Strategy is nothing without execution.

August 31st, 2012

When Mark Hurd was Chief Executive at Hewlett-Packard, an information technology giant, he successfully contributed to the success of the legendary firm. He cut costs, focused the company’s strategy on a few core areas and created new product divisions. During an interview with The Economist publication he was quoted as: “Vision without execution is nothing. Whenever anyone asks me about vision, I get very nervous. You’ve got to be able to tie it back to strategy; you’ve got to tie accountability to things”.

This statement is a good summary of Thinking Dimensions point of view about strategy formulation and implementation.

Strategy formulation and  implementation are an integrated process, or a series of steps activated  by  the CEO  involving all employees at all the levels in the organization.

Adopting a robust and unique process for strategy  formulation and implementation is a key capability that many successful companies invest in; it can make the difference between poor performance(s) and profitable sustainable growth. There are several causes that can prevent an organization from successfully implementing strategy including:

1. No balance between formulation and execution
Some leaders press for better execution when they actually need a better strategy or they change  the strategy when they actually should focus the organization on execution. This is why from our perspective  strategy formulation and implementation are steps within the same process.

2. Strategic goals not visible or not linked to metrics.
It is critical that strategic objectives are relevant, powerful, and simple to understand: they must  have metrics, targets and data sources (see example in the table below); this means that the results for each metric need to be regularly updated, verified versus the definition targets and communicated within the organization.

 

Objective  

Metric

Target

Data source

Increase share of proprietary products % Revenues in proprietary products vs total sales ≥ 45% Report 7121 from ERP system FI reporting module excluding FOREX impacts

 

In addition the strategic goals need to be simple and easy to communicate. To verify this requirement you can use the “elevator test”; if you can explain the strategic goal clearly and precisely to any employee in the organization in a course of a 30 seconds elevator ride, you “passed the test”.

3. Poor focus
Ask your colleagues or to the  members of your team to list the 2 or 3 main strategic goals he / she thinks the company is focusing on- you may be surprised how many different results and statements you will receive.

Focus is one of the most important aspects of successful strategy execution and we think that strategic plans should be linked to a maximum of 3 focus goals.  Goals have to be clear to everyone in the organization. Only in this way each employee, at all levels within the organization understands the purpose of the strategy and the role he/she plays in its’ implementation.

4. Limited or no accountability

A robust strategy implementation process involves (directly or indirectly) all the employees within the company. This means that everyone knows what their role is in helping the company to achieve the strategic goals and is held accountable for results. In practical terms everyone should be able to  easily convert the strategic focus goals into personal objectives and create a personal implementation plan linked to company strategy.

In our experience, when this doesn’t happen, too many decisions tend to pass to the more senior managers and ultimately the CEO, resulting in poor performance and lower motivation levels of the people who need to perform.

5. Poor operational execution

The best strategy possible is not valuable at all if the decisions are not transformed into actionable initiatives that are speedily implemented. In a world that is changing more and more rapidly, the ability to implement changes quickly is a  very important capability.

 

6. Poor managerial capabilities

The companies that are best in class in executing their strategy have a strong and defined strategic leadership team. With this term I refer to a group of managers with the following characteristics:

  • Ability  to make decisions both individually and as a member of the  team
  • Adoption of common strategic decision making processes
  • Each manager is to able to actively participate in establishing/enhancing the future Strategic Profile of the organization
  • company core values are known and followed by all to guide decision making

 

If you as a CEO or manager are asking yourself “Is our organization really effective in transforming strategic decision  in positive financial and economic results for our company?” you can use the 6 above criteria to provide a first answer.

This blog was authored by Diego Miglioranzi, Partner, Thinking Dimensions

Feel free to contact the author directly  for questions about this subject.

Competitive Decision-Making

August 23rd, 2012

No I am not talking about a race to make decisions, I am talking about making the best decisions to be competitive. In the current global economic climate, CEOs seek ways to maximize their company’s business performance, hence competitiveness. And that involves a myriad of strategic and tactical decisions made on an annual, quarterly and daily basis. I challenge any CEO to ask their executive team to define business competitiveness. Likely the responses will vary, and that is the crux of the problem – an impediment to effective decision-making that drives results is misunderstanding what makes a business competitive.

