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 / Summer 2010 / Issue 59(originally published by Booz & Company)


It Makes Sense to Adjust

3. Sense-and-adjust. This is the most long-term and sustainable strategy, but only a few companies have successfully implemented it. Unlike the first two approaches, sense-and-adjust is dynamic, constantly and consistently smoothing out volatility in areas of business subject to swift and dramatic change, such as research and development or frontline operations like manufacturing and logistics.

Sensing is an ongoing effort to gather and analyze data on current and future business conditions and, more important, translate it into likely outcomes. The sensing process should leverage baseline planning information — what’s captured in strategic and operating plans — and synthesize it with key performance data to form a single “dashboard” of actionable information that can be used by business unit heads or corporate leaders in functions like IT, HR, or marketing.

A high-quality sensing dashboard offers an early organizational indicator of future business conditions. The dashboard flags data that signals an operational adjustment is needed. For example, a business unit head may use a dashboard to reveal unanticipated decreases in either product unit price or volume that could translate to an overall decline in revenue. Or a logistics firm may place its sensing system on alert for changes in pricing and functionality of handheld computers, wireless communications, mapping software, and the like; the goal would be to determine how and when to start applying these technologies to its own business (and to avoid being blindsided by a competitor).

Adjusting is the process of altering business strategies on the basis of sensed outcomes. In this phase, which is done in tandem with sensing, business unit or department heads assess the data to determine possible resource and capability trade-offs. They explore the impact on people, processes, and technology, and then develop a consensus on the plan that is most appropriate for building or maintaining competitive position. In the case of an unexplained drop in unit prices, the adjustment may be an emphasis on marketing, innovation, or layoffs. And if a company has learned that it could outpace its rivals by implementing a GPS system, a slate of new training programs that teach employees how to use the technology may be just as important as purchasing the equipment itself.

As adjustments are made, the sensing capability picks up and continues the cycle, both scanning the horizon for market shifts and monitoring the execution of these strategic responses. Sensing does little good in the absence of adjusting, and vice versa.

The sense-and-adjust approach to change is not the traditional stutter-step strategic planning process in which business units are summoned every six or 12 months to present their take on the market and their performance expectations. The sense-and-adjust process is continuous, incorporating new information and forecasting outcomes and expectations constantly. Companies that have mastered the skills to handle the programmatic approach and have an organization that is reasonably resilient — flexible and anticipatory — are the best candidates for this sustainable strategy.

Dow Chemical is one of the few companies that have adopted the sense-and-adjust methodology. Dow uses it primarily to plan workforce needs throughout the seven-year boom-and-bust cycles commonplace in the chemical industry. In establishing this process, the company mined three years of historical data pertaining to its base of 40,000 employees to forecast promotion rates, internal transfers, and overall labor availability. Then a custom modeling tool produced a snapshot of the current workforce segmented by five age groups and 10 job levels, and followed that with projections of head count for each business unit well into the future. These outcomes can be adjusted for qualitative variables, such as industry trends, political developments, changes in laws, or various “what if” scenarios (e.g., what if the company instituted a hiring freeze?), which are continuously sensed by Dow’s system.

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