General approaches to strategic goal setting are described in the works of well-known authors (Robert Kaplan, David Norton, their consulting business, as well as the development of the BSC methodology, are presented on this site: Palladium Group, Inc ). The issues of applying general approaches to goal setting in management practice using BPM systems are covered to a lesser extent. This article offers for discussion individual methodological issues of strategic goal setting and the consequences of their solution using BPM systems. The construction of strategic maps of the company in a more complete version, with the solution of practical problems and cases, is considered here .
It happens that unresolved or incorrectly resolved methodological issues of goal setting and reporting are expressed in cumbersome procedures for developing goals, labor-intensive processes of collecting and processing information, in huge expenditures of time of highly paid top managers (“endless” meetings), who do not need methodological issues in themselves, but “with their skin” everyone feels that something is wrong in “this process”. Since the corporate procedure is approved by the highest official, then both the top manager and the middle manager work within its framework, unless, however, some way to bypass or improve it is found. It happens that the procedure does not even exist.
Let’s assume that the process of goal-setting for the annual business planning cycle looks like the figure, Figure 1. For simplicity, we will present the process in a general way, without details and without links to strategies. At the 4th step of the process, it becomes necessary, due to the methodology adopted in the corporation based on the concept of the balanced scorecard (BSC), to form a strategic map of company-level goals (subsidiary company, hereinafter – SC). For brevity of presentation and placement of emphasis within the framework of this article, we will not consider all the stages.
It is proposed to discuss the issue of forming strategic maps (SM) using BPM systems and to evaluate possible options for forming SM from the point of view of ease of use, clarity, and time costs.
Figure 1. An example of the goal-setting process within the framework of a company’s annual business planning.
Why do we need a strategy map at all? Ideally, a strategy map allows us to briefly convey strategic business development priorities for the planning period in a concise form, using one diagram. A strategy map is a visualization of a strategy on one sheet, and is a key component of the BSC approach. At the same time, the priorities of goals in a strategy map are defined holistically, specified by goal weights, and interconnected with the business logic of “if, then” (process logic, calculation formula, accumulated statistics), and are not listed by separate functional groups (if the prospect is finance, then the financial director has formulated his goals, etc.).
If the SC displays weights, current actual values, % achievement, then, under certain conditions, the SC can be a good tool for “top-down orientation” on how things are generally going on key issues, and this will allow for the formation of visual management reporting based on the SC, and dash-boards (indicator panels) for its key indicators.
In the community of BSC adherents, differences appear when it comes to specific steps. The terms “goal” and “indicator” can be identified, separated, etc. It is proposed to consider two approaches to how to build a company’s BSC – in the first approach we use both goals and indicators, in the second – only indicators, and we will analyze the pros and cons of each approach.
First approach: “strategic goals = indicators + decomposition + projects/plans”
The figure (Figure 2) highlights various elements in the BSC methodology with pictograms: perspective, strategic goal, indicator (goal measure), action plan/project. In this approach, the strategic goal is an element of the BPM system, while the concept of “goal” denotes the semantic vector of priority development areas, the formulation of the goal does not meet the SMART criteria, the SMART requirements are met, by indicators measuring the achievement of the goal.
Achieving a strategic goal is ensured by the implementation of its three components: indicators (goal measures), goals of middle management (decomposition of company goals), and action plans/projects.
Figure 2. Example of a strategic goal at the company level, TC – shopping mall.
In the SC we display only strategic goals at the company level and in this case, the strategic map will look, for example, as in the figure – Figure 3.
Figure 3. Strategic map of the company within the first approach. Cause-and-effect relationships between strategic goals are not always obvious.
Within the framework of the first approach, the composition of indicators measuring the “constellation” of strategic goals in the SC can vary significantly from year to year, especially if the strategic goal is replaced by a project , or the goal is not clearly formulated, and its meaning becomes clear only by the end of the reporting period, when the first measurements of indicators measuring this goal begin.
The second approach: “indicators + projects/plans”
In the second option, the goals are not an element of the BPM system, the concept of “goal” is preserved, it denotes global quality priorities, is present in the planning documents descriptively – to become leaders, to be in the top three, to satisfy the client better than anyone else, etc. The main work is done with indicators, measuring instruments. And we can say that in this case the indicator acts as an instrumental goal that meets all the SMART requirements. The “gap” between the planned value of the indicator and its actual value for the past period is the goal for the person responsible, the “gap” sets the direction of effort (example, Figure 4, Figure 5). Integral indicators of the company level are in the area of responsibility of top managers. The decomposition of company-level indicators can go “down” along the levels of the organizational hierarchy, if desired, to each ordinary employee.
