STRATEGIC ASSUMPTIONS: THE ESSENTIAL (AND MISSING)

ELEMENT OF YOUR STRATEGIC PLAN

Stakeholders often approve a strategic plan without scrutinizing the strategic assumptions, the
very foundation on which the plan has been built (Sound familiar? As in, “…the value of this
derivative, which we call a Collaterized Debt Obligation, is built on the value of the underlying
securities.” (which we have looked at…but uh..not very closely). This author sees an inherent
danger in such a practice and states that stakeholders need to start scrutinizing the strategic
assumptions that underlie the very plan they are being asked to approve.

An example: The importance of a single strategic assumption

Let’s consider a simple example and examine the role of just one key strategic assumption: the
strategic assumption about the future structure of an industry.

Imagine that we are considering investing in a relatively small steel company, “X”. There are
major differences in the strategic assumptions X’s management team might make about the
future development of the global steel industry. Will the business plan for the company be built
upon the strategic assumption that:

1. The steel market will be dominated by a few global players, with all other contenders
seeking to partner or avoid direct competition?
2. There will be regional consolidation, with key (different) players dominating markets in
Asia, Europe and the Americas?
3. The high-margin steel businesses of the future will lie in specialty steel that serves one
or several specific industries (i.e. automotive, aerospace, medical, etc.), thereby allowing
for “niche” players?
4. There is no future in the steel industry for small players; the company needs to
reposition itself as a supplier of “materials” (i.e. a supplier of composites, plastics, rubber
as well steel) as opposed to being a supplier of steel products exclusively?
5. All trading of commodity steel products will soon be done through one global web site?

Final word

In the field of strategy, the admission that assumptions are being made in the preparation of
strategic plans needs to be acknowledged. Moreover, transparency and discussion surrounding
these assumptions need to be viewed as key elements and the responsibility of the strategy
creators.
In doing so, the practitioners themselves – be they CEOs, consultants, Chief Strategy Officers,
or employees in the Strategy Management Office – will be forced to elevate both their own
performance standards and the rigor of the strategy process to a level comparable to that
exercised in the fields of science, economics and finance, where the publication and debate of
assumptions are the norm. This will pave the way for strategy creators to gain greater credibility
and build a stronger voice on executive teams. Finally, it will provide them with the opportunity
to increase their contributions in determining direction and forecasting the future performance of
the organization.

Strategic assumptions have been missing from the strategic planning lexicon for too long. It is
time to put them in their rightful place.