By Kevin Nuttall, Published 02 October 2017
The starting point for strategic thinking should always be the external environment as it does not matter how big or small your business is, external factors will always have a far greater impact on your organisation’s success than your internal issues. An analysis or scan of your organisation's external environment is critical at the earliest possible stage of strategic planning.
An external environment scan as part of the planning process must be carried out objectively. CEO's often have a vision and strong sense of where they want to take the organisation strategically, but it is vital that the external scanning is done with an open and honest approach as it is these external factors that will inevitably shape the future.
Leaders must be open to the notion that today's business model will not survive in the future, strategic planning is about making the changes ahead of the need, rather than trying to make a late and massive step change which often does not work. This explains a long list of high-profile failures eg Kodak, Nokia, Blockbuster, Worldcom, Borders Bookshops, Compaq.
An example that sticks in my mind is Kodak’s film production factory in Victoria, Australia. Despite winning multiple quality awards and tens of millions of Government assistance; Kodak was not able to push back the tide towards digital despite its size. They failed to foresee the best product/market fit. In Kodak’s case, their customers still had a strong demand and desire to capture images and memories, however, they were agnostic to the media or device. What was once described as a 'Kodak Moment' is now described as 'selfie' or 'insta' worthy. Ironically, an engineer employed by Kodak, Mr Sasson, invented the digital camera in 1975 and Kodak tried to keep it hidden as “Kodak’s marketing department was not interested in it as they were concerned it would eat away at the company’s film sales.”
'Companies that fail to embrace change and reorganise their approach accordingly will, regardless of any prior success, be swept away. Learning only from success creates a deeper problem: drawing conclusions only from available or convenient data will systematically prejudice results and long-term thinking. Ultimately, it pays to study failure and learn from it. Only by doing so, can we prevent similar failures in our own organisations.' David Chancellor concluded in an article about learning from spectacular corporate failures.
In Waterfield's StrategyConnect planning approach, we call this process 'future scanning' and we start by interviewing our clients to understand all the 'actors' in their ecosystem including;
These are independent actors (ie, all seeking to optimise their world, not yours). This is the start of understanding what changes or adaptations each of these actors will make over the next three to five years.
Once you have determined what the future will demand of your organisation, you conduct a gap analysis between your current capabilities and what will be required to deliver the required future set of products and services. For commercial organisation’s we generally take a three-year horizon.
We then extract the trends that will positively and negatively impact the organisation and plot these trends in a 10-year wave analysis to look at the confluence of trends in three years time.
Working out what that anticipated future will demand and what outcomes the organisation will need to have in three years time to prosper. This then forms the strategic outcomes of the organisations 'Strategy Map' which will form the basis of your organisation's strategy.
Understanding and Assessing Product/Market Fit
It is important to note that, determining 'product/market fit’ is a completely objective ‘outside looking in’ exercise and has nothing to do with what the organisation currently does. According to Jeffrey P. Bezos, Founder and Chief Executive Officer of Amazon in his letter to shareholders, this is about having an “Obsessive customer focus”.
Painful as it is often is; the future can have little to do with what your organisation currently is good at, eg. Kodak. However to quote Amazon again, “The outside world will push you into irrelevance if you won’t or can’t embrace powerful trends quickly. If you fight them, you are probably fighting the future. Embrace them and you have a tailwind.”
Whilst the example of Kodak was a catastrophic failure in foreseeing a shift and not adjusting to it, there have been some very positive results when businesses have foreseen a shift and adjusted their strategy accordingly.
Starting with a future scanning session is a good way to future proof your organisation against possible threats or changes in the operating environment. The next step is to determine what the action priority areas are in the next 12 months to realise this new future, and then, of course, it is time to act.
Product/Market Fit - https://www.impactbnd.com/blog/product-market-fit
Amazon 2016 Letter to its shareholders https://www.amazon.com/p/feature/z6o9g6sysxur57t
Companies who didn't see disruption coming. http://www.managers.org.uk/insights/news/2015/september/four-companies-that-failed-spectacularly-and-the-lessons-of-their-premature-demise