecards.

In some cases organisations have quite different customer groups:  Banks have retail and business customers, who might both borrow and simply use the bank for their core banking.  Charities and NFP organisations often have donors, and separately funders, immediate beneficiaries, partner organisations, and those who get secondary benefits such as the families of their immediate beneficiaries.   Many organisations have regulators to satisfy (The 4th Generation Strategic Balanced Scorecard includes a regulator’s perspective).

Being clear of the business model, before the strategy is over-laid, meant that a more meaningful and useful strategy map, and performance management system could be developed.

The business model includes the customers’ value chain

One piece of this process is vital: being clear of the customer’s value chain and processes, before you start to closely link it to the business model of the organisation.

Many balanced scorecard consultants or practitioners develop a customer perspective that is merely a reflection of what the organisations says they customers want.  This is the organisation’s proposition, NOT the customer perspective.  To genuinely get the customer’s perspective you must speak in their language, stating their objectives, from their perspective.  Saying, “They want operational effectiveness” is not the approach”.  A customer is more likely to say, “For goodness sake, answer that darn phone when I ring, know who I am, give me someone who knows what they are talking about and answer my questions, first time!”  That is the customer’s perspective of the balanced scorecard, done properly.

That perspective is just a part of their, the customer’s, value chain.  Understand their value chain, before you think about your own, and you can better understand where you, or competitors, add their value.  Then, and only then, you can start to think through your own business model and what might need to change.

When the strategy involves a change of business model

Often when working with a client and discussing their strategy it becomes apparent that their strategy actually involves a change in their business model.  This is often a fundamental part of their strategy.  It needs to be made explicit.  Sometimes this is a subtle change to the business model: sometimes it is more radical change to their business model.

Examples might include changing or opening up new distribution channels, bringing customers inside the organisation or fundamentally changing the customer set and value proposition.   The intervention of internet competitors often challenges a business model, as do changes to channels and partnerships.   Nowadays, we find that the changes to business models are often more radical that in the past simply because of the intervention of technology and internet companies, and small start-ups disrupting an industry.

The value of making the business model changes explicit is that you are making clear how the business model is different.  You are making it clear how the strategy is shifting and why the strategy is shifting – because our business model needs to change and our strategy has to change with it.

When you are communicating the change of strategy, also make explicit the changes to the business model.  This really helps people understand how their roles and contribution also changes.  Omit the business model changes and the new strategy can look as if you are painting over the old strategy.  And you don’t want that, do you?

 A confession

If, in your reading about strategy maps, you missed the importance of the business model stage, don’t be surprised.

I will admit I only realised that I was creating a business model before the strategy as my book, “Strategy Mapping for Learning Organisations” was nearing completion.  It was an intuitive stage I was going through to get the business model correct and then to start working with the client on the strategic themes and objectives.  It was a necessary piece to get their agreement that we were basing the strategy on the right pieces.

It was not that I did not build in their business model.  Nor was it that I did not realise the importance of the business model in describing their strategy.  It was simply that the stage was so natural and intuitive to me that I did not realise I was explicitly doing it.  Fortunately, I realised in the latter stages of the book and was able to include a the business model stage in the process.

Nowadays, I make a point of explaining to clients that the first draft version is only a business model and not yet their strategy map.  Yet, as the Managing Directors at the top of this story testify, even that simple stage adds a lot of value.

In summary:

1. The business model is vital to the client’s ownership of their strategy map and their ability to tell the story of their strategy.
2. Understanding the customer business model, or value chain is a vital part of the development of your business model.
3. The cause and effect model is vital to a cohesive strategy that can be described and delivered without hope and magic.
4. The strategic themes and strategic objectives capture the strategy, within the business model.

You can read more about strategy maps and strategy mapping here.  You can find out more about my book, “Strategy Mapping for Learning Organizations“.  If you are serious about a change of strategy that includes a change of business model, read about our Fourth Generation Strategic Balance Scorecard approach .

Or if you are serious about making your strategy happen, the Contact us.