Brexit: Why CIOs Need to Revisit Their Strategic Assumptions

Even though markets stabilized once it had sunk in that nothing would happen quickly after the UK’s referendum vote to exit the EU, this will only be a hiatus.

Everything now depends on the outcome of the negotiations between Britain and the EU – both before and after Article 50 is triggered – and it is quite likely, as the terms of a deal become clear, markets will return to a more febrile state.

To prepare for a lot more rumor, volatility, and uncertainty, the leadership teams of companies, business units, and functions should all understand the strategy they have in place, and the assumptions that underpin it. And then if changes in the world mean those assumptions no longer hold true, leadership teams must be ready to revise their strategy.

This is particularly important for CIOs as technology now plays such an important role for companies in taking advantage of new revenue opportunities and ensuring operations remain cost effective.

Why Strategic Assumptions Matter

Strategic assumptions are an articulation of the shared beliefs about the future conditions which must be in place for a strategic goal or decision to be successful. Unfortunately, almost two-thirds (65%) of the 23 IT strategic plans CEB has reviewed in the past couple of weeks had no documented assumptions.

Failing to explicitly track the assumptions behind their IT strategic plans puts CIOs at risk of poor course corrections or staying put when they ought to have divested. Both can result in significant financial losses for their companies.

How to Define IT Strategic Assumptions

Strategic assumptions must be precise, measurable, and forward-looking to enable rapid course-correction as business conditions change. Before creating strategic assumptions, however, it is important to brainstorm and research which changes will most upset the IT strategy, and to interview and talk with executives and other stakeholders across the business.

For many IT teams, this should include identifying the most important implications of the UK’s exit from the EU, including changes to labor practices if Brexit negotiations mean changes to legislation on free movement of people across the EU, or changes to UK laws regarding data privacy.

IT leaders should then categorize the information obtained from research and executive interviews into those changes that are “likely truths” and those that are “critical uncertainties.” Likely truths are developments that are inevitable, while critical uncertainties are those that can’t be predicted with traditional forecasting.

Going through these steps will help CIOs build measurable assumptions that demonstrate an asserted future direction and time frame. Chart 1 shows what goes into a proper assumption.

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Chart 1: Anatomy of a strategic assumption  Source: CEB analysis

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How to Make Use of IT Strategic Assumptions

Communicating the assumptions behind your strategy is critical to success: when employees understand the rationale behind your plans, they’re in a much better position to execute them. But there’s another reason.

When CIOs and other business leaders broadcast their strategic assumptions to the rest of the organization, employees can track them and highlight where assumptions hold up. This will allow IT to adjust to market realities more quickly.

A leading pharmaceutical company, for instance, has taken this approach, and established a strategic planning cycle in which assumptions are explicitly discussed and documented, ensuring that its strategy remains relevant to market realities. As part of the process, the company conducts frequent strategy reviews that allow it to determine whether missed financial targets are the result of invalid assumptions, inappropriate strategy, or poor execution.