Strategy - what it is and why you need it
It's the beginning of 2007 - 13 years ago, just before the global financial crisis hit - and I just got back from the doctor. Over the past months, I had been stuck in strategic planning meetings with the rest of the strategy and management team. Our ambitious approach, turning every stone, had lead to many long days in meetings and by the computer. On the way, I had obviously developed Olecranon Bursitis or so-called ‘student's elbow’. That is a painful condition characterized by redness and swelling around the tip of the elbow (olecranon), caused by inflammation of the elbow's bursa. The bursa is obviously small fluid sack helping to reduce friction between the bones and allows free movement. The condition can, as in my case, be caused by repeated leaning on the point of the elbow on a hard surface. And I can tell you that it hurts. Also, the doctor actually told me to find a different way of doing strategy.
If you work on a senior level in a larger company, you have probably been caught up in, or led, quite a few time consuming and sometimes even painful strategic planning processes. You are not alone. Bain & Company’s bi-yearly Management Tools & Trends survey shows that strategic planning is ranked as one of the most popular and used tools by business leaders across the globe. Unfortunately, other studies show that only 14 percent of employees understand their company's strategic direction.
For many reasons, scholars and practitioners have questioned the benefits of strategic planning the way it’s been practiced over the last decades. Since the lows of the last recession, it even seems like the winds of change have been blowing away from strategy into the wilds of increasing agility. Maybe that’s not so strange.
Most people think of strategy as strategic planning, and as an important, time-consuming task, sometimes so complex and daunting that it is outsourced to large consultancy firms with hoards of strategy specialists. With a detailed strategic plan, organizations then hope to reach their long term goals and financial plans successfully.
The strategic plan coming out from the intense strategy workshops of 2007 was indeed rather immediately hit by the recession, and the initiatives very quickly became irrelevant in spite of the most rigorous preparations. A development, that we just like most other companies in those days, hadn’t predicted. We, however, didn’t give up on our vision and overall direction and managed to navigate the turbulent environments fairly well after all. Since then, the company strategy has been refined and adjusted many times, and is both alive and well, and actually very successful.
The world hasn't become more predictable though. On the contrary. The world seems to be changing faster and faster. Technical development, digitalization, and disruptive forces are today all over the place, and the world is being Uberized, cutting out middlemen, and creating new value chains at a high speed. On a macro level, several global megatrends can already be seen in motion, such as the unfolding of the digital society, the aging population, urbanization, and an increased need for and focus on sustainability. Also, the fact that less than half of all strategies seemingly succeed to reach their goals can seem discouraging to most people. Is strategy even relevant any more?
Where does this leave you as a leader aspiring to run a successful business? Will you simply just tell your board of directors that strategy is not relevant and that you won’t be doing it anymore?
What is strategy?
Oxford Dictionaries define strategy as ”a plan of action designed to achieve a long-term or overall aim: time to develop a coherent economic strategy” or as ” the art of planning and directing overall military operations and movements in a war or battle.”
Merriam-Webster’s short definition of strategy is: ”a careful plan or method for achieving a particular goal usually over a long period of time”, or ”the skill of making or carrying out plans to achieve a goal.”
My experience is also that most managers think of strategy as a strategic plan. A strategic plan normally has three different parts: a vision and mission statement, a list of initiatives and conversion of those initiatives into financials, typically supported by detailed spreadsheets, and very often capturing a period of three years.
But is a strategic plan really the same as a strategy?
Strategy of today is often thought of as a collection of frameworks, models, and tools for analysis, structured thinking, and long term business planning. Asking a management strategist to define strategy is however said to be like asking a philosopher to define the truth. Some even claim that nobody really knows what strategy is. At least as to the Economist.
A Google search on the term hardly provides more clarity. Instead, you will probably get approximately the same 3 billion hits that I got in 0,5 seconds. That’s more than all of the future readers of this article will have time to read in a lifetime.
Henry Mintzberg has in his book Strategy Safari tried to make life a little easier for us, with a presentation of ten different strategy schools, all viewing strategy in different ways. Hence, strategy can be seen as an analytical and formal process or reacting to changes in the environment. It can be seen as something that is created based on how people perceive patterns and the world they live in. It can also be seen as the process of achieving a fit between internal strengths and weaknesses, and external opportunities and threats. Also, it can also be seen as a visionary process, based on intuition, and emerging over time, or even as a reflection of the company culture.
The most compelling and straight forward understanding of strategy, however, seem to be that of Roger L. Martin and A.G. Lafley. To them, a strategy is simply about where to play and how to win.
Despite the seemingly academic disagreements, the underlying principles of strategy are generally thought to be about the current and future position and direction of your business. Keeping it simple, a strategy normally answers three key questions:
- Where and who are we today – and to whom?
- Where and who do we want to be in the future – and to whom?
- How do we get there?
Strategy in this sense helps you define who you are, and who you want to become. And it sets the course to your future destination. It also forces you to define how to go about it.
Why should you be doing it?
