Playing To Win
The response to my four-part Strategy and Leadership sub-series has been terrific, and as a result, there will be more of them soon. But in the meantime, I am turning to a strategy topic that I believe needs tackling concerning a prevalent and unhelpful mindset on the timing of strategy. I have made this mindset the topic of my 19th Year III Playing to Win Practitioner Insights (PTW/PI) piece called Finishing Strategy: Are We There Yet? You can find the previous 129 PTW/PI here.
Memories of the Cabot Trail
I have vivid childhood memories of touring the Cabot Trail, which is one of Canada’s most iconic scenic drives. The highway circumnavigates the coast of Cape Breton Island, which is located at the northeast tip of Nova Scotia, one of Canada’s four Atlantic provinces. A classic central Canadian family adventure is to drive to the east coast to see the famous sights — and one of those has to be the Cabot Trail. It is kind of the Canadian equivalent of Americans going to the west coast to drive the Pacific Coast Highway, only colder and wilder.
At the time we made this sojourn, the Martin family had four boys, aged from 4 to 13 years old (baby sister Jackie had not yet entered the universe). All six of us were packed in a station wagon — for those two young to remember what these looked like, here is a sample.
My late mother possessed the most refined aesthetic appreciation in the whole family, which sadly, we did our best to undermine on this jaunt. Driving the Cabot Trail takes a full day with rest and eating stops. I am sure it wasn’t yet noon before one of us asked ‘are we there yet?’ Mom, ever patient and constructive, tried to convince us that enjoying the magnificent views along the way and deepening our understanding of Canadian history were the real purposes of the drive and the true point of the journey — not getting to the end of the Trail.
It was a good try, but it only assuaged us for an hour or so each time, at which point the ‘are we there yet’ question was lobbed from the back of the vehicle. Every historical plaque stop was greeted with cries of ‘why do we have to stop again?’ I still have residual guilt for how miserable we made our mother with our constant ‘are we there yet’ haranguing. But it hurt us too. Obsessing about ‘are we there yet’ caused us to gain a lower appreciation of the natural beauty and the history of the place.
What does this have to do with Strategy?
Executives are obsessed about ‘are we there yet’ on strategy. They desperately want to be finished and are constantly asking why it can’t be ‘done faster.’ As with the Martin boys, their obsession with finishing keeps them from truly investing in the depth and nuances of the journey. There is a clear rationale behind their obsession. The annual calendar is populated with many things that depend on having strategy ‘finished.’ For example, there is a date at which they have committed to present the finished strategy to the board for approval. There is an operating plan process that is scheduled to start when the strategy is finished. And that operating plan leads into the budget process.
Essentially, companies back into the timing for strategy. It needs to be finished in time for some combination of board approval, the operating plan process, and the budget process. That is why the obsession with ‘are we there yet?’ And if necessary, executives will force strategy to be done more quickly and less thoroughly to be finished in time for these other important and dependent events/processes.
I find this phenomenon to be remarkably consistent. And it is genuine. It comes from the heart. Executives want to have an organized flow from strategy to plan to budget. And while it is hard for most to imagine that this isn’t a good thing, in fact an unalloyed good, I argue against it here, here, here, here, and here. But let’s explore the logical roots of the obsession.
The Logical Misfire
This obsession is driven by a belief, which the business world holds but I don’t, that your strategy is what your strategic plan says it is. Based on that belief, it makes total sense to think that you have to finish your strategic plan in order to have a strategy that can be presented to the board and translated into an operating plan and/or budget. While that seems to make total sense, I believe otherwise.
Your strategy is what you do, which may or may not have anything to do with what you say or you write in your strategic plan.
Without ever reading its strategic plan, I can easily reverse-engineer any company’s strategy by simply watching what it does. And what it does is often at great odds with what it claims is its strategy. For example, a company’s strategic plan can say that it is an innovation leader. But if what it does is always cut innovation spending to make its quarter/year, and not spend either absolutely more or more cleverly or more consistently on innovation than its competitors, then its strategy is to hope that not investing in innovation won’t destroy it. It doesn’t matter a whit that its strategic plan says it is an innovation leader. That isn’t its strategy.
