Rethinking strategy for a Covid world
The unique nature of the current crisis has rendered traditional strategy toolkit ineffective, requiring leaders to embrace an adaptive approach to strategy development and execution.
- Article |
- 25 August, 2020
- COVID-19 has created unprecedented levels of uncertainty for business
- As a result, the traditional strategy toolkit that was built for a more stable and predictable world has been blunted
- To build and execute strategy during Coronavirus leaders need to adopt an adaptive framework to strategy development and execution
The uniqueness of the current crisis is a function of four key characteristics: the crisis' impact on health, its impact on economic growth, the level of uncertainty it has created, and its coincidence with a slowdown in globalisation.
Firstly, COVID-19 has affected far more people than any previous pandemic over the last several decades like SARS or H1N1. There are over 60m recorded infections and over 1.4m deaths so far with cases in almost every country in the world. India has been particularly badly hit with close to 10m cases.
Second, the pandemic's impact on economic growth has been dramatic with Indian GDP estimated to fall from a projected +5.6% to -10.3% in FY21. A fall not seen in India since liberalisation.
Third, the COVID-19 crisis has increased uncertainty to levels never seen before. Uncertainty as measured by the World Uncertainty Index had been moving up over the last 20 years but leapt way above levels seen during the last financial crisis as COVID unfolded.
Fourth and finally, the coronavirus crisis has come at a time of decelerating globalisation. After more than 60 years of rising trade openness and economic expansion, global trade failed to recover from the global financial crisis of the late 2000's and a rising trade war between the US and China was sending it into reverse - so called slowbalisation. COVID-19 is set to accelerate this pre-existing trend with global trade predicted to contract by 13% this year by the WTO.
As a consequence of these four factors, the experience of previous crises are of little use in guiding current decision-making.
COVID-19 has blunted the traditional tools of strategy development and execution
Once we appreciate the distinct nature of the current crisis, the next question business leaders should ask is how does this affect the way I develop and execute strategy for my business?
Through extensive research into the strategy development process at leading companies over the last decade and more, we found that the traditional approach adopted by most large companies was already coming up short. And when the COVID-19 crisis hit the traditional strategy toolkit was well and truly blunted. Why did this happen?
In short, the existing tools of strategy development and execution were designed for a stable and predictable environment. As uncertainty rose, the assumptions about the real world inherent in this approach increasingly came unstuck. This weakness was already exposed during the last global financial crisis and the rapid rise of digital disruptors.
The traditional process of strategy development which predominates at most large Indian firms relies on several key tools and processes. Corporate strategists have relied on five major analytical tools to guide their strategy process which have failed to keep up with the new reality.
First, strategists build a picture of their market landscape through periodic market research and intelligence gathering every few years. Second, they identify and predict the emergence of new opportunities and threats over long time horizons in a gradualist manner. Third, they regard their strengths and weaknesses as built over time and invulnerable to rapid changes. Fourth, they assume they understand their existing customers well enough. Fifth, they regard competitors as known and stable.
The way these five common strategy tools are currently used ignores the new reality. The market landscape is in continuous flux and must be continuously scanned. Opportunities and threats emerge rapidly in unpredictable ways. What are considered strengths or weaknesses today can be transformed tomorrow. Customer needs can change overnight. And new competitors can appear from unexpected quarters.
Just as the tools of strategic analysis need to change to the new reality, the strategy development process likewise needs to transform for a COVID world. The strategy development process at most companies has five key elements: strategic planning, resource allocation, budgeting, leadership team building, and management review.
Under the traditional strategy development template strategic planning was done for 1 to 3 year time horizons which assumed relative stability in the operating environment. Amid increasing uncertainty, leaders need to move away from such long-term strategic planning exercises and adopt scenario planning to manage for multiple outcomes rather than a fixed point.
Similarly, resources are typically allocated along the same time horizons as the strategic plan, whereas in today's reality they need to be re-allocated rapidly as the situation changes. Furthermore, annual budgeting is usually done with incremental adjustments to the last year's plan whereas today's reality requires a zero-based approach that challenges every underlying assumption.
