Tuesday, March 14, 2017

Musings on Strategic Planning

Since the end of World War II, the operating environment for the AEC industry has been remarkably stable.  The world and U.S. has experienced broad social, economic, political, technological, and cultural change but relative stability since 1970.  But consider the current general business operating environment in the United States.  The average life span of a company listed in the S&P 500 has decreased from 67 years in the 1920s to just 15 years today.  Yale University professor Richard Foster found that on average a S&P 500 company is now being replaced every two weeks, and he estimates that 75 percent of current S&P 500 firms will be replaced by new firms by 2027.  But with death comes resurrection.  Facebook took six years to reach revenue of $1 billion a year, and Google just five years.  We live in the Age of the Idea – you used to need money, power, and scale to change the world.  All you need today is an idea.

Artificial intelligence, smart software, robotics, and the “internet of things” have come together to bring significant productivity gains and lots of disruptive change.  You walk around your house, or the store, and ask for things to happen and they do.  You can ask any question just by talking to yourself, and a good answer comes immediately.  Unfortunately this technological dynamism has yet to hit the AEC (Architecture, Engineering, Construction) industry.  A recent report by Wells Fargo showed a productivity slowdown in almost every sector of the American economy.  Perhaps most strikingly, the sector “professional and technical services” showed no increase in productivity of the average worker and professional at all.  You might think IT and the wired office has boosted office productivity substantially, and it has in some ways, such as enabling rapid-fire communications across great distances or after work hours are over.  But the evidence has yet to materialize for any kind of recent boost in office productivity.  For every rapid change in our external operating environment, other internal things are not changing fast enough.

This historic stability of the recent past produced an environment in which strategic planning was viewed as a process of analysis.  You do some research into what is and what is not possible.  Future projections were intimately tied to interpretations of the past and the present.  You define a goal, break that goal down into manageable steps, and determine how to implement them while identifying the expected consequences of each step.  It’s a logical and linear straightforward process to sequentially move the organization from where you are now to where you want to go.  In a stable world we too often viewed doing nothing as the best strategic action.

During the 1950s and 1960s, this was an acceptable methodology to think about strategic planning.  The huge flaw in this process was the assumption that the world is reasonably stable and somewhat predictable.  But anyone who has been paying attention the last few years knows that today’s world is neither.  We are living in increasingly uncertain times.  Many have termed our current and forecasted operating environment this century as VUCA – volatile, uncertain, complex, and ambiguous.  Changes are occurring too fast for any of us to really process them in the traditional manner.  The changes going on can easily give us the feeling that we are not really in control of events.  The standard response in such situations is to try to control too much (we forget the old rule of control – worry about that which adds significant value and let go of the rest), in which case everything will tend to fall apart as we fall behind.  Or to let go, an equally disastrous mindset.  What we are going through requires a different way of thinking and responding to the world.

The AEC industry not only faces an exponentially uncertain future, we also have the legacy and baggage of being under strategic and overly tactical – where the overwhelming daily battles of increasing revenues, lowering costs, and delighting clients dominates our thinking (tactics is what we do when there is something to do; strategy is what we do when there is nothing else to do).  We equated tactical success as strategic success.  Engineers also have a desire for complete control, don’t like messy complexity, and are culturally risk adverse – which doesn’t play well in a VUCA world (Spears to rockets, was it ever not a VUCA world?  The difference is that today VUCA travels wider, movers faster, and can hit harder than ever.).  Engineers are comfortable controlling the controllables.  The AEC industry also thinks learning is about looking in the rearview mirror.  People say “learn from the past.”  But what gets lost is the fact that you can learn more from the present (i.e., now-driven) and a whole lot more by thinking strategically about the future. 

The vast majority of the AEC industry can relate to the some or all of following conditions organizations face in terms of strategic skill sets with key personnel:

·       Doesn’t think or talk strategy.

·       Can’t put together a compelling strategic plan.

·       More comfortable in tactical here and now.

·       Lacks the perspective to pull together varying elements in a coherent strategic view.

·       Can’t weave a vision of future.

·       May reject the usefulness of strategy, considering it pie in the sky.

·       May have narrow experience and not be knowledge of business and world events.

·       May try to simplify too much or be very tactical.

·       May lack the disciplined thought processes necessary to construct a strategic view.

Gone are the days when strategies could be rigid multi-year plans.  Strategic planning historically has been done with a beginning and an end.  Rapidly changing operating conditions were seen as a road ending – versus an understanding that a bend in the road in not the end of the road, unless you fail to make the turn.  Strategic planning was conducted by senior management and typically resulted in a formal written plan.  We wrote static plans for a static and predictable world.  But in a world of uncertainty, strategic planning needs to be replaced with strategic thinking and strategic agility (Agility defined – the ability to be both highly dynamic and inherently stable at the same time.  Agility means an organization has the ability to move and adjust quickly and easily – it’s a learn and adapt feedback loop.).  The shift needs to be less linear thinking and planning and more continuous strategic looping and feedback (a VUCA world will require engineering management to overcome linearism).  Strategic thinking and strategic agility never ends – both need to be core values in a world where what is right today is different tomorrow.  It becomes an integral part of how an organization conducts its business.  It is more entrepreneurial – where acting entrepreneurially is not about sporadic engagement, rather strategic thinking needs to be a regular and systematic part of a firm’s behavior and culture.  The key question at hand relates to which strategic model or models fit best within the AEC industry operating in a VUCA world.  Management models based on planning and predicting instead of resilient adaption to changing circumstances are no longer suited to today’s challenges.  The plodding era of strategy is being retired by a desire for a quicker strategic pace – a world where operational and strategic tempo are aligned.

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