TMG Strategic Planning - Advances in Strategy Development for the 21st Century

Advances in Strategy Development for the 21st Century

A presentation delivered by
Peter Boyce
on behalf of

Why this topic?

After a sharp decline in management interest in taking advice on strategy development in the period 2002 - 2005, there is now

a strongly resurgent interest in engaging consultants to support strategy development both here and internationally.

By the end of the last century, considerable skepticism had developed concerning the efficacy of both strategic planning and management consultants. Since the study in Figure 1 below however, I’m advised and my own experience is that interest in strategy planning continues to out pace interest in other areas, with the exception of finance strategy, which it parallels.1 Picture borrowed from Henry Mintzberg’s book, Strategy Safari.

Cartoon borrowed from Henry Mintzberg’s book, Strategy Safari.

Here is where we began the 21^st Century

Just six years later, aggregate spending on management consultants is up worldwide and Figure 1 below showing the prominent place Strategic Planning has in the mix. Strategic advice is back in favour. In this paper, TMG examines what may have contributed to the return of strategic planning.

Figure 1 Demand for Strategy Consulting

The reasons begin with the continuing relevance of strategy. Every business has a strategy. That is, every business is deliberately and as Peter Drucker put it, ‘purposefully opportunistic’. Strategy is the framework that guides what people in a business should do and how and why that course of action is expected to successfully add value to the business. Not every business articulates its strategy well, but it does have one.

The Tools of the trade

Between 1950 and 1995, strategy was a fast growing branch of ‘scientific management’. It grew to fill a need.
Over the period of the 20^th Century, the industrial revolution accelerated not only the economic growth rate but:

The growth of capital markets
The number of businesses
The size of businesses
The geographic reach of competition and
The spending power of consumers

These businesses needed more experienced people than were available to lead, organize and operate them.
The same economic growth also drove increased competition and the opportunities taken up by businesses needed to enable them to both avoid loosing business to competitors as well as improve shareholder returns. The expertise required to perform consistently was also growing. A “skills” crisis in management had arisen. To accelerate the supply of skilled management labour, business schools grew up.

But, what would they teach?

These business schools lead research into why some businesses performed better

than others opening up lines of enquiry, case study, theorizing and analysis that grew into a vast body of work…and a vast body of specialist advisors.
By 1980 supply was catching demand and the business schools and the consulting firms they helped spawn, were producing advice at a prodigious rate. The management consulting industry had become one of the “tools of trade” in strategy development.

Between 1965 (where ‘strategy’, as a branch of scientific management took off) and 2000, thousands of cases had been studied, theories advanced, evidence collected, efficacy evaluated, the non performers discarded and a rising quality of strategic thinking tools became both known and helpful.

The table pictured here chronologically lists the various tools that have developed to inform strategy development. TMG is constantly adding to its resource base of concepts, frameworks and tools.
Because each client situation is different, the combination of resources most appropriate for you is a matter for discussion early in any engagement. To request a link to this table (which in turn is linked to descriptions or applications of the tools) please email The next update to this resource base is scheduled for June 2008.

Consulting Firms “fall from grace”

In each business and economic cycle, ambition and risk taking are fuelled in a bull market. Management consulting firms, like other businesses, offered more experimental or ambitious theories and processes and clients, hungry to out-perform the competition, applied them. The dot com boom, busted in 2001 and with it, many business models and strategies were found wanting. Shareholders paid the price with severe paper losses. Management consulting firms also paid a price. For example, McKinsey was criticized for the role they played in advising Enron and Anderson Consulting went into liquidation. Management consultants advice on strategy was viewed with more skepticism and revenues slumped in 2002.

“Change” became unremarkable

Something else changed. Change became unremarkable.
Management used to talk about the ‘increasing pace of change’ as being something of note. BY the beginning of the 21^st Century, change had become something management expects, accepts and accommodates.

Even employees expect it. Employees have been down and right sized, retrenched, retrained and sold as human capital. Employees, particularly generation Y, clearly hold the view they are ‘free agents’ in a dynamic business environment.

