I dread the yearly strategy planning marathon.
At first, you make a realistic plan, but that’s never ambitious enough.
Then you make an ambitious plan that gets half the resources you need.
Your boss inspires you with stories of agility, ambition and entrepreneurship.
After a while, you accept that strategies aren’t designed to accomplish anything too big.
And don’t tell me it’s any different at your house.
McKinsey’s analysis of 2393 companies showed that over ten years, most corporate strategies produce no results.
When they modelled the impact (Economic Profit = total profit – cost of capital) of these strategies, they found that:
- 78% of the companies that started their journey in the middle quartile stayed in the middle, and
- 43% that started at the bottom remained at the bottom.
If your company was in the middle quartile in your industry, your chance of achieving break-out growth in ten years is less than 1 in 10.
Let that sink in.
Our biases and social dynamics prevent necessary bold strategic moves from even getting on the table, let alone getting executed.
You can break the pattern by turning strategy planning into a constructive debate about making the bold moves that truly move the needle and manage the personal risk to the people involved in strategy execution.
Respect the Social Side of strategy.
Most people think they have good judgement. I do too.
And so did Nobel laureate Daniel Kahneman while he was off by eight years in his estimate on designing a new syllabus.
Our biases are us, and we’ll be stupid to ignore them.
Strategy is about prioritising.
But the boldness needed to pick a winner from two good options leaves the room as soon as the immune response to losing social or financial capital kicks in.
Soon, big ideas start looking too risky and too different from what you’re used to.
The uncertainty makes it all the more convenient to stick to what we already know, adding to the pull towards small moves that feel safe.
We go into strategy planning loaded with biases, and ignoring them keeps us from having difficult conversations.
When you’re playing not to lose, you’re scared to make a mistake. When you’re playing to win, you play fearlessly.
I’m not going to waste another year on a strategy planning marathon.
And I’m going to do it by following six new rules for strategy planning I’ve adapted from Strategy Beyond the Hockey Stick.
Rule#1: Frame your strategy as a choice between equally good alternatives.
No more majestic frameworks. Start with finding three equally good Big Moves and debate your odds of success for each.
Frame your debate around investment, growth potential and risk for each Big Move. Only settle on the choices that substantially improve your productivity and profit.
Rule#2: Peanutbutter kills all good strategies.
Stop looking at resources relative to other opportunities. Your Big Moves need to be big versus your best competitors.
Being selective means some ideas will not get any budget. And that’s OK.
But you need to explicitly address the motivation of the team and structure incentives accordingly.
If people are taking a bullet for the team, they need to know why and what’s in it for them.
Rule#3: Decide what you can do today.
Too much planning and no action is useless.
Decide what you can do today with the information you have and do it.
For each Big Move, list 20 things you can do to produce results and build explicit checkpoints to improve that list as you learn more.
Rule#4: Strategic resources aren’t limited to cash.
Productivity is also a strategic resource.
Productivity gains are sidestepped when budgeting which adds to the waste.
You can avoid this by placing an opportunity cost on resources by being clear about the initiatives that free up resources and the opportunities to re-invest them.
Do it in three steps:
- Make an improvement plan that frees up resources.
- Make a growth plan that consumes those resources.
- Make a risk management plan, so you’re not pulling the rug from under your feet.
Rule#5: Treat noble failures differently.
Nobody willingly bets their job, and their bonus on Big Moves with low odds of success.
If a Big Move only had a 50% chance of success or lower, don’t penalise the person responsible at the end of the year. As the risk goes up, reward people based on overall performance.
Rule#6: Measure progress, not profit.
Replace 150-page strategy decks with an ongoing dialogue.
Schedule regular check-ins: Twice a month is good. Weekly gets too crowded.
Structure your check-in like this:
- Start with an update on the state of the market and your business, then
- reflect on your Big Moves and activities.
- Prioritise making decisions: what you need to learn, what you need to build and what you need to manage.
Schedule separate sessions for discussing finance, new opportunities or concerns.
Profit will come as long as your making progress in your Big Moves.
Strategy planning is deciding to win with your endowments and constraints. We add more restrictions when we overlook our biases. Since we can’t ignore them, the next best option is to manage their impact when making important decisions in life and at work.