May 2020
4 minutes

5 Perspectives on Preventing Strategic Faults in Unstable Times

A balanced portfolio of initiatives is the basis for avoiding irreversible strategic faults in economically uncertain times

In difficult phases, we must be particularly sensitive and not be guided by panic and operational opportunism. (Image: O.C Ritz/shutterstock.com)

The economic effects of the Corona crisis will accompany us for a very long time. The predicted recession is causing continuing uncertainty and shows that we have to prepare for long-term cuts. It therefore makes sense for companies to concentrate for the time being on the critical effects of the global initiative landscape on revenue, liquidity and costs. In this way, it is possible to keep the greatest risks under control and ensure viability.

In order to take the right decisions and measures quickly, they are simultaneously forced to increase the agility of the organization. Because one thing is clear: volatility and uncertainty will continue to be constant companions of the business world in the post-Corona period. Agility becomes a basic requirement for managing change - at best actively steering it.

Now, in times of crisis, there is a risk that agility will turn into operational hectic and opportunism while important strategic issues fade into the background. Under pressure, we optimize our existing business and run the risk of losing sight of future success potential.

Nothing distinguishes a powerful management from an incapable one as much as the art of balancing contradictory goals against each other ...  (Peter F. Drucker)

Operational management naturally becomes more important in phases of crisis. The ongoing assessment of our initiative landscape and potential disruptions with a focus on operational performance is initially right and proper in times of crisis. However, combined with high market dynamics and uncertainty, the risk of making ad hoc decisions that weaken us strategically in the long term increases. In other words, the one-sided focus on key operating figures means that, although we may be able to save ourselves through the crisis, in the end we are weaker and sicker than before.

Operational Performance Optimization and the Loser's Game Against Time

Operational data such as sales, profits, costs, liquidity can easily be strategically misleading due to their character. They are always a result or an anticipated result from the past. And they are also peppered with assumptions that are mostly based on our history.

If the operational data look bad, it is usually already too late for strategic actions. This lost time weighs twice as heavily in a crisis that requires agility. It can no longer be made up for in the event of major strategic mistakes. On the basis of solid operational data, we need to make the right decisions on the right initiatives quickly, especially now. At the same time, the decisions we have to make today must not spoil our future.

This is why we should always critically review our portfolio of initiatives. The operational financial perspective remains an important factor, but not the only one. In order to avoid strategic mistakes in the current phase, further perspectives must be adopted.

Figure: 5 Evaluation perspectives for holistic initiative portfolio management

With these 5 perspectives, when evaluating your portfolio of initiatives, you ensure that you avoid one-sided optimization at the expense of your strategic future:

  1. Financial Performance
    We know the financial perspective very well and can measure and evaluate it. It is the perspective that naturally carries the greatest weight in crisis situations and is decisive for success in the short term. In tough times, it is right and important to use sales, earnings, costs and liquidity to evaluate the initiative portfolio. In the long term, however, this dimension should not gain the upper hand.
  2. Markets & Customers
    Each initiative should be assessed in terms of its contribution in relation to customer benefits and market position. This involves market position, measured for example in terms of relative or absolute market shares. In combination with the industry life cycle, it is an expression of the actual success factors of our current business. This is where we ultimately earn the money that we urgently need to invest in new products.
  3. New Products & Services
    The initiative landscape should also be assessed in terms of which activities contribute to innovation. It is one of the most important indicators for assessing the long-term viability of an organization. However, innovation rates are deceptive: if we innovate too much, this leads to activism, lack of focus, unrest and the question of financial viability. If we innovate too less, we will make good money in the short term with our current portfolio, but become lazy and risk a larger innovation gap in the long term. In times of uncertainty and high volatility, it becomes increasingly difficult to make up for missed opportunities.
  4. Processes & Efficiency
    Which initiatives promote the increase of the productivity of our work, our capital or time? In uncertain times, we must ensure that output improves with the same or less input via experience curve effects, automation and standardization. At least in our traditional business. Initiatives that contribute to the increase in value added per capita or, for example, the productivity increase of mental work, open up cost reduction potentials and collective learning effects.
  5. People & Culture
    The question if we as a company are attractive to „good“ people or not is becoming the number one success factor of the 2020s. Does the initiative landscape include enough activities to find and retain the right people? The much-described "War for Talents" is yet to come in Europe. Questions about "good" people, follow-up planning, job design, and how to deal with cultural diversity and its effects will have a major impact on this decade. This assessment perspective will therefore continue to win in relevance.

The realization of consciously balancing the broad initiative landscape in the company with regard to different perspectives is not new. We already meet this demand from Peter Drucker, Kaplan & Norton, Jim Collins and Fredmund Malik in many areas. However, the opinion that the crisis entitles us to take only one perspective consistently is dangerous. As important as financial benchmarks are, we must be aware that these are operational data.

Managing an organization by financial dimensions is a purely operational management that can lead to sacrificing one's own future viability to a profitable present. In difficult phases, we must be particularly sensitive and not be guided by panic and operational opportunism. A crisis opens the door to strategic mistakes that can endanger the long-term viability of the organization.

A balanced portfolio of initiatives is critical to success if we are interested in sustainability. For one simple reason: Due to the high level of complexity and increasing dynamics in the markets, we will no longer have the time after the crisis to correct strategic mistakes with reasonable effort.

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