This section provides guidance for developing and practicing your strategic thinking mindset. Set out here are:
some general strategic thinking steps,
an outline of skills and competency areas to build your strategic thinking capabilities, and
three tools to help focus your strategic thinking.
Throughout, strategic thinking is about rebalancing short-term performance needs with a longer-term approach to value creation and preservation. Time to play to your strategic strengths.
General strategic thinking steps
The following steps offer an informal process for defining interests, understanding problems, and determining future goals. All require strategic thinking at their heart. However, we must recognise the fluidity required and that a traditional annual planning cycle where a strategic plan is updated once is no longer acceptable for a resilient organisation. Whenever the question ‘what is going on here?’ arises, it is time to reach for your strategic thinking mindset.
1. Assembling information to answer the question ‘what is going on here?’
The first step involves assembling past data, information, and lessons to begin contemplating the question ‘what is going on here?’
Borrowed from the recommendations of the Task Force on Climate-related Financial Disclosures, the concepts of ‘exploratory’ and ‘normative’ scenarios are defined as follows:
Exploratory scenarios are ‘used to describe and explore a range of different possible futures’. They are used to assess potential strategy-related risks and uncertainties and test the resiliency of strategies to a wide range of future conditions.
Normative scenarios. ‘Scenario analysis starts with a preferred or desired future outcome and then back-casts plausible pathways from the preferred future to the present in order to inform decisions on what is needed to achieve that preferred future.’ They are typically used for assessment and setting of specific targets and implementation plans.27
Most organisations will have past exploratory and normative strategic scenarios that can be used as lessons to provide background information and context when asking the question ‘what is going on here?’
It is also important to assemble reliable data from a range of sources and connect and transform the data into assembled and accessible information.
2. Analysing the question ‘what is going on here?’ for insight
Strategy and strategic thinking involve the effective use of information. This includes analysing both financial information and nonfinancial information to draw out patterns and relevant insights. However, make sure this analysis also embraces fluid thinking and nonlinear patterns when providing context for the information. Focus on the following in your analysis:
Relationship building
Loose coupling
Complicating
Diversifying
Sense-making
Learning
Recognising and influencing patterns
Improvising
Thinking about the future
Noticing emergent directions
Meaning out of many small changes28
In Re-inventing finance for a digital world, seven disruptors were identified.
These disruptors represent challenges that are now the key drivers of change in today’s world and can be used to understand their impact on current organisational capabilities. Then in step 3, you can use the seven disruptors to define future organisational capabilities.
An important part of analysing ‘what is going on here’ for insight is to make time for observation and reflection. In times of uncertainty, it is in our nature to reach for instant solutions through what Daniel Kahneman labels ‘unconscious reasoning’. Kahneman, a psychologist and economist, suggests that ‘unconscious reasoning’ takes place when our brains are in ‘system 1’ mode — operating quickly, automatically, and intuitively. The system 1 brain:
infers and invents causes and intentions.
neglects ambiguity and suppresses doubt.
is biased to believe and confirm.
exaggerates emotional consistency.
focuses on existing evidence and ignores absent evidence.
sometimes substitutes an easier question for a difficult one.30
Instead, make sure that what Kahneman calls the ‘system 2’ brain is engaged when thinking strategically. The system 2 brain supports a slower, more analytical process that’s used when mental effort is required, including when complex computations are required.
Finally, an important lesson is that data remains incomplete without social context.31 A lack of social data will make it difficult to understand the impact of insights on an organisation’s many stakeholders.
3. Advising to influence future strategic scenarios
Once the question of ‘what is going on here?’ has been investigated, a range of strategic, exploratory future scenarios can be built. These scenarios are used to communicate insights on a variety of different, plausible futures, exploring potential risks and opportunities. Wide discussion involving many voices and interdisciplinary collaboration are needed to assess the strengths, weaknesses and resiliency of alternative scenarios.
Don’t worry if the scenarios start off messy and untidy. David Hockney, a British painter, encourages such an approach:
There are advantages in ‘the untidy, unquantified, crude, cluttered, uncoordinated, improvised, imperfect, incoherent, random, ambiguous, vague, difficult, diverse or even dirty.’ Those are the circumstances in which insights are found and discoveries can be made.32
Throughout the process, when dealing with often ambiguous and inconsistent evidence for future scenarios, there are also often severe time constraints you must work within. However, it is crucial to explore and debate the what-ifs, as time constraints can lead us to exclude incoming evidence that does not confirm a preferred direction. Philip Tetlock and Charles McGuire, Jr., in their 1985 paper “Cognitive Perspectives on Foreign Policy,” noted,
As crises intensify, particularly crises that culminate in war, images of environment and policy options appear to simplify and rigidify. Policymakers are more likely to ignore alternative interpretations of events, to attend to a restricted range of options, and to view possible outcomes of the conflict in terms of absolute victory or defeat.33
This illustrates that you should not let time constraints unduly shorten or limit the strategic thinking process.
By the end of step three, strategic thinking will have facilitated the development of between two and four distinct exploratory future scenarios. These provide plausible future visions and suggest corrective actions for an organisation to change its capabilities.
