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VUCA

The Value of a Strategy Portfolio

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“Prediction is difficult – particularly when it involves the future.” – Mark Twain

It is exceptionally difficult to predict the future. If not impossible!

At its most basic level, strategic planning is about making a plan for the organization to achieve its long-term goals. All the unpredictable and disruptive VUCA forces in our world just make this effort even more challenging.

The VUCA Strategic Planning framework was designed to help leaders mitigate the risk factors of an uncertain future for their organizations. Two core elements of the model are robust Situational Awareness and Scenario Planning, both of which help reduce risk by forcing leaders and their teams to think holistically about the environment and making plans to accommodate potential disruptors.

Another important element of the model that helps mitigate risk for the organization is called Strategy Portfolio. It comes at the end of the strategic planning process because it is essentially an insurance policy – providing a portfolio of options that are ready in case the primary strategy and plan do not work out.

Strategy Portfolio Concept

The concept of a Strategy Portfolio is similar to asset management – where advisors seek to build a balanced investment portfolio holding a variety of different kinds of investments (for example: some stocks, bonds, T-bills, and real estate). The idea is that if one of the investments goes down in value, another one will go up, thereby balancing it out and helping to drive an overall gain in the portfolio. This diversification helps to mitigate risk by not having all your bets in one place and by having several initiatives always in play.

Strategy Portfolio management takes the same disciplined approach to managing multiple strategic initiatives within the organization. It is often used by larger organizations who want to reduce their risk exposure by making several alternative, complementary, or sometimes even competing strategic bets. It is also common to find this approach used in the startup world where organizations sometimes run multiple simultaneous experiments to see what gets the most traction.

The reason for having a Strategy Portfolio is to mitigate risk of primary plan failure. The basic idea is to have a fallback position in case the primary strategy and plan blows up or fails to materialize as planned.

Leaders should think of it as a portfolio of bets placed against the future, combined with a process for continually updating, re-prioritizing the portfolio as new information is obtained, or new opportunities emerge. In this way, the Strategy Portfolio becomes an extension of the primary strategy and plan.

Rather than being limited to a single direction, with this approach your VUCA Strategic Plan can focus on a core strategy surrounded by a number of side bets designed to provide strategic options in the event of surprises or failures. These smaller hedges can deviate from the primary strategy (for example: entering into joint ventures with competitors, new strategic alliances, developing new technology, experimenting in new markets, etc.) and provide a strategic springboard for the organization to slowly move towards, or pivot to quickly if required.

Where Does It Fit in the VUCA Framework?

In the VUCA Strategic Planning framework, Core Ideology and Envisioned Future, combined with robust Situational Awareness detailing the current state of the organization and its operating environment, create the springboard for strategy development:

  • Core Ideology – Defining the mission, values, and purpose of the organization. These elements describe why the organization exists and what it stands for today. They form the “true North” guideposts for making strategic decisions and are the foundation for any VUCA plan.
  • Envisioned Future – Defining a clear vision of what the organization aspires to become or achieve and its long-term goals. These elements explain the desired “future state” and the long-term goals you and your team are working towards achieving in order to get there.
  • Situational Awareness – A thorough analysis of the environment in which the organization operates. Situational awareness involves knowing where you are (“current state”) and being aware of what is happening in your environment (internal and external perspective) to better understand how information, events, and one’s own actions might affect both immediate and future outcomes.

With this planning foundation in place, leaders should consider strategic options that will enable the organization to bridge the gap between the current state and the desired future state while factoring in the operating environment as revealed by the situational analysis. Strategy is the mechanism:

  • Strategy – Defining the approach that will guide individuals and teams on “how” to achieve the short-term objectives that move the organization from its starting point towards achieving its long-term goals. Strategy plays a vital role in VUCA strategic planning. It bridges the “gap” between where the organization is today and where it wants to be in the future.
  • Strategy Decision – Once a strategy has been formulated, leaders must then decide: Is it the best strategy to help the organization achieve its long-term goals? If the decision is to move ahead with executing a chosen strategy then it is time to commit, and proceed with creating a complete Strategic Plan designed to ensure successful execution.

The strategic planning process culminates in the creation of a VUCA Strategic Plan:

  • VUCA Strategic Plan – A clear time and resource based plan, that details the strategy and actions by which the organization intends to reach its Envisioned Future.

In addition to their primary VUCA Strategic Plan, leadership teams should also take several additional steps to help mitigate the risk of disruption or failure:

  • Scenario Planning – Identify the potential VUCA impacts that could derail your primary strategy or impede your ability to achieve the defined objectives, and action plan your response to them. Because almost no plan goes as expected, by answering “what if” across a comprehensive set of possible future scenarios your team will be better prepared to quickly react and make decisions when a disruption happens.
  • Strategy Portfolio – A list of viable alternative, complementary, or competing strategies that your organization will resource and your team will execute in addition to the primary strategy. Your Strategy Portfolio will develop from the strategy formulation phase, additional insights gained from situational awareness, and scenario planning that went into creating your VUCA Plan. This element mitigates risk and maximizes future opportunity for the organization.

The Value of Strategy Portfolio

Why should you embrace the Strategy Portfolio approach?

It is very common for established organizations to focus heavily on driving quarterly results with less attention paid to long-term growth. As the global pandemic has swiftly revealed, many of these companies have been swimming naked!

This short-term thinking means they have over-optimized and as a result are running so lean that they now do not have the time, resources or people required to make strategic investments. In organizations like this, it can often be career suicide to even talk about bold paradigm-breaking initiatives.

