1. STRATEGY AS RESOURCE

An all-encompassing strategic outlook represents the organisation’s holistic view of its future external and internal environment, its strategic reasoning, positioning and objectives (see figure 4.2). Such an outlook is the organisation’s unique fingerprint.

Competitors may be able to respond to what you do, but they can never know the intricacies of your strategic reasoning — how you’re seeing the future environment, and why. This is why your strategic outlook is such a corporate asset. The quality of this strategic resource is ultimately determined by:

• strategic fit with future reality
• strategic differentiation from competitors
• strategic execution.

Improvement in business performance begins with taking a resource-based view of strategy. Such a view values the company’s strategic outlook in the same light as its more tangible assets — its people, products, infrastructure, distribution networks and finances. In fact, given that the acquisition, development and use of other resources springs from this perspective, the strategic outlook sits alone as the corporation’s ultimate asset.

Once it is reframed as a resource, the folly of treating your strategy as the product of a weekend retreat, or as the private domain of a select few, becomes obvious. Instead, like any valuable resource, strategy requires ongoing investment. It requires time and energy for development, resources for support and a process for optimal outcomes.

2. STRATEGY AS PROCESS

It’s generally accepted that the essential activities of management are ‘decision making’ and ‘problem solving’.² Indeed, senior management is the reward for consistently good judgement. So why do these same senior executives remain notoriously poor at foreseeing or responding to significant changes in their business environment?

One argument is that managers have different skill sets from strategists, that their superior decision-making skills are incongruent with the creative aptitudes necessary to design strategies for the future. But I don’t agree. Decision making, like creativity, relies on forming a judgement based on stimulus. The problem lies not with the tradesman, but with the tools.

When managers hear the word process their thoughts instantly turn to innovation gridlock, red tape, inaction and the like. ‘Only bureaucracies have processes!’ they insist. And it’s true, processes can stifle creativity and action. They can certainly test your patience. But just as often this perception of process as straitjacket is derived from the temporal exhaustion and need for instant fixes that result from a lack of corporate foresight — ‘We need a new product/strategy now!’ (refer to the section ‘Scenario benefits are too far away’ on page 23). No process, no matter how efficient, will survive the demands of such suffocating urgency.

It doesn’t have to be this way. In fact, information overload and increasing business volatility have created the conditions in which internal processes have never been more important. And just as strategy should be viewed as an internal resource, so your process for designing strategy should be considered a dynamic capability delivering strategic value that is difficult to imitate.³ In particular, an internal strategy process becomes a valuable corporate asset when it unlocks latent or constrained business potential by enabling:

• better decision making (reperceiving, reconceiving)
• original decision making (creativity, differentiation)
• faster decision making (learning, understanding)
• effective decision making (participation, implementation)
• cohesive decision making (consistency, purposeful)
• earlier decision making (sensitivity, interpretation).

Contrary to popular belief, these outcomes are not restricted to ‘sexy’, smaller start-ups seemingly unrestricted by process. Size doesn’t matter. It’s not the lack of process that enables entrepreneurs to seize opportunities earlier; it’s their lack of attachment to ‘what is’ and their ability to detect significance in weaker signals of change. Properly executed strategic processes are about unlocking entrepreneurial potential, not suppressing it.

For an organisation investing in strategic design, this means embedding a process that is:

• creative, learning-based and participatory
  • – enables fresh perspectives to emerge on the external and internal environments, allowing managers to reperceive their future business environment and to reconceive the organisation’s strategic position within these future environments (better decision making)
  • – harnesses the latent knowledge and creativity of internal staff to develop an original and differentiated strategic outlook (original decision making)
  • – enables organisational learning and expedites the decision-making process (faster decision making)
  • promotes broader understanding and ownership of the organisation’s strategic outlook, leading to enhanced execution and impact (effective decision making)
• integrated
  • – drives strategic actions and innovation focus, enabling managers to redefine the organisation’s strategic objectives (cohesive decision making)
• dynamic
  • – enables ongoing review of management’s strategic assumptions from a position of increased sensitivity to environmental signals (earlier decision making)
• repeatable
  • – enables managers to revise strategic responses in line with emerging developments in the external operating environment.

This process is outlined in figure 4.3 (overleaf).

