The best way to predict the future is to create it

Many great books have been written by insightful leaders on the concept of competing for the future. Despite that, there is a continuum of organizational focus that ranges from trying to resist change, right to purposefully disrupting your own industry. There will always be an argument for why change is bad. And yet, it’s difficult to argue that those who disrupt industries won’t be the people that define and own future market spaces. No one ever became a market leader by resisting change.

A few question to ask yourself:

1) What % of the time are you leading change that disrupts your competitors vs. the opposite?
2) Is the change you’re resisting based on self-preservation? (You don’t understand it, It’s going to impact your job, Your people are worried about it, You’re not sure how to build a strategy to address it, Your organization and partners are too small to address the risks)

Your strategies need to describe how you’re going to beat the competition, otherwise you are at risk of being overtaken. In a competitive market, there is no middle ground of “play nice”. You’re either winning or losing.

With that in mind, are you creating the future, or avoiding it?

A useful set of questions to keep on the wall while you’re planning

Here’s another cut of a planning checkpoint that is useful to keep in mind while completing plans. It’s simpler than many others I’ve seen, but covers the bases. Many who plan live in the world of operations and therefore it’s easy to forget how important these considerations are.

1. Are the plans you’re building sufficient to create significant growth / will beat the market? If your plan is not positioned to beat the market in the segment you’re competing for, you’re at risk.
2. Do they reflect an clearly understanding of our key limiting factors? You simply have to keep in mind the things that stand in the way of your growth. If you do, it’ll be easier to maintain the context of what your competitors are doing.
3. Are we defining how roles will shift and accountability will adapt to the new strategy? Plans have to shift accountability, or you can expect little to change.
4. Have we identified our key strategic and operational risks, and are we managing them? Risk are both environmental as well as a result of your own plans. Opportunity based planning is key, but they need to reflect the realities of your risk environment.

Are you avoiding the most fundamental planning mistake?

One of the biggest and most common mistakes in planning is the failure to define the exact problem to be solved, as articulated by a decision criteria, prior to moving into action planning.

“If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper questions to ask for once I know the proper question, I could solve the problem in less than 5 minutes.” – Albert Einstein

When I originally read this quote, I thought it was insightful, but I didn’t realize how much. In retrospect of leading strategic planning efforts for a dozen years, I now realize that this is very often the root cause of why planning efforts fail. It’s quite simply that the exact problem has not been defined effectively, either in terms of what strategic issue it addresses, or in terms of what the criteria for success is.

It is the tendency of those who don’t commonly work in strategy to feel more comfortable in creating tactics, as a lack of understanding of how strategy is structured pushes people to what they know. This lack of comfort with the nebulous nature of strategy results in a a failure to stay with it long enough, or to build the required elements for context. The end result is a lack of context for all of the planning and project management efforts afterward, kneecapping the potential of the whole effort.

Before your organization moves into planning, take the time to drive high levels of specificity around the real issue you’re working to address, and the decision criteria BEFORE considering your options. While failing to do this initially feels better to many participants, the decision making and subsequent implementation phases always suffer.

Ask the following questions:
1. What EXACT problem are we trying to solve? Is it a strategic issue or an operational issue? (You really can’t spent too much time here)
2. Before we consider options, what is the decision criteria, and how does that address the original problem?
3. What options do we have, and what are the pros/cons and cost benefit of each?

Only once you have gotten this far can you possibly build a complete strategy that has a hope of being productive.

What drives price sensitivity in your customers?

Price sensitivity is an important consideration in market positioning strategies. This topic involves basic economic concepts of supply and demand; when the price goes up, customers purchase less of your product. Let’s look at what determines how sensitive customers are to price changes.

A related concept is price elasticity of demand, or demand elasticity (DE). This is a measurement of how quickly demand changes as the price changes. This is measured with the amount of volume change relative to price change. DE is commonly measured based on a scale of 0 and 2. A value of 0 (price inelastic) suggests that there will be no change in demand, relative to price changes. A value of 1 is the optimization point, where the quantity change is proportionate to price change. A measurement of 2 (price elastic) suggests that customer response to price changes is volatile.

