(c) Institute of Chartered Accountants of Scotland. Contact ICAS for permission to reproduce this article., Strategic Management

Blind spots in business strategy

By Andrea Murad, CA Today

Andrea Murad speaks to Ian Smith CA, Founder of The Portfolio Partnership, about the potential blind spots facing business strategies.

As the Founder and CEO of an operational consultancy that scales businesses organically and by acquisition, Ian has discerned vital components of successful strategy and shares his knowledge with ICAS.

Creating a disconnect between strategic goals and execution

Often, there’s no link between a company’s strategy and what is actually being worked on. “The symptoms are departmental heads and senior managers being confused at what they’re trying to achieve in terms of the priorities,” said Ian.

“Their departmental priorities will often not move the company’s strategic goals forward and, therefore, a gap opens between the CEO’s vision and the execution.”

No matter how small or large the staff, the cause is a lack of communication between leadership teams and staff. “Every leader would claim that of course that’s their aim, but they invest very little time in doing that,” commented Ian.

“You need to execute that problem of connection every single week – you have to keep ramming home your strategic plan and align it with hundreds of key actionable steps.”

He added that to prevent staff from spending 12-hour days working on the wrong projects, “managers need to nail down their understanding of the strategy and therefore, the positioning of their business and demonstrate to staff that it’s credible and real.”

“You flow that passion and belief down into the business,” said Ian. “Managers get it right when staff knows how their work connects with the overall strategy and corporate plan.”

Buying only what you need

“There’s a massive blind spot around the successful acquisition of another company,” explained Ian. “The research is pretty damning that management teams are dreadful acquirers. Their ability to strategize properly for what they should be buying and their inorganic growth plan is weak.”

The thought process for acquisitions doesn’t often consider the post-acquisition integration and how everything will work after the sale closes.

No matter if a company is public or private, leaders need to assess the integration problems and the right fit upfront when they meet the target and to consider right from the start how the target will be integrated into the group.

The proof is that only 47% of acquisitions are successful operationally, according to PwC. The assessment of post-acquisition integration fit is often left too late in the process.

One of the first examples of this fit is the assessment of culture. As each company has a different culture, “the blind spot is not facing up to the incongruous mix of culture between the two sides,” said Ian.

If an advertising agency bought a digital software house, for example, there’s a cultural issue that has to be thought through. “You might be changing the ad agency culture, but that cultural and organizational fit is the nub of success or failure,” said Ian.

Successful businesses are aligned, know how to make money, have engaged employees, and when they make acquisitions, they think through all the issues from the start.

Not knowing the anatomy of the business and the numbers

Corporate leaders do not always have the fundamental knowledge of the business’s finances; including cash flows, balance sheets and profit loss statements. “It’s never too early to understand the financial economics of your own business,” emphasised Ian.

“People get there from different road maps, and they get a nose for how to make money. Some CEOs never find that out or they rely on others, but you should know your business back to front and be able to explain that to a fifth grader.”

This creates an opportunity for CAs to be able to step in and explain how the financial economics affect the business’s strategic plan so that the leadership team is better able to understand the economics of the decisions they make.

“A CA’s knowledge can bring great insight to understanding what is really going on,” said Ian. “It helps management explain in storytelling fashion what’s happening in the business and what’s going to happen.

“As an example, all financial variances from the norm (budgets, last year, forecasts) can be explained by two reasons: volume and yield. If your management team doesn’t recognize these underlying patterns, then they’re making decisions based purely on numbers. Understanding the ‘why’ is key.”

This article was originally published in CA Today.