Prior to the pandemic, developing a corporate strategy in the midst of market disruptions and uncertainties was challenging enough. Now, the task is even more difficult. It is especially so with companies forced to focus on today’s business recovery. And yet, building for tomorrow, as well as for today, has never been more important. Strategy is needed for growth, but it must be pliable, organic, and resilient, as well as the organization that forms and delivers it. With the proverbial ground continually shifting beneath our feet, boards must also adopt a new approach to the governance of a resilient strategy.
Seismic changes in markets, competition, technology, society, and regulation are heightening the uncertainty that was already present. Finding optimal paths forward requires new approaches and frameworks for strategy. No longer is the development and execution of strategy simply a periodic, linear process of analysis, formulation, and execution.
What is a resilient strategy? How and when should it be developed? What is the criteria for a good resilient strategy? If it is no longer a linear process, how is it structured? Must the organization change to fully realize a resilient strategy?
Relevant for this article, what is the board of directors’ role in forming and executing a resilient strategy? How does the board manage all of the uncertainties inherent in data collection and planning? How can the board create value in the company’s strategy development?
An Approach to Resilient Strategy
A resilient strategy anticipates system shocks, redirects resources when they happen, and uses the unforeseen to leverage innovation.
Traditionally, companies have developed strategy by deciding on markets and segments, formulating a competitive business model to create value, and assembling capabilities to execute the plan. Innovative companies cross and blend markets, disrupt the customer value chain with new business models, and bring to bear ever-changing capabilities. With the heightened uncertainty of today, a new approach is needed that goes beyond traditional forecasting, innovative disruption, and risk-assessment exercises. It must continually scan the environment and monitor the organization for unforeseen opportunities and un-anticipated shocks1.
We can use systems thinking and dynamic capabilities thinking as guides for describing the new approach that is required. In systems thinking, the organization is continually scanning the environment to adapt its internal operations. A simple example of a system is a thermostat, scanning and adjusting to regain a homeostasis, a state of balance to sustain a temperature setting. Assuming systems thinking, dynamic capabilities thinking in strategic management literature is about building, integrating, and reconfiguring internal and external competencies to address rapidly changing environments.
Both of these models of thought assume a continuing process of scanning, adapting, and testing and can be used to describe the development of a resilient strategy. A resilient strategy is continually scanning for new information, adapting the business model to the new information, and testing the changes to ensure value creation and sustainability. The following elements from a systems perspective further describes what is involved in each of the phases.
Scanning
Scanning requires the company to continually gather information about the relevant external market, adjacent markets, and future trends, e.g., economic, technological, social, demographic, environmental, geo-political, etc. This requires the organization to create and manage processes for identifying multiple sources and collecting the information.
Scanning also requires the company to gather internal information about growing and receding competencies and capabilities during its operation. This information includes competencies in terms of people’s skills, knowledge, and agility as well as capabilities and resources such as processes, capital, partners, and intellectual property.
The key to external and internal scanning is designing the organization to support timely sharing of information across the organization, as well as with key stakeholders of the company. It also includes reviewing the sources of the external and internal information for timeliness, relevancy, and accuracy2.
Adapting
It is not enough to simply collect information and data from the outside and inside. The company must assess how it can capture value and minimize risks in light of this information. One way to do this is to identify the competencies and capabilities that are required. They may be present competencies and capabilities that can be leveraged or redirected to achieve the objective. They may also be those that can be built or those acquired through purchase or strategic partnerships. Deciding which ones can be safely outsourced and which ones can be developed in-house, because they are critical to a product road map or delivery system, can be crucial in maximizing value capture and risk mitigation3.
The adaptive options may offer opportunities beyond simply operational or competitive improvements. They may offer innovation in value creation for present or new markets. A resilient portfolio rests on balancing present competitive business today while building innovative business for the future. A resilient strategy identifies how that can be accomplished.
In addition to analysis, one particularly fruitful method of fleshing out the possibilities of competencies and portfolios is scenario planning and assessing them through “models” or “table exercises”. Scenario planning can highlight multiple uncertainties, compared to simple success/failure of sensitivity analyses. It can also address multiple variables and identify patterns and clusters among possible outcomes4.
Testing
Once a strategy has been developed to leverage competencies and capabilities for growth and risk mitigation, it must be tested in the marketplace to ensure the innovative ideas will be linked to “jobs to be done” by buyers and that they are willing to pay for them5. This is already an essential element in today’s sales and marketing activities where companies “test” what is working and what needs improvement.
The strategy’s plan for competencies and capabilities needs to be continually tested for progress, risk, and serendipitous opportunities. Insourcing and outsourcing decisions need to be monitored and tested for progress and success.
Organizing
All three of the phases of resilient strategy development need to be thought of as a continuous integrated model. They are not meant to be sequential. As important as the phases or elements of strategy is the management of the connections. This means an organization must be designed and managed to enhance the information collection, formation of hypotheses, and testing of the strategic directions6.
It follows that the hierarchy must be flattened and the departmental silos porous. Sharing of information and collaboration of multiple disciplined, on-going projects needs to be reinforced by management, compensation, incentives, and decision rights. Processes and structures must be flexible to embrace the required change and agility7.
Timing
Because a resilient strategy requires real-time monitoring and adaptation, the elements above are not constrained to a rigid timetable, such as the annual or quarterly strategy planning session. It breaks the habitual connection between strategic reviews and budget timing.
These activities are continual, like the thermostat mentioned earlier, always monitoring and adjusting. Activities, such as sales, product releases, or service calls will yield changes that can trigger a return to the data and issues highlighted from scanning, adapting, and testing. In fact, the strategic process itself is continual.
Now that the process of continually developing and augmenting a resilient strategy has been described, what is the responsibility of the board?
Board Governance for Resilient Strategies
Boards of directors and C-suites already partner to develop strategy these days. No longer is the CEO given the task to develop it alone or with their C-suite team, only to be addressed by the board for approval. It is now even more important to partner in the formulation of resilient strategy because of it necessity to be a continuing process.
Boards need to add considerations to the agenda to ensure that the strategy is truly resilient. Those items include:
- Data Collection – ensure information is collected from multiple external and internal sources and that it is timely, relevant, and accurate
- Competencies and Capabilities – highlight present and planned competencies and capabilities; surface how they enhance the strategy, both in terms of opportunity and risk
- Market Adoption – review external data for confirmation of strategic direction in terms of value creation
- Organization and Decision Rights – ensure the organization is flat and decision rights have been cascaded throughout the organization to enhance agility
- Innovative Culture – ensure that attention, reinforcement, and continual education of innovation are part of the corporate values and behavior
- Continued Strategy Review – ensure that some element of resilient strategy is on the agenda for review, i.e., new data, new directions, or new market confirmation.
With these items in mind, a board of directors steers and guides by probing, questioning, and advising the company on resiliency in terms of value creation opportunities as well as risk mitigation needs.
In the face of disruption and uncertainty, companies must attend to tomorrow’s opportunities as well as recovery. They can do this even in the face of looming uncertainty by developing a resilient strategy. Boards can add value to that crucial effort by steering the company towards inquisitiveness, creativity, and continual adaptation.
References
1. C. Kim and R. Mauborgne, How to Build a Resilient Portfolio, (Blue Ocean Newsletter, October 2020).
2. D. Teece, et. al., Plotting Strategy in a Dynamic World (MIT Sloan Management Review Special Collection, Fall 2020).
3. Ibid.