Too often, an organisation’s strategy is defined at a point in time. All the analysis, all the workshops, all the PowerPoint decks are written as if time has frozen still. Then once complete, over the next three years an organisation will try to deliver to the strategy, perhaps hoping that once again time is frozen in this perfect world. By inference, this means competitors are frozen, the government is frozen, the digital world will not develop further, and customers will never change or age.
We have known as far back as 1928 with the failures of Stalin’s ‘five year plan’ that you cannot create plans frozen in time. Stalin’s strategy really failed to understand variables such as politics, the weather and technology can all have a bearing on the success of its strategy.
Sound ridiculous when you think about it. So why then do organisations have strategies, which are not that flexible? Why are strategies gathering dust instead of connecting to the changing world? Why do organisations do this when the speed of disruption is so fast, and the consequences are so severe?
Research (Olson et al) has suggested that 87% of Fortune 500 companies have suffered one or more growth and revenue stalls (stall points) and consequently 74% of these companies lose their market capitalisation. Deeper analysis sheds light on the most common causes of growth stalls, which turn out to be preventable for the most part. There is a common assumption that when the fortunes of organisations plunge, it must be owing to big, external forces—economic meltdowns, acts of God, or government rulings—for which management cannot be held accountable. In fact, most stalls occur for reasons that are both knowable and addressable at the time, if only management had looked.
So how do you then avoid the trap of having a dusty strategy that is disconnected from its current operating environment? How could the strategy be kept up to date without the need for giant strategy reviews every year.
One way is to understand and look out for the warning signs such as:
- Do the organisation’s core assumptions on how a market place works, match the actual market? Often a market is working quite differently than the assumed strategy thinks it does, and this is most evident with advantages bought about by digital. Customers can search for a price point, get more information than any before and this gives them real power.
- Has management reviewed what the definition of their market actually is? Do they understand it? Has it changed? Can an organisation translate customer insight into new product and services? One thing that Apple teaches with the launch of their iPod and iTunes is that if you understand the entire customer journey and the eco-system you are able to shape the market.
- Does the leadership still believe that their organisation is a premium / quality brand, and are customers actually willing to pay for it? Often companies with greater insight to what is important for consumers will define what the actual proposition is for the customer.
Kaplan and Norton suggest another method through their famous Balanced Scorecard work that the use of feedback loop is required. They suggested that an organisation and its leaders should discuss its underlying strategic assumptions at least 20% of the time. For example;
- Constant hypothesis testing with links to strategic KPIs; or
- Using simulations to assess the impacts of disruption and also used as a tool to predict competitor behaviour; or
- Consideration of innovative and emergent technologies.
Another tool is to create and use a strategic radar, which is a tool that measures both the impact and speed of change. As Andy Grove of Intel has commented;
“Think of the change in your environment as a blip on the radar screen. You cannot tell what the blip represents at first but you keep watching radar scan after radar scan, looking to see if the object is approaching, what its speed is and what shape it takes as it moves closer. Even if it lingers on your periphery, you still keep an eye on it because its speed and course may change.”
A strategic radar is probably the easiest tool to use as it can be simplified and used on a regular basis as suggested by Olsen et al. It lends itself to real focused discussion and deep dives, whilst maintaining the flexibility that is needed with an environment, which is constantly changing. By linking the strategic radar to key KPI’s, a real durable strategy could emerge.
However an organisation does it, they need to ensure that strategy is always on. You do not want to be the person holding a beautiful strategy document completed three years ago, saying that was not supposed to happen, as your organisation stalls. Or worse.
Kaplan and Norton (2004), Strategic Maps
Olson, Van Berer, Verry (2008), Harvard Business Review March, “When Growth Stalls”