Tim Johnson noted in his recent strategic planning article that 85% of Fortune 500 companies from 1955 no longer exist today. This is because they failed to keep up with a changing world. The assumptions upon which they based their strategy on were no longer valid due to a change related to either market demands, customer needs, or technology. If your organization wants to avoid a similar failure, it is critical that you periodically evaluate the strategic environment that you work in and make sure that your strategy is not based on similarly invalid assumptions.
The new tax law that was passed in December 2017 in the U.S. offers an example of a change that could possibly disrupt a key assumption you might have made when you developed your strategy. While most organizations will not make any major changes in this case, it still helps demonstrate the types of strategic questions that you might be asking yourself if you work in certain sectors.
Do you work in the non-profit sector? Since the standard deduction has been raised significantly, some fear that there be a decline in charitable donations. This aggravates the problem that has arisen with the generational change happening across our society, where those who have been the strongest donors in the past are aging and passing on to a new generation that likes to give in different ways. The strategic question you may ask is, where can we make up for projected shortfalls in revenue? How must our contribution mix be changed in the future?
Do you sell luxury goods? One accountant I spoke with who had done a year-by-year comparison said that clients that make more than $750k per year were getting quite a windfall, while the middle brackets were coming out close to even. Another friend I know who does million-dollar home remodeling said that he as already seen an uptick in business. The strategic question here is, how can we tap into the increase in capital available across certain industries?
Do you work in, or sell to, the Federal government sector? Non-defense spending is down for multiple reasons already – a huge reduction in revenues will likely only reinforce this trend. The strategic questions might be how can we increase our efficiency or improve our quality to reduce our cost structure? Or should we refocus on different sectors?
Are you an accountant or a tax lawyer? At least in the short term, some folks can plan for a big boost in business as they help everyone figure out what to do. The strategic questions here are, where are the biggest targets of opportunity? How can we align our services and branding to align to these changing market conditions?
Is your business connected to divorce, education, or the moving industry? Do you sell meals and entertainment to corporations? Do you sell depreciable property? Specific issues have been highlighted in the news that could affect very specific industries: alimony deduction rules have changed; 529 College Savings Plan’s can now be used for education other than just colleges; moving expenses are no longer deductible; rules for corporate meals / entertainment expenses and deductions for depreciable property changed significantly. Any of these changes could have an impact on certain organizations. In all these cases, the strategic questions revolve around, how can we succeed considering these changes?
Are you an architect or engineer? You’ll need a team of certified tax lawyers to help you decipher the new pass-through portion of the law, but I’ve already heard of organizations trying to add engineering services to their product line to gain certain tax advantages. Maybe this opens the door for partnering opportunities, or maybe a new consulting service offering to help organizations navigate in a new market place for them?
The point of this blog is not to educate you on the new tax law, as this is just a few highlights of the change. The point is that you might need to reassess your strategy depending on your organization and the assumptions on which you have based your strategic priorities. If any of the considerations listed above are relevant for your organization, I’d recommend you talk to a tax lawyer about the details and then consider what changes might be needed. There might be implications for some of the KPI targets you have set as you emphasize one strategy over another. There might be initiatives that need to be added or removed from your priority list. In some rare cases, there might be reason to refocus your efforts on a different strategy altogether. The key is that you continuously assess your strategic environment to see if any of the assumptions that were made to formulate strategy have changed, as you don’t ever want to be one of those organizations that gets left behind by a changing world.
Author: David Wilsey
David Wilsey is the Chief Operating Officer with the Balanced Scorecard Institute and co-author of The Institute Way: Simplify Strategic Planning and Management with the Balanced Scorecard.