4. Applying the preferred future strategic scenario for impact (implementation)
From the several exploratory future strategic scenarios, one is chosen to take forward. This is developed as the preferred normative scenario by starting with the ‘desired future outcome’ and then working backwards to create ‘plausible pathways from the preferred future to the present in order to inform decisions on what is needed to achieve that preferred future’.34
The normative scenario is used as the foundation of strategic planning and to inform possible targets and metrics for implementation. At this point, it is also worth making sure any changes in strategic thinking and direction are reflected in the organisation’s stated purpose.
The discounted strategic exploratory future scenarios should not be lost. Use them to build flexibility and agility into your organisation. They should be kept as future strategic options and monitored. If the environment changes, affecting the assumptions of your chosen strategic direction, the alternative scenarios can be used to react quickly to changes on the ground.
The skills and competencies behind a strategic thinking mindset
Focus on the following skills and competency areas to build your strategic thinking capabilities:
Analytical thinking. When horizon scanning for trends, risks, and opportunities to build future strategic scenarios, it is important to consider both financial and nonfinancial information to draw out patterns of insight. The sources must be varied to stimulate alternative thinking, leading to original and new ideas.
Communication. This refers to the ability to communicate complex information and collaborate with multiple stakeholders. Fostering collaboration across diverse groups leads to alternative thinking, original ideas, and better future strategic scenarios.
Problem-solving. This starts with being able to identify the challenges your organisation or firm is facing. Fully understand the problem and its future impact before discussing potential solutions. As the challenges involve complex, real-world settings, they are likely to be ill defined, requiring bespoke, novel solutions.35
Judgment. This is the ability to make weighted and effective decisions that balance personal opinion with evidence. As finance professionals, we have a duty to challenge opinions and bring individuals back to evidence-based debates and decision-making.
Once strategic thinking moves into strategy implementation and the focus shifts to the articulation of the preferred normative scenario, it is time to home in on your planning and management skills.
Tools behind a strategic thinking mindset
There are three tools you may want to experiment with when focused on strategic challenges. The concepts within the tools apply equally well to management accounting and public accounting — it is the lens that changes. For public accounting business and individual relationships, it’s a matter of the outside trusted adviser looking in, and for the finance professional on the management accounting side, you’ll be operating as an internal adviser directly examining the strategic issue at hand.
The CIMA Strategic Scorecard
The CIMA® Strategic Scorecard was developed to help boards of directors successfully oversee an organisation’s strategy. It’s a tool to ensure that proper consideration is given to the performance and strategy dimension of enterprise governance. The scorecard provides the board with a simple but effective process for focussing on the key strategic issues and — most importantly — asking the right questions.
‘One of the key strengths of CIMA Strategic Scorecard is that it encourages conversations about strategy and grounds these conversations in the issues that matter most to success.’36
Any exploratory future scenarios (from step 3 above) should sit in the strategic options quadrant. The chosen normative future scenario (from step 4) provides the foundation for the strategic implementation quadrant.
Full details on the CIMA® Strategic Scorecard are available in the CGMA guide Essential Tools for Management Accountants, and a case study demonstrating the use of the scorecard can be found in the report Business Resilience: Tools for Preparing to Reopen for Business.37
Scenario planning
Scenario planning is a management tool that can be used by management accountants as well as by partners in CPA firms. It is designed to allow organisations and firms to evaluate the efficacy of strategies, tactics, and plans under a range of possible future environments.38
Scenarios help quality decision-making by allowing a group of stakeholders to interrogate possible actions and understand upfront the impacts and long-term consequences of different decisions. Once you have answered the question ‘what is going on here?’, scenario planning focuses on two questions:
What could happen?
What would be the impact?
For each major decision, develop two to four distinct scenarios. Any more than that will be confusing and counterproductive.
The warning here is to make sure that your scenario planning does not become too prescriptive. As finance professionals, Margaret Heffernan highlights, we need to be aware that ‘Models can become too rigid and their makers so wedded to them as to become blind to disconfirming data.’39 According to John Kay and Mervyn King in their book Radical Uncertainty: Decision-making for an unknowable future, ‘When people take these financial models too literally, populate them with invented numbers and base important decisions on them, the models become misleading, even dangerous.’40
Porter’s five forces
Porter’s five forces of competitive position analysis can help in developing deeper thinking in response to the question ‘what is going on here?’ Specifically, the five forces model can focus strategic thinking on understanding whether new products or services are potentially profitable by examining the forces of:
industry rivalry,
customers,
suppliers,
new entrants, and
substitute products or services.
For organisations and firms, the framework can be used to think about ways to improve their competitive position and anticipate trends in how a given industry may develop. By helping users understand where power lies, the five forces model can inform decisions relating to:
whether to enter a specific industry,
whether to increase capacity in a specific industry, and
developing competitive strategies.
For finance professionals, Porter’s five forces enables an assessment about such matters as whether a future scenario is within an attractive industry when making investment decisions.
Full details on Porter’s five forces are available in the CGMA guide Essential Tools for Management Accountants.42
