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How strategy planning can miss the point

We re-read a 2014 Harvard Business Review article by Roger L. Martin that got us thinking again about how to plan and operate in a VUCA world.

The essential challenge, Martin argues, is that strategy by definition involves pinning down expectations about the future and planning accordingly. But because the future is unknowable, that feels risky. Most of us (and this is certainly true of the bean counters in our businesses) hate risk, and so we deal with this anxiety by using “tried and tested” tools, typically involving our old friend the spreadsheet, and drawing up projections of cost and revenue quite far into the future.

“[But] this is a truly terrible way to make strategy,” Martin says. “[Though] it may be an excellent way to cope with fear of the unknown…. True strategy is about placing bets and making hard choices. The objective is not to eliminate risk but to increase the odds of success.”

The main thing, he goes on to say, is to avoid certain “comfort traps”, notably the trap of coming up with a “strategic plan” that makes us feel comfortable. Most strategic plans will have at their heart three elements, to borrow from the language later used by Simon Sinek:

  • Their “why” – a purpose statement, often expressed in terms of commercial goals;
  • Their “what” – what will we do to achieve these commercial goals; and
  • Their “how” – some thinking about how we will go about doing what we do (who we might partner with, what our advertising spend is, resources we need to invest in, etc)

The problem, Martin points out, is that as soon as our targets are expressed in commercial terms, spreadsheet come into play as a primary thinking tool; and once they’re the centrepiece on the table, thinking tends to follow certain patterns. For one, we won’t be thinking about what we won’t do or why; we won’t question our assumptions. For another, our thinking will be based on the cost and revenue columns. And although we can (and must) manage costs, revenue is very heavily influenced by external factors over which we have finite control, such as customer choices. Costs are largely predictable; revenue – unless you work in the long-order or multi-year subscription space – is not. And so all we have, after this exercise, is a plan which provides often false comfort, at the cost of a lot of wasted hours.

So how can we, when setting strategy, think better?

Because the problem is rooted in our discomfort with risk, we need to start by adopting a discipline about strategy-making that reconciles us to some uncertainty. We all had a masterclass in this during Covid, when even safe assumptions – such as freedom of movement – were overturned. For many, it was a creative time for business.

Martin suggests three rules:

Rule 1: Focus strategy on customers. “Two choices determine success: the where-to-play decision (which customers to target) and the how-to-win decision (creating a compelling value proposition for them).” We should, says Martin, be able to summarise our strategy choices in one page.

Rule 2: Give up “perfection”. Let’s integrate the notion that strategy involves a bet. It’s harder for some people to come on board with this thinking, but – to again cite our learnings from the Covid lockdown – we can never be 100% right about the future. We need expect the unexpected, and integrate the agility and resilience that make this less alarming.

Rule 3: Capture the logic. There’s a difference betweendeliberate strategy, which is represented by the actions we take in terms of the strategy, and emergent strategy, which consists of our responses to unanticipated events. We can’t typically control our operating environment, and nor can we necessarily distinguish with hindsight what our thinking was. Martin suggests that there’s real learning to be taken from actually writing down our thinking.

For instance, for our choices to make sense, what do we need to believe about customers, about the evolution of our industry, about the competitive landscape, about our unique selling point? If the logic is recorded and then compared to real events, Martin points out, we will be able to see quickly when and how the strategy is not producing the desired outcome and will be able to course-correct.

Read the article here.