Few people alive today can recognize the difficulties that the current economic context has created this year. To find something similar in history, you need to go back to the last post-war period.
Economic systems always have a particular evolutionary speed and a specific heterogeneity that can make running a business become more, or less, challenging. History also teaches us that these systems tend to become more complex over time.
When we talk about complexity in the economic system, we are referring to the range of diversity that is present in it. The more complexity increases, the more difficult it is to understand and use information to make predictions and formulate strategic plans.
When we talk about uncertainty, however, we are dealing with the direct consequence of another variable: turbulence. This reflects the dynamics within the system which are caused by changes and interaction between various environmental factors, including technological advances or developments in the information technology industry, telecommunications, and media.
Under normal conditions turbulence is not a constant state. It can suddenly increase or decrease, creating conditions of temporary uncertainty.
Looking at 2020, the turbulence created by the pandemic and its consequences, has created a state of prolonged and persistent turbulence thereby uncertainty. By adopting a business model based on an Emerging Strategy, companies can ensure that the business remains aligned with the changes in the market and therefore on track to reach its goals.
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What is an Emerging Strategy and how does it work? The creation of a strategy according to the traditional approach is ineffective when applied to a turbulent environment. Strategic planning in this case needs to be dynamic and be able to evolve in order to address and meet the changing conditions which create uncertainty.
The traditional management style, centralized and top-down, when applied to an unstable environment, can lead to the destabilization of relationships within the company. It can generate unexpected behavior and instability at all levels of the company. In addition, opportunities which can be seen by those closest to delivering the end product may be missed.
Laying the foundations for creating an Emerging Strategy allows businesses overcome these limits, making strategic planning become an open process, via:
- the involvement of more people, including those who are closest to end customers
- the use of inter-functional teams
- procedures involving the various stakeholders within the company in the formulation of the strategy
When operating in a context of uncertainty, the strategy needs to be defined through a process of trial and error. While this is rarely allowed in traditional strategic planning, it is one of the basic principles of the Emerging Strategy; the strategy is not defined in a static way but evolves through the discovery of what works.
The main difficulty in building an Emerging Strategy is in achieving consistent execution while pursuing the goal of continuously adapting the strategy to the context.
Regardless of the level of uncertainty, the company’s strategy must always be present and executable. This means preserving the identity of the strategy, while continuing to change it over time; when implemented correctly, the Emerging Strategy has exactly this goal.
When it’s time to define the strategy, you need to work on two levels:
- look for new methods, such as involving all staff, conducting tests on specific stakeholders inside or outside the company and implementing small actions while also taking some well calculated risks.
- ensure that the strategy is always in place, executed and used in the decision-making process without limitations.
While skills to formulate a business strategy and methodology with which to implement it are normally available internally, it is not also the case when looking for procedures aimed at developing an Emerging Strategy.
The Emerging Strategy almost always needs to be developed from scratch and the first step is to understand the difference between this and the better-known Business Strategy.
A Business Strategy is developed through a process that includes:
- the definition of a mission.
- sharing and approving the strategy
- the definition of executive plans and actions
An Emerging Strategy, on the other hand, develops through a process that involves the following phases not necessarily in this order:
- definition of a new strategy
- learning in the field
Business and Emerging Strategy intersect during strategy formulation and action.
Once day to day operations are consolidated and up and running as defined by the Business Strategy, you can start defining the Emerging Strategy. Based on the success, or not, of the current actions, new actions which are more successful can be used to formulate a new strategy and therefore defining a new Business Strategy and closing an adaptation cycle. The better the management of the various cycles, the better the company’s response to uncertainty will be. The company will be able to rely on the Business Strategy from which to derive contingent plans and actions. Simultaneously you will have a business which is running aligned and consistent with the environment.
To make this process effective, it is important to engage at various levels of the organization. During the learning phase, in order to review the planning and definition of new actions, a wider spectrum of activities must be considered. Customers, suppliers, intermediaries and employees are some of the stakeholders which should be referenced in order to build an Emerging Strategy and an active adaptation cycle.
There are several companies that have taken this approach in recent months, and their Emerging Strategy can be seen across multiple industries. Large-scale organized distribution has had to rapidly change its strategy to adapt to fluctuations in demand in addition to its transfer from the physical channel to the digital channel. Telcos, on the other hand, have had to deal with a huge increase in service levels and network performance in the face of a reduction in revenue. Those who sell sports equipment and DIY, have had to rethink communication with their customers. You can find many examples of how companies adapted their business strategy and none of them could have done so without an Emerging Strategy.
A ‘lateral’ shift in strategy through the creation of an Emerging Strategy provides the answer to managing uncertainty and a changing environment, however, to remain true to the companies goals, the Emerging Strategy must meet these three objectives:
- align your business with long-term trends
- expand the company’s capacity, consolidating and not destabilizing its strategic objective
- define a path to profitability that preserves and increases the value of the brand from the point of view of customers
The economic crisis resulting from the pandemic does not necessarily mean the end of entire sectors or companies. However, those business models that fail to rotate towards the new reality will have difficulty in continuing to operate. This is why it is important to introduce an emerging approach alongside the existing one.