Business competitiveness are the internal advantages a company possesses, relative to their competitors, to sell, promote and deliver the products they offer to the markets they serve. Advantages can be either people or processes, but they must be perceived as valuable and unique compared to the competition and viewed as high quality and cost effective by customers. In the parlance of “Strategic Thinking” they are referred to as competitive advantages.

Competitive advantages manifest themselves in all companies through their business value chain — those administrative and operational processes, in which people work to sell, promote and deliver product to market. So decisions targeted to build advantages within the value-chain (as measured by business growth and profitability) are the driving force of competitiveness.

(Porter's value chain concept model)

Start by knowing the key products and markets – What are the key products offered and markets served? Sounds obvious, but many companies have many products that are not profitable, demand too many resources to service (money, time, and people), and add substantial costs without a positive financial or customer relationship return. Companies that say no to products and markets not driving profitability and growth are better positioned to target performance decisions on people and process issues that improve their competitive advantage.

Evaluate the value chain to determine strengths and weaknesses – With clarity on what to produce and what customers to focus on, companies can now assess the effectiveness of each element of the value chain. Activities that do not add value or are not regulatory/customer requirements should be stopped or changed. Use performance data, and walk through the value chain processes to assess:

1) Efficiency (cost) to perform the activities as currently outlined

2) Cycle-time (how long does it take) to perform the activities

3) Quality of activities and outputs as perceived by the customers and competitors

4) Timeliness (on-time delivery) as valued by the customers

This provides a clear performance picture on the activities to sell, promote and deliver products by exposing the “type, location and magnitude” of the value chain strengths and weaknesses. Now consider the value chain assessment from a competitor and customer perspective and ask, does the company excel over its' competition to cost effectively produce quality products on time to customers?

The answer to this question promotes decisions on what capabilities to build, sustain or enhance to drive internal advantages that translates to profitability and growth. Remember competitiveness is a function of the internal advantages a company has relative to competitors and as perceived by customers. Such advantages reside in the value chain activities.

(Now) Use decision analysis to design a competitive value chain – For this writing, I will talk about the two primary categories of “value” criteria, not how to conduct an actual design using decision analysis.

Decision criteria for designing competitive advantages into the value chains fall into two categories – competitor and customer. What can companies do that differentiates them from their competitor and does that differentiation translate to customer value? These two differentiations must work in tandem. There is no sense on having differentiated product or service in which customers don't see the value. Or conversely, customers see a great product or service, but there are several competitors that do the same basic thing – that is not an advantage.

Criteria that differentiate products or services from the competition:

1) Unique – is this product/service unique relative to competitor offerings?

2) Valuable – is there a need, market for the product or service?

3) Costly to Imitate – could your competition easily replicate the product or service?

4) Non-Substitutable – can the offering be replaced by some other competitor's product/service?

Criteria that differentiate products or services through the eyes of a customer:

1) Innovative – product/services viewed as a “better way” from other like products?

2) Quality – is the product/service more reliable compared to like competitor offerings?

3) Customer Responsiveness – is serviceability of the product rated high by customers?

4) Cost (efficiency to produce) – are customers willing to pay for the product/service?

Leaders need to evaluate value chain performance alternatives that improve competitiveness through the filter of competitor and customer differentiated criteria. Effectively done, the company is now making competitive decisions based on performance data.

Recap – Competitive Decision Making:
1) Know what creates business competitiveness – relative to the competition and customers
2) Focus on Key Products and Markets
3) Assess the effectiveness of your Value Chain to deliver key products to market
4) Use Value Chain effectiveness data to drive decisions that create competitive advantages

 

This blog post was authored by Keith Pelkey, Partner, Thinking Dimensions.

Other writings related to Process Performance authored by Keith Pelkey - Partner, Thinking Dimensions Global

  • Are Your Business Processes Creating Value? www.blog.thinkingdimensionsglobal.com
  • Simplify the Path to Process Performance Management “ “
  • Managing Competitiveness Through Product Development “ “
  • Stop Reacting to Results and Learn to Manage Performance
  • Seize Control of Your Business Performance www.thinkingdimensionsglobal.com
  • “Mining” for EBITDA: Delivering Substantial Results in 30 Days “ “

 

Quality decision making is the ultimate purpose of an executive and manager.

