Navigating With Weak Signals

Developing a strategy for your business or department has probably never been more complex – and it is not just the technology industries that find it difficult. The reasons have to do with the levels of uncertainty and change in the business environment and the huge costs that result from strategic approaches that get it wrong. This does not mean that organizations do not need to develop clear strategies and plans for their implementation, but it does require a new type of strategic thinking and approach. So what are the principles behind these new approaches, and what are the implications for the development of strategic competence in an organization?

An ever more complex world

The world of business management – strategy, planning and execution – is becoming ever more complex. The reasons are by now familiar: the impact of vastly improved administration, communications, manufacturing and supply chain technologies; the globalization of customers, competition, suppliers and strategic allies; the changes in the management of staff and suppliers, both in-sourced and outsourced around the world; the change in profile, and growth in the demands and sophistication of consumers globally; the continuing risk and hazards of dealing with diverse political and regulatory philosophies and systems; and the need to balance the demands of the ‘triple bottom line’ – an organization’s environmental, social and economic obligations to its various stakeholders.

Business managers have only partially responded to these challenges, and are lagging in three important areas: 1) understanding how strategy development must work in this complex world; 2) understanding how to structure organizations; and 3) understanding how to develop staff expertise.

Strategy development

A couple of decades ago, the notion in strategic planning was that although the future was uncertain territory, there were strong signals from demographic, psychographic, economic, technological, political and regulatory trends that could be used to establish clear strategies. Now these signals are weaker and, in many cases, seemingly contradictory. An example: in the triad markets, while the baby boomers are aging (the leading group has just hit 60 years old), they are not acting at all like 60 year olds in their purchasing habits. They are often acting more like 30-somethings in use of consumer electronics, in travel and entertainment preferences and so on. Age itself is a weak signal; it is only when demographics are combined with other measures that a pattern begins to emerge.

We are in a ‘weak signal’ environment. While there are indications or signals suggesting opportunities, these are less clear-cut than previously. Not only are the signals weaker, but competition is faster. Once an organization acts on any conclusions it has drawn from the signals, it should not assume that it is alone. The default assumption must be that others are going down the same path. This means the needs for differentiation and speed are paramount.

So how do we develop coherent strategy in this complex environment? Strategy development needs to emphasize the following elements.

While pure technology-based development of new products and processes do sometimes result in market success, most times they do not. The technology industries are not alone in backsliding to the invalidated belief that technical product development without fully understanding customer demand is a successful strategy. Despite all the research and case history work of the last 50 years, one still hears views that product and service development can proceed with a solely technological process. The arguments are still made that successful products make their own market or that because researching the new is difficult, it should not be done at all. While understanding the forces that create demand for goods and services in the modern world is complex, the well-researched reality is that organizations that are more focused on understanding customers, their environment and their demands are more successful on every business measure than those that are less focused or adept.

There need to be effective sensing mechanisms of the environment in which the organization does business. There is a need for scope, scale and detail in the data sought from political, economic, social and technological (PEST) trends, but more importantly the need for effective analysis of these trends and what they mean. We must all learn to be effective doctors to avoid prescriptions that address symptoms, and develop those that address causes. As the signals weaken, the need to understand underlying patterns means that we should seek symptoms in a variety of environments. For the economic future we need to understand not just traditional economic data but demographic, attitudinal, political and environmental shifts as well. We need to learn from the artistic and scientific communities: acts of imagination often suggest a direction – just think how much good science fiction has become science fact! Both data collection from the external business environment and the interpretation of their meaning need to significantly improve.

Demand and trend exploration at ‘the edges’ of institutions, movements and markets must be more fully explored. While complexity and chaos theory in the natural sciences have emphasized how change occurs at the edges of phenomena, most business exploration has occurred in the mainstream and with a strong historical bias. Market research has mostly reported on what has occurred. Trend data extrapolates from historical movement. Even creativity and innovation sessions seem rooted in history and the mainstream due to the very people who populate them. We need better methods to explore the edges of activity; to utilize scenario planning with more imagination; to better understand opinion leadership and the adoption of ideas; to make better contact with individuals and groups ‘pushing the edges of the envelope’; and to explore changes and shifts on a more global basis because increasingly these have influence globally and are not just features of local cultural differences. In other words, we must seek out data collection, research and analytics that are not only more diverse in their global coverage, but more diverse in the coverage of occupation or activity, age, gender, race and socio-political attitude.

