The Strategic Challenge
Organizational Diagnosis. A medium-sized company faces three simultaneous problems: revenue has remained stagnant for two years, operating costs have increased by 18%, and senior management is considering expanding its operations.
However, the organization does not sufficiently understand the causes of these problems. Therefore, before making decisions about investment, pricing, or expansion, it needs to conduct an organizational diagnosis supported by strategic analysis.
This hypothetical case study presents three decision-making situations and demonstrates how investigating underlying causes can guide managerial action.
1. What Should Management Do First?
Situation: The CEO wants to understand stagnant sales, rising operating costs, and the feasibility of expansion.
Analysis and Recommendation
The first priority is to investigate why former customers stopped purchasing the company’s products. At the same time, management should consult existing customers to understand the reasons behind their continued preference.
This approach can identify unmet needs, perceived competitive advantages, and potential weaknesses in the company’s products or services.
Furthermore, the organization should examine the variables and processes responsible for increasing operating costs. The analysis must identify which activities, resources, or operational changes explain the 18% increase.
Management should also evaluate sales trends by product, customer segment, and market. Consequently, the company can distinguish organization-wide problems from difficulties concentrated in specific areas.
Recommended decision: Postpone expansion until sufficient information is available about commercial performance, operating costs, and organizational capabilities.
2. Should the Company Reduce Prices to Recover Customers?
Situation: Research reveals that 30% of the former customers surveyed identified price as a reason for leaving the company. Meanwhile, existing customers emphasize product quality and reliability.
Analysis and Recommendation
An across-the-board price reduction should not be the first response.
Initially, the company needs to identify which product characteristics meet former customers’ needs and which improvements could help recover some of those customers.
Likewise, management should investigate existing customers’ preferences more deeply to understand why they remain loyal and which attributes they value most.
Importantly, the 30% figure refers to former customers who mentioned price. Therefore, it does not mean that the remaining 70% are satisfied customers.
In addition, the organization should assess price sensitivity across customer segments, associated costs, and contribution margins.
Based on these findings, management may consider selective pricing adjustments, product redesign, service improvements, or differentiated offerings.
Recommended decision: Preserve the attributes valued by customers and investigate the causes of customer loss before implementing a broad price reduction policy.
3. How Can Management Deliver Results Within 90 Days?
Situation: The CEO agrees that an organizational diagnosis is necessary but demands tangible results within 90 days.
Analysis and Recommendation
The diagnostic process should be accelerated without compromising the quality of essential information. Accordingly, management can establish a three-stage action plan.
Days 1–30: Priority Diagnosis
The team should focus on customer behavior, sales performance, and operating costs.
Furthermore, it must identify the problems with the greatest impact on organizational performance and establish initial indicators to monitor progress.
Days 31–60: Targeted Interventions
Based on preliminary findings, management can implement specific corrective measures.
Potential actions include addressing operational weaknesses, reviewing processes responsible for rising costs, and improving offerings for priority customer segments.
However, every intervention must be evaluated in terms of costs, risks, and expected outcomes.
Days 61–90: Evaluation and Recommendations
The company should compare current performance indicators with the initial situation and assess the results of implemented actions.
Relevant indicators may include sales performance, customer recovery, cost variations, and contribution margins.
Finally, senior management can determine which measures should continue, which require adjustment, and whether conditions justify reconsidering expansion.
Recommended decision: Deliver a priority organizational diagnosis accompanied by initial interventions, performance indicators, and executive recommendations. The 90-day period allows preliminary results to be assessed but does not guarantee that every organizational problem will be resolved.
4. Lessons for Strategic Management
This case highlights four important management principles.
First, organizational problems should be investigated before solutions are selected.
Second, commercial decisions must consider customer needs alongside the company’s economic structure.
Moreover, pressure to deliver results does not eliminate the need for analysis. Instead, it makes prioritization essential, directing attention and resources toward the most relevant issues.
Finally, an effective organizational diagnosis should guide managerial action, monitor performance indicators, and support future decisions.
Conclusion: From Diagnosis to Strategic Decisions
An organizational diagnosis is more than a description of organizational problems. Its value lies in identifying relationships among causes, consequences, and possible courses of action.
In this case, the most consistent decision is neither immediate expansion nor indiscriminate price reductions. Nor should the company postpone action indefinitely while waiting for additional information.
Instead, a sound approach combines focused investigation, priority interventions, and systematic performance evaluation.
As a result, the organization strengthens its ability to make decisions under uncertainty, preserve resources, and create conditions for sustainable growth.
This hypothetical case study was developed for analytical and educational purposes, focusing on strategic management, organizational diagnosis, and managerial decision-making.
Affonso Henriques
ESADE Business School & Law – Barcelona – Spain