Basis for any senior management decisions are analysis with influences on short and long-term financial statements – results. It is not only profitability that needs to be taken in analysis because, short-term decisions could lead into significant enhancement of Profit (NOPAT – Net Operating Profit After Taxes) but in long-term period company might lose on its value much more because of this profit enhancing strategic decisions. Companies could even go to bankruptcy if they lose experts, innovative cycles, process and environment value. They could lose their competitive advantage. All this could happen if strategic management analysis is oriented on short-term financial results aka maximizing current profitability.
Sustainable growth and value contribution should be main target for any strategic management analysis. One of best models with all respect to Balance Score Card, Activity Based Costs and Six Sigma is definitely Economic Value Add (EVA) that gives best view into sustainable opportunities in industry and extra profit. Catch with EVA model is to have accurate Weighted Average Cost of Capital (WACC) but this material for another story.
Doesn’t matter what business model top management uses to build company and society value it provides strategic management analysis needs to take care about level of corporate knowledge integration with financial statements. This is the basis of everything – integration of current and planned business performance figures (key performance indicators, business analysis reports, ad hoc analysis and similar) together with financial statements. In other words, company information flow and knowledge generation, best is through customized business intelligence software solutions, must be quantified directly in financial statements.
If business data from KPIs and from financial statements and financial ratios are not integrated strategic management decisions will not have quantity analysis, estimation. Strategic management decisions will than rely more on experience and feeling instead of poor quality plans and analysis. Low integration means exactly that data from production systems, financial and non financial are not directly related. If sales figure is changed (revenues and costs) will be not transparently presented in financial statements. This is main game, complete integration of non financial indicators into financial ratios. That would allow ultimate strategic management analysis.
Strategies must rely on solid corporate knowledge from information systems like standard business intelligence, business performance management, data warehouse, data mining, business intelligence for finance and business models. That is a must! Only then can be many analysis be compared and to fine tuned. Only then can valuable strategic decisions be made upon strategic management analysis. There is no other way to go without high quality strategic management analysis that is based upon company information flow and external data (marketing research).
With results in financial and non-financial world it is easy to find, to compare strategic decisions in strategic management analysis. For example if EVA model is implemented in company then it is easy to base strategic management decisions on simply just finding which analysis brings more EVA.