August 16th, 2012

Quality decision making is the ultimate purpose of an executive and manager. The most effective executives employ a structured process that makes their “thinking visible” and enables others to understand and act on their choices.

1950′s Decision Making Lineage

 

In the mid-1950s, Chuck Kepner and Ben Tregoe were conducting research for the Rand Corporation Corporation in California. They identified that a person’s success in decision making was not based on their experience, tenure or level in a company.

 

Rather effective decision makers who were able to more quickly spot problems, evaluate choices, and think ahead to risk – was based on their ability to gather, organize and analysis data using a process or set of steps.

 

In addition, the best decision makers who employed a “common process” to resolve issues were better able to articulate their thinking to others – making them more effective as executives or leaders.

 

2012 – Thinking Dimensions Today

 

Since that start in the mid-1950s, Chuck Kepner continues to develop and learn from his experiences. In the late 80′s he partnered with Mat-thys Fourie to build on this original thinking and incorporate new intuitive and creative components to the dimensions of decision making.

 

At the heart of their work was the understanding that the most critical role of an executive or manager is their ability to process and articulate their decisions. Decision making – whether looking at issues that involved past, present or future concerns – is made up of the same divergent / convergent thinking pattern. Because of this finding – the foundation of resolving any issue is distilled down to the quality of the decision making processes. Companies must invest and develop the most basic building block of performance – decision making.

 

The next six weeks in our blog will focus on the theme of Decision Making in business.

We hope you enjoy the subject and development here.

 

Tim Lewko, Managing Partner, Thinking Dimensions Global

Entering New Markets: Timing Horizons for Emerging Markets

July 31st, 2012

Today wraps up our July 2012 blog theme on entering new markets with one last question that is often on the minds and in the discussion of management leading the charge for growth: “What is the time horizon I should set when entering a new market before expecting to see results in my Income Statement/P&L?”.

The answer to the question starts with setting  the critical few-maximum eight- strategic performance indicators (SPI) which reflect how well the strategy is progressing- taking into account both leading and lagging information.  The expectations must be based on your most accurate strategic assumptions combined with as close to real-time market data as you are able to assemble.  As we have discussed in the last few posts- general data is not enough- rather getting to the specific data needed and blending this with the strategic assumptions resulting in a budget that most responsibly reflects both the opportunities and risks within the new market.

One area you can refer to in validating timing horizions is to compare them with your overall strategic time-frame- when revisiting the time-frame horizons of the company, group, or business unit- how well does that reflect on your expectations within the early stage/emerging market(s)?

The second tool you can use in preparing timing horizons and expectations is in creating a product/market matrix by quarter or year which is linked to a detailed project plan- do the numbers you are predicting in sales correspond with the timing in setting up the infrastructure necessary to serve the target customers?  If you are working with a recently acquired company, a distributor, or JV partner- are their timings to reach key milestones realistic?  Ask to see their assumptions and cross-check them against your own- and where you identify variation initiate a discussion and process to resolve.

Lastly- ensure your risk and protection plans for the new market are both up-to-date and have involved data from the source (internal and external) and departments within your company or group best able to answer the questions of how to mitigate risk in your new target market both short and long-term.  The risk plan is an area in which you need to stress-test the overall project/program to enter the new market- this will be a very valuable tool in setting the time horizons which are realistic for your board and shareholders and the overall performance of the company and new business unit.

Thank you to all for your comments and feedback which are taken very seriously by our editiorial team- we look forward to seeing you visiting shortly for our new August themes.

 

This blog post was authored by Scott Newton, Partner, Thinking Dimensions

Stop Reacting to Results and Learn to Manage Performance

July 25th, 2012

 

As CEO’s seek to understand the performance of their business, they construct elaborate Key Performance Indicators (KPIs), Strategic Performance Indicators (SPIs), or some other “acronym of measures” all designed to tell them how the company has performed. While such measures are important, they reflect the “past tense” of business performance and, in essence, they are lagging indicators. CEOs and consultants advising them are doing a disservice to the organization if they do not demand of the Value-Chain process managers to establish “leading” measures that warn of pending performance.