That transition, from resistance to acceptance of change, is one of the pivotal advances in strategy development.

Indeed, it has become trite to comment on the pace of change. By the end of the 20^th Century, ‘the increasing pace of change’ had become a cliché.

Importantly, however, we only came to terms with change slowly – consider this quote:

“In an age of increasing complexity and advancing specialization, and in companies where no person knows how to do what every other person does, it becomes important that the specialist possess the ability to discern corporate purpose, to make recommendations for its clarification or development, and to shape his own contributions, not by the canons of his specialization, but by his perception of the needs of the organization as a whole” [1]

This quote is lifted directly from the book often credited as being the genesis of strategy in business – it was published in 1965. If it took 40 years for accelerating change to become unremarkable, what else is strategy development only just beginning to accept?

[1] Learned, E; Christensen, C; Andrews, K; and Guth, W Business Policy Text and Cases 1965

Scientific management in all its forms – Taylorism, bureaucracy, command and control and a chronology of correct steps and processes required to achieve a predetermined result (predictable cause and effect) underpinned the way business was organized and lead. Late in the 20^th Century organizational learning and development became fashionable, but the application was an implementation resource - not a driving strategy. There were exceptions.

Silicon Valley and professional services found less command and control, more access to information and more freedom for people to engage in their areas of greatest interest, for example, frequently produced better results. Concomitantly, the field of Human Resources Management experienced a renaissance. After coming into the foreground in the late 60s and 70s through tools such as psychological testing (Myers Briggs for example) and team building, it had developed somewhat a reputation as struggling to deliver its promised value – a kind of ‘soft science’. However, in the 1990s, HR found a strategic voice. The Learning Organization, Intrapreneurship, Emotional Intelligence and other “tools” came to be seen not just as ways of implementing change, but as a source of competitive advantage. Likewise, the strategic literature began talking about strategy as ‘emergent’ and a competency based view of the firm (resource based view revisted). Management literature talked more than ever about leadership setting directions but not prescribing every process.

‘Soft skills have hard consequences’ (Goleman)

Underpinning this renaissance is a conceptualization adapted from the physical sciences, complexity theory. Its adaptation and value to organizations, management and strategy lies in its ability to both:

Explain management experience of reality and
Provide management with an approach to human systems that resonates as workable.

“The perspective of complex responsive processes draws on analogies from the complexity sciences, bringing in the essential characteristics of human agents, namely consciousness and self consciousness, understood to emerge in social processes of communicative interaction, power relating and evaluative choice. The result is a way of thinking about life in organizations that focuses attention on how organizational members cope with the unknown as they perpetually create organizational futures together.”[1]

Complexity theory and self organizing systems only entered the management arena in the early 1990s and is only developing increasing support now. The idea that an infinite number of random events can be demonstrated to give rise to orderly and repeating patterns, sounds like what happens when the hundreds or thousands of stakeholders in a business go about their daily routine. Completing conversations, following up ideas, sharing anecdotes, discussing situations, writing

[1] Complexity: The Experience of Organizing

emails and all those behaviours that are the foundation of any organization being. Every attempt to impose some form of control on this “complex adaptive system” (knowledge management, top grading, formal lines of communication) has both the effect of focusing effort to create future value and the negative effect of distorting self generating value in the hear and now. Here is an example.

A group of managers come together for a meeting, the focus of which is achievement of future targets. Considerable data, scenario planning and sensitivity analysis has been prepared to inform the meeting and an efficient Agenda agreed. Over dinner the evening before, conversation turned to the deteriorating relationships with the CEO. From a complex responsive process perspective, one would ask how is the issue of concern with the CEO affecting the data gathered, the scenarios proposed, the assumptions in the sensitivities, the concentration of meeting participants, the durability of any conclusions reached at the meeting.[1]

The meeting, the prepared information and the Agenda are all tools that:

“…simultaneously enable highly sophisticated of communicative and other joint action, on the one hand, and constrain what is possible to do on the other, at the same time.”

