This article provides an overview of the impact on long-term and short-term strategic planning in organisations of one-off crises and other so-called “black swan” events. The author contends that the COVID-19 pandemic was a needed catalyst for change in key behaviours and decision-making processes at the leadership level including the executive boards of many organisations. He identifies three kinds of change in board behaviour: reduced complacency; a more intrapreneurial approach and mindset; and a more dynamic strategy setting.
From the standpoint of the dynamics of strategy formulation COVID-19 was “the crisis company boards and leaders had to have.” It was needed in order to shake leaders of organisations out of their complacency slumber, in relation to their approach to strategic and innovative thought and direction.
AN INTRAPRENEURIAL APPROACH
One of the key leadership behaviours that came to the fore as the pandemic deepened was the desire (or necessity) to develop a more innovative, intrapreneurial approach to strategy formulation. The intrapreneurial initiatives and behaviours adopted by leaders were, in many cases, born out of necessity in the context of a continually changing commercial and legal compliance landscape. It is suggested that this new innovative and intrapreneurial mindset among organisational leaders should become one of intent at the core of business strategy decisions, rather than a one-off reaction to the COVID crisis.
The dynamics of the strategy setting process
Traditionally the strategy development process, especially in large organisations, has been a relatively static process. The speed of change, particularly in the technology sector, has changed the strategy-process landscape, requiring leaders not only to be tech savvy but also to develop an understanding of how digital transformation can enhance the strategic decision-making and formulation process.
The author recommends that such change in behaviour should be part of a continuing Board of Directors discussion rather than ad hoc reaction to specific events and crises.
This paper is a precursor to other papers in a series on strategy and intrapreneurship. It is based heavily on a study recently undertaken by the Australian Institute of Company Directors and the Sydney University Business School.
STRATEGY AS A DYNAMIC, NOT A STATIC ACTIVITY
“A strategy lasts until you first meet the enemy” – Dwight D. Eisenhower
The above quote, attributed to a former US President and World War II General, while made in the context of a global conflict, highlights the reality that strategy formulation, development, and implementation are dynamic, not static, behaviours. Applied in the commercial context, it implies that any business strategy endures up to the point where the competition changes its strategy, or an external event occurs that affects all global industries on a cataclysmic scale. COVID-19 is an example of such a cataclysmic event.
Before exploring this further and, especially the implications for today’s leaders, it is appropriate to set a foundation definition of strategy. The word “strategy” is derived from the Greek word “strategos”, meaning literally “general of an army”. Reflecting its origins, the modern concept of strategy has deep roots in the military.
Other definitions have been proposed for the business and commercial environment. McGrath (2013) defined strategy as “a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors”. Fairbanks (2018) defined it as “an integrated set of resource commitments and actions that position an organisation within the competitive environment to generate superior results over time.” David Kolter, referring specifically to strategy in the marketing context, provided a simpler definition. He defined strategy as “doing something differently to your competitors or doing the same thing but differently to your competitors”.
These commercial definitions imply, amongst other things, that developers of corporate strategy - the leaders and managers of organisations - must consider strategy from a dynamic perspective and review it, not only annually as is current practice in many companies, but rather on a continuing basis. As indicated in the academic literature, many strategies have been traditionally considered from a static point of view.
It is contended that the dynamism of the process has become as important as, if not more important than, the outcomes. This has been demonstrated recently in the reaction of companies to the impact of the COVID-19 pandemic. Yes, COVID-19 is a black swan event (although similar in nature and effects to the generally forgotten Spanish Flu pandemic of 1919) that sent many businesses to the wall. However, many companies also successfully navigated the COVID-induced turmoil and, in doing so, learnt many valuable lessons.
However, the question for leaders in the boardrooms of companies that have weathered the COVID storm is: Now that the crisis is (arguably) over, will the learnings in relation to strategy development – and, in particular, intrapreneurial strategy - be retained and embedded in the new normal?
