Evidence that leaders’ preconceptions are posing a major threat to companies’ prospects has surfaced from the latest Emerging Risks Report from business intelligence firm Gartner Inc. 
Covering Q4 2019, the report ranks strategic assumptions as the corporate world’s top emerging risk (the previous quarter’s winner, digitalisation misconceptions, has been promoted to an established risk after crowning four quarters in a row).
Gartner Risk and Audit Practice vice president Matt Shinkman said: “[Q4] saw a number of external risks converge in executives’ thinking, from increasing concerns about the impact of extreme weather events to trade policy. Currently, however, business leaders are most acutely concerned with the beliefs underpinning their own strategic assumptions and the ramifications of getting them wrong.”
Based on a survey of 136 senior executives across a variety of sectors and territories, the study defined a strategic assumption as “a plan based on a belief that a certain set of events must occur”.
According to Gartner’s research, executives believe that more than half the time they spend in strategic planning is wasted, and that the quality of their plans often fails to meet expectations. Indeed, the firm notes, incorrect strategic assumptions lead to stalled growth that can derail planned outcomes. Plus, organisations with poorly formed strategic assumptions typically produce a high number of projects that are not aligned with their stated objectives – and the time and budget required for executing key initiatives routinely exceed planned targets.
“Strategic assumptions are often sound when they are first formed,” Shinkman explained, “but in today’s environment [they] are more vulnerable to becoming outdated or obsolete due to a rapid increase in the pace of change.”
He added: “Risk teams should play a vital role in mitigating the impact of inaccurate strategic assumptions. A key component of clarifying strategic assumptions is discerning between likely truths and critical uncertainties. Risk leaders should involve themselves early in the strategic planning process and add value by developing a set of criteria to stress-test assumptions and root out biases and flaws before they become cemented in a strategic plan.”
All of which looks like sound advice.
But rather than waiting for the risk teams to intervene, what can leaders do themselves to ensure they are not becoming prisoners of their own strategic assumptions?
The Institute of Leadership & Management’s head of research, policy and standards Kate Cooper says: “A strategic assumption is a statement about what’s going to happen in the future – and the interesting thing about that, of course, is that we don’t know for sure. But what Gartner’s research seems to argue is that we need to get better at guessing the future, and refining our perspectives of which developments are likely and unlikely, or certain and uncertain. So that approach – which is very much rooted in a risk-management ethos – is held to be an improvement.”
However, she notes, there are two, crucial points here: “Firstly, if you’re making a decision based upon an assumption, where’s the evidence base for running that assumption through a bit of a sense check? So let’s question and challenge that before we think about anything else. Secondly, it’s important to have a realistic understanding or expectation that your assumption is going to be incorrect. So perhaps what you should really be doing is investing in your ability to adapt – to build systems, processes and people policies that aren’t so set in fixed beliefs that, whenever conditions do change, they can’t respond accordingly.
“Now, that approach is clearly far more anxiety provoking than when you’re writing a plan in full confidence that you’ve nailed all your strategic assumptions and are as certain of the future as you can possibly be. But in actual fact, things are going to change – so what can we do to ensure that we will be ready to adapt to those shifts when they occur? That, to me, is a key priority. We must also keep questioning ourselves, and accept that it’s okay to ask, ‘Why do we believe that? On what basis have we formed this assumption?’ If we did more of that, we’d be launching our ventures and initiatives from more solid platforms.”
Cooper adds: “We could do a lot worse here than think about what Tammy Erickson wrote in The Drucker Forum 10th Anniversary Report. She argued that leaders of the future are going to have to disrupt, intrigue, connect and engage. For me, out of all of those, intrigue is the most important: the ability to ask the right questions.”
For further insights on the themes raised in this blog, check out the Institute’s resources on developing strategy
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