Strategic Planning in a Rapidly Changing Business Environment

Strategic Planning: The Concept

In theory, a good business strategy provides a future plan of action to generate profit extending beyond the life cycle of a product or service. It is based upon insights born of an ongoing, thoughtful study of the:

  • Strategic Landscape: critical uncertainties that will change the future business environment in which the industry operates, such as disruptive technologies, societal shifts, demographic changes, economics, etc.
  • Market Landscape: critical uncertainties that in the future will impact and modify the industry in which the business currently competes.
  • Competitive Landscape: critical uncertainties about the future behavior of individual industry players.

Using geopolitical terms, a more accurate way to describe these three categories are as forms of “intelligence,” since intelligence is the acquisition and application of knowledge.

How far into the future a strategy looks depends upon the length of the product or service life cycle. For software, it may be as little as two years. For toothpaste, it may be five years. For oil, it may be fifty.

Strategy is not a static event, but rather a continuously evolving process altered as new intelligence emerges that impacts the insights upon which the strategy is based.

Strategic Planning: The Reality

In practice… too many business strategies suffer from one – if not all – of the following flaws.

  • Shortsighted Intelligence: Too many strategies fixate on the immediate competitive landscape, concern themselves too late with the mid-term market trends and completely ignore the larger long-term business environment change. Think Kodak…
  • Misdirected Metrics: Given bad intelligence, too many strategies set performance objectives based upon internal performance without regard for how the market pie is growing, shrinking or shifting. From this comes the ubiquitous hockey stick strategy. Since internal performance objectives are unrelated to external market behavior, they are rarely met. This breeds cynicism which, in turn, undercuts employee commitment to meet next year’s hockey stick.
  • Forced Process: Too many strategies result from a “hot house” process…an intense annual session in a hotel or corporate conference room where everyone involved loses the will to live before the cake is finally baked. And, after it is baked, it goes on the shelf and no one pays attention to it until the next year. No time is afforded for teasing insight out of the intelligence and there is certainly no expectation that reflecting upon that intelligence is an ongoing, everyday part of a manager’s position description.
  • Top-Down Culture: Too many strategies are imposed from the top down rather than constructed from the bottom up. They are based largely upon what the CEO or the VP feels  is going to happen and are unencumbered by solid intelligence analysis. Invariably, the false assumption is made that the underlying business model is durable which, in turn, leads to misdirected metrics. The sad irony is that, the more successful a business has been in the past, the harder it is for leadership to see that the business model may fail in the future. This is partly due to arrogance, but it is also due to laziness. Good planning is hard brainwork and it is far easier to mindlessly continue doing what has always been done. “Managers do things right. Leaders do the right things…”1

Houston, We Have A Problem

All of this would be bad enough if nothing else was happening, but something else IS happening.

Up until recent years, business environment and industry change – with a few exceptions – was evolutionary. This gave businesses the luxury of time to react and course correct before it was too late.

That is no longer the case. The rate of change has accelerated in virtually every industry, fueled by a perfect storm of societal forces and disruptive technologies. The data already shows the consequences of this acceleration. In 1935, the average lifespan of a Fortune 500 company was 90 years. In 2016, it was just 18.2 Between 1970 and 2015, the average lifespan of all publicly traded companies nearly halved.3 Unlike the Fortune 500, midmarket companies have never had the luxury of a deep planning bench. The accelerating decline in longevity makes strategic planning for the mid- market more important today than ever before.

Midmarket companies no longer have the luxury of time to react; increasingly they must anticipate if they are to survive, let alone prosper.

It Is Exceedingly Difficult to Make Predictions, Particularly About The Future.

So, how does a middle market business cope with this whirlwind of change?

On the societal side, how do you digest and prepare for deflation, urbanization, and deglobalization, as well as changing consumer and employee behavior? On the technological side how do you cope with 3D printing, nanotechnology, automation, new materials, the Internet of Things, big data, artificial intelligence, blockchain, synthetic biology, and digital manufacturing?

