Why is strategy so important? Well, the old adage of ‘when you don’t know where you’re going, any direction will do’ applies quite well.
An effective strategy avoids headless chickens and the wasted resources of stop-go policies. Frequent changes of strategy are an indication of no strategy. More cogently, it is in the strategic decisions that companies invest the big money and either produce monumental triumphs or monumental cock-ups. Strategy’s real significance is in value creation – a subject upon which many senior managers are dangerously deficient.
It is not that there is an optimum strategy to find. There are always several decent available strategies from which any one will do. But they do need analysis. They do need to be robust. They do need to be well researched.
Companies do need to know that when you make a strategic change, such as moving into a new line of business, it is likely to yield a flow of high return projects into which to invest the available cash. That is what creates value.
This form of analysis is outside most people’s experience. You need to be sure that markets are the right size, that they can grow, that competitors are not going to enter, that you have the right competencies to address the market. Most of this analysis is external to the company while most managers’ experiences are internal.
Any manager probably only gets to set a really thoroughgoing strategy three or four times in a lifetime. They cannot therefore get much experience at it.
To come up with a decent, robust, value creating strategy you really do need input from outsiders. Strategy boutiques such as OC&C bring a new dimension to the analytical thinking required to make the really big decisions, thinking that you simply do not have the chance to practice in a busy day job.
Managers and directors, particularly non-executive directors, would be well advised to insist on a routine strategy review (say every three years) conducted by outside specialists or at least under a process driven by them.
Without such a discipline, strategy will often be shallow, changeable and nothing much more than a few extra years tacked onto the current budget.
Why is there this rush to get on with things rather than think them through?
Perhaps many directors are simply over-promoted, or (more charitably) not given adequate training in the transition from blue-arsed-fly middle management to thoughtful, strategic senior management.
- Neil Chisman is a member of the Financial Reporting Council and a former finance director of Stakis and Thorn.