“The S&P 500 death rate is rising,” CLSA investment strategist Damian Kestel said in 2017. “A period of relative stability is ending. An increasing number of corporate leaders will lose control of their firm’s future.” This has never been as true as it is now. The length of time large-cap stocks have spent in the benchmark index has been declining, from 33 years on average in 1985 to 20 years as of 1990. This will get even smaller in the future, shrinking to 14 years by 2026, according to forecasts.
This is evidenced by the increasing corporate mortality, heralded by the demise of corporate giants such as Nokia, Toys R’ Us, Sears, among others. These large organizations were well-staffed by corporate planning wizards from Ivy League schools, but still they were unable to respond to the fast-changing environment. Then what is the reason for all of these?
The world has never been as complex as it is now. The 4th Industrial Revolution is bringing forth unprecedented changes brought about by technological advances in artificial intelligence, big data, and quantum computing, among others. Technology is spawning a new generation of start-ups which are disrupting all industries. This is also the only period when we see the divergence of the four generations of workers in the workplace — Baby Boomers, Generation X, Millennials, and Generation Z. Political shifts in power, and aging population of advanced countries are likewise putting strains in workforce and train.
To respond to these changes in the macroenvironment, strategic planners go through the traditional linear steps of identifying the broad mission, vision and/or values statements, conducting a situational analysis involving external and internal assessments, establishing broad goals in accordance with the mission and results of the assessments, identifying strategies to achieve those goal, developing specific action plans (objectives, schedules, responsibilities and resources) to achieve each of the goals.
But with the complexities in the macroenvironment, the traditional approach to strategic planning, which is linear or sequential in nature, is oftentimes not applicable. Hence, a new approach to strategic planning approach and its attendant leadership skill are requisite to account for the chaos that’s happening all over. Enter sense-making.
Sense-making, according to Prof. Deborah Ancona of the MIT Sloan School of Management, “refers to how we structure the unknown so as to be able to act in it. Sense-making involves coming up with a plausible understanding — a map — of a shifting world; testing this map with others through data collection, action, and conversation; and then refining, or abandoning, the map depending on how credible it is. Sense-making enables leaders to have a better grasp of what is going on in their environments, thus facilitating other leadership activities such as visioning, relating, and inventing.” It involves three major steps — explore the wider system, create a map of that system, and act in the system to learn from it.
Explore the wider system. The key to this step is to work with others to observe what is going on, may it be using external consultants or involving other leaders in the organization. Many local organizations conduct leadership summits, where they invite experts from different fields that provide different perspectives of the world. This should be supplemented with different data types and data sources to validate and expand the perspectives. It’s also important to remove prior biases from interfering with your perceptions, by utilizing external facilitators to help de-bias the views of leaders.
Create a map or story of the situation. Sense-making can be likened to cartography. The key is to create maps and frames that adequately represent the current situation that an organization is facing. Maps and frameworks give leaders snapshots of the current and future scenarios, enabling them to better process data and information. Examples are the transformation maps put together by the World Economic Forum, a dynamic knowledge tool to understand the issues and forces driving transformational change across economies, industries, global issues and the Forum’s system initiatives. These are great alternatives to the traditional PESTLE (political, economic, social, technological, legal, and environmental) analysis.
In our strategic planning workshops, we also employ various frameworks that map the competitive landscape of an organization’s industry, including levels of investment in various factors. We also employ the Business Model Canvas to map an organization’s current and future activities that deliver value to its customers. These maps, along with others, are extremely powerful visuals and tools to help leaders frame their competitive environment.
Act to change the system to learn from it. Using the same methods of mapping and framing, leaders create their own environments of the future by trying new ideas and perspectives. For example, in the Business Model Canvas, leaders can visually experiment on implementing new sources of revenue, such as subscription service, and how it impacts the other components in operations, marketing, and cost structure.
Sense-making using these steps, when done in a comprehensive and de-biased way, prove to be a powerful approach for leaders to better understand how they will respond to the changes in the environment, and formulate innovative strategies to capitalize on opportunities.
Reynaldo C. Lugtu, Jr. is President & CEO of Hungry Workhorse Consulting, a digital and culture transformation firm. He is the Chairman of the Information and Communications Technology Committee of the Financial Executives Institute of the Philippines. He teaches strategic management in the MBA Program of De La Salle University.