The Strategy Map for General Electric Medical Systems, 2002

Research Paper (undergraduate) , 2008 , 30 Pages , Grade: 1,3

Business economics - Business Management, Corporate Governance

If you take the words of a former General Electrics (GE) employee to define strategy, William E. Rothschild said, “What do you want to achieve or avoid? The answers to this question are objectives. How will you go about achieving your desired results? The answer to this you can call strategy.”

This statement not only highlights the need for strategy but also the need to bring strategy to fruition. Companies should not only devise strategy but also successfully clarify and execute their strategies. This means that a company has to be able to measure its strategic success.

Unfortunately, company strategy is not always transparent or understood in the same way by a company’s key players. Sun Tzu, a Chinese military strategist who wrote the military treatise The Art of War, praised this aspect for strategies in war as follows: “All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved”.

The Strategy Map created by Kaplan and Norton is to facilitate corporate strategy development and execution providing a missing link between strategy formulation and strategy implementation by identifying the key internal processes that drive strategic success and by aligning investment in people, technology and organizational capital for the greatest impact.
The first part of the assignment describes in detail the theoretical framework of Strategy Maps. The second part uses the theory to describe and visualize the Strategy Map of General Electric Medical Systems (GEMS) – the world’s leading manufacturer of diagnostic imaging equipment. This practical approach is based on the publication of Tarun Khanna about GEMS in the Harvard Business School Press in February 2003. In conclusion, there is a brief up-to-date situation on GEMS after 2002 and some statements to the authors’ experience in creating the GEMS Strategy Map.

Table of Contents

List of Abbreviations

List of Figures

1 Introduction

2 Strategy Maps – Theoretical Framework
2.1 The Idea Behind Strategy Maps
2.2 Principles of Strategy Maps
2.3 Creating a Strategy Map
2.3.1 Financial Perspective
2.3.2 Customer Perspective
2.3.3 Internal Process Perspective
2.3.4 Learning and Growth Perspective

3 Strategy Map for General Electric Medical Systems (GEMS), 2002
3.1 Background – The GEMS Business Concept
3.2 The Situation – Market Developments
3.3 Current Strategy Map
3.3.1 Financial Perspective
3.3.2 Customer Perspective
3.3.3 Internal Process Perspective
3.3.4 Learning & Growth Perspective

4 Conclusion

Appendix 1 Integral Total Management (ITM) Checklist

Bibliography

Declaration In Lieu of Oath

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: The Balanced Scorecard Metrics

Figure 2: Steps to Devise and Execute Strategy

Figure 3: Strategy Maps: Simple Model of Value Creation

Figure 4: The Strategy Map Template

Figure 5: Financial Perspective

Figure 7: Internal Process Perspective

Figure 8: Learning & Growth Perspective.

Figure 9: Global Market Share Leaders by Modality

Figure 10: Center of Excellence Strategy

Figure 11: Financial Perspective of GEMS Strategy Map

Figure 12: Customer Perspective of GEMS Strategy Map

Figure 13: Internal Perspective of GEMS Strategy Map

Figure 14: Learning & Growth Perspective of GEMS Strategy Map

Figure 15: Balance - Strategy Formulation and Strategy Execution

1 Introduction

If you take the words of a former General Electrics (GE) employee to define strategy, William E. Rothschild¹ said, “What do you want to achieve or avoid? The answers to this question are objectives. How will you go about achieving your desired results? The answer to this you can call strategy.”² This statement not only highlights the need for strategy but also the need to bring strategy to fruition. Companies should not only devise strategy but also successfully clarify and execute their strategies. This means that a company has to be able to measure its strategic success.

Unfortunately, company strategy is not always transparent or understood in the same way by a company’s key players. Sun Tzu, a Chinese military strategist who wrote the military treatise The Art of War, praised this aspect for strategies in war as follows: “All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved”³

The Strategy Map created by Kaplan and Norton is to facilitate corporate strategy development and execution providing a missing link between strategy formulation and strategy implementation by identifying the key internal processes that drive strategic success and by aligning investment in people, technology and organizational capital for the greatest impact.⁴

The first part of the assignment describes in detail the theoretical framework of Strategy Maps. The second part uses the theory to describe and visualize the Strategy Map of General Electric Medical Systems (GEMS) – the world’s leading manufacturer of diagnostic imaging equipment.⁵ This practical approach is based on the publication of Tarun Khanna about GEMS in the Harvard Business School Press in February 2003. In conclusion, there is a brief up-to-date situation on GEMS after 2002 and some statements to the authors’ experience in creating the GEMS Strategy Map.