 

Why is this important?

1) Ability to manage verses react too business performance issues

2) Speed of corrective action to resolve value-chain performance issues that impact profitability (P&L) and growth.

 

Manage verse React – Value-Chain KPIs fall into four basic categories of measures:

1. Quality of Product or Service

2. Timeliness of Delivery

3. Cycle-Time of Production

4. Efficiency (or cost) to Produce, Market and Deliver products.

The KPI may be called different names, but the business interest for their positive performance remains the same – delivering a quality product or service on time at the target cost. It is the value-chain processes and their respective KPIs that provide the appropriate Quality, Timeliness, Cycle-Time and Efficiency performance data (the balanced scorecard) for executive decision-making. But, these measures only tell the story of results passed.

 

The sub-element measures of the value-chain processes that cascade up to define a KPI are often insufficient or poorly constructed to help executives or value-chain process owners understand what is causing specific performance of a key KPI. When a KPI reflects negative performance and the CEO asks, “what is the issue causing this performance”, the responsible party usually notes they will have to investigate further to get an answer. Effectively placed measures within sub-value chain processes would negate this problem and afford the responsible executive an answer readily at hand.

 

How? Design and install “in-process” measures at key risk areas of sub-value chain processes. Process owners or managers should start by asking, “what KPI or SPI is my sub-value chain process primarily contributing? For example, if the Out Bound Logistics value-chain element (see diagram above starting from the Michael Porter Value Chain framework) is a key source for the Timeliness of Delivery KPI, then assess where in the flow of the various Out Bound Logistics sub-processes is on-time delivery most at risk? Now design and place the appropriate “in-process” measures that provide data, and act as a trigger, of potential on-time delivery issues.

Measures placed at key risk areas of the process provide managers meaningful, and early, insight to the respective KPI or SPI. They are managing the performance of the process, and not simply reacting to lagging indicators. Sub-value chain early-warning measures should be reviewed frequently to see trends that demand corrective action. This data provides more detail of where in the overall value-chain issues have emerged.

Speed of Corrective Actions – In-process measures are predictors of end-of-process performance. If an in-process metric is showing a negative trend (i.e., key paperwork is delayed in the logistic process, or the quality of the paperwork is lacking), it is likely to impact the planned on-time performance. When process managers have the ability to see, early, where in the process issues arise, they also know where to pinpoint their corrective action focus faster. In reality, if they manage processes via in-process metrics, they can anticipate problems (and CEO questions) and be prepared with a more proactive answer to resolution. Mean-time-to-resolution is critical to profitability.

The Key Learning Point – Simply relying on end-of process business measures puts decision-makers in a reactionary position as they lack the data to expeditiously resolve performance issues.

CEOs and business executives should look at their company’s key sub-value chain process flows (assuming the flows exist) and see what and where measures exist. Likely the measures are on the outputs of the process and not areas within the process where true risk of performance resides.

Recap – Stop Reacting to Results and Learn to Manage Performance:
1) Analyze Sub-Value Chain process flows (or define them if they do not exist).
2) Ask what sub-processes have the most impact on the performance of KPIs/SPIs?
3) Ask where in the sub-process is the desired KPI/SPI performance most at risk?
4) Install appropriate “in-process” metrics at high-risk areas of key sub-processes.
5) Start managing performance

This blog was authored by Keith Pelkey.

Other writings related to Process Performance authored by Keith Pelkey - Partner, Thinking Dimensions Global

· Are Your Business Processes Creating Value? www.blog.thinkingdimensionsglobal.com

· Simplify the Path to Process Performance Management “ “

· Managing Competitiveness Through Product Development “ “

· Seize Control of Your Business Performance www.thinkingdimensionsglobal.com

· “Mining” for EBITDA: Delivering Substantial Results in 30 Days “ “

LeisureEurope Case Study: In entering a new market, first decide “where to compete “, then “how to compete”.

