Monday, February 22, 2010

Strategic Planning: Rigid or Flexible?

In a recent Wall Street Journal article, Walt Shill, head of the North American Management Consulting Practice for Accenture said that "Strategy as we knew it, is dead." (http://online.wsj.com/article/SB10001424052748703822404575019283591121478.html?mod=dist_smartbrief)

The kind of strategy that Shill is referring to is the kind of strategy that pretends that by dotting every i and crossing every t, and creating monolithic structures, that it will somehow be able to predict the future. Of course, if you could not predict the future, then it would be insane to establish a rigid five year strategic plan and stick to it, regardless of the environmental situation. In this way, one wonders what Shill is referring to, since we have never really been able to predict future events accurately. Was "strategy as we knew it" dead-on-arrival, well before the current economic crisis?

There have been periods of relatively consistent performance and environmental reactions to industry developments that have made long term static strategic planning successful. While the future was not predictable in absolute terms, it was in many ways, reliable. In a stable economic and social environment it is reasonable to lay out fairly static long range plans without need for regular short term updates. Now, with a rapidly changing economic landscape, new competitive pressures and high degrees of uncertainty in the short and long term, it appears that indeed strategic planning in that old sense is no longer relevant.

But, was it ever a good idea? Early strategic planning was typically employed in warfare. Helmuth von Moltke the Elder, the German military strategist (1800-1891)is well known for his saying "No plan of operations extends with certainty beyond the first encounter with the enemy's main strength." (no plan survives contact with the enemy). Some have taken this to mean that strategic planning is useless, since it will need to be revised as soon as it is engaged. A brief look at von Moltke's career belies this assumption. He was a brilliant field marshall and strategist who used military strategy to gain many military victories. His career is filled with strategies that did not turn out the way that he had initially planned and yet, he was extremely successful because of the way that he approached the variability of circumstances on the battlefield.

The key word in von Moltke's comment is "certainty." It is true that no strategy can be executed with certainty, and this realization is critical for successful strategic execution. Many people tend to believe that certainty is a binary choice - either we are certain or we have no certainty. In fact, certainty is almost always a matter of degree. Good strategic plans take this into account and work within a tolerable range of uncertainty in which the level of uncertainty itself may be quantified in some ways. (For an excellent discussion of uncertainty in measuring organizational performance, read "How to Measure Anything: Finding the Value of Intangibles in Business", by Douglas W. Hubbard, John Wiley & Sons, 2007.)

Successful strategic planning is a balance of risks, probabilities and potential impacts. By quantifying risks as much as possible and understanding degrees of uncertainty, a strategic planner can weigh how much risk is appropriate for any particular strategy. In the binary view of certainty, the only options are blindly moving ahead with the strategy or paralysis due to an inability to accurately predict outcomes.

In some ways, von Moltke was an early proponent of scenario planning. In understanding that there were several possible outcomes to the execution of his military strategies, he often developed detailed alternative scenarios. The development of scenarios allows a planner to take a sophisticated strategic planning approach at a high level that can be deployed under a variety of contingencies. When radically different situations present themselves, scenario planning allows organizations to rapidly redeploy resources and strategies to take advantage of the situation. In some ways scenario planning also allows for more robust development of scenarios even within the single "preferred" scenario because of the give-and-take between understanding similarities and differences between alternate scenarios. The storytelling that is part of scenario development helps teams to visualize and simulate strategic outcomes.

This differs from an alternative which says that uncertainty is dealt with by creating a rigid long term plan and then adjusting the plan with tactics as environmental variables change the battlefield. The difference between these two approaches is significant. Tactics are useful only when deployed within the context of a strategy. In large, complex organizations strategies are the overarching plans to which all tactics must align. If strategies are abandoned when they no longer serve the business environment, resorting to tactics is the worst possible reaction. Tactics without strategy is like trying to steer a boat without a rudder.

In the Wall Street Journal article, it is suggested that organizations need to retreat to a tactical approach during economic upheaval. Nothing could be farther from the truth. What is needed is a holistic strategic planning approach that utilizes a multi-scenario approach that can be rapidly deployed in light of changing conditions. Changing to a tactical approach only subjects organizations to being totally reactive and keeps them from being able to succeed in a downturn by taking strategic advantage over their competitors who may be failing by following a "business-as-usual" playbook.

Strategic Planning: Rigid or Flexible?
Strategic planning should neither be rigid with unbending five and ten year plans, nor should it be entirely flexible, swerving rudderless in the wind of reactive tactics. Furthermore, there is no "correct" amount of rigidity or flexibility that should be attributed to all strategic plans. The relative flexibility will depend on a variety of internal and external factors including stability of economic, environmental, political and social environmental factors as well as the size and complexity of the organization and the lifecycle of the products or services that the organization provides.

The caricature of strategic planning presented by Walt Shill's comments in the Wall Street Journal indicate that there is probably a need for a greater degree of flexibility and responsiveness in strategic planning. Scenario planning is a rarity in many organizations for example. And those organizations that have established Key Performance Indicators often fail to monitor them on a regular and frequent basis in order to be able to respond quickly to both internal performance and market trends.

Footnote:
Originally in Moltke, Helmuth, Graf Von, Militarische Werke. vol. 2, part 2., pp. 33-40. Found in Hughes, Daniel J. (ed.) Moltke on the Art of War: selected writings. (1993). Presidio Press: New York, NY. ISBN 0-89141-575-0. p. 45

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