Since business strategy was conceived in the 1960s, it has been rather stuck in a mechanistic, analytically-based groove. The accepted process has been very much about valuing data, applying various analytical tools, trying to predict the future, and then drafting up multi-year plans (with a typical hope, of course, to shape a ‘competitive advantage’). Change has been seen rather as a periodic exercise and the way to the future has essentially been to ‘look into the data’, turn the handle, and out pops a strategy!
But this traditional approach is no longer adequate. Of course, most fundamentally, given the fast-moving, complex and uncertain conditions of most industries today (often with low barriers to entry thanks to digital technologies), a rigid approach trying to ‘pre-design’ the future is no longer credible. Yet, the fact is that most organisations still work this way!
And as for those analytical tools – be they classic ‘market-based’ models like Porter’s ‘five forces’, ‘portfolio-planning’ models, ‘resource-centred’ models, or more recent types aimed more at digital settings – the problem is that most traditional strategy models are really just suited to understanding existing business contexts and do little to help strategists imagine how things might or could be in the future. So, this typically leads companies to see the world in a very similar way to their rivals – with the result that, too often, there is nothing really novel or substantial to differentiate one player from the next.
More a cognitive ‘art’ than a scientific process
Real-life strategy-making is, of course, heavily about making subjective judgements and making ‘cognitive leaps’ to decisions in the face of uncertainty – not just following data, facts or an analytical model or two. Strategy is not a scientific, rigd process, but more of a rather messy cognitive ‘art’!
As such, therefore, strategists and leaders can no longer rely on the traditional approach to strategy: conventional methods will just lead to conventional ways of thinking! Instead, there’s a real need for strategy as a process to move on. In particular, there is a criticial need for strategy to be able to produce far more original and innovative ideas, to re-shape markets and create new forms of value for customers.
In this vein, here are five specific ways in which strategy needs to evolve, I believe: i) strategy needs to be more about creating makets, not just competing in markets; ii) strategy needs to do more to identify and respond to emerging and future trends, not just respond to existing, known conditions; iii) strategy needs to be treated as a more open, shared process, involving an organisation’s range of stakeholders, not just its senior executives; iv) strategy needs to draw more on people’s wider thinking skills – especially creative thinking skills; and v) strategy needs to be managed as an agile, continuous process.
Typically, in many organisations today, leaders largely assume that the conditions and boundaries in the markets in which they operate are given and can’t or won’t change much. Two reasons for this: senior executives who have been successful in an industry tend to hold on to those perspectives which gave them that previous success and the culture of their organisations resists changes and seeing things differently. Also, most businesses tend to focus their competing efforts on just a specific ‘strategic group’ of other (similar) players in the market – rather than competing widely across their market – and so, unsurprisingly, their offerings often tend to become very similar (consider, for example, the similar image/propositions presented by the UK’s leading law firms, large surveyor firms, the ‘big 4’ accountancy firms, the leading supermarkets, or the UK’s leading utilities/energy companies).
Successful organisations of the future will expand their horizons beyond the currently recognised contours of their markets. They will look at different things in contrast to competitors who focus on competing in their current markets. They will conceive of new or different kinds and degrees of value to offer customers which others can’t see or dismiss.
The notion of creating markets rather than simply competing in markets got a significant push in recent years by the academics behind Blue Ocean Strategy (W. Chan Kim and Renee Mauborgne). They distinguished between ‘red oceans’ which are industries in existence today that most organisations fight over – and ‘blue oceans’ which are new market spaces or industries yet to be created where there is no competition and hence profit and growth can be higher. They laid out a useful approach which proposed how market creation can be achieved in three basic ways: developing a breakthrough solution for an existing industry problem (‘disruptive creation’); re-defining an industry’s existing problem and solving it; or identifying and solving a brand-new problem.
Looking for signs of the future
Conventional strategy practice expects organisations to monitor and analyse external (and internal) trends, but the problem is that, often, by the time a trend is clearly in sight, any opportunities may well have already been captured by competitors. Instead, today companies need to try to get ahead of the curve and identify trends at their much earlier, ’embryonic’ stage when they are merely ‘weak signals’ or ‘anomalies’ from what is the norm today. Most signals don’t actually become meaninfgful trends, but smart leaders of the future will be more focused on spotting signals in case they do.