July 20th, 2012

“LeisureEurope” is a major boat manufacturer that had been developed a leadership position in Europe for different types of recreational boats. In a period when the overall size of the boat market in Europe was quickly shrinking the company believed the best way to position itself was to enter the USA market.

Unfortunately the resources and the investments “LeisureEurope” made for several years to enter the USA market were not providing the results the CEO was looking for. Why did this happen?
The CEO asked Thinking Dimensions to indentify the main causes for the poor results and to support the company in implementation of a plan to properly enter the market.

The poor results were due to the following causes:

  1. LeisureEurope started launching products for the USA market without having a clear understanding of the customer needs and of the competition offerings
  2. The USA market was different from European markets:
  • The size and the complexity of the USA market was much higher
  • For the type of products offered by “LeisureEurope”, the concept of “leisure boat” as intended by the final user was very different
  • Certain types of recreational boats that practically didn’t exist in Europe, represented an important quota of the total market in the USA
  • The criteria adopted by the customers (i.e. the retailers) to select their suppliers of boats were different from the one adopted by the European dealers

In the first 2 months after the first meeting with the CE0, Thinking Dimensions helped “LeisureEurope” answer the following questions:

  • Which are the main competitors in the USA market?
  • Which distinctive capabilities or product characteristics could “LeisureEurope” offer relatively to the competition?
  • Which customer segment were actually willing to pay a premium price for these distinctive capabilities or products?

The results of the first phase of the project were very surprising for the CEO: it showed “LeisureEurope” was competitive in a specific market segment that has not been even considered for the USA.

In the second phase of the project Thinking Dimensions worked with “LeisureEurope” to implement the market entry plan focusing specifically on the market segment that had been identified.

5 months after the first meeting with the CEO the company was already generating a volume of sales (and margins) far above the expectations of the CEO and the management team

 

This blog post was authored by Diego Miglioranzi, Partner, Thinking Dimensions

Feel free to contact the author directly for questions about this subject.

When you believe “there is a market there”, first test your assumptions- then enter

July 20th, 2012

Many companies combine “feeling” with the evidence that a “bunch of their competitors are already in the market” and make the fateful decision “we need to go chasing the opportunity, too”! As a second step, they start looking for agents, distributors, or other local parties that can assist in the new market.

We call this an opportunistic approach, meaning that  you are making decisions based on gut feeling without really knowing what opportunities and risks are out there in new markets for your company. Maybe it goes well, maybe not.

We believe that a company rarely has the luxury of understanding this only afterwards.

Our experience shows us that companies that successfully enter new markets adopt an analytical and structured approach to identify whether there is an opportunity in the new market for their specific company and whether the projected result justifies the efforts and the investments to get there.

In order to be able to measure the success of the initiative, for instance, you, together with your team, First need to define what would make the new market entry a successful project at least in terms of level of sales, minimum margin, level of investment.

Secondly, you want to understand what type of opportunity (if any) is there in the new market.

To be able to understand this you need to answer 3 sets of questions::

Who are our potential clients?

  • What are the segment of clients present in the market?
  • What is their size?
  • Where are they geographically located?
  • What are their buying criteria? And are those any different from those of the home market?

 

Who are our competitors?

  • Who are our competitors for each of the identified segments? (those are usually different)
  • What sort of products do they supply the market with and at what price?

 

How does our product position in the new market?

  • Can we differentiate from our competitors? And if so, how does the new market perceive us? Is the market willing to pay us a premium?
  • Will our  products be accepted  by the market or would those need to be changed in some way? Is it going to be a big change or a minor one?
  • What certifications/labels are necessary to be able of selling products?

 

Only at this point , going back to the goals that you and your team set at the beginning,  will you be able to say whether there is an interesting opportunity for your company in the new market or not.

What we have seen in our experience is through using a systematic process based market approach companies know clearly what to do, where to start from, and where to go to acheive their “share” of the market thus avoiding expensive and risky opportunistic trials.

   This blog post was authored by Laura Rainati, Thinking Dimensions

Strategic and Operational Decisions on Entering a “fast growing market”

July 18th, 2012

While the growth rates in developed economies are still projected to be sluggish in the next few years, emerging markets are booming and can provide lucrative opportunities for many companies.

