The Kaplan and Norton Balanced Scorecard(BSC) and Strategy Map (SM) are well-known, abstract models for structuring business transformation objectives. The analysis of objectives helps refine a strategic plan, and the resulting objectives provide a basis for continuing assessment of progress. This article describes how VDML can provide more robust analysis for setting BSC objectives and defining SM relationships. VDML (Value Delivery Modeling Language) is a specification in the final stages of adoption by the OMG (Object Management Group).
BSC/SM objectives represent desired changes to the state of the business—key measurements of the operation of the business will drive improvements. Thus the changes represented by BSC/SM objectives represent key differences between VDML As-Is and To-Be models.
The diagram, below, characterizes the objectives of a BSC and SM. For the BSC, Kaplan and Norton define four perspectives that classify objectives: (1) Learning and Growth, (2) Internal Processes, (3) Customer Value, and (4) Financial. This classification drives a broader analysis starting with the development of capabilities (Learning and Growth), through development of internal methods and processes (Internal Processes), to delivery of customer value (Customer Value), and finally to enterprise success and sustainability (Financial).
The Strategy Map identifies causal relationships—some objectives depend on achievement of other objectives. For example, an internal process will not be successful without the capabilities that support it (e.g., people, machines, knowhow). The diagram illustrates the general flow of causal relationships—an actual strategy map would link specific objectives.
A VDML model can represent the current or future state of the business and associated operating measurements. A model could involve multiple lines of business and multiple value streams. VDML models can extend the BSC/SM analysis to support more robust transformation planning and assessment. The diagram, below, depicts this.
So a VDML To-Be model can represent the improvements in performance and value creation if the strategy is successful. As the basis for objectives, these To-Be measurements must be compared to corresponding measurements in an As-Is (current state) model. The current As-Is model will be updated to reflect changes as the transformation progresses. If the transformation goes as planned, the As-Is model will become the same as the To-Be model (transformation complete). Development of these models is discussed in greater detail in Strategic Planning with VDML.
VDML can represent many of the measurements of interest for the BSC/SM objectives, so a BSC/SM objective may obtain its target measurement from the To-Be model and its current measurement from the As-Is model. VDML does not directly identify objectives for Learning and Growth, but can represent the requirements for resources that must be developed to achieve capability requirements.
VDML can represent objectives of the BSC Financial Perspective as As-Is and To-Be value proposition measurements and market segment forecasts. However, VDML does not provide support for the development of these market forecasts. For example, profit is essentially price minus cost. VDML supports cost detail, but price is a management decision based on market analysis. Market share is a forecast based on price and other factors including future competition. VDML can capture those measurements, but does not provide support for market analysis.
Operational measurements support more extensive analysis and mapping. For example, if a new capability is needed, the need is represented by the absence of the capability in the As-Is model. The objective measurement is essentially binary. If the capability requires skilled people, we might represent the need for growth with a VDML store of people required for the capability in the As-Is and To-Be models. The To-Be model may also represent new supplier relationships.
From a VDML perspective, causal relationships (i.e., dependencies) are of six different types: (1) changes to enterprise capabilities (i.e., “capital” in Learning and Growth) that are necessary for implementation of Internal Perspective value stream changes, (2) changes to capabilities that increase customer value (Customer Perspective), (3) changes to capabilities that improve investor value (Financial Perspective), (4) changes to a value stream that affect activity value contributions to customer value (Customer Perspective) that may involve complex changes reflecting multiple dependencies between activities, (5) changes to the value stream that improve investor value (Financial Perspective), and (6) changes in customer satisfaction levels that drive market changes reflected in investor value (Financial Perspective). These can be seen in the causal relationships depicted in the first diagram, above.
While these are all supported by VDML, they require two VDML models—the As-Is and a To-Be models. Type (1) can be observed by a change in capabilities (new or modified) between the As-Is and To-Be models. Type (2) can be observed as value stream changes that improve desired customer value proposition measurements. Type (3) requires human recognition of the value investors will place on improved enterprise capabilities. Type (4) can be observed by tracing the sources of changes to the customer values in the To-Be model to the relevant customer value contributions that are improved from the As-Is model. Type 5 can be observed from changes in value contributions (such as cost reductions) that have a direct impact on investor value. Type 6 is based on changes in the customer value propositions but it requires market insight and feedback regarding trends and competition to determine the impact on investor value. In most cases, these causal relationships do not correspond directly to VDML deliverable flows, but rather they represent the consequential effects of changes to As-Is measurements that will directly or indirectly result in changes to To-Be measurements.
In a substantial transformation, there must be phases of implementation. Without objectives (or intermediate target objectives) for phases, management would have difficulty assessing progress on a long-duration project with multiple components. Each phase should be represented by a VDML model for the expected state of the business at the end of the phase. The development of a transformation plan and associated VDML models for transformation phases is discussed in greater detail in Strategic Planning with VDML. As the transformation progresses, a series of As-Is models would be created to represent the incremental, current state of the business. The As-Is model evolves toward the To-Be model so that measurements in the current state depict progress toward To-Be targets.
The BSC/SM model then becomes a series of phase models with As-Is and To-Be supporting models to define intermediate targets—see the diagram, below. The To-Be VDML model of a phase is the expected As-Is model of the next phase for planning purposes, but the actual As-Is model for a “next” phase will likely vary some from the planned To-Be model. A BSC/SM short-term, current-phase model represents the objectives of the current phase. The full BSC/SM model can be derived from the initial As-Is model and the final To-Be model.
While the full BSC/SM model can be stable (unless the end state of the business evolves), the current-phase BSC/SM model will be incrementally based on new versions of the As-Is model as the transformation progresses, and it will be based on new To-Be models as new phases are started.
In summary, VDML can provide significant value in validating the strategy, developing the transformation plan, and setting and evaluating objectives and causal relationships appropriate to each phase of transformation. However, the relationships between the BSC/SM objectives and the VDML models require human input to select appropriate key objectives and identify the causal relationships. Modeling mechanisms for a BSC/SM extension are not defined in the current VDML specification, but are left for VDML implementers to develop if they determine that there is sufficient market demand.