The Art of Strategy How Is Different From Thinking Strategically
Strategic planners pride themselves on their rigor. Strategies are supposed to be driven by numbers and all-encompassing assay and uncontaminated by bias, judgment, or opinion. The larger the spreadsheets, the more confident an arrangement is in its process. All those numbers, all those analyses, feel scientific, and in the modern world, "scientific" equals "good."
Nonetheless if that's the instance, why do the operations managers in nigh big and midsize firms dread the annual strategic planning ritual? Why does information technology consume so much time and accept then little impact on company actions? Talk to those managers, and you volition most likely uncover a deeper frustration: the sense that strategic planning does non produce novel strategies. Instead, it perpetuates the status quo.
1 common reaction is to become explicitly antiscientific—to throw off the shackles of organized number crunching and resort to off-site "ideation events" or online "jam sessions" intended to promote "out of the box" thinking. These processes may outcome in radical new ideas, simply more probable than non, those ideas cannot be translated into strategic choices that guide productive action. Every bit i manager put information technology, "In that location's a reason we keep those ideas outside the box."
Many managers feel they are doomed to weigh the futile rigor of ordinary strategic planning processes against the hit-or-miss creativity of the alternatives. We believe the two can be reconciled to produce creative but realistic strategies. The key is to recognize that conventional strategic planning is not really scientific. Yes, the scientific method is marked by rigorous assay, and conventional strategic planning has plenty of that. Simply also integral to the scientific method are the creation of novel hypotheses and the careful generation of custom-tailored tests of those hypotheses—two elements that conventional strategic planning typically lacks. Information technology is as though modern strategic planning decided to be scientific but and then chopped off essential elements of science.
The approach we're about to draw adapts the scientific method to the needs of business strategy. Triggered by the emergence of a strategic challenge or opportunity, it starts with the conception of well-articulated hypotheses—what we term possibilities. It then asks what would have to exist true nigh the world for each possibility to be supported. Only then does it unleash analysts to determine which of the possibilities is most probable to succeed. In this way, our approach takes the strategy-making procedure from the just rigorous (or unrealistically creative) to the truly scientific. (See the showroom "Seven Steps to Strategy Making.")
Step 1: Move from Issues to Selection
Conventional strategic planning is driven by the agenda and tends to focus on issues, such as declining profits or market place share. Every bit long every bit this is the case, the organization will fall into the trap of investigating data related to the bug rather than exploring and testing possible solutions.
A simple mode to get strategists to avoid that trap is to crave them to define two mutually exclusive options that could resolve the effect in question. In one case y'all have framed the trouble equally a choice—whatever selection—your assay and emotions will focus on what you have to practise side by side, not on describing or analyzing the challenge. The possibilities-based approach therefore begins with the recognition that the arrangement must make a choice and that the choice has consequences. For the management team, this is the proverbial crossing of the Rubicon—the pace that starts the strategy-making process.
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In the late 1990s, when Procter & Gamble was contemplating becoming a major player in the global dazzler care sector, it had a big issue: It lacked a credible make in skin care, the largest and most profitable segment of the sector. All information technology had was Oil of Olay, a small, down-marketplace brand with an aging consumer base. P&G crossed its Rubicon and laid out two possibilities: Information technology could attempt to dramatically transform Oil of Olay into a worthy competitor of brands similar L'Oréal, Clarins, and La Prairie, or it could spend billions of dollars to buy a major existing pare care brand. This framing helped managers internalize the magnitude of what was at stake. At that point P&Chiliad turned from contemplating an effect to facing a serious choice.
Pace two: Generate Strategic Possibilities
Having recognized that a option needs to be made, you tin can now turn to the full range of possibilities you should consider. These might exist versions of the options already identified. For example, P&G could try to grow Oil of Olay in its current price tier or take information technology upmarket, or information technology could seek to buy the German company that owns Nivea or pry Clinique out of the hands of Estée Lauder. Possibilities might also exist outside the initial options. For instance, P&Chiliad could extend its successful cosmetics brand, Encompass Daughter, into skin care and build a global make on that platform.
Constructing strategic possibilities, especially ones that are genuinely new, is the ultimate creative act in business. No one in the rest of the beauty manufacture would take imagined P&G's completely reinventing Olay and boldly going head-to-head against leading prestige brands. To generate such artistic options, you demand a clear idea of what constitutes a possibility. You also demand an imaginative yet grounded team and a robust process for managing contend.
