A few years back I was involved in an exercise where we observed the strategy processes of a large set of leading global firms. These were all companies you would expect to be exceptionally good at creating engagement and bringing out the best during the formulation of strategy, probably one of the most important processes in all large companies.
Surprisingly, most of the strategy processes we observed were disappointments. And the companies themselves even admitted so. Instead of sharp, open and engaging processes with “wow” outcomes, we saw processes where the participants felt that there were too many templates, too little critical thinking, too much inward-focus, a lack of new ideas, and even a lot of bureaucracy.
Managers said things like: “the strategic plan is time consuming, onerous and not efficient: too many iterations, too financially focused…” or “our company could do better by looking at external stimuli and sector analogies”. In addition, many complained that the link from strategy to operationalization and execution was weak, even missing: “No linkage between strategy and the incentive plan, no linkage between vision, strategy and the operational plan,” was something we heard often.
Although there are many positive exceptions, I would argue that most strategy processes completely lack engagement and that the outcome is not as good as it should be; the results are too often far below par. Boring processes produce boring results, or at least very predictable ones. So a key job to be done is to develop much better strategy processes and in turn better strategies.
Getting to good strategies through good processes is more important than ever, especially as digital disruption abounds and as digital technology opens new market opportunities. At the same time digital is giving us more communication tools and access to data than ever before, so we have no choice but to make sure it is deeply embedded during our strategy formulation.
Here are some characteristics of “bad strategies” (based on my own experience and also influenced by one of the best strategy books written, Richard Rumelt’s “Good Strategy Bad Strategy”):
- Unclear problem statement: Too often strategies feel like “homework”. It is not clear why a new strategy is required (“Our competitive environment is changing,” or “We see new opportunities,” are not concrete enough). Today we must, for example, add the new challenges and opportunities of digital, artificial intelligence, and robotics. All companies need their own framing and their own take on the digital landscape.
- Confusing goals and strategy: A financial goal is not a strategy. A strategy outlines how to reach the financial goal. And our strategy needs to craft a feasible way to our goals, otherwise it will not be useful.
- Bad objectives: We see a long list of contradictory objectives and no clear trade-offs or priorities. The strategy often feels like a “wish list” not a plan for how to reach some clear and consistent objectives. Again, digital represents one of these challenges where the specific way to tangible objectives can easily be substituted with more of the usual, i.e. we are so uncertain that we copy the objectives of other companies.
- Too many buzz words: Today all companies need to address digital. Some companies are clear in terms of what digital means to them, how they will address digital and what results it could yield. Others are simply regurgitating platitudes that could be right for any company, without any prioritization.
Good strategies are different:
- A good strategy defines a few critical objectives and helps focus energy and resources to reach them. These objectives are “levers” for broader impact, so that we will move the company forcefully.
- A good strategy creatively looks at opportunities and risks. Again, digital requires a change of yesterday’s strategy for most, if not all, companies.
- A good strategy takes into account how we will mobilize resources to reach our objectives.
- A good strategy is also realistic about what we can predict and what requires agility, and it is clear about which elements we have control over.
In order to make good strategies we need good strategy processes.
A better strategy process:
What characterizes a great strategy process? I would argue that a few “evergreens” must be in place:
- Ambitions and purpose: We can’t make great things happen unless we have ambition and unless we know the “why”. The ambition needs to be high enough so that we cannot get away with “more of the same”. If we want to grow, say, 3-4% we can usually get there through improvement. That is great, but it is not strategy. Strategy needs to include a balance of exploration (venturing into new territory) and exploitation (doing good better). Ambition is not a product of the strategy process; it has to be an input contributed by the individuals involved in the process.
- Ask great questions to challenge the status quo: Are we asking ourselves what happens if we don’t change? Are we generating questions that “hurt”?
- Take an outside-in view of your business: What do our clients see? And our competitors? Are we differentiated in a meaningful way? Are we part of our customers’ lives, or are they indifferent to us? Do they feel that we are moving in the right direction? Do they like us? Do they want us to succeed? Do we have champions amongst our most important stakeholders?
- Get involved in events that make you discuss the future in a non-defensive way: I recently participated in a two-day session where the CEO of a major chemical company met researchers as well as representatives of NGOs and international organizations to discuss their sustainability agenda. Instead of the hostility of “us and them” the discussions turned out to be very constructive and forward looking. A similar discussion with customers is equally important. Event orchestration matters, otherwise we end up only talking “amongst ourselves”.
- Go for intensity: Too often I see management teams spend an hour on strategy at regular intervals. That doesn’t work. Key questions require that you throw away the key! We need to spend the time needed, and to get tired and frustrated. We need disagreement, worries and a real questioning of our current way of doing business. It is no coincidence that after the Three Mile Island incident that the GE nuclear reactor team came up with a service strategy during a deep dive with Jack Welch. He asked them to come back the following day with a new plan with the same growth targets but with no new reactors sold. That put the pressure on, and overnight is often better than developing it “over time”.
In addition, we should now add a set of digital and networked features:
- Map IP and M&A moves, even smaller ones. What a great way to learn about our customers’ needs and competitor moves. Today we have great tools to map IP, the moves and even the preferences of our customers and competitors. Take the example of IP mapping. By looking at the patents and IP of our competitors, we can often learn about their future commitments and planned journey. Similarly, we can use tools to map out the M&A moves within our business landscape. Often it produces surprises and new insights.
- Read the weak signals. By looking at weak signals we can see the early innovations that can change or businesses. Weak signals can be about new entrants, adjacent technologies or innovative markets. It can also be about new usage of our products, or new customer segments.
- Reach broadly for opportunities and innovation. The strategy process needs to balance richness and reach. Richness is about going deep (often in smaller groups), whereas reach is about going broad (mobilizing large parts of the organization). Going broad is important in fact finding and testing, and today we can survey and scan our organizations easily, fast and at low cost.
Other things must be in place as well. We need to analyze which business models we can move into and what that means. We also need to distinguish megatrends (which are predictable) and uncertainties (which are not). Finally, we need to make sure we operationalize what we want to do. What are the initiatives needed? Who will drive them? What should we stop doing? What are our sprints and marathons? Where do we need quick wins and what are the long term goals we can’t compromise on? These are not to be confused; they are very different.
Finally, how can we then effectively communicate the new strategy? Through a four page brochure that nobody will read and that seems to be saying “me too”? Or something different? I think we need to remember that the strategy is what differentiates us and what makes us unique. So let’s make sure that the process is tailored and that the outcome is differentiated.
Read “Four Best Practices for Strategic Planning” (2016) for a good treatment of the strategy process.
Knut Haanaes is an IMD professor of strategy.
He is co-author of Your Strategy Needs a Strategy.