This post is about the structure of strategy maps and in particular the financial perspective and objectives.
Occasionally I meet someone from finance who wants to put the financial perspective at the bottom. Sometimes they want an additional financial perspective; sometimes it replaces the one at the top. Their argument is that it is the funding and costs that need to be accounted for and this money drives everything else above. Putting them at the bottom represents this.
They are right in that the allocation of financial resources does provide the funds to pay for the capabilities, investments and processes and that they need that money to deliver the strategy. This is precisely the model we shall use in this chapter.
The reason is that financial perspective is at the top is that it represents the outcome of the organisation’s activities, not its inputs. It represents the predicted end costs, revenues and cash flows that result from the activities that cause them. It represents the answer to the questions, “Were we able to deliver its services for an appropriate price? Did we generate the revenue? Were we able to attract funding as planned?” They are the predicted (eventual) financial outcomes, not the allocated (input) budgets.
The cause and effect model for the strategy map deliberately puts the learning and growth, and organisational values, perspectives at the bottom. If you were to put financials at the bottom, it would suggest that the organisation’s value is driven only by its ability to fund activity. Whilst this may be true in part, the hypothesis in this model is that capability and capacity drive performance. Funding is obviously important, but the , (assisted by the ability to raise funds and do it economically).
So how do we accommodate the truth in this question? The anticipated cost of operating the business, investing in change and delivering the results for customers is the aggregated budget that results from the drivers of the change. As we shall see, these are derived from the operations and investment in change as expressed in the strategy map to create a budget for the strategy. These predictions sit beside the strategy map and scorecard, rather in another perspective beneath the others. Once aggregated together across objectives, themes and strategy maps, they are a part of the financial model and the anticipated outcomes are then placed within the financial objectives at the top of the strategy map.