Strategy maps and cascading

Accounting Ahead | Original study resource | accountingahead.com.au

Strategy maps and cascading

MODULE 5 | PART B.4 | STUDENT COMPANION

Strategy map: a visual of the assumed cause-and-effect links between objectives across the scorecard

perspectives - the predictive model. Measure = the characteristic (e.g. ROI); target = the level wanted (e.g.

12%).

A strategy map

Financial

Customer

Internal process

Learning and

growth

Return on investment Repeat-purchase revenue

Customer satisfaction Delivered on promised

date Trust in quality

Picking accuracy Carrier reliability Easy assembly Quality reputation

Warehouse training Product design skills

Imagined online furniture retailer: arrows show assumed cause and effect

Building a strategy map

Step Remember

Customer focus groups What customers value and will pay for

Internal cross-functional

workshops

How to deliver it; obstacles and solutions

Top-down and bottom-up Board sets targets and direction; staff identify obstacles

Measures and targets For every element of the map

Budget reallocation Move resources mid-year where performance lags

Continual learning Revise assumed causes, measures and targets as results arrive

STRATEGIC MANAGEMENT ACCOUNTING | M5 PART B.4 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Cascading measures

Tier 1: organisation

Board: return on investment

Mostly financial, lagging

Tier 2: business and support

units

Unit: profit before interest and tax

Mix

Tier 3: teams and individuals

Sales: volume, value, margin.

Operations: volume, cost. Warehouse:

picking accuracy

Mostly non-financial, leading

Each level's measures differ, but feed the level above - about a dozen per manager

Watch for competing targets (sales overwhelming operations capacity) and internal charging that pits units

against each other. Cascade to departments, cross-functional teams, or projects - with consistent measures.

Information systems for performance management

System Contribution

Point of sale Sales by product, store and hour; stock and staffing needs

Enterprise resource planning Integrated accounting, operational, customer and supplier data; feeds scorecards

Cloud and big data Scale, access and new data sources (with privacy risks)

Dashboards Traffic lights (green, amber, red) and drill-down to detail

Making strategy implementation work

Four barriers

No consensus at the top

Strategy not linked to unit, team and individual goals

Strategy not linked to resource allocation

Feedback on short-term financials only

Keys to success

One vision, owned by top management

Measures show implementation and success

Resources follow strategic priorities

Individual and team measures linked upward

One integrated, accessible suite of measures

Measures used for learning, not just control

Turbulent environments (economic uncertainty, technology, new products, changing demand, regulation and

competition) call for timelier information, faster decisions, links between projects and performance, and

performance management used for learning.

STRATEGIC MANAGEMENT ACCOUNTING | M5 PART B.4 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Practice questions

MODULE 5 | PART B.4 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Draw a strategy map

A suburban physiotherapy clinic wants higher profit through more repeat patients. Sketch a four-level strategy

map with at least six objectives and the links between them.

Question 2 - Cascade it

Cascade a group target of 'reduce component costs by 8%' to purchasing, production and finance, with one

measure each.

STRATEGIC MANAGEMENT ACCOUNTING | M5 PART B.4 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Question 3 - Barriers

Two directors disagree about strategy, and budgets are still set as last year plus 3%. Which barriers are present

and what would you recommend?

STRATEGIC MANAGEMENT ACCOUNTING | M5 PART B.4 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Worked answers

MODULE 5 | PART B.4 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Draw a strategy map

Learning: physiotherapist skills training; booking-system capability. Process: appointment availability within 48

hours; personalised home-exercise plans; reminder system. Customer: patient satisfaction and outcomes; repeat

visits and referrals. Financial: revenue per patient; profit. Links run upward: training -> better plans -> outcomes

-> satisfaction -> repeat visits -> revenue -> profit; booking system -> availability and reminders -> repeat visits.

Question 2 - Cascade it

Level Measure

Group Component cost per unit (8% reduction target)

Purchasing Purchase price variance; supplier quality rejects

Production Component wastage % and rework

Finance Timely cost reports by component and supplier; savings tracked against target

Question 3 - Barriers

No consensus at the top, and strategy not linked to resource allocation (incremental budgets). Recommend a

facilitated strategy-mapping workshop to agree one vision, then allocate budgets to strategic priorities and

review them during the year.

STRATEGIC MANAGEMENT ACCOUNTING | M5 PART B.4 | WORKED ANSWERS

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