A strategic assumption is considered valid, if it can lead the organization to the
related strategic objective. In the above example, based on the mentioned strategic
assumption, the management starts to rededicate resources to the different parts
of the company, including raw material warehouse. This leads to the decrease of
service level, responsiveness and reliability of the warehouse and consequently
the increase in the amount of missed products. As a result, despite the
headquarters’ assumption, “the increased missed products costs” may exceed “the
reduced resources costs” and the overall costs of the company may increase in long
run. In other words, a positive long-term trend in the operational level measures
(dedicated resources) does not lead to a positive long-term trend in strategic level
measures (overall costs) and this shows the invalidity of the strategic assumption
The above example clearly states that the paradox between the organization
performance in operational level (measures that are directly related to a particular
strategy, in this case “dedicated resources”) and strategic level (measures of being
in line with that strategy, in this case “overall costs”) is one of the main indicators
of “invalid strategic assumption”. Changing a strategic assumption may indicate
that the organization needs new processes or capabilities in order to achieve
the related strategic objective. Developing new processes or capabilities should
be reflected on the PMS by defining relevant measures.