Strategy is a means to an end. Every organization has – or should have – a set of goals or objectives which it is trying to meet. How these goals are measured – to achieve a certain market share by a certain date, to increase share value by a set amount, to grow revenues by a certain percentage, to survive the current economic downturn, etc – will depend on the individual business and its circumstances. No matter what the goal is or how it is stated, every business has one, and to reach its goal every business needs a strategy. But what is the best way to achieve it. Morgen Witzel, FSN writer and honorary senior fellow at the University of Exeter Business School, examines this thorny issue.
To many people, strategy means plans. The process is a linear one. We begin by identifying the goal, work out the resources that will be required to meet it, and then draw up plans showing how those resources will be used. Different people and departments are allocated responsibility for carrying out part of the plan, and are briefed on their tasks. When all is ready, the signal is sent to begin implementation. And if everyone carries out their part of the plan as instructed, then the result will surely be success.
Early books on business strategy like Igor Ansoff’s Corporate Strategy, first published in 1965, and Kenneth Andrews’s The Concept of Corporate Strategy from 1971 saw corporate strategy in such simple terms. Of course not every strategy succeeded, but failures could usually be attributed to problems in the planning process. Either managers had underestimated the resources needed to make the plan work, or they had misjudged something in the environment. Get the analysis right, the current wisdom ran, and then plan thoroughly, and nothing can go wrong. Writers on strategy were fond of quoting the maxim of the ancient Chinese general Sun Tzu: ‘He who both knows the enemy and knows himself need not fear the result of a hundred battles.’
But in the real world, things don’t always go according to plan. We can take the current economic downturn as an example. Two years ago very few companies – and even fewer financial institutions – were forecasting a major recession in Europe and America. As the subprime mortgage fiasco began to unfold it became clear that difficult times lay ahead, but few foresaw just how far the markets would fall. Even the Sage of Omaha, Warren Buffet, admits he got it wrong. No matter how clever one is, and no matter how carefully one examines the environment, it is simply not possible to plan for every eventuality – especially when the environment itself keeps on changing even as the plan is being written.
Planning also can induce a kind of strait-jacket that confines thinking and imagination. Organizations make so many assumptions about what they think will happen that they become incapable of imagining what might happen.
One of the most famous examples of paralysis by analysis comes from the world of politics. Following the carnage of the First World War, the government of France resolved to make it impossible for the country ever to be invaded by Germany again. After analysing the events of the war, including the power and range of artillery and machine guns and the tactics used by the German army, France built an immense range of fortifications, the Maginot Line, along its eastern frontier. Bunkers were designed to be shellproof and bombproof, and the lines of trenches and emplacements were sited in such a way as to make it impossible for the other side to break through. The effort cost billions of francs, and nearly bankrupted the country, but France was safe from attack.
Or so the French thought. They assumed that the next war would be fought along the same lines as the last. But in the interval between wars, the German army reinvented the rules. When war broke out, they drove their tanks around the end of the Maginot Line and invaded the country behind, while most of the French army was still holding the Line itself. France surrendered six weeks later.
What had happened was a paradigm shift, which had rendered the previous strategy and its entire analytical base obsolete. An entire new way of thinking about strategy was now needed. And in the aftermath of the economic downturn – assuming of course that there is one – we will need to begin thinking about strategy in new ways too. As Moody’s chief economist Mark Zandi warned in his recent book Financial Shock, on the subprime mortgage crisis, we simply cannot go back to our old ways of thinking, or else the disaster will unfold all over again.
The problems with planning – or rather, with too much reliance on planning – have long been apparent. Two of the most influential writers on strategy over the last twenty years, the Canadian academic Henry Mintzberg and the Japanese guru Kenichi Ohmae, have both argued that managers need to reduce their reliance on planning, or even do away with it altogether.
For Mintzberg, most planning simply does not reflect the realities of management. In his 1994 book The Rise and Fall of Strategic Planning, Mintzberg argued that most strategy making is done ‘on the fly’ as managers respond to unforeseen events and shift position to meet threats and take advantage of opportunities. He coined the term ‘emergent strategy’ as an alternative to planned strategy. Strategy is something we develop as we go along, and is made and executed in an ad hoc manner. Only by doing this can we adapt to changing circumstances.
Ohmae saw planning as important only as an exercise. The key to successful strategy, according to his 1982 book The Mind of the Strategist, was clear strategic thinking. Making strategy is a mental discipline, said Ohmae, who went on to liken it to an art rather than a science. He called for managers to ‘develop the habit of thinking strategically’, and to practice doing so every day. In this way, managers are constantly looking around at their organization and the environment, challenging previous assumptions, analysing each new development for potential threats and opportunities.
Ohmae believed that this constant process of searching and challenging and analyzing was the key to successful strategy. He believed that this was one of the keys to the success enjoyed by Japanese and other Asian firms in the 1980s. Certainly it is true that most Asian firms are less reliant on formal planning than are their Western counterparts. It has been observed that in many Chinese businesses, the ‘formal’ strategic plan covers no more than two or three sheets of paper, while in others it has no physical existence at all; the ‘plan’, such as it is, exists only in the minds of the leaders. And yet we know too that these firms are wonderfully adaptive, flexible and have far faster reaction times than some of their lumbering Western rivals.
So, should we scrap strategic planning altogether in favour of ‘strategic thinking’ and ‘emergent strategy’? That might be a little hasty. Strategic planning does have its uses. Plans can be useful tools and guides, like maps to a destination. The danger comes when rely on the plan as the only way to reach our goal. Then, when the plan becomes obsolete, we are completely unable to think what to do next; we become ‘deer caught in the headlights’, in Ohmae’s famous phrase. The answer is that we need both strategic planning and strategic thinking. The first gives us our bearings and tells us the route to our goals. The second gives us the precious gift of flexibility when the route ahead becomes blocked and we need to find a new path.
