Plans do not survive their contact with reality. Any one who has ever planned for anything in their work or personal life (which includes pretty much all of us) know this deep down in their gut. But, I have seen a lot of people who simply refuse to have a contingency plan. Why is this? One word: Overconfidence. Ages of primacy over other species and progress have made us incredibly confident in our ability to handle the world at large. We always believe that our projections are conservative to the limit, our capabilities are superior and our competitors are bumbling, ignorant fools who are waiting for us to come along and put them out of their misery.
On top of this, we do not want to appear ignorant or vacillating. In fact, the prevailing culture of time poverty and speed have celebrated rapid fire decision-making ability so much that we are no longer ready to recognize situations which might call on us to wait rather than move.
So how do we fight this?
In our company, we put in play all activities that buttress each other without serious financial impact. For example, if our goal is to increase the cash flow by 20% over the next 3 months, then we will, among other things:
1. Increase the number of freelance sales agents on field.
2. Run a special sales contest.
3. Structure the payment plans so end users find it easier to commit fast.
4. Look for market adjacencies where we can enter without financial risks.
5. Look at cutting some discretionary costs.
6. Try to transfer some financial risk to partners on product development.
7. Load all optimistic scenarios with 20% – 25% downside impact.
8. Stress test all plans to see where the potential weaknesses are. For example, in the above case, if my sales leader says he will get 5 new agents to push our products in the next 3 months, some obvious questions would be in terms of activity plan, timing, resources, productivity assumptions, territory impact, training needs, stock impact and logistics requirements. Unless all these are satisfactorily addressed, we do not go ahead with the plan.
The point is that it is impossible to foresee everything with perfect clarity so as a leader, my job is to build multiple crash barriers & sign posts so all of us are moving along on the same road.
If you compare running a business to going on a journey, then what we do is not only multiple vehicles but also multiple, interconnected roads so it is easier to change if the need arises. An option that requires to go back all the way to the starting point is no option at all.
We not only manage risk with multiple activities, but also as a leader, you have to ensure consistent followup and coaching to make sure that you are ready to activate contingency plans when the shit hits the fan.
To know more:
Hidden flaws in strategy – McKinsey Quarterly (sub reqd)
Averse to reality – The Economist/Richard Thaler (sub reqd)
Irrationality – The Economist/Richard Thaler