The global economy is changing - here's what you have to do to get your strategy right

The modern economy, life, and business is changing – has changed.

Technology has empowered ‘disruptors’ which have then fundamentally impacted business operating environments and companies relationships with their customers. Changed customer perceptions of service times and quality of product and service have then crossed over from one industry to another, disrupting the business operating environment even further.

That, according to Martin Reeves, Julien Legrand, and Jack Fuller of the BCG Henderson Institute in their paper “Your Strategy Process Needs a Strategy”, means companies need to look at their “strategic planning” process and make changes to avoid “a dramatic mismatch between this process and the business environment.”

Reeves and his colleagues favour a contextual approach to setting strategy, one which takes into account the differing business environments which they say – and managers and boards know – “have grown more diverse in recent decades”.

Fitting the right strategic setting approach – Classical, Adaptive, Visionary, Shaping, and Renewal – to the environment is key. But before that, Reeves and his colleagues also say there are three things that “a leader needs to get right”.

  • Read the business environment correctly;
  • Choose a general approach to strategy that fits the environment; and then,
  • Set up a process to enact that approach in their particular company.

But that’s just the start, the authors say, because “even if an executive gets the first two parts right and identifies the right approach — renewal, say — the company may end up sticking with classical, firm-wide cycles of planning or setting up multiple experiments — processes that are too slow or not radical enough for a renewal strategy. And so the initial, insightful intention — the chosen approach — is not realised in practice”.

Disconnected

They highlight the disconnect between then GE CEO Jeff Immelt in 2011 declaring: “One of the hardest challenges in driving change is allowing new information to come in constantly and giving yourself the chance to adapt” and the actual manner in which the business “actually developed and operationalised” his strategy to create the “operating system for the industrial internet.”

And they say that, “GE’s example demonstrates the importance of coherence not only between the market reality and the broad approach to strategy, but also between these and the process for developing and realizing the company’s particular strategy.”

Fitting the process for strategy setting to your company’s business environment

Classical: Planning

Is your company’s operating environment “relatively predictable”? If so then the “classical approach” allows for companies “to create and implement a stable plan of action.”

This is very much a top down approach where “the initial direction or ambition comes from the executive team; this is usually followed by various kinds of analysis, like market modelling (projecting category growth and future share) and detailed financial forecasting” Reeves and his colleagues write.

A company that embodies this process is Mars the authors say.

Adaptive: Experimentation

But, not all environments are predictable, so “centralized cycles of planning make less sense” the authors say, noting this approach to strategy “is to experiment and adapt rapidly to exploit unpredictably changing conditions”.

They say the Adaptive “process is about facilitating and capitalizing on experimentation.”

To get the best results the authors say the “experimentation happens in short cycles of testing and picking winners”. And the “key ingredients of the process are the ability to collect and read signals to detect business opportunities; free flow of data throughout the company, enabling teams to identify opportunities with little central supervision.”

Culture is also important and a company must have “organizational mechanisms to enable failures to be easily discontinued and successes to be scaled.”

The authors say this is the type of strategy process Zara would follow.

Visionary: Imagination

Does your company have a strong market position with a market “malleable” to your firm. And if, “rather than simply responding to given conditions, the company can create or shape a market around a transformative offering” then the strategic process should “facilitate imagination, hone in on a visionary product, service, or business model, and then persist resourcefully to drive it into the market.”

Necessary requirements for this approach “are the richness of mental models brought to bear on the initial ideas; a willingness to be patient with ideas still in formation; effective learning from prototypes; and a determination to persist until a market has been created.”

Unsurprisingly, the authors say Apple follows this strategy setting process.

Shaping: Collaboration

Operating environments aren’t always straightforward. So when a company has power and the environment is “malleable yet unpredictable” the authors say “it would be unwise to commit to a long-term visionary effort” and as a result “an ecosystem or platform-based approach is appropriate.”

Reeves and his colleagues say that “the strategy process here is about supporting effective collaboration to shape an unpredictable environment to the advantage of the company and others whose interests coincide.” This process “involves cycles of testing, learning, and evolving the firm’s ideas and tactics.”

It is the process followed by Alibaba and Red Hat the authors say.

Renewal: Pragmatism

Companies can also face existential threats “when the environment becomes so harsh that the company’s viability is threatened, [and] immediate corrective actions are required.”

Like the classical approach, this is a senior management and board driven process and requires “top-down, fast decision making that aims to ensure survival” with the purpose of this strategy “to facilitate fast interventions; it involves making pragmatic choices under pressure to find a path back to growth,” the authors say.

“Doing this well is difficult, as time and therefore the quality of information may be limited. There is little scope for comprehensive analysis or engagement, internally or externally” Reeves and his colleagues write, noting the turnaround of American Express in 2008 and 2009 as an example.

The next steps

In today’s economy the authors say that it’s more likely than not the 5 approaches will need to be “combined into variations appropriate to different circumstances”.

You can read more here.

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