Out of the cacophony of management and leadership rhetoric over the past three years have emerged the now well-known expressions of pivoting, agility, and resilience. In many instances, these can be described as a company’s capability, creativity, and ability to adapt and divert resources to multi-facetted cataclysmic changes and challenges. After all, this process - at a more heuristic level - can be described as the essence of human advancement from the beginning of time, sometimes too easily forgotten. So, what do they mean for strategy development and formulation going forward?
Strategy development and formulation
From a strategy development and formulation perspective, the process adopted during the pandemic was more dynamic out of necessity rather than having been established in a proactive manner with arrangements in place for continual reviews. It can be argued that it was adapted on a week-to-week basis in order to counter the ever-changing firm’s internal ecosystem and external environment.
Traditionally the strategic formulation process is undertaken by organisations over an extended period, usually 2 to 3 months depending on the size of the organisation. This becomes a more fixed process in the annual calendar of companies, in part due to the sheer logistics and related cost involved in collecting internal and external data. Another factor is the potential for leaders to become complacent, in particular in relation to initiatives surrounding innovation and intrapreneurship.
Complacency of leaders
“Whom the gods wish to destroy they send forty years of success” – Aristotle 384 B.C.
When markets are stable, even the most disciplined of managers and leaders can be lulled into a false sense of security, leading to complacency in many areas of commercial operations including and especially the area of innovation. This commercial complacency can easily set a company up for failure. To avoid this, leaders should firstly identify the dynamics of the strategy process, secondly develop the digital data collection and analysis process, and thirdly understand the innovation and entrepreneurship requirements for successful navigation through stormy commercial waters.
The static versus dynamic aspects of the strategy formulation process
Traditionally the strategy development process has been one of forward thinking, with a time horizon being typically three to five years. It has been supported by vision and mission statements that provide a guiding pathway for the organisation. The embryonic stage of all strategy development commences with a meeting of leaders throughout the organisation, armed with key data and corporate intelligence to envision the future state and set the overall theme for the activities for the organisation. The outcomes are filtered down to the individual business units. Planning the process can extend over weeks for small companies and months for large organisations.
The process typically begins with the current view of the organisation at a specific point in time, incorporating in most cases a SWOT analysis to identify gaps between where the organisation is and where it wants to be. The inclusion of a financial forecast is the final step in the process. The implication is that the internal and external environments of the business are in a stable and fixed state, at least for one day.
Despite best attempts to “flex and stress test” the strategy and business plan by adopting various scenarios and changes to the status quo, this traditional approach can potentially set a company along a path that maligns and essentially ignores the changes in its commercial ecosystem. Overlaying the approach with the wisdom from Eisenhower, we can quickly imagine that before the ink is dry on the documentation, the strategy is seriously out of date, particularly if it is more long term than short term.
To avoid these dangers, Jeff Bezos, CEO of the multibillion-dollar company, Amazon, encourages employees to think that each day is “Day one” of the business. This principle implies that each day the employees, management, and leaders of the organisation should adopt an innovative perspective toward their everyday work. When asked what happens on Day two, Bezos replied “The organisation declines and dies”. This largely reflects the implication of the Eisenhower statement that the environment of the organisation, both internal and external, are dynamic and forever changing. People change, competitors change, and the environment changes - essentially by the day.
So why do leaders and managers continue to adopt a static approach to strategy development? Why isn’t the strategy and business planning process being reviewed and updated daily in the boardroom and flexed-and stress-tested not annually but continually?
Adopting a dynamic approach is now a priority, especially if risk analysis is included in the strategy mix. The impact of the COVID pandemic (which continues to an extent) has served as a red flag warning many leaders of organisations that crisis management is not a one-off reactive exercise but rather a continuing process of intent.
The questions then become: Firstly, what does this dynamic approach to strategic planning look like? And secondly, what is the best method of implementing the strategy? It is suggested by the author that the answers lie across two key aspects of business organisation.
