CHALLENGES OF THE ENVIRONMENT

Making good strategic decisions when you cannot make good predictions

Strategy has always been crafted in an environment of uncertainty. In the business world, many strategic planning processes have been based on the assumption that it was possible to forecast the future and then make some adjustments for risk. That has never been completely true, but in some businesses, for some of the time, it was true enough not to lead people astray.

Today, for the majority of businesses it is no longer true at all, and assuming it is means courting disaster.

The most popular term used to describe the current business environment is VUCA.  First coined by the US Army War College in the 1990’s to describe the post-Cold War international environment, it stands for volatile, uncertain, complex and ambiguous.

The implication of VUCA is that we face not risk, but radical uncertainty.  Risks can be quantified.  Uncertainties cannot be quantified.  Indeed, not all of them can be identified.  So in a VUCA world, you cannot make good predictions.  The challenge is to nevertheless make good decisions.

This is the challenge agile strategy addresses.  In turning strategy into action, that challenge amounts to closing three gaps.

The Three Gaps Model

The 3 gaps model

Three basic steps for getting things done

The model explains a simple intended relationship between planning, actions and results in any business endeavour:

Step 1. We seek outcomes
Step 2. We make plans based on the knowledge we have
Step 3. We take action, and that action results in outcomes

Three gaps exist between plans, actions and results

Most organizations seek ways to turn strategy into action, so when things aren’t working, solutions often attempt to ‘get people to do what the plans require’ implying the basic issue is an implementation problem. This is the Alignment Gap.

But this is only one of three gaps implied by the model. They need to be closed in a systematic approach because they influence one another.

In a fast-moving environment, things are less likely to be knowable or predictable. There is a Knowledge Gap between what we know and what we would like to know, so we can’t rely on our ability to make perfect plans. Even if we could, the time it would take could cede advantage to competitors.

When we implement plans, the actions taken will not necessarily achieve what we were looking for in the first place. In the real world, we tend to see differences between expected and actual outcomes. Hence there is an Effects Gap. This was neatly summarised by a Prussian general (Helmuth von Moltke) who said ‘No plan survives first contact with the enemy’s main body’.

Graphic of 3 Gaps Model illustrating Knowledge Gap, Alignment Gap and Effects Gap

Typical corporate responses

Instead of thinking about execution in a holistic way many highly evolved, high-achievement organizations know only one way to deal with these gaps, even if they don’t necessarily talk about them in these terms. The grim legacy of established management practice takes a firm hold…

Knowledge Gap: A common response is to seek more detailed information. This comes at a cost in terms of time and resources. Executive teams become immersed in data and assumptions to the extent they can no longer see the wood for the trees – detail and clarity are not the same thing!

Alignment Gap: When plans result in the organization not behaving in the way that was expected, it is commonly treated as an implementation problem and addressed with more detailed plans and instructions which in turn result in leaders lacking confidence to act independently as organizations become bureaucratic and process led. In extreme cases, junior managers and staff are ‘blamed’ for not being sufficiently engaged. This affects large corporations and smaller entrepreneurial organizations as they evolve and grow.

Effects Gap: When actions don’t deliver the results that were expected because of competitors, unpredictable events, poor planning or weak execution, things start to get difficult. Unfortunately, the all too common response is to seek more control, more reporting, more management reviews, more scorecards and more governance.

These responses may be familiar to those who have served time in large organizations. Any one of these responses is bad enough, but compounded they have an insidious effect, making the problem worse by turning organizations into large expensive robots consumed with ‘being’ rather than ‘doing’.

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