In the same way as business no longer finds change remarkable, the tools that assume to impose order or give control are simultaneously accepted as both driving value and impeding value creation. Imposing less order and relinquishing control can equally give rise driving value (and impeding its creation).

Complexity is now on par with linear.

The language of strategy development has changed. The number of valuable and effective approaches, tools if you like, has broadened in the 21^st Century.

Strategic planning does not have to predict and control the future but instead:

Prepare an organization to leverage partially anticipated opportunities thereby sustaining competitive advantages for as long as they were effective and
Allow innovation on both small and large scale, incremental, novel and with a weather eye to what would likely be needed in an emergent future.
Provide space for emergent futures and spontaneous value to be created.

The language did not have to read like a maths equation – conceptualization and principles were acceptable.

Conceptually, managers need to be able to trust the idea of ‘self organizing systems’ will apply to their people. Put simply and practically, by giving clear direction to competent people in a dialogic, respectful and meaningful work environment, organizational performance and commercial accomplishment are amplified. For more information on the relationship of complexity theory to business, follow this link to “What does complexity theory offer business?”

[1] Adapted from Stacey, Ralph Complex Responsive Processes in Organizations 2001
[2] Complex Responsive Processes in Organizations 2001

Where are we as a result?

One of the early consequences, however, of accepting change as unremarkable and complexity as a given, has been to dramatically ‘shorten’ strategic horizons. Much of strategy today is seeking decisions that lead to near term results and in the corporate world, immediate value creation. At the same time, hundreds of billions of dollars are accumulating in retirement funds and this money has to be invested – somewhere.

Standing back from the detail, it is possible to see:

The TMG proposition is that this is an early, misguided response to complexity and change. It is evidence more of a temporary strategic response until equilibrium (slower change and less uncertainty) returns.
In reality, a more enlightened embrace of complexity and less dependence on control would better equip strategy makers and all organizational participants to plot lower risk and higher value pathways forward. In many ways, the future is clear.

Vast sums of capital accumulated on the promise of great returns;
Meeting businesses responding to change & uncertainty by wanting more immediate (lower risk) gains;
Agreeing to bring forward the crystallization of future value in today’s PE ratios.

To do so, however, we need to keep the value of favorite strategy tools (like SWOT, 5 Forces, Delta, Six Sigma) and more actively embrace tools that rely upon the concept of self organizing systems, creating opportunities for value creation that are often lost in the drive to control. Such tools including collaborations, learning organization, critical confrontations and open sourcing).

Strategic Planning in the 21^st Century

“…where you stand depends on where you sit…”
Anon

Decide what you believe is required

Although TMG regards change and complexity as accepted “norms” in the 21^st Century, managers must still decide what type and tools of strategy planning they believe productive and how that type of planning can be executed. It is the balance of old thinking and new thinking that must be struck – and in striking that balance, every organization must plot its own path. Whatever that path, the business will remain ‘purposefully opportunistic’.

It means recognizing that reality draws from both ends of the spectrum shown below.

Figure 2 The Philosophical Continuum

Influencing each of us is a set of beliefs about how the world works. Simplistically, each of us has a set of beliefs that tend to congregate in an area along a continuum although we occasionally do stuff wholly out of character.

How is this relevant to strategy development in the 21^st Century?

The tool box referred to earlier contains tools premised on beliefs in different places along the continuum. Porter’s Five Forces lives to the left. Organizational Learning lives to the right. M&As reside largely on the left. Organic growth draws more from the right.

To be a strategist of the 21^st Century, you need to embrace the whole continuum. Neither end is right or wrong of course. Just a different view of the world. And the view of the world becomes much more clear, despite change and complexity, if the strategist can accept the view of the whole, and not the preferred resonating parts of what might be called a “comfort zone”.

Armed with this different outlook, strategy and those charged with developing it, can look more confidently to the future.

The future is clear

Whilst not all of it of course, a great deal is in fact very clear.

