Chapter 1. Forget Strategic Plans!
In late 2020 I had a meeting with an executive from a leading retailer. While waiting for them to arrive I studied the company’s strategy which was, unusually, printed on three large sheets of paper and pinned to a wall of the conference room. Here was the company’s vision, mission, values, key performance indicators (KPIs) for their various business lines and a GANTT chart detailing actions and deadlines for all agreed projects. It was a big piece of work and had clearly taken a lot of time, as well as money (considering the logo of the consulting firm on the paper) to create.
The executive arrived and sat down. As an ice-breaker, I pointed to their strategy on the wall behind him but he didn’t turn round:
Me: I was just reading your strategy
Executive: Mm
Me: It’s very detailed
Executive: Yes. It is
Me: [unable to contain my mischievous side] Where’s COVID on there?
Executive: It was done before COVID
Me: Did your strategy help much with that?
Executive: Not really
Me: Are [X] doing your strategy again for next year?
Executive: No. I think we might need something different.
I couldn’t agree more!
Different ways to cross the river
The World Uncertainty Index[1] suggests that uncertainty — not knowing what will happen next — is increasing (see fig. 3 below). People blame political turbulence, financial crashes, wars and natural disasters to explain this uncertainty, but even a cursory glance at the history books reveals such events are nothing new. So something else must be driving this rising level of uncertainty. In the modern Age of Information and Telecommunications[2] we have more information producing more ‘signals’, or information that helps us make sense of what’s happening in a situation, but we also have more ‘noise’ (interference and distortion) that renders information:
- Unreliable — because the credibility of the source is perceived as low
- Ambiguous — because there’s more than one way to interpret information
- Complex — because different pieces of information are difficult to integrate
- Missing — because information has not been received or can’t be located when needed.
Is it a case that the more information we produce the greater the uncertainty we have?
Fig. 3: World Uncertainty Index (WUI) 1990–Q32023
We humans have an acute aversion to uncertainty. Researchers at University College London once asked for volunteers to play a computer game. They had to turn over rocks that might have snakes underneath them. If there was they’d receive “a mildly painful electric shock on the hand”[3]. Volunteers were put into three groups: One that was told there were no snakes under their rocks (so they had a 0% chance of getting a shock); one that was told there were snakes under half their rocks (so they had a 50% of chance of getting a shock); and one that was told there were snakes under all their rocks (so they had a 100% certainty of getting a shock). Researchers then measured the stress levels of volunteers as they played the game and were surprised at what they discovered. While the group with the 0% chance of getting a shock were the least stressed, the group with the 50% chance of getting a shock were significantly more stressed than those who were told there were 100% getting a shock leading the researchers to conclude that it’s “much worse not knowing you are going to get a shock than knowing you definitely will”. In other words, the uncertainty (of not knowing if one would avoid pain) created more stress than the actual pain did.
This acute aversion to uncertainty explains why people are susceptible to those peddling certainties — economists confidently predicting how much the economy will grow by in the coming year, or the assurances of management consultants that doing A and B will produce compound annual growth rates of X% for your organisation. Peddlers of certainty have long known that projecting a sense of certainty, however illusory, reduces people’s stress and encourages them to buy. It explains the widespread use of cases, best practices and ever bigger data by the consulting industry that has grown up around modern businesses, comforting potential clients with claims that ‘yes, you too will enjoy results like these if you use our services’ (despite the impossibility of replicating the same results simply by copying what someone else did, somewhere else, in some other time).[4] Today, these peddlers of certainty, armed with artificial intelligence (AI) are producing more predictions with ever greater confidence, despite the known flaws of using past data to predict uncertain futures.[5]
The pursuit of certainty about the future drives the annual planning cycle in many organisations today. The belief is that performing a clearly-defined series of steps correctly — inputting and analysing key data, determining strengths and weaknesses, brainstorming initiatives — a reliable strategic plan for the organisation will emerge. The plan then needs only to be rolled out to those responsible for executing it, with progress measured against key performance indicators (KPIs). This ‘assembly line’ approach (where known inputs produce knowable outputs) worked well for organisations in the fourth industrial [6] (the Age of Oil, the Automobile and Mass Production) where the key assets were predictable machines. But in the modern Age of Information and Telecommunications, (the fifth industrial age) the key asset is information and information contains many uncertainties (see above), which diminishes an organisation’s ability to predict outcomes. When uncertainty is combined with the volatility of the modern business world — due to accelerated rates of technological change, an increased numbers of competitors globally, and unexpected shocks in one part of the world being felt everywhere due to tightly-coupled global supply chains — planning should be recognised as a sub-optimal way to lead an organisation. Yet ‘strategic’ planning not only remains the dominant way of “managing the organisation’s future but [for many] the only conceivable one”.[7] Simply put, the practice of strategy has not kept up with the changing times.
