It is unfortunate that strategy has come to mean just about anything that those in an organisation deem to be important. So we have strategic human resources, strategic finance, and even strategic procurement! When things aren’t predictable, solid strategies are essential – they help provide guidelines and act as guardrails. When well crafted, they get you past the frozen-in-the-headlights reaction many have to uncertainty – as we have witnessed in 2020.
Strategy started as a concept in military thinking. One of the most misunderstood ideas in strategy is that decisions are made at the ‘strategy’ level and everybody else just executes. The purpose of a good strategy is to allow smooth decision making throughout the organisation, but particularly at the ‘edges’ where real information about what’s going on lives.
There is a multitude of definitions for strategy but what is common is that it’s all about making choices – both of what to do and even more importantly, what not to do. There are two main reasons that having a clear strategy is helpful: the first is that resources are not unlimited, and the second is competition – for customers, for talent, for other assets and for attention.
No business can just try every idea that comes to its leaders – you need to have some way of selecting from alternatives and setting priorities. As for competition, even if you did demonstrate that a course of action led to success, others will try to copy, match or otherwise surge into the same space.
The strategy being pursued must be both widely understood by key stakeholders and embraced by key stakeholders. This is easier said than done. In our seminars and sessions with senior executives, 95% of the time, leaders don’t have the same understanding of their organisation’s strategy.
Strategies, fundamentally, are ideas or hypotheses. This is what makes them so difficult to pin down and so difficult to communicate. Strategies reflect decision-makers’ beliefs about what course of action will lead to desirable outcomes. Of course, in uncertain times, some beliefs about what will lead to what are bound not to be borne out, and a host of cognitive and other biases can sometimes get in the way of making sensible decisions. Failed strategies are often a reflection of decision-makers getting the future wrong. That is not so bad. It is not testing assumptions and being prepared to redirect that is much more of an issue.
We have seen many failed strategies from small to mammoth businesses. All of them are victims of concepts that didn’t work but were never tested prior to someone making a corporate level commitment.
Far too many expressions of strategy are really statements of goals in disguise. “We want to be number one or number two” is a popular example. Increasing operational efficiency, targeting this or that market or becoming more or less of something are all statements of intention, but they say very little about how you plan to make the choices and the tradeoffs that would realise these goals.
Of course, good strategies are informed by clear goals, and it is often astonishing to observe how often the over-arching goals for an organisation are left to chance. Without knowing what goal one is trying to achieve, it’s virtually impossible to weigh tradeoffs and make decisions – and decisions about what not to do are every bit as critical as decisions about what to do.
Consider this “To thrive as a mass merchandising company that offers customers quality products through a portfolio of exclusive brands and labels.” That was the one-time strategy statement of a leading retail chain, which was acquired cheaply by another retail chain.
Karl Weick, an American organisational theorist, points out that in uncertain and confusing circumstances, the goal of strategy is often directional, not predictive. Strategies are not about ironclad unchanging five-year plans. They are about making the best hypotheses with imperfect information, providing clarity to people and founding an environment in which people up and down the organisation are at liberty to make smart choices.
What are the implications for the business leadership facing an uncertain 2022?
As rates of uncertainty increase in the environment, a new perspective on strategy is emerging. It relies less on analysis and more on pattern-recognition than conventional prescriptions. It embodies the sense that strategies themselves must adapt in an agile manner. It recognises that when the landscape is very uncertain, strategies may be no more precise, and a directionally correct strategy that emphasises learning may be the one to adopt. Leading indicators, not lagging ones, become more important.
It is critical to also have a framework to link operations with strategy so that the real changes get measured quickly and communicated upwards without dilution or confirmation bias. Regular strategic reviews should be the norm in 2022 to stay agile.
A leadership model that does not presume that all information is possessed at the “top” of an organisation is further essential. In fact, strategies need to incorporate deep insight into the organisation’s capabilities as well as rich insight into the context in which the company is operating. Leaders today are often seen as choosing among options that the organisation generates in structures that are increasingly “permission-less.”
Here are some of the challenges leaders must prepare to face in 2022: Workforce burnout, destructive innovation, funding sustainability, new waves of stringent regulations, adaptation and resilience of infrastructure assets, growing political polarisation, trade wars, massive convergence of technology, mutated Covid-19 waves, implementing flexible working hours, data and AI regulations, balancing human resources with humanoid robots, new funding options such as ICOs (initial coin offerings), tokenisation and SPACs (special purpose acquisition companies).
Only a strategy that is well-crafted and agile will help to sail through the fog in 2022.