An introduction to strategy

An introduction to planning and strategy

Life cycles set the length of time we have to think ahead. How long does it take our training to become obsolete? Our new product? The equipment, legal agreements and so forth on which our activity depends? If you work in pop music, the answer is probably set in months, and if you work with water utilities or nuclear power, in many decades. The simple rule is: in order to take good decisions, you need to put yourself into the situation that you and your business will face one and a half life cycles from now. If the life cycles in pop music is six months, then what is happening nine months from now? If it is construction, with a three year half life, then what is the world like five years from now?

The basic structure.

This is all common sense. If you are driving somewhere new, it is much more effort than when you are in a familiar set of streets. Why? Because you can anticipate much of what is going to happen next. Studies on the brain show that when we think about doing something, the same regions light up as those involved in actually doing it. When we practice an action, or think about the action a lot, we smooth these paths and actually get better. Indeed, after a while we forget how hard it once was to co-ordinate all the different parts of the action and do it without even thinking. We no longer have to focus on throwing the spear, and can give our attention to the hunt.

Our life is made up of many, many routines which we have learned in this way. We start with none, and build them up. Companies are just the same, although instead of one brain, they 'run' on many and these people need to communicate effectively if the organisation as a whole is to learn. So one part of planning and strategy is about learning new skills, and one part is about communicating insight.

These two tracks have to operate in parallel, carrying three kinds of freight. First, the grand picture of what things may be like a life cycle or so ahead, and how we could best fit into this situation. Second, the tools that we have for getting from here to there: assets such as money, facilities and skills, competitive and other constraints on how much risk we can accept. Third, we have a business to run and we need to focus on how this can be shaped right now so as to help us start out on our journey. If we focus only on the third area, we will get somewhere useful only by chance. If we focus on the grand picture, we will be unable to fund it, excite people about it or find that, despite the fine time table and advertising, our trains are actually heading somewhere quite different.

	Learning new skills	Communicating insight
Insight into options	How to think one and a half life cycles ahead? What options does this suggest?	Pooling what others know about realities, relationships and trends: technology, competition, society.
Assets and constraints	What practical steps could we take to get from here to 'there', and what are the risks and constraints?	Practical debate about real options for change, growth, innovation, partnership, new markets.
Running the business	Balances of quality and cost, cash versus investment, reputation and brand as these affect options and the longer view.	Making sure that everyone understands the correct balances between desirable things, put in language and as incentives that they will understand.

The table shows the processes by which the company learns - the tracks - as the two columns, and the three areas in which people have to think - the tracks - as the rows. Getting a good result for the long term means that at least some people have to think hard in each of these boxes, and communicate between them. Each of these boxes have their own tools, and different kinds of people are usually good at using them. However, none of this is magic, and it is quite easy to get up to speed in each of them.

Most organisations find the top row the most difficult to handle. Most would feel that they have a good grip on the bottom row. However, if the actions coming from the bottom do not go where the ideas at the top are leading - where they go for lowest cost, lowest quality where the aim is to pitch for the top of the market, for example - then they may be generating excellent results, but not the results that are needed!

There is often a gap in the pattern of incentives and goals shown on the right employees grumble that "they talk quality but they pay for quick throughput." People do not trust management, or each other, in such a situation. They do the least that they can get away with, contribute no new ideas and feel no identification with the firm. Therefore, each of these boxes much be in harmony, connected together, driving the whole company in the same direction.

Strategy: tools of the trade.

The word "strategy" is hopelessly mis-used. It should mean something like "The understanding that we all share about the way things are developing in our industry, where we are positioned in this, and what we are going to do about this, given both constraints and opportunities." All the rest is tactics, the "how" that answers to this "what". Tactics are hard work to install, keep up to date and track, but they are pretty easy to define once the strategy is in place. Here, we focus on strategy.

Strategy should emerge from the top four boxes on the table that we saw earlier. I say that it will "emerge" because it is not something that is ever finished. Circumstances alter, and there is always room for better insight and better communications. One has to think of this as being a process, not as a one-off event. There is, however, a dialogue that should occur between the top layer - how will things be one and a half life cycles ahead, and what does this mean to us? - and the middle layer, which defines assets and limitations.

These processes have a natural cycle time. Typically, the lower layer of daily business, has a summation every quarter and a grand summary once a year. Results personnel assessments and so forth run on these lines. The middle layer will, more probably, be thought about annually, and perhaps biennially. Large corporations, for example, often have a biennial cycle in which they sort their assets into piles and think how individual profitability reflects in their plans, share price and so forth.

The top layer is the hardest process to get going. Once it is in place, it is usually not worth revisiting it more than once every two years, or when something dramatic happens to the industry. It may well take 18 months to get up to speed from a cold start, at least in a complex industry, but a great deal can be accomplished quite quickly, using simple tools.