2 Strategy Maps – Theoretical Framework

2.1 The Idea Behind Strategy Maps

According to Kaplan and Norton “an organization’s strategy describes how it intends to create value for its shareholders, customers and citizens”.⁶ To create sustained value, organizations must leverage their tangible physical and financial assets (e.g. machinery, buildings, bank balance) and their intangible assets (e.g. people, information, culture). More than 75 % of the average organization’s market value is derived from intangible assets that traditional financial metrics do not capture.⁷ Therefore, improvements in intangible assets affect financial outcomes not direct, but through cause-and- effect relationships. These relationships define the chain of logic by which intangible assets will be transformed to tangible value.⁸

In 1992, Robert S. Kaplan and David P. Norton introduced the concept of the Balanced Scorecard, based on the principle

“You can’t manage what you can’t measure”.⁹

The Balanced Scorecard (BSC) is a performance measurement system that enables companies to quantify critical intangible assets.¹⁰ The BSC groups four general categories (perspectives):

- Financial perspective: describes the tangible outcomes of the strategy in traditional financial terms (e. g. revenue growth, profitability)
- Customer perspective: defines the value proposition for targeted customers
- Internal process perspective: defines the processes that will transform intangible assets into customer and financial outcomes
- Learning & growth perspective: defines the intangible assets that must be aligned and integrated to create the value.

Intangible assets are therefore highlighted in the last two perspectives:

illustration not visible in this excerpt

Figure 1: The Balanced Scorecard Metrics Source: http://images.google.de, 24.04.2008.

The architecture of cause-and-effect, linking the four perspectives, is the structure around which a strategy map is developed.¹¹

2.2 Principles of Strategy Maps

As stated in chapter 2.1, the strategy map has evolved from the four- perspective model of the BSC. Kaplan and Norton realized that there were two important factors that make organizations implementing the BSC successfully:

- Alignment of the organizational resources
- Focus intensively in implementing the strategies¹²

While drawing up the BSC for themselves, organizations were forced to rethink their strategic priorities and describe their strategies. This led Kaplan and Norton to develop a new tool – the strategy map – based on the principle

“You can’t measure what you can’t describe”.

According to Kaplan and Norton, the following formula exists:

Breakthrough results =

(Describe the strategy) + (Measure the strategy) + (Manage the strategy )¹³

This formula combines the two underlying principles of Kaplan and Norton: You can’t manage (3rdcomponent) what you can’t measure (2ndcomponent) and you can’t measure what you can’t describe (1st component).

Therefore, strategy maps are on step in a logical continuum that describes what value is and how it is created (figure 2):

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Figure 2: Steps to Devise and Execute Strategy Source: Kaplan, Norton (2004), p. 33.

Once a company has prepared its game plan by establishing its mission, values and vision, the strategy map can provide macro view of the company.¹⁴ The visual representation using a map provides a language that facilitates communicating the strategy before constructing metrics to evaluate performance against the strategy.

Strategy maps provide the missing link between strategy formulation and strategy execution¹⁵. They can be seen as blueprint for describing, measuring and aligning intangible assets for superior performance. By providing a uniform and consistent way to describe the strategy, strategy maps allow objectives and measures to be established and managed.

2.3 Creating a Strategy Map

The basic idea is that you start with the highest perspective – the financial perspective - so as to identify what is needed. You then determine the work that needs to be done at the lower perspectives to accomplish the financial perspective:

illustration not visible in this excerpt

Figure 3: Strategy Maps: Simple Model of Value Creation Source: Kaplan, Norton (2004), p. 8.

Creating a strategy map needs also to define cause-and-effect relationships to clarify the logic of how it will create value and for whom:

For example, employee training in total quality management (TQM) can directly improve process quality. Such improvement can then be expected to lead to improved customer satisfaction. Customer satisfaction, in turn, should increase customer loyalty. And ultimately, customer loyalty leads to improved sales and margins from long-term customer relationships. These cause-and effect-relationships are key components of the strategy map and are not featured in the Balanced Scorecard.

According to Kaplan and Norton, the strategy map with its depiction of interrelations adds a second layer of detail that illustrates the time-based dynamics of a strategy; it also adds a level of granularity that improves clarity and focus (figure 4):

illustration not visible in this excerpt

Figure 4: The Strategy Map Template Source: Kaplan, Norton (2004), p. 11.

In short, strategy maps depict objectives in multiple perspectives with corresponding cause and effect linkages.

[...]

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¹ Corporate Strategist at GE from 1981-1983.

² www.sme-growth.co.uk, 23.04.2008.

³ www.hbsp.harvard.edu, 30.04.2008.

⁴ See Kaplan, Norton (2004), s.p.

⁵ See Khanna (2003), p. 1.

⁶ Kaplan, Norton (2004), p. 4.

⁷ See Kaplan, Norton (2004), s.p.

⁸ Ibid, p. 31.

⁹ Ibid, s.p.

¹⁰ Ibid, p. x.

¹¹ See Kaplan, Norton (2004), p. 32.

¹² Ibid, p. xi.

¹³ Kaplan, Norton (2004), p. xii.i

¹⁴ See www.alignjournal.com, 24.04.2008.

¹⁵ See Kaplan, Norton (2004), p. 10.

• College: University of Applied Sciences Berlin (Master of Business Administration)
• Course: Strategic Management
• Grade: 1,3
• Author: Nadine Pahl (Author)
• Publication Year: 2008
• Pages: 30
• Catalog Number: V124548
• ISBN (eBook): 9783640297641
• ISBN (Book): 9783640303007
• Language: English
• Tags: Strategy, General, Electric, Medical, Systems, Strategic, Management