Chapter 1. Forget Strategic Plans!
In late 2020 I met with an executive from a leading retailer. While waiting, I had the chance to review the company’s strategy which, unusually, was pinned to the wall of their conference room. Here was a meticulously crafted plan detailing the company’s vision, mission, values and key performance indicators (KPIs) with a GANTT chart showing project deadlines. It had clearly taken a lot of time and — judging by the embossed logo of the high-profile strategy consulting firm on the pages — a lot of money to create. The executive arrived and sat down. I gestured towards the strategy on the wall behind him. He didn’t turn round:
Me: I was looking at your strategy. Quite the undertaking.
Executive: [disinterested] Mm
Me: How is it holding up under COVID?
Executive: It isn’t.
Me: Will you be hiring [the strategy firm] again for next year?
Executive: No. I think we need something different.
I couldn’t agree more.
The World Uncertainty Index[1] suggests that global uncertainty is rising (see fig.3). Political turbulence, financial crashes, wars and natural disasters make the future unpredictable, yet even a cursory glance at history shows that such events are not new. So why does it feel like uncertainty is soaring today? The difference lies in our modern ‘Age of Information’[2] — access to unprecedented amounts of data provides us more meaningful ‘signals’ to help us make sense of the world, but it’s accompanied by a parallel increase in ‘noise’ — interference and distortion that renders much data:
- Unreliable — as questionable sources affect credibility.
- Ambiguous — open to multiple interpretations.
- Complex — challenging to integrate cohesively.
- Missing — unavailable or inaccessible when needed.
This is the modern information paradox: the more data, the more distortion increases, amplifying our uncertainty.
Fig.3: World Uncertainty Index (WUI) 1990–2024(Q3)
Uncertainty Can Cause More Stress Than Inevitable Pain
As noted in the previous chapter, some cultures are more averse to uncertainty than others. However, avoiding uncertainty is instinctive to all humans and there are very good evolutionary reasons for this. For our ancestors, it was better to assume the rustling of grass was a predator and be wrong than assume it was just the wind and be wrong.
A University College London experiment[3] explored human anxiety about uncertainty. Researchers divided volunteers into three groups and explained they would play a computer game where they had to turn over rocks and, if there was a snake underneath them, they would receive “a mildly painful electric shock on the hand”. The first group was told there would be no snakes under their rocks (0% chance of getting a shock). The second group was told there were snakes under half their rocks (50% of chance of getting a shock), while the final group was told there were snakes under all their rocks (100% certainty of getting a shock). Researchers then measured the volunteers’ stress levels as they played. And the results surprised them. Those with a 0% chance of a shock were, as expected, the least stressed. However, those with a 50% chance of getting a shock were significantly more stressed than those with a 100% chance. “The most stressful scenario” the researchers concluded “is when you really don’t know. It’s the uncertainty that makes us anxious” rather than the inevitability of pain.[4]
An aversion to uncertainty so acute it causes more stress than physical pain explains why so many people are susceptible to those who peddle certainties: economists confidently forecasting next year’s economy, despite routinely missing recessions; or management consultants promising compound annual growth rates, despite being blindsided by market disruptions and sudden shifts in consumer behaviour. The ‘peddlers of certainty’ know that projecting (the illusion of) certainty — through best practices you can safely copy, case studies you can imitate and ever bigger datasets, now fuelled by AI, so you can predict the future[5] — provide leaders with relief in a changing and unpredictable, despite their constant failures.[6]
The pursuit of certainty fuels the annual budget and planning cycle in organisations. Executives perform ritual steps — gathering data, brainstorming initiatives and determining strengths and weaknesses — that produce a ‘strategic plan’ that will supposedly determine the organisation’s performance for the year ahead. The only uncertainty is in the execution of these well-laid plans, giving rise to a cottage industry of KPIs (key performance indicators) and OKRs (objectives and key results) that seek to eliminate any variance between reality and plans.
