16 Jun Lean is too hot; traditional planning is too cold. Finding the ‘just right’ strategy for business.
If there were only one word to define the era we are living in today, it would be change. And if there were to be a second word, it would be fast. After centuries of timid growth, exponential advances in technology and rapid socio-political shifts have defined the last decades; we live now in a state of permanent transformation. In a world in which everything is subject to sudden change, it is difficult for companies to stay relevant, and the quest to find and exploit value has become more challenging than ever.
Shell was the first introduce Scenario Planning frameworks as a means to overcome the oil crisis in the 1970s. Ever since, traditional strategic plans have been at the core of executive decision-making. This came with the advent of a particular piece of strategic insight, the Vision plans, in which companies visualised a potential future 10, 20 or 30 years ahead in order to draw up their innovation roadmap.
In a traditional strategy approach, value is typically set at the beginning of the strategic cycle, and it is projected a few years ahead. Think, for instance, of the ubiquitous “2020 Vision Plan”. The operational delivery – processes, capabilities, logistics, human resources – is then aligned to deliver on this previously defined value. This linear approach to value was, for much of the past century, a valid one, and the roadmaps and visions allowed many companies to think big about their reach by taking a directional strategy to growth.
Today’s rapidly changing world means the traditional strategic plan is no longer viable. As technology and globalisation makes business more fast-paced and uncertain, many companies have come to realise, after much investment of time and money, the value they expected to find at the end of the path is not there anymore. Worse, in cases where value was in fact where they expected, it had taken them so long to prepare that by the time it was ready to launch, someone else had already gained the competitive advantage. A Vision 2020 plan today is very likely to quickly become outdated and irrelevant.
This is particularly problematic for large, hierarchical organisations, in which knowledge and KPI’s tend to be siloed. Here, it is difficult to move innovation plans down through the organisation. And by the time a new strategic objective makes its way from strategy to execution, the opportunity it targeted is already gone or tackled by someone else. We all are familiar with examples like Kodak with digital photography, Nokia with smartphones, and Intel with iPhone chips, which demonstrate that traditional strategies might fall short for big corporations.
“Vision 2020” plans can not only render a company’s strategy irrelevant, but could also undermine a company’s credibility. Today’s consumer, that has witnessed unpredictable collapses and market fragmentation, doesn’t buy the notion that a single actor, even the biggest ones, can envision what the future holds.
Lean methodologies have become popular as a solution to these shortcomings, especially after the rise of startups into the market scene. The adaptability of their model, their ability to react quickly towards an emerging opportunity, and their lower initial costs of business have made ‘lean’ the latest buzzword in business management. Want to innovate? Then you have to become lean, do lean, and think lean.
Unlike traditional strategies, lean does not follow a linear approach towards value creation. Instead of projecting value in time, lean delivers value within a certain context: a particular need, a particular shift, or a particular market trait at a certain point in time is what kickstarts the build of the operational machinery to deliver that value. And today, lean turns out to be more effective, both in terms of timing and relevancy, than traditional, linear strategies – with the context of the business in constant flux, a reactive strategy is a quicker way to tackle an opportunity.
But several years into the cult of lean, it is becoming clear that it is not the panacea that corporates had hoped for. When it comes to strategic actions, lean present a series of difficulties. First, lean models are difficult to scale, which means they often remain in niche or small markets and their ultimate jump to bigger business arenas only happens in very specific, well-managed cases. Second, the “minimum viable product” approach that the lean approach requires might lower the quality of output. This may jeopardise consumers’ trust in the incumbents – especially in industries in which established businesses hold a significant competitive advantage (such as banking or automotive) and where mistakes are not easily forgiven. Third, and perhaps most importantly, lean works by reacting to the present, rather than shaping the future. For example, the iPod, a transformative innovation, would likely have been killed under lean. Comments from its initial release underline that visionary innovation can at times conflict with user feedback and market-driven propositions. Lean strategy, as it is turning out, is not the ultimate answer to value creation in an uncertain world, and is not delivering future-shaping capabilities to every company that implements it.
Linear traditional strategies often miss shifts and emerging opportunities on their straight path to value creation; in the worst cases, they only find a depreciated value at the end. Lean, on the other hand, can respond to shifts because it sets the value target within the frame of the present, but can leave the company without preparation should this context continually change or fail to keep driving growth.
If neither traditional strategies nor lean methodologies alone help companies to stay relevant in the mid and long term, what is then the way forward? How can we bridge the strategic capabilities of traditional visions and lean models to get the best of both worlds?
As Claro explores new prospects with our clients – both corporations and startups – in financial services, automotive, Internet of Things and beyond, it is becoming clearer and clearer that a new innovation model is needed to navigate industry disruption.
The key challenge of value finding in uncertain, shifting contexts is that you need a set of tools to answer the questions you don’t even know yet. In the current landscape we live in, strategic forecasting today should be more about delivering the means to the answer, rather than just deliver an answer. Today’s world is about navigating towards value creation.
Navigating – a combined approach, both linear and contextual at the same time – is the best way to get the best out of both traditional and lean strategies. A navigational approach allows companies to shift their strategic pivot while maintaining direction: dealing with uncertainty and planning for leadership at the same time. A navigational approach is an innovation model resilient enough to endure and thrive in an environment of rapid value shifting. In a fast, changing market, a navigational strategy is the sweet spot in between traditional and lean strategies.
What are the best-case examples of business models in between traditional and lean strategies?
In your opinion, do lean business models only react to markets instead of truly shaping sustainable innovations?