Factors that determine price sensitivity:
• The number of substitute products available (perceived by the customer)
• The higher % of the personal or corporate disposable or total income
• The more necessary the product is perceived to be
• Brand attachment
• The amount of time a product’s price increase is escalated, providing consumers with an opportunity to research alternatives

Examples:
– Products with a very low DE include salt, eggs or cigarettes. With salt, the product is very inexpensive in terms of personal income, and creates a lot of value relative to the price of usage. Eggs are a basic protein source, which typically remain fairly inelastic, but still has substitutes. Cigarettes are based on addiction, hence big tobacco has been able to increase prices over the last 40 years about 25x. A single cigarette now costs what a pack did.
– Products that are highly elastic usually have many substitutes, or represent a large percentage of total income. This includes products specifics brand of soup, chocolate bars or sports cars. When consumers can easily change brands or choose to defer the purchase, purchase behaviour follows.

It’s worth considering what factors drive sensitivity in your market, and whether you can impact them to decrease perceived substitutes, and whether your pricing is optimized in terms of maximizing sales volume relative to demand.

Why is strategy management is so important?

Building a winning strategy is what executives often think of as being the greatest challenge in leading organizations to victory. A larger challenge than that is to sustain that focus throughout the organization, all year long, bringing it to life. Therefore, strategy management is a much broader topic than formulation or communication alone. It begins with creating a compelling story about the future, but it requires a purposeful and ongoing process to aligning all of your teams … all of the time.

Why is this so important? Doing this well allows you to:

1. Develop a clearer picture of what you’re working to accomplish … so that your people understand HOW you’re going to create an advantage over your competitors
2. It allows you to: Translate your strategy into divisional terms … so that all teams understand their role in making it successful
3. Finally, it allows you to: Monitor, learn and adapt … Using a balanced scorecard and both team and personal accountability frameworks … to provide you with feedback on all parts of the business, and hold everyone accountable for results.

At times, stopping to talk about strategy at an operational level seems like a distraction from something that is more pressing, however, there is one reason why I’m drawing your attention to this issue: 90% of organizations fail to achieve what is described in their business plan, instead delivering an average only 63% of the promised financial results! The reason for this is a lack of the ability to execute strategy, which, not incredibly is the reason why 70% of CEO failures occur.

The root cause of these challenges isn’t as complex as you’d think. On average: “one in 20 employees understands the company’s strategy, more than half of organizations do not link budgets and strategy, and the vast majority of executive teams spend less than one hour per month discussing strategy.”

As the prominent British scientist, Lord Kelvin, stated a century ago : “I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind. If you can not measure it, you can not improve it.”

By implementing just a few changes to your business planning processes, you’ll increase your ability to differentiate, which is all about leaving a lasting impression with customers about why you’re better than your competitors.

Maintaining a Clear Competitive Strategy

Porter (1996) stated, “The essence of strategy is choosing to perform activities differently than rivals do” (p. 96). Value disciplines are the fundamental competitive strategies and operational models that firms use to differentiate within a market. By giving definition and clarity to the form of differentiating value, organizations are enabled to easily align their operations in order to create value for customers. The three forms of customer value include having the best price, best product, and customer intimacy (Treacy & Wiersema, 1993). Treacy (1995) later wrote, “To deliver this kind of unmatched value … you have to back it up with an unmatched way of operating your business” (p. 195). After strategy selection, the extent to which operations are aligned with delivering a chosen strategy determines how successful the organization can be at creating that form of value. For example, supply chain efficiency is the singular focus to organizations such as Walmart, whereas constant reinvention and a total focus on innovation is critical to Apple. According to Treacy and Wiersema (1993), “Companies that push the boundaries of one value discipline while meeting industry standards in the other two gain such a lead that competitors find it hard to catch up” (p. 85).