This approach to strategy design, with its emphasis on internal creativity, learning and collaboration, represents the company’s investment in its strategic resource. In effect, it’s an exercise in asset generation, beginning with one view of the world and the organisation’s position within that world, and emerging with an original and differentiated strategic outlook that is a better fit for the future environment. Such a process respects the prioritisation that strategy deserves, and produces the distinct outlook that company boards and shareholders demand.

3. STRATEGY AS CREATIVITY

In March 2013 Domino’s Pizza in Australia undertook a major media campaign raising awareness of an impending announcement that was set to be the ‘biggest in 20 years’. ‘You’ve DEMANDED CHANGE and we’ve pushed ourselves to RESPOND,’ spruiked CEO Don Meij, the very public face of the campaign. Such was the weight of promotion that you couldn’t help but be intrigued by the upcoming ‘game changer’ innovation. Would we soon be receiving drone-delivered pizzas? Would eating more pizzas be the key to future weight loss?

So what was all the fuss about? Why, the introduction of new topping choices and square pizza bases, of course.

The consumer ridicule was instant and the feedback was clear: ‘What an underwhelming announcement!’ But really, should we have been so surprised? While Domino’s might provide a high-profile example, it’s hardly an isolated case of incrementalism dressed up as innovation. The fact is most companies struggle with strategic and innovation creativity. And the major factor behind this struggle is thinking that remains ‘anchored in the present’.⁴

Surrounded by the pervasive behaviours, policies and infrastructure of today, it’s nigh impossible to imagine new ways of working that aren’t ‘anchored in the present’. And without breaking free from today’s worldview, managers will always find it hard to innovate or to transform their business for the future in a timely manner.

Anchoring restricts the organisation to repeatedly producing incremental, ‘faster horse’ strategies⁵, when a new type of thinking is required. We see examples of such incrementalism everywhere: doing things better within the current paradigm (cost cutting, outsourcing, shared services, reduced packaging sizes), rather than doing things differently to meet or establish a new paradigm. Overcoming strategic incrementalism therefore requires an escape from the overbearing context of the present. Scenarios hold the key to this perceptual freedom.

Reperceiving scenarios

To the uninitiated, scenarios can sometimes suffer from an image problem. They’re associated with risk management or safety first, ‘robust’ strategies designed to work across multiple scenarios. In other words, they’re seen as conservative, the Volvo of the planning world. And it’s true, scenarios are incredibly useful for highlighting risk and understanding uncertainty. However, their greater value lies in uncovering strategic options and innovation opportunities.

I believe scenarios serve three purposes across what you might call a decision-making spectrum: a conservative purpose, a confirming purpose and a creative one. In turn, these deliver organisational benefits in the form of risk awareness, confidence to act and insight discovery (see figure 4.4).

The conservative purpose is served in terms of risk minimisation, identifying and understanding future uncertainty. This purpose tends to be protective, akin to the new coach of a losing sports team saying, ‘Let’s get our defence right before we start building our attack’.

But ultimately you need to score to win. And the other two purposes are far more attacking, more entrepreneurial. The first of these is confirming emerging thinking, providing the deeper understanding that supports previously held instincts and providing the catalyst that allows you to act with confidence.

At a strategic planning workshop for an architectural design agency, scenarios were developed from which a strong theme of future suburban renewal emerged. In this scenario, local councils promoted policies to improve the proportion of residents who could work locally. As a result, community connection increased as people spent more time within their community and less time commuting to and from it. With reduced commuting, outer suburbs that were dominated by concrete and tarmac would begin to transition from a transportation culture to more of a village feel, with design placing greater emphasis on place and community interaction.

For the client, future opportunities in urban design were obvious. ‘We need to increase our investment in this area. It’s something we’ve discussed before but never felt compelled to act on.’ The scenarios had confirmed their thinking. While the idea wasn’t new, their clarity was. The scenarios had provided the impetus to act.

4. STRATEGY AS LEARNING

Strategic design is about organisational learning. This is hardly a new idea^{6 7 8}, but it was a concept I personally wrestled with for many years. Often during those times I was even dismissive of the idea, despite the fact that many of the scenario planners and strategists I most admired had written so enthusiastically on the topic.

During those years I was an unconscious subscriber to the strategy as output school of thought. To me, strategy was about doing, organisations were about getting things done, and learning was something you did on your own time.

When the penny finally dropped, it was a profound breakthrough for me. Of course strategy is about learning! It’s the learning that enables original insights to surface. It’s the learning that elevates strategy to a creative process.

