McKinsey colleagues Chris Bradley, Martin Hirt and Sven Smit challenge strategic planning’s conventional wisdom by pointing out it hasn’t worked in 50 years. They urge leaders to acknowledge the social and emotional dynamics at play in any strategy session – egos, status, risk aversion, and the like – and remove these biases. Replace them with a process that you base on data, facts and an outside-the-firm perspective to calculate which opportunities offer the highest probabilities of success. Then, say the authors, bet big.
Most firms still fail at articulating strategy beyond what they’ve done in the past.
Egos, groupthink, confirmation bias and risk avoidance undermine bold visions and big ideas. Add to that the tendency of most CEOs to distribute resources uniformly across divisions and business lines, and this year’s strategy often looks a lot like last year’s.
Business unit leaders develop slide decks to wear down corporate budget resistance and gain approval for their plans. But, their future projections resemble a hockey stick. They promise that if the firm invests in losses this year and next, then they’ll see rocket-ship-rising gains.
Based on millions of years of human evolution, natural biases favor fast action over the deep thought and consideration that strategic planning needs.
Dozens of biases affect people’s thinking, especially in groups. As a result, business line leaders set low goals they know they can achieve. They focus on maximizing gains for themselves and their teams rather than for the organization. Firms evaluate performance without gauging the difficulty of initial goals, and thus they offer managers no incentive...
Chris Bradley, Martin Hirt and Sven Smit work together in McKinsey’s Strategy Practice. Smit resides in the Netherlands, Hirt in China and Bradley in Australia.
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