Consider the business environment and market ramifications of a declining population as an example. A growing body of demographic experts now believe that global population will peak in  our lifetimes – and then decline.5 What happens to your business – to your industry – when there are fewer young workers with different career aspirations, markets are shrinking, and the majority of consumers are over the age of 50?

Digesting strategic, market, and competitive intelligence to forecast the future is hard. How do you make forecasting better? Consider scenario planning as a precursor. Unlike forecasting, it parses alternative futures based on potential rather than probable impact.

Scenario planning works like this: take all the critical uncertainties that may impact a business’ future. Combine as many of the uncertainties as possible into the two most impactful transformational themes (let’s call them A and B). Now, imagine the two extremes for each theme…the extreme positive (+), as well as the extreme negative (-). Then combine the extremes to create four scenarios (A+/B+), (A+/B-), (A-/B+), (A-/B-). Build a narrative around what each future scenario might look like.

Now take your current business strategy and examine how it performs in each scenario. Is A+/ B+ an opportunity or a threat to how your company operates today? Is your company currently configured to take advantage of the opportunity or defend against the threat? If not, what will it take to prepare? How about A-/B-? It’s important to note that seldom do either the absolute best- or worst-case scenarios occur; by definition they are extremes. However, the best case sets the vision of what could be and the worst-case scenario forces you to address critical gaps.

If you have done it right, the future lurks somewhere within the four corners of your scenarios. By understanding the ramifications of each, you can now make a reasonable forecast against which to plan. By stress testing your current strategy against each scenario, you will be better prepared to course correct as the future unfolds, regardless of whether the future actually looks like your forecast.

A Perfect Storm…

Societal Change

  • Health & Wealth – increasing wealth and greater longevity
  • Urbanization – dramatic urban population growth in the developing world
  • Deflation – shrinking, aging populations
  • Deglobalization – increasing political unrest within developed world working classes
  • Consumer Behavior – shifting developed world consumer patterns
  • Employee Behavior – shifting millennial employee expectations

Technological Disruption

  • Energy – growing cheap ubiquitous off-grid energy
  • 3D Printing – changing how things are designed and where they are made
  • Nanotechnology – changing the scale at which things are made
  • Automation – changing the role of labor
  • New Materials – expanding material performance attributes
  • IoT+BigData+Analytics+AI – increasing insights to be gained from data
  • Digital Factory – redefining how manufacturing is done
  • Blockchain – redefining how transactions are done
  • Synthetic Biology – redefining how things are designed

Embracing the Unexpected

Today’s business environment is characterized by dramatic societal shifts and disruptive technological change.

To keep your competitive footing amid the chaos requires a new approach to strategic planning – one that serves as an ongoing exercise in readiness. Businesses that use scenario planning are not only more agile at coping with future threats, but also more capable of adapting to and capitalizing upon future growth opportunities.

Is your business prepared for the future coming at you?
We’ve prepared an exercise to help you begin thinking more clearly about your strategic landscape.

Resources

1 https://www.goodreads.com/quotes/88927-managers-do-things-right-leaders-do-the-right-thing

2 2 https://economictimes.indiatimes.com/small-biz/hr-leadership/lifespan-of-companies-shrinking-to-18-years-mckinseys-dominic-barton/articleshow/50775384.cms

3 https://www.bcg.com/en-us/publications/2015/strategy-die-another-day-what-leaders-can-do-about-the-shrinking-life-expectancy-of-corporations.aspx

4 Quotation attributed to Niels Bohr. https://www.santafe.edu/news-center/news/meeting-why-prediction-so-difficult

5 See Bricker, Darrell and Ibbitson, John. (2019) Empty Planet, The Shock of Global Population Decline. London, United Kingdom: Robinson.

3 Key Pitfalls to Avoid in ANY Automation

Weak foundations never make stable structures. Creating the right groundwork for automation or bots or Robotic Process Automation (RPA) or whatever name you want to call it is essential if you do not want to regret the outcome later. The terms have been used interchangeably in the article below. No automation is inexpensive; this article serves as a helpful checklist as you plan the rollout of your automation project (or work out what went wrong).