This protective mindset also helps explain why organizations are so often blindsided by industry disruption. They may feel it is coming, or even see signs firsthand, but they become paralyzed by the need to protect the next quarter’s profits. Therefore, nothing changes. And as a result, no strategic investments in the future are made.

On our upcoming road to economic recovery, I expect many leaders and boards of organizations will take a fresh look at their strategic plans. I hope that they will also reconsider their approach to risk management, and seek to build in more resiliency and agility in their strategic planning approach.

The old days of creating a rigid and fixed strategic plan, and defining a linear path to reach long-term goals, are long gone. In the modern business era this approach is problematic at best, fatal at worst.

Markets are shifting, consumer demands are growing, competition is increasing, technology is disrupting, suppliers are changing, and regulations are constantly in motion. Pick an industry and you will find the levels and speed of change are rapidly intensifying.

Today’s uncertain and disruptive VUCA environment dramatically exposes the weakness of an inflexible approach to strategy. To have any chance at success, leaders must develop resilient organizations, with agile teams, and strategic plans that can withstand and adapt to the increasing rate of change hitting almost every industry.

Strategy Portfolio is an enabler for this dynamic approach to strategic planning. Having a comprehensive, but realistic, set of strategic initiatives in motion at all times enables organizations to constantly test, refine, and optimize their thinking and approach to changing markets, innovation, and competition. If one initiative fails or shows signs of weakness, then there are other options to quickly pivot towards or invest more in.

In his book, Little Bets, author Peter Sims explains that making small side bets can often lead to bigger things.  “Small wins are like footholds or building blocks amid the inevitable uncertainty of moving forward.”

One important additional benefit: This approach also helps all your stakeholders – from frontline employees to the C-suite – understand how and where the organization might create more value in the future, and therefore how to prioritize investments in new future capabilities versus optimizing business as usual today. Ultimately, the Strategy Portfolio approach will help your organization to make decisions quickly and respond strategically, whatever the future is.

The Amazon Example

Amazon has an operating philosophy, called “Day 1”, that was inspired by their early startup days where they didn’t know what was going to work and were constantly experimenting.

Jeff Bezos, the founder and CEO of Amazon, is a great example of a leader who embraces the Strategy Portfolio approach. He wrote in a famous 2016 letter to shareholders, “Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight.”

Bezos observed that organizations who took many small risks, failing at many of them in the process, will ultimately find the one or two initiatives that enable their business to succeed. Those leaders who sharply limit their experiments, in contrast, will effectively bet the entire company on a single move. Often the wrong one. Bad move. Game over!             

Amazon’s online retail sales dominance; capabilities in supply chain and logistics; customer insights and preferences; web services; and technology platform innovation are all a result of building a Strategy Portfolio into their strategic plans. It works!

Something is Going to Happen

The future is impossible to predict. Nevertheless, we know “something” is going to happen. Therefore, we cannot avoid making plans for it. They just need to be flexible.

The VUCA Strategic Planning framework was carefully designed to help leaders embrace uncertainty about the future, and build a robust, resilient strategic plan for the organization.

By assembling a Strategy Portfolio of initiatives, leaders are able to respond quickly to different scenarios, and will always have viable strategy alternatives in motion if the primary strategy fails or is disrupted. By taking a dynamic approach to managing this portfolio, leaders can constantly rebalance and shift resources as needs require or opportunities arise.

Since nobody really knows how the rest of this year, let alone this decade, will play out, there is no time like the present to brainstorm with your team and plant a few additional strategy seeds for the future.

-Onward

Scenario Planning in a VUCA World

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“I try to follow this advice: Anticipate as many problems as you can so that when a crisis does occur, you are able to deal with it calmly and rationally.” – Tom Steyer

It is a common mistake for leadership teams to view strategic plans as a linear path to a defined future, with the expectation of no distractions or complications along the way.

We all know that is simply not how life, or business, works.

As the famous German General, Helmuth von Moltke, said: “No battle plan survives contact with the enemy.”

My business corollary: No strategic plan survives contact with the market.

Once you have established the vision and long-term goals for your organization, and chosen a strategy, you need to develop a strategic plan to guide your team in getting it done. There is one important additional step, which many leaders neglect – you should consider a range of potential future conditions, and your possible responses, so that you are prepared to act quickly if something disruptive hits you.

This consideration and preparation for potential future contingencies is called scenario planning.

It is the human condition to want to control our present, and one way to do that is to try to predict the future. Scenario planning is not intended to predict the future, but rather to future-proof your strategic plans. Scenario planning enhances your VUCA Strategic Plan so that you have back-up plans and a playbook to take quick and decisive action when confronted with VUCA forces. The concept is to prepare enough in advance that you are not completely blindsided and rendered helpless, no matter what is thrown at you.

Defining Scenario Planning

Scenario planning (also known as scenario thinking or scenario analysis) is a strategic planning method that organizations can use to deal with uncertainty, and to make their long-term plans more flexible and robust.

It is definitely not a new concept.

The great Roman Stoic philosopher, Seneca, popularized the idea over 2,000 years ago. He called it premeditatio malorum (or, “premeditation of evils”), and regularly employed the technique to optimize his own life. For example, before taking a trip Seneca would consider everything that could possibly go wrong or prevent him from reaching his destination – the ship might hit a reef, encounter a storm, be delayed in some port, or the captain might get sick – and then he would think about his possible reactions to each situation. By regularly doing this exercise, he was always prepared for any disruption.

Scenario planning is the formal process of asking and answering “what if” questions in order to identify alternative scenarios, and then planning your response to the potential VUCA disruptions that could derail your strategy or impede your ability to achieve your intended objectives.

