Interview with Bernard Marr, author of Strategic Performance Management: Leveraging and measuring your intangible value drivers.

Bernard Marr, CEO and Director of Research at the Advanced Performance Institute, has produced a book that is fast becoming recognized as a significant contribution to the field of strategic performance management. What makes this book stand out from the crowd is that Marr introduces a new and innovative performance management framework, which he calls a Value Creation Map.

As shown in figure 1, a Value Creation Map is a visual representation of the organization strategy that includes the most important components that exist within the strategy (namely stakeholder value proposition, core competencies and key resources) and places them in relationship with each other.
 
 

What is particularly interesting about this work is that, as others have already suggested, the Value Creation Map, and the ideas that surround it, might well prove a credible alternative strategic management framework to the conventional Balanced Scorecard.

Your book is called Strategic Performance Management. Yet we have terms such as Enterprise Performance Management, Corporate Performance Management and Business Performance Management. Are these four terms interchangeable, or are they different propositions?

Often the different terms are created and used by either software vendors or consulting companies to identify their particular approach. To me, they’re all essentially talking about the same things – clarify your strategy, map the strategy and identify key performance indicators that then help to communicate and manage what really matters in organizations. It’s also about aligning the organization behind the strategy, which means aligning HR management, budgeting and planning etc., to strategic objectives.

However, sometimes the difference in terminology simply reflects the audience you are speaking to. For example, the term corporate performance management may resonate well in commercial organization but not in public sector companies. I wanted to ensure that my book resonates with both audiences.

You point out in your book that it is estimated that corporate investment in intangible assets is about $1 trillion annually in the US alone, which almost matches the investment in tangible assets. Yet despite such huge investments, companies globally are still typically poor at measuring the impact of intangible assets. Why are intangibles proven so difficult to measure?

Intangibles, such as found in human, structural or relationship resources, are interdependent. So understanding the performance of intangible assets means taking a more holistic, as opposed to isolated view, of how they create value. The problem is that most research methodologies and measurement tools are quantitative. And so organizations try to apply such tools to intangibles, which doesn’t work very well. What we need is a much more qualitative assessment, where we are considering all the various dimensions that impact performance. What’s more, when it comes to intangibles, rather than look for absolute measures, we should be looking for performance indicators.

Many people see measures and indicators as interchangeable. Are you arguing that they are different things?

Yes. The word measure is often associated with accounting and mathematics. It therefore works in the simplified world of financial numbers, where we can clearly define things and then reduce them to a number. However, when considering concepts such as intellectual capital, reputation or organizational culture, which are intangible, they are impossible to measure in a traditional measurement sense - measures can only capture a fraction of the whole truth. Here therefore I prefer to use the word indicator, as it ‘indicates’ a level of performance and does not claim to ‘measure it’. If, for example, we introduce a new indicator to assess customer satisfaction levels, the indicator will give us an indication of how customers feel; however it will never measure customer satisfaction in its totality.

It was interesting that in your book you said that there’s much cynicism with the term human capital. Can you elaborate on this view?

It’s about terminology and perceptions. It’s not unusual for organizational leaders to say that their people are their greatest assets but when you look at their processes and structures this clearly is not the case and their employees know this. So when they band about terms such as human capital there’s the same disbelieving response. Yet it’s critical to connect your competency framework and your people development work to the strategy or else it is impossible to implement strategy. So whether the term is used or not, human capital is critically important.

You make much of the importance of core values. What role do values play in strategic performance management?

Organizational values set boundary conditions in which people work. If implemented well, they provide us with a framework that directs and limits what we do and how we do things in our organizations. This is actually one of three management control levers identified by Harvard Business School’s Professor Simons. When companies get these boundary conditions right they form critical elements of strategic performance management. However, if they are just meaningless general statements that don’t reflect the strategy and culture of the organization then they lose any value.

Over recent years, vision and mission statements have received something of a bad press. How important are such statements of strategic intent in an overall strategic performance management approach?

