How to develop and execute a winning strategy in a VUCA world

14 November 2018 Consultancy.eu

Two professors at European business schools have teamed up to deliver a new approach for building and executing a winning strategy. According to the authors, by leveraging a structured and integrated approach to strategy development and execution, executives tasked with strategic decision making are better able to navigate the waters of today’s VUCA world.

A strategy is one of a company’s most important assets, as it lays down the long term ambitions of the company, how competitive advantage is gained, and what needs to be done to achieve this. With a solid strategy in place, companies can capitalise on a blueprint for a successful future, with research by McKinsey & Company over a fifteen year period showing that organsiations with a long-term strategy manage to outperform their peers on a range of key fundamentals: generating 47% higher total revenues and 81% higher average company economic profit.

The question is: how long-term should a strategy be? In a world characterised by volatility, uncertainty, complexity and ambiguity (abbreviated as VUCA), a long term strategy is risky as companies can be disrupted out of their industry in the space of a few years. In 2011 Nokia was still the world’s largest producer of mobile phones, yet a year later the firm’s phone division went bankrupt – its short to mid-term strategy had clearly failed. The same goes for several iconic brands, such as the often cited demise of Kodak, Blockbuster, and Toys R Us, which have swiftly left the stage due to not being alert to the rise of new age competition.

As a result, experts are highlighting that the nature of strategic development and execution is changing. Out goes the sloth-like long-term and fixed approaches, in comes a more scenario-driven, modular approach, which building on agile techniques can be rapidly changed and/or deployed. According to Marc Baaij and Patrick Reinmoeller however, “VUCA makes strategy development and execution hard but it does not reduce the relevance of strategy.” This is what inspired the two to work on an approach for strategy development that fits with the modern world of business.

Marc Baaij is Associate Professor of Strategy at the Rotterdam School of Management (RSM) of the Erasmus University University Rotterdam in the Netherlands, and has a background in strategy consultancy – previously serving with The Boston Consulting Group (BCG). Patrick Reinmoeller is Professor of Strategic Management and the Academic Head of ‘Directors as Strategic Leaders,’ one of the most successful open programmes at Cranfield School of Management in the UK. In their new book ‘Mapping a Winning Strategy’ the two professors introduce a new model for how executives and managers can develop and execute a successful strategy in turbulent markets.

Mapping a Winning Strategy

“The approach is based on 16 years of work (2002–2017),” says Baaij, adding that they have built on the best practices in strategy. “We owe a great deal to the work of leading strategic thinkers such as Clay Christensen, Henry Mintzberg, Kathleen Eisenhardt, Michael Porter and Michael Tushman, to name a few.” In particular, says Reinmoeller, the authors were inspired by how McKinsey & Company goes about with ‘structured problem solving’, an approach which was pioneered by Barbara Minto in the ‘70s (The Minto Pyramid Principle) and refined later on by the likes of Ethan Rasiel and Paul Friga in their joint book ‘The McKinsey Mind’. Baaij: “Besides literature research, we have learned a great deal from training strategy consultants and managers and coaching them on application to their own practice.”

A winning strategy

In their approach, the authors contend that crafting a winning strategy in 2018 is different to that a decade ago, and, as a result, executives need to build in different strategies (e.g. widening the competitive horizon), look at more modern interventions, build in agility along the way for a potential change of path, and leverage emerging technologies to engage more intensively with teams. “The ‘Mapping Method’ for strategy development and execution provides a better method as opposed to mainstream models to create and execute a winning strategy under VUCA conditions,” state the authors.

At the heart of the approach stand four intertwined processes:

  • Exploring strategic issues. Before leaders can develop a new strategy, they need to thoroughly understand the big issues that substantially and structurally affect their firm’s overarching performance. This process allows them to develop with their stakeholders superior insights into the real strategic issues, while avoiding ‘boiling the ocean’ with exhaustive and irrelevant analyses.
  • Engaging employees and other stakeholders within and outside the firm in the processes of strategy development and execution. The purpose is to mobilise these stakeholders in order to get their commitment and support, and to avoid the weaknesses of a top-down approach and the problems of stakeholder politics.
  • Developing strategic options and choosing a strategy. The purpose here is to create winning strategies and avoid the black box of strategy development by outlining clear routes to strategic options. Again, business leaders will need to engage stakeholders, including the most critical ones.
  • Executing the chosen strategy. With this process, leaders want to anticipate and prevent the (typical) roadblocks to strategy execution. The authors outline how to deconstruct strategic choices in a set of concrete actions to successfully execute a new strategy, and also how to learn from execution to improve the strategy when needed.

All over, the Mapping Method entails engaging stakeholders, developing and testing hypotheses (about issues and about strategies) and using visual maps to make complicated things simpler. According to the authors, the method will outperform conventional strategic planning, among others, because of its focus on stakeholder engagement. By adopting a stakeholder-inclusive approach, they say, allowing for ‘bottom-up’ and ‘outside-in’ ideas and insights throughout the whole process – from issue exploration to strategy execution – leaders will be able to develop better strategies and achieve better execution results.