This ‘assembly line’ approach (known inputs produce knowable outputs) worked well in the previous industrial age[7] where the key production assets were predictable machines. But in the modern Age of Information and Telecommunications — where the key production assets are knowledge workers who turn abundant data into productive information — machine-like control is a mirage. As competitors emerge from every corner of the globe changing consumer habits and accelerating rates of technological change, together with tightly-coupled global supply chains, amplifying shocks around the world at devastating speed, business models get disrupted before ‘strategic plans’ are even pinned to a conference room wall.[8] Yet ‘strategic planning’ not only remains the dominant way of “managing the organisation’s future but [for many] the only conceivable one”.[9]
Problems With Strategy Today
Strategy is about making an integrated set of choices to win a competitive game.[10] Yet, in many organisations, strategy has devolved into a ritual dance to generate numbers for the annual budget. The ‘strategic plans’ that emerge are often long lists of departmental initiatives that mirror what other organisations are also doing, providing little in the way of competitive differentiation. These initiatives, labelled as marketing, HR and IT strategies, are presumed to succeed by proxy: If advertising generates more leads, employee engagement scores rise, and a digital transformation is successfully completed, then customers will beat a path to our door. Except they don’t, as customers don’t care about your internal metrics — they only care about what you can do for them.
‘Strategic plans’ help organisations manage costs, because the organisation is the customer of its own costs — it controls what it spends. But the real driver of business success — revenue — depends on variables beyond the organisation’s control: what will customers buy, which new technologies are appearing, how will rivals respond.[11] In an attempt to create a comforting sense of certainty organisations dedicate huge resources annually predicting the unpredictable. They generate revenue numbers based on extrapolations from past data, or wishful thinking, and these become targets in the ‘strategic plan’ that the organisation must then try and chase down.
The roll out of the ‘strategic plan’ is the handover from ‘thinkers’ who created it to ‘doers’ who must turn fantasy into reality. KPIs are set, not to measure performance and learn whether the plan is overly or underly optimistic, but as rigid targets ‘doers’ are expected to hit. Good performance is rewarded with bonuses and promotions, while under-performance punished. However, these rewards and punishments are not measured against the unfolding reality the organisation is continually learning about, but against the guesses in the ‘strategic plan’ made a year or more before, when the current reality was part of the uncertain future. As a result, average performance in better-than-forecasted market conditions is rewarded, whilst exceptional performance in worse-than-expected market conditions is punished.
The absence of a real strategy — an integrated set of choices to win a competitive game — denies the organisation the critical mechanism to coordinate diverse activities effectively in pursuit of a common goal. Departments focus on their own initiatives and trust that someone, somewhere is integrating these into a coherent strategy that will achieve the organisation’s mission. This is why most people — from frontline staff through to senior executives — can’t name their organisation’s top three strategic priorities (see fig.4). Shockingly, around half of ‘top teams’ — those responsible for creating the strategy — can’t either. The truth is, most organisations don’t have a strategy. They have a plan that feeds a budget and spits out targets, leaving people to deliver results with minimal organisation coordination or support.
Fig.4: No One Knows Your Strategy — Not Even Your Top Leaders
The 2020s have already shown us that no amount of planning — regardless of how elaborate, expensive or data-driven — can predict the sharp discontinuities that impact us so dramatically: a pandemic, war, disruptive technology, or an innovative seemingly from nowhere that pushes our own offerings towards oblivion (e.g. iPhone and Blackberry). In turbulent times, plans can bind us to a world we want to see, rather than the one that is unfolding. Plans become wishful thinking, and the performance bonuses tied to achieving KPIs encourage us to focus more on hitting targets set in the past, rather than enhancing our awareness of the emerging opportunities and threats we need to respond to. ‘Sticking to the plan’ becomes an act of faith, built on belief in the “hundreds of pages of analysis” and “flowery prose that supplements the numbers in the budget” providing us a comforting illusion of certainty, despite it all being “a colossal bureaucratic waste of time”.[12]
The known limitations of ‘strategic plans’ have in the 21st century fuelled a new obsession with rigorous execution instead. This is epitomised in often-quoted words of JPMorgan Chase CEO, Jamie Dimon: “I’d rather have a first-rate execution and second-rate strategy any time than a brilliant idea and mediocre management”.[13] While this sounds admiringly pragmatic and action-oriented, relying on better execution alone — akin to telling soldiers in battle to simply fire their weapons faster, but not where to aim — brings its own problems:
“When Hewlett-Packard, announced disappointing results in August 2004, CEO Carly Fiorina stated, “The strategy is the right one. What we failed to do is execute the strategy.” Her explanation sounded reasonable, and no one questioned her when she swiftly replaced a few key executives — it looked like an appropriate step to improve execution and raise company performance. Curiously, when Fiorina herself was fired just six months later in February 2005, a company spokesperson repeated the same line: HP was following the right strategy, but the chief executive was replaced because the board of directors wanted better execution! Again, it all sounded reasonable, and no alarms were raised about the company’s basic choices. Six weeks later, when Mark Hurd was hired as the new CEO, Hewlett-Packard stuck to its message, announcing that it had “picked Mr. Hurd because of his execution skills.” And therein lies the problem: It’s always easier to bang the drum about execution than to address fundamental questions of strategy. It’s always easier to insist we’re going in the right direction but just need to run a little faster; it’s far more painful to admit that the direction may be flawed, “because the remedies are much more consequential”.[14]
The ‘consequential remedies’ begin with recognising that better planning, better execution, more gurus or advanced AI won’t solve the core problem: the future remains an uncertain place. In an unpredictable world we need an approach that encourages exploration and flexibility — “the very things that formalisation discourages”.[15] We need to go beyond slow, bureaucratic processes that produce rigid plans, which struggle to survive contact with reality. We need adaptive strategies that enable us to make winning moves not in spite of uncertainty, but because of it.