The below three prerequisites focus on process side of automation which at times I have seen get overlooked during the planning phase. Other elements like organization readiness, presence of a strong leader, committed executive team, and metrics to monitor performance are equally essential.

These prerequisites will need to be tweaked based on the kind of technology, industry, and scale of the RPA being implemented, but act as a good sanity check for any automation project.

WHY are you doing automation?

Start with the why first.

Is the intent to automate process? Say you want to replace manual effort with machine. The focus is on ‘as-is’ process. It will help to save costs by labor arbitrage. Your core process remains the same, it’s just that machines have come into mix. You are performing the same process – but more quickly. These are normally done within a functional group and have minimum impact on rest of the organization e.g. implementing a workflow approval tool in payables function for vendor invoices. The major impact will be in payables functions, approvers will have to just learn how to approve invoices electronically. Invoices, though, will be processed faster.

Is the intent to improve process? Automation does not question the sanctity of the tasks being performed. It will simply carry out the tasks, and whether they are redundant today or not is to be evaluated by human intelligence. Organizations must revisit the process, dissect it into tasks or activities that are being automated to ensure ‘waste’ is eliminated rather than automated. Process mapping and lean tools will be useful at this stage. Savings of standardization, consolidation, reduced rework are achieved over and above labor arbitrage. In the above payables example, before you implement the new workflow system, revisit the payables process to check the need for consolidating number of approvers, reducing number of cost centers, having backups for delays. Process is as good as the people supporting it; if an approver is not approving, a manual or electronic system is useless, but may be a backup approver, so automatic approval or escalation will help.

Is the intent to transform process(es)? This is process improvement+++. When processes are not only looked functionally but also horizontally across the organization in light of future strategy and direction, that’s when transformation takes place. In the above payables example, if we replace manual goods receipt with automated entries, manual invoices with e-invoices, manual matching to three-way matching and manual checks to ACH vendor payments – the result is payables transformation. Then it’s not automation but reengineering of number of functions and it’s not incremental improvement but significant transformation. Vendors, receiving, procurement, payables, and reporting functions everyone will be undergoing a change. This will need rewriting the standard operating procedures.

Answering the ‘why’ helps to check organizational readiness and the need for buy-in in the organization. Transformations should not be started unless there is a strong sponsor and complete buy in from the leadership.

Automate ‘processes’ not activities

Process is a series of activities when performed with a defined input, established procedures and measurable outcome. Process is different from ad-hoc activities. If your tasks are leading to rework it is activity not process.

Organizations need to automate processes not activities. The first step is to wrap those activities into process. Let’s say the automation to be brought about is on a matured process, i.e. a process which has been performed over a long period of time with established rules of how to handle outliers and exceptions. This is a good candidate for automation.

If similar automation is tried to be brought about on activities or process which have frequent outliers and exceptions, however, the machine will have to stop, learn, and incorporate at every corner – an uphill learning curve which will be cost inefficient. If in transaction processing of accounts payable there is standardization for all or types of invoices you can automate it, but if every invoice has exceptions, robots will spend a significant time learning rather than delivering. Lesser the customization, better the results.

Automation needs rules which it can code. If rules are not defined, it is learning on the job, which is possible but not effective.

What will you do with extra efficiency?

Automation will reduce costs and free up resource time. Have you planned on how to utilize the free time of your resources? If the intent of automation was to cut costs, downsizing your team would be a natural step; however, do not rush into it. There will be teething challenges in the implementation of new technology so have a gradual ramp down plan for resources. You can also look towards moving your resources to downstream processes or other processes. Moving to downstream processes will shorten the learning curve of the resource and he or she will have full understanding of end to end process.

If you can identify value added projects for your functions, things that always went on the backburner due to day to day operations, it would be great to identify them with the freed-up resource capacity. More often than not, you will realize that this contributes to further improvements.

Automation takes time and never comes easy; relentless disciplined pursuit is needed to finish the marathon. Answer the ‘why’, remove activity vs process ambiguity and optimize the resources and you are far more likely to ensure automation delivers what you had expected it to.

Successful Change: 2 People You Need; 4 Things You Can Do

Objective: How to ensure change, big or small, is accomplished successfully despite operational challenges.

