How do you make bold strategic decisions with conviction in the face of unrelenting uncertainty? Waves of the Covid-19 pandemic have been followed by ongoing supply chain disruption, a labor market unsettled by the Great Resignation and now Quiet Quitting, stock market turmoil and inflationary pressure, and storm clouds forming over the global economy. Debate continues over modes of how and where we work -- whether we should be returning to the office or finding new and better ways of hybrid in-person and remote collaboration. In that context, strategy processes designed for a future that looks like the past will not work. The days of "set it and forget it" -- of leaders defining strategic goals and challenging their organizations just to amp it up and go get'em -- are long gone.
There are new rules for the annual planning process, that ground budgets and plans in a more strategic view that goes well beyond yesterday's mantra: growth at all costs. When change is upon us, annual planning must include logic, analysis, and thinking through techniques like conceiving of flywheels, working backwards, and determining routes to power. This gets captured in a unifying narrative -- an inspiring cohesive view of where the company has been, where it's going, and a clear articulation of its path to success. The process then addresses how to achieve organizational clarity and alignment, without evoking an unnecessarily messy and theatrical democratic approach. Baked into these new rules is a collaborative approach that fosters the kind of strategic, relational, and emotional resilience that teams need to navigate uncertainty - and make the kind of power moves that companies can make, even in a cost-reduction and highly uncertain environment. Here's how it works:
1. Begin with a unifying narrative
The aim of the first stage of the strategy process is for the CEO to create a unifying narrative - a strategic logic for the business. It's a narrative that will make sense of the past, present and future and connect the company's vision, strategy and priorities to the many forces and trends influencing the business. The best unifying narratives are just a couple of pages long. They replace all individual, incomplete, and often unclear beliefs about a company's strategy with a clear path forward, grounded in the financial goals of the business. The unifying narrative creates a structure around the CEO's direction for the strategy -- a structure within which others will be empowered to generate ideas for how it will be achieved.
2. Define the flywheel
The starting point for the unifying narrative is often a flywheel. First described by Jim Collins in his book, Good to Great, the flywheel is a virtuous cycle of growth and transformation. But like all flywheels, it achieves momentum and increasing velocity by taking a number of actions in the same direction. In 2001 Amazon founder Jeff Bezos famously sketched his company's flywheel on the back of a napkin at a dinner event, capturing the interaction between lower prices, selection of items, customer satisfaction, traffic, sellers, lower costs would have ultimately on growth. The challenge for every CEO is to identify the combination of factors that interact to turn the growth flywheel in the same way -- to create the same virtuous circle of momentum. A clear flywheel makes sense of the company's activities, and insures that 1+1 equals way more than 2.
3. Get rooted in your powers
A provocative next step in the strategic planning process takes a more outward-looking dimension. It is to ask, how does your business create power? It's a process used by Netflix, Spotify and others to build long-term sustainable advantage. It is based on the 7 Powers concept of former Stanford academic, investor and strategy advisor Hamilton Helmer. At heart, the concepts are simple enough. Organizations create power and set up barriers over competitors through:
Scale economies
Network economies (the value of the service to each customer is enhanced as new customers join the "network" for example)
Cornered Resource (exclusive or near-exclusive rights to a valuable resource on attractive terms)
Branding
Counter-Positioning
Switching Costs (making it unattractive for customers to switch)
Process Power (a process that is advantageous to the organization but hard for competitors to replicate).
The powerful strategic question is how does your organization build strength across these dimensions and are the collective actions of the company leading you on a route to power?
4. Build alignment through a roadmap
Once the flywheel and powers have been defined and a short unifying narrative created, it can be used as the basis to align the wider team. Consider the first steps as guard rails, provided by the CEO and leadership team, so that the extended leadership team can design a winning path through a strategic roadmap. The best way to create a roadmap is by working backwards from a positive future end state. The roadmap is a quarter-by-quarter display of the most critical milestones and activities that have to be accomplished to achieve the desired end state. Good roadmaps can be distilled to a single page with a small number of company priorities, sometimes broken out by strategic priorities. For most companies, a roadmap can be created in a 2-day offsite, provided the unifying narrative is clear.
5. Create budgets and OKRs
The roadmap provides strategic clarity and paves the way for Objectives and Key Results (OKRs), budgets, and the rest of the company's annual plan. Leaders in the wider business will have their own answers to achieving the company priorities within their departments -- the key steps, the key hires, and what needs to happen -- and how they all need to interact to reach the end state. This is where the focus shifts to the realm of the CFO.
A collaborative process
The most common place annual planning fails is a lack of accountability for strategy. CEOs, wanting to be participatory, fail to provide a strategic direction through the unifying narrative. They either hold open strategy sessions that are misguided and way too exploratory or outsource the process to the CFO who turns it into a budgeting exercise too early. The combination of a top-down unifying narrative and bottom-up strategic roadmap balances accountability, making it far more efficient and allowing for bigger, bolder moves.
Ultimately, the new rules of annual planning combine two essential elements (1) logic, analysis and conceiving of flywheels and understanding of power moves; and (2) alignment. The outcome is the cultivation of strategic, relational, and emotional resilience that is the essential pliability organizations need to navigate uncertainty.