“The impression of the senses is stronger than the force of the ideas resulting from methodical reflection.” – Carl von Clausewitz, On War (1832), Book I, Chapter 6, trans. J. J. Graham (1873)
Some twenty years ago I was flying up from the Lowveld to Johannesburg, VFR, on a route that had looked perfectly straightforward when I took off. Partway up a valley leading over the escarpment, the cloud began to come down, faster and lower than forecast, closing the valley. I turned through 180 degrees, with care because the valley was tight, and took a longer way via a lower part of the escarpment where the cloud base allowed a crossing, reaching my planned destination a little late.
I’ve often thought about that afternoon, usually alongside an owner experiencing a tough year. When conditions change, how do you know whether to change the strategy or simply change the route? In the valley the question more or less answered itself, because the changed fact was lying across my path for anyone to see. A business seldom gets that courtesy. It gets a poor quarter, a couple of lost customers, a jump in input costs and a leadership team beginning to wonder aloud whether January’s plan still makes sense. None of it arrives labelled “change the route”, “change the destination” or “keep going”.
It’s worth being honest about why I turned. Discomfort had nothing to do with it; plenty of flights are uncomfortable, and nobody turns back from all of them. I turned because something on the route had changed, and a route that had been perfectly flyable half an hour earlier no longer was.
Two Ways to Get It Wrong
The hardest stretch I can remember in business came at the end of 2001, when I was running an IT distribution business in South Africa. We were barely a year past the dot-com crash when the South African rand went into steep decline. We quoted our resellers in rands and paid our suppliers in dollars, and within a matter of months the rand lost well over a third of its value against the dollar, most of it in the last quarter of the year. Every shipment that landed reopened negotiation on prices already quoted.
Then, in the first months of 2002, the rand recovered sharply, and the same resellers insisted on the new, lower prices for stock we’d bought at the old rate. We were caught one way and then the other in the space of a few months. And late in 2001 our largest competitor, a business believed by the market at the time to be bigger than us, went into liquidation. Nobody needed telling that the stakes were real.
In a period like that, a leadership team tends to divide. Half want to rethink everything; the other half want to hold their nerve. Both are describing a real way to fail. Rigidity is holding on to business assumptions the market has already broken, defending the plan because it’s the plan. Capitulation is letting go of direction at the first sustained pressure. The trouble is that, from the inside, the feelings run the wrong way round. While results are on plan, a strategy sounds disciplined. Once the pressure persists, the same strategy starts to sound stubborn, and changing it starts to sound decisive, even agile.
The currency made the case against capitulation better than any argument could. A business that had rebuilt its whole approach around the rand at its weakest would have found itself wrong-footed again within weeks, by exactly the same kind of change running in the opposite direction.
There’s another reading that a team under pressure tends to miss. The first hostile quarter may be the first fair test the strategy has ever had. Almost anything works when trading is easy. I’ve seen strategies dropped at precisely the point where they were about to be properly tested, and a business that changes direction at every hard quarter ends up with a drawer full of half-tested strategies and no real idea which of them would have worked. The people in it learn something too: that a strategy lasts until the first bad quarter, so there’s little point committing to the next one. That lesson outlives the quarter that taught it.
If the previous article’s argument for fewer priorities built on the year’s evidence was about making the choices, this is about what happens once those choices meet a quarter that pushes back. September’s question was what the evidence says. October’s is whether anything has actually changed, apart from how it feels.
The Assumption Under the Number
What fact changed? Not what got harder, or what started keeping people awake, but what changed.
A customer delaying an order creates pressure. Losing a customer because their own market has gone may tell you something far more serious. A competitor discounting hard for six weeks is unpleasant; a low-cost entrant permanently altering the economics of the category is information of a different order altogether. Even input costs can go either way. Some squeeze a margin for a season which the business can absorb, while others break the margin the whole strategy was built on.
Every strategy rests on assumptions, whether or not anyone wrote them down: that customers will keep valuing what you do, that a market will grow at roughly the rate you expected, that a new product will perform, that the people you’re relying on will stay, that finance will remain available. A disappointing result only matters strategically when it tells you something about one of those.
Consider a business moving into a new segment and finding early sales slower than planned. The proposition might be wrong. The market might be smaller than anyone believed. The sales cycle might simply have been misjudged, or, as any experienced owner will suspect, the strategy might be fine and just not have been executed very well. Every one of those produces the same disappointing line in the management accounts, and only some of them break the strategy.
Much of the danger at the start of a year lies in assumptions that outlive the conditions that made them true. A hard quarter adds the opposite danger: abandoning an assumption that still holds, because living with it has become uncomfortable. Both happen, and the hard part is telling which one you’re facing while you’re inside it rather than a year later, when everyone can see.
Sometimes, though, the feeling gets there before the facts. In an interim role with another distributor some years later, I watched the group move debtors’ collection to a shared-service centre abroad, as it had elsewhere, to save cost. Years of dealing with resellers told me they would run rings round a remote team that didn’t know the market or the people, and I said so. I lost that argument, as instinct often does when the numbers aren’t there yet.
Then the fact arrived: debtor days lengthened by around thirty. With interest rates at about 12%, funding that cost roughly 1% of sales, on high-volume lines earning between 4 and 6%. About a fifth of the gross margin on those lines went on funding slower collections. Some months after my interim contract concluded, the function came back onshore.
There was nothing clever about that instinct. Experience is often just an early reading of a fact that hasn’t reached the numbers yet. The useful thing to do with a feeling like that is to go looking for the fact, and find out whether it’s there.