“VUCA makes strategy development and execution hard but it does not reduce the relevance of strategy. A winning approach combines rigorous strategy development with agility.”
– Marc Baaij

The authors further contend that another advantage of the Mapping Method is the focus on the real strategic issues. Such focus avoids ‘boiling the ocean’ and enhances the odds of generating valuable and exclusive insights as a sound basis for strategy development. A third advantage of the method is the clarification of three alternative routes for developing strategic options: creative thinking as well as inductive and deductive reasoning. Further, in this method, attention to execution does not start after strategy development but already begins with issue exploration.

Designed as a rigorous approach, the Mapping Method, they say, is not a linear method but incorporates important feedback loops at two levels. The first level is feedback from issues, strategy hypothesis development, and testing. The second level is feedback loops from strategy execution back to strategy development and issue exploration. In terms of being agile, the authors also highlight its importance.

“We acknowledge the value of agility, simple rules and learning through probing and experimenting under high levels of VUCA,” the duo states. “The Mapping Method offers a smart way to experiment and learn through the use of issue hypotheses and strategy hypotheses. The method treats strategies as hypotheses and tests them before execution, thereby reducing the odds of errors and costly failure. We acknowledge that strategy execution is the real test of a strategy hypothesis, and we acknowledge that strategies may not survive the confrontation with a VUCA reality.”

Baaij and Reinmoeller say in conclusion; “Developing and executing a winning strategy is probably the biggest and most difficult responsibility of business leaders. A winning strategy is a leader’s main lever to motivate and mobilise stakeholders to achieve the firm’s overarching objectives, such as profit, and people- and planet-related objectives. A winning strategy guides the firm’s employees and external partners to make winning (operational) choices, and execute them well. We believe that our approach is well suited to help executives take on this challenge.”

The book ‘Mapping a Winning Strategy’ (or a free sample chapter) can be ordered on the website of the publisher.

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Turning economic tide requires reassessment of strategic priorities

16 April 2019 Consultancy.eu

Risks of a downturn in Europe continue on the horizon as various risks to (global) growth come together. A new survey of operations managers in Europe shows that around half expect a downturn somewhere in 2019, although few expect a recession. Leaders in financial services are the most pessimistic, while automotive respondents are the most likely to expect a downturn.

The financial crisis, born from a chain of activities on the back of risky lending by banks combined with poor risk governance as well as an inflated real estate market in the US, nearly collapsed the global economy. The decade that followed saw recovery, with recent years seeing sustained economic growth in Europe, booming equities and positive sentiment among companies and investors.

However, stability may be giving way to uncertainty in Europe. Global headwinds from a trade spat between the US and China, fallout from Brexit, as well as the rise of populism – particularly in Italy, Austria and the Netherlands – means that the tide is turning. Changes to monitory policy are also on the cards, with interest rates expected to rise in Europe and in the US. Meanwhile, the Chinese economy is projected to slow, while growth of other fast growing emerging market economies is stagnating.

Economic expectations - Overview

A new report by Roland Berger, titled ‘Operations Efficiency Radar’, highlights the changing sentiment among European business leaders. According to the study, the number of respondents expecting a downturn this year stands at 48%, up from 17% last year. Few, 2%, however expect a recession, comparable to the view last year.

The sentiment comes on the back of worsening key economic indicators, the researchers note. The number of restructuring cases has increased, global stocks fell 10% over 2018, and there are an increasing number of profit warnings across industries. Market volatility is also up, while business confidence and expectations have trended down over 2018. Profit warnings by companies have gone up, in particular in Europe’s largest economy Germany, and further interest rate hikes are looming around the corner.

Different industries have considerably different expectations. The most pessimistic industry is financial services – 11% of its professionals expect a recession this year and 33% a downturn. The automotive industry meanwhile has the highest number of leaders expecting a downturn, at 92%, followed by industrial products, at 56%. The most optimistic industry is chemicals/pharma, with 36% expecting a boom, followed by consumer goods and retail at 33%.

Economic expectations by industry

The changing market conditions are prompting leaders to change some of their strategic planning and priorities going forward. The automotive industry operations leaders are set to focus on production (79%), working capital management (79%), and product portfolios (77%). Aerospace and defence firms are set to focus largely on production (73%) and controlling & finance (66%), followed by procurement (64%) and product portfolios (61%). Industrial products companies are set to focus their operation priorities on product portfolio (75%), production (69%), and procurement (63%).

For four other industries studied – chemicals & pharma, consumer goods & retail, industrial services and financial services – product portfolio, which includes rationalising, optimising and innovating products, is the top strategic priority.

Commenting on the findings, the authors state, “The first consequences of the fragile environment are already visible in a number of indicators. Company leaders should use the results to challenge priorities throughout 2019, review their early warning systems, fine-tune and/or re-assess budgets and investments and consider crisis preparation scenario’s.”

Related: 13 business and technology trends for 2019.