For example, at the company level, the commercial director is responsible for revenue across all sales channels, and his deputies are responsible for revenue across individual sales channels, Figure 4.
Figure 4. Company-level target indicators with decomposition.
Figure 5. The gap between planned and actual values of the “service quality coefficient” indicator.
Within the second approach, the composition of indicators remains largely stable from year to year; only the portfolio of development projects, the implementation of which is aimed at achieving new planned values of indicators, varies significantly.
Each indicator presented in the BPM system is provided with a calculation method and evaluation criteria – in which cases its actual values will be recognized as “unsatisfactory, satisfactory, good or excellent”.
The planned values of the indicators are achieved through the implementation of plans, development projects (initiatives), as well as through optimally structured business processes of the company: management processes, primary and auxiliary business processes.
In the second version, the strategic map will look, for example, as in the figure, Figure 6.
Figure 6. Strategic map within the second approach. Cause-and-effect relationships are more obvious than in the first approach (in the author’s opinion).
How to develop useful key indicators that measure strategy and reflect the company’s development priorities? Where can they be borrowed? Where can I see examples of KPIs? You can work with these questions by reading the article “Database of indicators. Examples of KPIs” .
To sum up, we can formulate options for strategic maps of the company, which include:
- Strategic goals only
- Only indicators
- Both are strategic goals and indicators.
Of course, each option has its pros and cons.
| Pros | Cons | |
| Strategic goals (1 approach) | A strategic goal reveals the meaning of changes and shows the development vector in a larger semantic context than an indicator (measure). | Behind the goal formulation, the measurer is “not visible” . There is a risk that the goal – the correct beautiful slogan – “hangs in the air” and, possibly, is not measurable correctly. |
| The desires and attitudes of shareholders are easier to transform into a “constellation” of goals of the company’s SC than into a list of indicators. | The relationships between strategic goals are not obvious, there is a wide range of opinions in determining the relationships between goals. The time spent by top managers on coordinating the SC may not justify the effect of developing the SC. | |
| It is possible to realize the desire to see how the top-level goal is broken down into a “chain” of goals/indicators of all the following levels, which gives a sense of management transparency. | The company’s goal model contains many levels of nesting, which leads to increased labor intensity of working with the BPM system. | |
| Indicators (2nd approach) | Simplicity and clarity: the connections between indicators are obvious (connections are built on the basis of the calculation formula, business process logic, experience, statistics), fewer elements in the BPM system. | The indicator is “dry” in its formulation, it is not always clear why it is a priority. To understand the context, you need to refer to the descriptive part of the strategy. |
| Strategic goals and indicators | The disadvantages of the first two approaches are removed. | There is a risk that the resulting strategy map will be cumbersome and unreadable, and only the strategic management office can understand it. The practical benefit of this tool is reduced, there is no ease. |
Table 1. Pros and cons of strategic map options.
Building a strategy map is, of course, only a small part of the journey. When indicators are assigned weights and included in the incentive system, the “conversation” on the topic of the SC and BSC becomes more substantive. In order for the SC to become a convenient and practical tool for “orientation from above” on how things are generally going on key business issues, the SC must display current actual values of indicators, “display” color indicators (good, bad, acceptable), — create visual management reporting. The actual value can appear in the BPM system in one of three ways:
- Enter manually (the most labor-intensive method, from the point of view of business users).
- “Pump” data through integration mechanisms from accounting systems (the load is shifted to the company’s IT department).
- The fact is calculated using a formula by calculation, based on previously entered data on other indicators.
If a company has decided to implement a BPM system, then, of course, the next step will be logical – integration of existing accounting and planning systems with the BPM system. Manually entering a fact into a BPM system is, of course, possible, but extremely ineffective.
The differences in approaches may seem far-fetched and insignificant to some, but if we consider the issue from the point of view of using this management tool on a regular basis, the picture will be different, with different labor intensity:
- plans and reports are formed,
- the weights of goals/indicators are distributed,
- calculate the % of achievement of goals/indicators.
In test mode, it is possible to implement all options in the BPM system, and each company can experimentally check the convenience of each option. This is not as labor-intensive as in Excel, Visio or PowerPoint, but requires the readiness of the management team to develop management practices using modern IT solutions.
Both the first and second approaches to forming the SC are quite workable. Each company is free to decide to adapt the generally known management concepts to its corporate culture, management style and other features, called “specifics”. The choice is up to the company’s top officials and management team.
At the workshop, you can work out options for constructing strategic maps, discuss issues, and consider examples from practice.
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