Forego Strategic Planning in Turbulent Times?

Using the traditional strategic-planning model, managers attempt to forecast how markets will evolve and competitors will respond, and then define a multiyear plan for winning in that future state. The organisation is then called upon to execute that plan. Performance is routinely monitored, ostensibly to keep everyone on track. That approach worked well when markets were more stable and the primary factors influencing future growth and profitability were easier to forecast. However in the current turbulent times doing so is more challenging. Does it mean that we should forego any strategic planning?

I believe we can all agree that the world is now changing so quickly that no business can plan for every eventuality. Even if you engage in Scenario planning or Monte Carlo simulation can anyone safely say that any eventuality is covered.

However the crux of the matter is that business leaders need to understand what a good strategy looks like in turbulent times—and to think of strategy-making as a continuous process that generates a living, dynamic plan. Business leaders need to think of strategy-making as continuous and a living plan that enables executives to build on what’s best to cope with uncertainty—leading to more-flexible strategies and more-agile strategy-making. So, I would like to use this Blog article to propose some practical pointers for strategic planning in turbulent times.

  • Define Extreme but Plausible Scenarios: Companies that employ scenario planning attempt to forecast how political, economic, technological, and social conditions may evolve. They then develop best-case, worst-case, and base-case scenarios that are probability weighted to assess strategic moves. Having gone through such a process with various clients, I normally see that looking at scenarios in that way too often produces incremental thinking—tweaks in a company’s current direction rather than a wholesale change in course, which is often what’s needed. Breakthrough insights come from examining what we call extreme but plausible scenarios. The goal of this analysis is not to understand which outcome is most probable but to uncover new and different ways to compete and win, given a plethora of possible outcomes, and to reveal “no regret” moves that should prove worthwhile under most scenarios.
  • Identify Strategic Hedges and Options: In an uncertain world, flexibility has tremendous value. If at the start of your commute you foresee the potential for traffic congestion, for instance, you might choose to avoid traffic by taking a longer route to save time. Likewise, leaders can incorporate the value of flexibility—in the form of hedges and options—into their strategic decision-making. What do I mean by this? For example, if two alternatives are equally capable of addressing a company’s competitive issues, but one provides greater flexibility to alter course, defer investment, or redeploy resources on the basis of better information, that one has a higher relative value in most instances and should be selected. So my point if that business leaders should also account for the value of flexibility in evaluating strategy alternatives, even when it is challenging (or maybe impossible) to quantify it absolutely.
  • Identify Trigger Points, Signposts and Metrics: The value of an option depends a lot on when it is exercised. In sectors where the winner takes most of the future profit pool, moving ahead of the competition can lead to enormous advantages. So it is very important for businesses to identify trigger points, signposts and metrics to help them spot changes before the competition does and capitalise on the flexibility embedded in their strategies. This means that business leaders must approach performance monitoring with a new mindset. The central question should be not “How did we perform?” but “Should we alter course?” This is because signposts and trigger points are never static. By design, they reflect management’s best understanding of the “known unknowns” affecting a company’s strategy at a particular point in time. As more “unknown unknowns” become known, signposts and trigger points must be revised and refined. Ultimately this means that strategy must respond to unanticipated changes in market and competitive conditions. Accordingly, when those conditions abruptly change, leaders must quickly revise the trigger points and signposts they are tracking, following the same process they used to establish the initial metrics. The more up-to-date a company’s signposts, the better the odds of executing a successful response to external shocks.
      • Do not just look at data, but look beyond: At most companies performance monitoring amounts to little more than reporting the weather. At best the leadership team meets, to review the business’s performance against plan and identify variances. In some cases leaders push for better performance; in others they simply revise the plan to accommodate the variances. In such situations performance reviews provide little if any useful surveillance regarding likely future conditions or helpful guidance as to whether the company should consider changing direction. As I said, to become more adaptable to changing conditions, leaders must approach performance monitoring with a new mindset. The central question cannot be “How did we perform?” Instead it must be “Should we alter course?” Answering that question requires more and different information than does the standard weather report. Leaders must understand the root causes of any performance shortfall.

        Concluding, I firmly believe that turbulent times does not means that strategic planning is to be abandoned. Winning in uncertain times requires a new model for strategy development. Companies that move quickly to adopt a more dynamic approach to strategic planning will likely pull and stay ahead. Those that do not plan at all or else stick with their plan no matter what, risk falling irreparably behind.

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