Strategic Planning in a Rapidly Changing Business Environment
By Terry Theile
March 2, 2019
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…
- 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
- 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?
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.