JANUARY 2015 / NO. 2
TAGS: COMFORT ZONE, STRATEGIC PLANNING, COST-BASED THINKING, SELF-REFERENTIAL STRATEGY FRAMEWORKS, WHERE-TO-PLAY, HOW-TO-WIN, OPEL, PSA GROUP, PEUGEOT, CITROEN, NOKIA, BLACKBERRY, PANASONIC, SHARP, SONY, PHILIPS, KPN, ING, ABNAMRO, RABOBANK, SNS, POSTNL, TOMTOM, CAPGEMINI, ATOS, IMTECH

Too many companies like the comfort zone when working on strategy

“All executives know that strategy is important. But almost all find it scary, because it forces them to confront the future they only can guess at”
“Strategic plans become the budget descriptive front-end, projecting 5 years ahead. But management only commits to year one. In the context of 2-5 years, strategic means impressionistic”
Choosing a strategy entails making decisions that explicitly cut off possibilities and options. It is a natural reaction to make the challenge less daunting by turning it into a problem that can be solved with tried and tested tools. The strategic plan is supported with detailed spreadsheets that project costs and revenues quite far into the future. At the end of this strategy process everyone feels much less scared; so this is about coping with fear of the unknown. But it is not the right way to make strategy. True strategy is about placing bets and making hard choices, not so much to eliminate risks but to increase the odds of success and of getting out of one’s comfort zone.
There are three comfort-zone traps:
  1. Strategic planning: all strategic plans tend to look pretty much the same; first come the vision, mission and goals; then a list of initiatives; and then conversion into financials. The plan consists of whatever initiatives fit the company resources. It does not challenge assumptions or unmet customer needs
  2. Cost-based thinking: costs fit perfectly to planning because they are under the control of the company. Costs are also comfortable to work with because they can be planned with relative precision. For costs, the company makes the decisions, while for revenues it is the customers who make them. Revenues are not under the company’s control, and therefore unknowable, nor are they controllable. Planning, budgeting and forecasting are therefore impressionistic exercises
  3. Self-referential strategy frameworks: here we have to be aware of the deliberate, intentional, and emergent strategy which consists of the company’s responses to a variety of unanticipated events. Managers overestimate their ability to predict the future. It is crucial to watch carefully for the dynamics of change in the competitive environment.
To escape from one’s comfort-zone traps, the following considerations should be taken into account:
  1. Give the answers on both choices which determine success: Where-to-Play and How-to-Win
  2. Strategy is not about perfection: strategy is primarily about revenues rather than costs and perfection is an impossible standard. Strategy shortens the odds of a company’s bets
  3. Make the logic explicit: what do you need to believe about customers, about the evolution of your sector of industry, about competition, about the future competitive landscape and about your own capabilities?
If a company is completely comfortable with its choices, it is at risk of missing important changes in the competitive landscape. The consequence is that companies may run into a strategic crisis. Examples of such companies are numerous: Opel, PSA Peugeot Citroën, Nokia, Blackberry, Panasonic, Sharp, Sony, Philips, KPN, ING, ABNAmro, Rabo, SNS, PostNL, TomTom, Capgemini, Atos, Imtech and many more. All these companies lost their competitive edge by competing for the present rather than competing for the future. (Part of this section was based on a publication on strategy in HBR J/F 2014).
“Thirty percent of participants in any strategy discussion should be under the age of 30, because they are not wedded to the past”, Narayana Murthy of Infosys India
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