Bringing Strategy Back. Jeffrey L. Sampler
College
Introduction
Bringing Strategy Back
Books, blogs, and business magazines feature charismatic CEOs and credit their dazzling success to bold strategy moves. Executives attend conferences about change and hire management consultants to oversee strategic reinvention. Everyone scrambles to uncover the next big strategy play in the haystack of operational imperatives. Why? Because in business we equate great strategy with great performance. Our heroes are the bold movers and shakers who can shift on a dime when it matters most and bring the entire organization with them. But this type of behavior is the exception rather than the rule. More often than not, strategic change occurs exclusively in reaction mode. Sales are slipping and market share is declining. Profitability is worsening. Disruptive competitors enter the fray and dethrone incumbents. Only then do we find that we are able to break the strategy mold and make bold moves quickly. But, having waited, these are often ill-fated attempts born of desperation, and they frequently fail or arrive too late to turn the tide.
Consider Kodak's famous fall from grace. For most of the twentieth century the juggernaut was the biggest brand name in the photographic film industry, bar none. They were miles ahead of the competition in terms of innovation and industry dominance. But in the 1990s they failed to recognize the significance of a development that they themselves pioneered – digital photography. Although Kodak invented the first digital camera in 1975, they dropped the product for fear that it would threaten their bread-and-butter photographic film business. Even later, after Kodak realized the digital camera's significance, they failed to successfully capitalize on their early lead. Kodak declared bankruptcy in 2012, leaving analysts and consumers alike wondering how they managed to squander so many years as the market leader.1
In part, this problem of inertia stems from a change-averse mind-set, because until recent history we have been accustomed to relative stability, and the need for constant adaptation has been less urgent. But the larger reason has nothing to do with our poor appetite for change. Instead, the root cause is a dusty and broken process. In many cases, strategic planning does not work because the tools we use are seriously out of date. The five-year strategic planning horizon, for example, is a surviving relic from the previous age. Few today can plan five months ahead (not to mention five years), and so strategies die on the vine. As a result, executives in fast-changing industries are abandoning strategy altogether at a time when they need it the most. Consider the director of strategic planning at one of the world's top five technology companies who told me flat out: “Strategy is irrelevant in the current environment. In our case, success is about experimentation and luck.” Few managers are quite so unequivocal in expressing their doubt and dismay about strategy, but many can relate to the idea that the tools we use are badly out of sync with the times. Our tried-and-true methods for planning are obsolete for a number of related reasons.
First, today's windows of opportunity close faster than ever. Over the long-term horizon, particularly in Western markets, we have grown accustomed to the luxury of comparative stability. Therefore, many companies focus on long-term opportunities to serve established markets that often change only slowly and incrementally. This is the type of opportunity that fits the mold of the conventional strategic planning process. It's predictable and familiar. Yet, increasingly, as we compete in fast-moving global markets, industry dynamics and new opportunities do not resemble the situation described here. Consumers are fickle and loyalty is fleeting. A product or service may succeed one day and disappear the next. As a result, there is a far greater need to react and adapt instantly to fluid opportunities. Most companies do not have this capability.
Figure I.1 Strategic Planning Is Obsolete
Second, opportunities are shrinking in size and becoming more fragmented. Beyond speed and reaction time, companies are faced with the reality that many new opportunities today are relatively small (at least upon initial examination). Many Western firms ignore these opportunities because their strategic filters deem them unattractive. However, small opportunities can turn into something bigger, particularly in environments where requirements shift quickly and markets expand rapidly. Organizations need strategic tools (and a strategic mind-set) to target modest and often fleeting opportunities and accurately gauge their potential for growth.
Next, growth rates across markets are uneven and volatile year over year. In the West, GDP grows at 1–3 percent annually at best.2 Whereas, in China GDP has surged at 7–14 percent per annum over the last decade while India achieved 6–10 percent for some time and then sunk to 4.7 percent more recently.3 This means that a five-year planning horizon in the West in some years was equivalent to as much as a fifty-year horizon in parts of the East, because their economies were growing at up to ten times as fast. Thus, emerging economies in the East and Africa can't simply import strategic planning ideas from the West. The ideas must be scaled to fit their local business environment. Likewise, Western companies targeting opportunities in high-growth markets need to rethink their strategic tools and timelines to suit the local climate. In addition, as Eastern companies acquire Western rivals and vice versa, they must be in a position to plan for growth and retraction that is fast and difficult to predict.
Finally, the intensity of competition today is elevated and asymmetrical. One could make the counterintuitive argument that the last thing any company would want right now is to be visibly successful. Why? Because success attracts new competitors like hornets to honeydew. What was once a successful market becomes oversaturated; profitability declines and blue oceans quickly become red. Our strategic planning conventions simply don't factor in the speed with which new entrants rise from below the radar in both emerging and established markets.
The largest commercial real estate developer in India, DLF, is no stranger to this challenge. As Managing Director Ramesh Sanka told me: “Sometimes your size and strength can become a potential risk. It is a risk that comes with being the leader… Once you are on that pedestal it is easier to mark you out.”4 Be it competing firms, new entrants, or even an organization's own customers and workers, the slightest glitch or complacency from a market leader guarantees a fervent response. This type of risk is difficult to plan for.
Taking all this into account, it is not surprising that the most basic principles underlying traditional strategy planning, including the five-year plan, are seldom valid. Traditional strategic planning is suspect, in part, because it relies on past performance to help predict future results. Anyone who managed through the 2008–09 recession (or the ones before or after it) will agree that extrapolating from the past no longer creates a clear picture of the future. One might even say that conventions such as the five-year plan are harmful to companies because they create the illusion of certainty. Lulled into a false sense of security, companies feel confident that major contingencies have been accounted for. With that, they view the task at hand as one of execution over adaptation. This perspective has held true in past decades, but the extreme conditions in today's markets puncture the thin veneer of safety that traditional strategic planning creates. On the contrary, one-size-fits-all, long-range planning and prediction models have all but been laid to rest.
Where does this leave us? How do we bring strategy back and make it an ongoing process? If our tools for strategic planning don't apply, we find ourselves backed into a corner. Lacking alternatives, strategic change occurs in reaction mode. But the problem with reactive planning, of course, is that it happens too late. We find ourselves playing catch-up. The damage is done and someone else claims the competitive advantage. The challenge is to make strategic planning proactive and preemptive as a matter of course. That type of fast, fluid approach requires a mind shift, to be sure, but it also requires a new set of tools.
Setting the Wheels in Motion
The obsolescence of conventional strategic planning became apparent to me when I was researching cases in India. I was calling around to a number of companies four to six months in advance of my visits to schedule interviews. At the time, executives seemed universally hesitant to commit. I was confused, because in most cases I knew
Rupert Neate, “Kodak Falls in the ‘Creative Destruction of the Digital Age,’”
International Monetary Fund,
The World Bank, “GDP Growth (Annual %),” Worldbank.org, http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries (accessed May 12, 2014).
The material in this example, including quotations and data, is drawn from the author's case study. Whenever possible, the data has been updated with the latest available figures. Jeffrey Sampler