In this era, corporations need to understand the agendas of all stakeholders, not just shareholders and managements, in order to attain long-term growth in shareholder equity. As such, business strategies need to accomplish an optimal balancing act between the needs of various stakeholders. The notions of corporate social responsibility (CSR), and the need to focus an organization’s management on the triple bottom line of its environmental, social and economic contribution are well established, particularly in Europe. The importance of this approach lies in its focus on wise as opposed to expedient management decisions, and therefore in its longer-term focus, and one which assesses intended and unintended consequences of actions. This CSR approach lies at the heart of modern risk management. The need to understand risk as a part of strategy is not founded on a need to avoid it, but when to accept it. In order for a risk assessment to be based in reality, it must take into account a corporation’s role and behavior in its broader society.

In an environment of weak signals, business strategies must be emergent, changing direction to where the opportunities lie, though still with a clear focus on the objective. Strategy making is therefore a rapid and iterative process: strategy agreed, plan made, action taken, market response understood, strategy modified. A cycle wherein an organization sets a path to achieve its objective, and based on information back from the field, its feedback loop, it is prepared to shift its path to the objective. Many years ago while working in Tokyo a Toyota executive likened this more evolutionary style of strategy making by noting the difference between a North American game of football and the games of soccer and rugby played worldwide.

In the North American game, set strategies are discussed and rehearsed. The play is made, the opposing team responds and then the game stops for the two teams to decide which new strategy from the ‘playbook’ is to be attempted (or in actuality for the TV broadcast to run the commercials!). In soccer and rugby, strategies are also discussed, but on the pitch the game is fluid, constantly moving as each side continually change strategy to identify the opportunity, or gap, in the defense of the other side. In the North American game players change depending whether they are on defense or offence. In the games of soccer and rugby while there are specialist roles, all players on the field adapt their play to the strategy of the moment. And this all happens on a minute-by-minute basis.

In an era of clear signals from the environment, the North American style – with its emphasis on rigorous rehearsal, specialization of role, focused execution and clout –worked brilliantly. In the world of weak signals and where the use of the intellectual capital of the whole organization is a key competence, the more fluid, team culture, rapid response strategies of soccer and rugby give us a much better clue to strategy making.

Strategy making, then, must be market-driven but not merely a passive response to market direction. It must be informed by extensive and sensitive market-sensing data collection that steps outside the narrow bounds of typical PEST analyses. It must examine the ‘edges’ and not just the mainstream or the history of markets. It must be broad in its risk assessment and understand how an organization interacts with the broad social and political environment of which it is a part. And most of all it must be focused yet flexible, clear in its direction yet emergent, and rapid in its response to changes.

Structuring organizations for these new strategies and actions

In Strategy and Structure: Chapters in the History of the American Industrial Enterprise, Alfred Chandler empirically demonstrated how much an organization’s structure impacted its strategy making. However, the way it is supposed to work has not recently been the experience of how it actually works. Chandler said: “Structure has been the design for integrating the enterprises existing resources to current demand; strategy has been the plan for the allocation of resources to anticipated demand.”

The problem with this neat division is twofold. First, in a world where change is frequent and dramatic the division between the tactics and structure needed for current demand, and the new thinking about strategy needed for the future, is blurred. No such simple division of thinking is possible now. More valid is the ‘emergent’ approach to strategy and structure as suggested by that eminent Canadian academic Henry Mintzberg. His view, informed by studies of successful entrepreneurs, is that the strategy/structure contrast needs to be much more fluid as a way to respond to the rapid changes in the business environment. His ‘emergence’ mantra is equivalent to the ‘evolutionary’ style proposed by the Japanese in their observation of the strengths and weaknesses of the different games of football. Net, the structures of business organizations need to be more changeable and adaptable to changes in the business environment and the resultant strategies.

The second problem is that in practice, structure often defines strategy, when in fact it should be strategy that defines structure. Too often organizations use the ‘lens’ of how they are structured to view the business environment. In this way they miss opportunities, emergent sectors and new competitors because they define their world based on the structures and definitions of their current structure or legacy technology. The Coca-Cola and Pepsi-Cola companies in the 1990s virtually missed the rise in demand for non-soft drinks because they were so focused on competing with each other in the soft drink market. The traditional telecommunications giants are having difficulty with VOIP-based systems. TV broadcasters are still having problems with mobile audiences and it is well recorded how much difficulty the music industry has had with the internet-generation. The way we organize frames the way we see the business environment, unless we are really rigorous with the external environment investigation described earlier.