In practical terms, scenario planning simply means taking the time to think through everything that could impact a particular plan. This is most often in the form of what could wrong, or negative impacts, but to be fair it should also consider the potential response to positive impacts.

This methodical level of inquiry and planning is very common in the specialized branches of the military, such as Special Forces and the US Air Force, where they conduct “what if?” drills before every mission to ensure understanding of potential threats and corresponding reactions.

NASA astronaut, Captain Scott Kelly, when asked about the planning that goes into space exploration, and how he deals with potential risks, explained that one strategy for mitigating crises is to think like an engineer – Even during high-stress times, always consider and plan for worst-case scenarios. He said NASA taught him to constantly ask and think about, “What’s the next worst thing that can happen? And, then, what is the next worst thing that could happen after that?”

Where Scenarios Fit in the VUCA Strategic Planning Framework

In the VUCA Strategic Planning framework, your Core Ideology and Envisioned Future, combined with robust Situational Awareness detailing the current state of the organization and its operating environment, create the springboard for strategy development:

  • Core Ideology – Defining the mission, values, and purpose of the organization. These elements describe why the organization exists and what it stands for. They form the “true North” guideposts for making strategic decisions and are the foundation for any VUCA plan.
  • Envisioned Future – Defining a clear vision of what the organization aspires to become or achieve and your long-term goals. These elements explain the desired “future state” of the organization, and the long-term goals you and your team are working towards achieving in order to get there.
  • Situational Awareness – A thorough analysis of the environment in which the organization operates. Situational awareness involves knowing where you are (“current state”) and being aware of what is happening in your environment (internal and external perspective) in order to better understand how information, events, and one’s own actions will impact both immediate and future outcomes.

Next, leaders should consider strategic options that will enable the organization to bridge the gap between the current state and the desired future state while factoring in the operating environment as revealed by the situational analysis:

  • Strategy – Defining the approach that will guide individuals and teams on “how” to achieve the short-term objectives that move the organization from its starting point towards achieving its long-term goals. Strategy plays a vital role in VUCA strategic planning. It is quite literally the vehicle that will help the organization bridge the “gap” between where it is today (its current state) and where it wants to be in the future (desired future state).
  • Strategy Decision – Once a strategy has been formulated, leaders must then decide: Is it the right strategy to help the organization achieve its long-term goals? If the decision is to move ahead with executing a chosen strategy then it is time to commit, and proceed with creating a complete Strategic Plan designed to ensure the successful execution of it.

The strategic planning process culminates in the creation of a VUCA Strategic Plan:

  • VUCA Strategic Plan – A clear time and resource based plan, that details the strategy and actions by which the organization intends to reach its Envisioned Future.

As a vital enhancement to their VUCA Strategic Plan, leadership teams should also do scenario planning:

  • Scenario Planning – Identify the potential VUCA impacts that could derail your primary strategy or impede your ability to achieve the defined objectives, and action plan your response to them. Because almost no plan goes as expected, by answering “what if” across a comprehensive set of possible future scenarios your team will be better prepared to quickly react and make decisions when a disruption happens.

Relevance and Value for Leaders

In this new world full of VUCA uncertainty, strategy (and strategic plans) should not be considered as “locked” or etched in stone. You, your team, and your organization must always be ready to pivot quickly as internal or external conditions change. This agile approach to strategy development and execution is the best way to grow your organization and succeed in the marketplace. Therefore, your scenarios should reflect a wide range of probabilities, from highly possible to very remote.

Why is this so important to do as part of the VUCA Strategic Planning process? Because the best time to think about a potential impact, and your ideal response, is before it hits. Not after.

In the words of noted venture capitalist, Bill Gurley, “It’s always better to make decisions calmly and with plenty of forethought than to be forced into critically difficult decisions very quickly.”

Two additional benefits leaders can gain from scenario planning:

  • Scenario planning can help organizations fight the common biases of overconfidence and tunnel vision that often surface in strategic planning and decision-making. How? Assembling a comprehensive set of scenarios can provide clues about what trends or uncertainties might be important drivers for change in the future, and how those drivers might impact the organization. Leaders who choose to use their imaginations and expand their worldview will see a wider range of possible futures and thus much better prepared to take advantage of the unexpected opportunities, or deal with unexpected setbacks, that will come along.
  • The exercise of thinking about future scenarios, and putting contingency plans together, helps to reduce some of the common fear and uncertainty around change. As your leadership team gets more comfortable with a potential future that looks different from today, they will be more open to talking about it and seeking data/information that might support or challenge it instead of burying their heads in the sands of denial.

Best Practices

I will cover more detail on scenario planning and a formalized process to do it, in future articles, but here are a few best practices to get started:

  • Develop a range of scenarios, from highly possible to very remote. As recent history has proven, complete wild-card scenarios, like COVID-19, can happen. They are low probability, but high impact events. And when they surface, they hit very quickly with devastating effect if you are not prepared.
  • A common format to consider using when compiling your potential scenarios is to plot them along two axis: Probability vs Potential Impact. You want to spend proportionally more time considering the high probability and high potential impact scenarios.
  • How many scenarios should you develop? Well, the honest answer is “it depends!” – There is no right answer, and it should be whatever it takes to cover your most realistic set of scenarios, with the bookends of best and worst case. At a minimum, I always counsel clients to have at least 3 scenarios: realistic, best case, worst case.
  • It is useful to give each scenario a descriptive and memorable name. In the heat of the moment, this will help the team in the field to recognize and remember the salient points of each.
  • As you are developing your scenarios, identify the “early warning signals” for each one. This will enable you, and your team, to clearly recognize when events in specific scenarios are taking place, and then take the appropriate action.
  • When updating your VUCA Strategic Plan with scenarios, try to identify strategies that are useful across most if not all possible scenarios, given what you know about how the future might develop.
  • Scenario planning should not be a one-time, static exercise. It is a core component of your on-going Situational Awareness process, where you should be constantly scanning your operating environment for new or changed factors, and considering their potential to disrupt your strategic plans.

