Strategically Preparing for Downturn

Are you sensing the signals of a coming downturn? Maybe there are things that you have already seen showing up in the P&L sheet. Or not yet. Should you do anything differently now and, if yes, what exactly? Without a doubt, there are operational measures that you can take, if not already doing so, like slowing down on expenses and chasing late payers, in an attempt to safeguard your cashflow. But do you sincerely think that only this will protect you against what may be coming?

What about your Strategy, done differently? Actually, done more precisely (or less carelessly). That is certainly something that should be considered, as there might be some strategic measures that you could take, placing your organization on a safer side, or even on a more beneficial position. At least, better than your competitors or peers.

However, this kind of Strategy-related reviews and adaptations are never simple. Blame the VUCA for that, if you like (Volatility, Uncertainty, Complexity and Ambiguity), something that we have more than a handful of, during downturn or recession times. So, what can you do? At the very least, several best practices would worth looking into, including those below.

You might be all right with some of them, but not with all. Fill those gaps!

1. Scenario Planning

If Scenario Planning hasn’t been employed lately, or if it was sketchy, it should be used for an urgent reformulation of the Strategy, because it is part of the Strategy Envelope, together with the Strategic Horizon and the Portfolio Planning. The problem is that true experts in Scenario Planing are in short supply, and this is one of the most subtle & delicate processes of Strategy Formulation. The immediate benefit of doing it correctly is that bad, suboptimal or potentially dangerous decisions may be well avoided.

Take a look at Scenario Planning - Quick Dive.

2. The Chains of Hypotheses

The Hypotheses Registry should be reviewed and wherever the hypotheses employed are still hidden, they should be brought to surface and added to the registry. The ‘self understood’ future events or trends should be replaced with their corresponding hypotheses and added to the registry, then monitored for validation or invalidation. A lot of potentially inappropriate decisions are ‘hidden in plain sight’ here.

Read or re-read The Chains of Strategic Hypotheses.

3. The Early Warning System

The Early Warning System should be reviewed, or set up if it hasn’t been used so far. It should, of course, be updated together with the Hypotheses Register and Strategic Scenarios.

"Worse than bad news, are bad news late!" -- anecdotal US Army General

Decisions to shorten the execution cycle and/or to switch scenarios, based on EWS’s alarms, shouldn’t be summary rejected or delayed.

Read or re-read The Adaptive Strategy System.

4. The Strategic Choices

If some clear or weak signals are indicating a downturn, the full set of possible Strategic Choices should be reviewed and the impact analysis performed once again. This is the worse time for employing a bad or incomplete Strategy Formulation process. This may reveal choices that are much safer or beneficial than those that have defined the current positioning, and they can often be found ‘beyond the core’. This isn’t something easy to do, in the case of for-profit organizations, but in the case of non-profits, it is even harder, given the secondary level of influence factors (not direct impact upon our own possible choices, but also upon our stakeholders' choices).

Read or re-read What Strategic Choices do we have?

5. The Capabilities System

The choices-capabilities correlation should be revisited (on the Formulation side) and the Strategic Initiatives portfolio should be re-rationalized (on the Execution side), in order to eliminate any ‘hard-to-let-go’ capabilities no longer needed (but which cost money to maintain), or any surviving pet-projects that have been forcefully deemed as ‘strategic’, but not fully associated with the Strategic Objectives in the current/updated Strategy model.

Read or re-read Where do our Strategic Objectives come from? and Linking Jobs-to-Be-Done to Strategy.

6. Portfolio Planning

If you have an organization with multiple business lines, the Strategic Portfolio (using the Ansoff/BCG matrices, but not only) should be urgently reviewed, in order to improve the safety of the long-term decisions about the priorities of our resources' allocation between the multiple lines of business or activity directions.

7. Wait and see?

Resist the temptation to retrench into a non-strategic ‘wait-and-see’ approach, which usually involves throwing overboard or putting on hold any Strategic Plans (or slowing down their execution), with the typical mindset ‘do fewer or lesser changes because the future has a higher VUCA score’. Of all the possible courses of action, this tends to be the worst one, because you give up the control of what will happen with your organization.

8. The Strategic Horizon

Certainly revisit the way the Strategic Horizon has been calculated and then recalculate it, if necessary, because the parameters it depends upon have the habit of rapidly changing in downturn conditions. Once that’s done, review the breakdown of the Strategic Gaps to be closed onto the annual cycles. Mistakes in this area have killed multi-billion companies in the past (remember Nokia?), so don't just hope that "it won't happen to us!".