Of course, wide-ranging external scanning and monitoring processes are important for spotting possible trends (for example, looking at developments in adjacent markets), as is a strong external (rather than just internal, company-focused) mindset by managers. But having access to better signals is not enough: organisatons need the ability to interpret those signals and imagine the potential implications of those signals. Sadly, this can often be quite a challenge because people naturally have a tendency to see what aligns with their existing assumptions and mental models rather than what challenges those models (so-called ‘ confirmatory bias’). For the future, a more open and imaginative mindset is going to be needed, together with a stronger ability to handle ambiguity and uncertainty.
When an anomaly is spotted, two key questions to consider in assessing if it is most likely to indicate something significant about the future are: how strong is the signal? (in terms of how much it can be seen in several, different data sources and how much it is consistent with other changes in the environment); and what degree of potential impact or change could the anomaly have on the current marketplace? Looking at such criteria is quite a different approach from the traditional focus in strategy practice of judging an opportunity primarily in terms of seeking a positive financial return on investment: emerging trends are simply too tentative or speculative to merit such formal, financial assessment.
Open, shared strategy
In the traditional strategy process very often only a small number of executives develop strategy by themselves, then ‘broadcast’ it to the organisation for implementation. However, with this ‘inside-out’ approach the reality is that leaders often struggle on their own to develop innovative or original ideas – typically being rather hamstrung by their conventional views and executive ‘groupthink’. This lack of wider input and ‘buy-in’ by colleagues is also, of course, a key cause of why many (if not most) strategies fail at their implementation stage, or at least fail to achieve their full aims.
In contrast, best-practice strategy nowadays starts very much with inviting ideas and views from across an organisation’s wide range of stakeholders (with obvious groups including, for example, customers, employees, suppliers, distributors, funders and partners). Being on the outside ‘looking-in’ to the organisation, stakeholders are usually very good at providing valuable input which often would otherwise not be thought of by or known to executives. Traditionally, strategy has tended to focus primarily on clients and customers, using formal market research techniques. Increasingly, nowadays, executives themselves are also going out to visit and interview different stakeholders and, of course, organisations can make use of various social media and consultation platforms to solicit opinions from stakeholders.
With this ‘open’ approach to strategy, it’s not about creating a ‘free-for-all’, but rather the executive team ‘opening-up’ for wider input at particular stages along the strategy process. Thus, for example, after wide public sourcing of ideas at the start of the process, executives can set up a task-group to move to the stage of developing up fuller, more more specific options. And then later further stakeholder input can be opened up again for testing firmer, specific options.
More tapping the mind and being creative
Strategists need to think more as psychologists, not just as market analysts. By this I mean that strategists can find fresh opportunities not just by studying markets but also by more fully tapping their – and colleagues’ – varied thinking skills and so bringing out a richer, wider array of ideas and thoughts so far ‘hidden’ in their minds. Everyone usually has a preferred default thinking style (depending on their personality) but equally can – to some extent – call upon alternative thinking modes to apply to a situation. This is the basis, of course, of Edward de Bono’s well-established ‘Six Thinking Hats’ group- thinking tool (a hat each for objective, subjective, pessimist, optimist, organised, and creative thinking) and is also reflected in Hermann’s ‘Whole Brain Thinking‘ model (everyone’s brain has four modes: analytical/logical; intuitive/holistic; emotional/relationship-based; and detailed/process-based).
Sadly, in the typical organisation, it is the ‘hard’ cognitive skills like analysis and critical thinking that have traditionally been emphasized in executive skill sets, with ‘softer’ skills like imagination and creativity typically seen as less valuable: in future, a more balanced approach to using cognitive skills is going to be expected – certainly for strategy development.
In applying hard and soft thinking skills, executives need to be comfortable using not just their conscious brain but also their intuition to tap the experiences, emotions, perspectives and ideas to be found in their sub-conscious mind. Of course, leaders and managers have always routinely used – and widely relied on – their intuition to help them make many everyday decisions in their jobs, but most formal management training still hardly mentions intuition or treats it as a less ‘serious’ aspect of leadership or strategy.