For example, certain automotive companies are focusing primarily on Brazil, Russia, India and China (BRIC) as they see these nations as the most important sources of future business growth. China is frequently considered one of the most interesting countries at the moment, given that the China is already one of the largest vehicle markets in the world and is progressively trending upwards even now.

What are companies looking for in new markets?

Market opportunities, natural resources, talents or tax and investment advantages are all reasons for companies to enter new markets and each of these requires different approaches and different capabilities and competencies. A strategic reason to enter a new market is certainly sales and production capabilities of the firm that can be leveraged in that specific market. One big mistake companies sometimes make is in attempting to enter a new market with their current products and services portfolio convinced they can easily apply the same winning business model used in countries already served. Often this “opportunistic” approach leads to a failure in the new market entry initiative putting and risks placing the parent company in a difficult position to explain to shareholders.

What should we consider when entering a new market?

Average disposable income in emerging and early stage markets is usually lower than in developed countries, however, the number of people that are moving towards a higher budget are rapidly increasing. Even if it is true that a lot of people are out of the target reach in emerging markets, it is also true that an enormous number of people will be requesting standard lifestyle products.

 

Product offering, approach and business models need to be adjusted to target the right offering for the new “local” consumer.   An interesting example is the new Disney park in Shanghai, PRC, which will open in 2015 and with a total investment of USD 3.84 billion- Disney has spent several years studying closely the needs and desires of their target customers and adapted the world renowned Disney brand and formula to best attempt to fit the exacting requirements of the market (see article here).  Entering a new market means knowing which products, what price, and what distribution channel(s) need to be used. Partnering with local companies (e.g. distributors) can be a good way to enter a new market, develop knowledge, and share new market entry risk.

 

A company we assisted in entering a new market recently set the first step in place developing a collaboration with a local distributor. In a few months (less than one year) the company was able to identify which formula of competitive advantage was mostly valuable in that market, which sales distribution channels were more appropriate and have a clear understanding on both the local buying criteria and the (different) process. As a second step, the company moved to a proprietary distribution channel having all the necessary capabilities and competencies available and confidence from the board that the ROI would meet targets.

 

Emerging and early stage markets are indeed enticing- completing thorough research systematically and setting place the right capability investments together with the best emphasis products and channels will increase the risk of success- something all shareholders want to hear and can trust in.

Luca Girotto This post was authored by Luca Girotto, Consultant, Thinking Dimensions.

Luca is currently based in the Italy offices of Thinking Dimensions and has worked on series of projects related to APEC, North Africa, and Latin America.

Entering emerging and early stage markets- why strategic assumptions matter

July 16th, 2012

As “traditional” economies for many companies are stalling for growth a common theme for many organizations is to look towards emerging and early stage markets. The allure of emerging and early stage markets are the potential for “double and triple” digit growth with seemingly strong demand for years to come. Further enticement comes frequently from executives who visit the target countries and witness strong business to business and end consumer demand at price levels which at first glance can seem more lucrative than home based markets. The last step which leads many organizations to choose to emphasize emerging/early stage markets for entry are frequently statistics about GDP growth and disposable income trends (increasing)- which are indeed very interesting.

A number of our clients have achieved considerable success in both emerging and early stage markets- and while implementation challenges and resources demands are not easy to resolve- the proper initial screening at the strategic level can mitigate some risks and allow the company to focus on a few target areas where they have a higher probability to achieve bold growth.

One of the first steps in creating a portfolio strategy for entering emerging and early stage markets is to create strategic assumptions (if you have not already done so a good step in understanding what we mean by this is to read the blog post by my colleague Tim Lewko here).

The error we see many organizations make is to assume that general level growth (i.e. GDP, disposable income) will naturally translate into demand for the products and services they would like to sell in that particular market. Assumptions about demand are not frequently made visible and even more rarely are they validated with real current data. The error is even further compounded by not making clear the implications of the assumptions- and testing them in the target market.