Desired output.
A possibility is substantially a happy story that describes how a firm might succeed. Each story lays out where the company plays in its market and how it wins in that location. It should take internally consequent logic, but information technology need not be proved at this point. Every bit long as we can imagine that information technology could be valid, information technology makes the cut. Characterizing possibilities as stories that do not require proof helps people discuss what might be viable but does not yet exist. It is much easier to tell a story well-nigh why a possibility could brand sense than to provide information on the odds that it volition succeed.
A common temptation is to sketch out possibilities only at the highest level. Only a motto ("Become global") or a goal ("Be number i") does not constitute a strategic possibility. We push teams to specify in detail the advantage they aim to achieve or leverage, the scope beyond which the advantage applies, and the activities throughout the value chain that would deliver the intended advantage beyond the targeted scope. Otherwise it is impossible to unpack the logic underlying a possibility and to subject the possibility to subsequent tests. In the Comprehend Daughter possibility, the advantage would come from Cover Girl's strong brand and existing consumer base combined with Procter & Take a chance's R&D and global go-to-market capabilities. The scope would exist express to the younger demographic at the middle of the current Comprehend Girl consumer base, and it would demand to build internationally from N America, where the brand was stiff. The key activities would include leveraging Encompass Girl'south stable of model and celebrity endorsers.
Managers often ask, "How many possibilities should we generate?" The answer varies according to context. Some industries offer few happy stories—there are but not a lot of good alternatives. Others, peculiarly ones in ferment or with numerous customer segments, accept many potential directions. We find that most teams consider iii to 5 possibilities in depth. On i aspect of this question nosotros are adamant: The team must produce more than 1 possibility. Otherwise it never really started the strategy-making procedure, because it didn't see itself as facing a option. Analyzing a unmarried possibility is not conducive to producing optimal activity—or, in fact, any action at all.
We also insist that the condition quo or current trajectory exist amid the possibilities considered. This forces the squad in later stages to specify what must be true for the status quo to be viable, thereby eliminating the common implicit assumption "Worst case, we can just keep doing what we're already doing." The condition quo is sometimes a path to pass up. Past including it among the possibilities, a team makes it subject area to investigation and potential doubt.
The team at P&G surfaced five strategic possibilities in add-on to the status quo. One was to abandon Oil of Olay and larn a major global skin care brand. A 2d was to keep Oil of Olay positioned where it was, equally an entry-priced, mass-marketplace brand, and to strengthen its appeal to electric current older consumers by leveraging R&D capabilities to improve its wrinkle-reduction performance. A third was to have Oil of Olay into the prestige distribution aqueduct—department stores and specialty dazzler shops—as an upscale brand. A 4th was to completely reinvent Olay as a prestigelike brand that would appeal more broadly to younger women (age 35 to fifty) but be sold in traditional mass channels past retail partners willing to create a "masstige" experience, with a special display section. A fifth was to extend the Cover Girl brand to skin care.
The people.
The group tasked with dreaming up strategic possibilities should correspond a diversity of specialties, backgrounds, and experiences. Otherwise it is difficult to generate creative possibilities and to mankind out each one in sufficient detail. We find it useful to include individuals who did not create, and therefore are non emotionally leap to, the status quo. This usually implies that promising junior executives will participate. We also notice that individuals from outside the firm, preferably exterior the industry, often lend the most original ideas. Finally, we believe it'southward crucial to include operations managers, not just staff members, in the process. This not simply deepens practical wisdom but likewise builds early commitment to and knowledge of the strategy that is ultimately chosen. If you prove the states a visitor where the planners are different from the doers, we will show y'all a visitor where what gets done is different from what was planned.
Optimal group size varies among organizations and their cultures. Companies with a culture of inclusion, for example, should assemble a big group. If you lot go this route, use breakout groups to hash out the specific possibilities; a group larger than viii or 10 people tends to be self-censoring.
Information technology's usually non a good thought to accept the most senior person serve as the leader; she will have a difficult time convincing the others that she is not playing her usual role every bit boss. Instead, choose a respected lower-level insider who is not perceived as having a strong point of view on which course should be called. Or tap an outside facilitator who has some experience with the firm.
