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10 Steps for Strategic Planning to Defend Your Future
A typical five-year strategic planning forecast performs no better than chance.
Posted January 19, 2023 Reviewed by Michelle Quirk
THE BASICS
Key points
- Effective strategic planning involves identifying potential threats and opportunities and knowing to deal with them.
- It is important to reserve sufficient resources to address these threats and opportunities.
- To be effective, the plans must be resilient and flexible.
Cognitive science and behavioral economics scholars have conducted research on people who are the most skilled forecasters among us. Did you know that the typical five-year strategic planning forecast performs no better than chance on economic predictions more than three to five years out? Given this, you might wonder why I wrote an article about strategic planning at all.
You’re in the same boat as my consulting client Beth, the CEO of a midsize medical management company.
About seven years ago, her company went through a five-year strategic planning process. Well, it didn’t go according to plan. The controversy surrounding Obamacare after Donald Trump’s election and Republicans taking both houses of Congress resulted in problems for her company.
For her company to survive, Beth had to cut costs to compete, had to cancel some planned projects, lost initial investments, and had to lay off long-time staff to maintain the company’s financial viability.
Judgment Errors From Cognitive Biases
Beth’s plan suffered from a number of dangerous judgment errors that result from the biological structure of our brain, what scholars term cognitive biases.
Studies show that cognitive biases pose a high threat to strategic planning. Beth’s plan, in particular, suffered from the planning fallacy—our tendency to assume that everything will go according to plan.
Her plan also exhibited the mental blindspot known as the optimism bias. It’s like it sounds: The optimism bias causes us to perceive a more bright and hopeful vision of the future than is the case in reality.
Finally, the plan proved vulnerable to sunken costs. This cognitive bias makes us reluctant to terminate projects after we have already sunk some money into them.
Gut-Based Strategic Planning
Beth’s experience is pretty common, due to the widespread failure to address cognitive biases in business strategic planning and decision-making. Instead, business advice encourages leaders to trust their gut when planning.
Even business strategic assessments meant to address the weaknesses of human thinking through planning are flawed if they don’t specifically account for cognitive biases. Take the most popular of them, "SWOT," where you try to figure out the "Strengths, Weaknesses, Opportunities, and Threats" facing your business.
SWOT assessments usually fail to account for our mental blind spots. It’s particularly problematic that SWOT is almost always performed in a group setting, and cognitive biases are often exponentially increased in group settings. One particularly large problem is known as groupthink, in which groups tend to coalesce around the opinions of a powerful leader.
THE BASICS
Defending Your Future Through Effective Strategic Planning
Fortunately, there’s a much more effective way to approach strategic planning and assessment. Rather than making a simple strategic plan, you focus on assessing potential threats and opportunities and building them into your plan.
You can do this by using a technique I developed called “Defend Your Future.” This technique allows you to get the benefits of strategic planning—confidence, clarity, certainty—without the risks and problems accompanying typical strategic planning and assessments.
Beth perked up as we talked about this technique. She definitely wanted to protect her organization from threats and position it to seize opportunities in a resilient manner.
10 Steps to Truly Effective Strategic Planning
1. Set scope and strategic goals.
Decide on the scope and the strategic goals of the activity that you will evaluate, as well as the timeline, anywhere from six months to five years. Your forecasting will deteriorate the further you go as you make longer-term plans, so add extra resources and flexibility if you have a longer projected timeline. Make your strategic goals less specific if you have a longer time horizon.
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2. Gather.
Gather the people relevant to the activity that is being evaluated in the room, or, if there are too many to have in a group, representatives of the stakeholders (anywhere from six to 10 people is good, to ensure a manageable discussion).
Have some people with the power to make and commit to the decisions that will be reached during the exercise. Consider recruiting an independent facilitator who is not part of the team to help guide the exercise.
If you are making the decision by yourself as a business professional, write out a list of various stakeholders who are relevant to the project. This may reflect competing goals within your own project if you are the sole decision-maker.
3. Explain.
Explain the exercise to everyone by describing all the steps, so that all participants are on the same page about the process.
4. Anticipate the future.
Consider what the future would look like if everything goes as you intuitively anticipate and how many resources it would require.
