Strategy: Rapidly Adapting in a Complex World
Blog Post › Transformational Leadership
This article originally appeared in the Spring 2017 Gaming & Leisure Magazine.
“Strategy, as we knew it, is dead,” declared Walt Shill, head of Accenture’s North American management consulting practice, in 2010 in the Wall Street Journal. While certainly not dead, strategic planning has fallen from its pedestal since the Great Recession. Harvard Business Review put the return on investment of traditional strategic planning at 34% or less. Our recent surveys of executives indicate that only 19% of strategic plans achieve their objectives and only 25% of those executives are motivated by the plans they create.
What happened? Should your organization even have a strategy? If so, what does it take to create a quality strategy?
Why Have a Strategy?
The success of any organization depends on its people taking coordinated action to fulfill the organization’s purpose. A strategy can create a compelling context that inspires and moves people to take extraordinary action, action beyond what they would normally do, in a coordinated fashion. At its best, strategy guides the choices and actions of people in an organization, informing what they choose to do and (maybe more importantly) not do.
What is Strategy?
The term strategy is often misused in everyday language. We talk about which strategies to use to accomplish outcomes, but those are tactics. A strategy is an outcome (or series of outcomes) that, if realized, represents the fulfillment of the organization’s purpose. Put simply, strategy is how the organization defines winning. Classic examples include Microsoft’s “A PC on every desk and in every home,” Coca-Cola’s “A Coke within arm’s reach,” and Komatsu’s “Surround Caterpillar” (see Hamel and Prahalad, “Strategic Intent”, Harvard Business Review, 2005). Strategic planning is the formal consideration of an organization’s future objectives. Strategic planning answers the question, “What?” separate from “How? ” yet these are often not distinguished in practice.
Why Traditional Strategic Planning Fell
Even before the financial crisis, there were murmurs in academia and business that something was wrong with traditional strategic planning. In 1994, management professor Henry Mintzberg said, “Strategic planning is not strategic thinking. Indeed, strategic planning often spoils strategic thinking, causing managers to confuse real vision with the manipulation of numbers.”
In traditional strategic planning, the purpose of the plan is to analyze, understand and predict the landscape well enough to figure out how to get from here to there, where there equals profitable winning in a competitive playing field. The fundamental commitment of traditional strategic planning is to know, understand and predict. The paradigm is to identify there (a future state) and design a plan to get from here (the present state) to there.
Advances in analysis and computing made it possible to create more and more precise forecasts, and people became fixated on coming up with better forecasts and more precise plans. The best companies in the world were thought to be those who created the most-researched plans and then effectively and efficiently tracked and executed against those plans. Dazzled by the ability to accurately forecast and track progress using new analytics, many forgot the fundamental rule of planning: it is the planning, not the plan, that is important. President Dwight Eisenhower, an expert in the practice of strategy, told a conference of defense industry executives in 1957:
“Plans are worthless, but planning is everything. There is a very great distinction because when you are planning for an emergency you must start with this one thing: the very definition of ‘emergency’ is that it is unexpected, therefore it is not going to happen the way you are planning. So, the first thing you do is to take all the plans off the top shelf and throw them out the window and start once more. But if you haven’t been planning you can’t start to work, intelligently at least.”
Good management means sticking to the plan, but when the unexpected happens, as it did in 2008, sticking to the plan hurts, not helps. As the great American philosopher and pugilist, Mike Tyson quipped: “Everyone has a plan ‘till they get punched in the mouth.” What became apparent in 2008 was that the future was too difficult to predict, and trying to do so could leave an organization at a disadvantage. As Accenture’s Walt Shill said, “Corporate clients decided that increased flexibility and accelerated decision making are much more important than simply predicting the future.” In the same article, the Wall Street Journal said:
“During the recession, as business forecasts based on seemingly plausible swings in sales smacked up against reality, executives discovered that strategic planning doesn’t always work…For Spartan Motors Inc., a maker of specialty vehicles, the recession triggered a massive overhaul of strategic planning. Officials used to draft a one-year strategic plan and a three-year financial plan and then review each one every quarter. Chief Executive John Sztykiel says “That relatively inflexible method bears some of the blame for Spartan’s sharp drop in sales and gross profit during the first nine months of 2009.” The Charlotte, Mich., manufacturer didn’t respond quickly enough to shifting demand.”
The main point: companies with excellent strategic plans were slower to respond and adapt when the future did not follow their plans. Sticking to the plan actually put them at a disadvantage, flat-footed in the face of changing circumstances.
Business As a Complex Phenomenon
What became abundantly clear after 2008 was that what was critical was not to predict the future but to respond effectively to whatever happened in the unpredictable future. Academics and consultants went back to the drawing board.
As often happens in innovation, the key insight came from applying an old idea to a new field. In the 1970s, scientists and mathematicians discovered that the universe had two types of systems: predictable (linear) and unpredictable (chaotic/complex). Traditional strategic planning dealt with the market as a predictable, linear phenomenon but in fact, it is an unpredictable, complex phenomenon.
Complex is not the same as complicated. The movement of the gears of a Swiss watch, the stars in the Milky Way galaxy, or the electrons in a microprocessor are complicated, but their movement is predictable using the rules of physics. By contrast, the diffusion of ink in water or the path of a school of fish cannot be predicted; they are complex. Complex phenomena are not difficult to predict, they are inherently impossible to predict because they are chaotic in nature. Examples of complex systems are immune systems, automobile traffic, global weather, and ant colonies. There are three other complex phenomena that business executives deal with every day: human beings, human organizations, and markets.
Strategy in a Complex, Unpredictable Market
How do you fulfill on your intent if your people, your organization, and the market in which you operate are all complex and unpredictable? The science of complex systems provides the answer: emergence. Complex systems exhibit emergent properties: birds generally fly in a V formation and hurricanes tend to form in the North Atlantic under the right conditions. Although one cannot predict what will happen, one can shape what emerges by setting the initial conditions.
Setting strategy in a complex world is not about deciding what to do. Strategy in a complex world is about setting the conditions through a framework that guides how to think about what to do in any circumstance.
Strategic Frame: A Framework for Making Choices and Decisions
Such a strategic frame is a radical departure from traditional strategic planning. The development of a strategic frame offers an effective method for establishing a compelling future for an enterprise and, at the same time, elevates organizational performance in the present. With a strategic frame, all employees can be engaged in and contributing to a bold, exciting, challenging future, without being tied to a fixed, linear path.
A strategic frame deals with the future as it is: un-knowable and an emergent phenomenon. The strategic frame establishes the conditions for the desired future to emerge. As the future unfolds, the frame gives management and other leaders a place to stand and a lens through which to view real-world dynamics to quickly make choices and decisions for both the near- and long-term.
In designing a strategic frame, the leaders of an organization design and align on the answers to critical questions:
• What is our purpose? For what do we exist?
• What promises must we keep to specific stakeholders as we pursue our intentions?
• On what trends, beliefs, and perspectives are we betting our future? How will we monitor these?
• Whom do we serve? If they did not choose us, whom would they choose? With what assets do we have to compete? What is our investment level for these assets? Which assets are we missing that might give us a competitive advantage?
• What is our ambition? To what strategic outcomes are we committed? What are our interim objectives?
• What specific projects and practices do we need to develop to fulfill our objectives?
• What sort of culture would support and pull for the fulfillment of our objectives?
The result is a frame that provides context for making powerful and appropriate choices and decisions— strategy implementation at every level of the enterprise (annually in an operating plan, but also ad hoc with quick, immediate and intelligent responses) as the future emerges—allowing the enterprise to accomplish its objectives while navigating changing seas.