Should Strategy Stay Static
In this articles, I am going to proportion with you my recent encounter about implementation of strategy in an organization. How the senior management team deals with changes to the business ecosystem pertaining to the Strategy they had developed at the beginning of the financial year.
On 20th Sept 2007, I was in a strategic review meeting with a manufacturing plant. The agenda was to review the performance of the organization as a whole.
The first slides presented by the finance manager was a financial statement showing the sales performance. The data shown indicated that the following meaningful Performance Indicators (KPI).
1) sales quantity is 1 6% behind budget,
2) market proportion is 30%, a 5 % negative variance to budget
3) production cost is 12% overrun
4) provide performance is 3% behind target
5) working capital is 20 cent more than budget
6) profit is way behind target
This is the first quarter of the year, many meaningful strategies was not matured enough to provide any positive consequence, one of the manager explained. But the fact is most KPI was not up to track, the President replied.
Silence for about a moments…. Then I was talking to myself, why are the senior management team do not review the relevance of the Strategies developed given the current market situation? Many assumptions made could have changed! Example:
- China supply situation changed dramatically over the last 2-4 weeks with value-additional-tax (VAT) reduced or withdrawn;
- on 20th Sept 2007, the China authority announced that energy price to increase by 10%
The Marketing manager explained further that:-
- The market has softened
- import of goods from China keep attractive in terms of price
- competitors is throwing price
As a consequence of lower sale quantity, many of the sales personnel have to chase after sales. Along the way, some sale personnel brought in new sales with multiple sizes, multi colour etc. Both of these attributes are by the way, cause more harm than good to the production lines in terms of higher provide losses.
The lesson learnt from this review meeting was that though a strategy is developed, it should be review for its relevance as the business ecosystem changes. Strategy should be made dynamic if assumption changed considerably. With this in mind, the management team should understand the SWOT examination well so that they can adjust the Strategies at the least, those meaningful actions supporting the strategies.
In summary, just like in the war, situation changes every minute. One should not keep their initial strategy static. One should be able to realize the environmental changes and adopt changes fast.