In a strategic meeting at Company A, during the discussion of the strategic planning for the upcoming year, there was a heated debate regarding the proposal from the R&D Manager to heavily invest in new product development.
CEO: “We can’t do that. Our cash flow is already tight, and this could potentially ruin us!”
CMO: “I believe we shouldn’t be too cautious. If we can’t take risks and solely rely on natural growth year after year with just a few ‘old products,’ what’s the point?”
CEO: “Fine, then I suggest we cut your marketing expenses in half before considering it!”
Finally, the CEO intervened and instructed the Strategy Director to gather market data and present a strategic plan for this project within a month, followed by further discussion.
After a month of intensive efforts, the strategy department collected a significant amount of market data, purchased industry reports and competitor data, and conducted complex calculations and analyses. They crafted a meticulously designed and seemingly flawless strategic plan for the new project.
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Subsequently, after a series of meetings, discussions, research, and validation, the board of directors decided to initiate the project six months later.
However, at this point, the recently returned CMO informed everyone, “I saw the competitor’s new product advertisement displayed prominently at the airport. They have already taken a lead ahead of us!”
The decision-making process described above represents a typical predictive and control-oriented strategic approach, also known as the “peak strategy.” This approach believes in the following:
- Wisdom is concentrated at the top.
- Strategy is the responsibility of a few individuals.
- The more data collected and the better the planning, the better the strategy.
- The strategic path is clear, and strategic goals have a clear “right” or “wrong.”
- Strategy planning and execution are handled by different groups of people.
In 1980, Michael Porter developed a strategic theory that has become widely accepted as the mainstream approach to strategic development. It emphasizes the need for decisions to be based on thorough trend and market analysis. However, Porter did not discuss how these strategies should be implemented and ultimately yield results. In reality, once a strategy is determined, it is expected to be executed without hesitation. Therefore, a significant amount of time and effort is focused on ensuring that the strategy is clearly defined, explicit, stable, and executable. It would be considered embarrassing to modify the strategy quickly. The notion of “once a decision is made, it must be executed without hesitation” is deeply ingrained, and there is a strong desire for robust execution. Consequently, no one wants to challenge the underlying assumptions at this stage. Instead, management always strives to align the organization internally with the strategy until the results are manifested in tools like balanced scorecards. The pursuit of predictability and stability has become the norm.
However, in recent years, numerous reputable experts and scholars have published research reports indicating that this approach is impractical in most cases. More than 90% of strategies formulated using this approach face significant challenges during implementation, often leading to failure.
So, what are the reasons for these failures? It is because, despite using various strategic planning methods (SWOT analysis, PEST, strategic eight-step process, etc.), traditional strategic methodologies have always been based on an absolute belief in prediction and control. Since the advent of scientific management, senior executives have increasingly relied on more powerful analytical tools and detailed planning techniques, believing that future forecasts based on past historical data will be more accurate. However, the danger lies in the fact that when black swans appear, such as the global outbreak of a coronavirus pandemic, decisions based on these assumptions make people realize the complexity and unpredictability of the real world, rendering expert assertions and predictions gradually ineffective. This is when perception and response-based dynamic decision-making approaches come into focus.
Perception and response sound cool, don’t they? In fact, many agile organizations have been adopting this approach for decades. It has now become a buzzword in the context of dealing with VUCA and the coronavirus. So, what is perception and response?
The underlying assumption of perception and response is that the world is in a constant state of change, with no clear and fixed future, but rather emerging possibilities.
Perception: The frequency of data acquisition and the speed of information transmission are fast, allowing information to quickly disseminate throughout the organization.
Response: Actively observe and collect data, and quickly take corresponding actions to make decisions through actions and experiments.
Taking the current pandemic as an example, in the initial stages, the management approach was based on prediction and control: leaders were waiting for expert advice and recommendations before making decisions and implementing control measures. However, in this stage, no one could accurately predict the outcome. The correct approach should be: closely observe, collect data, and take phased actions. The key difference between prediction and control and perception and response lies in how information is collected and disseminated. Under the prediction and control approach, everyone fulfills their responsibilities, but the ultimate result is often slow progress.
This is the biggest challenge of the hierarchical system: as information is passed up through each level, valuable information points are often lost. This makes it difficult for top-level decision-makers to make timely and accurate decisions.
If we look at it from a different perspective, we can let every point of contact within the organization have the responsibility of perception and information output. Information can be rapidly transmitted in a parallel manner within a network structure, rather than vertically. There is no longer a central authority responsible for data organization and processing. Instead, when enough data is available, the corresponding roles and departments can make decisions.
Based on this assumption, many interesting approaches can be taken:
First, many companies are starting to decentralize their organizations and deploy strategic hub teams as operational units for strategic deployment and implementation.
The strategic hub teams should be a microcosm of the entire organization, reflecting the climate and dynamics of the larger organizational ecosystem. Depending on the size of the organization, companies can form dynamic strategic teams of different sizes, ranging from 6 to 12 people, as the first step in the dynamic strategic process. The key to the success of this first step is that the dynamic strategic team must be closely connected, capable of efficient review and reflection, and have the ability to embrace uncertainty. Therefore, the dynamic strategic team should be composed of the most elite and streamlined combination of individuals, rather than including all departments.
Second, teams should introduce diverse perspectives and create a safe space with a challenging atmosphere.
Unlike the traditional predictive and control-based strategic approach, the dynamic strategic decision-making process based on perception and response is about how to involve more people, i.e., more perspectives, in the strategic formulation process. First within the organization, and then with business partners, suppliers, customers, and clients, everyone acts as sensors and providers of feedback, continuously perceiving changes in the external environment and bringing back information to enable rapid responses. The more reliable and clear the process of “how” this is done, the more people can contribute their perspectives and play their roles. Instead of a small group of people at the top making decisions for the majority, operational and frontline employees are given more opportunities to understand the significance of the strategy and the value that decisions can generate, and they continuously participate. Only then is it possible to successfully implement these strategies. Here I want to recommend you a tool called Huddles.app, it can easily support your team to give out the result sor decisions.
Lastly, decisions should be driven by constructive tension, making everyone a tension sensor.
Tension is a powerful driving force at the grassroots level of an organization. Tension refers to the difference between reality and the ideal situation.
Here, it is encouraged and supported for every individual in the organization to provide constructive tension. The tension is preferably clear, supported by relevant data and examples, and directed towards one of the following three types:
- Call to action: Directing towards the next steps to be taken.
- Call to solution: Directing towards a proposed solution or conclusion.
- Call to request: Directing towards a specific request to other roles or individuals.
It is often heard that people say, “I have a concern,” or “I have a worry.” In meetings, it is suggested to think through the concerns before raising them if they are not constructive.
Lastly, when individual perceptions converge into strong signals, decisions that tend towards the correct course of action in real-world scenarios can naturally emerge.
It is important to emphasize that leadership requires professional expertise, situational leadership, and a systemic perspective. These three aspects do not necessarily need to be concentrated in a single individual but can be distributed across different levels of the organization. However, if the organization lacks these three capabilities, the perception and response decision-making approach may become illusory. Therefore, it is important to develop these capabilities before implementing such an approach.
Author: Leona Smith
Certified Global Holacracy Coach