All Frontline Leadership

The Death of Strategic Planning and How Strategic Foresight Can Help Us Navigate the Pandemic Successfully

If the COVID-19 pandemic has demonstrated anything, it’s that you can’t strategically plan for
totally unexpected future events. Or has it?

Over the past 20 years, there have been four preceding epidemics that had the potential to
inflict the catastrophic damage that COVID-19 has over the last 12 months. The SARS outbreak
of 2003 was the first, which was followed by a devastating outbreak of swine flu (a pandemic in
its own right) in 2009. This decade alone has seen the Ebola virus, and MERS outbreaks pose a
threat to the status quo. Bill Gates even stood on a stage at a TED conference in 2014 and
delivered a speech entitled The Next Outbreak? We’re Not Ready.

And yet, thousands of companies have been completely blindsided by COVID-19. How can this
be? Part of the answer is related to an innate human tendency to focus on immediate threats
rather than risks that seem far in the future. The way that companies traditionally have built
their strategy by using Strategic Planning models, compounded this further as according to
William Malek, the author of Executing Your Strategy: How to Break It Down and Get It Down,
their models hadn’t anywhere near forecasted the downstream or collateral impact of
COVID-19 and therefore the immediate responses were fraught with issues and often ineffective. This article will examine why the arrival of COVID-19 has amplified the death knell for strategic planning, and why strategic foresight holds the answer for shaping winning long-term visions in a world of constant, often difficult to predict change.

 

Why Strategic Planning Is No Longer Fit-For-Purpose

Strategic planning has performed an essential role for companies looking to shape future
policies and approaches for decades. However, its inherent flaws have been laid bare by the
onset of the current global pandemic. The fundamental problem with traditional strategic
planning models is that they can no longer cope with the pace and unpredictable nature of
disruptive innovation. They have no facility to factor in unexpected outside forces which could completely upend an entire industry. Just take a look at RFID in logistics, 3D printing in manufacturing, or blockchain in finance. All innovations arrived on the scene with scarce prior warning and completely changed the rules by which many companies had been playing their respective games. So why is this the case?

Historically, strategic planning has extended primarily to scanning an industry landscape, monitoring the behaviour of rivals (thanks to Michael Porter’s 5 Force Model) and tracking specific sector metrics such as market share. The first problem with this approach is that it’s too narrow in focus. It’s useful to think of threats and opportunities as rocks making splashes in a pond (which plays the role of their respective industry in this example). Strategic planners have long spent their time analysing the rocks making splashes in their pond, understanding what those rocks are and predicting how the ripples they make will affect their company moving forward. However, they make the mistake of only looking within their own pond. Innovation, in particular, is often distant. A technological breakthrough in one industry could have massive ramifications for another unrelated sector. Those who are the first to recognise these innovations can not only adopt and leverage such innovation to leave rivals behind, but they can better prepare their proactive opportunities and/or defenses for threats on the horizon.

Taking the pandemic as an example, if strategic planners had the foresight to look at the pond
entitled “diseases with pandemic potential” they would have seen that the warning signs had
been there for quite some time. Each rock cast into the pond was growing in size, sending out
increasingly large ripples. A mere brief observation of this pond could have better prepared
their company for the impending meteor-sized boulder that was about to cause a tsunami,
sending crashing waves into almost every industry pond within reach.

The second problem is that this method is backwards-looking, stymying internal innovation.
Strategic planning is based on extrapolating historical data and knowledge and projecting it into
the future. Every strategy borne out of traditional strategic planning methods is derivative of
what has gone before. The phrase “past performance is not indicative of future performance” is
famously attached to almost all investment products. And yet, many companies still take this
approach when forming their forward-looking strategies. It’s akin to navigating a car by using
the rear-view mirror, using only the prior twists and turns of the road to try and adapt, adjust,
and plan a course forward. Of course, the problem is that the driver can’t see the obstacle
standing in the middle of the road ahead that is about to badly damage the car, possibly
beyond repair.

To this end, strategic planning tools are geared towards defending and extending existing
products and services, rather than predicting seismic shifts in markets and presenting
opportunities for internal innovation. Many strategic planning tools originated from financial
planning, which used almost exclusively historical accounting information. In later years these
programs were expanded to include other information from sales, logistics, manufacturing and
procurement. But, again, the numbers are almost wholly historical data. As all the data is
historical, the process is fixated on projecting and thus defending, historical products sold to
historical customers.

 

Why Strategic Foresight Offers A Much Better Insight into the Future

Strategic foresight takes an entirely different approach to mapping out future policies and preferred intentions. Instead of helping to figure out what to think about the future, it helps companies out how to think about it. It operates on the premise that the future is wholly unpredictable, as the last few months have aptly demonstrated. The whole method of strategic foresight is underpinned by the tool of scenario planning – the process of planning for several distinct future outcomes, any one of which could come to fruition. In other words, it institutionalises imagination. By forming strategy in this way, gone are the boundaries of the industry, geopolitical concerns, or visions shaped by previously acquired knowledge and experiences. It flips the traditional model on its head by planning from the future backwards, rather than projecting the past forwards. The only limitations in place are those of the human mind and as William Malek says ‘there’s no better tool than having multiple options understood and planned, planned so they’re not just sitting there as theoretical, but ready to be executed right.’ Scenario planning is nothing new. It was first used in the commercial context by Royal Dutch Shell. In the early 1970s Pierre Wack, presented the work of Jimmy Davidson and Ted Newland, to senior executives. They had devised several scenarios in a dossier known as “Year 2000” to help Shell prepare for what might take place as the oil-rich nations of the Middle East began to assert themselves. When severe oil market shocks arrived in the form of the 1973 OPEC oil embargo, Shell was able to ride the crisis out much better than its competitors. They have continued to lead the way in the field of strategic foresight in the form of their “Shell
Scenarios.” Nonetheless, while the use of scenario planning has increased by more than 30%
according to Bain & Company over the last two decades, few organisations have institutionalised the practice in a bid to achieve strategic foresight.

