Injecting Courage into Strategy

The following article is written by Jonathan Goodman, Monitor Deloitte’s global managing partner, and originally appeared in Deloitte’s 2017 Global Directors Alert.

One of executive management’s central responsibilities is the design and timely execution of strategy. For directors, it is to challenge, vet and ultimately ratify that strategy.

Yet in this ever more dynamic, uncertain and disruption-filled environment, many argue that strategy is too hard to do, of secondary importance, or, worse, irrelevant. A sure sign of this abdication is the rise of strategy as slogan: “Our strategy is to be flexible,” or “agile,” or “digital.”

But the need to make a coherent set of choices, which is the centerpiece of strategy1, has never been more important. At its core, strategy is the basis on which to direct a company’s precious resources. It is the connective tissue across layers of management and between functions. It serves as the filter to distinguish opportunities from the many distractions posed by a changing environment.

Good strategy, executed well, is essential to strong financial performance and the creation of lasting value over time. Good strategy, articulated convincingly, is essential in communicating with stakeholders and capital markets, and enhancing transparency in an age of rising shareholder activism and social media storms. And good strategy, framed carefully, should enable the transformations organizations must undergo not just to survive, but to thrive in the future.

This raises an obvious question: what does it take to produce great strategy in a cyclonic environment? Processes, methodologies and capabilities of a sort are all necessary, but they are not sufficient. Nor are innovations in customer research, data analytics and fast-cycle prototyping despite the fact that they are all advancing strategy.

What really differentiates strategy is courage.

Courage is the willingness to take action when it is hard, or risky or scary to do so. In the tighter context of business strategy, it’s the willingness to engage in courageous conversations, to spark courageous considerations, and to make and execute courageous choices.

Courageous Conversations

Open dialogue is the engine of executive commitment. So yes, discussions on strategy among executives, between executives and the board, and throughout the organization should be purposeful; they should be structured and appropriately focused or expansive depending on the situation and topic.

And they should be courageous. A courageous conversation is one that deals with difficult or uncomfortable topics not marginally, but deliberately and centrally. It is one that not only involves, but invites a diversity of perspectives. Executives and board members who promote courageous conversations recognize that questions are an asset to be deployed wisely and kindly, not liberally and haphazardly. And conversely, a courageous conversation is one that invites participants to not only ask questions, but to question answers, especially at a time of massive disruption and prolonged uncertainty.

Courageous Considerations

Across industries, long-standing conventions about boundaries, the durability of advantages and ways to compete are changing fast; the outcomes, the near- and mid-term destinations, uncertain. With this kind of institutionalized discomfort, it’s easy for senior executives and board members to try to hold on to what they know, including their traditional assumptions about their businesses and the world around them.

But certainty is an illusion. In the current environment, creating and sustaining a sound strategy requires a willingness to deal with the realities of a tumultuous marketplace, changing customer needs or boundary-busting competitors—no matter how hard, or unappealing, or counter-intuitive it may be to do so. An effective strategy requires confronting uncertainty rather than denying its existence or being paralyzed by it. It means thinking broadly about how fundamentally different the environment might be in three, five or 10 years from now—powered by globalization, changing demographics and exponential leaps in technology, connectivity and digitization. It means the willingness to consider very different possibilities by which to position, design new value for customers, compete and collaborate over time.

Courageous Choices

Ultimately, good strategy design requires executives, with the support of their boards, to translate consideration, examination, dialogue and experimentation into meaningful and actionable choices. Courageous choices mean making real trade-offs: choosing to participate in some markets and not others; choosing to serve and delight certain customers and dissuading or not serving others; choosing to invest in specific and defensible sources of advantage, not in any and all possible capabilities.

By extension, courageous choices involve the willingness to stop funding businesses or initiatives that made sense at one point in time but do not, or may not, anymore, in order to prudently, yet purposely, invest in the positions, innovations and experiments that will expose or define the future. Success requires the courage to overcome the tendency to systematically underestimate the risk of the status quo while overestimating the risk of doing something new or different.2 By making and acting on courageous choices, executives and boards can shape a corporate portfolio to win in the future rather than simply protect the past.

Strategy design and execution should not be comfortable. It takes courage on the part of both executives and boards to confront a changing marketplace, engage in more inclusive conversations, and weigh benefits and risks in the face of uncertainty.

Questions for Directors to Ask

• What are the core assumptions that underpin the organization’s current strategy? Do these assumptions still hold given the dynamics of the marketplace, customers, competitors or emergent ecosystems?
• What types of disruptions might the organization face? What threats or opportunities do these disruptions pose? Is the organization being sufficiently bold with innovation activities?
• Is the organization in the right businesses? Is it the best owner for its businesses? What business models should it adopt to create value in the future?
• Does the organization’s strategy involve genuine trade-offs? What is management choosing not to do? Where is management choosing not to invest, and why?
• Does the organization have the leadership, capabilities and investment capacity to achieve its objectives? How can the organization build or access the capabilities required to succeed in the future (e.g., organically or through acquisitions and partnerships)?
• Does the organization have enough engagement with executive management on issues of strategy throughout the year?
• Does the organization have sufficiently diverse perspectives among executives and board members to develop and execute a winning strategy, one that is tuned to the future as opposed to rooted in the past?

Produced by Jonathan Goodman, global managing partner, Monitor Deloitte, vice chairman, Deloitte Canada, and originally published in “Courage Under Fire: Embracing Disruption,” Deloitte’s 2017 Directors’ Alert from Global Center for Corporate Governance.

Endnotes
1. A.G. Lafley and R.L. Martin, Playing to Win:How Strategy Really Works, Harvard Business Review Press, 2013.
2. Roger Martin,“Underestimating the Risk of the{Status Quo},” Rotman Magazine, Spring 2007.