Strategic Stress Test

Our Strategic Stress Test is a fast, thorough, and objective assessment of a proposed or ongoing strategic initiative. We verify the potential benefits and, perhaps more importantly, identify potential weaknesses. By warning of where problems might occur, we shape planning, negotiation, and implementation to address those weaknesses.

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Questions and Answers About the Strategic Stress Test
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Who Should Care About a Strategic Stress Test?Return to List of Questions

CEOs are the likeliest candidates to apply the Strategic Stress Test, because they bear primary responsibility for major strategic decisions. By overlaying a formal review on the standard strategy development process, CEOs get a quick, inexpensive screen that will catch the mistakes that, according to our research, occur frequently in even the best organizations. CEOs can also use the Strategic Stress Test to build consensus among their management team and assure their boards that the strategy is being subjected to rigorous analysis.

The board of directors should consider using the Strategic Stress Test to broaden its dialogue with management and act as a doublecheck—lest directors be excoriated for inadequate oversight in the aftermath of a big failure.

Executives below the CEO level can suggest the Strategic Stress Test as a way of contributing to the broad discussion of strategy or as a way of vetting major decisions within their own part of the organization.

Private-equity investors can use the Strategic Stress Test as a doublecheck before buying troubled companies, to ensure that they have a clear handle on strategic and operational risk.

When Is the Strategic Stress Test Appropriate?Return to List of Questions

Our Strategic Stress Test can be conducted at pivotal points during the strategy development and implementation, including:

  • At the earliest stages, when a strategic question with significant ramifications is being explored, to ensure a robust examination of the issues and thorough articulation of the alternatives.
  • As an overlay throughout standard strategy development processes, to create a forum for discussing possible problems and making sure potential red flags are given due weight.
  • As a “last chance” review of a high-stakes strategy or acquisition, after the formulation process but before final adoption.
  • As a remediation process, to ensure that the thorniest implementation hurdles are identified and openly addressed after a complex strategy has been adopted.

How Does the Strategic Stress Test Work?Return to List of Questions

The Strategic Stress Test typically involves three to five members of our team, sometimes augmented by a client executive or industry expert. While the test can be done faster if there is a severe time crunch, it usually takes four weeks to conduct the stress test and deliver our assessment.

The test consists of five steps:

Step One: Context — Our team immerses itself in the context and details of the strategic effort. This is done through review of appropriate literature and documentation and discussions with management.

Step Two: Red Flag Analysis — Drawing on our research into failure patterns and on our database of problems, our team prepares a document highlighting areas of potential concern. The document is designed both to invite additional materials and comments and to set the stage for in-depth discussions.

Step Three: Workshop — The team engages in a robust workshop with management and key stakeholders. A typical discussion revolves around:

  • Critical assumptions about strategic alternatives and the likely actions of key stakeholders
  • Early testing and other market-research findings
  • Customers, competitors and other market perspectives
  • Economics
  • Future scenarios that could help or hurt a strategy
  • Organizational readiness
  • Strategies for the launch and for learning and adapting

Step Four: Synthesis — The team prepares an independent assessment that lays out potential weaknesses and tough questions and makes recommendations for improvement.

Step Five: Closure — The team works with management to get closure, offering its perspectives on management’s plans to strengthen the strategy, to abandon it, or to proceed as planned.

Here is a summary view of the stress test process:

The Strategic Stress Test

Armed with detailed information about potential problems, the executive team can improve the strategy or, in extreme cases, kill the idea before it costs a lot of money. The team can also use the information to negotiate a better deal, if an acquisition is involved, or to do a more thorough job of preparing for the integration of a business being purchased.

The Strategic Stress Test functions in a way that the team can tolerate. It doesn’t make the CEO or anyone else look bad. The panel that conducts the test acts as a trusted, confidential adviser who can, at least, preserve the jobs of the CEO, his subordinates and the board, while perhaps making lots of money for shareholders. For more details and examples of the Strategic Stress Test applied to M&A and organic strategy development, see these white papers by Paul Carroll and Chunka Mui:

What Are the Benefits?Return to List of Questions

  1. You arrive at the best answer, as quickly as possible. In a world where no plan is perfect, the Strategic Stress Test helps pit ideas against each other to determine which is the strongest option.
  2. You identify key risks. We help you be clear-eyed about the implementation challenges associated with a strategy, rather than let the process of selling the strategy paper over potential issues.
  3. You build real consensus. The best way to achieve consensus is to have a contentious yet constructive deliberation, so that key issues are surfaced and considered. The Strategic Stress Test ensures you avoid self-censorship, which makes problems fester.
  4. You preserve a graceful exit. Too often, the political capital expended to launch an initiative commits leaders to see it through, even to a bitter end. Just knowing that an idea has to pass a stress test means an executive team has an out.