The planning process itself has traditionally been led by a leadership team built around functional heads who are appointed in line with their prior experience. However, this approach ignores today's requirement for leaders who can frame issues, model scenarios, and design roadmaps in an environment of uncertainty.
Finally, every strategic planning process has a management review mechanism and this has historically focussed on quantitative short-term (and largely backward-looking) metrics like sales that are reviewed periodically against the plan. However, today's scenario requires the combination of qualitative and quantitative metrics that capture both immediate and longer term indicators.
The new approach to strategy development is adaptive
With the current tools and processes of strategy development blunted, business leaders are in search of a new approach. Drawing on over a decade's worth of work on the changing nature of strategy we have built a framework to help companies navigate the COVID-19 crisis and beyond. The new battle-tested approach helps leaders prioritise, organise and strategise through five action areas.
First, the framework guides leaders to think and act along three time horizons simultaneously rather than focussing on a single fixed point in the future. These horizons are defined by the different types of response they require.
The first horizon is managing the present which demands companies act promptly on immediate challenges. The second horizon is adapting to the new reality created by Covid by maintaining focus on cash, revenue and stress testing the business plan for multiple scenarios. The third horizon looks beyond Covid to reimagine your business model for the new world that will emerge on the other side.
By using the heuristic of three time horizons, leaders can allocate issues and resources accordingly and avoid being too overwhelmed by the present or too distracted by figuring out the future.
Second, to manage the strategy development process during covid organisations need to move on from the rapid response teams that were appropriate in the first phase of the crisis while avoiding a reversion to the traditional strategic planning team based around the C-suite.
Instead, leaders need to form a COVID-19 Steering Group that brings together four distinct roles that are absent in traditional board rooms. These roles can be drawn from across the organisation or outside and include the trends observer, the scenario planner, roadmap designer and the progress monitor. These new roles within the COVID-19 Steering Group create the organisations's peripheral vision, build multiple scenarios, develop the roadmap and action plan, and manage the progress monitoring system
Third, to strategise during Covid-19 companies need to develop their peripheral vision by going beyond the traditional five forces analysis of an industry that worked well in the past but struggles to contend with disruptive forces like the current pandemic.
Whilst the bargaining power of suppliers and buyers, the threat of new entrants and substitutes and the nature of industry rivalry are still relevant, today strategists need to expand their view to understand the new five forces driving uncertainty in a covid world.
These forces are the behaviour of the virus itself, the availability of vaccine or cure, changes in public sentiment, government responses, and business actions. By building these five forces into their strategic analysis leaders can better tune their strategic response to the on-ground market reality.
Fourth, strategy in the time of covid requires not just a new approach to analysis but a fundamentally different approach to strategy development and execution - what we call adaptive strategy. This is a shift in mindset as much as process and requires leaders to think of strategy as a process of continuous iteration.
As new inputs are fed into the process from the peripheral vision the COVID-19 steering group builds and updates its scenarios for the future according to their probabilities of occurrence. They then evaluate different options to decide on one of three paths - act immediately, monitor the situation, or do nothing. Correspondingly the steering group builds a portfolio of actions to be executed in a dynamic fashion.
The leading indicators of execution progress are identified and updated to enable monitoring through the fifth element of the framework a visual wall. The visual wall has five features that make it distinct from traditional management information systems (MIS). The information is updated in real-time, metrics are dynamic and respond to shifts in organisational focus, the information is integrated across company silos, it is technology-driven and highly automate, and it is action-oriented using alerts and escalation mechanisms to trigger actions in response to the progress status.
This new strategy process runs continually, enabling the business to adapt to an ever-changing environment.
By adopting the new framework for strategy development and execution leaders are able to act with speed and agility in an environment of persistent uncertainty. Enabling them to gain clear and decisive lead over competitors who are still wedded to the traditional strategy process.
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