Strategic planning is difficult and the track record is notoriously bad. According to estimates, only 10-30 percent of all strategic plans are implemented as intended. One major reason is that people are generally bad at planning, especially when it comes to complex and long-term issues like strategy. Various prejudices and blind spots get in the way and lead to overestimation of what is feasible.
I spoke with Beirem Ben Barrah and Philip Jordanov from neurotic to talk about this important topic in strategy and learn how they counter it with their insights from behavioral psychology and neuroscience.
The problem of planning errors
With regard to the problem of strategic planning, Ben Barrah and Jordanov point out that there are not just one, but many cognitive biases that cause people to be much less rational than they think. Examples include “overconfidence bias” (the tendency to be more confident than accurate about our own answers to questions), “ambiguity aversion” (the tendency to reject or avoid strategic options with unknown probabilities), and “planning fallacy”. (the tendency to structurally underestimate the time and budget it takes to get something done).
These are all major barriers to effective strategic planning, but the last one, the planning fallacy, stands in the way. Ben Barrah: “The scheduling error is a bias that leads individuals and organizations to underestimate the time, resources and difficulty required to complete a project. This results in unrealistic timelines, under-allocation of resources and a lack of contingency planning.” As a result, Jordanov adds, “managers may fail to anticipate and plan for potential roadblocks and delays, which can lead to project failure or significant cost overruns.”
To counter this bias, the general answer is more data, more analysis and more quantification, resulting in long lead times for strategy development projects and extensive strategic plans. But, as Jordanov explains, “this rational approach to planning and risk management, even with all its tools and technology, still leaves room for human error. And quite a lot.”
So if more data, analysis and quantification isn’t the answer, what is?
The ‘Premortem’ as a solution
Neurofied has developed a comprehensive toolbox to deal with a wide range of corporate biases. One of these tools is the “premortem,” a technique invented by Gary Klein (research psychologist and Fellow of the American Psychological Association) to identify flaws in a plan that would otherwise go unnoticed. As such, it is particularly suitable for counteracting the planning error.
Ben Barrah: “The premise of the premortem is simple: Before making a decision, the team collectively envisions a future where the project has failed and conducts a post-mortem analysis to determine the reasons for this failure.” So instead of trying to figure out why a strategy has failed (post-mortem), the analysis is done pre-mortem, before implementation of the strategy has begun and even before the strategy is finalized.
The premortem differs from traditional methods of risk assessment and scenario planning in an important and interesting way. It exploits the tendency of individuals to better explain past events than imagine future events. This is known as hindsight bias, the tendency to know things better in hindsight. By imagining a future failure and looking back, the premortem allows for “prospective hindsight.” In other words, it uses one bias (the hindsight bias) to defeat another bias (the planning error).
How a premortem works in practice
So it takes a prejudice to defeat a prejudice. But how does this work in practice? This is what Neurofied specializes in. Instead of sticking to theory, they turn insights from behavioral psychology and neuroscience into useful methods and tools. Here are the ten steps they recommend:
- Schedule a meeting with as diverse a team as possible before finalizing your strategy or strategic plan.
- Explain the purpose of the meeting as a pre-analysis and the goal to identify potential risks and challenges before implementing the strategy.
- Start the meeting by stating a hypothetical scenario where the strategy has failed, for example “We are X months in and our new strategy has brought us to the brink of bankruptcy. Why has it become so catastrophic?”
- Ask each team member to individually write down their possible reasons for the failure and keep it anonymous.
- When all team members have finished writing, ask them to share their reasons with the group. Go around the room, one reason at a time, starting with the youngest person.
- Encourage open discussion and debate among team members to further analyze and understand the possible reasons for failure.
- Record any recurring or common reasons for failure identified by team members.
- Use these reasons to identify and address potential risks and challenges before implementing the plan.
- Identify measures to mitigate or minimize these risks and challenges, either at the same meeting or as a follow-up.
- Adjust the strategic plan accordingly by including the identified measures as part of the new strategy.
By performing a pre-mortem analysis along the lines of these ten steps, you create more awareness of the risks and challenges that a new strategy entails. With that awareness, and adjusting strategy accordingly, you should be better able to estimate the time, resources, and effort required to implement your strategy.