Deciding Priorities: What Value Strategy?
The first step for investors when looking at a business is to check that the strategy for the business is right. There is no point in charging over that hill if it turns out to be a cliff edge.
However, at Applied Acumen, we frequently find this check is all too often done on gut feel rather than science; and unless provoked by poor results and a change in management, a check is something many businesses don’t even do at all.
Popular business culture is littered with well-known examples of companies that failed to run a check on strategy, and went right out of business. We’ll leave that to business schools and a ‘not fit for purpose’ auditing and corporate governance regime to chew over.
More pertinent might be to throw off those “aren’t I clever” hindsight goggles and look around at companies and organisations who are still trading.
Taking a look at what these companies, your company, are doing in relation to checking the effectiveness and direction of their strategy is the only real indicator of good governance, and it is here where it gets really interesting.
How much analysis, and the quality of that analysis, that goes in to driving the right decisions for a business varies quite massively, not just across sectors, but between businesses in the same sector.
There is no standard, no benchmark, and not even any framework for making those decisions. Instead, it’s like business piňata.
So it is here that we find people doing what they think is best, which is usually a variation of what they think worked all right for them last time.
This is why we find manufacturing companies adopting 40-year-old concepts from the auto industry and wondering why their initial cost reduction success is running out of steam.
It is why we find construction companies systematically embarking on projects that lose money. It is why we find companies of all kinds paying for things based on time or knowledge rather than results, and it is why we find companies of all kinds taking customer behaviour for granted.
The quality of decisions often reflects the quality not just of the information but also how it is presented to those making those decisions.
So poor productivity is presented as a problem of a commercial portfolio complexity.
Poor margin is presented as a problem of resource input costs. Poor efficiency is presented as a problem of equipment. Poor service or excessive waste is presented as a problem of forecasting, or IT systems. Poor sales are presented as a problem of product, or price, and so on.
Your decisions are thus manipulated, to slash lines and shorten that product tail, to commission a lean transformation programme, to upgrade to a new IT system, to raise a Capex, or simply cut everyone’s budget by 5%.
Wouldn’t it be better to get a different, independent and more scientific view of your information, so you can make better informed decisions? We think it beats piňata.
Richard Shipperbottom, CEO and founder of Applied Acumen