The learning that occurs during the strategy process is in the form of a deeper understanding of the ‘forces, relationships, and dynamics’⁹ driving changes in the business environment, and their possible future impacts. This understanding provides the platform from which new thinking emerges. Without this learning, it’s very hard to generate an original perception of the future and hence an original strategy.

And this is the struggle in which many businesses find themselves today, having adopted a disempowering approach to strategic design that essentially outsources the learning component of decision making. Overwhelmed by the almost unlimited availability of information, managers instead rely on forecasts that have been filtered by the judgement of others: consumer demand forecasts, market performance forecasts and so on. In effect, writes Peter Beck, former planning director of Shell UK, managers have abdicated their involvement in the decision-making process ‘in favour of the experts’¹⁰: ‘In what respect is he then a decision-maker?’ he asks. ‘In fact, the real decision-makers are the people … who sift available information, assess the … situation, and take decisions.’

The result of this abdication in favour of forecasts is a lack of organisational learning, which leads to a lack of strategic creativity, strategic originality and strategic fit.

Participatory strategic design enables learning because it requires managers to roll up their sleeves and get their hands dirty; to exercise their own judgement in exploring the forces shaping their business environment. The emphasis here is not on surface-level outcomes, but rather on the forces driving these outcomes. In turn, this hands-on approach is empowering in that it enables managers to develop their own feel for the future.

Slowing down change

‘Most managers are “energetic problem-solvers” busy working in the “here and now” trying to “solve problems”,’ suggests George Burt in an essay reviewing Pierre Wack’s work. The problem, he argues, is: ‘Few managers invest in learning about those systemic structures that are the root cause of such problems that is driving their actions’¹² (see figure 4.5).

The learning from scenarios ‘slows down change’. Rather, change still occurs at the same pace; it’s just not perceived to be disruptive or overwhelming, because the organisation is able to detect and make sense of it earlier and is rehearsed in its response. After all, it’s not the rate of change itself but the lack of preparedness for change that constantly leaves managers feeling out of breath.

This effect of slowing down change can be likened to the different experiences of two drivers, an expert and a novice, approaching an intersection at 60 kilometres per hour. To the expert, the intersection approaches slowly; their perception of speed is moderated by a familiarity with the situation and their preparedness for what needs to be done. To the novice, on the other hand, the intersection approaches all too fast — the perceived suddenness of change stemming from a lack of preparation.

With an understanding of the underlying drivers of change and their possible outcomes, the organisation is vulnerable to fewer surprises from external developments. In effect, it moves from the defensive state of perpetual responsiveness to a proactive position of anticipation and confirmation.

Henceforth, surprises are subtracted from the future. You see headlines or issues or trends and you have an understanding of why they are occurring. While competitors continue to be caught unaware by unforeseen changes, you are seeing the unfolding of anticipated scenarios (‘That makes sense’), providing the impression that the pace of change has indeed slowed down.

Making the future familiar

Of course, rehearsing the future is nothing new. Scenarios, simulation and visualisation have been commonplace for years in high-risk or high-performance fields where:

• the environment is uncertain (dynamic, complex, competitive)
• the stakes are high (military, firefighters, police, pilots, emergency services, astronauts, driving instructors)
• the performers are elite (athletes, artistic performers) (see figure 4.6).

The benefits of future rehearsal are undeniable in environments that are uncertain, involve high stakes or demand elite performance, where the aim is to make the future familiar. Of course, the military, the airline industry and professional sports are going to embrace scenarios, simulation and visualisation if they improve decision making and future performance. These operators are elite in their field and can’t afford to leave any stone unturned in the pursuit of better results.

The characteristics of these future-rehearsing industries are not unique. Many can be applied equally to a competitive business environment. That the environment is uncertain is a given. The stakes are obviously high when decisions can have such an impact across people’s livelihoods and communities. And most successful business managers would regard themselves as high performers. So why is it that the vast majority of organisations still prefer to ‘play with reality itself’¹³, rather than learning from the safe house of scenarios?

Slowing down change and the confidence that comes from making decisions in familiar situations are the business benefits from rehearsing the future. When significant changes do occur, you’re not overwhelmed or rushed. You’ve been here before. You’ve rehearsed your responses and their possible consequences. And because of this experience, you make better decisions. You know what to do when early signals of change arise.

