Avoiding a Flawed Strategy
For over 40 years, I’ve been advising clients on the changing nature and role of strategic planning (or, perhaps more appropriately, thinking) in organically growing their enterprises and achieving high performance. As the world becomes more predictably unpredictable and planning paradigms evolve to keep up, the evolution continues.
Most executives either suspect or assume their failed business strategies are due to circumstances beyond their control. This belief is fundamentally delusional. Failure is a consequence of many things: thinking the future is knowable or controllable, presuming tomorrow will probably look like today, believing forecasts are unbiased and that all significant risks have been identified, overestimating one’s ability to predict, understand and influence what has yet to occur, and not building constructive disagreement or stakeholder pushback into the formulation of their plans.
There is a mountain of evidence and an impressive list of enterprise theorists who emphatically say the longer-term strategies of most companies simply do not work. They concur in concluding that less than 25% of business plans today come close to delivering the hoped-for results – primarily because, at the root of every failed strategy, is a set of assumptions that either proved false or were patently absurd. Nicholas Taleb, author of Black Swans and Antifragile states the obvious: “we consistently misinterpret what we observe.”
Like the humans who lead them, organizations are hardwired to devise poor strategies. They are largely unaware, if not misinformed, of what causes that central problem: their biases. In a recent Bain study, for example, 80% of the executives surveyed said their company’s products were superior to those of their competitors, even though only 8% of their customers agreed with that supposition. This is the genesis of flawed strategies that are ostensibly designed to compete for the future.
The presumption that the prevailing plan is the path to market competitiveness, if not eventual dominance, is reinforced by executive groupthink – a consequence of the justifiable fear of challenging the boss’s judgement (which can be career limiting). Whether or not they intend to send a message to the troops, leaders frequently communicate, subtly as well as unknowingly, that they shouldn’t be openly challenged, much less contradicted. Psychological safety is rarely acknowledged or understood at the top. This results in a “bubble of ignorance.”
Most organizations undergoing growth in an era of disruption and uncertainty underestimate the complexity that comes with scale. Their leaders have been schooled on the notion that the principal objective of a strategy is to bring greater stability, efficiency and control to the enterprise. Moreover, they tend to underestimate the true cost of growth, fail to adequately evaluate all the options or overestimate the hold they think they have on their key stakeholders. Consequently, their revamped business strategies underdeliver at a higher cost.
In many organizations (confirmed by direct experience), there exist few empirical mechanisms or data points to detect or evaluate the problematical “red flags” that suggest, if not drive, the need for new directions. Nor is there a culture of enquiry that encourages a discussion of really tough questions. Some of my clients profess this to be so, although my external perspective suggests this is not that frequently the case. Acknowledging a threat isn’t the same as dealing with it.
Developing “what if” scenarios as a method of challenging key assumptions is always instructive. Many leaders blindly choose to follow their preferred strategy too long – in the name of vision, or “growth opportunities” or whatever corporate speak they convince themselves is appropriate. This executive tendency is foolhardy. Seldom do they undertake the necessary thorough, independent due diligence to confirm their suspicions, assumptions or anecdotal research. 92% of CEOs concur (McKinsey). Amar Bhide, author of The Origin and Evolution of New Business, says “93% of all successful companies” decided to abandon their original growth strategy. And the best time to change direction is when things are going well, not when you’re struggling to find a different approach.
Corporate cultures that overemphasize collaboration and cohesiveness, that insist on camaraderie within the executive team, fail to observe that it can occasionally restrict a willingness to offer up valid criticism in the face of dubious initiatives. All it creates is an echo chamber. Moreover, few enterprises have in place an agreed-upon process for reviewing the quality of past decisions (in a study of over 500 CEOs, less than 10 indicated such a mechanism was in place).
The literature tells us about two-thirds of organizations today have a business strategy. Far fewer have a good one. The bigger problem is that only a very small number of employees actually understand it (about 14% according to Mind Manager, 2018). Over 40% of the workforce are unsure if a plan even exists and hence have no idea what the real priorities are. Getting the strategy right requires a paradigm shift: it must be simpler to do, easier to understand, inclusive and continuous. Its creation and accountability must be delegated to teams, not just their managers. It must establish realistic priorities, timelines, metrics, alternatives and options as well as (what Michael Porter suggests) a list of “the things we will not do.”
So how do you fix it? Peter Drucker, one of many revered gurus of management theory, once said “what’s without hows isn’t planning – it’s just wishful thinking.” Most strategies today are little more than goal-setting exercises. They consist of top-down, annual and banal cookie-cutter exercises that are enormously time consuming and thus expensive to create. They are more about resource allocation than addressing the biggest threats or building a high-performance culture that sustains competitive advantage.
A good strategy should be coherent and simple to explain, such that employees understand it and can execute accordingly. Bad strategy ignores the real challenges. It’s little more than a fill-in-the-missing-pieces conversation about defining a new vision, or a more focussed mission statement, or values that resonate with changing workforce demographics. It’s an unwillingness to articulate the difficult choices that must be made among competing priorities and rapidly emerging opportunities – a reluctance often due to internal politics that involve status gains and losses … or whose ox might be gored.
Strategy now has more to do with defining both purpose and an enduring philosophy, although most executives today are unlikely to know exactly what that means or how to convey it in words that genuinely connect with those who seek it most. If, for example you polled your employees, could they honestly tell you what your corporate purpose is – what specific value you deliver to your customers, why you are uniquely capable of doing so, and why they would feel proud to be a part of it?
A good strategy flows from asking the right questions that enable the critical choices needed to generate the desired results. Good strategy is built when all relevant assumptions are captured, when risk and realism are candidly discussed and when there is clarity across the organization about the “fuel” that drives the business. It becomes resilient when those responsible for its execution are fully involved, when unambiguous feedback loops are closed and appropriate oversight mechanism created, and when the reward systems are measurable and aligned with the sought-after outcomes.