Strategy is key to long term business success and so is, by extension, strategic planning. The problem is not in strategy or planning per se, but how it is done. Traditional strategic planning works, when businesses use it to set direction and plan to achieve a long term aim, where the validity of that long term aim can be achieved based on data, knowledge and new thinking relevant to the desired state or outcome.
We’d argue that today too much is uncertain and in flux to define strategic direction and plan accordingly drawing on an understanding of what was. . As a result the tools that businesses have deployed to translate their strategy into deliverables are much less effective.
In this article, we will explore where traditional strategy works and make the case for a changed environment that requires a new form of “anti-strategy” along with a more adaptive strategic planning process. We will also sketch out some of the key characteristics of this adaptive strategy making process.
Strategic planning has been defined by the Harvard Business School as:
[T]he ongoing organizational process of using available knowledge to document a business's intended direction. This process is used to prioritize efforts, effectively allocate resources, align shareholders and employees on the organization’s goals, and ensure those goals are backed by data and sound reasoning.
Generally, this involves the management team working through the key targets over a number of years and then planning to deliver these with the various departments, teams and functions in the business.
The strategic plan, therefore, provides a long term plan the business can follow in order to reach their desired outcomes. The aim of strategic planning is to provide an ongoing framework for monitoring and measuring activity in the business against the company’s strategy through setting the direction for market growth, revenue and positioning. It should serve as a one of the key management tools across the organisation, ensuring that all functions of the business are aligned and efficiently delivering in a focused and efficient manner.
In their review of strategic planning effectiveness, George and Walker found:
The formality of the strategic planning processes (i.e., the extent to which strategic planning includes internal and external analyses and the formulation of goals, strategies, and plans) is important to enhancing organizational performance.
This highlights the importance of having a formal strategic planning process across the organisation, particularly if there is participation across the organisation in the planning process. It is not enough to have just the leadership team set the direction and desired outcome and plan, the more that teams across the business feel they “own” the plan as a result of their involvement in its creation, the more effective the plan is.
While there is a great deal of literature arguing for the importance of strategic planning for organisations, there are a couple of key assumptions that underpin traditional strategic planning that call into question its suitability in the current business environment of uncertainty and disruption that we operate within. This is the paradigm shift we discussed previously.
The first assumption is that there is a level of continuity between the past and the future. Strategic planning is based on the idea that the external environment is relatively stable. As a result, if the company was, for example, able to reach a specific market share in a geographic market with their existing products, they should be able to grow that share through improved marketing and distribution.
The second of strategic planning’s underlying assumptions is related to the first. It is that there is time to engage in planning. Because of the size and complexity of companies, the process of engaging with the business in order to get the necessary information and buy-in to plan effectively takes time. Since strategic plans generally cover a number of years, they require a significant commitment from the company. This increases the importance of engaging the business. Finally, as Kabeyi notes, the strategic planning process generally involves planning across multiple levels of the organisation, which takes time to coordinate and deliver.
According to research done by AlixPartners, almost all the business leaders they surveyed believed that their company’s business models had to change within the next three years and over half worried that they were not adapting fast enough. Faced with the cumulative impacts of new technologies, climate change, Covid, the war in the Ukraine and, in Europe, Brexit, disruption and uncertainty have become the “new normal”. As we have argued previously, these disruptions are signs of a major paradigm shift.
As far as strategy making and planning is concerned, paradigm shifts have two main implications. To borrow from former US Secretary of Defense, Donald Rumsfeld, there are “known unknowns” and “unknown unknowns” that need to be addressed when looking at key strategies and how to deliver them.
One of the key characteristics of paradigm shifts is the profound impact of new technologies, economic models, customer expectations and competitors. While the exact shape and impact of artificial intelligence, sustainability or GenZ customer behaviours, are unknown, management teams are aware of them and can factor them into the planning process through scenario planning, for example. These known unknowns, or uncertainties, can be incorporated into strategic options to be explored through pilot activity, ongoing research, innovation or acquisitions.
Uncertainty introduces an element of risk into strategy planning. They require monitoring and review in order to ensure that the plans, and the strategy that underpin the plans, are in line with the impact of these factors. As we will see, this poses a significant challenge to traditional strategy and planning.
Beyond the uncertainty that defines paradigm shifts, there are unknown unknowns that emerge from the interactions of the various uncertainties. An example of this can be seen in the supply chain disruptions that have arisen as a result of the overlapping impacts of weather disruptions, Brexit, Covid and the war in the Ukraine. While some level of disruption could have been predicted as a result of any of these disruptions, the scope and magnitude of them was an emerging result of a series of significant and complex changes to the operating environment and the interrelations of their combinations causing marked shifts.
Emerging properties, more so than the uncertainties discussed above, require more attention to the environment and adaptability to respond to their emergence. While the resulting changes can offer growth opportunities, risk, or require pivots in response, their unpredictability also contributes to anxiety and fear. For example, the uncertainty of how blockchain will develop, has already created huge opportunities for early movers and proponents suggest it may still radically impact the entire financial sector. Whether a “believer” or not, there’s little doubt that the impact of emerging technologies like this will be felt acutely across swathes of existing business models, driving some to irrelevance.