The rules.
One time selected, the possibility generators must commit themselves to separating their starting time stride—the creation of possibilities—from the subsequent steps of testing and selecting. Managers with disquisitional minds naturally tend to greet each new thought with a long listing of reasons why it won't piece of work. The leader must constantly remind the group that aplenty fourth dimension for skepticism will come later; for now, it must suspend judgment. If anyone persists with a critique, the leader should require him to reframe it every bit a status and table it for discussion in the side by side pace. For example, the critique "Customers will never accept differential pricing" becomes the condition "This possibility requires that customers accept differential pricing." It's particularly important that the leader non shoot down possibilities early. If that happens, information technology'southward open season on all possibilities. And removing an option nearly which a particular team member feels strongly may cause that person to withdraw from the process.
Many management teams effort to generate strategic possibilities in a single off-site brainstorming session. Such sessions are useful, especially if they are held at an unusual location that gets people out of their accustomed routines and habits of mind. Only we have besides seen teams benefit from spreading the possibility-generation process over some time so that individuals have an opportunity to reflect, think creatively, and build on ideas. It is perhaps most effective to start by asking each person to spend 30 to 45 minutes sketching out three to five (or more than) stories. The stories do not demand to be detailed; they should truly be sketches. After this practice the group (or breakout groups) fleshes out the initial possibilities.
Conventional strategic planning is not actually scientific. It lacks the creation of hypotheses and the careful generation of tests.
Possibility generation centers on creativity, and many techniques purport to heave creativity. Nosotros've found three kinds of probing questions to be peculiarly useful. Inside-out questions start with the company's assets and capabilities and and so reason outward: What does this company exercise particularly well that parts of the market might value and that might produce a superior wedge between buyer value and costs? Outside-in questions expect for openings in the market: What are the underserved needs, what are the needs that customers find hard to limited, and what gaps take competitors left? Far-outside-in questions use analogical reasoning: What would it take to be the Google, the Apple, or the Walmart of this market?
You lot will know that you have a skillful fix of possibilities for further work if 2 things prove to be true. Kickoff, the status quo doesn't await like a brilliant idea: At least one other possibility intrigues the grouping plenty to make it actually question the existing order. Second, at least ane possibility makes most of the group uncomfortable: It is sufficiently far from the status quo that the grouping questions whether it would exist at all doable or prophylactic. If ane or both of these don't hold, it is probably time for some other round of possibility generation.
The uncomfortable possibility for P&G was the quaternary option described above. It involved transforming a weak, depression-cease brand into a more desirable player that could compete with upmarket department store products so creating an entirely new masstige segment that mass retailers would enthusiastically back up.
Pace 3: Specify the Conditions for Success
The purpose of this footstep is to specify what must exist true for each possibility to be a terrific selection. Note that this step is not intended for arguing virtually what is true. Information technology is not intended to explore or assess the soundness of the logic behind the various possibilities or to consider data that may or may not support the logic—that comes after. Any consideration of evidence at this point detracts from the process.
The importance of this distinction cannot be overstated. When the give-and-take of a possibility centers on what is truthful, the person near skeptical nigh the possibility attacks information technology vigorously, hoping to knock information technology out of contention. The originator defends it, parrying arguments in order to protect its viability. Tempers rising, statements become more extreme, and relationships are strained. Meanwhile, little of either opponent's logic is revealed to the other.
If, instead, the dialogue is about what would accept to be truthful, then the skeptic can say, "For me to be confident in this possibility, I would have to know that consumers will embrace this sort of offer." That is a very different sort of statement from "That will never work!" Information technology helps the proponent understand the skeptic's reservations and develop the proof to overcome them. It as well makes the skeptic specify the exact source of the skepticism rather than issue a blanket denunciation.
Nosotros've developed a framework for surfacing the atmospheric condition that have to be true for a possibility to be an attractive strategy (see the exhibit "Assessing the Validity of a Strategic Option"). The conditions autumn into vii categories relating to the industry, customer value, business concern model, and competitors. Begin by clearly spelling out the strategic possibility nether consideration. Then movement to a ii-phase discussion process:
Once you lot've listed all your options, specify what must exist true for each to succeed. The diagram below provides a framework for surfacing the necessary conditions; in effect, you are opposite engineering science your selection. P&G's awarding of the framework to its pick for a renamed and repositioned Olay is shown at the finish of the sidebar.
