In management theory and practice, it is now generally accepted that the corporate environment is characterized by rapidly increasing complexity and dynamics and decreasing predictability. This situation demands new ways of thinking and acting from corporate management and those responsible for strategy.
In fact, classic strategy tools have proven their worth over decades. However, in recent years they have become subject of increased criticism, as they were not designed for today's dynamic business environment.
Following a brief review of the classic strategy process and the most widely known tools, this article addresses the different points of criticism and reevaluates the suitability of the presented tools and processes for today’s business environment.
The Traditional Strategy Process is Strongly Focused on Analysis
The classic strategy process, as described in this article, has evolved over the 20th century. During this period, large multinational and diversified companies emerged that eventually formed global conglomerates. Competition increased just like the international flow of goods. Concepts, such as positioning, analysis, strategic options, and portfolio management were an answer to this increasing complexity of the post-war economy.
Despite numerous variations, the following generic model of the strategic planning process can be described (by Mintzberg):
This standard approach assumes that strategies are developed based on the corporate vision, mission, and objectives and will lead to their achievement.
The actual strategy process then begins with an in-depth analysis phase:
- As part of the internal analysis, strengths and weaknesses are identified.
- As part of the external analysis, opportunities and risks in the corporate environment are identified.
The results of this analysis are summarized in the well-known SWOT. In addition, there are various other tools that can be used in the internal and external analysis, such as PEST(LE), Porter’s 5 Forces, value chain analysis, or the 7-S Model.
Following this analysis, the companies should have a clear understanding of what strengths they have (which ideally differentiate them from competitors) to exploit market opportunities or to counter potential risks. They should also be aware of their weaknesses which they need to work on and which limit their strategic options for action.
Based on that, the company can develop different strategic options. For this step, there are also various tools available, like Ansoff's matrix, the so-called Boston Box, or Porter's generic strategies. In essence, these usually lead to concrete strategic positioning.
The next step is to assess the options in order to make a decision.
This standard process assumes that the companies should opt for a strategy and then enter into the financial planning and the implementation phase. Of course, it is reasonable to set one or two alternative strategies in case market conditions develop differently than expected.
Such a strategy process is repeated on a regular basis. Many companies follow a fixed planning cycle of one or more years. Annual reviews allow adjusting the strategy, if necessary. Overall, it is assumed, however, that a strategy should endure for several years.
The Changed Conditions Place Different Demands on the Strategy Process
The classic strategy process as described above has been disputed for years. In his first book The Rise and Fall of Strategic Planning published in 1994, Henry Mintzberg already criticized that this approach is extremely formalized and focused on analysis. Later in Strategy Safari, he wrote that this way a strategic plan is developed. However, plans are inflexible by nature. After all, it is their purpose to give companies orientation and stability.
Also the dependence on the triad of "vision, mission, and objectives" is criticized, as this starting point is already determined before the strategic analysis and, therefore, deeply rooted in the past. From the outset, it excludes any strategy that doesn’t aim to achieve the pre-defined corporate objectives. Yet it is precisely these vision and mission statements that are often very vague offering little real guidance.
Richard Rumelt writes in Good Strategy/Bad Strategy:
“Many bad strategies are just statements of desire rather than plans for overcoming obstacles.”
All these points of criticisms are exacerbated by today’s changed business environment. Most of the classic tools and processes were developed in an era of relative stability and predictability. Back then, existing uncertainty regarding the future could be adequately managed simply by considering scenarios.
Today, this situation has changed dramatically. The classic tools are becoming less suitable for assessing let alone predicting disruptive change, changes in value chains, the emergence of completely new IT-driven business models, etc.
In their book Moments of Impact, Chris Ertel and Lisa Kay Solomon coined the term VUCA world:
Volatility, Uncertainty, Complexity, Ambiguity
Today, the pace of change in the business environment alone has rapidly increased. A process strongly based on analysis, including information collection and processing, often can no longer keep up with this pace. It can barely map anymore the complexity of the numerous relationships and interactions.
Typical reactions to that development can be read in many corporate strategies:
- Strategists tend to concentrate on what they can assess most accurately: the internal strengths and weaknesses. This leads to strategies that focus on core competencies and incremental improvements.
- The impact of strategies is becoming more short-term. They often are reduced to the repetition of illustrious, but rather general long-term objectives and a bunch of short-term measures.
The Use of Classic Strategy Tools has Changed
Is the classic strategy process with its familiar tools under these conditions at all useful?
There is no doubt that strategic planning as practiced in the last decades of the last century is no longer effective today. However, that doesn’t mean one should question the benefits of a systematic process in itself. Also, depending on the company and the industry it operates in, the selective use of individual appropriate tools is still possible.
In this context, Ertel and Solomon speak of "technical challenges." These may also be quite complex, but are within the well-understood environment. If such well-defined problems arise, the traditional approaches are still suitable.
Another great advantage of these methods is the fact that they are widely known by practitioners. Managers and planning specialists are familiar with and understand the individual elements of these methods. Here, consultants have provided lots of helpful support. Such a process is usually firmly rooted and accepted within the organization.
The high levels of satisfaction reported in the before mentioned Bain study allow two conclusions:
- Some companies will continue to use the traditional methods because management research simply is yet to develop more suitable, practical tools.
- The majority of businesses may have already gradually adapted their strategy development processes to the new conditions to some extent.
It is therefore quite possible to continue to use selected elements of traditional strategy process. They provide a sound basis for more recent strategy approaches. Whether you are working with the strategic discussions proposed by Ertel and Solomon or with the business model canvas developed by Alexander Osterwalder et al–they all presuppose a thorough analysis of the current situation.
To this end, the established tools can be used effectively. SWOT and many other well-known tools, after all, provide an intuitive and concise presentation of analysis results.
However, some limitations or additions need to be taken into account:
- Today more than ever before, there is no standard catch-all strategy process. Companies need to find their own specific approach selecting the most appropriate tools.
- One needs to be aware that statements are now more time related and can quickly become obsolete. In some sectors, the length and frequency of the analysis phase are becoming much shorter.
- Due to blurring industry boundaries and the increasing danger of “lateral entrants,” the scope of what needs to be considers may expand significantly.
- It should always be considered whether the strategy process needs to be suppelmented by appropriate new methods.
About the author: Dagmar Recklies is co-editor of Managementportal.de, Themanager.org, and the strategy blog Eddielogic.com. There she regularly writes about strategy, planning, and management issues. As a consultant, she helps companies in finding solutions to specific strategic issues. Contact: Dagmar.Recklies@managementportal.de