“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