Why strategic reviews have a bad reputation
Before considering the benefits of considering the benefit of annual (or quarterly) strategy reviews, it is important to recognize that they do face a lot of criticism – not everyone agrees that annual reviews are the best approach for managing a firm. Two of the key criticisms made of annual strategy reviews are that they are 1) often immediately ignored, and 2) don’t take into account the emergent component of strategy evaluation.
While there may be some truth to these criticisms – they don’t necessarily capture the full benefits either. While there may be needs to adapt the strategy, immediately ignoring the strategy in many ways reflects a lack of initial buy-in. The strategy should be flexible enough that it can serve as a useful reference point when faced with environmental changes. While it is impossible to foresee all of the adaptations that firms will have to make as they implement their strategy, having some guide for the direction of the firm is still useful in making these adaptations – it provides a basis for choosing which direction to move in.
The role of periodic reviews - why continual monitoring may not be enough
While continual monitoring of the environment, and gradually refining the strategy over the year is certainly important for firms, it can also be useful to more periodically and systematically assess the direction. Rather than working in opposition, the periodic and continual monitoring process complement one another.
Allows you to take a step back
Possible the main benefit of annual strategy reviews is that it allows you to take a step back from the day-to-day activities of the firm and to consider the overall direction. There is a danger that managers get focused on the small routine tactics that the firm undertakes – rather than the bigger picture direction. On a day-to-day basis, the next customer order, current marketing campaign, or manufacturing issue are the pressing things that managers give their attention to. While these are all important – it is also important to consider the bigger picture, long-term decisions. Without taking a conscious pause, these are the parts that are easy to overlook.
Reduces escalation of commitment
Taking a step back may also reduce the likelihood of escalating commitment to a course of action that is not working. This is the danger the companies throw good money after bad on a failing course of action because they don’t want to admit that the direction is not working. While in the short-run this may feel the better course of action rather than admitting defeat, in the long run continuing down a failing path (unless there are genuine reasons to think things will change), is not a good strategy.
Having to force yourself to think through the decision – and consciously re-commit to continuing with the approach can be a good way of identifying and halting the escalation of commitment. It can help break the routine element of continuing down the path simply because that is the direction that has been taken so far.
Gets a commitment to a course of action
A final benefit of periodical (e.g., annual) strategy reviews is that it provides an opportunity to gain, or reaffirm, commitment to the strategy. Getting all key decision-makers together to review the approach taken, and reflect on adaptations that are required for the future, generates some form of buy-in.
Final thought: Ultimately strategic decisions are long-term in nature
It is finally important to recognize that strategic decisions are long-term in nature. They involve big commitments of resources, that are not easily reversed. This is important to recognize, because, by their nature, they shouldn’t be continually changed – they set the direction for the years to come. Thus, while adaptations will almost inevitably be needed over the next year (not everything can be foreseen) – the basic direction shouldn’t be constantly changing. There needs to be some element of dynamic consistency (i.e., consistency over time), and making decisions as part of periodic reviews aligns well with this.