The Framework
In guild to pursue this option successfully, what conditions would we take to believe existed or could exist created?
The Olay "Masstige" Option
The selection under consideration was to reposition Olay for a younger demographic, with the promise to "fight the vii signs of crumbling." It would involve partnering with retailers to create a masstige segment—consumers willing to buy a prestigelike product in mass channels. P&G determined that for this selection to succeed, these weather condition would have to exist or be created:
Generate a list.
In the commencement stage of discussion, the aim is to enumerate all the atmospheric condition that demand to hold true for everyone in the room to be able to honestly say, "I feel confident enough to brand this possibility a reality." The conditions should be expressed as declarative rather than conditional statements—for instance, "Aqueduct partners volition support united states," not "Channel partners would accept to support united states of america." This helps pigment a positive pic of the possibility, one that will exist inviting to the group if the atmospheric condition actually hold.
Yous must brand sure that the individual who proposed the possibility under review does not dominate this conversation. Any condition that is put forward should be added to the list. The person putting it forward should only be asked to explain why that status would be necessary for him to exist confident; he should not be challenged nigh the truth of the condition.
When each fellow member of the group has had a adventure to add conditions to the listing, the facilitator should read the list aloud and ask the group, "If all these weather condition were true, would you advocate for and support this choice?" If everyone says aye, information technology's time to motion to the next step. If any members say no, they must be asked, "What boosted condition would enable y'all to respond yes?" This line of questioning should continue until every member replies affirmatively.
Once again, during this step expressing opinions about whether or not conditions are true should exist strictly prohibited. The signal is simply to ferret out what would have to be true for every member of the group to feel cognitively and emotionally committed to each possibility under consideration.
Information technology is of import to treat the current strategy in this manner as well. We recall one give-and-take a number of years ago almost the condition quo option. Toward the stop, the president of the visitor leaped out of his seat and sprinted from the room. When he returned, 10 minutes later, his colleagues asked whether he was OK. He explained that the discussion had made him see how logically weak the condition quo was. The reason he had raced out was to cancel a multimillion-dollar initiative in support of the status quo—the go/no-get deadline was that very day.
Weed the list.
The previous practice typically overshoots, and the list of weather condition crosses the line between "must have" and "nice to have." After finishing the list of conditions, the group should accept a break and then review the items, asking, "If every status but this one held true, would you eliminate the possibility or still view it as feasible?" If the answer is the former, the condition is a must-have and should be maintained. If it is the latter, it is a nice-to-have and should exist removed.
The goal here is to ensure that the listing of atmospheric condition is truly a bounden set. To this cease, once you're finished reviewing, you should enquire, "If all these conditions were truthful, would you advocate for and support this option?" If any member says no, and so the grouping needs to return to the start-stage discussion and add any necessary conditions that were initially disregarded or mistakenly removed.
After arriving at a total set of possibilities and ensuring that all must-have atmospheric condition are attached to each, the group needs to bring its options to the executives whose blessing will be required to ratify the final selection and to any other colleagues who might stand in the way. For each possibility, the group needs to ask these people the same questions it asked its members: "If these atmospheric condition were shown to agree true, would you cull this possibility? If non, what boosted conditions would y'all include?" The goal is to make sure that the atmospheric condition for each possibility are well specified in the eyes of everyone with a say in the choice— earlier assay ensues.
Step iv: Identify the Barriers to Choice
Now it's time to cast a critical eye on the conditions. The job is to appraise which ones you believe are least probable to concord truthful. They will define the barriers to choosing that possibility.
Begin by request group members to imagine that they could buy a guarantee that any particular condition will hold true. To which condition would they apply it? The condition they choose is, by inference, the biggest barrier to choosing the possibility under consideration. The next condition to which they would apply a guarantee is the next-biggest bulwark, and so on. The ideal output is an ordered listing of barriers to each possibility, 2 or three of which really worry the grouping. If there is disagreement about the ordering of item weather condition, you should rank them every bit equal.