The risk of error can be reduced by 3 steps:

1) Distilling down to the few critical strategic assumptions which really matter for your business. The growth of GDP is not good enough. The number of housing starts are not good enough. Disposable income is not an acceptable indicator. Push yourself and your team to really find the assumption and the data to validate or invalidate the assumption which will lead you to a reasonable implication that you can use to make decisions.

2) Validate and re-validate the data. Buying reports are not the only answer- and certainly cannot be relied on. Put people on the ground in the market, and have them use a structured process together with local support to gather, sort, organize, analyze, and verify information you and your executive team will use to take the most effective actions. Do not rely only on a local distributor or agency- even if you are considering an exclusive with them in the market- you need hard, objective, third party data.

3) Review on a regular basis and be ruthlessly honest in your reviews. Emerging and early stage markets are experiencing a rate of change at a far higher velocity than what we are used to in business. Be prepared to change and adjust your course based on the new information that becomes available. Do not allow this information to hide from the leadership team, or permit your leadership team to deny intellectually what is going on in the market.

 

Entering emerging and early stage markets are both exciting and challenging- there can also be a premimum valuation attached to your company or comapnies if you are good at it. The use of structured processes and systematic tools together with both your current team and local expertise will help you in outperforming your competitors and the market.

 

 

This blog post was authored by Scott Newton, Partner, Thinking Dimensions

 

 

 

How to End the Nonsense of 5 Year Strategic Plans: Develop Strategic Assumptions and Implications to Robustly Test and Guide Executive Decision Making to Deal with Changes

July 14th, 2012

Most senior organizations continue to fall into the same traps of having a strategic “plan” that is:

A. Static: It is not used to guide decision making on a “daily basis” – essentially it sits on the shelf

B. Too Long - Have succumbed to the idyllic alternative of a 5 year planning horizon because it sounds right

C. Void of Strategic Assumptions – No visible thinking of how the executive team believes the world will unfold during their watch and the absence of implications tied to decision making

D. Not Regularly Tested – By the executive team through at least quarterly strategic dialogue validations

The danger of the above pitfalls are that the organization is operating off de facto strategic assumptions and implications – the executive team is not aligned and are most likely thus operating with differing strategic assumptions formed on an individual or “adhoc” group basis. Gaps in assumptions lead to poor or no strategic decisions being made that steer the company in the direction it collectively needs to go.

 

A Solution:

1. Gather your executive team together and have them come up with the 3-5 (no more) most important and most probable assumptions that they believe will affect your industry. The critical few assumptions when you distill them down must be directly impacting the SUPPLY, DEMAND or TECHNGOLOGY aspects of your industry.

2. Have your team write out strategic assumptions with a format that must include the terms “INCREASE”, “DECREASE” or “STAYS THE SAME” – thus having an output which reads as a Foreseeable trend. Ensure fy each assumption is quantified with an order of magnitude number range: EXAMPLE- “Mobile phone users will increase by 20-40% in Brazil”

3. Have the team note the probably of the assumption occurring – HIGH (greater than 75%), MEDIUM (50-75%) and LOW ( less than 50%)

4. Have them “draw” a graph of the magnitude of change against the time period the team feels comfortable estimating – most likely they are comfortable predicting forward 1 – 3 years at most.

A brief Side Note: Assumptions are valid for the (your) ENTIRE industry – thus apply to your company and everyone else – they are the macro view of the drivers of the industry and profitability

5. For each of the assumptions that “make the grade” develop strategic implications for them – implications are decisions or actions your company must weigh on to profitably position and exploit (or mitigate) the impacts on your PRODUCT, MARKETS and CAPABILITIES. The scenarios then need to be quantified against your P&L.

 

The output should look something similar to the illustration below:

 

Illustration Thinking Dimensions Blog July 14th 2012: Strategic Assumptions and their Impact

 

When you complete this strategic meeting with your team you will:

1. Be surprised at the collective level of knowledge your team holds

2. Realize that trying to project more than five years out strategically is very difficult ( for the majority of industry)

3. Recognize the need to test assumptions quarterly through regular strategic dialogue

4. Understand the rationale for your strategic decision and implications will be clearer

5. Identify where gaps and “different viewpoints” can be harnessed and aligned

This blog was authored by Tim Lewko, Partner, Thinking Dimensions

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