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Growth strategy | Advisory | Force multiplier

Strategic planning

Hope is Not a Strategy

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“Hope is not a strategy.” – Vince Lombardi

I was speaking with a company leader earlier this week about the scale of disruption she was seeing in the industry, and the significant impact it was having on her organization’s financials. She then stated, “I just hope we get back to normal soon.”

I took a deep breath and, as delicately as possible, shared my view that this was not going to happen.

Why? The dramatic shock we have experienced in the global economy is already causing widespread changes in almost all aspects of the business world, both on the buy-side and sell-side. For both B2C and B2B businesses across almost every industry.

Nobody is immune. And things are simply not going to revert back to where they were.

I then observed that hope is never an effective strategy for solving problems. In this unpredictable and chaotic new VUCA business environment, we need to think strategically and take decisive action to overcome the challenges we are facing.

We ended up having a great conversation about all the changes that will likely happen in the broader world of work, and a few in particular that are very likely to impact her industry and organization directly.

It is super interesting to note that several of the trends we discussed have already been creeping into her market over the last 12-18 months, but have not gained much traction yet. I suspect the post-pandemic business environment will accelerate these changes…it will be like pouring gasoline over a lit matchstick.

BOOM!

By the end of our conversation we had uncovered and brainstormed a few great ideas for new solutions that her company is both well positioned to offer, and highly capable to execute on.

The shift in energy was dramatic. In just a few minutes, the conversation had morphed from downtrodden “hope” about something that was, if we are being honest, completely out of her control to tangible excitement about actions she had her team could take, all within her control.

As it turns out, the new normal (whatever that turns out to be) actually brings with it many new opportunities if you are paying attention and start looking for them!

Bottom line: It is okay to be hopeful and optimistic about the future, but we must also act today.

Sitting and waiting, hoping we get back to normal, is not how you succeed. Hope does not make or produce anything. Believing in something, setting goals, creating flexible VUCA plans, and taking focused action, is the only proven path forward.

-Onward

What is Your Core Ideology?

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“Only a clear definition of the mission and purpose of the organization makes possible clear and realistic business objectives.” – Peter F. Drucker

Many well-intentioned strategic planning processes go sideways because they are written from a stratospheric “Ivory Tower” perspective, complete with aspirational mission statements and esoteric values. They miss the mark because there is little thought given to how these tools can help to align the team and provide guidance for tactical on-the-ground execution of strategy.

This is unfortunate, because your business, and your team, they don’t live behind closed doors. No, they live outside of the company boardroom, with their feet on the ground delivering products and/or services to your customers in the marketplace every day. Corporate puffery and lofty statements just don’t provide much utility for the front-line team members who must make real-time decisions in today’s unpredictable and harsh VUCA environment.

There is a better way. It takes a bit of work, but for growth leaders it is well worth the effort.

In order to create an effective VUCA strategic plan it is important to clarify and nail down the mission, values, and purpose of your organization. When done well, these declarations articulate your core ideology, and become a powerful planning foundation from which you can envision a future, and then develop the appropriate objectives and a plan to get there.

The rest of this article explores the three core ideology elements that form the required foundation to build an effective and useful VUCA plan: Mission, Values, and Purpose.

Defining Your Core Ideology: Mission, Values, Purpose

Much like the hull of a ship, or the foundation for a building, your core ideology creates a strong and durable platform to align the whole organization behind your purpose, and from which you can then build an effective strategy and plan.

Many planning exercises are set up to fail from the start because the leadership teams creating them are not clear on the intention of key elements, or they should fit together. Another common challenge is a failure to write them from the perspective of helping to guide the daily activities of the organization.

