Being in enterprise today requires us to deal with so much more than a straightforward process of buying and selling. That has made strategic management a vital business tool. Consolidating the complexities of modern business into sets of goal-oriented activities for each part of the organisation to perform has become the gold standard in enterprise practice.
But what happens to all the strategic planning when a crisis hits? In the months since the beginning of the coronavirus pandemic, enterprises everywhere have been forced to set aside their strategic plans. Instead of tracking their steady march to their desired future, boardrooms have grappled first with emergency responses then with mitigation measures to cope with the disruption, even decimation of business. The thousands, if not tens of thousands, of dollars invested to map out the path to the enterprise’s goals has gone from giving certainty to virtually irrelevant overnight.
Strategy’s vital component forgotten
Students of management can tell you that strategy has its origins in warfare. “Strategy” literally translates from the Greek strategos meaning “general of the army”. This mechanism of war found its way into corporate boardrooms when executives realised their jobs were not so different to those of army generals: how to line up their resources in coordinated plans of attack to gain footholds and secure victory in contested territories.
History shows war has no certainties. David was not supposed to overcome Goliath in the battle between the Israelites and the Philistines. The vast Persian Empire’s army of 2.5 million soldiers was supposed to easily withstand the attack from Alexander the Great’s puny force of 50,000 men. The US invasion of Iraq was only meant to last “five days or five weeks or five months, but it certainly isn’t going to last any longer than that,” declared US Defense Secretary Donald Rumsfeld in 2002. The conflict would actually last 8 years, 8 months and 28 days.
It is precisely because the nature of war is extreme uncertainty that strategy is its necessary centrepiece. As Chinese military strategist Sun Tzu wrote in late 400BC, “Every battle is won before it is ever fought.” His treatise, The Art of War, remains one of the most-read business books of all time.
For more than half a century, world GDP has trended consistently upwards. Disruptions and downturns have always been temporary and enterprises pick up where they left off. The assumption of endless economic growth has conditioned enterprises to develop strategies that only consider winning scenarios.
Somewhere between its warring origins and its application in business, we have forgotten that strategies are plans based on scenarios about the future, including the unthinkable ones. A general contemplates all scenarios and develops game plans knowing there is no such thing as a certain victory. However, an executive that offers anything but a winning scenario soon finds themselves an unemployed one. Modelling negative scenarios gets treated as lack of faith in the organisation’s competence.
Taking constant growth as a given has reduced strategic planning from a wide-ranging approach to consider life or death scenarios, to moving directly from situation analysis to business planning. The business of today is not stress-tested against the possibility of a different world emerging tomorrow.
Enterprises like to promote the narrative of their achievements. It is the key ingredient to creating their organisational culture. It tells investors, customers and employees they too are winners by association. Positivity and confidence are essential to the smooth-running of business, but it also creates a blind spot.
Scenario thinking is a mindset, a skill and a process. It provides a counterpoint to the one thing no future plan can guarantee: absolute certainty. It marries data analysis and creativity in a way that doesn’t just review variations on a given set of variables, but deliberately rearranges or contradicts them to produce new assumptions. Think of an image of a war room with maps and models and generals asking, “What if?” What if the weather changes? What if our intelligence is wrong? What if we changed position? Posing the possibilities and contemplating impossibilities, evaluating their likelihood to occur, then deciding how to respond, is how scenario thinking works.
Australian baby formula maker Bellamy was one of the winners of the scandal which saw babies in China die from melamine-laced baby formula in 2008. Chinese parents, unable to trust local products, turned to Australia and its reputation for high quality produce. Bellamy went from a struggling family business to supplying a product in such high demand that retailers had to impose purchasing limits on shoppers. The business got lucky, but when it came to strategy, luck was forgotten. Only growth mattered.
When China moved to restrict the amount of imported baby formula in order to rebuild its local manufacturing, Bellamy’s share price plunged by 50% from the $15 high investors had rewarded it for its strategy to market organic baby food to wealthy consumers in China and Asia. Although the fall was just as arbitrary as the poisoning event that boosted the company’s growth, shareholders punished the company’s CEO, forcing her termination. What if the management had asked itself questions like, “What if there is a trade war?” “What if our milk supply from New Zealand is cut off? “What if war breaks out?” and prepared for the possibilities?
Scenario thinking doesn’t aim to cover every possibility. A pandemic that has virtually placed the world in lockdown was the last thing we thought would happen. Rather, scenario thinking prepares organisations to act when attacked from any direction. It is a capacity we develop like we do by going to the gym. When we build our muscles, we don’t train them for an exact movement. We condition them so that we can make any movement.
Scenario thinking isn’t easy or comfortable. It forces everyone onto a level playing field as past achievements and capabilities are made potentially irrelevant with a switch of a thought. However, far better that leaders explore the possibilities – both worst- and best-case scenarios – in desktop and controlled test conditions. Every test provides learning, exposes potential risks and presents opportunities to explore. An analysis of an organisation’s maybe, not just its now, is how strategic planning is made a useful management tool for good times and an invaluable one in times of crisis.
As Sun Tzu tells us: “The art of war teaches us to rely not on the likelihood of the enemy not coming, but on our readiness to receive him.”