When all the threats so well articulated by Porter’s Five Forces Model are happening, in all probability they are part of a pattern – and one which is largely predictable. When your learning organization feels like it is learning but not producing, look for the patterns where value is created, and then lost. In both cases, the changes and complexity will contain self organizing patterns that offer strategic direction.

The near certainties ahead

In addition to the list of ‘near certainties’ below, every industry will have its own short list of ‘near certainties’ as far as their strategic planning horizon is concerned.

We know that the economic power of the USA (and all of the West) will steadily diminish relative to China and India over the next 10-15 years. Any worthwhile strategy will be factoring that into its political, financial and operational decisions as it affects the industry and the business. Where will your future innovation, customers, employees and suppliers develop? From where will new competition emerge?

We know that the birth rate in the western world is below the rate required to maintain populations so it is reasonable to assume growth in immigration to the West and that the West will accelerate its exports and offshore investment.(If these things don’t happen western economies will shrink and there will be fewer businesses needing a strategy).

If your business relies on local markets or has not yet accommodated migrants into its culture – ask yourself how long you can hold out. If you are not watching and as appropriate, investing offshore, are you by definition, competitively disadvantaged. Developing economies also have falling birth rates along side greater education and health system access and life expectancies.

We know that the allocation of disposable income will change. Household expenditure on telecommunications was miniscule in 1950. Today it is a priority item in many markets – including India and China. In the 10-15 years ahead, emerging economies will demand more and more education, healthcare, business services and probably leisure as their immediate needs for food and shelter are increasingly satisfied. Meanwhile the west, whilst still consuming these, is likely to shift an increasing proportion of its disposable income to financial services (particularly baby boomers). Healthcare spending is likely to rise faster than information spending. Identifying and acting on early trend shifts as they relate to the revenue sources upon which your business relies continues and is substantially predictable.

We know that power follows property over the centuries through the reformation, enlightenment, rise of the middle class and into the 20^th century.vAs governments allowed and populations demanded a greater distribution of property also distributed power. That distribution process accelerated toward the end of the 20^th century as participation in the stock markets and investments in pension or superannuation funds began to extend to the wider population. In parallel, the demand for social and environmental responsibility of the corporation and its legal and fiscal transparency is accelerating. In this next 10-15 years, the corporation will exist for both the benefit of shareholders and society in far more equal measure – simply because the shareholders and society are increasingly one and the same.

We know that the need for competitive advantage on a global stage is accelerating for every firm. In the Communist Manifesto, Marx described capitalism as a force that would dissolve all feudal, national and religious identities, giving rise to a universal civilization governed by market imperatives. Marx embraced this power for its ability to strip away the distorting effect race, nation, religion and politics can have on peoples’ ability to confront and change how the haves exploit the have-nots for self interest.

Witness the changes in India (beyond the untouchables) and China (‘market Communism’). The people of South America, Eastern Europe and Africa are also on the move as capitalism becomes the preferred economic model.

Countries that tried to develop domestically, independent of world trade, became basket case economies in the 20^th Century. It is almost certain that businesses that try to remain domestic will enjoy the same fate early in the 21^st Century. Financial institutions are increasingly global and trade agreements are opening new markets. The technology tools that cost too much and drove business crazy in the 20^th century are coming into their own for productivity, information access and global trading over the next 10-15 years.[1]

Sure you have to act local – but like your competition and your customers, you’ll be thinking, looking, sourcing, comparing and learning global.

We know that economic globalization will bump against differing political boundaries in every geography in which a business operates. Strategies have to master the globalization of trade within an increasing localization of politics.

It is simply not an adequate response to the current global environment to “retreat to what you know, or focus on the here and now, or make decisions that are as much influenced by panic as they are by understanding” and repeat the mistakes of history. Indeed, it is a sign of owner, leader and manager inadequacy.

Whether you are a Melbourne coffee shop needing to respond to the global advance of Starbucks and a US Free Trade Agreement or the BHP trying to protect margins on sales to China through the acquisition of Rio Tinto in the face of Competition Policy and the FIRB, you are competing globally, but local adaptations will continue.