For me vision and mission statements are critical as they should directly link to the strategic value proposition. They are also very important as they are part of creating the boundary conditions for setting and executing strategy. The problem is that most statements are meaningless in that they are just a collection of nice sounding words that are so generic that they could apply to any organization in any sector. Consequently, they are useless as strategic guides.

Indeed, if you go to the game section of dilbert.com you will find a random ‘mission statement generator,’ which wonderfully satirizes the statements used in most companies.

Also vision and mission statement are often not linked to what’s going on in the organization. If the indicators aren’t linked to the vision/ mission then there’s something wrong with the indicators or the strategic statements.

In many of the projects I do with companies, they re-visit their mission and vision statements once the strategy has been clarified and mapped.

Making the strategy explicit often makes them realize that their mission and vision statement needs to be better aligned with their strategy.

Is it important to prioritize stakeholders when building a Value Creation Map?

Absolutely. It’s crucial to identify all key stakeholders and ensure they are addressed in the strategy. Top level stakeholders are usually financial stakeholders and customers in commercial organization and communities in the public sector. Their needs will provide the input for the stakeholder value proposition. Once identified you must then identify the core competencies and the resources required to deliver to the stakeholder requirements. If your key stakeholders don’t appear on your map then there’s something wrong with the map or you haven’t thought through whom the key stakeholders really are.

The Value Creation Map is an extremely valuable contribution to the tools and frameworks available to practitioners in the field of strategic performance management. How did the map come about?

It evolved from analyzing and learning from the work of many people in the area of strategic mapping. The work in mapping strategy was developed in the military hundreds of years ago. It was then brought into the business context by researchers at MIT over 50 years ago, and of course in recent years Kaplan and Norton have adopted strategy mapping as part of the Balanced Scorecard methodology. In addition, there’s been great work done by Goran Roos and others in mapping the inter-relationships between components of intellectual capital in order to get a better handle on the real drivers of performance and value in an organization. Based on this work, my own experience, and more general insight from the resource-based strategy literature I was able to draw up the model.

So what is new about the Value Creation Map?

I’ve really set out to look at value creation from both the classic market-based and the more recent resource-based perspective. The Value Creation Map brings these two important theories together into a practical framework. Practical applicability and sound theoretical foundations have been the key drivers for the development of this model. This therefore allows you to create the linkages between value proposition, core competencies, and most importantly the underlying performance drivers and their interdependencies. This allows organizations, in a simple step-by-step process, to design a performance management framework that clarifies the relationship between resources (tangible and intangible), capabilities, and core competencies in value creation.

How does the Value Creation Map build upon our learnings from the Balanced Scorecard and Strategy Maps?

Firstly, I think the Balanced Scorecard has been one of the most important contributions to the field of strategy management and performance measurement in recent years. A possible downside of the scorecard is that it has evolved so much since its launch in the early 1990s that there is much confusion in the marketplace as to what a scorecard is – to many it is just a synonym for a collection of performance indicators and not for what the Balanced Scorecard is today: a strategic management approach that starts with a strategy map.

The Value Creation Map builds on the latest evolution of the Balanced Scorecard and takes into account the many positive and practical insights, but at the same time it is closely aligned with the latest theoretical thinking in the fields of strategic management, organizational behavior, and performance measurement.

However, the approach to Strategic Performance Management I outline in the book is not only about Value Creation Maps, even though they are a central component. Other basic components are a Value Creation Narrative, the right performance indicators (for which I provide a template), and aligned performance reviews.

Explain your concept of the Value Creation Narrative and how this fits with the Value Creation Map?

Together the Value Creation Map and the Value Narrative describe the business model and therefore provide a shared understanding of the strategy. I believe both are required because some people, those that are right-brain focused, respond better to the pictures and diagrams that appear on a map than to words. Others, left-brain focused, are more text responsive. So both a map and a narrative ensure that all people in the organization get to understand the strategy in a way that makes most sense to them.

Also, the narrative provides the contextual information of the strategy that is visualized in the map. Even though a picture can say a thousand words, sometimes we need words to provide additional context and clarify the map. These narratives can then also be used as templates for business plans.