Initiating change is only half the battle won; sustaining that change till the finish line and getting the desired outcome is when you win the war. Accomplishing the change needs disciplined relentless pursuit in the face of everyday operational tasks and requires a culture which embraces and promotes change.

Change can be big and disruptive in the form of adding new product lines, implementing new technology, venturing into unchartered geographies, outsourcing functions and other major shifts in operations. These changes cut across the organization horizontally and demand a significant realignment of people, process and technology. Further, the span of these changes run across multiple years, undergoes executive turnover and has to be performed in conjunction with day to day operations. No wonder that most research shows that only 35% of the transformation change initiatives accomplish what they envisioned.

Incremental changes are limited in scope and duration and are improvements instead of transformations – such as making format changes to PO and vendor invoices for better sync. Unlike few and far between big changes, however, the incremental changes are continuously happening in the organizations at any given time.

How then can we ensure that change, transformational or incremental, stays its desired course despite day to day operational commitments and challenges?

Two people you need…

These recommendations if adopted and practiced over a period of 3-5 years will seep into the DNA of the organization and bring a cultural shift.

Dedicated Leader: Once the executive buy-in is obtained for change it is essential that the baton is handed over to a leader who is committed and owns the change. This leader is responsible for ensuring that transformational or incremental changes carried out across the organization are successfully completed. The Dedicated Leader should not have significant day to day operational responsibilities to ensure the focus and commitment. He/she will be working with the operational leaders to handhold, support and continue the momentum.

A strong leader is essential to lead the change. Bringing change is not for faint hearted as no change happens without its due share of push backs and teething challenges. There will be initial nay-sayers who will complain about anything they can come across. The Dedicated Leader has to ensure that they stay firm despite all the pressure.

Change Champions: The execution for change has to happen at the operational level, at the shop floor and it is imperative that one of their own team members is championing that change. The operational player(s) who are enthusiastic, open and ready to embrace change, their operational day to day workload should be reduced and they should be made Change Champions, agents and ambassadors of change. Their operational expertise will be a huge plus when communicating change, they can speak operational language.

Change Champions will help to counter any negativity and misconceptions about the change then and there. They will be go-to person for the functions in case of any doubts. They will bring in to the Dedicated Leader on-the-ground realities of how change is being perceived and any course correction if things are getting derailed.

… and four things you can do

Relentless Communication: You cannot overcommunicate the message for change. If your throat gets soar after repeating same stuff umpteen times, you are on right path. Communication is the key to ingrain the culture of change in the heart of the organization. The need for communication does not stop on ‘announcements’ of projects. If you want people to continuously look for optimization opportunities, you need to continuously stress upon that need.

Comprehensive communication plans detailing out ‘What, When, Who, How and How often’ should be prepared. The message must be objective, simple to understand, easy to share and leave no room for ambiguity. Townhalls, posters, workshops, banners, events whatever it takes to get the message across and get the buy-in, is worth it.

 

Measure the Change: The journey of change is monitored with milestones of performance. Divide and quantify the total change effort into small quantifiable milestones. Showcase the performance charts at visible places, so that people can see how their efforts to embrace change is adding to bottom line. For a cost savings project, showcase $$’s saved and $$’s to be saved.

Celebrate Milestones: To keep the teams motivated, especially in transformation efforts when the change spans over years and conflicting priorities can derail it, milestones will help to know where and when you stopped and what roadmap you have to walk to finish the change.

Goals and Rewards: Don’t stop at just measuring the performance, incorporate them into annual goals. Organizations should recognize and reward change champions and operational players who exceeded expectations in adopting the change. During performance reviews help them understand that doing business as usual is expected, thinking and working outside the box will help them get exceeding expectation ratings.

For making change effective, transformational or incremental, incorporate above recommendations into your daily operations and you will soon see culture changing. Adopting the changes may not be easy at first because change does not happen in the comfort zone. Everyone wants it so long as it does not affect their sandbox. Organizations must strive to bring a culture where change is seamlessly ingrained as part of their daily work and not as one time stretch.