Fortunately, both of these challenges are easy to address with clear definitions. Here is a quick overview of each of the three components that create your core ideology:

  • Mission – A mission statement defines what your company or organization does and for whom. It should be specific enough that people understand what you do and how it may differ from your competitors, but also aspirational in that it may never be fully achieved. Ideally it will be short and easy for your team to memorize. It will provide a sense of direction to guide future decision-making and strategy formulation.
  • Values – Your core values support your mission, define the culture, and should reflect how your organization will fulfill its purpose. They are the operating principles, beliefs, or philosophy of values embraced by your entire team. Be careful to focus on core values (those on which the organization will never compromise and is willing to pay a price to uphold) versus aspirational values (those that the organization espouses, but has yet to live up to in day-to-day operations). To be meaningful, values should be described in clear behavioral terms. Ideally, your values can be presented as a short and impactful list (i.e. no more than 5-7 total).
  • Purpose – This concept has been popularized by Simon Sinek as “start with why” – it takes an outward focus by defining why the business exists, its larger purpose for being, in the context of your customers. In order to inspire your team to do their best work and fulfill your mission, you want to find a way to express the organization’s impact on the lives of customers, clients, students, patients – whomever you are serving. Purpose shares the benefit or benefits provided by your organization, and articulates them in the context of the customer. Great purpose statements are motivational, because they connect with the heart as well as the head by putting managers and employees in customers’ shoes and defining “this is what we’re delivering for someone else.”

Note: It is not unheard of to see organizations use mission, vision, and purpose statements interchangeably. Or, even to combine them. And that’s okay, so long as it works for you, there is no right answer. In my experience I’ve always found it is easier to have them exist separately because then the intent for each is pure, they are easier to create and share, and it is simpler to revisit one and update it. You’ll know you’ve got it right when they support and build on one another, and one doesn’t work without the other.

Future articles will explore each element in detail, including guidance on how to craft them, and some real-life examples.

The Value of Having a Solid Foundation for VUCA Planning

In order to be successful with strategic planning we need to know the core cultural elements (mission, values, purpose) that define the organization. Together, this core ideology is the foundation for effective VUCA planning, becoming the “true North” guideposts your team can use for making strategic decisions.

In a VUCA environment, where unpredictable and disruptive events can happen very quickly, we need to embrace an agile approach to making decisions in real-time. We must always balance the objective, or goal attainment, against our corporate mission, values, and purpose. If they are not in alignment, we have a problem. It is imperative that we “keep our eye on the prize” so to speak, there must be a vision for the future and knowledge of the ultimate objective(s) we are trying to achieve in order to get there.

Knowing what you’re doing and for whom (your mission), how you’re going to go about it (your values), and why you’re doing it (your purpose) are the glue that holds an organization together. Your core ideology is an essential part to building your strategic foundation and developing a strategy. You preserve these fixed elements while your vision of the future, strategies and objectives can change and flex with the market or VUCA impacts. In other words, you may modify your vision and objectives over time, but your mission, values, and purpose should remain relatively unchanged.

Conclusion

To summarize, before any strategic VUCA planning can begin we must have two foundational parts in place:

  • Core ideology – defining the mission, values, and purpose of the organization. As this article shared, these elements explain why the organization exists and what it stands for. With this framework you will have complete clarity when making critical business decisions that impact the future of your organization.
  • Envisioned future –a clearly defined future vision for what the organization aspires to become, and your goals. These elements explain the desired future state of the organization, and long-term goals.

With a core ideology planning elements of mission/values/vision/purpose in place, the organization now has a very helpful alignment tool, and a strong foundation from which to create effective strategy and objectives in the form of a VUCA plan. More on that next time.

-Onward

Have We All Been Swimming Naked?

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“You only learn who has been swimming naked when the tide goes out…” – Warren Buffett

This is one of my favorite quotes. Yes, it is a bit folksy, but the underlying truth it reveals is very powerful when you think about it.

It applies perfectly to the current pandemic crisis, which has exposed a number of vulnerabilities in our global and local economies:

  • For many individual workers it has revealed significant issues like the lack of job security, access to affordable healthcare, and not having enough personal savings to survive any gaps in income. I hope in the upcoming post-COVID environment that our politicians, government agencies, and business leaders work together to find solutions for better job protection and security, universal healthcare, and “living” wages for workers that line up with the actual cost of living.
  • For many organizations, it has revealed issues like weak business models, undercapitalization, and foundational flaws in global supply chains…which is the topic of this article.