There is additional need for narratives when it comes to performance measurement. I believe that most KPIs should be supplemented by narratives. This allows people to move beyond numbers and put performance into the context. It allows people to put meaning with numbers, which then allows others to better understand performance and therefore helps to communicate and open up dialogue about performance.

Within your book, you make much of risk management. Why is this?

If you believe the Value Creation Map describes your strategic value drivers then you should be identifying and managing the associated risks with those. However, most organizations still only look at financial risk or external risks identified in an external strategic analysis.

But there are other risks that must be identified and managed. For examples there are human resource risks such as the risk of losing key knowledge or skills. There’s also structural resource risk such as damage to the IT systems and intellectual capital theft. And there are also relational risks around the reverberation of supply chain failure or damage to reputation. For reputation consider the implosion of Arthur Andersen after a few of its partners were involved in several high profile accounting scandals – when their reputation was destroyed, the organization had nothing else to trade with. Organizations need to know what the key risks to their continued survival are and ensure they are managed closely.

How does the concept of the Office of Strategy Management fit with your thinking?

I think a dedicated team is needed to properly manage any strategic performance management program, although depending on the size of the enterprise it doesn’t always have to be a full-time team or housed within a separate function.

The main role of this team is to facilitate the implementation and cascade into the organization, as well as the custodianship of the data collection, data analysis and reporting. This is best achieved by a cross-functional team.

How do you see the strategic performance management world evolving over the next three years?

There will be a lot of work in aligning all the different pieces behind the strategy, such as strategic human resource management and budgeting and planning. We will also see software continuing to improve and thus better enabling strategic performance management. Another key evolution will be that more people will wake up to the fact that the classic command-and-control model in which we can objectively measure performance doesn’t work any more. Especially when it comes to measuring and managing our intangible value drivers we require novel approaches for assessing performance.

Finally, what are the three critical success factors in succeeding with a strategic performance management framework?

Senior management support is a must. Truly, you can’t make any of this happen if the most senior team aren’t championing this and leading it from the top. There’s also the time commitment required to make it work, such as the senior team taking enough time to really think through and map the drivers of strategic success. Then there is the cultural shift from command-and-control to an enabled learning environment in which indicators are used to guide dialogue and decision making. And then there’s local ownership, through which devolved managers and their staff are responsible for driving forward their own performance and making sure this is linked to the strategic goals.

Bernard Marr is the CEO and Director of Research at the Advanced Performance Institute and also holds multiple visiting professorships. He has produced over 100 books, reports and articles on topics such as the Balanced Scorecard, Corporate Performance Management and Intangible Assets. In a recent article ‘wise guys’ the CEO Journal recognized Bernard Marr as one of today’s world-leading business brains.

It evolved from analyzing and learning from the work of many people in the area of strategic mapping. The work in mapping strategy was developed in the military hundreds of years ago. It was then brought into the business context by researchers at MIT over 50 years ago, and of course in recent years Kaplan and Norton have adopted strategy mapping as part of the Balanced Scorecard methodology. In addition, there’s been great work done by Goran Roos and others in mapping the inter-relationships between components of intellectual capital in order to get a better handle on the real drivers of performance and value in an organization. Based on this work, my own experience, and more general insight from the resource-based strategy literature I was able to draw up the model.

So what is new about the Value Creation Map?

I’ve really set out to look at value creation from both the classic market-based and the more recent resource-based perspective. The Value Creation Map brings these two important theories together into a practical framework. Practical applicability and sound theoretical foundations have been the key drivers for the development of this model. This therefore allows you to create the linkages between value proposition, core competencies, and most importantly the underlying performance drivers and their interdependencies. This allows organizations, in a simple step-by-step process, to design a performance management framework that clarifies the relationship between resources (tangible and intangible), capabilities, and core competencies in value creation.

How does the Value Creation Map build upon our learnings from the Balanced Scorecard and Strategy Maps?