Conclusion

Today’s uncertain and unpredictable business environment is not a time for over-optimism or pessimism. It is a time to be realistic.

Strategy used to be about predicting a desired future, then planning for that future. Now it requires considering a range of possible future conditions, and how they might potentially positively or negatively impact the organization’s strategic plan.

Because almost no plan develops as expected, we must always plan for contingencies. For leaders of organizations in this new VUCA environment that means preparing for a very wide range of potential scenarios, and more importantly, having specific action plans for each. This includes contemplating what will happen if your primary strategic plan turns out to be completely wrong and you need to quickly pivot.

Scenario planning ensures that leadership teams are prepared for failure and ready for success – No matter what VUCA forces they encounter.

-Onward…

Disrupt Your Organization Today!

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“Innovation is the ability to see change as an opportunity – not a threat.” – Steve Jobs

In January 2020, the World Economic Forum published a survey revealing the top five predicted major risks for economic disruption this year:

1. Extreme weather
2. Climate action failure
3. Major natural disasters
4. Biodiversity loss
5. Human made environmental damage

With the benefit of hindsight, it is now terribly obvious that they might have forgotten one!

We are just past the halfway mark of 2020, and have to acknowledge that a global pandemic can do an unbelievably effective job of disrupting pretty much everything and bringing the world to a near standstill. In just a few months, we’ve witnessed unprecedented challenges to our global supply chains, along with economic and social disruption across every industry.

Despite all this negativity, I’m beginning to think there might be something positive in it as well. For those leaders who are paying attention and willing to do some hard work, now is an excellent time to be thinking about how to innovate and transform your organization for the future.

In effect, disrupt your organization before someone (or something) does it for you.

Be the Fire and Wish For the Wind

Disrupting your organization is not an easy concept to embrace. It is a bit like cutting off the proverbial limb you are sitting on!

The opening section of the exceptional book, Antifragile: Things That Gain from Disorder by Nassim Nicholas Taleb, is titled “How to love the wind.” It begins by comparing our desire for stability to that of a candle. We want to protect the candle’s flame from the wind, to prevent it from being extinguished. Yet, a fire uses the same wind to fan its flames and grow stronger in the process.

“Wind extinguishes a candle and energizes fire.”

He then makes an analogy to VUCA forces, “Likewise with randomness, uncertainty, chaos; you want to use them, not hide from them. You want to be the fire and wish for the wind. This summarizes this author’s non-meek attitude to randomness and uncertainty.”

So what is the takeaway?

The immediate, pragmatic, and safe response to getting hit with a crisis like the global pandemic, is to protect the candle. Our natural inclination is to save ourselves, our loved ones, our organizations, from the overwhelming risk and danger.

However, the VUCA forces in the environment are not going away. Not today. Not ever. If anything, they are only going to become stronger. Therefore, it makes logical sense to embrace the uncertainty and volatility, to make it the new telescope that we view the world through, and use it to sharpen our strategic plans for the future of the organization.

Embracing Change

In the business world, change is the only constant.

Strategic leaders must be receptive to change. Look for it. Embrace it.

Whether it is AI and machine learning, or robotics, or the gig economy, or the pandemic…almost every organization in every industry faces severely disruptive, if not existential, threats every day.

The dynamic forces of free markets don’t grant immunity to any individual, or any organization. Therefore, the best solution is to embrace it.

Here is a great data point that demonstrate the level of market disruption, churning, and creative destruction in the global economy: Only 52 of the original Fortune 500 companies are still in existence today. Driven by technology, innovative new business models, and VUCA market forces nearly 9 out of every 10 Fortune 500 companies that were on the list in 1955 are gone, merged, or contracted.

If you need some extra motivation, here’s a great example from recent business history: Kodak.

Kodak was at one time the dominant global provider of camera film, photo paper, and cameras with over a 90% market share. Then complacency (and a healthy dose of corporate hubris) set it. Their leadership refused to acknowledge the existential threat of digital photography. After seeking bankruptcy protection in 2012, the company has had to go down a long and painful road of reinventing itself in the face of the digital revolution. Today it is a mere shell of its former self.

The kicker to this story? Kodak actually invented the digital camera in 1975 but did not commercialize it out of fear of cannibalizing their core business. Ouch!

Strategic Suggestions

Are you a leader of an organization facing disruption from marketplace competitors and contemplating the potential impact of VUCA forces in your business environment?