Decided Before the Weather Turned
I’d taken a night rating not long after qualifying as a pilot, mainly as a basic grounding in instruments, in case I ever found myself caught out by weather on a cross-country flight. It didn’t qualify me to fly in cloud, and I had no intention of trying. What it gave me, without my quite realising it at the time, was a decision about what to do when conditions change, already half made. I’d thought through what I would do if the weather closed in, so when it did, the turn took seconds.
The real work had been done months earlier, on the ground, in calm conditions. It couldn’t change what the weather did, but it meant I didn’t have to invent a response on the spot.
The nearest business equivalent I know is a signpost agreed in advance. I worked with a business some time ago that had set itself an aggressive three-year goal, much of which depended on a new software product doing what everyone hoped it would. Before too much money or reputation had been committed, they agreed to look again at six months to see whether the product was on track, and again at twelve, which still left time to refocus if it wasn’t. My contract ended before either date arrived, so I can’t tell you how it played out.
I’m not sure that matters much. The valuable part was the conversation that set those dates, because the business had described, while nobody’s nerves were involved, what evidence it expected to see. That changes the conversation that comes later. After a bad month, the question stops being “do we still believe in this?” and becomes “is the thing we said needed to happen actually happening?” The first invites a debate about confidence. The second can be answered.
None of this removes the need to make a call when the moment comes. What it does is make rationalising afterwards a great deal harder. Whether a business actually holds itself to those agreements once the pressure arrives is a question about how it’s run, and one we will look at in the next article.
A Different Route, the Same Strategy
Looking back at that flight, almost everything about the immediate plan changed. I turned round, abandoned the route and flew somewhere I hadn’t intended to go. I didn’t abandon the destination, though. I simply took longer to get there, by a more roundabout way.
The rand did something similar to us in 2001. It was a real fact, and it changed how we quoted and priced, more than once and in opposite directions within a few months. What it didn’t change was what the business was for: a distribution business serving resellers. The route moved twice while the destination stayed exactly where it was.
Owners make route changes all the time without abandoning their strategic direction: changing the product mix, slowing an expansion, delaying an investment, stopping work on one customer segment. Postponing a move into a new region while keeping the market objective is a route change. So is changing how you deliver because customers have changed how they want to buy, while the customers you’re there to serve stay the same.
The reverse is harder to spot, and I suspect more common. A business can insist its strategy hasn’t changed while altering so many of the underlying choices that, in practice, it has gone somewhere else entirely. Each decision made sense at the time. Nobody ever sat down and decided on a new direction; it simply accumulated. Telling everyone you’ll stay the course can hide rigidity, and a lot of sensible tactical movement can hide a change of strategic direction that nobody specifically chose. It’s worth going back to the direction set in January every so often, if only to check you’re still heading for it.
Ron Ashkenas, writing in Harvard Business Review, makes a related point about agility: that it works best when exercised “with a focus on changing the means to achieve the goals, but not the goals themselves.” I’d mostly agree with him. Occasionally, though, it’s the goal itself that has gone.
When the Assumption Has Gone
Some strategies should die in October. Holding your nerve is no virtue once the assumption underneath the strategy has gone.
An assumption can go because the world has changed, or because the evidence shows it never held in the first place. I saw the second kind in the business I was leading some time back, when a decision was taken to combine the product divisions for two directly competing vendors’ lines, product marketing included, to save cost. Resellers tended to be loyal to one brand or the other, and neither vendor wanted to share. Sales fell, and the change was reversed within six months. It was a route decision rather than a change of destination, and the reversal came on evidence, fairly quickly, which is about as far from rigidity as a business gets.
That example cuts against something else I’ve noticed. When a strategy under pressure is dropped, people tend to rewrite its history. Within a few months, everyone remembers having had doubts, and the original decision is spoken of as though it was obviously flawed from the start. Often it wasn’t. It made sense in January, and then the facts changed. A team that learns to blame the last decision becomes slower to make the next one. Yet sometimes the evidence really does show a decision was wrong from the outset, and the honest course is to say so and reverse it quickly. Both are true, and I don’t think you can choose between them in advance.
Once the decision to end something has been made, ending it properly is a discipline of its own, and one that businesses tend to manage less well than starting things.
Owners are now able to obtain far better analysis of what has changed than they’ve ever had, put together in minutes where it once took weeks or an outside firm. It can tell you which customers have slowed, by how much and against which competitors. That’s genuinely useful, and it should make the question of what fact changed easier to answer. What it won’t do is tell you whether that fact breaks an assumption on which your strategy depends, whether the route needs adjusting, or whether the destination itself no longer makes sense. That remains a judgement call.
There’s a risk on the other side too. In a bad quarter, more frequent data can feed nerves as readily as it informs the discussion, and a team can find itself reviewing the analysis again and again while the decision-making stalls altogether.
Back Down the Valley
In hindsight, the decision in the valley seems obvious. The cloud closed the valley, so I turned round. But that’s partly because flying made the changed fact unusually easy to see, and business rarely offers so clean a horizon. The turn didn’t feel decisive at the time, either. It felt flat, a long way round and a little deflating. The discomfort was real, and it was beside the point.
Sometimes the fact really has changed, and holding on becomes denial. Sometimes very little has changed except the pressure, and abandoning the strategy becomes an expensive way of relieving discomfort. Preparation helps, evidence helps, and so does someone with enough distance to ask which it is. Better analysis will help more than it ever has. None of it makes the call for you.
So the question I’d want to answer when conditions change, before changing course this quarter, is a simple one to ask and an uncomfortable one to answer honestly. Can I say what fact has changed, and not just what feeling? And would I have named it, back in January, as a reason to turn round?
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