1/ https://worlduncertaintyindex.com
2/ Starting around 1971 when the Intel microprocessor was announced
3/ “Computations of uncertainty mediate acute stress responses in humans”. Nature Communications. March 29, 2016. Discussed in ScienceDaily https://www.sciencedaily.com/releases/2016/03/160329101037.htm
4/ The experiment also revealed another important finding. Stress may also be a “potential benefit. People whose stress responses spiked the most at periods of greatest uncertainty were better at judging whether or not individual rocks would have snakes under them. From an evolutionary perspective, our finding that stress responses are tuned to environmental uncertainty suggests that it may have offered some survival benefit … Appropriate stress responses might be useful for learning about uncertain, dangerous things in the environment”.
5/ Before the 2018 football world cup the Swiss investment bank, UBS, ran 10,000 simulations and predicted that Germany to win the world cup https://www.bloomberg.com/news/articles/2018-05-17/germany-will-win-the-world-cup-ubs-says-after-10-000-simulations. Then the US investment Goldman Sachs used AI to run 1 million simulations and predicted that Brazil would win the world cup in 2018: https://nordic.businessinsider.com/world-cup-predictions-pick-to-win-it-all-goldman-sachs-ai-model-2018-6?r=US&IR=T. Neither Germany nor Brazil even made it to the semi-finals, so Goldman Sachs re-ran its simulations with the four teams remaining and predicted Belgium would win it. Despite having a 1 in 4 chance Belgium also failed to make it to the final, which was won by France who beat Croatia: https://www.businessinsider.com/world-cup-predictions-goldman-sachs-ai-model-belgium-england-final?op=1. For a summary of this see: ubs-commerzbank-predict-germany-would-win-world-cup-wrong
6/ https://www.managementtoday.co.uk/why-need-turn-back-silver-bullet-solutions/opinion/article/1873247
7/ Which was the Fourth Industrial Revolution if we consider the first as the Industrial Revolution (starting in 1771); the second Age of Steam and Railways (1829); the third the Age of Steel, Electricity and Heavy Engineering (1875); the fourth the Age of Oil, the Automobile and Mass Production (1908); meaning the current Age of Information and Telecommunications, starting in 1971 when the Intel microprocessor was announced in Santa Clara, California is the fifth Industrial age. Source: Technological Revolutions and Financial Capital. The Dynamics of Bubbles and Golden Ages. Carlota Perez (p.11)
8/ “The best laid schemes o’ Mice an’ Men, Gang aft agley, An’ lea’e us nought but grief an’ pain, For promis’d joy!” — Robert Burns
9/ Rise and Fall of Strategic Planning. Henry Mintzberg (1994) p.60
10/ This is a simplified version of the most compelling definition of strategy I’ve found, which comes from one of the most notable strategists in the modern business world Roger Martin: Strategy is an integrative set of choices that positions you on a playing field of your choice in a way that you win.
11/ https://www.youtube.com/watch?v=iuYlGRnC7J8
12/ https://medium.com/the-innovation/strategy-as-problem-solving-5c6fb9291d87
13/ Quoted in https://hbr.org/2010/07/the-execution-trap
14/ The Halo Effect. Phil Rosenzweig (2007) p315
15/ Rise and Fall of Strategic Planning. Henry Mintzberg (1994) p.477
(Next Chapter) Chapter 2 — Adapt or Die