Pay close attention to the fellow member who is most skeptical that a given status volition agree truthful; that person represents the greatest obstacle—and, in the case of a problematic possibility, an extremely valuable obstacle—to the option and pursuit of the selection. Members must be encouraged to heighten, not suppress, their concerns. Even if merely one person is concerned about a given condition, the condition must be kept on the listing. Otherwise he would be inside his rights to dismiss the final analysis. If the skepticism of every member is drawn out and taken seriously, all will experience confident in the process and the outcomes.
When the P&Grand beauty care team reviewed the nine weather it had come up with for the Olay masstige possibility, the members felt confident that vi would hold: The potential consumer segment was big enough to be worth targeting; the segment was at least as structurally attractive as the current mass-market skin care segment; P&G could produce the product at a cost that would permit a somewhat lower toll than those of key lower-finish prestige players; information technology was capable of building retailer partnerships (if retailers liked the idea); prestige competitors would not copy the strategy; and mass competitors could not copy the strategy. However, three conditions worried the team, in descending order: that mass-channel consumers would accept a new, significantly college starting price signal; that mass-aqueduct players would be game to create a new masstige segment; and that P&Thou could bring together prestigelike brand positioning, product packaging, and in-store promotion elements in the mass-retail channel.
Step 5: Pattern Tests for the Barrier Conditions
One time y'all've identified and ordered the key barrier weather condition, the group must test each one to run across whether it holds truthful. The test might involve surveying a thousand customers or speaking to a single supplier. Information technology might entail crunching thousands of numbers or avoid any quantifiers at all. The simply requirement is that the entire group believe that the exam is valid and can form the basis for rejecting the possibility in question or generating commitment to it.
The fellow member who is most skeptical nearly a given status should have the lead in designing and applying the examination for it. This person will typically accept the highest standard of proof; if she is satisfied that the condition has passed the test, everyone else will be satisfied. The risk, of course, is that the skeptic might set an unachievable standard. In practice this does not happen, for two reasons. Get-go, people demonstrate extreme skepticism largely because they don't feel heard. In a typical buy-in process, concerns are treated as roadblocks to be pushed bated as quickly equally is feasible. The possibilities-based approach ensures that individuals with concerns both feel and actually are heard. Second is the specter of mutually assured destruction. Though I may have serious doubts virtually possibility A, I quite like possibility B. Y'all, on the other hand, have few doubts about possibility A but have serious qualms nearly choosing possibility B. I get to set the tests for the barrier conditions for possibility A, only I do then with the cognition that you will exist setting the tests for possibility B. If I set too high a bar, you will surely do the same. Being fair and sensible is, then, the smartest arroyo.
Step 6: Behave the Tests
Nosotros typically structure this footstep according to what we phone call "the lazy man's arroyo to pick," testing conditions in the contrary order of the group'southward confidence. That is, the status the group feels is least probable to hold upwards is tested commencement. If the group's suspicion is right, the possibility at paw can be eliminated without any further testing. If that condition passes the test, the condition with the next-lowest likelihood of confirmation is tested, and and so on. Because testing is often the almost expensive and time-consuming role of the process, the lazy man's approach can save enormous resources.
At $18.99, consumers were willing to cantankerous over from prestige department and specialty stores to buy Olay in disbelieve, drug, and grocery stores.
Typically, at this footstep you bring in people from outside the strategy team—consultants or experts in relevant functional or geographic units, who can help fine-tune and conduct the tests you accept prioritized. It is important to ensure that they concentrate solely on testing. You are not asking them to revisit the conditions. In fact, one beauty of the possibilities-based approach is that it enables you to focus outside resources that may be costly and time-consuming.
This arroyo differs greatly from the process followed past most strategy consultants, who acquit a relatively standard suite of analyses in parallel. That generates a lot of (expensive) analysis, much of which turns out to be not essential or even useful in decision making. Furthermore, depth is sacrificed for breadth: Analyses are a mile wide and an inch deep, because the toll of deep analysis across the board would be prohibitive. To generate choice and commitment, we demand analysis that is an inch wide and a mile deep—targeting the concerns that could forbid the group from choosing an option and exploring those areas thoroughly enough to run into the group's standard of proof. The possibilities-based arroyo permits this.
