Organizations are (often) incapable of carrying out the sophisticated strategies they have developed. Strategy planning takes place in a fantasy world. Action takes place in the real world. Strategy planning (too often) happens on away days and in board rooms. Strategy is the thing that senior managers do. It's the thing that huge consultancies do behind closed doors. Reality is about real people doing real things.
Strategy is about a job description. About pretending you know the future. It's writing a fictional view of a world that will allow you to accomplish whatever it is that you, or your boss, or your shareholders want you to achieve. Reality is about events, and coping, and figuring things out.
Strategy isn't always wrong. It can be extremely valuable. Planning doesn't always fail. And it is certainly necessary. Yet overconfidence in the power of strategic planning has led to financial crisis, to botched and illegal wars, to missed opportunities in business, politics, sports, and life.
Calling something "strategic" does not make it smarter. Only smart strategy is smart. Which leads to two important questions: Why don't strategies work in the real world? And how can we make strategies work in the real world?
Give me time to think!
The Toyota recall crisis came about after a horrific collision in California. A runaway Toyota vehicle hurtled down a highway with no brakes and a stuck accelerator and then crashed into another car killing four of its occupants – all members of the same family.
In September 2009, Toyota issued a recall of 3.8 million vehicles but blamed a removable floor mat that caused the accelerator to stick instead of making it clear that mechanical systems were the real cause. It also turned out that they had ignored reports of similar fatal crashes dating back to 2007.
Customers had to wait until February 2010 for Toyota to finally announced a full recall of over 8.5 million vehicles to have new parts fitted to fix accelerator and brake problems. And it wasn't until 11 February that the Toyota president finally publically apologized.
His apology included a ceremonial bow (not low enough according to Japanese sources), and an admission that they had let down customers who placed "their trust" in the company. It was criticized for being "too little, too late".
Toyota made its reputation with the famed Toyota Production System – a carefully constructed combination of process and collaborative culture that led them to the top in the JD Power rankings for quality and satisfaction.
The traditional approach to strategy was slow and steady. Weekly board meetings for strategic decisions after high level of consensus gained from the core of Japanese managers with life-time contracts.
This is a great system for risk taking because responsibility is shared. A 100 year plan is a wonderful way of investing in the future.
The real world is global, not local
Problems in Europe weren't connected with problems in the USA. The planning process involved consensus in Japan rather than consensus worldwide. It favors those at head office more than those in the rest of the world. Senior managers appear to have forgotten about the importance of the Japanese principle of gemba – going to the place to understand the problem – until too late. Or perhaps they thought that it only applied to engineering?
The real world is about little things not just big things
The Toyota Production System does produce quality inside the company but the Toyota Planning System found it hard to notice the importance of isolated incidents outside in the real world. It seemed less important – less urgent – less deserving of senior management attention. They were busy too looking at the big picture at a distance to see the detail that mattered.
The real world is about events in real time
Those who like peace and quiet. Those who like calm so that they can think clearly. Those who feel comfortable in the luxurious surroundings of head office board room suites. Those who enjoy the fantasy of clean electronic slides and tidy spreadsheet forecasts. And those who believe what they write in annual reports and marketing brochures. All of these will be confused by events.
Things that happen to screw up your plans. The things that happen while you are waiting for your plans to work. And these events matter more to your real strategy – the direction your company takes – than your fantasy strategy.
The future is not just more of the past
Toyota appear to have become a little too comfortable. They had become the biggest car producer in the world (in 2009) by being the best car producer in the world. But that was history.
You shouldn't base the future on simplistic extrapolations from the past. Growth will not always be growth. Quality will not always be quality. Particularly if circumstances change - which they always will. And if assumptions are not complete – which they never are.
When they boasted of "innovating for relentless growth" – they got cause and effect mixed up. Innovation may cause growth but it's not for growth
I'm not picking on Toyota. I love and respect much of what they have done through their history. The principles discussed apply to all organizations who depend on a fantasy version of strategy or who have too much confidence in their isolated planning process.
Think of strategy before and after the US-led invasion of Iraq; at the highest levels of planning it was treated as a local conflict without considering the impact across the border in Iran or across the world in Pakistan, Yemen, or in diverse communities globally.
Consider Cadbury where the possibility of takeover by a hostile, greedy rival appears to have been a surprise to the board who were unable to adapt to events in real time. Or the demise of sports teams and banks who believed the money would never stop rolling in. And of course everyone who believed that there could ever be an end to boom and bust.
Because action takes place in the real world, strategy needs to take place in the real world. You need open door strategy. Strategy in real time. Strategy that involves the real people doing real things. You need to consider how strategy can be made to consider the little things, the local things, and react to what is really happening to shape the future rather than pretending you can see it before it happens.
Great article. It seems Toyota lost their core focus of manufacturing dependable, high quality autos. Instead they had their eye on becoming the largest automobile manufacturer in the world by trying to be everything to everyone, ie. trucks & autos in several consumer classes. Tonya Welch www.ManagePro.com
Why are you framing this as a strategic issue and not as simple bad judgement?
Dov Gordon
Hi Dov - Thanks for your comment.
Something is strategic if it affects the whole company - particularly the success, failure, and direction of the whole company. Bad judgement, for example, that led to the problems at Toyota, is strategic if it affects the whole company - which it did. It's kind of the point of the distinction between 'fantasy strategy' which doesn't think about events, people, and decisions and 'real strategy' which does.
Hi Max,
Thank you for your response. If I may, an alternative perspective:
- Your definition of strategy strikes me as way too broad. By your definition, the incident of the trader who lost billions for the French bank was strategic, as is a problem of poor frontline customer service – and anything in between. In other words, what WOULDN'T be included? (As an aside, I've never seen a definition of strategy that was helpful. Helpful = it made things clearer rather than more complicated and confusing.)
- Correct me if I'm wrong. My understanding is that the key points in your article is that management must not forget to go out into the real world. You can't spend all your time in the board room. Remember the small details, because they matter. Etc.
Agreed. But which manager will argue to the contrary? In my experience none. So why argue a position no one would dispute? The angle is to help managers realize that they sometimes get caught up in the boardroom and forget to go outside, just like may have happened at Toyota. 'Here's how to avoid getting caught up...'
IMO, that's not strategic, it's simply good practice.
Forgive me for saying so but your description of strategy appears too narrow - which makes my point for me. You appear to be saying that strategy is just about setting objectives regarding 'perception' - a kind of strategy is the same as marketing positioning kind of working definition. And that is exactly what I am arguing is so limiting and dangerous! Since you don't agree - and don't believe it's obvious - like so many consultants and managers I encounter - the value in my argument is supported! Strategy is way too narrow if it is limited to BCG two by two boxes, or to Porter's five forces, or to any other simplistic positioning chart. I argue that the distinction between strategy, tactics, and operations often entirely misses the point and reveals a misunderstanding of the origins of strategy and its potential. I will return to this in another column but strategy is about the 'shaping of events' and comes from the greek - strategos - the art of leadership which may include every lever by which a leader can shape events to achieve objectives.
Hi Max,
What description are you talking about? You haven't characterized my views very accurately.
We're headed straight for a debate that is high on theory and low on meat, and those never go anywhere. So let's leave it.
At the end of the day, we all need practical tools to help see and think more clearly and act in line with reality. It doesn't matter if you call it 'strategy' or 'fiddlesticks.' All that matters is: Does it clarify or does it confuse?
It's been nice to 'meet' you, and I'll keep an eye open for the future article you referred to.
Dov Gordon