By Marcus Coetzee and Dr Roger Stewart, 1 June 2012.
Imagine it’s 1946 and World War 2 has just ended. Both Japanese and allied forces have withdrawn from many small Pacific Islands. Military aircraft no longer drop supplies to their soldiers on remote islands, and the flow of goods to natives has ended. Local shamans have inspired their followers to build “pretend” airfields, control towers, and straw soldiers. Some of the more inspired local leaders have dressed their followers in imitation uniforms and now parade the fake soldiers on runways. A cargo cult has been established in an effort to trick airplanes to land and drop supplies. This is ritual mimicry married to a poor understanding of what is really going on.
It is no surprise that most strategic planning processes are unsuccessful and provide little value to companies. There is evidence to support this bold statement. According to Fortune Magazine (27 May 2002), “Less than 10% of strategies effectively formulated are effectively executed”. The report also states that “In the vast majority of cases, companies fail because managers fail…to execute…(it is) a failure of leadership.” The Harvard Business Review 2004 report by Kaplan and Norton concurs, and states that 70-90% of all strategies doesn’t get executed, or don’t get executed according to plan. The McKinsey Strategy Survey in September 2007 found that most companies do have a formal strategic planning process, but don’t use it for making their most important strategic decisions. Furthermore, fewer than half the respondents were happy with how they made strategic decisions. About 70% of strategies under-deliver.
It is depressing that, despite the strategy ritual, the performance and longevity of companies has not improved; even the longevity of top-performing companies is dismal: only 5% remain in the top stratum for 10 years and only 0.04% survive for fifty years. This is a good time to reflect on whether your company has succumbed to the cargo cult of annual strategic planning events and formal strategic plans.
So, what are the key components of good strategic decision-making?
Firstly, and most importantly, one needs to assemble a leadership team with strategy acumen. There is evidence that the talent of strategy-mindedness is an innate ability that must be nurtured within an appropriately designed organisation. It’s not something that is taught at a business school and plugged into a strategy planning session. Such a team will have the capability intuitively to grasp the full complexity facing the business and to make good decisions. Such a team will also need to participate in a regular and on-going strategy dialogue, which may take place in the boardrooms, passage, tea room and local coffee shop or pub.
Secondly, this team must be prepared to question the fundamental assumptions inherent in a business’s strategy – things such as the paradigm (mental model), business model, and the assumed future of the business. Too often, businesses are blindsided by assumptions which suddenly prove incorrect. We have recently experienced cataclysmic events in our world that could not be anticipated through trend analysis. This is also where scenario planning is valuable as it helps teams to consider both trends and the unpredictable and to prepare for what might happen. Furthermore, companies cannot assume that what happened and worked for them in the past will work in the future; periodically, companies need a major makeover … a time of necessary, dangerous instability and vulnerability. It requires strategic bravery.
Finally, there is a need for the leadership team to act quickly and decisively to opportunities and threats. No more can one assume that change will arrive gradually in a way that allows organizations to adjust gradually, in real time. Events will occur between formal strategic planning rituals that can either make or break an organization. It’s near real-time decisions, made quickly and with frustratingly incomplete information, that determine whether the company will survive or thrive.
Strategy has been described as a “wicked problem” to which decisions turn out to be good or bad, not right or wrong … and you won’t know until you have executed. Even “must do”, apparently golden opportunities can turn out to be fatal. At some stage, one just has to make a decision, without falling into the common traps, try to anticipate and manage the risks, execute effectively (the real challenge), monitor the outcome and respond rapidly to the way things are turning out.
Although strategy is a “messy” process, it remains an essential process that must be actively embraced.
Marcus Coetzee and Roger Stewart are management consultants specialising in business strategy.