Strategic investment lies at the root of all business and financial planning. When dealing specifically with strategic business decisions, the main issue is both gaining and defending a position of comparative and competitive advantage, especially in dealing with an uncertain investment world. As the economy goes bad and inflation becomes a threat, this field becomes even more significant, since the uncertainty factor increases.
The main goal of strategic investment is the building of competitive advantage relative to both stockholders and the competition. If oil prices are predicted to skyrocket by a competent source, than an intelligent approach towards strategic investment would be to set aside cash today for increased prices tomorrow. More specifically, this entails investment in alternative energy sources, electric cars and even nuclear fuel. The point is to use competent and trusted projections of future trends as a means of acting quickly to outperform your competition.
Strategic investment boils down to measuring future cash flows against future trends and the investment monies these will require. Even more specifically, it is about acting as quickly as possible without being reckless or jumping too soon. This kind of investment action does not take place in a vacuum, but serves to balance competition, the market, the state and international trends against those aspects of the field in which your firm specializes. If you work for Toyota, and the price of petroleum is predicted to go up, it makes sense to begin a crash development project in replacing all plastic and other petroleum-based products in Toyota cars. An oil price hike will make automobiles more expensive, and therefore, if Toyota's research and design team is top-notch, then this will serve as a form of competitive advantage against Nissan and Ford.
Strategic investment planning takes place on several levels. Trends that serve as the launchpad for investment decisions today must be identified. Opportunities must be weighed against both cost and risk. At the most general level, the organization itself may have to be restructured to increase business flexibility. Using the Toyota example, the firm's main headquarters might decide to permit local managers more autonomy to react quickly to changes in the price of petroleum. Incentives, for example, might be extended to local dealers to lower the price of cars as against the main competition. In some instances, the local situation will be a better gauge of the necessity of these incentives than a centralize corporate structure that makes policy solely from the top.
As uncertainty increases in the business world and changes come more rapidly than in the past, diversification of investments becomes more important. In short, strategy under conditions of uncertainty might stress hedging investments. This implies that investments, such as gold, food processing or educational technology that often increase during times of stress should be balanced against riskier, but more profitable, investments in other sectors. It also seems to favor concepts like the minimization of debt, bringing firms to rely more on equity financing or even barter. As uncertainty becomes harsher on business, stability becomes more attractive, and this requires a great deal of balance.
- Thinkstock Images/Comstock/Getty Images