Strategic Guidelines
Static vs. Dynamic View in Business Planning
Were you upset in the failure of the planning and forecasting systems to predict the 2001 P&P market downturn? Are you still using the same methods but expecting better results?
This is exactly what we recommended in May 2000 for one paper company in Europe:The market downturn was evident already in May 2000, but even in November 2000 there were still quite many forecasts that could not see it coming.
Has the capability of the common econometric methods improved since 2000? If you take a look of the accuracy of a well-known company's forecasts in the appendix you will see that it has not got any better in the last 10 years.
Is your company in the process of preparing market forecasts and business plans for 2005? If you are, and you are using the same methods and tools as before, you may want to take a different, dynamic view to your business.
Simple structure - Complex behavior.
The dynamic structure of an industry is often very simple, but still capable of producing apparently complex behavior. The link between the simple structure and the complex behavior is important. We are today flooded with data, which have resulted in business pictures becoming more and more complex. On the other hand, the effective business leaders are quite correctly insisting on having a simple view for successful decision-making. However, it is widely believed that the businesses are complex in reality, and that the skill of the management in simplifying this view is essential to make the right business decisions.
System dynamics agrees with the simplicity of this view, but disagrees with the reasoning of it. It states that in reality businesses and industries are simple (in structures). By portraying and describing them in a simple way is only conveying the real picture. The skill of effective leaders is not in simplifying the reality, but rather in seeing the structural simplicity through the apparent complexity.
Understand Your Strategic Space
It is extremely important to start from the overall market place and to recognize the nature of it: is there a market leader in your specific geographical or product area, are you or can you be the market leader, or is it a "jungle'. When you have a clear understanding of the market place, you need to identify your own strategic alternatives, evaluate pros and cons for these alternates and implement the plan.
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Picture Strategy and Market Match |
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We have helped our customers to develop and implement market strategies in several different market positions. If you are a market leader, your behavior, tactics and strategy are significantly different from a small player in a business area that can be described as a "jungle".
Here are some examples of items included in a typical analysis:
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