5. Consider potential internal problems.
Consider what the future would look like if there were unanticipated problems internal to the business activity that seriously undermine the expected vision of the future. Lay out the kind and amount of resources (money, time, social capital) that might be needed to address these problems in alternative visions of the future.
Evaluate the likelihood of each problem in percentage terms and multiply the likelihood by the number of resources needed to address the problem. Try to convert the resources into money if possible to have a single unit of measurement.
Next, consider what you can do to address the internal problems in advance, Write out how much you anticipate these steps might cost. Finally, add up all the extra resources needed due to the various possible internal problems and all the steps you committed to taking to address them in advance.
If you are planning this out as a group, first have everyone suggest problems anonymously, then discuss each scenario as a group, come up with resource amounts anonymously, and finally average out the differences between amounts.
Beth asked me about the anonymity; I explained that the purpose stemmed both from the goals of addressing groupthink and also of permitting people to share potentially unpopular and even politically dangerous points of view.
6. Consider potential external problems.
Complete the previous step for potential problems external to the business activity.
7. Consider potential opportunities, internal and external.
Consider what your anticipated plan would look like if unexpected opportunities appeared. Next, consider the likelihood of each scenario and the number of resources you would need to take advantage of this opportunity. Try to convert the resources into money if possible, for the benefit of a single unit of measurement.
Consider what steps you can take in advance to take advantage of unexpected opportunities. Write out how much you anticipate these steps might cost. Finally, add up all the extra resources that may be needed due to unexpected opportunities and all the steps you committed to budgeting to take advantage of these potential opportunities.
If you are planning this out as a group, first have everyone suggest opportunities anonymously, discuss each scenario as a group, come up with resource amounts anonymously, then average out the differences.
8. Check for cognitive biases.
Check for potential cognitive biases that are relevant to you personally or to the organization as a whole. Adjust the resources and plans to address such errors.
If you are planning this out as a team, discuss the cognitive biases, then come up with resource amount adjustments anonymously, then average out the differences.
9. Account for unknown unknowns (black swans).
To account for unknown unknowns—also called black swans—add 40 percent to the resources you anticipate. Also, consider ways to make your plans more flexible than you intuitively feel is needed.
10. Communicate and take the next steps.
Communicate effectively to organizational stakeholders about the additional resources needed. Then, take the next steps that were decided on during this exercise to address unanticipated problems and take advantage of opportunities by improving your plans and reserving resources.
Conclusion
By the end of our discussion, Beth determined that she and her leadership team needed to do this exercise for the next three years.
You should use the “Defend Your Future” technique for any medium- or long-term planning you do for your organization or your career.
References
Kahneman, D., Slovic, S. P., Slovic, P., & Tversky, A. (Eds.). (1982). Judgment Under Uncertainty: Heuristics and Biases. Cambridge University Press.
Tsipursky, G., Votta, F., & Roose, K. M. (2018). Fighting fake news and post-truth politics with behavioral science: The pro-truth pledge. Behavior and Social Issues, 27(1), 47-70.
Soll, J. B., Milkman, K. L., & Payne, J. W. (2015). A user's guide to debiasing. The Wiley Blackwell handbook of judgment and decision making, 2, 924-951.
Keren, G. (1990). Cognitive aids and debiasing methods: can cognitive pills cure cognitive ills? In Advances in Psychology (Vol. 68, pp. 523-552). North-Holland.
Cantarelli, P., Bellé, N., & Belardinelli, P. (2020). Behavioral public HR: Experimental evidence on cognitive biases and debiasing interventions. Review of Public Personnel Administration, 40(1), 56-81.
Haselton, M. G., Nettle, D., & Andrews, P. W. (2015). The evolution of cognitive bias. The handbook of evolutionary psychology, 724-746.
Marshall, J. A., Trimmer, P. C., Houston, A. I., & McNamara, J. M. (2013). On evolutionary explanations of cognitive biases. Trends in Ecology & Evolution, 28(8), 469-473.
Haselton, M. G., Bryant, G. A., Wilke, A., Frederick, D. A., Galperin, A., Frankenhuis, W. E., & Moore, T. (2009). Adaptive rationality: An evolutionary perspective on cognitive bias. Social Cognition, 27(5), 733-763.
