Or rather, strategic planning should be dead. It shouldn’t be alive and well, but it is. Let me explain what I mean – starting by differentiating between strategy and strategic planning. Strategy is about making choices of how to apply your unique strengths (or exploit a competitor’s weaknesses) to create marketplace positions and operational approaches that can create a lasting advantage. At its best, strategic planning focuses on the “strategic” and is a mechanism to operationalize this strategy to make it a reality. However, strategic planning has largely become something entirely different – a process that starts not from strategic choices but rather from business goals and then outlines a plan of activities to achieve these goals. Strategic plans, as such, have largely become nothing more than a long-term tactical action plan. They are mostly created during strategy meetings or retreats, or by specialized strategy groups, and describe the detailed activities to, for example, grow revenue from online sales. Typically, companies create 3-year or 5-year plans that are meant to provide direction for the organization by cascading goals for each business unit, department, or team.
There are two fundamental challenges with this approach to strategic planning. The first is that it does not serve the purpose of true strategy, which is to provide guidance on decision-making – especially on trade-offs and choices. Consider the choice Netflix had to make early in its existence, when 90% of its revenue was coming from DVD sales. As Marc Randolph describes in his book That will Never Work, after a meeting with Jeff Bezos, which did not result in an agreeable acquisition deal, Netflix realized that they needed to get out of the sales business because they could not compete with Amazon in the retail space. This is an example of the sort of choice that is driven by true strategy – in this case, to be a DVD rental business. This was not an easy choice because it meant that Netflix would be giving up on the part of the business that was generating the vast majority of the revenue. But seen through the strategy lens, it was a much more logical decision to make when weighing the choices. A 3-year strategic plan that started with a goal of x% growth in revenue would not be useful in making decisions that arise from unforeseen events. This highlights the second challenge: in a fast-changing, uncertain, unpredictable world, a static 5 or 3 or even 1-year plan can very quickly become outdated and irrelevant. We need to look no further than any senior team who gathered in January 2020 to develop their strategic plan for the year, only to have it become obsolete not two months later. More concerning is that the timetable-driven strategic planning, and the narrow focus it engenders, take away from the ability to spot new threats and opportunities. This inability to assess the need as it is, versus as we thought it would be, and to pivot from the current business plan can be fatal when the market and context undergo a significant shift.
It is an oft-repeated cliché to say that no strategy survives contact with the enemy. Cliché or not, it is true. Even the most carefully thought out strategy can only account for the known challenges. As the world gets more uncertain, and our ability to forecast accurately diminishes further, it is only logical that plans need to be able to change. The most successful business strategies in today’s world are those that are flexible and adaptive. Strategy is as important as it ever was, but the practice of strategic planning is outdated and must evolve. Yet flexible does not mean constantly changing in response to every trend, challenge, or short-term economic reality. Developing strategies that provide a foundation for decision-making, but are responsive to meaningful change, requires a deep understanding of the unique and enduring strengths of an organization. It also requires a constantly evolving view of the opportunities for how and where to leverage these strengths. Creating flexibility in business strategy benefits from having:
Clarity of business purpose, values, and strengths
Changing direction is much easier when you can rely on a stable base, this stability is reflected in a grounded understanding of purpose, values, and strengths. Purpose provides a general direction (and inspiration), values articulate the non-negotiable behaviors, and strengths describe what unique aspects of the organization can be leveraged to create competitive advantages. Taken together, purpose, values, and strengths are the foundation on which a strategy can be built. Southwest Airlines is a fine example of a company that has been able to create a winning strategy around its strengths – high customer satisfaction and low costs enabled by standardized equipment and a deliberate, limited network. Herb Kelleher recognized the value of focusing intensely on strengths when he said, “as long as we never foolishly dissipate our basic strengths through shortsightedness, selfishness, or pettiness, we will continue to endure.”
Articulated assumptions, hypotheses, and potential path-changing triggers
One of the challenges in creating adaptive strategies is that our confirmation bias nudges us to only seek information and data that validates our chosen approach. To overcome this challenge, it is helpful to articulate the assumptions and hypotheses that the strategy is predicated on and to go further to define some potential triggers that could cause these assumptions to be questioned. What moves from your competitors, or changes in the marketplace, or new information might invalidate your strategic assumptions? Back in 2013, a friend pointed me to a new product called Coin. The promise of Coin was that it would replace all the cards in your wallet. It was a single credit card-sized device that stored a collection of credit, debit and even membership cards that users could toggle through and swipe like a regular card. I immediately ordered one from their Kickstarter campaign but by the time I finally received my Coin 2.0 in 2015, Apple had introduced Apple Pay and the market for Coin all but disappeared. In this case, the strategy was predicated on a reality of the marketplace that changed very rapidly. In most cases, the market does not change this suddenly, although it changes faster than most people imagine. Looking for information that may invalidate your assumptions can provide the impetus needed to make a strategic pivot before it is too late.
An engaged workforce looking for opportunities and threats
The point of strategy is to enable an organization to take advantage of opportunities or avoid threats. This, of course, relies on the ability to identify these opportunities and threats. There are plenty of examples of companies that failed to adapt their strategies as needed because they were not sensitive to the threats (or opportunities) around them – Borders, Kodak, Blockbuster. With the sheer volume of threats and opportunities facing businesses today, companies that rely entirely on a small leadership team to make decisions will invariably miss opportunities and respond too late to significant threats. A few pairs of eyes cannot possibly spot everything. A flexible strategy requires all employees to understand not only the strategy today but also the assumptions behind it. An empowered employee base will then be able to identify when changes in the market, to regulations, or to technology challenge those assumptions and hence the strategy. What’s more, communication channels and a sense of permission must exist within an organization for those employees to surface their observations and findings to senior leaders in close to real-time.
Great strategy is often described in hindsight as a combination of a leader’s foresight and a series of carefully orchestrated moves. The reality, when we dig deeper, is that most often it is not some especially prophetic foresight or an incredibly unchanging plan that leads to success. Rather, it’s a series of pivots and shifts to the strategy in response to new intelligence or even luck. Strategic plans that are created based on a calendar or fixed time horizon and that are not proactive and responsive to change are increasingly harmful in a fast-changing world. Leaders who recognize this limitation can create strategy that is expected to change. It is designed to be flexible and is constantly pressure tested – and not just by a few leaders at the top.