Caveat: Before sharing the rest of this article with you, and in full disclosure – I am not a supply chain professional. However, I have had a lot of exposure to the “procurement” function in my career…as a buyer, a supplier, partner, collaborator, and consultant. In addition, I have many procurement professionals as friends and business colleagues…hopefully I don’t embarrass myself too much by swimming outside of my lane!

We Have Over-Optimized

Here is my thesis: across almost all categories of spend I believe we have “over-optimized” most supply chains for goods and services, in both direct and indirect categories.

What do I mean? In our relentless push to drive efficiency in delivery, and shave every marginal cent in cost we have inadvertently gone too far. The result: we have created at-risk and unhealthy supply chains that are unable to absorb a shock and still deliver goods and services when and where organizations (and consumers!) need them.

This didn’t happen overnight.

In the years following the financial crisis of 2008/09 we have been moving closer and closer to the edge, pushing the boundaries of business prudence in the name of growth and investment returns. In a never-ending quest for greater efficiency, we have cut too deep. Empowered by technology driven efficiencies, we didn’t think enough about external disruptions. Our emphasis on instant gratification and short-term gains means we have not paid enough attention to mitigating long-term risks. Companies thrived and stock markets soared to new heights – with no thought about how we had undermined the resiliency of our economy or companies, no thought about “what if” we were hit with a significant global crisis.

We have been short-sighted: The disruption caused by the pandemic crisis has exposed us as swimming naked.

VUCA Disruption

When a VUCA shock like COVID-19 hit us, global supply chains were caught flat-footed, too slow or unable to respond appropriately. This is not a failure of markets, but rather a failure to account for VUCA forces in our never-ending game of optimizing the balance between supply and demand.

Profit maximized and stable markets just don’t work very well in times of crisis.

Despite our best intentions, the “system” does not have enough slack to survive a shock like the one we have just experienced. It is too complex, and not agile or resilient enough, to pivot quickly. In addition, many suppliers of both goods and services have seen their margins ground so finely over the years that they are not financially able to invest in excess capacity or inventory in case of an emergency. Hence shortages of toilet paper, face masks, and testing swabs.

As we are now learning the hard way. It turns out that redundancy, security and resilience are pretty good things to have when times are really bad.

Complexity and Crisis-induced Changes in Behavior

The global economy, and all its constituent supply chains, is a complex beast. Unfortunately, accommodating a shock wave like COVID-19, and the eventual restart, are not going to be as simple as flipping a switch.

There are a huge number of organizations, workers, and consumers within each industry and each market. Because all these entities are not perfectly aligned, each has its own supply and demand curves, and shut-downs or ramp-ups won’t be coordinated, the result will be chaotic. This state of flux will likely go on for a significant period of time, perhaps the next several years.

This also applies to the human capital supply chain: Organizations across many industries that had staffed up for the never-ending boom, have had to quickly cut their workforces to line up with demand that has fallen off a cliff.

Changed consumer behavior will dramatically complicate any recovery. Coming out of this crisis, where every industry has been disrupted and over 30 million US workers have lost their jobs, there is no way we will revert to how things were before. There will be many fundamental changes, for example: More workers will be working remotely, traveling less, eating out less often, spending less on non-essential goods and services, and hopefully saving more.

This will have a profound impact on our economy. In addition, it will result in extremely volatile and unpredictable supply and demand patterns across every industry and market.

Supply chains that have been optimized to be “lean” in a stable economy are now at risk. Quick cycle times, low reserve inventories, and just-in-time delivery work great when you have predictable data on supply and demand. With the VUCA uncertainty and disruption in the marketplace now, that advantage is gone. Likely forever.

A Challenge for Procurement (and Business) Leaders

So where do we go from here?

This crisis has shown us that rapid and significant changes to supply or demand can jeopardize the viability of an organization. A radical shock like COVID has severely tested and exposed many continuity plans.