Here are a few strategic suggestions for how best to navigate through it:

  • Focus on the customer. At the end of the day, if you don’t have a customer, then you don’t have a business. Therefore, it makes a lot of sense to listen to them. Understand their needs, wants, desires. Get to know customers so well that you can begin to anticipate the future and provide them what they don’t even know they need, want, or desire yet!
  • Study the market. Markets for every industry are crowded and complex. Technology innovation is only making it more cloudy and confusing for buyers and sellers in the ecosystem. The solution is two-fold: Get crystal clarity on your ideal client, so that you truly understand their wants and needs. Then, you need to nail your positioning and value proposition so that your organization is so clearly differentiated that only you can provide the solution they need.
  • Think like a startup. Startups usually begin with nothing but an idea. They have no clients or products to protect. No corporate hierarchy or political backstabbing to battle. Just a blank sheet of paper and a passion for developing something new or improved, and then bringing it to the market. This mindset, and way of working, is something that established organizations would benefit from.
  • Question everything. This suggestion is closely related to the previous bullet on thinking like a startup. Many organizations are not willing to revisit their business models, operating assumptions, or other “sacred cows.” This myopic thinking creates huge strategic blind spots. The answer? Be inquisitive. Question everything. Don’t assume history will repeat, or that you know all the answers. Most big companies are often good at fostering “sustaining” innovations – ones that incrementally improve their positions in established markets – yet they are incapable of dealing with innovations that completely disrupt those very same markets. Why? They are too focused on protecting what they have today, instead of building something new for tomorrow. A bird in the hand is worth two in the bush!
  • Open communication channels. To enable the suggestions listed above you need to make sure you have open, honest, and collaborative communications channels across your organization. This is not only vital for establishing robust Situational Awareness, but also for making sure you have a diverse set of ideas and experiences to consider in your strategic decision-making.Don’t stop with just listening to your customers. Listen to your prospects. Listen to your employees. Listen to your partners. Listen to your critics. Not everything they say will be accurate, or strategically relevant, but the truth is always in the middle – some of it will be useful!
  • Build resilience. I’ve written before that I think many organizations are guilty of “swimming naked”, or over-optimizing their businesses, thereby reducing their ability to quickly pivot and change direction when confronted with adversity. The pandemic crisis has exposed just how fragile many supply chains and manufacturing processes are, and the vulnerability of huge global industries like airlines, retail, and hospitality to VUCA shocks. Leaders should seek to build more resilience into their organizations, which could manifest itself in many ways: flexible workforce, more technology, redundancy, better analytics, extra inventory, etc.
  • Become more agile. This global crisis should inspire more leaders to re-think the balance between efficiency and the need for resilience. Those leaders, and organizations, who embrace the VUCA Strategic planning process, will gain agility. By thinking through and planning for alternative scenarios, and taking a portfolio approach to managing the organization, they will be able to act quickly, and decisively, when confronted with new disruptions.

The Time to Act is Now

This is a perilous and uncertain time for business leaders. We are truly in uncharted waters. We know that most industries are likely going to experience significant fundamental changes as we emerge from the initial tactical responses to the pandemic. We also know that organizations will need to change their strategies to prepare for the new environment.

However, most won’t act. Why?

Most organizations don’t innovate very well or attempt to disrupt their own business. Driven by the desire to show the public markets consistent quarterly growth they are trapped in the historical way of doing business and searching for “safe” incremental gains.

There are a few notable exceptions to this type of thinking: Amazon, Alphabet (Google), and Tesla come to mind. They have mastered a delicate balance to optimize for maximizing short-term gains, while also building strength and resiliency, and innovating to capture long-term growth and profit from new markets.

In times past, leaders would be very reluctant to shift their direction or strategy out of fear of alienating the market, or shareholders, or employees. Ironically, the unprecedented current level of VUCA uncertainty and fear in the global economy has given leaders a huge and rare gift. It is not quite a clean slate, but it is a once-in-a-lifetime opportunity to make transformational changes with less risk.

Most organizations, regardless of their industry or current strategy, will likely find themselves in a new industry structure and competitive landscape post-pandemic. If they don’t make significant adjustments today, they will likely lose market share to more agile competitors. They will also find themselves with even fewer strategic options in the future as shareholders seek to recoup losses and workers move on to organizations with better growth opportunities.

Strategic leaders should consider that the best use of their limited time and organizational resources might not be in fixing the current business, but rather inventing the future one. By leveraging some of the suggestions above, strategic leaders will listen carefully to the market, build resiliency and agility, and develop new strategies.

Even though now is the perfect time to disrupt your organization and begin a transformation, most leaders won’t dare to do it.

That’s a huge missed opportunity. Perhaps a fatal one…

Conclusion

Although the timing is still uncertain, I have confidence that the public/private partnership will be successful, and that we will find successful treatments and a vaccine for COVID-19. When this pandemic crisis is over, I believe we will witness one of the greatest periods of innovation and business acceleration in the history of humankind.

This means that right now, today, is a once-in-a-lifetime opportunity for progressive leaders to take a step backwards, pause, and think about how their organization should transform in order to be better positioned in the future.

Seek out the opportunities to disrupt and disintermediate your organization in the market. When you find them, embrace them, and figure out how to make them part of your VUCA Strategic Plan.

If you don’t take these steps and act with some urgency, then some other company likely will. In fact, they are probably already making plans to do so…

-Onward

Creating Your VUCA Strategic Plan

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“Without goals and plans to reach them, you are like a ship that has set sail with no destination.” – Fitzhugh Dodson

Introduction

The first half of 2020 has certainly proven that we live in a fast-moving and extremely unpredictable world. For leaders of organizations it important to note that these characteristics are not going away, in fact they seem to be accelerating.

I have adopted the military term “VUCA” as the best description for this new operating environment – It is an acronym, standing for: Volatile, Uncertain, Complex, and Ambiguous. It is also the philosophical foundation for the VUCA Strategic Planning framework, which is designed to be an agile approach for strategic planning that not only accommodates uncertainty, but also embraces it.

In the context of managing organizations, leaders need to consider these uncertain VUCA internal and external factors when they set long-term goals and develop strategies to achieve them. This process culminates in the creation of a VUCA Strategic Plan for the organization.

