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.
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