A simple, yet dynamic means of improving business strategy
The CIMA Strategic Scorecard was developed to help boards of directors successfully oversee the strategy. It’s a tool to ensure that proper consideration is given to the performance and strategy dimension of enterprise governance. The scorecard provides the board with a simple but effective process for focussing on the key strategic issues and — most importantly — asking the right questions. This empowers the board to work constructively with management to promote the future success of the organisation.
The CIMA Strategic Scorecard has four quadrants:
Strategic position — The external environment or ecosystem
Strategic options — The future strategic "bets"
Strategic implementation — Review of current projects
Strategic risks — Review of organisational risk processes and identification of key risks
The scorecard can be especially useful for illuminating the impact of COVID-19 on an organisation’s strategic directions. It can help:
Define the key aspects of the environment in which an organisation is operating to ensure that the board is aware of changing competitor issues, economic factors and other disruptions brought on by COVID-19.
Identify key options that could have a material impact on the strategic direction of the organisation moving from a lockdown state into a post-pandemic world. It also helps the board determine which options should be developed further.
Chart significant steps or milestones in relation to the chosen strategic plans. This helps re-operationalise in the new environment and track performance.
Highlight the strategic risks surrounding an organisation emerging from lockdown and moves these into manageable opportunities or mitigation plans.
We have quickly investigated and researched the usefulness of the CIMA Strategic Scorecard in the COVID-19 business environment. In late April, as the pandemic crisis deepened, members were invited to demonstrate the value they could contribute to an SME case study in a survey. The survey included the following COVID-19-focused questions:
1.How would you go about assessing a fictional company’s immediate situation?
2.What risks and opportunities should be addressed over the next few weeks?
3.What options or strategies do you think the business owner should consider for the recovery?
4.What are the main strategic risks which you think the business owner will need to address?
Members who took the survey were not alerted to the fact that the questions had been derived from the CIMA Strategic Scorecard.
The case study presented to the survey participants is outlined below, and readers of this research paper should note that the responses presented here refer to this case study in many of their responses.
Jo Evans Interiors Ltd. — SME Case Study
Jo Evans (55) is the owner-manager of a small business that assembles and fits bespoke furnishings for boutique hotels and prestigious homes for wealthy clients. She employs five skilled craftspeople in a studio near Cheltenham. For many years, her main supplier has been an Italian artisan cooperative. Jo is well-regarded by some leading interior decorators who recommend and commission furnishings. Her work has been featured in glossy magazines.
The business is incorporated as a limited company and it rents a small unit on an industrial estate. Jo owns the premises through her pension, and there is a loan of £150k against it. Until recently, this was an established, successful business. Turnover was ordinarily over £500k per annum. But last year was difficult because of uncertainty regarding Brexit. The business took a small loss. It currently has an overdraft with an agreed limit of £25k. The order book had looked reasonably good for 2020, but in the current climate business has evaporated. Paying this month’s wages will take the overdraft close to its limit.
Strategic position — It focuses on information for the board rather than decision points. It looks at external information that will inform the organisation’s decisions and includes the marketplace, competitors, the regulatory environment and so on.
In the present context, there is a need for an immediate strategic response, an interim response and a long-term response for the recovery or ‘new normal’.
The immediate situation is the unprecedented pandemic. For a lucky few, their services are suddenly in great demand. This has been especially true for major digital businesses such as Netflix and Amazon. For many businesses, especially any in the offline retail and leisure sectors, this presents a cash flow crisis because revenue from sales has come to a sudden halt.
For the duration of the pandemic and especially over a lockdown or subsequent social distancing period, businesses might continue to trade, pivot to a survival mode or, in effect, hibernate.
The strategic situation may be an inflection point in the inevitable transformation towards a digital economy.
In terms of strategic position, we have extracted the following practice statements from the survey responses, providing a COVID-19 lens on how these companies review and manage their strategic position:
Check the latest financial statements (including assets and liabilities). If unavailable, try to update ASAP. Check for any obvious financial issues (e.g., overtrading.) Discuss with Jo how the current situation will affect sales, staff and supply chain.
Identify key customers, key suppliers and financial liabilities/commitments. List out all expenses and identify discretionary expenses, options to delay/defer expenses Check options to re-negotiate overdraft/loan terms and conditions.
Forecasts are crucial to determine whether current resources will meet future requirements of the business.
Strategic options — They focus future development, which has greatest potential for creating or destroying stakeholder value. These are the big "strategic bets" and normally only three or four would be under consideration at any one time.
An example of strategic option choices would be Amazon. Twenty-five years after they first began to trade as an online bookstore, the pandemic presents an opportunity or "burning platform" for businesses to pivot to a more online and digitally enabled business model. As for strategic options in our scenario, here’s what survey respondents suggested:
Review potential sources of income through limited sales, collection of debtors, government assistance and potential to defer outgoings.
In terms of the case study, Jo should assess options to either survive or thrive:
.....1. Review the current customer base and your suppliers and assess ..........their likely recovery period. .....2. Assessing new revenue lines. .....3. Checking the business’s financial strength/cash flow to continue her business.
In terms of thriving:
.... 1. Consider diversifying revenue streams. .....2. Expand existing business, organically or inorganically.
Use alternative ways of selling and taking advantage of online platforms.
Strategic implementation — Reviews approved projects that are being scoped out or implemented. It can form a link with the balanced scorecard in monitoring the progress of these projects. The reporting of whether a post-completion audit has or will be carried out would also be covered here.
In the context of COVID-19, businesses should review current projects and consider which to drop, which to stall and which to prioritise. Our survey respondents made the following points regarding strategic implementation in our scenario:
For all the strategies to do a feasibility study to see if there are the resources and ability to deliver it.
If a project is feasible, create a business plan with financials to enable resourcing from external sources.
Perhaps re-purpose an existing asset to enable financial feasibility.
Set clear milestones against which to measure success, which can include targets for securing new client/revenue and targets for breaking even.
Strategic risks — This focusses on whether the organisation has appropriate policies and processes in place and has identified key strategic risks.
Most businesses weren’t prepared for a pandemic. The next challenge is to not be similarly unprepared for the recovery. The return to a more normal business environment might be V-shaped, U-shaped or L-shaped. A sharp economic shock followed by a quick recovery would be V-shaped. A U-shape would mean a longer period of slow trading before a recovery. An L-shape would mean a need to adjust for a long period of lower economic activity. This makes planning very difficult, as whatever form the recovery takes will present different risks. This means that businesses must plan for different scenarios.
In terms of strategic risks, our survey responses again show on how organisations are approaching business in the COVID-19 landscape:
Risks and lost business due to COVID-19 — Some clients failing to pay their invoices, resulting in liquidity problems.
Establish risks and opportunities for each potential strategy as part of an options appraisal.
Can the business be pivoted?
Risks to be addressed include:
....1. Staff safety and retention through the downturn ....2. Cash flows to settle liabilities ....3. Supply chain disruption (as furniture is supplied from Italy)
Opportunities:
....1. Use government stimulus packages to manage cash flows, retain staff and . . ... .......ensure funding until revenues pick up. ....2. Identify new suppliers. ....3. Identify opportunities to diversify revenues (e.g., provide interior design advice or use ........social media channels to promote expertise.) ....4. Negotiate better terms with bank. ....5. Prepare zero-based budgets for expenses.
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