Understanding the Competition Should Shape Decision-Making
A recent Forbes article Is Strategy Dead? 7 Reasons The Answer May Be Yes caught my attention, as the writer intended. After all, strategy is a pillar of my business!
I won’t offer seven counterpoints, but I will tell you from a high-level view that this death knell for strategy is premature. All businesses benefit from developing, and maintaining, a well-informed strategy.
Simply put, strategy is the long-term thinking and planning businesses should use to make sure their activities are focused in a beneficial direction with minimal wasted resources.
How far out should strategy look?
I surprise many by recommending 15 years, as they believe three to four years is sufficient and any longer term will be wasting resources. They usually cite the rapid rate of technology change as a reason not to plan so far ahead.
Well, am I crazy?
Perhaps! We can debate this later, but I believe it makes perfect sense for all businesses to have a long-term viewpoint.
Should it be painfully researched, developed, and executed? For many smaller companies, probably not.
That high level of attention, research, and investment is more typical of the largest of companies having both the largest exposure to incorrect direction and more access to resources to minimize this exposure.
Most smaller companies would be better served by developing a less resource-intensive strategy, maintaining it on some set interval (perhaps quarterly or semi-annually) and being flexible enough to make necessary changes when – and if – needed.
Elements of strategy often overlooked
Some obvious aspects of strategy development are often never even considered.
For example, internal strategy topics dealing with people and the company:
• What are the company’s long-term desires?
• How big should the company grow?
• How fast does it need to grow?
• Should it stay focused on the current business products or is it open to change for the right opportunity?
Others fail to realize that aspects of a business’ external environment are fairly predictable for some years. For example [1]:
• Demographic – Future size and make-up of the population (15 years).
• Econometric – Trends in a nation’s economy (10 years).
• Technologic – Mass-market applications for new technologies (7 to 8 years).
Other external factors such as preferences for convenience, speed, reduced cost, connectivity and sustainability are also fairly steady.
What about the competition’s strategy?
I was interested to read the comments of Ian Davis, chairman of Rolls-Royce and a member of the boards of United Kingdom’s Cabinet Office, BP and Johnson & Johnson, in a recent article in McKinsey Quarterly. He urges decision-makers to actively study broader trends outside their own organizations and industries.
Toward this goal, I recommend Competitive Intelligence to provide clues about your competitors’ future direction and that of the industry.
Even when information is available publicly, finding these gems in the sand usually requires specialized resources and the knowledge of how to leverage them. Here is where Pearson Strategy comes in, providing Competitive Intelligence for clients who realize they can’t create strategy in a vacuum.
All companies leave a trail of publicized information that can be used to predict their future directions. Pearson Strategies categorizes this information for research and monitoring purposes into three categories: technology, business/market and Intellectual Property. By using this information and making educated predictions of your competitor’s actions, you can make better strategic moves.
For example, when properly set-up and analyzed, Competitive Intelligence will identify disruptive technologies earlier, creating room for opportunities instead of risk.
Competitive Intelligence for long-term strategy
Of course, predictions in any of these areas will be less certain the farther out they are made, but this due diligence significantly increases your odds for success over competitors not using this research. This is why large companies often devote in-house resources to Competitive Intelligence.
Long story short, there are many resources that can, and should, be used to build a long-term strategy that’s valuable to the company without stirring up an information tidal wave. And the payoff should be worthwhile compared to myopic competitors who are constantly changing direction.
So, what’s right for your company? A three or four-year strategy or a longer look down the road? And how much external research is right for your approach? Or have you buried the idea of strategy, too?
I’d like to know what you think.
1 – David Pearce Snyder, Consulting Futurist, MiniTrends 2014 Conference Presentation on 9/24/2014
Picture credit: Kurhan (Shutterstock)
I personally think companies need 1 and 5 year plans and note that IBM still does a 5-year plan.
And as an amateur futurist, I think it’s important to consider different scenarios based on different forecasting methods that include a combination of extrapolated trends (learning from the past), patents and R&D lab developments (assume a given time-to-market), demographics, global economics & politics, and changes in attitudes. Understanding that there are both market drivers and inhibitors can help companies determine strategy toward a preferred version of the future and identify potential new markets, partners, channels, etc.
While the planning process arguably looses accuracy over time, especially after 5 years, because of the sort of disruption the author mentioned, doing a new 5-year plan every year makes sense, and that plan can indeed be directed by developments that may occur over the next 10-20 years. Long-term estimates of population size, for example, was possible by examining the post-war Baby Boom and predicting an Echo Boom 20-30 years later as the babies reached reproductive age. Likewise, by extrapolating Moore’s Law into the future, Ray Kurzweil predicts that by 2023, a $1,000 computer will have the power of the human brain and by 2037 a $0.01 computer will too. By 2049 (still possible in my lifetime), a $1,000 computer will exceed the power of the human RACE, and ten years later a $0.01 computer will.
