Strategy is important, as every executive knows. But some are frightened by it because it requires them to make decisions that cut off other possibilities and options – so they fear that making the wrong decision could potentially wreck a career.
This is an observation made by Roger L. Martin, writing for Harvard Business Review. The natural reaction to the challenge, he explains, is to make it less daunting by turning it into a problem that can be solved with tried and tested tools.
However, according to the author, this is a “truly terrible” method of devising a strategy. While it addresses fear of the unknown, Martin insists that fear and discomfort are essential in the process of making strategy.
In fact, he argues that if you are completely comfortable with your strategy, it’s a sign that it isn’t very good. True strategy, he emphasises, is about making bets and hard choices. You shouldn’t attempt to alleviate risk – the objective is to increase the chances of success.
Martin describes three “comfort traps” to avoid, and insists that strategy should be the result of a simple, rough-and-ready process of “thinking through what it would take to achieve what you want and then assessing whether it’s realistic to try”:
Comfort trap 1: strategic planning. Mistaking planning for strategy is a common trap, observes Martin. This, he believes, is because planning is a “thoroughly doable and comfortable exercise”.
Strategic plans, explains the author, are usually fairly similar in format. They consist of a vision or mission statement setting out aspirational goals, a list of initiatives and the conversion of the initiatives into financials to comply with budgets.
This kind of planning, however, should not be confused with strategy, insists Martin.
Comfort trap 2: cost-based thinking. The process of planning generally leads to an overemphasis on costs, according to Martin.
Revenue plans are painstakingly built up salesperson by salesperson, product by product, channel by channel, region by region. But when the planned revenue fails to materialise, it leads to managers feeling confused and aggrieved.
Martin points out the simple reason for the discrepancy between the results of cost planning and revenue planning: costs are under the control of the company, but customers are in charge of revenue.
Comfort trap 3: self-referential strategy frameworks. Martin warns that this trap is the most insidious as it can snare managers who are trying to build a real strategy, having avoided the first two traps.
The majority of executives adopt one of a number of standard frameworks when identifying and articulating a strategy. However, this can lead users to design strategies built entirely around what the company is capable of controlling.
Influential academic and business author Henry Mintzberg distinguished between deliberate strategy, which as the name suggests is intentional, and emergent strategy, which consists of a company’s responses to a number of unanticipated events.
Mintzberg observed that managers have a tendency to overestimate their ability to predict and plan for the future. Mintzberg’s aim of drawing the distinction between the two types of strategy was to encourage managers to be vigilant of changes in their environment and change their deliberate strategy as appropriate. He also warned against adhering to a fixed strategy against a background of change in the competitive environment.
But Martin believes that the concept of emergent strategy is being used as an excuse for avoiding tough strategic choices, deflecting criticism for not taking a bold direction, and replicating choices that appear successful for others as a “fast follower”.
AVOIDING THE TRAPS
To avoid the traps, Martin presents three basic rules for the strategy-making process:
1) Keep the strategy statement simple. The key choices that influence customers – the revenue decision makers – should be the focus of your energy.
2) Strategy is not about perfection. Because strategy is primarily about revenue rather than cost, you cannot hope to achieve perfection. Your ultimate aim should be to shorten the odds of the bets the company makes. The gambling aspect of strategy needs to be reinforced by boards and regulators, not undermined.
3) Make the logic explicit. Martin asks: “For your choices to make sense, what do you need to believe about customers, about the evolution of your industry, about competition, about your capabilities? If the logic is recorded and then compared to real events, managers will be able to see quickly when and how the strategy is not producing the desired outcome and will be able to make necessary adjustments – just as Henry Mintzberg envisioned.”