However, one such company that has made the leap from strategic planning to strategic
foresight is Microsoft.

Microsoft – From a Strategic Planning Disaster to Masters of Strategic Foresight

Just five years ago, many commentators were lambasting Microsoft’s approach to strategy.
Their strategic vision was very much derived from strategic planning tools intent on preserving
and defending as opposed to thinking outside the box. They rightly pointed to CEO Steve
Ballmer’s catastrophic error of judgement in his assessment of innovation. Back in 2007, he
went on the record to state that “There’s no chance that the iPhone is going to get any
significant market share.” His reasoning? He couldn’t envisage a world where phones didn’t
have physical keyboards. In other words, he and his colleagues lacked imagination. Consider for
a second that Microsoft executives planned a scenario where this was in fact the case. What if
Microsoft were the first ones to launch touchscreen smartphones? Would Apple be the
behemoth it is today? More “extend and preserve” strategic deals failed spectacularly. One
such fiasco was the acquisition of the Finnish phone manufacturer, Nokia. Within 24 months
the acquired company was written off as a $7.5 billion mistake. Something had to change. That
change came in the form of Satya Nadella, who replaced Ballmer as CEO in 2014.

Suddenly, there was a seismic shift in the way Microsoft shaped their strategy. Microsoft began
iterating their products and services based on “what if” scenarios. They realised fairly quickly
that a number of those scenarios had a common solution; cloud technology. Consequently,
Microsoft Azure (a late entrant into the cloud computing space) received colossal resources,
attention, and focus from the company. While they couldn’t know precisely how the future
would pan out, they knew that companies would likely need cloud services to adapt and
respond. Almost overnight, Microsoft became a blend of an IaaS and SaaS company. They
reinvented their model from selling hardware-based software to cloud-based applications with
the associated infrastructure to support them. In 2017, they launched Microsoft Teams based
on the scenario that one day we might work, chat, meet, call, and collaborate remotely rather
than in-person. It was a hypothetical scenario that couldn’t have panned out much better for
them.

It’s a change of strategic approach that has yielded novel services too. Back in 2018, Microsoft
employees launched a project known as “Project xCloud.” Its goal was simple, to imagine a
world in which games consoles were no longer relevant. They played out multiple scenarios and
came up with a disruptive concept that is set to permanently alter the gaming industry. xCloud
has been coined the Netflix of the gaming world by offering consumers the chance to stream
and play hundreds of different games on any device including televisions, desktops, laptops,
and phones for a flat monthly fee. Crucially, those devices include rival Apple products that
have an enormous market share. Sony has been left floundering, caught cold by the concept
that a games console may be a relic consigned to the history books in less than a decade.
As demonstrated, a cultural change in strategic thinking has transformed Microsoft from
cumbersome technology company in terminal decline, to a nimble company with dominant
positions in cloud computing, business software, gaming, and more. The bottom line has
responded in kind. Despite COVID-19, fiscal third-quarter 2020 revenue was up by 15% year-
on-year while earnings advanced 23%. These figures backup McKinsey research that
discovered companies who commit to genuine long-term strategies (indicated by Microsoft’s
wholesale move to the cloud) experienced a 47% higher average revenue and 36% higher
earnings growth.

 

Strategic Foresight Worked Through: Haier’s Turnaround

Speaking to William Malek, his favorite example of Strategic planning in practice is around the
household appliance manufacturer, Haier. “Haier is a Chinese company started in ‘84 which
Zhang Ruimin fundamentally turned around. Previously an issue laden manufacturer based out
of Qingdao producing poor quality refrigerators, he restructured the business into what he
called micro enterprises. Each micro enterprise has no business units, no middle managers and
they’ve inverted the organisation making the market the most important stimulus and point of focus. The power of our businesses is in the market, it’s not inside the company. Fundamentally it’s almost counterintuitive but it’s brilliant in the sense that they have thousands of micro enterprises that are focused on very specific end user problems, customer needs and problems. When the pandemic hit, their ability to respond was amplified because they had many focused teams, ensuring that they understood the problems and needs of the market that they’re watching. They’re looking at their customers’ signals, trends and opportunities. There’s so many of them that their ship is already naturally diversified in their portfolio. Their businesses already naturally experiment because of the small teams managing these micro enterprises. Their growth during the pandemic was down to their ability to anticipate and respond very quickly to needs in the marketplace.

Both the Microsoft and Haier examples help show strategic foresight as offering the best route
to a well-rounded, flexible, and robust long-term strategy. By contrast, strategic planning, as
the pandemic has aptly shown, is so limited by previous experience, existing knowledge, and
industry boundaries that it’s no longer fit for purpose in today’s rapidly changing business
environments. However strategic foresight has many different frameworks depending on the
business requirements. As William Malek asks “How fast do you need to move? How big is your
potential transformation that you need to take place if you’ve got to survive? If it’s a gigantic S
curve you’ve got to look at your tool chest and do your planning very differently than if you’re
just surviving and have significant working capital for 12 months.”
Your situation very much dictates the best approach to strategic foresight, however the
mindset involved doesn’t change. The mindset would suggest that we build future-fit plans
around the next pandemic and it will be fascinating to see how companies responses to the
pandemic change as a result of implementing strategic foresight.