The key to strategy

The purpose of a good and agile strategy is to enable smooth decision-making throughout the organisation

It’s unfortunate that strategy has come to mean just about anything that those in an organisation deem to be important. So we have strategic human resources, strategic finance, and even strategic procurement. When things aren’t predictable, solid strategies are essential – they help provide guidelines and act as guardrails. When well crafted, they get you past the “frozen-in-the-headlights” reaction many have to uncertainty – as we have witnessed in 2020.

Strategy started as a concept in military thinking. One of the most misunderstood ideas in strategy is that decisions are made at the ‘strategy’ level and everybody else just executes them. The purpose of a good strategy is to allow smooth decision-making throughout the organisation – particularly at the ‘edges’ where real information about what’s going on exists. Strategy is all about making choices – both of what to do, and even more importantly, what not to do. There are two main reasons that having a clear strategy is helpful: that resources are not unlimited, and there’s competition – for customers, talent, assets and attention.

No business can just try every idea that comes to its leaders – you need to have some way of selecting from alternatives and prioritise. As for competition, even if you did demonstrate that a course of action led to success, others would catch up soon. The trouble with strategy is that not everyone will understand it.

In our consulting experience, 95 per cent of employees don’t have the same understanding of their organisation’s strategy. We have seen many failed strategies from small to mammoth businesses – all of them are victims of concepts that didn’t work, but were never tested prior to someone making a corporate level commitment. Far too many expressions of strategy are really statements of goals in disguise. “We want to be number 1 or 2”, is a popular example. Increasing operational efficiency, targetting this or that market, or becoming more or less of something are all statements of intent, but they say very little about how you plan to make the choices and the trade-offs that would realise these goals. Consider this: “To thrive as a mass merchandising company that offers customers quality products through a portfolio of exclusive brands and labels.” That was the one-time strategy statement of a leading retail chain, which was acquired cheaply by another retail chain.

Karl Weick, an American organisational theorist, points out that in uncertain and confusing circumstances, the goal of strategy is often directional, not predictive. Strategies are not about ironclad unchanging five-year plans. They are about making the best hypotheses with imperfect information, providing clarity to people and founding an environment in which people up and down the organisation are at liberty to make smart choices.

So, what are the implications for the business leadership facing uncertainty this year? As rates of uncertainty increase in the environment, a new perspective on strategy is emerging. It relies less on analysis and more on pattern-recognition than conventional prescriptions. It embodies the sense that strategies themselves must adapt in an agile manner. It recognises that when the landscape is very uncertain, strategies may no longer be precise, and a directionally correct strategy that emphasises learning may be the one to adopt. Leading indicators, not lagging ones, become more important.

It is critical to also have a framework to link operations with strategy so that the real changes get measured quickly and communicated upwards without dilution or confirmation bias. Regular strategic reviews should be the norm to stay agile. A leadership model that does not presume that all information is possessed at the “top” of an organisation is further essential. In fact, strategies need to incorporate deep insight into the organisation’s capabilities, as well as rich insight into the context in which the company is operating. Leaders today are often seen as choosing among options that the organisation generates in structures that are increasingly “permission-less.”

Here are some of the challenges leaders are facing in 2022: Workforce burnout, destructive innovation, funding sustainability, new waves of stringent regulations, adaptation and resilience of infrastructure assets, growing political polarisation, trade wars, massive convergence of technology, mutated Covid-19 waves, implementing flexible working hours, data and AI regulations, balancing human resources with humanoid robots, new funding options such as ICOs (initial coin offerings), tokenisation and SPACs (special purpose acquisition companies).

Only a strategy that is well-crafted and agile will help to sail through the fog this year.