Strategic CA(SA): The annual strategy review
There is a clock, compass and calendar built into the human condition. Marking the passage of time, pausing to take our bearings and assess our progress, and observing the recurring cycles of life are universal features of human existence. As we progress from one year to the next, there is a natural tendency to review the highlights and achievements of the past year and to contemplate the goals and plans for the year ahead. Strategic management in the context of any enterprise is a manifestation of this basic human need to frame the past and to shape the future.
The annual strategy review is a signal event in the calendar of most enterprises. Often designed as a strategy workshop, it is a time when senior executives, as well as non-executive board members, come together to review the performance of the enterprise, assess the changes and trends in the internal and external business environment, review (and revise as required) the enterprise's vision and strategy, and determine what is required for the successful execution of the revised strategy. An effective annual strategy review can serve to re-energise the enterprise, clarify its vision, redirect and focus its efforts, and raise it to totally new levels of performance.
As many would agree though, the annual strategy review does not always live up to its promise, often due to poor management of the underlying strategic management process. Participants fail to develop a common perspective or achieve a meaningful consensus on key decisions affecting the enterprise. Consequently the enterprise's strategic plans are not effectively executed and its strategic goals are not achieved. Given the importance of the annual strategy review, how should the process be managed to make it a positive experience and a valuable exercise both for the participants and the overall enterprise?
Based on insights gained through serving various roles in strategic management, including those of participant, leader and facilitator of annual strategy workshops, here are a few guidelines to improve the effectiveness of the annual strategy review.
- Frame the past to shape the future. Although strategy essentially requires a future oriented mindset, it can benefit from an historical perspective. The annual strategy review should include the opportunity to reflect on key lessons from past performance, in the context of the enterprise's past vision, goals and strategy. While strategic management should not become bogged down in historical analysis, a coherent understanding and framing of past performance may help to avoid repeating mistakes and yield meaningful insights for shaping the future.
- Link strategy and finance. Strategic management should be firmly linked to the achievement of goals measured in terms of key performance indicators, including financial performance. Linking strategy to key measures of success may sound very obvious, but many enterprises fail to make an effective link between strategic management and financial management. In such cases the gap is often apparent in the disconnect between strategic goals and annual budgets.
- Align internal and external business perspectives and strategies. Strategic management involves aligning the internal and external business environments in the pursuit of key goals. Strengths and weaknesses in the internal environment need to be managed integrally with opportunities and threats in the external environment. Many enterprises formulate their strategy based on a disproportionate reliance on managing either the internal or external environment on the mistaken assumption that alignment between the two will follow as a matter of course.
- Manage trade-offs, constraints and choices. Strategy is about making choices in the face of limited resources and related trade-offs. In many cases the ineffective execution of strategy is due to the enterprise making choices which do not reflect the underlying constraints. Goals tend to be unrealistic if they are based on poorly defined constraints and trade-offs. Conversely, strategies may seek to create new possibilities by extending the resource frontier and narrowing the trade-off gaps.
- Distinguish between good governance and good strategy. While an enterprise will benefit from both good governance and good strategy, it is not always appreciated that the two are related but different concepts. The former tends to emphasise managing risk while the latter focuses on building value. There is often a mistaken belief that if the requisite governance structures and processes are in place, then good strategy will follow.
As one year ends and another begins, now is a good time to frame the past and shape the future, at both an enterprise level and a personal level. Best wishes for the new year. asa
Author: Troy Dyer CA(SA), MBA, CFA, is a strategy coach at Audax Ideas.