Are the financial results of a company a good measure of its strategic health?
Financial results are a deceptive indicator of strategic health. This is especially true for periods in which a company is undergoing a transition to a new strategy.
Financial results are sometimes a good measure of strategic health when applied retrospectively, but they are not a useful parameter when looking to the future of a company, especially in a turbulent economic environment such as that which is currently affecting us all.
If we can’t use financial statements as an indicator of strategic health, what should we use? The marketing department of your company has a critical role to play in this regard.
For example, it can measure:
• the level of customer satisfaction with the company’s products and services, • evaluate the cost position of the company relative that of its competitors, • evaluate the price position of the company relative to that of its competitors, • evaluate the product performance of the company relative to that of its competitors. These are much better indicators of the strategic health of your company than the financial results.
These indicators are not simply based on a single facet of the company’s situation, separated from its environment. Instead, they provide insights into the company’s performance in light of the prevailing trends and the level of profitability within the industry and also take into account the different actors that play a significant role in the industry and their relative positions.
Ultimately each company should develop its own means to evaluate how good its strategy implementation process is and, using a formal strategic planning process, should continually test for any need to change or update its strategy when circumstances require.
Do you have measures in place to evaluate your strategy development process?
Is your strategic planning process efficient enough to indicate when a change in your strategy is needed?