The last decade before the pandemic, we had seen good times in the global and domestic economies. The world gross domestic product growth rate had been hovering in the three percent level. In the Philippines, we had seen a range of six to seven percent growth.
During these prosperous times, companies would just ride the economic growth and perform slightly better than the economy as a rule of thumb. They conduct their strategic planning as an optional exercise, just to comply with the chief finance officer’s annual cadence. Business executives creatively set their following year’s objectives, to “undercommit and overdeliver,” as the popular business tactic goes.
Then the business executives conduct their strategic planning in a secluded location, only to use the traditional tools such as SWOT (strengths, weaknesses, opportunities, and threats) which is used to derive multiple strategic options, such as strategies that use the company’s strengths to capitalize on opportunities in the macroenvironment.
Another permanent fixture of the corporate planning process is external analysis involving Porter’s Five Forces — intensity of competition, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of customers. The wisdom derived from this analysis is multifold, such as strategies to reduce the threat of new entrants and substitutes, or reducing the bargaining power of suppliers and customers, and reduce the intensity of competition.
While these tools are useful in thinking through the various components of the business, its linear nature fails to unearth strategies to adapt to a volatile and difficult environment. The resulting strategies from this exercise are either strategies which are not implementable or mediocre tactics that continue the status quo. Nonetheless, companies experience growth by virtue of just being slightly better than coemption and just ride the economic progress.
This time of Covid-19 is different. There is a global recession that companies need to contend with. Customer buying behaviors shifted to digital overnight. Business opportunities are hard to come by. The result is a wave of business closures and corporate losses.
But with the uncertainties in the macroenvironment, the traditional approach to strategic planning, which is linear or sequential in nature, is patently not applicable. Hence, a new approach to strategic planning is requisite to account for the chaos that’s happening all over. We call this sense-making.
According to Prof. Deborah Ancona of the MIT Sloan School of Management, sense-making ‘refers to how we structure the unknown so as to be able to act in it. It 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. 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.
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 due to the pandemic, and formulate innovative strategies to capitalize on opportunities.
Reynaldo C. Lugtu, Jr. is Founder & 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, and Institute Fellow at the US-Based Institute for Digital Transformation. He teaches strategic management in the MBA Program of De La Salle University.