There is a third problem caused by structure and that is its historical evolution. The ‘command and control’, hierarchic structure used by so many organizations traces its ancestry back to the Roman Army of the ancient world. This style of organization, highly effective at the time, became enshrined in the design of future militaries as well as the Catholic Church in the post-Constantine era. The modern business enterprise that emerged through the joint stock companies of the industrial revolution essentially followed this model. It was a model perfectly suited to the era of mass production manufacturing and so thrived throughout the 18th, 19th and 20th centuries. However, as we move in an era where the applied intellectual capital of an organization defines its competitive advantage, ‘command and control’ structures are no longer optimal. This type of organization structure has a tendency to ‘dumb down’ the people in the organization. In fact, in course, organization structures are supposed to ‘smarten up’ the staff. We still have too many organization structures that are layered, slow and inflexible rather than fast and flexible; filled with risk-avoiding positions rather than risk-calculating and inviting ones; and populated by staff who are narrowly trained and organized so that they miss opportunities evident through breadth and diversity of approach.

The business structures of the future must have some of the following characteristics to compete in the world of change, speed and diversity that has been described:

• Short hierarchies rather than long ones.
• Clear accountabilities for accomplishments of significance aligned to the overall organizational goals, rather than minor, risk-avoiding, process-based responsibilities.
• Greater team-based organizations.
• Incentive systems that encourage diversity of viewpoint and activity.
• Where the customer and business environment facing parts of the organization are empowered to bring these views into the organization as the dominant voice in strategy and planning.
• Replacement of specialist silos by customer-focused cross-functional groups and/or frequent task forces, project groups and other working structures that encourage extensive internal and external cross functional groups.
• Use of technology to capture and enhance learning and analysis and make it available to all employees/strategic suppliers rather than to hold limited, so-called confidential information in a few hands.
• Training that focuses on broadly available leadership and management skills in this new environment and not just technical or skills of hierarchic management structures for the few.

Development of staff expertise

In this last section, I shall deal with the contribution of education and training to this new environment.

• Education in business leadership and management – as well as the relevant technical skills – now needs to be for the many not the few.
• As the insourcing/outsourcing balance of activity changes, so must the education and training agenda.
• The improvement in both the technical and managerial skill set of staff is a mutual responsibility for the business organization and the individual staff themselves. Neither should abrogate responsibility solely to the other.
• This is no longer a ‘one-off’ activity for staff. Though costly, continuous lifetime education is a necessary part of keeping skills up to date and sharp. Standout organizations like Toyota and IBM have demonstrated the effectiveness of this view.
• Programs of continuous improvement in staff skills need to receive as much attention as kaizen programs in products and processes.
• Business education and training needs to be broad not narrow: for example international business conducted by people trained only in business or economics is sub-optimal. The history, language and cultural pre-dispositions of the countries involved are essential elements of study too.
• The education and training must, however, have accountability for action. While the investigation, conversation and analysis are critical elements, in the end business is about activity, and the education and training must frame the newly more diverse and thoughtful learning in an action-oriented framework.

With the need for more flexible organization structures and better ideas in product and process to establish competitive advantage comes the need for better trained staff. If an organization is to thrive in the environment of rapid change and weak signals, then it needs not only superb technical skills but also the analytical skills to differentiate signals that are symptoms from those that represent causes. It also needs the management skills to harness and apply diverse capabilities to turn the response to those signals into actionable opportunities for the organization. This skill is one of intelligence, emotional maturity and applied management and technical analysis and application. While it is true that judgment cannot be taught, modern management education can expose participants to principles that have value, simulations that can give experience in the analysis necessary in good judgment, expose participants to the value of different thinking styles, and by action learning projects have the participants directly apply their learning to real world projects. Good management education has moved way beyond listening to ‘talking heads’ in classrooms. Here is what organizations should look for in their staff continuous improvement plans:

• A focus on both technical and managerial skill.
• A focus on the external business environment both mainstream changes and changes ‘at the edge’.
• Programs that not only build and integrate learning in the short term but are part of longer-term improvement programs.
• Programs that align with the core competencies needed in the organization in both the short and medium-term.
• Programs that align to the longer-term vision, mission and goals of the organization as well as the short-term skills: both developmental and current skill improvement.
• Programs that integrate with organization-based career development planning.
• Programs that include cross-functional teams from inside and externally sourced capabilities.
• Programs that work at the differing developmental levels of the organization.
• Programs that require experiential learning, simulations and action-learning so as to conform to adult-learning principles and provide an ROI for the organization.
• Programs that integrate with on-the-job training and experience and require an ongoing follow-up.

The dramatic changes that businesses are experiencing in their business environment require different strategic planning principles and techniques. If these are to be successful, businesses not only need to apply the new principles but develop the structures to enable them to be actioned and, most importantly, have the staff selected and trained well enough for continuous improvement in their application.

Following a 25-year practitioner career in marketing in seven countries, Alan Middleton entered academe 15 years ago to research, teach and, for the last five years, to run one of the world’s top-rated executive and management education organizations.