By Bozidar Kralj

Basis for any senior management decisions are analysis with influences on short and long-term financial statements – results. It is not only profitability that needs to be taken in analysis because, short-term decisions could lead into significant enhancement of Profit (NOPAT – Net Operating Profit After Taxes) but in long-term period company might lose on its value much more because of this profit enhancing strategic decisions. Companies could even go to bankruptcy if they lose experts, innovative cycles, process and environment value. They could lose their competitive advantage. All this could happen if strategic management analysis is oriented on short-term financial results aka maximizing current profitability.

Sustainable growth and value contribution should be main target for any strategic management analysis. One of best models with all respect to Balance Score Card, Activity Based Costs and Six Sigma is definitely Economic Value Add (EVA) that gives best view into sustainable opportunities in industry and extra profit. Catch with EVA model is to have accurate Weighted Average Cost of Capital (WACC) but this material for another story.

Doesn’t matter what business model top management uses to build company and society value it provides strategic management analysis needs to take care about level of corporate knowledge integration with financial statements. This is the basis of everything – integration of current and planned business performance figures (key performance indicators, business analysis reports, ad hoc analysis and similar) together with financial statements. In other words, company information flow and knowledge generation, best is through customized business intelligence software solutions, must be quantified directly in financial statements.

If business data from KPIs and from financial statements and financial ratios are not integrated strategic management decisions will not have quantity analysis, estimation. Strategic management decisions will than rely more on experience and feeling instead of poor quality plans and analysis. Low integration means exactly that data from production systems, financial and non financial are not directly related. If sales figure is changed (revenues and costs) will be not transparently presented in financial statements. This is main game, complete integration of non financial indicators into financial ratios. That would allow ultimate strategic management analysis.

Strategies must rely on solid corporate knowledge from information systems like standard business intelligence, business performance management, data warehouse, data mining, business intelligence for finance and business models. That is a must! Only then can be many analysis be compared and to fine tuned. Only then can valuable strategic decisions be made upon strategic management analysis. There is no other way to go without high quality strategic management analysis that is based upon company information flow and external data (marketing research).

By William McGee

The Operating Stage of a strategic management process is the fourth and final stage of the process. During the Operating Stage, a company will stabilize its operating environment, refine its business and market strategy, and identify opportunities for improvement. Coming after the Building Stage, and the growth that normally occurs during it, the Operating Stage can seem boring, like the business has plateaued. However, this feeling is not reality. There is still much work to be done during the Operating Stage, and additional growth in revenue and profitability to be realized.

A key attribute of the Operating Stage is that it forms a feedback loop with the other stages of a strategic management process. After the initial work-through of a strategic management process, a company stays in the Operating Stage forever, or until there is a major revamping of the business. Information is captured in the Operating Stage that is fed back into the other stages in the process, where refinements and adjustments are made as appropriate.

The remainder of this brief article summarizes a few of the more important activities that take place during the Operating Stage.

Making Adjustments

Making adjustments to the outputs of all three of the other stages of a strategic management process can be extremely beneficial if they are done carefully and thoughtfully. Adjustments can serve to refine a company’s market strategy, business philosophy, and performance management system, and are usually the result of decisions made regarding transactions that are raised during the Operating Stage. These of course can be of many different types, but here are a few of the more common adjustments that we have seen:

* Tweaking the Market Strategy. Normally, there are no major adjustments to market strategy, but minor refinements can be valuable.

* Discontinuing Activities That Are Not Consistent with the Market Strategy. Unfortunately, these adjustments are all too common, and they are difficult decisions for a company to make. However, they are necessary. Continuing activities, whether they be products or services, that are not consistent with a company’s market strategy will only undermine the defined market strategy, and render the entire process invalid.

* Further Refinement of Segments and Buyers. This also is typical. As more is known about customers and buying factors, it is natural to use that information to create deeper segmentation of markets. This can be a valuable exercise.

It probably goes without saying, but decisions regarding transactional adjustments must be made very quickly and implemented without delay. Transactional decisions should not interfere with the timing of the normal daily business flow.

Capturing Information for Improvements

Other information captured during the Operating Stage may not be associated with specific transactions, but is equally as valuable, maybe even more so, because more general information lends itself to broader, longer-term strategic decisions. Information is critical to managing a business strategically. So, it is important to capture as much information as possible on a routine basis. Of course after being captured, the information must then be summarized, triaged, and categorized before being fed back into the other stages of the strategic process.

Here again too, the types of information captured can range widely. However, here are a few of the more common categories that we have seen:

* Market Feedback. This type of information typically comes from the sales force. There are always customers or other types of stakeholders that do not like a company’s market strategy. Of course, there are also stakeholders that do like it, but those are normally not as vocal. It is important to capture all of this type of information and understand the motivations behind it.

* Revenue Enhancements. These opportunities are normally associated with pricing structure, but they can also lead to expansion of markets.

* Cost Reductions. At times, these suggestions can be real gems. Most companies are surprised at the suggestions they receive in this category.

* Quality Improvements. Enhancements to quality, whether they be for products, services, or delivery, ensure long-term success

Who participates in capturing information? Everyone in the company should be encouraged to participate. The quantity of information that flows in is normally quite large. Therefore, a database application of some type for information capture is normally required. There are typically two methods of capturing information:

* Facilitated. In this method, a small group is formed to facilitate the capture of information. This group provides assistance with classifying opportunities and quantifying potential payback. Some companies use outside consultants for this purpose to ensure objectivity. Reports are provided periodically to management for decisions.

* Non-Facilitated. In this method, a process is created for employees to follow when submitting suggestions. Employees are responsible for all information submitted, including the quantification of payback. In this method, management normally plays a more significant role in classifying and prioritizing suggestions prior to decisions being made.