Strategic intrapreneurial mindset
Firstly, the strategic mindset and approach of individuals in organisations, not only at the leadership and managerial level but also at the individual employee level, are anchored in the one-time-per-year process. This suggests that the approach does not reflect the dynamics of the commercial ecosystem.
The requirement here is ensuring that everyone has a mindset that is not only strategic but also innovative and intrapreneurial (this is the subject of the next paper in this series). While it is appreciated that the preparation of a strategy and its application to day-to-day business is relatively well understood by most if not all members of the organisation due to its once-a-year focus, the need for a dynamic process and shift to an intrapreneurial mindset may not be so obvious.
A note on the gathering of digital intelligence
A quintessential element of any strategy formulation is the organisational Intelligence gathered in the field and from within the organisation. This is key to enriching the daily understanding of the organisation’s position in relation to its strategic objectives. For example, determining if, over time, a strategic gap has developed, and whether this gap has widened or narrowed since the development and inception of the initial annual strategy plan.
Good decision making in the strategy space can be attributed to four factors -
a) The speed of collection of relevant strategic data;
b) The speed conversion of information from the data;
c) The speed of interpretation of the information; and
d) The speed of implementation of the decisions across all strata of the organisation.
While these appear to be self-evident, they may not be commonplace, and their importance may not be fully appreciated by leaders of organisations. Importantly, many of these areas manifest themselves in the digital transformational domain.
What are the learnings in relation to strategy formulation that leaders of organisations can glean from the COVID-19 pandemic?
It is argued in this article that COVID-19 has heightened awareness among leaders of organisations of the importance of innovation. Studies by the University of Sydney in conjunction with the Australian Institute of Company Directors have confirmed that there is indeed a place at the boardroom table for innovation (Australian Institute of Company Directors and the University of Sydney).
Three kinds of behavioural change are needed -
a) There should be a focus on developing a dynamic strategy formulation process (as opposed to a dynamic monitoring process);
b) Leadership and visionary behaviour should be intrapreneurship centric rather than a peripheral focus and exercise; and
c) The myopic complacency mindset should be abandoned.
In addition, the learning of Innovation and intrapreneurship by leaders of organisations should be viewed as a continuum. It is critical to the sustainability and competitive advantage of organisations. The learnings should be the result of intent rather than a reaction to crisis strategy formulation, implementation, and monitoring. As such, senior leaders of organisations must be up skilled in the art of intrapreneurship. The latter is not just the ability to identify and support the innovative and creative individuals in the organisation, but rather the capability to assess innovative ideas from the organisations commercial perspective and identify the Innovative Commercial Advantage (ICA) that the innovative proposal possesses.
NOTE FOR LEADERS AND DIRECTORS OF BOARDS
Innovation and intrapreneurship, while often used interchangeably, are in fact two very different concepts. The two notions are separated by one word: commercialization. This topic will be addressed and unpacked in the next publication in this series on strategy.
Australian Institute of Company Directors and the University of Sydney (2022). Innovation in the Boardroom: Rising to the Challenge.
Fairbanks S. (2018). Performance-Based Strategy: Tools and Techniques for Successful Decisions. Emerald Publishing Limited.
McGrath, R. (2013). The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business. Boston: Harvard Business Review Press.
Pinchot, G., & Pellman, R. (1999). Intrapreneuring in action: A handbook for business innovation. San Francisco, California: Berrett-Koehler Publishers.
Wayne Smithson is Associate Professor and a member of the Academic Integrity Committee at UBSS. He is also Finance Director for a performing arts organisation. Formerly, Wayne was Regional Finance Director of the Asia-Pacific Region for a Swiss-based professional services organisation as well as owner and manager of a successful tax and accounting practice. He is a qualified CPA, a graduate member of the Australian Institute of Company Directors, and a Fellow of the Institute of Managers and Leaders.