The dynamics of the new business environment created by the COVID-19 pandemic, the threat of recession and uncertainty over the impacts of climate change highlight deficiencies in the traditional approach to strategic planning. In the current environment, organisations cannot afford to wait to make strategic decisions at the annual strategic planning workshop.
In times of change, organisations must become more agile if they are to respond to opportunities before their competitors. Additionally, organisations must be prepared for threats before a substantial negative impact is inflicted upon them. Organisations of various sizes and industry backgrounds need to adopt a flexible strategic planning approach to the development, implementation and revision of strategies. This provides organisations with an opportunity to amend their strategic direction in a more attuned way with market forces, and enables them to make appropriate changes to resource allocation to best reflect the current operational environment.
Alternate approaches to strategy
Organisations have traditionally followed a structured approach to their strategic frameworks consisting of:
- environmental analysis;
- strategy development;
- strategy implementation; and/or
- environmental monitoring.
This approach most often occurs at the same time each year, usually with enough time at the end to allow for analysis of budget considerations related to new strategies and programs of work. This approach works on the premise that over the short term (one to three years), the future is relatively clear, and directors or managers can foresee the market trends to a level at which they felt confident to develop a strategic direction aligned to their organisation’s mission or purpose. However, the level of uncertainty has grown to a point where three-year forecasts are hopeful at best. It is therefore vital that organisations look to alternative approaches to the development of strategy. The first area to amend is how an organisation gathers the information required to make informed decisions.
Scanning the horizon
Usually as a precursor to strategic development, organisations gather data to provide inputs to strategic development. Exercises such as a high-level environmental analysis, internal SWOT analysis or a competitor analysis to summarise what others were doing in their industry or sector. While necessary, these techniques are point-in-time snapshots of your organisation. How does an organisation stay across trends and events which may have an impact in the future?
This process is often referred to as strategic readiness and is designed to keep strategy top of mind for decision makers and ensure current and, more importantly, relevant data is utilised in the strategy development stage. Techniques such as TAIDA (Tracking, Analysing, Imaging, Decisioning and Acting) take decision makers through a process to logically assess external and internal information and determine possible consequences and courses of action in the future.1 As an organisation adopts a more flexible approach to strategic development, it also increases its reliance on accurate, timely and competitive intelligence. It is essential that the data collected focuses on the core metrics that really matter to your organisation.2 By filtering out noise an organisation can identify data that will add to its decision-making ability.
Organisations can achieve this by:
- identifying the key value drivers of your organisation's strategy. This is achieved by looking at what is important to your stakeholders, (clients, suppliers, staff, regulators) to determine which metrics they rate you by and what outcomes will they seek from you, for example, environmental impact of waste disposal levels;
- to the extent possible, determining the range of potential outcomes for those drivers (highs and lows). For example, if you have a value driver of staff retention rates, identify industry average rates, market leader rates and where you sit within this range;
- identifying the potential early warning signs that suggest which direction these drivers are headed, such as industry trends reported by peak bodies;
- ensuring all strategy development participants are aware of this data prior to the development or review workshops, so they can assess the data and provide their own insights to the analysis of the data.
In uncertainty times, we usually see the increase in the adoption of approaches based on numerous possible future scenarios. While the dynamic environment makes the identification of a clear future outcome more difficult, many organisations can still forecast a future based on a number of possible outcomes using scenario planning, or guidelines based on future trigger points using a decision tree, which allows uncertainty to be incorporated into the planning process.
Scenario planning works through the identification of a range of possible outcomes or future operating scenarios.3 Scenarios enable the identification of large-scale uncertainties or forces that push the future in different directions. Most organisations work on a best-case, business-as-usual and worst-case range of directions that the organisation may face. Each outcome enables the organisation to identify possible impacts and how the organisation may allocate its resources accordingly. A robust strategy is one that will play out well across several possible futures.
Decision trees map out one of the possible short-term future scenarios, with the identification of a possible trigger event which may indicate a transition to a new pathway(s) requiring a decision to be made upon which alternative future the organisation will pursue.4 Since decision trees can become quite involved, triggers are typically ranked in order of likelihood, so management can focus on the most probable threats. For the board, this is an important exercise, as it may require a change in the composition of the board based on the trigger and resultant outlook. Examples of triggers include pandemics, changing government regulations and the emergence of new technology.
These approaches make the identification of possible strategies achievable and give organisations greater control of their own destiny, by reducing the risk of unexpected events. However, development of strategy will not deliver benefit to organisations if they are not brought to fruition. Therefore, basic principles such as assigning of ownership and responsibility for strategy implementation remains as vital as ever. Organisations should be mindful of the following ongoing activities that will contribute to strategic success:
- directors should ensure they have a reporting framework in place to maintain oversight of the success of the strategies in place;
- in any market environment, organisations should undertake periodic review of their strategies and amend where necessary based on market conditions. In uncertain times, it becomes vital that the regularity of these reviews is increased;
- directors can also split up areas of external and internal interest, do their own research into the status of these areas and report back to the board on a quarterly basis on their results.; and
- organisations should assess the cultural norms in place and look towards developing a culture where the impact of market forces on organisational performance is acknowledged, and there is a willingness to accept the resultant change on the organisation.
Crafting an appropriate strategic framework in times of uncertainty is a skill that will assist organisations to survive. The stakes are too high to rely on a structured, once a year strategic planning process. It is important for organisations to put in place an approach to scan appropriately what is occurring in the external environment, identify the potential impacts on existing strategic direction and respond accordingly.
1 M. Lindgren and H. Bandhold, 2009, Scenario Planning: The Link between Future and Strategy, Macmillan, London, pp. 49-50.
2 M.E. Raynor, The Strategy Paradox: Why Committing to Success Leads to Failure (and What to Do About It) Doubleday, New York.
3 P.J.H. Schoemaker, 1995, ‘Scenario Planning: A Tool for Strategic Thinking’, Sloan Management Review, Vol. 36, No. 2, pp. 25-40.
4 J.F. Magee, 1964, ‘Decision Trees for Decision Making’, Harvard Business Review, Vol. 42, No. 4, pp. 126-138.