Strategy as Problem-Solving
It is not an Annual Planning Exercise
This is my 5th Playing to Win/Practitioner Insights piece and it is on Strategy as Problem Solving. (Links for the rest of the PTW/PI series can be found here.)
The thing I hate most about modern strategy is that it has become a regular corporate process: “It is (say) April, so we must develop a strategic plan to fit into the budgeting cycle and be presented to the Board in October.” The strategic planning process typically mandates a standard set of analyses, most often the centerpiece of which is a SWOT analysis. I often ask groups of managers whether they have both performed and reviewed a least one SWOT analysis in their careers — and 100% say they have. I then ask as a follow up: “Could you please share with me an example of a blinding new insight that you gained from either performing or reviewing a SWOT analysis?” The result is head-scratching and blank stares. I still haven’t gotten a single example of a memorable insight in a sample of thousands of SWOTs.
This is what standard strategy practice has become: an analytical exercise, backed by hundreds of pages of analysis, designed to produce a document that fits with the budget and provides the Board with a strategic plan for approval. No wonder most line executives see strategic planning and strategic plans as a colossal bureaucratic waste of time. For most they see strategy as the verbose and flowery prose that supplements the numbers in the budget. And I don’t disagree. Most strategic planning processes produce strategic plans that are not worth the effort put into them. This is why, even though I have spent a career as a strategist and love strategy, I generally hate both strategic planning and strategic plans.
What Should Strategy Be?
Strategy should be a problem-solving technique. That is where its true value lies. Strategy is the act of making a new set of choices designed to solve a problem that was created by the interaction of the existing set of choices with the competitive environment. This means that strategy does not start at a particular time of year or with an esoteric and vague SWOT analysis. It starts with an identification of a gap between the aspirations of the organization and the current outcomes it is achieving. If there is no gap, it is a waste of time to do strategy: just keep doing what you are doing.
When I say that, I typically get the pushback that even if there is no gap, the organization should still do strategy to be proactive relative to a threat that has not yet visited itself upon the organization. I concur with the theory behind the sentiment: it would be nice for an organization to figure out threats before they occur. I just haven’t seen that happen in a strategy process that starts with the premise that there is no problem, but we should do strategy anyway. In my experience, there are always warning signs — which show up as a gap between aspirations and outcomes — before whatever shift that is imagined becomes ubiquitous. For example, in the 1980s, newspapers didn’t have to dream about a time in the future that on-line news and advertising would destroy their business models. All they had to check — as I did for a newspaper client in the mid-1980s — was the decrease in take-up of the habit of reading a daily newspaper by the then-sub-25-year-old demographic. If the aspiration was to maintain old readers and lose younger readers to an alternative habit, then there was no gap. But if newspapers wanted to have new readers when their older readers died off, the gap was obvious by 1985, a full 15 years before their economic models started to fall off a cliff.
If an organization actually pays attention to what its customers are doing, it will get plenty of warning signs about the need to make different choices. As science fiction writer William Gibson opined: “The future is already here — it is just not very evenly distributed.” If an organization waits until such time as a change is evenly distributed, it will almost certainly be too late to take bold strategic action and instead it will be doomed to fighting a painful rearguard action. Instead, it needs to ask as the motivator of strategy: “What customer actions are producing a gap between the aspirations we hold and the outcomes we are experiencing?”
Have customers started to buy more from a traditional competitor than from us? Or have they switched to buying from a new entrant? Or are they embracing a substitute product/service and thereby shifting revenue from our industry to an adjacent one? Are they switching back and forth between providers more often? Are customers are doing one or more of the above, are they in one identifiable segment or a seemingly random slice of customers?
Only if the problem is identified can we know whether a new set of choices has a plausible chance of solving the problem or not. If we don’t specify a problem, any set of choices is acceptable as a way forward. That is why strategy often feels very bland and unimportant: it doesn’t solve a meaningful pressing problem, so who cares? It is also why there are often so many intense arguments over which strategy to choose. Without a problem against which to judge the quality of a strategy choice, the choice simply becomes a matter of taste, and everybody is equally capable of making an argument for the strategy that fits their taste.
What if We Get the Problem Wrong?
A common objection to the problem-led approach to strategy is that we might get the problem wrong and hence the strategy will then be wrong too. I have two reactions to that concern. The first is that failing to make strategy a problem-solving exercise just returns us to the above set of shortcomings — so pick your poison. The second is that the problem definition will never be perfectly correct. Because it is not possible to accurately know everything about the strategic context in which you operate, your initial problem definition will always be wrong to some extent. The 1985 newspaper may have defined the problem as a slight decline in overall newspaper readership in the industry rather than a precipitous decline in readership by the youngest demographic if it hadn’t occurred to them that different age demographics might have different behavior patterns. But working on the problem of the negative impact of newspaper readership on its business would have eventually gotten that newspaper to a better definition of the problem as it worked on solving the problem.
And that is my fundamental answer to the concern. Start with a problem that is meaningful to you. But assume that it will be found to be less-than-perfectly-framed and adjust as you go — not just once but as often as it strikes you as valuable to do so. Think of strategy as a learning journey. The act of contemplating choices that could solve your problem, you will learn more. The newspaper company will eventually learn that older readers aren’t changing their readership patterns while new potential readers are not getting started with the newspaper habit — and that is the fundamental problem that they need to solve.
What is the Best Vehicle for Identifying the Problem?
The very best way to identify the motivating problem is to talk to customers. Don’t do a quantitative survey — that is for much later in the strategy process when you need to test potential strategy choices. Start ethnographically with in-depth interviews of a smaller number of customers. In my experience, 10 to 20 customers will do. Interview some existing customers, some customers of your competitors, and some customers of substitutes (including the substitute of doing without — for dentistry, for example, the biggest substitute is not going to the dentist at all). Will customers tell you the problem you should be tackling? Rarely. But they will give you insights on the problem. For example, a small set of interviews told the 1985 newspaper that its slowly declining circulation was not because its readers were defecting to the competitor paper, it was because people were reading newspapers less, and it appeared that the lower readership trend was age-related. That insight provided management with a good problem with which to start its strategy exploration.
What Must the Strategy Choice Accomplish?
To have been worthwhile, a strategy development effort most solve the identified problem. That is how to determine whether your strategy is sound: does it have a strong chance of making the strategy problem go away? Any possibility should be judged against this standard and the winning choice is the one that best solves the problem identified.
Strategy is first and foremost a problem-solving tool. A strategy process will be largely worthless without an identified problem that it is designed to solve. Remember that strategy problems start with the customer behaving in ways we wish that they wouldn’t. That is why the best way to define the problem to be solved is to do in-depth qualitative interviews with customers.
Don’t seek perfection on the initial problem definition. It will evolve as you go — and the evolution is not evidence of bad initial problem definition: it is evidence of productive learning. Embrace it. Review the problem definition often and ask: “Given what we know today and didn’t previously know, how would we improve our problem definition.”
Finally, judge your strategy choice against the standard of whether it will make the problem go away. Ask that question repeatedly to avoid a strategy that is interesting, maybe innovative, maybe bold, but doesn’t actually solve the problem identified.