All the marginal dollars that were saved in grueling price negotiations don’t mean much if you can’t keep the business open. Perfectly tuned just-in-time supply chains don’t mean a thing if demand drops to zero.

If you are a supply chain strategist, procurement professional, or any business leader for that matter, it is a great time to re-think how your business operates in a VUCA world. There are many strategic questions to consider, including:

  • How can you optimize your supply chain, while still leaving enough slack to handle surprises?
  • What demand-side changes should you consider in your planning?
  • How much redundancy and excess capacity should you have?
  • Are you investing enough in collaborating with your suppliers as true business partners?
  • What services should you outsource, versus insource?
  • What does your workforce of the future look like? Is there a better, more flexible and agile mix of employees and contractors?
  • Do you have enough cash reserves to weather a significant storm?

Conclusion

If we agree that VUCA disruption is likely the new normal, then procurement leaders will need to collaborate better with their suppliers and internal business stakeholders to build more agility and flexibility into their sourcing strategies for all goods and services. This will ensure healthy supply chains that are better able to meet rapidly changing and unpredictable demands.

Why You Need a VUCA Plan

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“If you do not expect the unexpected, you will not recognize it when it arrives.” – Heraclitus

Everything was going so well. Until it wasn’t.

Although the global pandemic unfolded over the period of several months, it sure feels like the world changed overnight.

We now live in a VUCA world (defined by the characteristics of volatility, uncertainty, complexity, ambiguity).

In this new and disruptive environment, change seems to be the only constant and we have little ability to predict what is coming next.

With this new reality, it has become clear that the traditional approach to strategic planning is inadequate. We need a better approach, one that embraces VUCA instead of ignoring it.

We need the VUCA strategic plan.

VUCA History Lesson

The US Army created the concept of “VUCA” after the fall of the Berlin Wall and the subsequent changing of the geo-political order. They needed a new doctrine and procedures to deal with the uncertain and unpredictable post-cold-war environment.

The Army had spent the decades following WWII with a primary focus on deterring and, if necessary, defeating, a military threat from the Soviet Union. The fall of the Soviet Union created a new and dangerous dynamic, and exposed our vulnerability.

With growing uncertainty about potential threats, the modern military had to be ready for a full spectrum of scenarios, from low-intensity conflicts to nuclear war. In response, the Army moved from a threat-based force to a capability-based force, prepared to go anywhere in the world, with the right resources at the right time. This new approach would enable the Army to quickly mix and match forces and adapt to a more complex and uncertain operational environment.

This same model has great application to the current business climate.

VUCA Definition

The Army described this new environment as VUCA, an acronym standing for:

  • Volatility – The tendency for things to change quickly and unpredictably, typically for the worse. These challenges are unexpected or unstable, and may be of unknown duration. However, they are not necessarily hard to understand – knowledge about them is often available. The more volatile the world is, the more change there is and the faster that change occurs.
  • Uncertainty – Situations where there is imperfect or unknown information. It applies to predictions of future events, to physical measurements, or to the unknown. Despite a lack of other information, the disruptive event’s basic cause and effect are known. Change is possible, but not a given. Uncertainty refers to the extent to which we can confidently predict the future, therefore the more uncertain the world is, the harder it is to predict.
  • Complexity – Refers to the number of factors that we need to take into account, their variety and the relationships between them. The more factors, the greater their variety and the more they are interconnected, the more complex an environment is. Some information is available, or can be predicted, but the volume or nature of it can be overwhelming to process. The more complex the world is, the harder it is to analyze and come to rational conclusions.
  • Ambiguity – A lack of clarity about how to interpret something. Situations where information is incomplete, contradicting or too inaccurate to draw clear conclusions. More generally, it refers to fuzziness and vagueness in ideas and terminology. The more ambiguous the world is, the harder it is to interpret. The causal relationships are completely unclear. No precedents exist and you often face many “unknown unknowns.”

Like most conceptual models, interpreting the elements of a VUCA environment is much more complicated in real life than it is in theory – the four components are very much interrelated and hardly ever live in isolation. For example, the more complex and volatile an industry is, the harder to predict and therefore more uncertain it will be.

