Many executives and business owners believe that it is necessary to have a detailed strategic plan in order to move their organisation from where it is to where they want it to be. This type of strategic plan is called a ‘prescriptive strategy’ and sets out in detail the activities that the organisation will take over a specific time frame (usually 3-5 years). These activities are designed specifically to shape the direction and future shape of the organisation in order to attain its goals and aspirations.
The main reason for using this philosophy is based on the premise that if you don’t know where you are going how are you going to get there? It is also asserts that having a precise strategic plan allows managers to understand what resources will be required and to make plans to develop skills and acquire the resources the organisation will need to enable it to achieve its goals.
The counter philosophy, which is called an ’emergent strategy’, argues that strategy should be fluid and be allowed to evolve over time in response to changes in both the internal and external environment. Proponents of this philosophy argue that the prescriptive strategy often puts ‘blinkers’ on the organisation which can hinder their ability to react to changes in the environment and take advantages of opportunities that present themselves. It is also argued that long-term plans are often based on incorrect assumptions, resulting in the strategy having unintended outcomes or consequences that could be potentially damaging to the organisation.
In my experience, while many of the businesses I have worked with had set some long-term goals (most of which were financially focused), the management team were simply reacting to whatever happened on a week to week, and in some cases day to day, basis. This resulted in inefficiencies in the operation of the business, high levels of stress among the staff and poor performance in many areas of the business.
I have found that decision making and levels of motivation improve when people have a clear understanding of what the organisation is trying to achieve and are able to focus on its future. These advantages are amplified when the key people in the organisation are given the opportunity to contribute their thoughts, concerns and ideas about where the organisation should be in the future and what needs to change in order to get there. This results in a coherent strategic plan that everyone is committed to which, greatly increases the chances of it succeeding.
In my opinion, this, along with many other similar examples that I could give, suggests that the prescriptive philosophy is an effective and powerful way to develop and implement business strategy.
Having said that, I believe that there is merit to the argument that the prescriptive approach can result in unintended consequences when activities are based on incorrect assumptions. This tends to happen when people stick to the strategic plan too religiously and refuse to make changes when they see it is not working. It is also true that the organisation can miss opportunities that present themselves either in the internal or external environment if they are too focused on executing their strategic plan to the exclusion of everything else.
Problems can also arise when the organisation does not have a robust strategic measurement system (such as the balanced scorecard) that is linked directly to their strategic plan in order to monitor the outcomes of their strategic activities and, therefore, test the assumptions on which those activities are based.
In general, I think that both philosophises have merit so the most effective business strategies can include elements of both the prescriptive and emergent philosophies. To be effective, however, the strategic plan must be focused on a clear understanding of the desired future state of their so that strategic decision making is based on whether or not the option being considered will help them attain their vision.
The degree to which each philosophy is applied vs the other will vary depending on the environment in which the organisation is operating. For example, an organisation that is operating in a highly volatile environment where there is a great deal of change that can happen quickly will tend to adopt a more emergent approach. A more prescriptive approach will be suited to organisations operating in a more stable and predictable environment.
With the above in mind, I would suggest that the most effective strategies will have a clear strategic plan with activities and outcomes that are aligned with the organisations goals. The results of the activities will be carefully monitored via an effective strategic measurement system to ensure that the intended results are being achieved. The organisation should remain agile in the sense that they should be willing to take corrective action and adjust of amend the strategic plan as and when necessary. Finally, management should be open minded and prepared to evaluate and, if appropriate, implement new ideas and pursue new opportunities.
With this in mind, it can be useful for management to review their strategic plan on a regular basis, normally annually although they should assess their performance vs their strategic plan more regularly, ideally quarterly or even monthly, depending on the nature of the organisation and the environment in which it is operating.