Let us start by asking what these tools are intended to achieve. Essentially, they are there to build you a map. It is a map that defines what matters to your interests right now, and then walks this into the future to see how things may change. As we do not know how things are going to turn out, we need to add a degree of 'blur' to this, and it is helpful to add some artificial clarity by turning one uncertain path into the future into two or three alternative tracks, called 'scenarios'. There is much more practical advice on scenarios to be found elsewhere ont his site. I am going to sketch in the slightest overview.

Maps have axes - North and South, other points of the compass, latitude and longitude, GPS coordinates and so forth. If you are interested in soil types an drainage, you use one kind of map, and if you want to find good places to put a fast food outlet, you use another. There is no right kind of map, only maps that fit particular purposes. It is the same with scenarios. They are not complete descriptions of the world, only the right way of seeing in order to throw choices into relief. Recall that the top row of the table that was shown above is as much concerned with communication as with analysis. The scenario is a tool through which the organisation talks to itself about what might be a good thing to do, or something to avoid at all costs.

So: we are looking for a description of what matters to the firm, oriented around the right way of looking at the issues. Typically, the description focuses on what is true now, and the "right way" defines the scenarios - the alternative futures - that are developed.

How are we to get a description? Should we buy statistics, hire consultants, heap up paper and busy young graduates and build ourselves a corporate university? No, or not for this reason. Rather, what you want is simple to describe - expressed as a diagram on the back of a menu, in three minutes of conversation, something closer to a measuring stick than a team of quantity surveyors! This view can be thin - it will always start thin - or it can be multi-layered an deep - but it is only useful if it can be delivered in simple terms that are easy to understand and which present a clear agenda for action.

Take a piece of paper and a pencil. Write down your firm's name. Set down the things that matter to it in a ring around this: customers, partners, people, technologies, financials. Now expand each of these in the same way. After an hour, you have a mess, but something with a lot of meaning in it. Get a different coloured pencil and emphasise the links that seem to matter: look, high streets and alleys. Your map is starting to emerge.

You can also do this using Post Its or other adhesive labels. Write what matters on the Post Its and move them around. Think what is missing, and what lies between the important items. Shuffle them around until you have a pattern that works for you. Get other people involved, and you will find that they see the world differently to start with, and that you end up with a more complex, richer but common perspective afterwards. This is a good discipline for board members, who - on rare occasions, of course - see their role as protecting their line from their peers, rather than pooling what they know in pursuit of shareholder value.

You now have a map, and also a mess. Start again, consolidating what you have found into a few big blocks. It is impossible to say what these should be, but one should avoid generic titles like "Customers", and "Innovation" in favour of things which mean specific things to the company. Try arranging these into a map, and see if it is a satisfying whole. (What is happening, of course, is that the blocks are really inside your (collective) heads, and you are learning to think about the structure around your business. This can only be helpful to making good choices.)

One reason why the result may be unsatisfying is that you have found lots of blank areas in your map. It is helpful to formalise this, which you can do with a simple trick. Take a blank sheet, and draw two axes on it. One, vertical on the page, represents the importance of an issue, the other, horizontal, the uncertainty or lack of clarity that you feel about it. Get copies of your Post Its, and organise them along the vertical 'importance' axis, with the least important at the bottom and the most important at the top. Now, repeat the process for their relative clarity, using the horizontal axis. Do not lose the ranking that you made vertically, but put the most clear on the left, the least clear on the right.

high	Issue 1					Issue 3	Issue 9
		Issue 4			Issue 7
							Issue 5
Relative				Issue 2
importance
	Issue 6
low		Issue 9
	clear		Relative	clarity			vague

That sets your agenda for improving your insight. The Post Its on the top right are the most important, but least clear issues that you can think of for your business. Set up a task of bringing clarity to these. In larger organisations, set up work teams - or if you must, hire consultants - to mine into each of these topics, with a reporting date some months in the future. Your planning process has begun.

What emerges from this is a good "sense of the now". At first glance, it does not seem to tell you much about the future. However, it may have a great deal to say to the 'middle layer' of what assets the company has, and lacks, and the constraints which it faces; and down from there, to the goals of the day-to-day business. So it is far from wasted time.

Thinking about the future is much easier when you have a 'map of the now'. One technique is to look at each of the component parts - regulation and law, let's say - and think how this could change in ways which would have a big impact. If one is thinking one-and-a-half life cycles ahead, this is not so hard to do. Of course you may miss something, but much less than if you had given the matter no thought at all.

Once again, the result is a long list, ranging from the improbable and the silly to the almost predetermined. Japanese and German populations will get older than now. Europe will have a lot more migrant labour. The US will face stiff competition in manufactures from China. And so on: the result of these forces may be uncertain, but they themselves are unavoidable. Once again, one can rank these, by their inevitability or uncertainty, and by their importance or otherwise to the organisation. Focus on the important factors which will change the 'map of the now' for the organisation.