Given the uncertainties and emerging properties characteristic of a paradigm shift, a strategy process that predominantly leverages held knowledge of the past is not the right tool to support companies in addressing the complexities they are facing. Most companies suffer because it takes too long to define and implement their strategy, or fail to sufficiently accommodate and understand radical market shifts. As a result, without even being aware of it, the company discovers that this strategy is based on conditions that do not exist now. In the face of the complexity of a paradigm shift and the time it takes to define business strategy, there is the tendency to put off any strategy work as ineffective.
Due to the linear nature of traditional strategy work, it can take anywhere from a few months to half a year to complete the process. Given that corporate strategies generally look out three or more years into the future, a few months to define, communicate and integrate the strategy into operations makes sense.
The problem is that the environment is constantly changing. Despite all the scenario planning and forecasting, it is likely that the business landscape will differ significantly from the anticipated future. This makes long term strategy very uncertain. Even if the focus is on the next year, which was traditionally seen as the timeframe for operational strategy, there is still considerable risk that the assumptions the strategy is based on will not pan out.
We argue that good strategy is directional, as opposed to too rigid. Traditional strategy that sets direction remains valid, if we don’t “do strategy” rather we do move and deliver in tune with a vision. As a result, strategic planning moves toward shorter delivery timelines, for example 90 days, and a focus on “moving the dial” through constant learning and adapting.
An extension of the previous point about the strategy process is that all the predictions that the strategic plans are built around the assumption that past conditions, and therefore results, will continue into the future. This works in a relatively stable environment. In a paradigm shift, however, the conditions that existed yesterday likely do not exist today, so drawing conclusions from past activity and results in order to reproduce them or improve them is problematic.
To take one simple example of this, it is clear that businesses are seriously having to recalculate their financial and business models in light of what is happening. For the last decade, at least, there have been low interest rates and increasingly stable global supply chains. This led to business models built around debt and just-in-time delivery. Now both of those conditions have disappeared as inflation and supply chain disruptions have become a feature of the business environment.
In this context, it is not possible to use previous years as guides for strategic plans without significant adjustments and caveats. In this scenario, management is faced with either giving up on strategy or accepting that their predictions and plans are not likely to work. The impact of this is creeping doubt that the plans are invalid, and can result in a lack of alignment and diffusion of tactical activity preventing movement toward the goals.
Given the problems with traditional strategy in a paradigm shift, the danger is that management retreats into strategy paralysis. Researchers, such as Bryan Robinson and R Nicholas Charlton, have pointed out the link between uncertainty and anxiety. In fact Charlton argues that fear of the unknown is the “oldest and strongest fear.” If the management team is not able to find a way of explaining the seemingly random, unpredictable events that are occurring, one possible response is what psychologists term “avoidance”.
In the business context, the behaviour is not what we commonly think of as avoiding the topic. Instead, in the face of too much uncertainty, management shifts focus to what it can influence: the immediate problems and opportunities. Risk minimisation essentially becomes the focus of the business. While this seems like a sensible approach, it often leads to drift and reactivity in the business, as there is little direction and focus. The business may find itself spending a huge amount of resources on activities that will not bring value in the longer term, simply because they were there and could be addressed in that moment.
We will explore strategy making in paradigm shifts in more detail in subsequent articles. For now, we can outline an adaptive strategy process that uses the company vision as a “north star” to execute against in the uncertainty and disruption of a paradigm shift.
The adaptive strategy process starts from the assumption that everything is in flux at the moment, therefore the focus is on “moving the needle” toward the company vision, altering the tactics or approach as needed. As a result, the focus is identifying the characteristics of an adaptive business and aligning the organisation in that direction. These include:
In practice, adaptive strategy is an “anti-strategy”. It is not focused on predictions and long-term plans. It is built around what is happening now: using it to improve the company’s ability to change and take advantage of what is happening.
Adaptive strategy is built around management collecting the information and insight the business has on the current environment, defining some hypotheses about where the business move toward. This leads into 90-day strategic plans. The plan tests the strategic hypothesis. Once the 90-day “sprint” is done, management can review what was discovered and decide whether to proceed with the hypothesis, modify it or abandon it.
The adaptive strategy process can be challenging because it requires the business and, more importantly, its leaders, to be humble. At the core of the adaptive strategy process is the acceptance that we cannot know what is going to happen, and we may not even have a very clear idea about is happening now. We can make our best efforts to identify the impacts of all the tectonic changes that are going on at the moment. We can prepare ourselves as best we can to mitigate risk and prepare to seize opportunities, and then something new emerges to throw all those plans into disarray.
It is like sailing in unknown waters. We have a general direction we are trying to get to and some tools to help us stay on course. The work is then to plot a course that will get us to the goal. The course constantly changes. We have to tack with the wind, ride the waves. At times it may seem like we are not going anywhere. This is where communication comes in. We have to be clear what is happening, where we are going and understand that the path to get there is not straightforward. We also need to realise it will not always be like this. There will come a time where the new paradigm starts to emerge. When it does, then the businesses who are most aware of what is happening will be positioned to take advantage of this new wave.