Strategy has an inherently long-term out-look, but boards have to know how the company is progressing toward that strategy in the short-term What are the milestones this quarter, this year, or even three years down the road?
In 2003, Kodak announced a three year strategy to accelerate its shift into digital products. It recognized that the long-term ability of the company to compete would depend on embracing the dramatic change in consumer take-up of digital image. But how might the board know each quarter or each year whether the company still on track to make its three year transition?
Kodak’s board needs to identify the strategic metric the will indicate sufficient performance in printers today to achieve the financial results that the company laid out for 2006. For example, it could ask management to draw upon a third-party research firm to look at:
- What particular position of the printer marketplace has been targeted? For that segment, what has been the product acceptance?
- How appropriate is the distribution? How much attention are dealers giving to the product line?
- What post-sales service are we providing and how does it measure up to the competition?
Overtime, questions like these will provide insights into the customer experience, irrespective of quarter-by-quarter financial results. Other research might look into product quality or manufacturing efficiency to make sure the product line is competitive. If the result are negative compared to plan, the board has to ask management what it plan to do. If results are positive, the board should support the strategy, even if financial performance is not yet where it was projected.
A telecom firm trying to enter and establish the broadband segment of business might track number of subscribers, revenue per subscribers, churn rate, or competitors’ pricing on a quarterly basis. If company isn’t meeting milestones, the board has to get management to define the root cause, including of course the possibility that the strategy is no longer viable.
Source: Ram Charan, Boards that Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage, John Wiley & sons, Inc., 2005
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