Posted: June 12, 2013
Why they are key to effective planningTracy E. Houston
One of the most daunting tasks leaders face is getting the corporate strategy right. One aspect of developing an effective corporate strategy is acknowledging that assumptions are being made in the development of the strategy.
What often happens is that strategic assumptions are rarely clearly documented or challenged as they should be. Challenging the assumptions need to be viewed as one of the main functions of the directors. Acknowledging and thoroughly challenging assumptions is both the art and science of directorship.
I had the opportunity to interview U.S. Army Maj. Gen. Byron S. Bagby, who served our nation for more than 33 years and is now managing partner at BMB Solutions. He serves on three nonprofit boards, including the Board of Trustees at Westminster College (MO). Gen. Bagby has served at the senior levels of our military, including Assistant Deputy Director for Strategy, Plans and Policy on the Joint Staff.
What is a common pitfall in the corporate strategy development process?
We need to realize that the corporate strategy development is one of several decision making processes that boards and management will conduct. One of the most common pitfalls in the corporate strategy development process is that directors and management fail to acknowledge, document and challenge the strategic assumptions that guide the actual development process and provides the framework upon which more detailed planning occurs, therefore other decisions are made.
This is best illustrated by a board conference call I was on a few months. One of my fellow board members gave a short summary of a plan he and his committee had developed. When he finished and asked for questions, I asked, “What are the assumptions that guided your planning?” The line was silent for what seemed like eternity. Someone finally answered with, "We don’t have any assumptions.” I responded that you needed something upon which to build the plan, then gave one example that I felt would be an assumption. We then outlined a few assumptions and discussed why it was important to document them.
Exactly what are assumptions and why are they important?
Assumptions are suppositions about current and future conditions that are assumed to be true in the absence of facts and fill the gaps in what directors and management know. We tend to assume away potential problems, such as that a major competitor will develop a technologically advanced piece of equipment or assuming that major export restrictions will not negatively affect a new market that we’re trying to move into.
Why don’t we challenge assumptions?
All of us are biased in most situations at least to some degree. As Andrew Campbell, Jo Whitehead and Sydney Finkelstein so clearly explain in Think Again: Why Good Leaders Make Bad Decisions and How to Keep It from Happening to You, decisions previously made are filed in our minds with “emotional tags” that influence future reviews of any previous decision or a decision on a related issue.
If we don’t identify, document and scrutinize assumptions, human nature will allow our natural biases to cause a shift from the initial undocumented and unacknowledged assumptions to a refined group of unacknowledged assumptions. Without documenting and scrutinizing assumptions, our reviews of the corporate strategies and related plans will become less robust and will be shaped by our natural biases.
How can boards and management set the conditions to ensure they get the assumptions right?
Boards and management ensure current and future stakeholders are included throughout the strategy development process, especially as the list of assumptions is built, challenged and periodically reviewed. The stakeholders, basically fall into three categories:
Core Team: Primarily the management and the directors.
Experts: People who have specific expertise or experience…often mid-level management within the company, or outside consultants hired to bring expertise not resident in the company.
Red Team: Those who bring “outside the box” points of view and provide an alternative viewpoint as the assumptions are challenged.
What are examples of strategic assumptions?
Assumptions usually fall into five main categories: environmental, marketing, organizational, technical and resources. A few examples are:
- An Asian hydro-electricity corporation built many facilities based upon two strategic assumptions: that there would always be glacial melt waters, and that there would be a predictable monsoon season each year.
- The steel market will be dominated by a few global players, with all other contenders seeking to partner or avoid direct competition.
- There will be regional consolidation, with key (different) players dominating markets in Asia, Europe and the Americas.
- We assume that the market will respond favorably to our new product, and we will steal 10 percent market share from our competitors.
- The mayor of a town located near a major metropolitan area sees his town not as a bedroom-community, but as a fast–growing potential rival which should attempt to attract new industry to locate within its city limits.
Do you have any final thoughts?
While a great deal of energy and thought goes into building the list of assumptions, this list must be frequently reviewed by management and directors and updated, as necessary, as facts become known and the environment changes. Directors have an inherent responsibility in challenging and scrutinizing the assumptions that are typically developed by management.
Byron Bagby is Managing Partner at BMB Solutions and is available to speak on this topic. He can be reached at firstname.lastname@example.org
Tracy E. Houston, M.A. president of Board Resource Services, is a board advisory consultant and executive coach headquartered in the Denver area. She conducts board evaluations and assists boards with a variety of issues that increase effectiveness. She can be reached at email@example.com or http://www.eboardmember.com
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