In an ideal world, one can reduce these factors to two major classes: predetermined factors - "supermarket buying power will continue to intensify" - and uncertain issues, such as customer preference. Will most people continue to mix the kinds of foods that they eat, or will customers stream themselves into snack-browsers, fast food people, connoisseurs and home cookers, buying food at quite distinct outlets? Answers to questions like this are the basis survival or failure in the world of food retailing.

The predetermined forces tell you what you have to adapt to whatever else happens. It is essentially impossible for patients to become less concerned about the quality of care that they receive, for example. Imagine a medical practice sitting in 1985, thinking what 2005 might be like. It would be pre-determined that much of the way that they approach patients, confidentiality, liability and so forth would change, although the degree of change and its details would be very uncertain. However, they could at least factor in hat was needed to begin the journey, and to avoid some dead ends.

The uncertain dimensions are often how the various players react to the pre-determined elements. We can be sure that genetically-modified crops will be grown, but how will customers react to this? We do not know; but we can estimate the impact of certain kinds of response to our activities. Here, then, are the roots of useful scenarios.

They are pertinent to the core issues of the organisation.
They are easily recognised as being important, but are not obvious: "Cost cutting is important". (The 'not' test is helpful. Try inserting the word 'not' in front of the verb: if the result is silly, why bother to say this?)
They evoke thoughts that are full of practical options.
There is an element of choice involved in them. That is, predetermined elements tend to tell you what you have to do anyway, and are not themselves useful as a primary way of exploring choice.
Scenarios explore a space created by - usually two - axes of uncertainty that meet these criteria. How will customers react to genetically modified foods How will customers groups form themselves around food outlets? These are easy to show diagrammatically, as a cross. Draw one on paper, and label the vertical and horizontal axis with the issues that you have surfaced.

It is possible that some parts of this plane are 'impossible', are combinations which would never exist together or which you would never choose to enter - for example: We focus on elite customers; We are lowest cost provider. Shade these areas out. Locate where you are now. Try dropping in the competition. Draw a loop around the area that encompasses the future, given the predetermined variable that you have identified. This may or may not include where you and the competition are today. If it does not, then you are all going to have to move.

Now find two - usually three - 'places' within the loop which are different from each other, challenging to the company and in other ways exciting. These should be well spread out, for otherwise you are acknowledging that the future has a certain dispersion but then refusing to think what that means to you. Think what it would feel like to operate at each of these points: intense competition, huge brand-related overheads, litigation, new languages and different kinds of people, recruitment issues, technology. Give each point a name that reflects these insights.

Choose names which are evocative, memorable and distinct from the others on the figure. The Challenge Network scenarios for 2025 were called New Deal and Broken Edge, for example, reflecting different kinds of foreign policy stances taken by the market economies.

Finally, think about the trajectory across the figure that gets the world from 'now' to 'then' in each of the scenarios. Tell yourselves the story of how and when the major steps come about. Draw in a line which follows this. When you come to explain your scenarios to others, these narratives will be very important in convincing them that what you say is meaningful. But so too will the fact that you are giving shape to their intuition, for none of this will be truly new to them, and what you have accomplished is to create structure to what they already sensed. This generates the Aha! That leads to useful action.

Scenarios and other insights into the changing operating environment are only a first step. Having them is useful, but having them sealed away, not communicated to the organisation at large, is only a tiny first step. Much more important is the roll out, whereby people take what you have found and apply it to their area of expertise. This generates ideas and potential innovation that the organisation would not have valued without the scenarios to give it some context.

In addition, the scenarios need integration with what we called the "middle layer", the layer of business planning that looked at assets and compared them to options for change. The scenarios define some inevitable changes, and some options. The middle layer turns these into hard numbers and operational steps.

None of this alone is a strategy. Indeed. None of it is yet a set of decisions. However, these two forms of exposure define a myriad of practical things that should be done anyway, from altered performance indicators to new types of recruitment, from different kinds of contract with suppliers to changed brand emphasis and quality-cost balances. In short, a range of sensible things to change, all of them adaptive to changing circumstances, none a great leap in itself. Taken together, however, they add up to a new - renewed - organisation, confident that it is acting in harmony with the stresses placed upon it. It is adaptive to forces which it had not previously acknowledged, and through which it now flies with greater easy and streamlining. Friction goes down, inside and outside the organisation.

Great strategic choices do occasionally present themselves. However, most organisations change through a process of many small steps which together add up to a strategy, seen in reverse, like the wake of a ship. Organisations which bet the company on a great change, often described as "strategic", are often acting without much insight. The are following fashion, much as we saw during the dot.com bubble, or they are making grand gestures to appease shareholders for want of anything organic and truly thought through to put in its place. One sees a similar lemming-like rush towards China, as being - well, er - big. Organisations which get caught up on the One True Solution, such as cost cutting or out-sourcing, confuse a tool with a goal. They talk about strategy most who least have access to it, to strategic insight.

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