Tech companies must consider Moore’s Law as they plan how to remain relevant over the long-haul, but so must health care companies. As I wrote in http://www.mhealthtalk.com/101-minitrends-in-health-care/, 429 of the original Fortune 500 companies [1955] are no longer in business today. That’s a scary thought for those sitting at the top of the healthcare mountain, looking down at the hungry innovators who are exploiting those overlaps to disrupt the entire system.
You spoke of big companies especially needing to plan, but if well managed and listening to their core customers, they often face what Clayton Christensen calls, “The Innovator’s Dilemma.” Those core customers are typically risk-averse and abhor disruption, so big companies are well advised to establish an intrapreneur “risk taking” culture that can live along side of a more conservative culture. The trick for the big companies is maintaining nimbleness.
To summarize, I see planning over different time horizons by different players. Corporate strategy needs to include 5-year planning, possibly based on even longer outlooks. That flows downward to influence the annual plans of different working groups. And individuals should do their own daily, weekly and possibly monthly plans; and to develop their careers, they need longer-term plans to develop the right skills, experiences & contacts.
Thank you for the most interesting post. However–and I say this with respect, Wayne–connecting either ‘corporate strategy’ or business strategy to a five-year plan is absurd. But it’s a common failing among those who should know better to make such a connection. That is typically because they (wrongly) believe that a strategy is a plan. It is nothing of the sort. A strategy is a unique system of complementary activities that delivers superior value to customers and compelling value to capital-providers.
The only way that any plan enters the strategy picture is through a strategic plan. Unfortunately, beliefs and even practice related to strategic plans are typically wrong-headed, too. More than a few consultants out there seem to believe that ‘strategic planning’ should be an annual event and have convinced their equally-ignorant clients to pay them for conducting it, often at a ‘retreat’ (misnomer – the competition is supposed to ‘retreat’, so why not call it an ‘advance’?).
This nonsense is aided and abetted by such organizations as the Association for Strategic Planning, so let me be clear: a ‘strategic plan’ has exactly one purpose, and one purpose only: to lay out the details of implementing a business strategy. That’s all. No more and no less. Over time, even well-conceived strategies do evolve and need tweaks. But a full-blown ‘strategic plan’ on an annual basis? Absolutely no way, except in the most volatile of industries, and maybe not even then. It depends on the circumstances.
Hi Steve, My name is Ted Farrington and I recently retired after working for 35 years in several Fortune 500 companies (R&D) and do some consulting for AndSpace now. We focus on the use of strategic foresights methods to drive growth and inform strategies. I agree with your view of strategy as “the long-term thinking and planning businesses should use to make sure their activities are focused in a beneficial direction with minimal wasted resources” and would like to add that it must be actionable and detailed enough to inform current day decision making. And I believe it will become more important, not less, in the coming years.
In my view, many confuse objectives, tactics and strategy. “Our strategy is to double our business in ten years.” “Our strategy is to grow the top line 5% per year and bottom line 10% per year”. So I believe many companies struggle with longer term thinking and use comments such as “technology changes too fast” as an excuse.
I have seen some nice strategy and portfolio work done using strategic foresights methods such as scenario planning. One Fortune 100 conglomerate manages each of its global business from three 20 year future scenarios. What is unique about this firm is that they also keep a fourth “expected scenario” that is closer in and forms a connection between current business and the longer range scenarios. The key to their approach is that any major investment must prove it will be profitable in ALL the scenarios. Making current day decisions based on robustness across multiple futures is a powerful concept, not employed by very many firms. But it is great if the firm’s strategy changes too often.
You mention that several external factors are fairly predictable. These are “table stakes” for a good strategic foresights project, that can be designed to force a collision between the predictable and the unexpected. Strategies developed based on robustness across several provocative, yet plausible, views of the future should not be surprised.
An example is a project I led at PepsiCo to help guide their longer range research team. The project was reviewed at an IRI meeting and can be seen here:
http://youtu.be/hp-4YCtQ1QY
I agree with Wayne’s comment that the timeframe depends on the interested party. In particular it depends on the time horizon for the relevant business and capital investments. While energy companies need to see out a couple decades, 5 years may be all that is needed for a consumer products firm.
The reason I think strategy will become even more important is the coming of cognitive computing and big data. A large strategic foresights project might take 18 months and build strategies based on 3-4 future scenarios; that’s about all we humans can deal with 🙂 While our ability to predict the future may not improve much in the next 10 years, cognitive computing, big data and other developments will let us develop strategies based on much deeper analysis of more future scenarios. Companies that take advantage of this will have much more robust strategies than their competitors and eventually prevail in the market place.