The R-squared for the correlation between strategy and strategic plans is implicitly presumed to be close to 1.0. My observation is that it isn’t higher than 0.2–0.3. That is, there are more strategies with no connection to their strategic plan than ones with a meaningful connection.
Because strategy is what you do, not what you say, I am not a proponent of rushing through strategic planning to get done to meet operating planning and budget development timelines. When strategy is done quickly with a focus on just getting it done (i.e. ‘are we there yet’), it tends not to end up driving actual choices. Instead, it produces pronouncements. Consequently, the actual strategy tends to be to continue doing what the company is already doing, not something — anything — that comes out of an abbreviated, even slapdash, strategic planning process.
This is why I don’t care about having plug compatibility between the timing of the strategy process and the timing of the operating planning/budgeting processes. If you feel that the start date of the operating planning process and/or the budgeting process is sacrosanct, you always have the option of starting them based on your actual strategy — the choices upon which you are currently operating. In fact, the best way to start these processes is with reality, not some fantasy, which is typified by strategic plans that were thrown together quickly and haven’t made real choices.
A Better Way
A more useful approach starts with the perspective that strategy is fundamentally a problem-solving technique. And problems come up all year long. When a gap between your aspirations and your outcomes becomes evident, you should engage in a thinking process that brings you to new choice that addresses the problematic gap — i.e. strategy.
If you haven’t made such a choice by the time that the calendar specifies that you need to start the operating plan or budget, just create the plan/budget based on the strategy that currently defines your choices. You don’t have to wait for strategy or obsess with ‘are we there yet?’ You always have a strategy: it is your current set of choices. Planning/budgeting based on anything other than your strategy is silly, though that is precisely what companies do most of the time.
By all means, do strategy as fast as you can. Don’t doddle. But don’t take shortcuts. Make real choices for which the opposite is not stupid on its face. Make sure that those choices are reflected in what you actually do, which means resource allocation behind the choices.
Ah hah! That is why executives believe that strategy has to happen before the budgeting process. It is because you have to get the strategy choices into the budget, or you will have to wait for the next budget year because of course you can’t change the budget mid-year!
Says who? Though it is stunning to think, most executives would rather enforce the existing budget for (say) six more months even though it is consistent with the previous and now obsolete strategy. Think about it. Let’s analogize to a military battle. You set your strategy and then send the troops into battle. And it doesn’t go as planned. You start to take heavy losses. But you abide by the rule that you can’t change strategy and put resources behind it (say a supportive air strike that wasn’t in the original strategy) until the next meeting of the general staff. That would be insane.
But in business, that is the norm. It reveals the true logic of planning and budgeting versus strategy. Planning and budgeting are considered far more important than strategy, and that is why most companies fit strategy to planning/budgeting and not the other way around.
To be clear, I don’t care one iota that a key strategy choice that you need to make takes place six months into the budget year. Change your budget or you probably haven’t changed your strategy. Stop worrying about ‘are we there yet?’ It is about the journey of choices. Make them as you need to, not in some bureaucratic sequence.
Never lose sight of the fact that strategy is what you do not what you say. Always focus first on making real strategic choices. Make them as quickly as is practicable because until you change what you do, it is delusional to expect better outcomes.
But don’t ever hold strategy hostage to the timing of an operating plan or budget. Strategy is a problem-solving technique that doesn’t have an annual cycle. It is for solving strategy problems whenever they arise. When you make a new strategy choice, modify your budget as required.
Never abort your strategy or give the thinking process short shrift because of pressure to get it done in time for planning/budgeting. And if you ever get told, we can’t make a particular strategy choice because ‘it’s not in the budget,’ explore their logic. Ask: do you believe that competitors will wait to compete with us until our next budget year? Will customers wait until next year to start buying the new offering that our strategy choice anticipates?
I don’t think so. Last time I checked, competitors could care less about our welfare and customers are pretty bloody-minded — they will buy from whoever gets a desirable offering to market first.
Yes, operating plans and budgets are useful. But never, ever let them trump strategy. Damaging the strategy process to suit the timing of planning and/or budgeting is a game for losers. Stop asking ‘are we there yet’ and focus on the quality of the journey.