What is dynamic consistency, and why is having a strategy important to achieve it?
Dynamic consistency is the idea that decisions are consistent over time – subsequent decisions are aligned and build on earlier decisions.
Having a clear direction as part of your strategy is an important component in achieving dynamic consistency. The strategy helps ensure consistency in decisions over time – helping to ensure that subsequent decisions reinforce one another.
Why is dynamic consistency important
Allows for the development of strategic capabilities
One of the primary reasons why dynamic consistency is important is that it allows for strategic capabilities – where a firm has world-leading strengths in particular areas – to be developed. Such capabilities require continual investments over many periods to build and maintain. To achieve leadership in particular areas, it is thus important that the strategy ensures investments culminate over time – building on and reinforcing past investments.
Strategic actions may take many years to implement, and the benefits even longer to see
Beyond developing specific capabilities, it is also the case that many strategic actions will take many years to implement, and it potentially being many years later before the firm is able to see positive returns from its investments. To gain returns, it is thus important that the firm’s direction is sufficiently consistent over time that the direction the firm is pursuing will be similar beyond the point at which the investments are completed.
Provides greater confidence to organizational stakeholders
Dynamic consistency also provides some greater confidence to various organizational stakeholders in the future of the firm. Suppliers, customers, and employees also face some degree of unknown associated with whether the firm will continue to have the same operations over time – a historical track record of consistent behaviors and direction can give greater confidence in the consistency of the firm’s future actions.