Regardless of the difficulty, there is still a lot of value in understanding each component because all four represent distinct elements that make our environment – the world, a market, an industry – harder to comprehend and control.

Why a Flexible Approach to Strategy is Key

In this VUCA world, it is critical to stay as flexible as possible in all aspects of the business. Not only in tactical terms of people, capital, process, and technology, but more importantly in terms of strategy.

Strategy is vital to keeping the organization aligned, focused on what is most important, executing to win in the marketplace, and prepared for anything that tries to knock us off balance. The flexibility of your strategy should directly correlate with the level of VUCA uncertainty you face in the market.

The more we expect and plan for the unexpected, the better prepared we are to effectively deal with anything that happens.

Traditional Strategic Planning Versus VUCA Planning

In an earlier article, I wrote that effective strategic planning in a VUCA environment needs to be more agile than the traditional strategic planning approach.

Yes, strategic planning still requires the classic strategic definition of why the organization exists and what it does, but it also demands that we question every assumption about the business, the market, and the environment. Furthermore, we need to make it more robust, you could call it “VUCA-proof,” by stress testing our ability to counter known and unknown threats effectively.

Instead of driving the bus by looking through the rear-view mirror, we should endeavor to steer by looking through the front windshield – gazing not just at the road ahead, but also far into the horizon so that we can better anticipate what might be up ahead and can react appropriately to any disruptive forces or changes that come at us.

To illustrate this paradigm shift, and offer some insight on the path to a better strategic planning methodology, here’s a simple comparison of some key elements and assumptions in a traditional strategic planning model versus a VUCA strategic planning model:

 Traditional Strategic PlanningVUCA Strategic Planning
EnvironmentStaticDynamic
OutcomesPredictiveSpeculative
ProgressionLinearNon-linear
StructureHierarchicalMatrixed
ApproachFixedFlexible
Field of viewNarrowWide 360 degree
PerspectiveInside-outBi-directional
AssetsProtect knownExpose hidden or new

Key Elements for VUCA Planning Success

In upcoming articles, I’ll share some foundational concepts and critical elements for success in designing and managing a VUCA strategic plan, including:

  • Tactical remedies that business leaders and growth strategists can use to counter each of the VUCA elements (volatility, uncertainty, complexity, ambiguity)
  • The vital importance of mission clarity for leaders, and their teams
  • The incredible value in gaining situational awareness
  • How a scenario-driven approach to building a VUCA plan empowers you and your leadership team to consider a range of possible future conditions before they hit you
  • Why taking a portfolio-based approach to strategy is the smartest thing leaders can do to keep moving forward while preserving strategic flexibility

All of this leading up to sharing a proven framework for creating a highly effective VUCA strategic plan.

-Onward

VUCA’s Impact on Strategic Planning

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“Everyone has a plan until they get punched in the mouth.” – Mike Tyson

The global pace of change was accelerating long before the current pandemic crisis hit us like an out of control freight train. For quite some time it has been clear that the new normal is now a confusing environment best described as volatile, uncertain, complex, and ambiguous (VUCA for short).

Both today, and into the foreseeable future, VUCA appears to be the only thing we can count on as business leaders and growth strategists. It will force us to reconsider many aspects of the world of work  and, more importantly, how we develop strategy within it.

While VUCA may not have killed traditional strategic planning, it has definitely exposed some shortcomings…

The Pain of Today’s VUCA Environment

I was talking to a CEO last week about the impact COVID-19 was having on his 2020 business plan achievement. Up until the end of February his team had been very confident they would crush their growth targets for the year, and he was making investment plans to match. The economic and social tsunami of the pandemic has now completely decimated his business (topline revenue down more than 70%) and unfortunately, his confidence in planning for the future has been destroyed as well.

In a nod to Mike Tyson’s quote above, this certainly qualifies as bombshell punch to the mouth. The real question is whether my friend will absorb it, pivot his company’s plan and keep fighting, retreat to a corner, or be forced to throw in the towel. I think this question will apply to many business leaders and organizations in the upcoming months.

