Heraclitus, a Greek philosopher of the late 6th century BC, suggested that “The only thing that is constant is change”.

Most business schools teach Michael Porter and Henry Mintzberg’s views on strategy. Porter takes a more deliberate strategy approach, while Mintzberg emphasizes emergent strategy. Deliberate strategy elevated the role of strategic management by instilling routine and formalised planning processes to maximise competitive potential within markets defined by clear boundaries. But over the last few decades, barriers to entry have become less sustainable and, correspondingly, markets have become more fluid and less predictable. Emergent strategy embraces the inevitability of change. It is the view that strategy emerges over time as intentions collide with and accommodate a changing reality [1].

Mintzberg’s famous article “The Fall and Rise of Strategic Planning” [2] was written back in 1994. More recently, in 2011, Martin Reeves wrote “Adaptability: The New Competitive Advantage” [3] which essentially makes the point that the capability to rapidly adapt to changing circumstances is a competitive advantage. And from the 6th century BC to Mintzberg and then to Reeves, the motivation for their view is as true today as it was then. In other words, we have always faced uncertainty, and, despite big data, artificial intelligence and other advances, our future is not becoming easier to predict.

For instance, the core business of a current client is to build electricity infrastructure across Africa. They want to know which markets they should position for. And they face uncertainties such as: What will the geopolitical landscape look like in 10 years’ time? To what extent will renewables be adopted? What projects will be funded?

Building on Mintzberg’s emergent view of strategy, we suggest that strategy cannot be cast in stone, but needs to be “living”: transforming its nature as it anticipates and responds to a changing context, while always seeking to maximise risk-adjusted return on investment.

While anticipating change and responding to position for a better “return” is appealing, it must be considered that each change of direction incurs a switching cost or “investment”.

So, keeping it simple, what are some practical tips for applying a “living strategy”?

Rather than an academic treatise on the matter, we offer some real-world examples of how “living strategy” concepts can be applied.

1. Envisage multiple, alternative futures

o Scenario envisaging. Recognizing that the future is largely unpredictable, one needs to imagine a diverse set of possible futures. And then when evaluating strategies, with all else being equal, the strategy that performs best under all futures is surely more appealing than the strategy that shoots the lights out in one scenario, yet fails miserably in others.

o In our electricity infrastructure client, our most favourable scenario is a prospering Africa with good leadership & governance and high levels of international trade resulting in the economy growing robustly and diversifying from primary industries to secondary and tertiary industries. On the opposite end of the spectrum is the emergence of more failed states (like Somalia) and disinterest from the international community.

2. Make the right level of commitment

o Real options. Acquisitions have a poor track record for value creation. While risky, they have their place. For instance, as our client considers expansion into Francophone Africa, they face a crucial strategic gap – a track record of projects in those markets and the necessary relationships to win future work. Since this market is growing rapidly, the years required to build the track record and relationships invariably means lost opportunities. But, jumping straight into an acquisition, even with a positive due diligence, is high risk. So, forging a carefully defined strategic alliance is a real option that can be quickly converted into an acquisition should the alliance work out well in practice.

o Postponement. Central Africa, with its low rate of electrification, holds promise for lots of business, but it is also a troubled region. A sensible strategy for this region might be a “wait and see” approach. However, if competitors are moving in, postponement might result in this market being snatched up.

o Exit strategy. So, let’s say our client chooses to enter Central Africa with recognition that this is a high-risk move. That high risk can be significantly mitigated if there is a good exit strategy in place. What would this look like? It could be an agreement with a local buyer that allows our client to sell their Central African assets at a predefined price.

3. Build the necessary enabling capabilities

o Sensing / scenario signposts. For the scenarios we have defined, we have specified the signposts that are leading indicators that the scenario might be emerging. Knowing this forewarns the client and allows for proactive course correction and/or doubling down on some investments and/or exercising a real option.

o Piloting. An emerging technology in the electrical infrastructure sector, especially where users are remote, is the microgrid. The economics of microgrid projects are not yet well known, but our client has reason to believe that this could be both a growing and profitable market. Pursuing one or a few small, but representative, projects can inform our client of the economic realities of microgrids. Better informed by the pilot results, our client can decide to what extent to build out this aspect of their business.

When is a “living strategy” necessary? When you need a means of driving up your internal rate of change. Else, using the wisdom of Jack Welch: “If the rate of change on the outside exceeds the rate of change on the inside, then the end is near.”

Acknowledgements to my co-author for this article: J-P Kruger

References:

[1] “Porter or Mintzberg: Whose View of Strategy Is the Most Relevant Today?”, Forbes, 2011

[2] “The Fall and Rise of Strategic Planning”, Mintzberg, H. 1994. Harvard Business Review

[3] “Adaptability: The New Competitive Advantage”, Reeves, M., and Deimler, M.S. 2011. Harvard Business Review