Making the right strategic decisions causes many managers headaches. Today's unpredictable environment renders strategic decision making more complex. Which scenarios for the future are most likely and which direction should the company go? The CEO of advisory firm StrategyPod, Karel Leeflang, guides management teams throughout their strategic decision-making process. He argues that the role of strategic decision making is more important than ever today. Read the interview to find out how management teams can use data and scenario planning to take their strategic decision making to the next level.
Sherpany: What is the role of strategic decision making in today's unpredictable environment?
Karel Leeflang: A company CFO I met with recently argued that developing strategy and strategic planning is no longer relevant in today's unpredictable environment. I find that rather short-sighted.
Today's uncertainty and speed of change makes strategic decision making even more important. Employees, suppliers, and partners need to understand the long-term strategic direction of the business.
Clearly, this has made the job of top leaders more difficult. But data shows that companies and leaders that do well in strategic decision making outperform their competitors.
It is also clear that quite a few companies struggle to set clear strategic direction and/or connect this to the implementation of their plans. They become more and more short-term in their focus and over time become largely reactive to their customers and competitive environment. This not only leads to confused employees, but also affects operational excellence, growth, and competitive advantage.
Sherpany: Could you provide us with an example of how the characteristics of strategic decision making have changed over the past 10 years?
Karel Leeflang: Only 10 years ago, most companies developed strategy as a static process, like a 'fixed point on the horizon'. The whole company worked diligently for 3, 5, or even 10 years to deliver that strategy. Yet, this strategy implementation could often not cope with changing realities.
We have seen a big change in strategic decision making in the last years. Today, companies are more inclusive in the sense that they usually involve a broader group of managers in creating strategic options and developing implementation plans. Furthermore, we see more and more companies use a more dynamic approach. They regularly adapt their implementation plans to changes in customer expectations, market conditions, and technologies.
Sherpany: How can companies improve their data to ensure well-informed strategic decisions?
Karel Leeflang: There are three things that we believe are important here. Firstly, creating a peer group of relevant competitors and comparing your company's performance trends with your competitors provide meaningful insight. So many companies are satisfied with beating their internal targets. In reality, however, this matters very little if your main competitors grow at double the rate.
Secondly, look beyond short-term metrics like revenue growth and profitability. Managers need to understand how investments – for example in M&A, innovation, new technologies and learning and development – translate into profit and cash growth over time. Being able to relate these returns to what competitors are able to achieve is a good measure of improving operational excellence and capital efficiency.
Thirdly, technology allows us to analyse and produce wonderful reports and details that are fit for purpose. Spending time on really thinking through how all these insights support strategic decision making is a valuable investment. Too much detail means you can drown in them and importantly risk biased strategic decision making, while too little detail means you may miss critical opportunities or challenges.
Sherpany: How do high-performing management teams set themselves apart in their strategic decision-making process?
Karel Leeflang: High-performing management teams use and monitor assumptions throughout their strategic decision-making process. In today's uncertain environment, there are many things we simply cannot know. We therefore make an assumption. Top companies spend quality time developing and agreeing on these assumptions as well as monitoring them (to confirm or disprove them). They also often communicate these assumptions as part of the decision. This helps the teams tasked with implementing the strategic decision understand these assumptions. And where an assumption appears unjustified, they can trigger a review process to ensure a quick adjustment can be made.
Decisions are normally taken based on the facts and assumptions you have at that time. When reality unfolds differently than expected, adjusting the implementation of that decision to adapt to this changed reality quickly not only avoids costly mistakes but often provides fresh opportunities. Staff should be encouraged and rewarded to quickly surface the need for a potential decision change.
Sherpany: What is the role of meetings in strategic decision making? And in promoting strategic alignment within management teams?
Karel Leeflang: High performing management teams spend quality time understanding the decision they need to make. In particular for complex strategic decision making, they agree upfront what information and preparation they need to make a decision. Not only does this provide clear guidance to the people that need to prepare the decision input, but it also saves a lot of time. In many other management teams, in contrast, complex decisions may need multiple meetings and preparation rounds. This is not only less productive but is often also a source of frustration and even demotivation. People say to themselves: 'If they had told us sooner, we would have wasted less time doing unnecessary work and done the necessary steps immediately.'
Strategic alignment sounds very obvious but too often is not. The best management teams spend time ensuring they are aligned around a decision (even if they did not fully agree). Many problems with implementation originate in misalignment. If the top 5-6 leaders have subtle differences in their understanding, they transfer that to their direct reports. Before you know it, you have 50 slightly different versions of what needs to be done. In that case, how can you reasonably expect teams to implement successfully?
Sherpany: What is scenario planning? How does scenario planning influence strategic decision making in our unpredictable business world?
Karel Leeflang: Increasingly, business opportunities have multiple different possible approaches or options for implementation with no obvious, single response. This poses management teams and leaders with a big challenge as the better choice is dependent on future elements that you simply cannot know today.
The management team then chooses the 2 or 3 most likely options for success, based on the available data and their assumptions. While they only move to implement one of these choices, the other implementation options remain active in the background. As reality unfolds, this allows the team to review and quickly respond to new information. In this way, scenario planning drives preparedness of the business for future changes and supports quick and agile strategic decision making.
Sherpany: How can management teams conduct strategy reviews that prove to be successful? And thereby drive their strategic decision making?
Karel Leeflang: Having a consistent approach to strategic decision making is really important. Whether that is an internally developed approach or a platform like Sherpany, this instils discipline and structure that helps those that prepare and take these decisions to be most productive, efficient, and effective.
Decision makers should provide upfront clarity about what information (data and assumptions) is needed to make the decision. This focuses the effort on how to best prepare and present this information. This is both a factor of quality (what is needed, avoiding biases as much as possible) and quantity (complete, short, and concise). Too often, we hear about 150-page pre-reads with many data tables. This only leads to confusion and bias as inevitably leaders will need to pick and choose those data points that seem most relevant. We believe it is the job of those preparing to present what decision makers need to know, and the decision makers need to provide upfront clarity what that should include.
Finally, making sure that a decision is implementable is crucial. Have we shared the relevant data and assumptions with those that need to implement? Is it clear enough what a good outcome looks like? Does the implementing team have the resources necessary to implement well? Have we set parameters of guardrails that help the implementing team identify when they should refer the decision back for review, for example because assumptions cannot be proven?
Strategic decision making is difficult. In today's uncertain world, being strategic about decision making is more important than ever.
Ultimately, doing it well is a capability and without a doubt high-performance companies are very good at decision making. And this capability depends on the leaders' behaviour and the culture of a business, and provides a competitive advantage that is hard to copy.
To find out more about StrategyPod, visit their website.