Is such a thing even possible? We think so. And it is long overdue.
Audited year-end financial statements have long been the foundation of informed decision-making on a company's finances because they present fairly in all material respects the entity's financial position.
But financial statements are limited. They present only one of a company's many strategies - its finances. And with the exception of recording financial impact, they don't create a snapshot of the other strategies at a repeating point in time.
Financial statements do not address fully all of the strategies of a firm and they certainly do not show how strategies have changed year-over-year or the impact of that change.
Year-end strategy statements could do this.
Preparation of year-end strategy statements only requires one thing - a change in the way strategy is defined.
A broader definition of strategy is needed so that the term becomes associated with the choices of action and activities common to all firms. This is why financial statements are so useful. They are prepared from financial matters common to all companies.
The good news for developing a broader definition of strategy? It has already been done. Moreover, it was done long ago!
Henri Fayol identified six strategies he believed were common to all enterprises in General and Industrial Management, 1916, the first book written on the newly emerging discipline of business management. Peter Drucker identified two more in The Practice of Management, 1954.
In non-profit companies, business definition is known as mandate and for many, marketing/sales strategy is the “communication” strategy.
In every organization, these eight strategies are organized into a dynamic system of three types of strategy; Alpha, Influencers, and Enablers. One of the eight strategies is dominant and leads the other seven. We call the lead strategy, Alpha.
Influencers are the three strategies that most guide and constrain the implementation of the Alpha and the third category of strategies, the Enablers, being the remaining four strategies.
Influencers and Enablers are typically swept up into phrases such as core capabilities and competencies.
The concept of strategy being dynamic is not new. Dr. Henry Mintzberg studied and wrote about strategic direction in the 1980's. Tregoe and Zimmerman identified the concept of driving forces, their term for the priority of strategies, in the early eighties. All we have done is bundle and label the concepts differently.
But look at what can be done with these concepts. An audited year-end strategy statement can be prepared from the common framework of 8 strategies and 3 types of strategy.
The year-end strategy statement could have components similar to those of financial statements but it would address all of the strategies of the firm.
There would be a Strategy Configuration Statement, being a description of the distribution of strategy across the 3 types. It would be the equivalent of the Income Statement of a financial statement. The configuration of the Alpha, Influencers, and Enablers informs the reader on how the eight strategies were positioned within the 3 categories of the 8 strategies at year-end. See our interactive strategy tool at http://www.thealphastrategies.com/seeing-strategy-maps/
There would be a Strategy Descriptions Statement; being a description of each of the strategies actually implemented during the year in each of the 8 strategy categories. It would be the equivalent of the Balance Sheet in a financial statement. It is the year-over-year comparison of descriptions of specific strategies that informs the reader on what the changes were.
There would be a Comparison of Strategy Configurations describing the strategy changes during the year that result in the year-end configuration statement. It would be the equivalent of the Statement of Cash Flows because it shows the impact of those changes.
There would also be notes to the Year-End Strategy Statement just as there are notes to the financial statements. The notes in the strategy statement would go into detail on each of the strategies within the eight strategy categories.
We think tools like this are necessary to enhance both governance and performance management. And it's just a matter of time before they start being introduced.
For more fresh ideas on strategy, read The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization.