Reference no: EM132250607

Strategy as a Wicked Problem

Over the past 15 years, I’ve been studying how companies create strategy—the most important responsibility of senior executives. Many corporations, I find, have replaced the annual top-down planning ritual, based on macroeconomic forecasts, with more sophisticated processes. They crunch vast amounts of consumer data, hold planning sessions frequently, and use techniques such as competency modeling and real-options analysis to develop strategy. This type of approach is an improvement because it is customer- and capability-focused and enables companies to modify their strategies quickly, but it still misses the mark a lot of the time.

Companies tend to ignore one complication along the way: They can’t develop models of the increasingly complex environment in which they operate. As a result, contemporary strategic-planning processes don’t help enterprises cope with the big problems they face. Several CEOs admit that they are confronted with issues that cannot be resolved merely by gathering additional data, defining issues more clearly, or breaking them down into small problems. Their planning techniques don’t generate fresh ideas, and implementing the solutions those processes come up with is fraught with political peril. That’s because, I believe, many strategy issues aren’t just tough or persistent—they’re “wicked.”

Wickedness isn’t a degree of difficulty. Wicked issues are different because traditional processes can’t resolve them, according to Horst W.J. Rittel and Melvin M. Webber, professors of design and urban planning at the University of California at Berkeley, who described them in a 1973 article in Policy Sciences magazine. A wicked problem has innumerable causes, is tough to describe, and doesn’t have a right answer, as we will see in the next section. Environmental degradation, terrorism, and poverty—these are classic examples of wicked problems. They’re the opposite of hard but ordinary problems, which people can solve in a finite time period by applying standard techniques. Not only do conventional processes fail to tackle wicked problems, but they may exacerbate situations by generating undesirable consequences.

In the areas of public policy, software development, and project design, experts such as Peter DeGrace, Leslie Hulet Stahl, and Jeff Conklin have developed ways of spotting wicked problems and coping with them. DeGrace and Stahl wrote Wicked Problems, Righteous Solutions: A Catalogue of Modern Software Engineering Paradigms (1990); Conklin authored Dialogue Mapping: Building Shared Understanding of Wicked Problems(2006). Policy makers, in particular, have put this powerful concept to good use, but it has been largely missing from strategy discussions. Although many of the problems companies face are intractable, they have been slow to acknowledge the wickedness of strategy issues.

Between 1995 and 2005, I completed three research projects that provided insights into wicked strategy problems. First, as part of benchmarking projects that the APQC (formerly known as the American Productivity & Quality Center) and the Hong Kong Productivity Council conducted, I analyzed 22 North American, European, and Asian enterprises that use innovative strategic-planning techniques. They include ABB, Alcoa, Honeywell, John Deere, PPG Industries, Royal Dutch Shell, Siemens, Sprint, Whirlpool, and Xerox (China and USA). Second, I studied strategy implementation in depth at seven of these enterprises. Third, a colleague, Gaurab Bhardwaj, and I tracked DuPont’s pharmaceuticals business to learn how companies draw up strategies when returns will accrue only in the long run and are highly uncertain. Based on these studies, I’ll explore in the following pages how companies can tame—since they can’t solve—such problems. I’ll conclude by describing a planning process that helps PPG Industries tackle wicked issues.

What Is a Wicked Problem?

There are several ways to define a wicked problem, but according to Rittel and Webber, it has some or all of 10 characteristics. (See the sidebar “The 10 Properties of Wicked Problems.”) Caveat: The criteria are not a set of tests that mechanically determine wickedness; rather, they provide insights that help you judge whether a problem is wicked.

Wicked problems often crop up when organizations have to face constant change or unprecedented challenges. They occur in a social context; the greater the disagreement among stakeholders, the more wicked the problem. In fact, it’s the social complexity of wicked problems as much as their technical difficulties that make them tough to manage. Not all problems are wicked; confusion, discord, and lack of progress are telltale signs that an issue might be wicked.

In my consulting work, I’ve found that when five characteristics are present in a strategy-related issue, executives agree they have a wicked problem on their hands. I’ll list the key criteria below and use them to show how the challenge of growth that Wal-Mart faces today may well be wicked.

The problem involves many stakeholders with different values and priorities.

As Wal-Mart tries to grow faster, numerous stakeholders are watching nervously: employees and trade unions; shareholders, investors, and creditors; suppliers and joint venture partners; the governments of the U.S. and other nations where the retailer operates; and customers. That’s not all; many nongovernmental organizations, particularly in countries where the retailer buys products, are closely monitoring it. Wal-Mart’s stakeholders have different interests, and not all of them share the company’s goals. Each group possesses the capacity, in varying degrees, to influence the company’s choices and results. That wasn’t the case in 1962, when Sam Walton set up his first store in Rogers, Arkansas.

The issue’s roots are complex and tangled.

Wal-Mart’s slowing growth in the U.S. is a consequence of, among other things, a saturated market, its customers’ limited disposable incomes, and intense competition from rivals such as Target and Costco. Wal-Mart also faces resistance to imports, criticism about the wages and benefits it offers employees, and charges that illegal aliens work in its stores. All this has generated unfavorable publicity and strengthened people’s opposition to Wal-Mart’s opening stores in urban areas. Compounding the challenge, some of the company’s advantages have turned into disadvantages. For instance, Wal-Mart’s large market share in some product categories makes it tough to grow same-store sales rapidly. Its low-cost sourcing practices have rendered it vulnerable to the health and safety concerns that surround products made in China. Its supply chain expertise doesn’t help in the case of fashion and organic products, and its low-price image hurts its ability to sell upscale products. Moreover, Wal-Mart’s deep roots in rural America are of little use in overseas markets.

The problem is difficult to come to grips with and changes with every attempt to address it.

Wal-Mart has several options. It can try to boost revenues and profits by increasing sales from existing stores or raising prices, by expanding into urban markets in the U.S., by entering emerging economies, by diversifying into upscale product lines and creating new store brands, by forecasting better, or by cutting suppliers’ margins. These strategies demand different capabilities, are risky, and sometimes conflict with one another.

Consider two of the least complex options before Wal-Mart. It could boost profits by hiking prices, but until now, everyday low prices have helped the company fend off rivals. If consumers resist higher prices, the retailer’s sales will fall and profits will drop. To prevent that, Wal-Mart must first modify its value proposition, stock some upscale products, and develop a brand persona that warrants higher prices—challenges that have little to do with boosting profits immediately. Alternatively, Wal-Mart could enter a fast-growing emerging market, as it has done in India. It has found the going tough there, however. In India, local laws don’t allow foreign companies to operate multibrand retail outlets, so Wal-Mart has had to develop a special business model: cash-and-carry wholesale stores for local retailers. Besides being unfamiliar, the strategy contains the nucleus of another problem. When India’s laws change and allow Wal-Mart to sell to consumers, it will have to compete with the retailers it supplies.

The challenge has no precedent.

The two strategies we just discussed pose completely new challenges for the company. For instance, Wal-Mart would have to alter its brand image—for the first time in its 46-year history—to justify higher prices. Its recent foray into higher-priced garments is an experiment and doesn’t appear to have worked. Similarly, Wal-Mart’s India strategy differs from the M&A strategy it has used to enter other developing countries. Wal-Mart is a novice at managing partnerships, but it has had to team up with an Indian conglomerate, Bharti Enterprises. The group, whose primary business is telecommunications, wants to tap Wal-Mart’s expertise to set up a supply chain to get Indian produce onto Western tables! Wal-Mart will have to work with India’s bureaucracy to build the infrastructure that will support its operations, but in the past, dealing with governments hasn’t been the company’s strong suit.

There’s nothing to indicate the right answer to the problem.

In Wal-Mart’s case, going upmarket could boost profits, but it isn’t easy for a discount chain to develop a relationship with higher-income shoppers. Moreover, the retailer cannot ignore its existing consumers, who shop at Wal-Mart for inexpensive products. How much of a focus on higher-margin products and higher-income customers is appropriate? The company has no way of knowing that in the beginning. In like vein, Wal-Mart’s India strategy may be an effective way to enter a number of rapidly developing economies. However, the company will lose some of its competitive advantage when it shares expertise with local partners. What’s the optimal level of knowledge transfer? That’s impossible to estimate; Wal-Mart will find out only after it has shared best practices—and possibly created new rivals.

Growth is a hard problem for many companies, but it may not always be wicked. In Wal-Mart’s case, as we have just seen, the challenge bears all the signs of wickedness.

Managing the Wickedness of Strategy

It’s impossible to find solutions to wicked strategy problems, but companies can learn to cope with them. In accordance with Occam’s razor, the simplest techniques are often the best.

Involve stakeholders, document opinions, and communicate.

Companies can manage strategy’s wickedness not by being more systematic but by using social-planning processes. They should organize brainstorming sessions to identify the various aspects of a wicked problem; hold retreats to encourage executives and stakeholders to share their perspectives; run focus groups to better understand stakeholders’ viewpoints; involve stakeholders in developing future scenarios; and organize design charrettes to develop and gain acceptance for possible strategies. The aim should be to create a shared understanding of the problem and foster a joint commitment to possible ways of resolving it. Not everyone will agree on what the problem is, but stakeholders should be able to understand one another’s positions well enough to discuss different interpretations of the problem and work together to tackle it.

Companies must go beyond obtaining facts and opinions from stakeholders; they should involve them in finding ways to manage the problem. Getting a variety of opinions helps companies develop novel perspectives. It also strengthens collective intelligence, which counteracts groupthink and cognitive bias and enables groups to tackle problems more effectively than individuals, as Tom Atlee, the founder and codirector of the Co-Intelligence Institute, and Howard Bloom, a visiting scholar at New York University, have pointed out. Involving more stakeholders makes the planning process more complex, but it also expands the potential for creativity. Buy-in is an important result; companies should look not only for countermeasures but also for stakeholders to get on board with some of them.

Companies believe that shareholders and customers are important stakeholders, but employees are even more crucial. Their tacit knowledge and commitment often help enterprises develop innovative strategies. Merrill Lynch Credit Corporation, for example, places a great deal of emphasis on semistructured social processes, frequently organizing social events and encouraging employees to interact with one another. Everyone lunches in the company cafeteria, which allows employees to mix with senior executives routinely. A company intranet supports virtual social interactions such as blog-based discussions.

It may seem trivial, but documenting stakeholders’ assumptions, ideas, and concerns on an ongoing basis is important. It helps enterprises understand stakeholders’ hidden assumptions and gauge the effectiveness of the actions they have taken. Documents also help executives communicate ideas, which is essential if plans are to become reality.

All planning processes are, at their core, vehicles for communication with employees at all levels and between business units. This is particularly true of processes that tackle wicked issues. Smart companies emphasize such communication. At John Deere, corporate planners say that the quality of senior executives’ communications with divisions is the most important indicator of the effectiveness of strategy planning. Whirlpool believes that even the “janitor on the third shift” should be familiar with the company’s strategic goals. So assembly lines at Whirlpool shut down on a regular basis to enable managers and workers to discuss the progress of plans. At Shell a global electronic network, organized into forums with moderators, allows hundreds of managers and planners to discuss planning issues. At Merrill Lynch Credit Corporation, the corporate planners’ three most important rules for effective planning are simple: “One, communicate! Two, communicate! And three, communicate!”

QUESTION:

What is a "Wicked Problem" you have faced in your life. Could be work, home, school ... anything. What particular aspects made it a "Wicked Problem" and what did you / could you do/have done to address it? Provide the answers in a 2 ~ 4 paragraph essay.