A Narrative for Dynamic Strategy

Petri Salo
Executive Partner
October 5, 2020
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I believe we can all agree that our world has become an unpredictable place. However, it has not always been like that.

When I started my professional life 20+ years ago, I entered a fairly stable business landscape. I had studied the classical theories of management and economics by the likes of Porter, Christensen, Keynes, etc., and for the first 15-ish years of my consulting life, we could quite reliably apply these models for predictable business success.

Back then, the process of coming up with a strategy could be approximated as follows. First, you retreated for a couple of months of diligent analysis and planning. Once completed, you set the plans in motion through multiple years of rigorous execution. A good plan would typically have a lifespan of 5+ years without any major revisions. Of course, small adjustments here and there but the fundamental elements of the formula would remain viable for relatively long periods of time.

Then it all started to change. The disruptive trends of digitalization, environmental crisis, shifts in demographics, and globalization started kicking in. Joining forces, they started eroding the foundation of predictability that the prevailing management practices had been built upon.

Finally, while businesses were already struggling with the accelerating pace of change, the COVID-19 pandemic emerged and wiped out any remaining elements of predictability.

As an eternal optimist, I always try to see the silver lining in even the most devastating developments. To me, the silver lining of COVID-19 is the awakening of businesses to the new and completely changed reality. It has graduated from a debate to a fact.

A shift from plan-centricity to explorative execution

The stability of the old world spoiled us with the luxury of predictability. We all know how good it feels to be in control and be able to plan with certainty. And now this luxury is at risk.

We are faced with a mental dilemma. One that is rooted in businesses’ failure to recognize this gradual change in predictability, leaving them applying actions they have learned to trust based on their past success. And quite rightly so; a skim through their book of past successes does confirm these as a proven recipe, time and time again. So, why suspect their fit for the same purpose this time around?

This fallacy is very easy to understand; if you have ever ridden on the back seat of a tandem bicycle, you have experienced it. You do know that the rear handlebar is fixed to the chassis. It does not affect the steering of the bike whatsoever. Hence, on an intellectual level, you do understand that your best strategy is not to try and turn the handlebar while cornering. But your years of riding a regular bike has trained your instincts to do so even against your better judgement.

This is exactly what is happening in business strategy as well. On the face of it, we do recognize the rapidly changing environment. Equally, we do realize that the instinctive actions of our established management systems may not produce the results that our past success has trained us to expect, thanks to the changes in the environment. But our organizations are built on years of riding regular bikes. Hence, our instincts will revert to the tried and trusted choices. Even against our intellectual understanding of the evident changes in the circumstances, we apply them in.

To amplify this effect further, businesses are far more complex mechanisms than individual people. Therefore, this change requires a fundamental change in their system-level mechanics; the ways we lead our teams and individuals towards our overall goals.

Redefining strategy

In the more predictable circumstances of the past, a good plan was worth gold. Today’s uncertainty dramatically shortens the lifespan of any plan and the ultimate validation of its goodness is gained only through execution.

Just to avoid misunderstanding, this is not to claim that the classical theories of business strategy have become redundant. On the contrary, most of the core principles are still very much valid. At the same time, this is to claim that the ways of applying these principles in today’s world are fundamentally different from the past. To highlight this change, let me paint a very practical picture of how business strategy needs to be adjusted to meet today’s requirements.

To me, a strategy is a set of distinct choices (where to play, how to win, etc.) that ultimately help you succeed. More specifically, a strategy is a combination of the following elements.

Purpose

To start, a business should have a defined purpose. This is the overall goal you pursue. This typically contains things such as:

  • Solving customers’ problems
  • Doing it in an ethical and sustainable way
  • And hopefully creating some value for your shareholders while doing so

After determining your purpose, you scan your operating environment for alternative ways of best serving it and make deliberate choices about the ones that best meet your criteria. Your purpose and overall goals remain the same over a longer period.

Next foreseeable stop

To reach your overall goal, you need to take action. And to take the right action, you need direction. To help set and communicate your direction, you need a lighthouse that is unambiguous and visible to all. Some people call it “destination”. However, I prefer to call it “the next foreseeable stop” because the word “destination” may give you a misleading sense of ultimacy.

The next foreseeable stop is your preferred future position as per your currently available information. Your lighthouse should be as far in the future as your current line-of-sight allows you to see with a level of confidence. Given the uncertainty, you’re unable to see beyond that point. And equally, you cannot be 100% certain that this position remains unchanged for the duration of your journey there. So, select your lighthouse, but stay sceptical and keep a constant eye on it.

Directions

Now that you’ve established a line-of-sight from your current position to your next foreseeable stop you can start scanning the environment and plotting out alternative routes from here to there. You evaluate these alternatives through multiple criteria; your capabilities & appetite for investment/risk, the likely response from the competition, the rate of change in your customers’ preferences, etc. Keep in mind that not only do you have multiple routes to choose from, you also need to be mindful of the possibility of your next foreseeable stop shifting due to the dynamic environment you operate in.

Journey

Mike Tyson once said, “Everyone’s got a plan until they get punched in the mouth”. This is a great way of highlighting the significance of execution in today’s strategy. And the reason is self-evident; the plan is made with one set of assumptions and they may well change while you take the first steps of your journey. Hence, you need to apply a much tighter feedback loop and keep the alternative routes visible and alive. By doing so you retain your ability for in-flight maneuvering should your current route become suboptimal due to your progress (or lack thereof), your competitor actions, changing customer preferences, or any other changes in the circumstances. It may also be that your next foreseeable destination becomes undesirable due to larger shifts in the landscape requiring you to quickly lock in your next-best direction and trigger a complete re-routing of all your actions.

It’s good to talk

We at Taival have developed a practical methodology to inject such dynamism into your strategy. We believe in piecemeal adaptation instead of a big bang rehaul. Feel free to book a meeting with one of our Sherpas to discuss how you could make your strategy more prosponsive (as opposed to responsive).

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