Every strategy is built on assumptions about the future business environment the company will face. How will the market develop, how will competitors behave, what new technologies will appear?
These strategic assumptions represent management’s “best guess” at that moment in time. The CEO can’t expect perfect accuracy – crystal balls are in short supply. What the CEO can expect is to track the key assumptions and to be alerted when the market environment moves in an unexpected way.
Say the strategy was to reposition the company to dominate the emerging up-market segment that is prepared to pay a brand premium. The Executive team can identify the key future assumptions this strategy rests on – the size of this segment, the companies ability to create brand equity and the resulting segment share captured.
If the Executive team have estimated a quarterly trajectory for these assumptions up-front and are tracking reality against them, the CEO can know whether the strategy is on-track or needs corrective action, or even a complete rethink:
- The premium segment is growing slower than expected? Should we ramp back our brand investment? How can we make up the future profit shortfall?
- A competitor is building brand equity faster than us? Can we overtake them and establish dominance? If not, where else should we become market leader?
Without explicit metrics to guide the decision, mid-course strategy reviews will find it much harder to make the tough calls about changing strategy.