Strategy is about generating options in pursuit of an aim and making choices about what to do next. Yet the strategy process in many organisations is more like an annual dance organised by leaders to reduce the anxiety they feel about not knowing what the future brings. The ‘strategic plan’ is the ultimate act of wishful thinking for any organisation in a competitive market as it assumes that somehow the organisation is in control of all the variables, possessing perfect foresight about any new technologies that will emerge; supreme confidence in knowing what users want and need; complete awareness of how their rivals will act; and unearthly confidence that neither war, pandemic or economic crash will impact them the year.
‘Strategic plans’ are rolled out to ‘doers’ to implement, whose own anxieties are soothed by the thought that someone (the ‘thinker’ who created the strategy) must be in control. This ritual dance — where ‘thinkers’ set wishful targets and ‘doers’ focus on hitting them to unlock bonuses — has become so hollow that most people can’t name their organisation’s top three strategic priorities[8] and that includes senior executives who are often responsible for creating the strategy (see fig. 4). Instead of leaders thinking strategically to guide their organisation through uncharted and choppy waters they default to ‘strategic planning’, which has become little more than a mechanism for producing comforting illusions of certainty in a more uncertain and volatile world. As ‘uncertainty causes humans more stress than actual pain’ resources are directed more to planning and reducing anxiety than either surviving shocks or using the chaos unleashed to get ahead of rivals and thrive.
Fig. 4: No-one Knows Your Strategy
As the 2020s have already shown us, no amount of planning (irregardless of how elaborate the process is, the cost of the management consultants leading it, or the size of the datasets we use) can accurately predict the sharp discontinuities that impact our world, like a pandemic or a war, or impact our industry, like a new technology (AI) or the launch of a innovative product from a rival that pushes our own into oblivion (like iPhone did to Blackberry). In times of turbulence our plans bind us to a world we want to see rather than seeing the one that is unfolding. Our plans become wishful thinking and ideas or data that contradict this are ignored or rejected, limiting our ability to adapt to how the world is changing. We ‘stick to the plan’ because it’s our only sense of certainty in a world, we take comfort in it “hundreds of pages of analysis” and “flowery prose that supplements the numbers in the budget” despite it being “a colossal bureaucratic waste of time”.[9]
The limitations of ‘strategic plans’ have encouraged an obsession with rigorous execution instead. Jamie Dimon, CEO of JPMorgan Chase claimed, “I’d rather have a first-rate execution and second-rate strategy any time than a brilliant idea and mediocre management”.[10] But relying on better execution — the equivalent of telling your people to run quicker, but not which direction to run in — 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”[11].
The ‘consequential remedies’ needed to address the problems of planning and execution are a complete rethink of our approach to strategy. Better planning, better execution, better gurus or more AI will not address the main problem we have: The future remains an uncertain place. In an uncertain world we need an approach that encourages exploration, insight and flexibility — “the very things that formalisation discourages”[12] — one that leaves behind formal processes that produce top-heavy plans that rarely survive contact with reality. We need to learn how to make make better moves not in spite of the uncertainty, but because of it. Because to win, we don’t have to predict the future. We just have to be able to respond better than our rivals do when the situation changes.
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 As outlined in the introduction chapter to book one.
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. Despite having a 1 in 4 chance Belgium 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 The first was the Industrial Revolution (started 1771), the second was the Age of Steam and Railways (1829), the third was the Age of Steel, Electricity and Heavy Engineering (1875), the fourth was the Age of Oil, the Automobile and Mass Production (1908) and the fifth, the Age of Information and Telecommunications started around 1971 when the Intel microprocessor was announced in Santa Clara, California. Source: Technological Revolutions and Financial Capital. The Dynamics of Bubbles and Golden Ages. Carlota Perez (p.11)
7 Rise and Fall of Strategic Planning — Henry Mintzberg (1994) p.60
8 https://sloanreview.mit.edu/article/no-one-knows-your-strategy-not-even-your-top-leaders/
9 https://medium.com/the-innovation/strategy-as-problem-solving-5c6fb9291d87
10 Quoted in https://hbr.org/2010/07/the-execution-trap
11 Rosenzweig, Phil. “The Halo Effect”. p315
12 Rise and Fall of Strategic Planning — Henry Mintzberg (1994) p.477
Introduction to Book One — Why Best Practices Are Holding You Back
Chapter 1 — Forget Strategic Plans!
Chapter 3 — Pal’chinskii’s Principles
Chapter 4 — Ashby’s Law of Requisite Variety
Chapter 5 — FujiFilm: Innovating Out of a Crisis
Chapter 6 — Honda B: Miscalculations and Mistakes
Chapter 7 — Honda-Yamaha War of Natural Selection
Chapter 8 — The Eastern Approach to Strategy
Chapter 9 — The Western Approach to Strategy
