Watching Trends: Ebbs and Flows
Watching companies respond to massive changes in the current strategic environment, I am struck by how much we tend to overemphasize the present when planning for the future. In strategic planning, it is vital that you do the best job you can to anticipate future trends that will shape the strategic environment of your industry. Unfortunately, this is impossible to do with 100 percent accuracy. What we must do, however, is the best job we can, especially when dramatic changes will change the competitive structure of the industry.
I can remember doing strategic planning with manufacturers in the 1980s, and hearing over and over again that Japanese companies were going to own the entire planet. Now, some Japanese companies have done OK since then, but overall, the Japanese economy has been in a genuine slump for almost a decade now, and is even farther from recovery than the US economy is. The key point of this example is that the present is NOT the future. The present only has clues to what the future may bring, and sometimes we may mis-interpret those clues.
In strategic planning, it is vital to analyze WHY the future will be different – and why the current changes we see today may or may not continue into the future. For example, many businesses today are concerned about China’s growth as a manufacturing power. When thinking strategically about such an issue, we need to break it down into probable causes to be able to assess whether the current trend, growing Chinese economic influence, will continue in the long term. Some possible causes such as less strict environmental and labor regulations, when compared with Europe and North America, seem to be fairly stable and likely to remain over the next five years. Others like lower relative labor costs show signs of changing fairly quickly. Recalling the rapid change in relative costs in Mexico around the time of the enactment of NAFTA, we can see that labor cost advantages can be temporary and subject to rapid change. None of this is to say that China will not be a growing economic power in the next few years, but rather that there are reasons why that trend would continue, and reasons why it may slow down, or even (in the case of serious political upheaval) reverse.
In strategic planning it is far too easy to rest your assumptions about the future on a simple continuation of the present, the predictions of experts or the conventional wisdom of others in your industry. None of these is a good substitute for clear-headed analysis, based on systems thinking, which will give you a much better picture of the future that is yet to come. Make sure you allow the time to take a close look at such issues in your strategic planning, and consider having an outside resource with expertise in this type of strategic thinking challenge the assumptions upon which your plan for the future is built.