With research showing that not even half of all strategy plans successfully reach their goals, and a world changing at a higher speed than ever before, it may seem futile and naïve to invest time into strategy development. Especially since the Corona Virus has brought us back to a global crisis mode. Still, there are many elements that speak in favor of strategy development and strategic thinking.
First of all, the ability to think ahead is a human trait that has followed us through our modern history and helped us become a successful species. Planning and positioning us well for the future means making a series of conscious decisions now, and rather than being totally preoccupied with ongoing day-to-day events, taking a step back and looking at the larger picture.
Also, there is an important element of learning involved in strategy development that I don’t believe you want to miss out on. We know intuitively that we learn by experience. Research is, however, telling us that without the process of actively thinking about those experiences, and reflecting on what happened and what they mean, learning doesn’t happen. David Kolb, an educational theorist, and professor of organizational behavior has, for instance, identified a general human learning cycle including experiencing, reflecting, thinking, and acting: “Immediate or concrete experiences lead to observations and reflections. These reflections are then assimilated (absorbed and translated) into abstract concepts with implications for action, which the person can actively test and experiment with, which in turn enable the creation of new experiences.”
Why do I believe that Kolb’s learning cycle may be relevant in the case of strategy? As business people, we have busy schedules and are normally caught up in the actions of day-to-day business. Thinking and reflection take time - time that we often don’t have, or allow ourselves to take. To me, strategy development is actually a way of scheduling thinking and reflection into your business life and making sure that you utilize your whole portfolio of human capabilities. It simply forces you to take time out of day-to-day operations to reflect on your organization’s environment, core competencies, purpose, direction, and future. Together with your team.
Finally, there is also an element of influence involved. A good strategy can help you co-create and shape the future, rather than just being the victim of an unpredictable environment outside of our control. In that sense, a good strategy can actually be a very powerful thing, also in a changing environment.
In the end, the realized strategy may, however, become different from the intended. Often because the original, intended strategy blends with other, unplanned ingredients, real-life, changes in the environment, ongoing learning, and finally becomes the realized strategy. To me, this is not a sign of weakness or lack of determination, but a healthy sign of ongoing learning, agility, and adaption to a future unfolding that every leader should be looking for. Again, a strategy is about HOW we reach our envisioned future and cannot be carved in stone.
Where does this leave us?
So, where does this leave you as a leader aspiring to run a successful business? Will you simply just tell your board of directors that strategy is not relevant and that you won’t be doing it anymore?
I don’t think so. Strategy is still highly relevant. A well-defined strategy has often been said to be like the North Star, guiding you no matter where the winds are blowing. Strategy is however not only about reacting to and adapting to a changing environment. Strategy is also about being proactive to actually co-create and shape the future.
Again, the ability to plan ahead and position us for our survival is a human trait. Used wisely, a good strategy can still help us to navigate into the future. Or, as Richard P. Rumelt puts it in Good Strategy. Bad Strategy: -“Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.”
It could even be that your strategy needs a strategy, as suggested by Martin Reeves and Knut Haanaes. Depending on your environment, and its speed of change you may just need to use new or different strategic frameworks than you are used to. As guidance, they present five strategic archetypes—classical, adaptive, visionary, shaping, and renewal—and explain when each is appropriate, when and how to execute each one, and how to avoid common strategy traps.
Like many others, I still acknowledge the importance of making the strategy process less rigid, time-consuming, and mechanic, and the final strategy itself less complex. I would personally like to see a strategy development process not only becoming faster but also more reflective, insightful, inclusive, and co-creative with focus on the big picture, key problems, and overall direction rather than the details of the five-year financial plan. Gladly with inspiration from design thinking, dynamic organizational theory, agile, and the lean start-up movement.
An approach in that direction may be especially suitable for an environment in rapid change, has been approach presented by the Global Center for Digital Business Transformation, co-founded by IMD and Cisco. Their approach has three key pillars: hyperawareness; informed decision making and fast execution. Hyperawareness is, in short, the company’s ability to detect and monitor changes in the business environment. Informed decision making refers to a company’s ability to make the best decision possible in any given situation, mainly based on the data collected by the tools used to create the hyperawareness. Fast execution is finally the company’s ability to carry out plans quickly and effectively, rather than being slowed down by second-guessing and cultural inertia.
Still, maybe the most important step forward is to bring out your inner strategist, as suggested by Cynthia Montgomery in The Strategist. Because, as a successful strategist you will constantly be asking yourself:
- What does my company bring to the world?
- Does that difference matter?
- Are we relevant?
- How do we add value?
- How will we be relevant and add value in the future?
Reflecting on these questions on a regular basis can put you in the driver seat on the way to your future, rather than just being a victim of an environment in rapid change. What could be more dynamic than that? Possibly to get your team on board to co-create the envisioned future together with you - in your strategy process, as well as in your day-to-day business. Because ultimately it is what you and your team do in your day-to-day business that really matters.
One thing I know for sure: the future isn’t carved in stone. We can’t predict it and we can’t control it, but we can reason about it and have an impact on how it unfolds. In that future, strategy is needed to build better businesses and shape a better future for us all. I hope you are with me.