Abstract:
Change, speed, uncertainty, disruption, surprise — all are constants in today’s business environment. As a result, leaders who devise strategy can no longer simply plan for what they believe will happen in the long term. Instead, to prepare themselves for the threats and opportunities that can emerge at any moment from any direction, they need to adopt much broader view.
Leaders have long been told that to think strategically means taking the long view and focusing on where they’re going. Contemporary tools such as the three-horizons framework reflect this focus. But today, in an ever more interconnected and fast-paced world, leaders have to develop strategies that take into account not only the long view but also the broad view, which encompasses the full spectrum of opportunities and threats that are emerging on all sides.
The shift to a broad view of strategy has three key implications for leaders. First, it means they have to focus on anticipating contextual changes that might significantly and rapidly reshape the business environment, and it means they have to work with others to co-create value as they do that. Second, it means they have to imagine different time horizons and use them not just to make plans for the future but also to gain broader perspectives on the present. And third, it means they need to prepare themselves to rapidly adapt to changing circumstances, by constantly working on their agility and creating new options for themselves.
In the strategy work we have done with businesses and government organizations, including via the World Economic Forum and the Oxford Scenarios Programme, we’ve focused on the growing importance of the broad view — and we’ve learned that to properly design and execute it, leaders need to change the focus of their thinking in three fundamental ways. We’ll discuss each in turn below.
Systems more than sectors
Thinking narrowly, in terms of traditional sectors, industries, or geographies, can limit or blindside an organization. A better approach is to think in terms of systems. Doing so sensitizes leaders to broad changes of context and allows them to bring actors together from many sectors, which in turn enables the creation of new value. The strategic goal is to design and operate “value-creating systems” and generate social capital by building new relationships.
For an example of how a system can be designed to create value in a relatively short period of time, and can even generate a whole new audience or set of customers, consider the ABB Formula E World Championship — a new championship for high-performance single-seater electric vehicles, run by the firm Formula E Holdings.
In running the championship, Formula E Holdings has created a system that brings together a diverse set of actors, including the teams and car manufacturers who race; the cities in which the races are held; the broadcasters who cover the races and the story of Formula E; various partners who provide a wide range of technologies and services; and the public.
In creating this system, Formula E Holdings built in specific mechanisms to maximize the co-creation of value. At the outset, for example, it offered teams one of a limited number of franchises, which provided them with the certainty that they would qualify (as compared to having to do so each season) and an asset that would appreciate in value as the championship grew. In addition, a cost cap on expenditure maximizes competition among teams and makes clear the level of investment required. To build the audience for this new event, the company has created innovative new kinds of public engagement, among them running the races on roads in cities, so that spectators can be close to the action, and allowing the public to actually influence the race outcome, by awarding extra power to drivers via a poll on the internet.
When approaching strategy from a systems perspective, leaders should focus on four main questions: What new products and services might you create as a result of thinking in terms of systems rather than just sectors? What new organizations and individuals might you reach out to better understand changes emerging around you and/or to collaborate with? Does your organization treat the building of new social capital as important as creating financial and human capital? And what new skills might your organization need to develop to design and operate value-creating systems?
Scenarios more than Forecasts
Forecasts and model runs seek to predict “the” future by making linear extrapolations from known data. They have their uses, of course, but they’re not good at accounting for surprising developments or sudden change. The process of developing and using scenarios, on the other hand, helps leaders create strategies that are robust in the face of uncertainty. It helps leaders engage with disruptive changes, explore needed shifts in organizational identity, and track changes in the business and contextual environment. Typically devised in sets of two to four, scenarios enable leaders to make an important conceptual shift: They force them to stop thinking about strategy simply as the making of plans for the future, and instead they allow leaders to learn lessons from several plausible futures of an organization’s context, which they can then apply in the here and now.
The energy company bp used scenarios as part of its 2020 Energy Outlook, an annual analysis of the global energy system. That system, of course, is in the throes of a significant transition away from fossil fuels, which is creating many uncertainties for firms in the energy sector.
At bp, three scenarios were developed that enabled different assumptions about how wider contextual factors such as technologies, government policies, and shifts in social values might play out, at what speed, and what this might mean for the firm. The scenarios helped the firm devise a new strategy for itself that included a shift in its identity. “We are setting out a new strategy,” the company declared in 2020, “that will see us pivot from being an international oil company focused on producing resources to an integrated energy company focused on delivering solutions for customers.” A key feature of the company’s new strategy is partnering with countries, cities, and industries to create bespoke integrated energy solutions. To keep its strategy robust in the face of ongoing uncertainties, the firm regularly monitors its scenarios and the pace of the global energy transition.
When using scenarios to develop a broader view of strategy, leaders should focus on four main questions: What aspects of your organization’s environment are generating a deep sense of uncertainty for you? Who might you speak to, or what information could you access, to better understand the range of outcomes of the uncertainty, and how can you work these into your scenarios? How might you consider adapting your organization’s strategy to capitalize on new opportunities and ensure that it is robust across your scenarios? What key signals do the scenarios suggest you use to track changes in your organization’s environment?
Playbooks more than Plans
In North American football, teams rely on playbooks: sets of moves, or “plays,” that coaches devise ahead of time to use during games in response to evolving circumstances. A strategy playbook serves the same purpose for organizations: Anticipating a variety of plausible futures, leaders generate a broad repertoire of strategic initiatives and responses ahead of time, and in so doing create a playbook that makes them able to adapt and pivot their organizations quickly and successfully as circumstances change. To execute strategy in an increasingly complex and dynamic context, plans alone are not enough.
Pelion, a spinoff of the multinational semiconductor and software-design company Arm, has introduced a strategy playbook to guide itself in developing products and partnerships in the Internet of Things market — a highly uncertain environment characterized by rapid technological, regulatory, and geopolitical changes. Having a playbook in this uncertain environment allows Pelion to think with agility about alternative scenarios; to identify implications for the firm’s strategy related to its purposes, key stakeholders, value-creating networks, and processes; and to identify plays to be used at any given moment. The playbook also incorporates early warning signals that allow the firm to anticipate when and under what circumstances different plays may need to be run. As a result, the firm has managed to rapidly and successfully adapt to changing market requirements.
When devising a strategy playbook leaders should focus on four main questions: To execute your strategy, which aspects would be better addressed using a playbook as compared to a plan? What “plays” make most sense in different scenarios? What options will you create for these plays, to be run as and if necessary? How will you monitor developments to provide forewarning as to which play to run?
* * *
Businesses today operate in a world subject to constant surprise. Taking only the long view of traditional sectors or geographies can leave leaders blind to threats and opportunities emerging right now from outside their usual field of vision. Taking the broad view is vital — and thinking in terms of systems, scenarios, and playbooks can help leaders do just that.
Note: In preparing the examples for this piece, we received help from Mike Papadimitriou, the chief financial officer of Formula E; Nicola Adams, the vice president of strategy (central) at bp; and Leon Bovett, previously the senior technical product manager at Pelion.
Copyright 2022 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.
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