BrazilWhy strategic planning is increasingly challenging for leaders
Although timing affects all managerial decision-making it is particularly important in strategy – and it is becoming increasingly difficult. Traditional strategic planning approaches, which may have served well in the past, are now mostly obsolete, leaving companies with fewer and fewer tried-and-proven options. George Tovstiga, Professor of Strategy at EDHEC Business School and formerly a management consultant specialised in strategy and innovation, reflects on why strategy development is becoming an increasingly challenging task for leaders.
In addressing the question of why it is becoming increasingly difficult for organisations to get their timing right it must be remembered that strategic decision-making takes place in real business setting. Real business contexts are characteristically ambiguous and complex, they tend to be messy – the more dynamic the business environment, the less transparent the context within which strategic decisions can be made. Additionally, key actors may introduce irrationality to the equation. The increasing complexity of competitive environments is making it increasingly difficult for firms to come to grips with the basic ‘what’, ‘where’, ‘why’ and ‘how’ questions in strategy that need to be in place before the ultimate ‘when’ question can even be considered.
The ambiguity and complexity in any particular business context derive from inextricably linked and multiple factors (e.g. technological, socio-economic, political, etc.) all of which are interacting whilst continually changing. It is in this regard that business strategy differs markedly from classical economic theory, which typically assumes perfect market conditions, equilibrium conditions and rational behaviour of its actors. On the contrary, strategy seeks to identify and exploit market asymmetries and imperfections with the intent to achieve competitive advantage. However, no theory in strategic management covers all the relevant angles in a way that allows any clear set rules as such to guide strategic timing decisions. The rational approaches to strategic management typically yet taught in business schools ignore the truly salient, real-time characteristics of real business environments.
Strategy’s new ‘rules of the game’
Strategy is ultimately about making decisions that affect a firm’s competitive positioning in the future. No one has a definitive take on the future; no reliable numbers are available. The best that can be done is extrapolate from the present. However, the more dynamic the environment, the less meaningful a projection into the future becomes. Strategic decisions nonetheless need to be made today for a future that is becoming less and less certain.
Ever more industries are for instance experiencing disruption, with many traditional industry boundaries disappearing altogether. Traditional industry-bound heuristics, useful in the past in guiding strategic decision-making, are rapidly becoming obsolete. These changing competitive circumstances carry two important implications for decision-making regarding timing of strategic action: (1) shortening time horizons mean that firms don’t have a lot of time to experiment, they need to get it ‘right’ from the start, and (2) rapidly evolving industry landscapes, of which the contours of the evolving playing field are becoming ever fuzzier. This is leading to the emergence of entirely new ‘rules of the game’. Importantly, these ‘new rules’ also encompass guidelines relevant for strategic timing decision-making. Many firms are yet struggling to learn the new rules.
Finally, the possibility and influence of serendipity and chance circumstances cannot be ruled out entirely. These are typically triggered by external factors that may accompany opportunities (or threats) that prompt a strategic response on the part of the firm, and represent circumstances beyond the temporal control of the firm. Depending on the dynamic nature of the competitive environment, these occurrences might range from ‘foreseeable’ (in the case of relatively stable environments) to entirely unexpected and sudden (‘black swan’-type events).
Timing strategic decisions
Factors prompting a strategic response invariably have their origin in the firm’s external environment, which lies outside of any firm’s sphere of influence. The choice of whether or not to respond, however, lies entirely within the firm’s control. A firm’s response to an occurrence typically runs through a three-stage process consisting of: (1) sense-making; (2) formulation of an appropriate response; and (3) execution of that response.
Each stage of the process consumes time; cumulatively, they comprise the overall response time of a firm, with several factors determining a firm’s overall response time. Clearly, the nature of the particular occurrence is an important determining factor; radical occurrences demand more time in each of the stages than do less radical ones. Organisational inertia effects may lead to further response-time delays in any of the three stages. The inertia may derive from various sources such as resource constraints (e.g. lack of capabilities), embedded routines (e.g. rigid, obsolete practices), organisational cultural dysfunctionalities (e.g. organisational cultural dissonance, risk aversion). The point to be argued here is that a growing disparity between the increasing dynamics in external competitive environments on one hand, and firms’ ability to ‘get their act together’ in time to respond to those changing environments in a suitable manner on the other, is being seen in the marketplace.
Strategic timing has always been a challenge. Rapidly transforming competitive environment subject to a confluence of key drivers such as technology, socio-economic and political change are giving rise to new rules of the game, which many firms are yet struggling with. While all managerial decision-making is affected by these, the increasing disparity between the reality of the current and future competitive environments and firms’ responsiveness is particularly critical for decision-making affecting the timing of strategic action.
