Formulating Strategy in a Difficult Business Environment
18 February 2021
Firms often build their strategic plans using an annual cycle, mapping to the financial cycle, meaning that they have to issue top down objectives and go through a challenge/response process with the business units and functions, to elaborate detailed plans and budgets covering execution and the associated financial projections. Clearly, such a process can be time consuming, which suits stable market conditions, however in times of instability, this approach can adversely impact the required agility to respond quickly to seek competitive advantage.
How should strategists react to unstable market conditions, where information is incomplete and changes rapidly?
It can pay to go back to the foundation principles of strategy – what is it and how is it done.
A good way to think about strategy is as a journey from where we are now, to our future destination, which we can envisage in the form of milestones and objectives arising from our vision and mission. Having done this, we then analyse our external business environment, as well as our internal capabilities, to identify challenges that will prevent us from meeting our goals or constrain in some way. A strategy is a set of choices that address the challenges and help us to achieve our goals.
Sound strategies usually include clear policies to help employees make aligned decisions, to execute the choices that the senior team have made to address the challenges. In difficult times, the focus may be on riding out the storm, to allow profitability to be the new focus, when reaching calmer waters and sunny skies. Survival may not be exciting, but it prepares the way for future success.
Choosing the right collections of tools and techniques is as important as getting the philosophy right, and in unstable markets, traditional strategic planning around a 12 month cycle may not be the best response, with emergent strategy being an option worth considering.
Although it sounds as if it is made up on the spot, emergent strategy is actually a clever way of dealing with unstable conditions, since it maintains a focus on the strategic objectives, but seeks a different pathway to achieve them. A little bit like using your Satnav system in your car to find an alternative route, when the original plan is disrupted by an accident or heavy traffic.
One of the main changes in strategy in unstable markets is moving from a focus on results to learning – if you are able to learn more quickly than your competitors, the success will follow, but if you learn more slowly, the outcome will be reduced share or even going out of business.
The challenges in this conditions is the time it takes for learning to move from the front lines (e.g., sales or customer service people) to senior management executives. A critical success factor for firms is to avoid rationalizing feedback in a defensive manner and to embrace the sometimes-uncomfortable messages from the market. The faster this happens, the more likely the right response can be formulated and competitive edge gained. A good start is to reward people for being honest, not punish them for speaking out and saying things that are against the corporate narrative.
Changing times require a modified approach and are not easy, but instability opens up opportunities that do not exist in stable markets and agile, determined, firms who understand their capabilities and exploit these can find a new world of opportunity.
The Oxford Management Centre offer training courses in Leadership, Strategy and Innovation that will put you in a better position to deal with the challenges in an economic environment in which innovations in strategy, structure, technology and systems are developing more rapidly than at any other time.