Definition of a Strategic Plan

In simple terms, a plan can be defined as a diagram or list of steps, with details of timing and resources, that will be used to achieve an objective, overcome a challenge, or accomplish some specific task.

A VUCA Strategic Plan is a complete contingent plan of action that an organization uses to achieve its long-term goals in the market. It lists out the various possible situations a business is likely to find itself in and specifies the strategy and set of actions that it should take in each of the situations in order to achieve success.

I have heard it said that a strategic plan can be thought of as a very structured approach to problem solving. At a macro level, there are three vital components: (1) Thoughtful diagnosis that defines or explains the challenge or opportunity; (2) A guiding policy, or strategy, for dealing with the defined challenge; and (3) An action plan designed to carry out the strategy.

When done well, the strategic plan serves as a blueprint, which codifies the planning foundation and strategy decisions made by the leaders of the organization, and the roadmap for moving forward. In addition to summarizing the Core Ideology, Envisioned Future, Situational Awareness, and Strategy, it should detail a comprehensive action plan for the team that brings the organization closer to achieving its long-term goals. It is essentially articulating the “who” and “what” and “where” and “when” for the organization to take action.

It also serves as a vital decision-making framework for business leaders to evaluate options, consider alternatives, and select the best approach. These decisions, which occur daily throughout any organization, include everything from capital investments to operational priorities to marketing to hiring to sales approaches to how each individual manages their day. Without a strategic framework to guide these decisions, the organization will be unfocused and runs the risk of not achieving the desired results and creating confusion and dissention amongst the team.

It is important to call out that a VUCA Strategic Plan is not focused on choosing specific goals (that is the purview of leaders and boards of directors as part of the planning process) but only with how to achieve those goals once they have been identified.

VUCA Strategic Planning Framework

Here is a quick overview of the VUCA Strategic Planning framework: The Core Ideology of the organization is the planning filter that any strategy can be evaluated against, and the Envisioned Future is the definition for the desired future state. When combined with robust Situational Awareness, detailing the current state of the organization and its operating environment, your Core Ideology and Envisioned Future create the springboard for strategy development. Previous articles have described these three planning elements in much greater detail:

  • Core Ideology – Defining the mission, values, and purpose of the organization. These elements describe why the organization exists and what it stands for. They form the “true North” guideposts for making strategic decisions and are the foundation for any VUCA plan.
  • Envisioned Future – Defining a clear vision of what the organization aspires to become or achieve and your long-term goals. These elements explain the desired “future state” of the organization, and the long-term goals you and your team are working towards achieving in order to get there.
  • Situational Awareness – A thorough analysis of the environment in which the organization operates. Situational awareness involves knowing where you are (“current state”) and being aware of what is happening in your environment (internal and external perspective), in order to better understand how information, events, and one’s own actions will impact both immediate and future outcomes.

With this planning foundation in place, leaders are then ready to consider strategic options that will enable the organization to bridge the gap between the current state and the desired future state while factoring in the operating environment as revealed by the situational analysis. This is where strategy comes into play.

  • Strategy – Defining the approach that will guide individuals and teams on “how” to achieve the short-term objectives that move the organization from its starting point towards achieving its long-term goals. Strategy plays a vital role in VUCA strategic planning. It is quite literally the vehicle that will help the organization bridge the “gap” between where it is today (its current state) and where it wants to be in the future (desired future state).
  • Strategy Decision – Once a strategy has been formulated, leaders must then decide: Is it the right strategy to help the organization achieve its long-term goals? If the decision is to move ahead with executing a chosen strategy then it is time to commit, and proceed with creating a complete Strategic Plan designed to ensure the successful execution of it.

In its simplest form, a well-crafted strategy should bridge the gap between “current state” and “future state” for the organization. The strategic planning process therefore culminates in the creation of a VUCA Strategic Plan.

  • VUCA Strategic Plan – A clear time and resource based plan, that details the strategy and actions by which the organization intends to reach its Envisioned Future.

Key Elements of a VUCA Strategic Plan

Developing a logical and realistic action plan is critical for success. It should detail the high-level actions the organization is capable of taking, and the required resources, that will result in overcoming the defined challenge or achieving the desired outcome.

Key elements of a VUCA Strategic Plan include:

  • Planning Foundation – It is important to document and reinforce the Core Ideology and Envisioned Future of the organization, and clearly identify the strategic gap. Also, document the key Situational Awareness elements and analysis, covering both the internal and external perspectives, and clearly articulate the chosen strategy.
  • Objectives – One of the key components of a VUCA Strategic Plan is to create short-term objectives which contribute and drive towards the attainment of the long-term goals articulated in the Envisioned Future of the organization. Objectives are delegated and resourced, and become key drivers of activity for the team. For maximum effectiveness, objectives should be defined using the SMARTER framework.
  • Resources – In the context of strategic planning, resources are the people, money, and assets required to execute each element of the plan. Effective resource planning not only ensures the successful execution of the plan, but also establishes ownership of each task.
  • Timelines – It is important to have an estimate of how long each element of the plan should take to complete. In addition, the plan should have anticipated starting points and deadlines, and often have interim check-points identified. This will help load balance and sequence the work, but also serves as a vital management KPI to ensure plan execution is on track.

Having all of this information documented in one coherent and easily shareable plan will not only help leaders to manage the activity, but also significantly improves the chances of gaining support and adoption from employees and stakeholders. This is a critical component of successfully executing your plan.

