Mar 6, 2017
I hadn’t heard of the “Hairy Back” chart until I came across this post from McKinsey, but after almost a decade of working with entrepreneurs and intrapreneurs, it really struck a chord with me. Here is the example that appeared in the original post:
The “Hairy Back” refers to those failed growth plans compared to the actual performance of the company. As outlined in the McKinsey article, this syndrome comes from ambitious planning, false confidence stemming from confirmation bias, internal resource competition, and a failure to reflect on the real reasons for failure.
As an entrepreneur myself, I can admit that we can sometimes be… optimistic… about our business plans. So I think it is very important to revisit your plans in the light of your actual results, and adjust your strategic planning process accordingly.
As a relatively young and privately-held company, Philosophie can more easily leverage an agile approach to our own strategic planning. From 2009 to 2013, we didn’t do any goal-setting or planning. We were still feeling out the market and where we fit into it. When we started planning at the beginning of 2014, our first step was to simply take a WAG (wild-ass guess) at a revenue target for the coming year. This number was concocted from our past growth and sheer aspiration. By mid-year we had extended our guessing to include a 3-year target and a 10-year target, a practice which we continue today to ensure long-term, mid-term, and short-term alignment across the company. At the end of 2014, we looked back to see how we did.
What do you think happened? We were wrong, of course!
We missed by 25%! Though this was a little disheartening, we also looked back on the year and thought, “hey, we actually did pretty well.” We’d grown our top-line by 73%.
For our 2015 plan, we were more conservative. We incorporated more metrics and more sophisticated modeling methods into our targets. And you can guess what happened — we were wrong again. But this time, in the other direction. We beat our goal by 8%. So of course the following year we overestimated.
Interesting observation: our 10-year target hasn’t changed since we started this exercise. It turns out we are pretty good at estimating one year, better than we thought at three years, and quite terrible at 10 years. That said, it’s made us more realistic about the time it takes to hit the really big goals. To me, this highlights the importance of evolving the plan as you go along. It’s a simple concept, but it takes conscious effort and discipline.
To many, the idea of agile planning will seem like an oxymoron. To the uninitiated, “agile” is synonymous with not planning. But when you really look at the values behind agile, you’ll see that it’s about promoting things that actually work over things that should work.
All business failures have a simple thing in common: they did not go according to plan. That may seem trite to say, but to me it encompasses a strong argument for agile management. You should always have a plan, but more important than the plan is how you continually adapt it 1) as you try things and learn and 2) as the external environment changes. Really, it’s about responding to change over following a plan. In practice, here’s that it looks like:
It turns out we’re not the only ones thinking about how to apply agile principles to strategy. This recent HBR article provides some great tips about how to Make Your Strategy More Agile.
When planning becomes continuous, the process of planning becomes just as important as the result. So I wanted to share some high-level notes on how Philosophie’s leadership is able to maintain and evolve our agile planning process:
Continuity of leadership
Though it appears to be going up with the economy, the median tenure of an S&P 500 CEO is 6 years. It is even shorter for other executive roles. Combined with the pressure for quarter-over-quarter growth, this makes it very challenging for leadership to follow-through on long-term planning. In our company, the founders actively drive toward a long-term vision. While I don’t believe founders are always the best people to be in leadership positions, I think it has a positive effect on long-term planning over short-term results.
Large organizations consist of many businesses, so when a new one doesn’t hit its goals, it is easy (and fiscally responsible) for the executive team to cut its loses. What if they didn’t have this choice? In our case, we only have one line of business, so it is do-or-die. When we don’t hit our goals, we can’t abandon the business. Instead, we adapt our goals and the strategy to make it work one way or another.
Planning cadence, real-time data, and retrospectives
Every week, we look at our numbers for the previous week and reflect on what’s going on. Every quarter, we have an off-site where we reassess our goals, look back on our progress, and adjust our strategy. The ways in which we state our goals and the metrics that we look at change, but not so frequently that we can’t see patterns emerge over time.
Our planning is less sophisticated than that of larger companies, but I do think that smaller and emerging businesses inside of larger organizations can operate in a similar fashion. That is, instead of blindly following the plan that was approved by their superiors, leverage more frequent look-backs and better data to form an adaptive strategy.
As Chris Bradley discussed in his article, one of the main reasons that corporate planning is so bad is that the business plans that get adopted come from people competing for resources inside of the organization. My observation is that new initiatives get funded in large organizations in a similar way that startups raise money from VCs. It’s about the grandiosity of the vision/potential and the salesmanship of the entrepreneur (or intrapreneur). If the plan is sold, it is funded from a relatively fixed budget, making it a zero-sum game.
What if projects were funded not as part of quarterly or annual budgeting, but more based on actual traction and results? We simply invest in things that are going well and cut things that aren’t. We never feel locked-in to spend money that we earmarked for a project if it is failing. Similarly, we don’t have a problem investing more money than we had planned if a project is going exceptionally well. The mindset is that people don’t need to compete against each other for resources, but if they can prove ROI more resources will be made available to them.
A lot of people think agile is a process for software development, but it is really a set of values. Though most companies are adopting agile for software delivery, the most innovative ones are extending the agile mindset to other aspects of their organization. While strategic planning may not seem like an obvious place to experiment with agile, it is my opinion that strategy is where it can have the biggest impact, allowing the organization to be responsive at the pace of today’s constant change.
I’m curious to hear more examples of organizations that are deliberately incorporating agile thinking into their strategic planning. Please reach out and share your story!