This part two of our article series about traditional and new approaches to strategy development looks at the problems related to the traditional strategy process. They mainly arise from today’s dynamic and unpredictable business environment – a condition that the original process was not designed for.
Management theory and practice widely accept today that businesses operate in a more and more complex, dynamic, less predictable environment. This situation requires managers to develop new ways of thinking and acting. Nevertheless, many managers still follow the old approach of strategic positioning and strategic planning. This basic model proved to be very worthwhile for decades and has become the dominant pattern of strategic thinking. However, the dynamic developments in recent years taught many businesses that this approach has its limits.
Starting with a description and critique of traditional strategic planning, this series of articles discusses new approaches in strategic management. These approaches direct companies towards more flexibility and more strategic innovativeness; but they do not present ready-to-use solutions though. Rather they are intended to provide ideas for new thinking and acting as a starting point to give all processes in the organization a new strategic direction.
Part 1 of our articles series discusses the traditional strategy process and its limitations.
Key takeaways for the busy reader
The original design of the strategy process did not take into consideration todays dynamic and unpredictable business environment. It wasn’t designed for these circumstances. Hence, it won’t lead to optimal results. Problems arise from the following issues:
- The process and the associated tools can’t keep up with the pace of change in the business environment. They will lead to lagging results.
- Strategists are tempted to shrink their focus, due to the increasing uncertainty. Their focus shifts to internal analysis and the near-term future.
- Strategies resulting from this process are always based on the current situation and limited to thinkable futures.
- The growing number of viable future scenarios makes it a lottery to decide for a strategy that fits one particular future.
- The strategic plans may be too inflexible for today’s pace of change.
- Strategies are based on and limited to the pre-determined corporate vision, mission, and objectives.
Problems for the traditional strategy process arising from the complex and dynamic business environment
Today’s most obvious drawback of the traditional strategy process is that it was designed for a stable and predictable environment – which most businesses do not have any more. It is ill-equipped for industry disruptions, the deconstruction of value chains, the rise of completely new business models, and other changes in the business environment. This new situation has become known as VUCA – Volatility, Uncertainty, Complexity, and Ambiguity.
The pace of change
Moreover, it is ill-equipped for the speed with which these events may occur today.
The problem with the pace of change is twofold:
- The traditional tools are not suitable for rapidly changing situations. At best, scenario technique may give a clue about unpredictable changes. (This, in turn, leads to the problem of handling too many possible futures.)
- The process heavily relies on analysis. The tasks of gathering information, structuring it and making sense of it are time-consuming by their very nature. The analysis process may be too slow to keep pace with the speed of change. Hence, it will mainly provide lagging indications, not leading ones.
Since the future has become so much harder to predict, strategic planners tend to shrink their focus. John Hagel III states in his article The big shift in strategy :
“First, strategists shifted from a view of the external terrain to a view of the internal terrain. Rather than looking at the structure of markets or industries, the strategist began to focus on “core competencies.” Strategists started to look inward, at the terrain within the company, in a systematic effort to identify the existing capabilities that were world-class and focus on approaches to strengthen those core competencies even more.
In parallel, there was a move to strategy as “hustle”. Since the external terrain was evolving more and more rapidly with increasing uncertainty about outcomes, this school of strategy argued that those who could sense and respond most quickly to the near-term events would be the ultimate winners. The only terrain that mattered was the terrain immediately surrounding the company and the relevant time frame was today, not tomorrow.”
In the same article, Hagel argues that the view of traditional strategies is always starting with the current situation. From there the business tries to determine a favorable future condition and looks for a way to achieve this.
It is an unavoidable consequence that the resulting strategies are limited to the foreseeable future. Due to the high uncertainty, it is difficult to decide for one of the possible future scenarios to follow.
Here is an example: It became evident that alternative drives would replace combustion engines as automotive drives at some day in the future around the turn of the millennium. I worked for an automotive supplier who – among other things – produced engine components at that time. Everybody there was sure that they would have to invest in research on components for alternative drives right now. That would be the only way to have new products at hand, once the demand for their traditional combustion engine components would decline. The big problem was that nobody knew, which alternative drive technology would eventually make it to the mass market – fuel cells, hybrid drives, hydrogen drives or other ones. Hence, it was virtually impossible to decide for one technology to invest in at that time. On the other hand, it was risky to spread available research resources on all thinkable alternative drives too thinly.
