Partner: GCS
Strategic planning is an essential function for any business. However, this requires significant time and resources to be implemented effectively.
Since the COVID-19 Pandemic, there has been a significant focus on cutting costs and reducing the size of businesses to improve efficiencies and the financial position of many companies. Lean strategies have become popular during this period; I recently read an article on the Harvard Business Review (HBR) Website which discusses this in more detail.
Setting the Priorities
The HBR article points out that lean strategy begins with articulating (or revising) a company’s multiyear performance ambition, which typically includes both financial objectives, such as revenue and operating profit goals, and strategic goals, such as relative market-share growth and improvements in customer satisfaction.
A performance ambition is not a typical target—meaning one that senior leadership believes it can meet or exceed. Targets often hinder effective strategy development. They can become politicized; business units may understate their potential so that they can secure lower targets, while the corporate centre pushes for higher ones, suspecting that the units are sandbagging. Targets become a negotiated settlement, not an effective guide for strategy making.
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In contrast, a performance ambition is aspirational. It’s designed to motivate business and functional leaders to surface breakthrough ideas that can significantly enhance a company’s performance. The ambition should be realistic yet beyond the reach of the current strategy.
The HBR article points out that Google’s 10x thinking is a notable example. Introduced over a decade ago by Google’s cofounders, Larry Page and Sergey Brin, it encourages leaders to aim for solutions that are 10 times better than existing ones. That mindset has become a core principle of Google’s strategy and is deeply embedded in the company’s culture.
The 10x approach has fuelled remarkable innovations at Google. When Gmail launched, for example, it offered users 100 times more storage than competing services did. Google Street View photographed more than 10 million miles of road, adding unique value to search results. Google X, the company’s experimental R&D unit, took on the development of self-driving cars, leading to the creation of Waymo, which now operates a fleet of autonomous vehicles serving passengers in Phoenix, San Francisco, Los Angeles, and Austin.
Ongoing Strategic Management
With every issue on the backlog, leadership follows a standard decision-making process that guides resource allocation. It entails two distinct strategy sessions:
Facts and alternatives. The HBR article adds that, during this session, leadership works to fully understand the issue, identify its causes, and come up with a range of ways to address them. The goal of this meeting is not to select the best alternative but to engage in an expansive dialogue that will help the team develop a comprehensive set of viable options.
In these discussions it’s important to examine the critical facts. Most strategy development efforts include a phase in which facts are collected to assess market trends, customer purchasing criteria, competitor performance, and the profitability of the company’s products and services in each segment. While that information is valuable, it often fails to reveal the underlying causes of underperformance and deficiencies in the company’s strategic position. For example, if leaders seek to accelerate growth in a market segment, they must first understand the primary impediments to growth. Otherwise the company risks treating symptoms—such as low returns on ad and promotional spending—without fixing the cause, such as a cumbersome product that’s difficult to use and buy. Identifying the true reasons for underperformance often requires gathering facts beyond those typically collected in market or competitive scans or involves a deeper analysis of existing facts.
Careful consideration of alternatives is equally important. Business is a game of choices, and good choices start with strong alternatives. Unfortunately, most companies fail to consistently explore multiple options when making strategic decisions. Their approach often boils down to “We’re doing this now; that seems better, so let’s do that.” While such thinking may lead to incremental improvements, it frequently causes companies to miss opportunities for breakthroughs.
Worse, the alternatives companies do consider may be false choices. People often stack the deck by presenting leaders with three options: one that implies doing next to nothing, one that’s akin to killing your firstborn, and a third that’s the path they really want to pursue. Or they simply present “Goldilocks” choices—one too extreme, one too weak, and one in the middle. Both practices undermine the quality of decision-making.
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The HBR article points out that the most successful companies embed the formulation and evaluation of alternatives into their strategy process. Strategies are proposed only after a range of options have been carefully considered. These companies also clearly define and in some cases standardize the criteria for assessing alternatives—for instance, impact on the firm’s future cash flows—rather than leaving it up to individual business unit or functional leaders to decide how to evaluate competing strategies and make recommendations.
Choices and commitments. In this session leadership reviews evaluations of the alternatives, uses agreed-upon criteria to select the best one, defines performance milestones for it, and identifies the resources it will require. The outcome of this meeting is a final decision, which includes committing resources in exchange for expected performance improvements.
It’s surprising how often strategy goes off the rails at this juncture. Nearly 30 years ago, Michael Porter observed that “the essence of strategy is choosing what not to do.” Yet in many companies, it’s difficult to determine precisely what leaders have decided to do—let alone what they have chosen not to do. After a typical board strategy review, the answers to key strategic questions often remain unclear or open to interpretation. Strategic decision-making falters when critical trade-offs aren’t assessed and concrete choices are left unmade.
The HBR article adds that, in many companies strategy resembles an elaborate description of a desired end state, without a clear path for getting there. Such firms rarely define what actions will be immediately stopped, continued, or started. Without that clarity, however, execution becomes challenging. Worse, strategies can face a silent veto in lower levels of the organization, where employees may be sceptical of leadership’s vision. In both cases, performance will fall short. A strategic plan needs to be prescriptive and specify how to achieve the future it outlines.
The best companies follow up their strategy reviews by creating an explicit decision log. It captures the choices made by leadership, documenting the range of alternatives considered, the reasons certain options were rejected, and the rationale behind the chosen path. This eliminates ambiguity. Strategy is no longer subject to hallway debates or passive resistance from those who claim not to understand the decision or who wish to pursue their own alternatives.
Seeking advice
What are the key highlights from the HBR article?
- Performance Ambition vs. Targets: Setting a performance ambition is crucial as it pushes organizations to aim higher than typical targets. Unlike conventional targets that can lead to political negotiations and misaligned objectives, a performance ambition inspires teams to pursue transformative ideas that elevate overall performance. This mindset fosters innovative thinking and can ultimately lead to significant breakthroughs;
- The Role of 10x Thinking: Google’s 10x thinking exemplifies how aiming for solutions that are ten times better can drive remarkable innovations. This approach encourages leaders to discard incremental changes in favour of radical improvements, effectively embedding an aspirational culture that fuels creativity and advancements within the organization;
- Comprehensive Decision-Making Process: The strategic management framework emphasizes the importance of an expansive decision-making process, beginning with a thorough understanding of issues and exploring various alternatives. This dialogue should focus on root causes rather than simply addressing symptoms, enabling organizations to develop meaningful and lasting solutions;
- Embedding Alternative Evaluations: Successful companies prioritize the evaluation of multiple strategic alternatives, moving beyond simplified binary choices. Establishing clear criteria for assessing these alternatives ensures that decisions are made based on comprehensive analysis, leading to more impactful and informed strategic outcomes; and
- Explicit Decision Logs: The best practices in strategy development involve maintaining an explicit decision log that documents key choices made during strategic discussions. This log clarifies the rationale behind chosen paths, minimizes ambiguity in execution, and aids in maintaining alignment across the organization, thereby enhancing accountability and ensuring that strategies are effectively communicated and understood.
Strategic planning is important for any business, and the shift from large scale strategic planning to scaled back strategic planning is not easily achieved. The content in this article is a good example of why there is an urgent need for business leaders to not only have formalised business training, but to engage in continuous professional development. Seeking advice from professionals who as skilled at restructuring businesses is also highly advisable.
