#7 Stay agile: Be adaptable to change and sensitive to weak signals
Looking across business books, a rough estimate is that 90% start with touting that we live in times of great turbulence and uncertainty. Some books even claim that we are moving into a period of exponential change. It is almost a cliché. Nevertheless, the accelerating forces of change confront business leaders with new challenges when it comes to thinking about strategy. This has led some thinkers to declare strategy dead as a value-adding discipline. Why strategise if we cannot predict the future?
On one hand, classic long-term strategic planning practices are proving less successful in a world of accelerating change. Issues are getting tougher, competition is becoming less predictable and complexity levels are on the rise. On the other hand, strategy is still fundamentally about making distinct choices, allocating scarce resources and placing bets for the future. These practices are still very much valid, but we need to balance long-term ambitions with short-term agility.
According to our experience, many organisations have not acted on the increasing levels of turbulence in a timely manner. Most organisations are stuck in classic strategic planning practices and tend to regard strategy development as something that is first and foremost embedded in a formal organisational process governed by certain rituals. These rituals usually prescribe that every three to five years, strategy is adjusted and the new strategy is subsequently implemented according to plans.
The ritual might sound outdated. However, according to our experience the surprising insight is that if conducted in the right way, this ritual still creates a lot of value. Timely staged discussions on strategy leading to decisive long-term choices for the future and broad alignment across the organisation make sense. Strategy rituals install a steady heartbeat and a staged process for allowing the organisation to reflect on the future and synchronise actions. Strategy is not at all dead. It is very much alive. However, if industry turbulence is indeed increasing, we need to move beyond the classic way of strategising and ensure that strategic choices are investigated and adjusted at a higher pace.
Responsiveness to changes in key assumptions
To update classic strategy processes, we must act in a much more responsive way to changes in the underlying key assumptions of the strategy. This requires the organisation to set up a well-defined process for monitoring key assumptions on a continuous basis and define simple rules for when and how to act on changes in critical assumptions. Strategy should be decisively implemented as long as the underlying assumptions hold true. But the second a critical assumption turns into a red flag, leaders must rapidly stop, think and act.
Consider the electric vehicle industry. For years, developments have been rather unpredictable due to uncertainties regarding, among other things, political regulations, technology trends, supply of attractive cars and consumer demands. This led one player in the industry to develop four distinct market scenarios based on different assumptions and four corresponding sets of strategic choices. This helped the management team to have frequent informed discussions on whether the market was entering a new scenario and which strategic choices to adjust accordingly. And instead of having endless discussions, they could leverage their shared understanding of the underlying assumptions and the specific trigger points that required the team to act decisively.
Sensing and seizing emerging opportunities
While being responsive to changes in the underlying assumptions is vital, it will not suffice. We must also act in a much more proactive way to sense and seize emerging opportunities. This requires organisations to think about strategising in a whole new way. Monitoring known assumptions must be supplemented with organisational intelligence systems that are capturing and making sense of the unknown. For instance, weak signals on emerging technologies, subtle changes in customer needs or changing venture investment levels in start-ups with potentially disruptive business models.
Whereas monitoring changes in key assumptions should be driven as a formal top-down process, the proactive ability to explore and exploit new opportunities in times of faster change requires distributed responsibility. If we insist on fixing all issues in the formal strategy development process, chances are that we will go too slow and get stuck in systemic bottlenecks. Consequently, more and more organisations are moving beyond traditional planning processes by decentralising decision-making responsibility and democratising strategy by building capabilities for making strategic choices and solving complex business issues across the organisation. That means establishing a shared language around creating and making strategic choices, building and nurturing a common strategy toolbox and designing management systems supporting the capability. In the search for agility and resilience, organisations must combine well-crafted top-down processes for strategising with a broadly held capability for acting on opportunities bottom-up in a much more agile way.
Currently, incumbent players in the media industry are facing a lot of turbulence. New entrants, disruptive technologies and value chain shifts are changing the game. To stay agile and proactive, a major media player decided to develop a strong capability for strategising among both top management and mid-level managers. In this way, business leaders across the organisation were equipped with a common approach and mindset for handling the dynamics of the industry. The initiative included both developing the capabilities and rearranging management systems so that old governance structures and leadership styles were updated to fit with a new way of working that encouraged a much broader group of leaders to spot issues, create options, make choices and put strategy into action. Further, a positive side effect was that motivation went up as mid-level managers now felt more involved and empowered to act on emerging opportunities.