Another example comes from Brian Chesky, co-founder and CEO of Airbnb, who was recently quoted: “We had a plan, and all of a sudden the entire plan was not relevant anymore. The world changed.” In the interview he was talking about how they are taking bold and decisive actions in the face of coronavirus – with the objective of helping to weather the storm while also preparing for an inevitable new era of travel in the future. His leadership focus is to bring Airbnb back to its roots as a scrappy, resilient startup that can quickly adapt and evolve with changing market conditions.

As a recent HBR article highlights, there is a risk in weak and indecisive leadership in VUCA environments: “Strategic uncertainty can feel like slogging through mud. Leaders avoid investments. Decisions are deferred. Resources are frozen. Fear, uncertainty, and doubt drive bad behavior and personal agendas. Even so, companies often succeed or fail based on their managers’ ability to move the organization forward precisely at times when the path ahead is hazy.”

The Value of Having a Plan

In the world of startups and strategic planning, it has long been accepted gospel that no business plan survives first contact with the market (a huge shout out to Steve Blank for that timeless pearl of wisdom!). However, that doesn’t mean there is no value in having a plan.

Quite the opposite is true. There is enormous value in creating a strategic plan.

In fact, I would suggest that any organization aspiring to grow and thrive must have a plan.

Why? The act of strategic planning requires business stakeholders to think about why the organization exists, and how they will get from wherever they are today to where they want to be in the future. This level of thought forces them to quantify human and financial capital requirements, and more importantly evaluate the tradeoffs that investment decisions often require since both people and money are limited resources.

Without a strategic plan, an organization is like a rudderless ship, in stormy seas, on a journey to some unknown destination. Not a good place to be, and it guarantees a very low probability of success.

The Shortcomings of Traditional Strategic Planning

The challenge with traditional strategic planning is that markets, economies, and global climates are not static. They are dynamic – always in motion. The path to growth is almost never linear…it can have many twists, turns, detours, and dead-ends…and that complexity is at the core of why traditional strategic planning often fails. It fails to think through the complexities that a VUCA environment introduces.

The reality is we don’t know exactly what’s going to happen, or how quickly it will unfold. However, what we do know, as a good friend once told me, is that “something will happen!”

Today, your business needs to be prepared to respond quickly to disruptive new threats, often from completely unanticipated directions. Therefore, your strategy needs to be agile and robust. It requires enough breadth and flexibility to accommodate known challenges plus whatever is lurking around the corner. Traditional frameworks like SWOT, PEST or Porter’s Five Forces have some utility but are also limited because they are relatively static models of history or a snapshot of the current state. While they do bring historical events, current trends, known competitors, and trending developments into the planning picture, that is simply not enough.

The risk is that you optimize the current business model, instead of challenging the status quo and evolving. Ultimately, you risk spending scarce resources to strengthen your current business advantages only to discover that the market has changed and no longer values what you offer. You wake up one day to discover the rules have changed, you’ve been left behind and more nimble competitors have stolen your market share.

Moving Forward

The essence of great strategy is making decisions. Deciding where the organization should go and what to do, and by default where not to go and what not to do.

The essence of great leadership is the ability to quickly make decisions between competing choices with less than perfect information, and then taking action.

This is where the value of a VUCA plan comes in to play.

As business leaders, it is very easy for us to spend much of our time worrying about a future that is unknown and largely unpredictable. It is also impossible to anticipate every possible disruptive change. The risk in being caught between these two forces is that we freeze in our tracks and therefore fail to make any meaningful progress.

A better approach is to be agile, to create flexible strategic plans that incorporate our most up-to-date data points and insights, but also leave latitude for the unknown. This frees us up to focus primarily on those things you can control and do right now! By addressing your fixable risks today, and building as much flexibility into your plans as possible, you will be in the best position to thrive in the future. No matter what it brings!

In the next article, I will introduce the concept of a VUCA plan, and why you need one.

-Onward