Strategy development as practiced by most companies is ill-equipped to anticipate and respond to the changing nature of today’s markets and consumers. This is not only a methodology or framework problem but also a problem with the strategy development process employed by most companies.
As I see it, there are 2 fundamental issues:
- Strategy development is a backward looking process that anticipates known trends and alternatives;
- Most strategy is developed by a team not responsible for execution.
The resultant outcome at best is likely to be incremental in value, and worst case is fundamentally wrong and damaging to the business.
We have all grown up on Porter’s Five Forces when it comes to strategy development. And while different consulting firms have their own frameworks, the foundation of all strategy development comes from Porter’s Five Forces. This is essentially table-stakes and needs to be done.
The problem here is that we assume that the same market assumptions we used to develop our strategy will persist over our strategy implementation horizon. The fact that we have made a move in the market based on the strategy developed means that the market reality has now changed. Think of it as a ripple in a lake. You throw a stone in a lake, the current state is disturbed and the effects are felt widely. Competitors are likely to respond. And now that means the strategy you developed based on certain assumptions may become quickly outdated. Think about Amazon’s acquisition of Whole Foods, and how that changed the reality for all grocery retailers. If we know that competitors will respond to our strategy, and we need to assume that their strategy development capabilities are at least as good as ours, why would we not try to factor in their likely responses before we proclaim that our strategy is ready to go?
The obvious answer is we don’t know what they are likely to do and if we can’t predict it with any certainty, how can we even plan for it?
In a market that is characterized by fast paced change and a high degree of uncertainty regarding outcomes, trying to “predict” competitor moves is all the more critical.
The second flaw is around the separation of strategy development and implementation. I see real benefits in doing this. Including not being encumbered by the nitty gritty of execution which can cloud true innovation. However, this means that not only are we not leveraging the collective knowledge and insight of the people actually delivering on the strategy, but there is less likely to be buy in around the strategy being developed. Yes, we all have ways to include and engage people but typically strategy is divorced from execution.
The good news is that significant research exists on anticipating competitor moves, both in academia and the real world through the work in Game Theory and Military War Games. These approaches have been adapted and applied to enhance the strategy development process, address both issues I’ve highlighted. My experience using these techniques over the last 15 years has been that they are highly predictable, almost surprisingly so, in mapping out how competitors may respond and potential outcomes. The value of adding a Strategy War Game to the overall strategy development process adds significantly more value than the effort of doing so.