Protocols for Strategy – Image from Midjourney
Distillations in this newsletter: Protocols for Strategy; Remembering Daniel Kahneman
STRATEGY DISTILLED:
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This month …
- Protocols for Strategy
- Remembering Daniel Kahneman
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Protocols for Strategy
Over the past few months my interest in the whole notion of protocols has peaked, to the point that I’m now convinced they are an important missing part of any strategist’s toolkit.
So, what is a protocol? Let’s start with a simple definition (which we will elaborate later) and two very different examples.
Simple Definition: A protocol is the accepted or established way of doing a specific thing.
Example 1: The Covid-19 pandemic saw the introduction of a protocol for hand-washing. Designed to make the removal of viruses more likely, it specified a recommended duration of hand-washing: long enough to sing Happy Birthday twice, which is around 40 seconds.
Example 2: Another protocol is TCP/IP, which specifies how computers exchange messages with each other over the internet. The Transfer Control Protocol (TCP) sets out how two computers can open a communication channel between them and break down messages into small packets prior to transmission and then re-assemble them in the correct order at the other end. The Internet Protocol (IP) defines how to address and route packets of information to make sure they reach the right destination. Together, these two protocols combined (TCP/IP) provide both an effective failure detection method and clear instructions on what needs to be done by whom, in the event of any such failure. In this way TCP/IP provides a sufficiently robust and resilient communication backbone to power the entire internet.
Although quite different, these protocols both describe how to approach a particular challenge in a way that will produce good enough outcomes, most of the time. As such, a protocol is quite different from the tools we usually use in or alongside strategy, such as policies or standards:
- A policy usually records a decision made in a particular situation that can be re-used repeatedly. For example, our policy is to pro-actively encourage job applications from minority groups, currently under-represented in our organisation.
- A standard is a threshold used to judge the value of an outcome. For example, a common standard for the availability of a service (e.g. WiFi) across an organisation is 99.999% uptime, meaning the service only has 5 minutes 15 seconds of permitted downtime per year.
A protocol actually has more in common with goals and processes:
- A goal is an action with a purpose.
- A process is a series of actions in order to achieve a particular end.
The main difference with protocols is their level of abstraction (they say in principle, not in detail, what to do) and their intention to give good enough outcomes, most of the time. So, our definition of a protocol becomes:
A protocol is a simple description of how, in principle, to approach a particular challenge in a way that will produce good enough outcomes, most of the time.
Why is this relevant to strategy? Well, strategy is all about identifying the most important challenges facing an organisation that are likely to be addressable over the lifespan of the strategy. Given those challenges, we want strategy to be clear about how they should be tackled without being over-prescriptive. Describing how, in principle, to approach a strategic challenge seems a great approach. Clear definition, loose specification.
Protocols can apply to strategy in two ways:
Firstly, they can define how to ‘do’ strategy. We can think of this as ‘protocolising’ the process of developing and managing strategy. How do we scope a new strategy before strategy development starts? How do we go about developing a new strategy, once scoped? How do we secure the adoption of a strategy across the organisation, once developed and launched? How do we meaningfully measure both the progress and impact of the strategy, once adopted? How do we retain strategic agility, as operating circumstances change across the strategy’s lifespan?
Secondly, protocols can be used to drive the changes mandated by strategy. We can think of this as protocolising the aspirations of strategy. How do we become more customer-focused? How do we enhance front-line customer support through the use of AI? How do we optimise merchandising, price discounting and stock surpluses? How should we evaluate and decide on expansion into new territories or markets? How can we increase margins without loss of market share?
So, let’s try creating a strategy-related protocol and see what advantages such an approach might offer … and let’s pick the thorny issue of how we meaningfully measure both the progress and impact of strategy using KPIs.
In principle, there are two different ways we could approach this: Firstly, we could have a protocol for finding KPIs in the first place. This seems likely to be highly domain-specific. If we are a commercial organisation, we want to be able to find KPIs that ultimately relate to revenue, costs and profitability, If, on the other hand, we are a charity, we want KPIs that indicate the value delivered to beneficiaries. A KPI-finding protocol is, therefore, likely to have a very narrow scope and little generality. The second option, which expands the scope substantially, is to have a protocol to check which of the many possible strategy KPIs we might be considering are likely to work best? This seems a much stronger option that lends itself to ‘in principle thinking’ rather than domain-specific thinking. We are, therefore, going to try to create a protocol for ‘selecting strategy KPIs’.
Protocol for ‘Selecting Strategy KPIs’
Reminder – our revised definition of a protocol: A protocol is a simple description of how, in principle, to approach a particular challenge in a way that will produce good enough outcomes, most of the time.
What is the challenge?
How do we ensure that the strategy KPIs we choose are the right ones?
To do so, we need to select strategy KPIs that track both strategic actions and their outcomes to ensure strategy is kept on-track and strategic goals are met.
What is a good enough outcome?
Our selected KPIs must:
- be ‘good’ measures, i.e. be precise and accurate enough to serve their purpose.
- enable meaningful evaluation of our strategy:
- measures of impact must indicate meaningful contributions to the overall aspirations of our strategy.
- measures of progress must show advancement toward the likely achievement of impact.
- be conducive to effective managerial action to keep strategy on-track.
A simple framework to execute this protocol
Using the framework in Table 1, for each proposed strategy KPI, add the KPI in the top left cell and then complete the other cells in the table for this KPI. Compare and contrast with other proposed strategy KPIs.
Table 1. Selection criteria for good Strategy KPIs
The three things I particularly like about applying protocols to strategy:
- They force highly-structured thinking about how we do strategy;
- They strike a great balance between defining what is to be done and avoiding over-specifying how to do it;
- In doing this, they leave enough space for the creative interpretation of strategy whilst ensuring this remains bounded creativity.
A big thank you to the wonderful Summer of Protocols team and their brilliant Protocol Kit – a lot of my newfound enthusiasm for protocols come from your great work.
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Remembering Daniel Kahneman
One of the great founding fathers of behavioural economics, Daniel Kahneman died last week, aged 90. Kahneman was that rare combination of a deep intellectual thinker, strong empirical scientist and great presenter of his work. Although I was late to his discoveries (early 1990’s), I devoured his early experimental work with Amos Tversky and loved the fact he won the Nobel Prize in Economics in 2002 – I still think his Nobel Prize lecture is one of the best short introductions (38 mins) to his ways of thinking.
He has been a particularly powerful influence on my thinking for decades now. Realising the limitations of the rational economics model of human behaviour is, in my view, fundamental for anyone trying to shape people’s decisions and actions in any way – in other words for any strategist. And it was the work of Kahneman (and others) that proved we actually make decisions by means of bounded rationality:
- We do not explore all possible options available to us in the run-up to making a decision;
- We do not systematically evaluate the outcome of each option in order to make rationally optimised decisions;
- Rather, we consider options that are readily available to us (see availability heuristic) and take shortcuts in how we reach decisions (see satisficing).
Kahneman’s lasting legacy, in my view, remains his book Thinking Fast and Slow – highly recommended.
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I help leaders and teams with all aspects of strategy. Get in touch if you’d like me to help in your own organisation.
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