Does your organization hold the line on two, and clearly differentiate on one? When your customers can tell you that, unaided, you’ll know your strategy is working.

Change management: Re-framing Resistance to Change

Resistance to change does not only occur below the management level, it exists among all stakeholders. Often framed as a form of dissent, change management research is starting to demonstrate a more positive side to this reaction and offers a more constructive posture for management to take. Anything that interferes with job security, the intrinsic rewards of one’s employment (autonomy, flexibility), or personal power or prestige is almost certain to elicit strong emotional or cognitive reactions (Erwin & Garman, 2010). Resistance can create greater awareness of planned changes and increase the depth of discussion about upcoming strategies. Employees have a wealth of operational knowledge and, therefore, organizational risks beyond that of senior leaders (Ford & Ford, 2009).

Reframing resistance as a constructive opportunity to improve your project plans through engaging discussions with employees provides you with the opportunity to increase your chances of implementation success, and deepen relationships with your teams.

It’s worth considering how you react to these comments from employees.

Change management: Fair process

Few concepts in change management are as important as the perception of fair process; it’s an essential element. Fair process refers to the decision-making process that management uses when introducing organizational change that has an impact on individuals. The theory suggests that “fair process profoundly influences attitudes and behaviors critical to high performance. It builds trust and unlocks ideas” (Kim & Mauborgne, 2003, p. 128). Three principles comprise fair process: (a) engagement, (b) explanation, and (c) expectation clarity. As your organization goes about proposing and implementing transformational ideas, these concepts will be essential to engendering engagement across all stakeholder groups. As Kim and Mauborgne (2003) stated, “To achieve fair process, it matters less what the rules are and more that they are clearly understood” (p. 132).

Effectiveness before efficiency

Efficiency is the measurement of the use of inputs to create an output. Often times, organizations are caught in the trap of monitoring efficiency, without considering the relevance or effectiveness of the output. Regardless of the efficiency with which you produce something that your customers don’t value, it is still irrelevant. Before and while you monitor efficiency, also consider the shifting relevance of the output.

This is where strategic thinking (questioning everyone’s unquestioned assumptions, demonstrating an unwillingness to expend resources, and looking for indirect and unexpected options rather than predictable and head-on) comes into play.

Efficiency? Yes. But first, focusing on things that are strategically relevant.

Systematically losing inaccurrate bias in strategy development

Assumptions about your business environment underpin every choice your management team makes about the future. Frequently, our beliefs about how quickly change will happen, or the extent to which the environment is susceptible to disruption, are to some degree inaccurate. Knowing this is what motivates us to pay attention to leading indicators, and be aware of the need to learn. This is, of course, because we don’t know the future. Change is constantly occurring, the accuracy of our beliefs about the business or competitive environment are always in flux and partially flawed. For this reason, it is critical to challenge assumptions in the planning process.

Let’s also acknowledge that we have some degree of control over how the future plays out. Because of this, your plans and strategies don’t have to be a reaction to what other players in your environment are doing. Some of the best strategies are those that redefine a market space, and do so in a way that is most beneficial to you, and not your competitors. While in years past, it was the domain of large organizations with physical (retail, supply chain) infrastructure girth that seemed difficult to topple, this is no longer the case. Quite often, innovation and agility are driving new value because these organizations have less of a stake in protecting old ways of doing things.

When the world changes at the pace that it does, we can no longer afford to build strategy without purposefully testing assumptions, backed by research. Failing to do this leaves organizations vulnerable because it works backward from the idea that we already know enough about what is emerging competitively, and it limits motivation to increase our vision. In 2008, after the market disruption, strategic planners were rocked to their core, questioning how our environmental analysis processes failed to see the sky falling before it did. And yet, many companies have proceeded beyond this point without fundamentally correcting this flaw.

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” – Charles Darwin

Make a list of the beliefs you have about how your industry will change over the coming years. Talk about it with your peers and partners. Let your research team look for outliers. Look for strategies that allow you to use the future against your less adaptive competitors. This is what strategic planning is about.