One of the keys to growth is maintaining strategic flexibility: not being rigidly tied to goals and business models that were set in one set of circumstances, using one set of assumptions, when those circumstances have changed.
According to William Duggan in his new book “Strategic Intuition,” instead of setting goals first, you are well advised to watch for large-payoff/low-cost opportunities first and then set goals. In an xPM world – you would have those opportunity models ready-at-hand and ready to turn into operating and financial execution plans.
One way to use the eXtended Performance Management model to accomplish this is with a rigorous debate in the business about future scenarios. This includes capturing financial and operational models based on possible (and potential) futures.
For example, having a complete set of financial statement models (including Cash flow) that includes a variety of assumptions about the following drivers:
- Competitive landscape (a ‘JPMorgan Chase’ scenario could show what would happen if your two biggest competitors merged, market by market);
- Customer retention (the ‘Mattel’ scenario could show what the P&L would look like if there was a massive product recall in your industry);
- Economic shift (your ‘Citigroup’ scenario would show what would happen to cost of capital and profitability should there be a rapid downturn in the credit markets);
- Rapid new product innovation (your ‘Apple’ scenario would show predicted revenue and margin growth should your new product get to market faster and enjoy accelerated brand recognition).
Just going through the process of creating these models – in a holistic enterprise way, not just by an analyst in finance – will create some useful debate in the business on where resources are best deployed and which model yields the best returns.
Deloitte has a good framework for strategic flexibility at
http://www.deloitte.com/dtt/article/0,1002,sid%253D15288%2526cid%253D41005,00.html as well as some industry-specific case-study research for Retail, Energy, Financial Services and other industries.
Hatch and Zweig published a paper back in 2001 that is still relevant today: http://www.iveybusinessjournal.com/view_article.asp?intArticle_ID=273
They say that the ability to effect strategic change is a result of:
1. Not being wedded to a concept
2. Constantly scanning the competitive environment
3. Staying close to customers
4. Staying close to employees
5. Maintaining low or variable overhead
6. Systems that were not cast in stone
7. Few decision-makers at the top
Each of these levers can be modeled, planned-for, reported on, and analyzed in an extended Performance Management Framework. Employees at all levels can share & collaborate on their creation, have visibility into results and variance, and mine for new insights and opportunities.
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