Closely related to intuition is managers’ use of ‘analogical thinking‘ (or ‘associative thinking’): when faced with new or ill-defined situations, people’s brains automatically seek from long-term memory any past, similar experiences to draw on. Once those past mental recollections have been evoked, people then move them to the front of their consciousness to guide them in how to deal with the new situation. For strategy practice, the opportunity is to proactively help leaders’ associative thinking by presenting them with thought-provoking models from other settings, so they may translate observations and trigger ideas into their own markets. For example, many of the European fintech start-ups over recent years looked at the supermarket sector to transfer several of their approaches to customer service and marketing.
More generally to help their innovative thinking, it will be useful for strategists and leaders in future to build a greater familiarity with a range of creative-thinking tools and techniques. There are two broad types: linear tools, which develop ideas from working from existing information in a sequential manner (e.g. mind mapping and attribute listing) and, secondly, ‘intuitive’ (or non-linear) tools, which trigger ideas by applying imagination and intuition, looking at a set of stimuli holistically (e.g. what if/fantasy questions and analogy-based drawing). There are also various group/dialogue based methods like brainstoming.
A more agile and design-led strategy process
Traditional strategic planning, based on trying to forecast and ‘map-out’ the future, needs to move more towards ‘agile strategy‘. With this approach strategy is a more fast-paced, continuous ‘try-out and learn’ process where goals and actions (including testing new ideas and initiatives) are decided and reviewed on a regular, short-term basis (ideally, at least quarterly) for staff teams – with strategy essentially emerging from the cumulative effect of those tactical decisions. Ideally, a matching agile-type methodology (e.g. scrum) is also used for managing individual initiatives and projects.
The approach overall still needs a medium-term ‘visionary’ strategic framework (setting out, for example, organisational purpose, vision/mission, market definition, value/business model definition, major long-term goals/targets, and organisational values) to guide ongoing/day-to-day decision-making by managers and staff, but its key benefit is that its fast-paced cyclical approach allows organisations to test, learn and adapt quickly and flexibly and so keep better in tune with changing customer needs and market conditions/developments.
It’s an approach used today by a growing number of large organisations, including the world’s leading tech companies. It’s quite a radical change in strategy practice, though, and agile project methods can take time to learn and adopt. But I do believe that the core idea of running an organisation around shorter-term tactical cycles – including trying out strategic ideas and initiatives – will suit the pragmatic, nimble culture of many small and medium-sized organisations, not just large companies (who have had more time and resources in the past, of course, to do conventional strategic planning).
Strongly complementing an agile approach to strategy, in my experience, can be the adoption of a ‘design-thinking‘ mindset: looking at a problem through the lens of observed and evidenced human needs and behaviour and then creating and testing possible solutions in an iterative process. The key ‘stages’ I keep in mind when I have followed this approach are: i) Empathising (observing people who have the problem); ii) Specifying (pinpointing the problem to be solved); iii) Ideation (generating ideas); iv) Prototyping (developing a visual or tangible representation of ideas for comment); v) Testing (getting detailed feedback and refining the idea); and finally vi) Implementation.
Strategy for the future: a hard and soft process!
For the future, strategy practice needs to move on from its ‘hard’ (rational) analytical roots and traditional stress on detailed planning. Analytical tools and methods will, of course, always have a useful role and, certainly, defining at least an overall future ‘directional framework’ for an organisation will always be important, but – to match the conditions of most markets today (and more so in the future) – strategy needs to put more focus on finding ideas and specific opportunities to follow by tapping people’s creative and wider thinking abilities, as well as becoming a more open, social and less rigid process.
Above I suggested and briefly outlined five particualr aspects of this new, ‘softer’ approach to the strategy process. If strategy practice can adapt and step up to this higher requirement, I think then it can serve leaders and organisations well for another sixty years!
Written by Mike P. Owen, MBA, FCMI, CMRS
Managing Partner, Owen Morris Partnership
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