Read or re-read The Strategic Horizon.

9. The Strategy Dialogue

If the Strategic Dialogue system has been used superficially or not at all, it should be employed fully during the next reformulation process. It’s one of the most unsophisticated ways to avoid a bad Strategy reformulation due to the hypotheses employed. And you cannot afford too many invalid hypothesis in a downturn, and do whatever possible to limit them by using all the weak signals or dispersed information that may be related to them.

Read or re-read The Strategy Dialogue.

10. The Feasibility Validation

More than ever, if the future looks uncertain and adverse, don't enter Strategic Planning if you have not performed first the Feasibility Validation of the Strategy that resulted from the formulation process. I guess that you wouldn't want to find out that you have invested a lot of money and efforts into an un-achievable Strategy, exactly in the middle of a downturn.

Read or re-read Strategy's Feasibility Validation.

11. The Strategic Risk Management

If the performance-risk integrated planning has’t been really used so far, risk scorecards should be urgently reviewed or set up, covering all the Strategic Objectives. In a downturn, you wouldn't want strategic risk events to hit your organization (at least, not adequately mitigated), adding pain to injury.

Read or re-read Strategic Performance-Risk Integration.

12. The Organizational Alignment

A downturn would be the worse time to use some superficial, incomplete or ineffective organizational Alignment (to Strategy), both vertical and, especially, horizontal. The least thing that you want now would be the efforts within the organization being divergent or overlapping. If the objectives-based Alignment hasn’t been used so far, it might be highly recommendable to consider it. Your people will understand it very quickly, because it is based on the already existing operational interdependencies between units/teams.

Take a look at Vertical and Horizontal Alignment, in practice

13. The Strategic Causality

Review the causality matrices employed within each Strategy Map, on the Planning and Alignment stages, as well as the hypothesis employed for each cause-effect relationship. Many root-causes of the SMS (Strategy Management System) malfunctions are hidden here and you cannot afford them now. Employ the Strategy Dialogue for strengthening these hypotheses, in case of any reasonable uncertainty about this.

Read or re-read Matrices in Strategy Execution.

14. The Right Targets

In downturn conditions, there is less margin for error. The bottom line may often show up in scorecards that your correct decisions must rely upon. But if the targets of your KPIs have been the result of subjective approximations and, even if targets would be reached across the organization, the top goals would remain far from being achieved. Recalculate your Targets Tree, to be on the safe side, making sure that resources are not spent in some subjective or approximate targets chasing.

Read or re-read The Strategic Value Gaps Tree.

15. The Strategy Meetings

The fast-changing context of a downturn would be a bad time to skip Strategy Review and Model Adaptation meetings, or perform them summary, or not enforce the corrective actions or the model updates decided there. Adequately prepare the meetings, schedule them in a timely manner, bring the required leaders in and, most importantly, follow-up on the decisions that you have taken in these meetings. You need now an organization capable to quickly react to any hypotheses that turn out to be invalid or even to possible black swans.

16. Bottom-up Review & Adaptation

If employed incompletely or not at all, the bottom-up chaining of the departmental and organizational Strategy Review Meetings (monthly) and Model Adaptation Meetings (quarterly, or when needed) should be seriously considered now. This brings the corrective decisions down to the floor-level, so the people who are in more direct contact with the reality can suggest them. Then, they can bubble-up and get validated at the C-suite level.

17. The OSM and CSO

The OSM (Office of Strategy Management) roles might need to be revisited, as well, because they are the glue of the entire Strategy Management process. Moreover, these roles should be re-committed to by the peers of the OSM. Complementary, the CSO (Chief Strategy Officer) position might need to be re-evaluated, in order to ensure the sharp understanding and coordination of the entire process.

Take a look at The CSO (Chief Strategy Officer) Roles.

All the above are recommendations to leave aside any tempting idea of an ad-hoc SMS (Strategy Management System), if the case, and instead use a mature and field-tested best-practices framework for building and updating such a system, because mistakes within the Strategy Management process can have a more severe impact in a downturn.

Take the Kaplan-Norton BSC framework as an example of a good foundation for your SMS development or fine-tuning (XPP - Execution Premium Process). And no, Balanced Scorecard it is not really about scorecards. Not anymore, for at least the past 10-15 years.

Read this, or re-read it, to get a more complete view: Balanced Scorecard Quick Wins.

"Winter is coming!" :-)

I haven't written a new LinkedIn article in a long time, but this topic wouldn't have fitted within the confines of a simple post/update. As always, your comments, questions or critique are more than welcome.