Formulating strategy to allow agility

Directional Strategy

Directional strategy is a way of formulating strategy is such a way as to give clear direction and focus, but give space for the flow of course adjustments which come from agile operations and allow for more significant changes of direction without disruption.

Instead of reducing uncertainty to a set of risks that can be adjusted for, it recognises the reality of radical uncertainty and places it at its heart. When a business is faced with unfamiliar uncertainties that could have a significant impact, a directional strategy will make it more robust to threats and faster to exploit opportunities than a traditional strategic plan.

Directional strategy is based on four fundamental principles

Principle 1. A set of beliefs provides orientation

A set of beliefs provides orientation

There is no data about the future, so orientation should be provided by a set of beliefs about what will drive the business in the future and the principles which should guide action. These might be fundamental tenets (‘the value of customer loyalty far outweighs the cost of providing outstanding service’) or hypotheses which could be tested (‘customers will pay a premium for a wider range of choices). Beliefs need to be made explicit, shared, debated and reviewed at regular intervals.

Principle 2. Direction should be set as a compass heading

Direction should be set as a compass heading

Direction should be set as a compass heading, not a destination, i.e. ‘go West’ rather than ‘go to San Francisco’. In radical uncertainty, it is not possible to see far enough forward to specify an end-state – but you do not have to. You can give a clear direction and focus by specifying a compass heading in terms of what has to be done now in order to thrive in any plausible future. For example ‘speed up the move to digital’, ‘develop new employee value propositions’, or ‘reduce innovation lead time’.

Principle 3. Optimise decisions for robustness

Optimise decisions for robustness

The question to ask is: ‘Of all the options that will produce a satisfactory outcome, which one does so under the widest range of possible futures?’ In this way, you can avoid what could kill you, but also be on the lookout for kickers – the unexpected opportunities under which you could win big.

Principle 4. Set up a review process to reassess the situation and your beliefs

Set up a review process

A review process enables you to re-assess the situation and your beliefs and so change stance. A stance is a decision to wait and prepare or to take action, either to learn, to have an impact, or to shape the environment. The review process defines an operating rhythm in which the first question in each review is ‘has the situation changed?’ In this way, strategy development and strategy execution become unified, and the unfolding of strategy becomes a series of moves which are constantly evolving.

To learn more about directional strategy and how to assess uncertainties, see the articles below

Uncertainty: a road disappearing into fog

How to Assess Uncertainty in an Unpredictable World

Everyone who writes about the subject of uncertainty agrees that it is important to first assess the nature of the uncertainties in the environment in order to approach them in the right way. However, in practice, carrying out that assessment proves to be very difficult. In this article, Stephen Bungay, Rebecca Homkes and Anthony Freeling offer a pragmatic but useful way of doing so.

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A compass on an iPhone

Directional Strategy. Making good decisions when you cannot make good predictions

In radical uncertainty, strategy itself needs to be agile. Authors Stephen Bungay, Rebecca Homkes and Anthony Freeling describe a way of assessing uncertainties in their first article. In this companion piece, they lay out the principles of what they call ‘directional strategy’ which offers a way of making good decisions when you cannot make good predictions.

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