We know addressing climate concerns will be a big contributor to competitive advantage in a growing number (if not all) of industries over the 10-15 years ahead.

[1]Friedman, T The World is Flat 2005

"…the emerging challenge of global sustainability is the catalyst for a new round of creative destruction that offers unprecedented opportunities. Today’s corporations can seize the opportunity for sustainable development, but they must look beyond continuous, incremental improvements." [1]

Policy, subsidy and real demand exist in the impacts of climate change. Products, services, branding and political access will all need to understand, embrace and of course, leverage, climate change. This is a near certainty.

The time is now

Engaging fully with a wider spectrum of resources and embracing different thinking offers the prospect of far greater engagement between people and their organizational processes. It is a chance to create greater strategic, competitive advantage. But of course, like the jungle, the competitive market never sleeps.

Every morning in Africa a gazelle wakes up.
It knows it must run faster than the fastest lion or it will be killed.
Every morning a lion wakes up.
It knows it must outrun the slowest gazelle or it will starve to death.
It doesn’t matter whether you are a lion or a gazelle.
When the sun comes up, you better start running.

Choose your weapons

Over the course of the 20^th Century, enough strategic tools were developed and improved to make strategy development a more efficient and effective task for organizations and no doubt this advance will continue – with one caveat. Just as a house cannot only be built with a hammer, no one tool provides even the remotest kind of prescription for strategy. Each contributes differently to building the organization’s future – whether of the linear variety, or the complexity leaning.

“Not all plans become patterns, nor are all patterns that develop, are planned; some ploys are less than positions whilst others are more than positions but not quite perspectives." [2]

[1] Hart S and Milstein M, Global Sustainability and the destruction of industries, Sloan Management Review Fall99 Vol 41 Iss 1 p23
[2] Mintzberg, H California Management Review Fall 1987

An important task at the beginning of any formal strategy process [certainly from a TMG perspective] is to decide which tools are going to be most appropriate to the:

Intended scope
Culture
Resources
Situation and
Time horizon

For example:

If growth via large, long term capital investment is in scope, margin pressures are related to macro economic forces and there is an awareness of competitors emerging in new global markets the task is likely to rely on significant industry understanding. With foresight based on macro scenarios, analytical tools, positioning alternatives, decision trees and a resource based assessment might come onto the short list, applied over several months of progress workshops. Risk management would grow out of allowing logical incrementalism for implementation where possible, setting up a learning environment with high levels of local connectivity whilst maintaining high levels of excitement around the project itself.
If growth appears to be adversely impacting return on investment, business unit managers have differing views on the need to restructure and there are near time pressures to deliver greater shareholder returns. Tools that include managers in cross branch work groups in a series of action leaning scenarios built on hard data. Then, cross functional workgroups preparing a review using Value Chain Analysis, compare and use decision tool like Kepner Tregoe to analyze and refine, culminating as inputs to inform an action review conference on a five week end to end time frame is a probable option. From there, value creation can be better achieved and articulated, responding to shareholder demands both emotionally and practically.

Other tools that might be brought to bear, if only for their conceptual contribution to stimulating insight, can include; a resource based view of the firm and all its derivatives, the learning organization, lean management, six sigma, balanced scorecard, and many others.

What is important is to be comfortably able to work along the continuum without giving greater importance to any one tool over another. Each is informative in its own right.

Whatever the situation, the TMG view is that the starting point is to establish what tools, concepts or frameworks are going to address your present needs best. For a better explanation, follow this link to “The ideal Strategy Conference”.

The 20th Century model of management (and all that managers do to develop strategy) was built on the restoration of equilibrium as the preferred state.

Scientific management beginning in the 1920s, with its data rational form, dominated the management education process, including strategy.

By the 21st Century, the pace of change is no longer remarkable and increasingly complexity is assumed.

Concurrently, managers are assimilating this ‘new order’ and management educators increasingly give emphasis to the new science of complexity.

This has liberated the development of strategy from a thirst for control to a quest for superior engagement, foresight and responsiveness.

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