Next Steps

Once your core VUCA Strategic Plan is developed, there are three final elements in the VUCA Strategic Planning framework designed to ensure successful execution and the achievement of the defined long-term objectives for the organization:

  • Scenarios – As the COVID-19 pandemic has so clearly demonstrated, we should always prepare for the unexpected. In the Scenarios phase of the VUCA Strategic Planning process, we seek to do that by asking “what if” questions in order to identify potential VUCA impacts that could derail the strategy or impede our ability to achieve the defined objectives. Documenting these scenarios and your potential response(s) is a vital component of every VUCA Strategic Plan.
  • Portfolio – In addition to Scenario planning, there is another important risk mitigation mechanism built in the VUCA Strategic Planning framework. The concept of Portfolio management is often deployed by large organizations who want to reduce their risk exposure by making several competing strategic bets. It is also common to find it in the startup world where organizations sometimes run multiple simultaneous experiments to see what gets the most traction. The goal is to mitigate risk of primary plan failure. The basic concept is to have a fall back position in case the primary strategy and plan blows up.
  • Management Cycle – This is the final element of the VUCA Strategic Planning framework, and the most important. I like to call it the “action phase” of strategic planning, because once the plan has been delegated to the responsible individuals and teams, this is when they take action. Once execution begins, it is also where the leaders of the organization and their teams will spend most of their time monitoring progress and making important decisions and course corrections including the continuous loop of: deciding whether to start/continue, taking action, evaluating results/feedback/inputs, and deciding whether to pivot, or stop.

Much more on these final three elements in future articles.

-Onward

Making the Strategy Decision

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“The inability to make decisions is one of the principal reasons executives fail. Deficiency in decision making ability ranks much higher than lack of specific knowledge or technical know-how as an indicator of leadership failure.” – John C. Maxwell

Leaders and their teams must make strategic decisions throughout the VUCA Strategic Planning process. Aside from the ultimate “go/no-go” execution decision, perhaps no decision is more important that the one made after a strategy has been formulated: Is it the right strategy to help the organization achieve its long-term goals, and should a strategic plan be created in order to execute the chosen strategy?

Decision-Making Defined

In psychology, decision-making is defined as a cognitive process, which results in the selection of a belief or a course of action among several possible alternative options. In a business context, decision-making is the process of identifying and evaluating alternatives to pick one best option based on the knowledge, experience, values, preferences and beliefs of the decision-maker. 

Research suggests that each of us make thousands of decisions every day, many of them sub-consciously. These decisions range from the mundane, which generally do not require much thought (for example, “White shirt or blue shirt?” or, “Do I want another cup of coffee?”) to the more complex (ex. “Should I look for a new job?” or, “Where do I want to live?”) which can be significantly more difficult to decide.

It is the same with organizations. Leaders and their teams are making decisions every day and at every level. Decision-making within the organization can range from routine operational decisions, to more complex managerial decisions, all the way up to challenging strategic decisions, which can shape the future trajectory of the organization.

The Peril of Making Strategic Decisions

The most important and difficult decisions – the strategic decisions with significant consequences for the performance of the team or the future success and viability of the organization – carry the most risk for leaders. Strategic decisions call for a thoughtful approach.

Strategic decisions are risky, and never easy. They often cause leaders the most angst because they are decisions that are both high in potential impact, but also high in terms of investment of scarce company resources. Furthermore, strategic decisions are not transactional (like a consumer selecting a box of cereal at the grocery store) but instead are complex and dynamic situations where the leader can influence the outcome by how they lead and manage the team. Adding even more complexity, their organization is likely competing with others – where picking the right strategy and doing better than rivals could mean the difference between winning and losing, between growth and bankruptcy. Adding in the additional uncertainty of a VUCA (volatile, uncertain, complex, ambiguous) environment just intensifies the risk.

This means strategic decision-makers need two vital, yet often contradictory skills: clear analysis, and the ability to take swift and bold action in the face of uncertainty.

Great Leaders are Decisive

Great leaders are decisive – they understand how to balance emotion with logic, and then effectively make decisions that positively impact their organizations and all their constituents.

Making good strategic decisions in challenging situations is always difficult because these types of decisions involve change, uncertainty, anxiety, stress, and sometimes the unfavorable or less than enthusiastic reactions of others.

Great leaders also have great situational awareness – they instinctively know when to move quickly and proceed with decision-making using whatever information is available, versus when they need to take more time and gather additional information.

Avoiding Paralysis by Analysis

Uncertainty creates an uncomfortable decision-making platform for leaders, and can lead to a phenomenon called analysis paralysis.

This is a common dynamic where decision-makers try to eliminate the uncertainty they are facing by over-analyzing the situation. Often to no avail.

The challenge with delaying a decision in order to gather more information is knowing when to stop. Many leaders mistakenly believe you cannot have too much information, but data gathering takes time and having too much data to consider can be paralyzing, and a distraction from taking a big picture view or focusing on the most important data points.

The reality is most decisions, especially the strategic ones, are made with less than perfect information. The pressure of trying to craft strategy that overcomes the uncertainty caused by a VUCA environment just ends up wasting valuable time and energy – scarce resources better spent on planning and execution.

Getting to Done

Effective strategic decision-making has another vital element: It is not just about selecting the alternative that best satisfies the business objective, it is also about making sure it is something that is implemented and actually gets done.

An unfortunate by-product of focusing too hard (and too long!) on selecting the ideal option is neglecting the opportunity cost of not taking action sooner.

