Navigating the Minefield of Strategic Planning
Who may hinder you from achieving your strategic goals? Perhaps it will be you.
This is the second article in the series on cognitive strategic biases.
Measure twice, and cut once. We all have heard it. By the way, in my home country, it sounds like "measure seven times, cut once" – I don't know why.
It works great in construction or medicine. But in strategic management, meticulous planning can do more harm than good.
Empire State Building
Construction of the Empire State Building began in January 1930. It's hard to believe, but it was completed by April 11, 1931.
The workers installed the first steel framework on April 1, 1930. From there, construction proceeded at a rapid pace. During one stretch of 10 working days, the builders erected fourteen floors.
The scale of the project was massive. Trucks carrying "16,000 partition tiles, 5,000 bags of cement, 450 cubic yards [340 m3] of sand and 300 bags of lime" arrived at the construction site daily (source).
It required meticulous planning.
The team didn't have computers or AI-based technologies. They didn't even have calculators – the first all-electronic desktop calculator, Anita Mk VII, appeared only in 1961.
All they had was paper and pencils. But it was enough.
The planners managed to do the job brilliantly because the situation at the site stayed the same during construction.
Unfortunately, it doesn't work this way in business.
Strategic planning
When you plan for the future, you need to build three models of reality:
–> A current reality model (your market, customers, competitors, regulations, etc.)
–> A future reality model (your anticipations and assumptions)
–> A future desired reality model (the future world as you'd like to see it)
The first model provides a foundation for the second one.
The gap between the second and third models becomes a basis for choosing the course and pace of strategic changes.
But there is a big problem.
As soon as you begin to act, the model #1 (and, consequently, the model #2) will disappear.
And you'll be one of those who destroy them.
You're not an observer. You're part of the market system. And you influence it.
Imagine you build your strategy around a new product or solution. If your market share isn't less than 1%, and if the product isn't a total failure, it will change the market as soon as you launch it.
Construction industry
One of my customers, a company providing IT services for construction businesses, thoroughly researched the market. The team discovered that small developers had a big disadvantage they wanted to overcome.
Due to their small size, they couldn't use the economy of scale. They had to buy materials at prices higher than larger companies.
My customer created a platform where they could join forces with other small companies and get significant discounts.
The team's reasoning was quite straightforward. Some customers have unsatisfied needs, and the company could benefit from it. It became the company’s strategy.
But their strategic move had unexpected implications. When material suppliers started working with minor developers on the platform, they realized that the latter was a powerful market force.
So, they changed their priorities. They had focused only on major developers before. However, my customer's solution helped them grasp that the minor developers could provide higher profits.
The suppliers reorganized their sales forces and began to work with such customers – directly, bypassing the platform. The customer need and the strategic opportunity disappeared.
Plans are static by nature
We like to base our plans on 'hard evidence,' or facts.
But when it comes to market, any fact's 'shelf life' is very short. And we are the ones who contribute to it a lot.
The 'analyze–plan–act' approach works only if our environment remains the same for a relatively long period.
But it (almost) never happens in a market.
So, strategy is about choosing a general direction and constant experimenting.
No analysis can save us from unexpected changes.
We need to invest more in hypothesizing and testing the hypotheses than in market research.
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Absolutely. It’s a dynamic, flowing, and ever-changing environment. Static plans won’t work.
Well said. I like the idea of three distinct models - I have never done the second one explicitly but I believe that with more time, it could be helpful.