Technical vs. adaptive challenges
Chris Ertel and Lisa Kay Soloman also refer to the VUCA-world in their book Moments of Impact: How to Design Strategic Conversations That Accelerate Change. They build on a concept originalla developed by Ronald Heifez, who distinguishes between technical and adaptive challenges.
“Technical challenges involve applying well-honed skills to well defined problems … Technical challenges may be complex, but they can still be resolved within well-understood boundaries”
This is the typical situation the traditional strategy process was developed for. In todays VUCA-world, businesses face more and more adaptive challenges:
“Adaptive challenges, by contrast, are messy, open-ended, and ill defined. In many cases, it’s hard to say what the right question is – let alone the answer. Many of the most important strategic challenges that organizations wrestle with today are adaptive challenges …
Navigating and solving adaptive challenges demands a different set of leadership muscles …”
Later on, they state:
“… many leaders today are wary of traditional tools for strategy, which were built largely for tackling technical challenges during more stable times. These days, the notion of three- or five-year strategic plans with their predictable, incremental improvements feels quaint … Today, though many organizations still run annual strategic planning cycles, it’s often a check-the-box exercise that helps coordinate activities but produces few novel insights.”
In the treaditional strategy process, vision, mission and objectives determine strategy
As stated above, this strategy process starts with the vision-mission-objectives-exercise. As a consequence, every strategy is based on the pre-defined overall objectives of the business.
Strategies outside this framework are completely neglected.
On the other hand, corporate mission statements are often too fluffy and vague to provide real direction. It also may be tempting to just reword the corporate mission statement, add some details and label this new document as ‘strategy’. This is what Richard Rumelt calls Mistaking goals for strategy in his book Good Strategy Bad Strategy:
Many bad strategies are just statements of desire rather than plans for overcoming obstacles.
Another problem is that vision, mission and objectives were set before the analysis phase. Hence, they are mainly anchored in the present. This limits them to the intuitive vision and insight of those who formulated them.
Ken Favaro mentions two more downsides of this approach in his article The Trouble with Putting Goals Ahead of Strategy:
“There are two problems with putting goals before strategy. First, goals tell you very little about the fundamental choices you should make around creating customer and company value. Such choices are the very essence of your strategy. …
The second problem is the opposite of the first. If some goals tell you little or nothing about what strategies to pursue, other goals effectively tell you too much. This happens when goals are expressed in terms of metrics, for example, to achieve a certain size, market share, growth rate, margin, or rate of return.”
Other problems with the traditional strategy process
In corporate practice, strategic analysis is the most elaborate and time-consuming element of the strategy process. Vijaykumar Bhatia critiques this reliance on analysis as follows:
“There are two basic problems with the reliance on analysis. First, it is all technique. The second problem is more fundamental. Analysis produces a self-increasing loop. The belief is that more and more analysis will bring safer and safer decisions. The traditional view is that strategy is concerned with making predictions based on analysis. Predictions, and the analysis which forms them, lead to security.”
Henry Mintzberg and his co-authors remind us in their book Strategy Safari that a strategic plan is a plan and hence, may limit the business in its future actions:
“Plans by their very nature are designed to promote inflexibility – they are meant to establish clear direction, to impose stability on an organization.”
The traditional strategy process has an unbroken popularity. Although it has its merits, there is a growing number of downsides. Most of them stem from the increasing dynamic, complexity and uncertainty of the business environment. The process of objectives – analysis – strategic choice – implementation and its underlying tools were not designed for these circumstances. Hence, their ability to lead to an optimal strategy has diminished.
Our book recommendations on strategic planning:
- Moments of Impact: How to Design Strategic Conversations That Accelerate Change
- Strategic Planning That Actually Works: A Step-By-Step Guide to Get it Done Faster, Cheaper, and Better Than Ever
- Strategic Planning: As Simple as A,B,C
- Rise and Fall of Strategic Planning
- HBR’s 10 Must Reads on Strategy (including featured article What Is Strategy? by Michael E. Porter)