A business strategy is, in most cases, too general to translate directly into a clear path for prioritisation. It must be further decomposed to establish the areas which your business needs to “get right” to achieve your strategy’s business priorities. These areas are known as your business strategy’s value-drivers. By deriving value-drivers from your business strategy, your strategic intentions are effectively transferred into a set of operational, value-oriented business targets (Kirchmer, Franz, 2014). By decomposing your business strategy into value-drivers, you define through simple statements the necessary achievements which are required to make your strategy happen.
The value-driver tree approach allows you to transfer the strategic intent of an organisation into value-driven business targets. The first components of your value-driver tree are your business priorities. Your strategy describes your business priorities by outlining the overall direction the company is taking, for example, “High Profitability” or “Sustainable Growth”. Your business priorities can then be further decomposed into strategic objectives or goals. These describe the key components of a business priority, for example, “Decrease Operating Expenses” or “Decrease Cost of Goods Sold”. From each goal, one or several value-drivers can be identified, establishing the final element of your value-driver tree. These are your business targets, for example, “Optimise Distribution Cost” or “Meet regulatory compliance requirements”. Once you have developed your value-driver tree, there will be multiple sets of value-drivers related to each business objective. It is recommended that your total number of value-drivers is between 8 and 12 to facilitate the following prioritisation activities. The relationship between your business priorities, goals, and value-drivers is illustrated by the example value-driver tree shown in figure 2.
The development of a value-driver tree also ensures that all stakeholders are aligned about what the organisation has to get right to realise its strategy. This allows a clear communication of strategy direction and focus. Hence, the process of developing the value-driver tree itself provides benefits to the organisation.
Figure 2: Value-Driver Tree
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