“How do you make strategic decisions?”
The company I was visiting had made several major acquisitions over the years and I was curious to learn how it made its multi-million-dollar decisions.
The response to my query was a hefty report with page after page of calculations and footnotes. I was impressed. Decisions to invest and divest were obviously supported by a water-tight business case.
But as the figures were explained to me, I began to feel decidedly uneasy. As everyone agrees, the future is fundamentally uncertain. This kind of uncertainty is unavoidable, and any decision to invest or divest must naturally consider a comprehensive array of scenarios.
Which brings me to the first red flag: There weren’t nearly enough scenarios.
But what really set alarm bells ringing was the way the scenarios relied entirely on ball park figures. For example, when exploring the effects of closing a production line, it can be convenient to assume that transferring production is just a matter of relocating products to a plant with ‘roughly’ the right amount of spare capacity and a ‘similar’ product portfolio.
Convenient – but wrong.
In the real world, even small differences between products can translate into enormous differences in sequencing and set up times – which, of course, impact critical KPIs such as throughput and delivery performance. Without the ability to conduct reliable operational impact analysis, many so-called ‘business cases’ for investment and divestment are, in fact, multi-million-dollar leaps of faith.
While clothed in layer upon layer of facts and figures, most strategic planning decisions are – like Hans Christian Andersen’s emperor – walking around stark naked.
Does this mean that strategic planning is a futile activity akin to, say, rain dancing? Absolutely not.
The key to creating resilient strategic plans lies in a tool that models all relevant business rules and resources – production facilities, transportation, workers – and swiftly calculates the ramifications of various scenarios throughout the supply chain.
Considering divesting? Effortlessly explore all your options by ‘switching off’ various facilities and optimizing production across the remaining production lines to gain an immediate overview of the impact on your KPIs.
Wondering where to invest? Simply ascribe infinite capacity to your resources and re-optimize production to gain immediate insight into overloaded resources. Different colors can be used to flag under- and overutilization, thereby giving you a powerful graphical overview of where you should consider investing and divesting.
The ability to explore and compare scenarios swiftly and effortlessly revolutionizes strategic planning – turning it from a tedious annual exercise of dubious value into a monthly opportunity to monitor and revise strategic decisions.
In ‘The Rise and Fall of Strategic Planning’ Henry Mintzberg declared that effective strategists ‘are not people who abstract themselves from the daily details but quite the opposite: They are the ones who immerse themselves in it, while being able to abstract the strategic messages from it.’