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.
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