In an increasingly uncertain and interconnected world, strategy is more important than ever. But the concept of strategy as a plan is outdated. Even the most informed and best laid plans will need to adapt and evolve to developing circumstances. Instead of planning to the nth degree, our energy would be better spent building agility into how we conceive and implement adaptive strategy in the first place.
Much like an explorer, we must adapt to the environment we find ourselves in.
This is hard. It requires us to acknowledge the uncertainty inherent in our plans and our futures. For many, this is deeply uncomfortable. Intellectually we know that the sand is constantly shifting, but our need for stability and certainty means we sometimes seek to create false assurances, so planning is a key tool we use to reassure ourselves and others. But because the plan is often out of date before we’ve even finished writing it, it can lull us into a false sense of security.
When we stop defining strategy as a plan of execution, we need a fundamental mindset shift towards adaptive strategy. This requires us to acknowledge that in a volatile, uncertain, complex, ambiguous (VUCA) world, we can make data-informed decisions about what the future holds and how we might best respond to that. But there is no certainty that our vision of the future state is accurate or that our response will be effective.
An adaptive strategy is not a plan, but a series of hypotheses about the future, our intended actions, and the desired impact of those actions.
What Is a Strategic Hypothesis?
Adaptive strategy is no more than our best guess – hopefully an informed guess, but a guess nonetheless. What we are effectively doing is creating a strategic hypothesis.
This is slightly different from a simple execution-focused hypothesis of “if this, then that.” (If Waymo launches driverless cars, then Waymo will sell 200,000 cars within the first year.)
A strategic hypothesis must include at least 3 distinct elements:
- We believe X is happening.
- If we respond with Y,
- Then the impact will be Z.
A strategic hypothesis for Waymo might be:
- At current rates of adoption, only 10% of car drivers will be willing to trust driverless cars by 2023.
- If we create a subsidized taxi service using driverless cars,
- Then consumer adoption will increase at a rate of 5% per year, and we will see 20% of car drivers willing to trust driverless cars by 2023.
In other words:
- A specific CHANGE is happening
- We will respond with an ACTION
- And achieve an OUTCOME
Unlike an execution hypothesis, there is an additional element of context. If we execute the action and fail to achieve the outcome, it is possible that the action was incorrect or performed badly. However, it is also possible that the necessary conditions we assumed to be true occurred too slowly, occurred too fast, or didn’t occur at all.
The benefit of this is that if the conditions we believed to be true did not occur, we don’t need to execute our plan of action and test for the impact before we decide to pivot our strategy.
Based on our strategic hypotheses, we can then use real-world data to make a more informed decision about whether to continue on the same strategic path (persevere) or change direction (pivot). In other words, strategy becomes subject to the rigorous Build-Measure-Learn approach of lean startup principles (also known as science!).
How to Implement an Adaptive Strategy
To truly reap the benefits of framing your strategy as a series of strategic hypotheses, it’s critical to implement a disciplined approach to creating, measuring, and iterating on those hypotheses.
We recommend a 6-step process to get started:
- Set the cadence
- Set the pace
- Establish impact metrics
- Cascade down
- Draw insights up
- Establish watchtowers
1. Set the Cadence
When doing product development, it’s good practice to schedule regular ‘Pivot or Persevere’ conversations to routinely re-evaluate the data and make a conscious decision about what to do next. We recommend the same approach with strategy. If you are using quarterly PI Planning (agile methodology) or OKRs (Objectives and Key Results) to prioritise or focus your work, you can use the existing rituals and cadence with pivot-or-persevere meetings to align your strategy.
But first, take a moment to study the rhythm of your industry and the pace of change. Some industries change slowly, some change fast. The mining industry is operating within the same basic rules and framework as it has for the past 160 years. Only now is change beginning to happen in the form of consumer pressure for less carbon-intensive and environmentally damaging methods.
Other industries, like fashion, operate much faster and require quick strategic adjustments to competitor actions. In decentralized finance and cryptocurrencies, the lack of coherent rules and regulations means that strategy requires a rapid sense-and-respond process. Startups are moving at lightning speed and pivoting rapidly.
Remember, you can also cancel a meeting or cut it short. But responding to unexpected changes at a rapid pace requires dedicated time for strategy.
Ask yourself and your team:
- How quickly does our industry change?
- How quickly are the trends changing?
- Are the trends accelerating?
- How quickly do we need to respond to a sudden, unexpected change in our industry?
Then take action:
- Schedule meetings with all relevant stakeholders at the right cadence.
2. Set the Pace
Cadence and pace are not the same thing. Cadence is how often; pace is how fast. If your cadence is a strategy meeting once a quarter, your strategy review cannot take six months to finish. By the time some companies have finished their strategic planning, it’s already obsolete.
We’ve both seen strategies that have taken over a year to write because people argue over the use of specific jargon that no one else cares about. Does it really matter if the vision statement says “transformational” or “fundamentally changed”?
50 senior executives with their red pens at the ready can kill a strategy by watering it down until there is unanimous agreement on mediocrity. By the time the company starts to implement the strategy, it’s generic and no longer relevant. But the company is executing on it anyway.
With a lean start-up approach, you should start with skepticism. Expect that some (if not all) of your original thinking will be wrong, and that you will need to change elements of your strategy. So instead of starting with a perfectly detailed strategy, find a ‘good enough’ strategy to get you going. Get testing, get learning, and iterate.
- Assuming an 80-20 ratio of executing to strategizing, how much time do we have to finish the strategy and save time for execution?
- Is this good enough to get started and learn?