Firstly, I think the Balanced Scorecard has been one of the most important contributions to the field of strategy management and performance measurement in recent years. A possible downside of the scorecard is that it has evolved so much since its launch in the early 1990s that there is much confusion in the marketplace as to what a scorecard is – to many it is just a synonym for a collection of performance indicators and not for what the Balanced Scorecard is today: a strategic management approach that starts with a strategy map.

The Value Creation Map builds on the latest evolution of the Balanced Scorecard and takes into account the many positive and practical insights, but at the same time it is closely aligned with the latest theoretical thinking in the fields of strategic management, organizational behavior, and performance measurement.

However, the approach to Strategic Performance Management I outline in the book is not only about Value Creation Maps, even though they are a central component. Other basic components are a Value Creation Narrative, the right performance indicators (for which I provide a template), and aligned performance reviews.

Explain your concept of the Value Creation Narrative and how this fits with the Value Creation Map?

Together the Value Creation Map and the Value Narrative describe the business model and therefore provide a shared understanding of the strategy. I believe both are required because some people, those that are right-brain focused, respond better to the pictures and diagrams that appear on a map than to words. Others, left-brain focused, are more text responsive. So both a map and a narrative ensure that all people in the organization get to understand the strategy in a way that makes most sense to them.

Also, the narrative provides the contextual information of the strategy that is visualized in the map. Even though a picture can say a thousand words, sometimes we need words to provide additional context and clarify the map. These narratives can then also be used as templates for business plans.

There is additional need for narratives when it comes to performance measurement. I believe that most KPIs should be supplemented by narratives. This allows people to move beyond numbers and put performance into the context. It allows people to put meaning with numbers, which then allows others to better understand performance and therefore helps to communicate and open up dialogue about performance.

Within your book, you make much of risk management. Why is this?

If you believe the Value Creation Map describes your strategic value drivers then you should be identifying and managing the associated risks with those. However, most organizations still only look at financial risk or external risks identified in an external strategic analysis.

But there are other risks that must be identified and managed. For examples there are human resource risks such as the risk of losing key knowledge or skills. There’s also structural resource risk such as damage to the IT systems and intellectual capital theft. And there are also relational risks around the reverberation of supply chain failure or damage to reputation. For reputation consider the implosion of Arthur Andersen after a few of its partners were involved in several high profile accounting scandals – when their reputation was destroyed, the organization had nothing else to trade with. Organizations need to know what the key risks to their continued survival are and ensure they are managed closely.

How does the concept of the Office of Strategy Management fit with your thinking?

I think a dedicated team is needed to properly manage any strategic performance management program, although depending on the size of the enterprise it doesn’t always have to be a full-time team or housed within a separate function.

The main role of this team is to facilitate the implementation and cascade into the organization, as well as the custodianship of the data collection, data analysis and reporting. This is best achieved by a cross-functional team.

How do you see the strategic performance management world evolving over the next three years?

There will be a lot of work in aligning all the different pieces behind the strategy, such as strategic human resource management and budgeting and planning. We will also see software continuing to improve and thus better enabling strategic performance management. Another key evolution will be that more people will wake up to the fact that the classic command-and-control model in which we can objectively measure performance doesn’t work any more. Especially when it comes to measuring and managing our intangible value drivers we require novel approaches for assessing performance.

Finally, what are the three critical success factors in succeeding with a strategic performance management framework?

Senior management support is a must. Truly, you can’t make any of this happen if the most senior team aren’t championing this and leading it from the top. There’s also the time commitment required to make it work, such as the senior team taking enough time to really think through and map the drivers of strategic success. Then there is the cultural shift from command-and-control to an enabled learning environment in which indicators are used to guide dialogue and decision making. And then there’s local ownership, through which devolved managers and their staff are responsible for driving forward their own performance and making sure this is linked to the strategic goals.

About Bernard Marr

Bernard Marr is the CEO and Director of Research at the Advanced Performance Institute and also holds multiple visiting professorships. He has produced over 100 books, reports and articles on topics such as the Balanced Scorecard, Corporate Performance Management and Intangible Assets. In a recent article ‘wise guys’ the CEO Journal recognized Bernard Marr as one of today’s world-leading business brains.