Scott McNealy, co-founder of Sun Microsystems and its CEO for 22 years, was asked how he made difficult decisions and responded by saying, “It’s important to make good decisions. But I spend much less time and energy worrying about ‘making the right decision’ and much more time and energy ensuring that any decision I make turns out right.”

Merely deciding on the “best” option does not guarantee a successful outcome, just as making a poor choice does not necessarily doom the initiative to failure. It is what happens next, which determines your success.

As the immortal management theorist, Peter Drucker said, “Unless a decision has ‘degenerated into work’, it is not a decision. It is at best a good intention.”

This is the connection of decision-making into the VUCA Strategic Planning framework.

Where Does Decision Making Fit into VUCA Strategic Planning?

As a quick refresher, the Core Ideology of the organization is the planning filter that any strategy will be evaluated against, and the Envisioned Future is the definition for the desired future state. When combined with robust Situational Awareness, detailing the current state of the organization and its operating environment, your Core Ideology and Envisioned Future create the springboard for strategy development. Previous articles have described these three planning elements in detail:

  • Core Ideology – defining the mission, values, and purpose of the organization. These elements describe why the organization exists and what it stands for. They form the “true North” guideposts for making strategic decisions and are the foundation for any VUCA plan.
  • Envisioned Future – defining a clear vision of what the organization aspires to become or achieve and your long-term goals. These elements explain the desired “future state” of the organization, and the long-term goals you and your team are working towards achieving in order to get there.
  • Situational Awareness – a thorough analysis of the environment in which the organization operates. Situational awareness involves knowing where you are (“current state”) and being aware of what is happening in your environment (internal and external perspective), in order to better understand how information, events, and one’s own actions will impact both immediate and future outcomes.

With this solid planning foundation, leaders are ready to consider strategic options that will enable the organization to bridge the gap between the current state and the desired future state while factoring in the operating environment as revealed by the Situational analysis. This is where strategy comes into play:

  • Strategy – defining the approach that will guide individuals and teams on “how” to achieve the short-term objectives that move the organization from its starting point towards achieving its long-term goals. Strategy plays a vital role in VUCA strategic planning. It is quite literally the vehicle that will help the organization bridge the “gap” between where it is today (its current state) and where it wants to be in the future (desired future state).

Formulating strategy is not easy. Unfortunately, for leaders it only signals the beginning of the next phase of the VUCA Strategic Planning process – making a strategy decision:

  • Strategy Decision – once a strategy has been formulated, leaders face a significant decision: Is it the right strategy to help the organization achieve its long-term goals? If the decision is to move ahead with executing a chosen strategy then it is time to commit, and proceed with creating a complete Strategic Plan designed to ensure the successful execution of it.

Basic 5-step Decision Making Process

Making the strategy selection decision can be simplified by following a proven 5-step process:

  1. Identify the decision: The first step in making the best decision for the organization is to recognize the problem or opportunity, and decide to address it. At this stage in the VUCA Strategic Planning process, that should be straightforward to answer! Clearly, the objective is to pick a strategy.
  2. Gather information: Next, you want to gather the information you need in order to make a decision based on facts and data. If you’ve been following the VUCA Strategic Planning framework so far, this should also be in your hands at this point. You and your team will have gained solid Situational Awareness of the salient factors present in your operating environment. The Core Ideology and Envisioned Future of the organization should provide the context you need to make a decision.
  3. Identify alternatives: As part of the strategy formulation process, your team likely identified several potentially viable alternative strategies with one emerging as the preferred approach. By identifying these potential alternatives, you are ready for the next step.
  4. Weigh the evidence:In this step, you need to evaluate the feasibility, acceptability, and desirability of each alternative option. There are many sophisticated techniques to do this, but the simplest is just to consider the pros and cons of each option. Which leads us to the final step.
  5. Choose among alternatives:In this final step, you want to choose the strategy option that has the highest probability of success. When it is time to make your decision, be sure that you understand the risks involved with your chosen strategy. Sometimes a new strategy will emerge at this stage, formed by combining elements of alternative strategies.

Criteria for Evaluating Your Strategy Decision

Once you have selected your strategy, it is a good idea to do a quick evaluation before proceeding. Here are some key elements to consider:

  1. Core Ideology: The chosen strategy does not contradict the Mission and Values of the organization, and supports or enables your Purpose.
  2. Situational Awareness: You have clarity on the starting position (current state), and have considered all of the environmental (internal and external) factors that could influence the successful execution of the chosen strategy.
  3. Envisioned Future: You (and your team) still believe in the long-term goal (future state) for the organization, and that it can be achieved, or enabled by, the successful execution of the strategy.
  4. Diagnosis: The diagnosis of the challenge is reasonable, and you can defend it. This is the logical and fact-based explanation for the reason(s) behind the challenge that the organization is facing.
  5. Hypothesis: A clear and simple hypothesis on the solution to the challenge, one that the strategy could reasonably be expected to solve.
  6. Bias: A cognitive bias is a type of error in thinking that can affect our decision-making and judgement. There are many to consider, but you obviously want to avoid them when choosing your preferred strategy.

These elements provide helpful criteria for leaders to use when evaluating any considered strategy.

If, and only if, these conditions are satisfied, then you are in a good position to make the final decision and proceed with developing a VUCA Plan.

Next Steps

Once a leader has made the strategic decision on strategy, it is time to make the decision tangible by developing a plan that details the execution of the strategy leading to the achievement of your defined objective(s).

Upcoming articles will cover the details of creating a VUCA Strategic Plan, the importance of scenario analysis in strategic planning, and the value of taking a portfolio approach to managing your strategic initiatives.

-Onward