- Will this pace be sufficient to form a viewpoint on expected trends for 1, 3, and 5 years?
- Is this pace sufficient to have a clear plan of action until the next strategic review?
Then take action:
- Set deadlines for milestones such as ideation, documentations, and distribution of the strategy.
3. Measure Impact Metrics
Part of creating a strategy is establishing metrics to measure it. We need clear definitions of success – lagging indicators that tell us if we’ve been successful. We need to know what that end state looks like, and we need to be able to recognise it when we get there.
We also need indicators that tell us if that strategy is working. These metrics are signposts along the way, and are sometimes called leading indicators (as opposed to lagging indicators, which are only available after-the-fact). By setting these strategic metrics, we can adapt before it’s too late.
It’s important to differentiate metrics that measure strategy from metrics that measure execution. Confusing the two can create perverse incentives and damaging behavior. Before we can measure our strategy, we must establish whether or not the company is actually following it.
Every workstream and every person associated with executing the strategy should have clear answers to the following questions:
- What is the objective of my department, function, or team in relation to the strategy?
- How can we measure the impact?
- Can we make decisions based on these metrics? Or are they open to interpretation?
- Are our metrics leading or lagging indicators?
- Do we know how to collect the data?
- Create a lagging impact metric.
- Identify the leading indicator of that impact metric.
- Create a plan to collect the data.
- Schedule a meeting to review the data.
4. Cascade Down
Strategy shouldn’t just sit in the head of the VPs and CxOs. The people on the ground shouldn’t have to wait for information to be relayed up and decisions to come back down through the chain of command. Decisions have to be made quickly, and the people with the most information should make the decisions in real time.
It’s impossible for the CEO to know every detail of every project (although they should be able to go quite deep). But the people running each project can know the company strategy and integrate it into their decisions.
Executives need to communicate, repeat, and reiterate the strategy and every adjustment to that strategy until everyone in the company knows it by heart and starts repeating it in their sleep. If strategy adjustments are happening quarterly, there should be short, regular communications of how projects are aligned to that strategy at every bi-weekly sprint meeting.
This isn’t a four-hour, all-hands meeting. It’s a regular part of planning your week:
- Are our actions aligning to our company strategy?
- How will this impact other projects?
- What can we stop doing so that we can focus more on what matters?
These are questions we can ask ourselves every day. So take action:
- Insert the prompts above or create your own and insert them into your meeting agenda for sprint planning, backlog grooming, daily standups, or other rituals.
5. Draw Insights Up
It’s not enough to review innovation projects quarterly. Teams need to give management feedback about what’s actually happening on the ground.
Snow melts from the edges. Employees closest to customers will be the first to spot subtle shifts in customer behaviours that may precipitate societal or cultural change that your company will need to adapt to. In her book, Seeing Around Corners, Rita McGrath calls these ‘strategic inflection points’ and encourages companies to put mechanisms in place to see what is going on at the edges. This promotes diversity of thought and a voice for those in the organisation who wouldn’t normally be heard at the strategy level.
Establish a weekly internal newsletter or Slack channel to share the latest trends or startups and make sure everyone has an easy way to contribute to that shared knowledge.
Yes, it’s going to feel like a firehose if you do this right, but a quick skim of the top headlines that the people on the ground are sending is worth far more than a $100K annual research report.
- What channels can team members use to send insights to senior management and strategy executives?
- When was the last time we received insights from the field?
- Does our culture allow communication?
- Do we reward teams for communicating and collaborating?
- Schedule “skip level” meetings to get feedback from further down the hierarchy.
- Proactively reach out to departments you do not regularly interact with and schedule lunch and learns.
6. Establish Watchtowers
Just when you think you’ve got everything under control at a manageable cadence, the world can change. The mining industry’s lack of coherent response to climate change and consumer pressure again comes to mind.
It’s important to keep an eye on the horizon for any storms that might be coming. When that happens, the yearly strategy review might need to become bi-weekly.
Understand the key technological, societal, and legislative trends that drive your industry and make sure they are monitored constantly. There should be warning signs in every traditional financial company long before blockchains are processing 65,000 transactions per second (the speed of Visa’s network). A good early warning would be that transaction speed on the open test platforms are doubling. It’s not the velocity that’s the warning sign, it’s the acceleration.
Our strategy should have laid out a hypothesis as to where the world is headed, what is changing, and how fast. Watchtowers should be set up to observe the trends and market forces we believe are changing and also those we believe will remain constant. If the world isn’t behaving the way we thought it was, we need to adapt and change our strategy.
- What do we expect to happen?
- What could we measure that would tell us that those things are not occuring?
- How can we measure if the rate of change is accelerating or decelerating?
- Create a system to monitor those metrics and send regular reports.
- Create an alert system to notify executives immediately if certain thresholds are passed.
In a VUCA world, providing clear strategic direction is more important than ever.
In this context, strategy needs to be adaptive and iterative. We can do this by taking a lean start-up approach to strategy and developing strategic hypotheses, which we test and learn from. This gives us a better chance of successfully navigating our way through a constantly shifting landscape.
This allows us to proactively acknowledge the uncertainty and seek to reduce the risk it brings. We are deliberately testing our strategic assumptions and gathering more information, which tells us if we are on the right path. Most importantly, we are giving ourselves a chance to adapt our plan before it’s too late.
- In a rapidly changing, unpredictable world, you need a vision and strategy.
- That strategy is only a hypothesis – it may be wrong (and probably is).
- Get moving by testing the hypothesis and then adapting to changes in the environment.