Project Management

Strategic Debt  — What it is and how to avoid it

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Strategic Debt  — What it is and how to avoid it



Defining and delivering on a vision and strategy has been a hit and miss proposition for most traditional organizations for many decades. The reason for this is twofold.

First, traditional Industrial Era management thinking, and its accompanying models rely on the notion that we can use the past to predict the future.

The industrial era approach, often manifested itself in the 3 to 5-year strategic plan. The focus of this era was standardization (limited change), and mass production.

Secondly, this is not the reality of the Digital Era in which all organizations now operate. The current reality is constant and accelerating change from an ever increasing variety of vectors.

Yet, some still insist on trying to create the perfect plan to satisfy the perfectly indescribable problem.

This failure to adapt is creating strategic debt. Strategic debt, when left to accumulate, leads to the collapse of once vibrant enterprises in the private sector, and to the increasing irrelevance of organizations in the public sector.

Strategic debt is the deficit between the planned strategic goals and objectives that are set out at a point-in-time in strategic plans, versus the ones that emerge and evolve during execution. Such goals and objectives are both stated, and rightfully perceived, as hard targets. But what if the goal or objective statement is malformed, is the wrong one, or is no longer relevant?

Strategic debt accumulation is directly correlated to the time-gap between the point-in-time goals and objectives setting exercise and the time at which the organization begins to take a more adaptive and iterative approach to strategy execution.

Failing to accommodate changing realities while continuing to execute to the goals and objectives of a rigid strategic plan creates strategic debt, and since strategy sets the tone for the organization as a whole — the cost and associated risks are very high as the debt continues to accumulate.

To resolve this dilemma we need to iterate strategy in the same way we iterate product development that use frameworks such as Scrum. In this way, strategy undergoes a number of course corrections over time in an effort to achieve corporate value, similar to a sailor using tacking to make most efficient use of the wind.

Instead of casting our goals and objectives in stone in the form of specific strategic goals and objectives, we instead need to formulate them as statements of strategic intent.

A statement of intent is a statement that indicates what we are likely to do in the near future. Statements of intent are positive statements of the future you are trying to create, that are also intended to garner your personal commitment to their achievement.

Statement of strategic intent, which are statements of intent applied to a strategic context, can have any combination of near-term, medium-term, and longer-term components. They are expressions of the means by which we expect to achieve our organization’s vision. They are designed to provide context to the expected results that would be achieved if the vision were realized — without the how. How to achieve strategic intent is rightfully left up to the people who have to do the work.

As they are statements of intent, it also means we can both evaluate what we are about to do as well as the results from what we have just completed, against that stated intent; That is, it provides the opportunity to evaluate the intent itself, and to make needed adjustments based on new insights and experience. It also allows us to run experiments to validate portions of our intent before we make large people, time or financial commitments.

By using statements of intent, we are acknowledging that we might not have gotten it right the first time, or the second, or the third…It’s the relief valve that helps us to avoid creating strategic debt. It assumes strategy is indicative rather than fact.

To illustrate, consider the graphic below:

· Intended strategy is based on our statements of strategic intent.

· The deliberate things we do to achieve a given strategic intent become realized strategy (top line).

· There will also be statements of intent that we lay down that can remain unrealized for myriad reasons (poorly stated, not achievable, no longer relevant, etc.).

· And finally there will be that which emerges or evolves along the way that also get realized through deliberate action.

· So realized strategy is a combination of both deliberate and emergent strategy.

 

My partner Dan Murphy provides an example of using a statement of short, medium, and long-term strategic intent from his Cisco days; Larry Carter, then CFO of Cisco circa 1995 tasked his organization with closing the books world wide in two weeks instead of four weeks so that Cisco would have the financial data required to make better decisions. It took the team a few years to pull it off, but they did, by working in small tight iterations with small teams. However this was not a project at Cisco — it was a process. They kept going to continually refine and better the process providing continual improvement and delivery of value. Today, Cisco closes its books worldwide daily (effectively in real time). The intent was defined by Mr. Carter — not the how!

Posted on: July 10, 2017 12:51 PM | Permalink

Comments (9)

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We are in a world of constant change, and the industry is no exception, continuing to do things the same way can turn the companies to become dinosaurs and have strategic debt. So do not forget to include the vision and strategy in the company's plans

This post is right on the nose. Technology is moving so fast that if we cast our goals in stone it hinders us. This is a great piece.

Jennifer - I'm glad it resonated with you and thanks for your kind words.

Thanks Lawrence, great article!

Interesting view on the subject

Thanks Lawrence, great article!

Interesting, the iteration of strategy. Makes sense rather than setting it in stone for a year or more.

To remain relevant in the market, organizations/ industries need to adapt to changing environment. For this the business strategy needs to evolve and an iterative way of doing that is a great to avoid strategic debt.
Thanks Lawrence for an informative article.

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