For the P&Yard beauty care team, the most challenging condition for the Olay masstige possibility related to pricing. The exam of the condition showcased the power of a truly scientific, hypothesis-driven arroyo to generate strategies that are both unexpected and successful. Joe Listro, Olay's R&D managing director, explains how it went. "We started to test the new Olay product at premium price points of $12.99 to $18.99 and got very different results," he says. "At $12.99, there was a positive response and a reasonably good rate of purchase intent. Merely nigh who signaled a desire to buy at $12.99 were mass shoppers. Very few department store shoppers were interested at that price bespeak. Basically, we were trading people up from inside the channel. At $15.99, purchase intent dropped dramatically. At $18.99, it went back up again—mode up. So $12.99 was really proficient, $fifteen.99 non and so expert, $18.99 great."
The team learned that at $xviii.99, consumers were crossing over from prestige department and specialty stores to buy Olay in discount, drug, and grocery stores. That price indicate sent exactly the correct bulletin. For the department store shopper, the production was a bully value but nonetheless credibly expensive. For the mass shopper, the premium cost signified that the production must be considerably meliorate than anything else on the shelf. In contrast, $15.99 was in no-man'due south land—for a mass shopper, expensive without signaling differentiation, and for a prestige shopper, not expensive enough. These differences were quite fine; had the team non focused so advisedly on building and applying robust tests for multiple price points, the findings might never have emerged.
It is of import to understand that tests cannot eliminate all uncertainty. Even the all-time-performing possibility will entail some risk. That is why it is and then crucial to fix testable conditions for the status quo: The team then clearly sees that the status quo is non free of risk. Rather than compare the best-performing possibility with a nonexistent take chances-free option, the squad can compare the chance of the leading option with the hazard of the condition quo and reach a decision in that context.
Step 7: Make the Choice
In traditional strategy making, finally choosing a strategy tin be hard and acrimonious. The decision makers usually get off-site and endeavor to frame their binders of much-discussed market research as strategic options. With the stakes high and the logic for each option never clearly articulated, such meetings often end up as negotiations between powerful executives with strong preconceptions. And once the meetings are concluded, those who are skeptical of the decision begin to undermine it.
With the possibilities-based approach, the selection-making step becomes simple, even anticlimactic. The group needs just to review the analytical exam results and cull the possibility that faces the fewest serious barriers.
Often a strategy chosen in this fashion is surprisingly bold and would most likely have been strangled at birth in the traditional process. Consider the Olay example. P&G ended upward deciding to launch an upmarket product called Olay Total Effects for $18.99. In other words, the make once dismissed as "Oil for Old Ladies" was transformed into a prestigelike product line at a price point close to that of department store brands. And it worked. Mass-retail partners loved the product and saw new shoppers ownership at new price points in their stores. Beauty magazine editors and dermatologists saw real value in the well-priced, effective production line.
The masstige strategy succeeded beyond expectations. P&G would have been happy with a billion-dollar global skin intendance brand. Merely in less than a decade the Olay brand surpassed $2.five billion in annual sales by spawning a serial of "bazaar" product lines—starting with Total Effects and following with Regenerist, Definity, and Pro-X—that attracted more than prestige shoppers and commanded prices somewhen exceeding $50. Laid out neatly on paper, the possibilities-based approach sounds easy. But many managers struggle with it—not considering the mechanics are difficult, merely because the approach requires at least three primal shifts in mind-set. First, in the early steps, they must avoid asking "What should nosotros practise?" and instead ask "What might we practice?" Managers, especially those who pride themselves on beingness decisive, leap naturally to the former question and get restless when tackling the latter.
2d, in the middle steps, managers must shift from request "What do I believe?" to asking "What would I have to believe?" This requires a managing director to imagine that each possibility, including ones he does not similar, is a nifty idea, and such a mind-gear up does not come naturally to about people. It'south needed, however, to identify the correct tests for a possibility.
Finally, by focusing a team on pinpointing the critical weather condition and tests, the possibilities-based approach forces managers to move away from asking "What is the right reply?" and concentrate instead on "What are the right questions? What specifically must nosotros know in society to make a expert decision?" In our feel, nearly managers are ameliorate at advocacy of their own views than at inquiry, peculiarly about others' views. The possibilities-based arroyo relies on and fosters a team's ability to inquire. And genuine research must lie at the eye of any process that aims to be scientific.
A version of this article appeared in the September 2012 issue of Harvard Business Review.
Source: https://hbr.org/2012/09/bringing-science-to-the-art-of-strategy
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