For the unprepared organisation, periods of significant transition are typically marked by confusion (‘What’s happening?’), uncertainty (‘What should we do?’) and reprisals (‘Who’s to blame?’). Caught by surprise, managers tend to react with hasty, inadequate responses that merely demonstrate their misreading of the situation, or else they are struck by strategic inertia, frozen by their inability to fully comprehend what is happening.

Consider the actions of US car executives in recent years. In the wake of the financial crisis in 2008, and with their iconic companies facing bankruptcy, they flew to Washington in their private jets to petition the government, cap in hand, to bail them out. Unsurprisingly, they were scorned for being ‘out of touch’ by the public and politicians alike. The next time these industry leaders made their way to the White House they arrived in eco-friendly vehicles, belatedly determined to demonstrate that their companies were moving with the times.

Or the Victorian taxi industry, which I discuss further in chapter 6. Rocked by the unforeseen emergence of Uber as a competitor, and perhaps unaware of the dearth of community goodwill, the industry decided to get on the front foot via a Twitter campaign. In an attempt to bolster their position in the minds of the community, and in a clear case of overreach, they launched a hashtag campaign called #YourTaxis, inviting the public to share their positive taxi experiences on social media. You can guess how that ended. After only a couple of hours, the campaign had to be shut down and the industry was no longer in any doubt about their customers’ dissatisfaction.

What these examples demonstrate is that when confronted with unexpected circumstances, and in the absence of any future rehearsal, often the best you can hope for is to scramble your way forward. On the other hand, for the prepared organisation, discontinuities provide an opportunity for purposeful growth and a rapid gain in market share.

Note: The significant strategic benefit of slowing down change is covered further in chapter 13.

5. STRATEGY AS PARTICIPATION

In an oft-quoted 1982 article in Fortune magazine titled ‘Corporate Strategists Under Fire’, Walter Kiechel III declared, ‘90% of organizations fail to execute on strategy effectively’.¹⁴ The authority of this relatively high failure figure has been debated ever since. Another feature on why business leaders fail, published almost 20 years later, estimated that in 70 per cent of cases the failure of CEOs could be put down to poor strategy execution.¹⁵

Whether 50, 70 or 90 per cent of strategies are poorly executed is beside the point. The fact is the figure remains too high and companies continue to be notoriously poor at implementing their plans. This poor conversion rate is strategy’s albatross, and I was reminded of this burden when preparing for a workshop for a large regional council: ‘Be aware’, I was informed, ‘that the CEO thinks most strategies are nothing more than a marketing exercise and that 9 out of 10 corporate plans are rubbish.’

So why does successful strategy execution remain such a problem?

Perhaps the answer lies in how we define and subsequently treat strategy. When we think of strategy we tend to think of the act of strategic design, the formulation component of the process. Execution of this strategy is thought of as a separate activity undertaken by a different set of individuals. In other words, the two activities are treated as distinct — the thinkers do the thinking, the doers do the doing, and never the twain shall meet (see figure 4.7).

The result of this ‘artificial separation’¹⁶ is a lack of:

• organisational understanding of the logic that underpins the strategy
• institutional belief in the strategy
• ownership of the strategy
• effective implementation.

Removing this schism, it would seem, is central to improving strategy execution.

Why can’t the ‘doers’ be involved in the strategy design? Is there the implicit assumption that the implementers ‘aren’t smart enough’ or ‘don’t know enough’, and therefore any resultant strategy would be ‘dumbed down’? This view was made apparent to me when I was working with a CEO and one of his general managers in putting together a list of employees to take part in an upcoming scenario planning project. When the name of one employee was mentioned, the CEO briefly considered their involvement before shooting it down with the statement, ‘He’s not really strategic’. How condescending, I thought. As organisational learning pioneer Arie de Geus has said, ‘Brilliance is not a monopoly of a company’s top levels, neither is producing solutions the prerogative of specialists.’¹⁷

Perhaps for too long, too much emphasis has been placed on the primary design component of strategy, to the detriment of the secondary, equally important component, execution. After all, excellent design cannot overcome poor execution, and neither can excellent execution make up for any shortfalls in design. Strategic success requires that design and implementation be treated as equal and integrated components of strategy (see figure 4.8). And this means bringing the ‘thinkers’ and ‘doers’ together during the design stage.