In setting strategic objectives, companies usually end up with a list of worthy but vague aspirations. The secret to getting a list of clearly defined and measurable objectives is to anchor them in what you, as a company’s leaders, want to get from your stakeholders. This leads you to defining desired behavioral outcomes, even fairly obvious ones like buying more. The debate can then move to thinking about how to trigger that behavior, and progress toward these outcomes can be described in measures that are in dollars, like revenue; quantities, like units sold; or percentages, like market share. Thinking in this way sounds prosaic, even obvious, but it is an effective way of getting a management team to think clearly about what they need to do.

Ann is the CEO of my country’s largest independent, not-for-profit aged-care provider, offering residential aged care, retirement living, and at-home support. It was established well over a hundred years ago and is set in many of its ways. One of these is how strategic objective-setting is conducted. But Ann’s not happy with the process. I asked her, “Why not?”

She explained. “When we get together to discuss our future direction as a business, we invariably get to the point where we need to write down our objectives. If we’re using a facilitator, and we usually do, that person will walk over to a flipchart or whiteboard and write ‘Objectives’ at the top. Then everyone piles in brainstorming to produce a list that’s far too long.”

“And you whittle that list down?” I asked.

“Yes,” Ann continued. “The discussion and arm-wrestling then start with the aim of reducing the items to about half a dozen. After some considerable time, my exhausted and frustrated colleagues are only too happy to move on to the next agenda item.”

Ann explained how her team was usually not content with the result. “Nor am I,” she added, “because invariably the ‘Objectives’ list contains a hodgepodge of activities, nice-to-haves, and vague statements of intent.” Ann showed me her latest result:

• To become an employer of choice.
• To grow the business by opening additional centers.
• To maintain stability in resident and client care.
• To manage risks and crises effectively.
• To secure compliance with regulatory authorities.
• To transform operations by adopting additional technology.

Maybe your own endeavors have produced a similar list. You might be wondering: What’s wrong with this? The answer is: Plenty.

Any strategy she comes up with will have to specify what the company can do to meet the needs of each key stakeholder group: residents, clients, employees, suppliers, shareholders, and the community. This means that her business will have to take a position on the factors important to each of those groups. For instance, Ann’s management team must set policy on working conditions, pay, organization culture, and so on for employees. What should guide these decisions? And how will Ann know if the decisions are progressing the organization? How will she measure this?

The answers should be her list of strategic objectives. But Ann’s hodgepodge doesn’t deliver a clear line of sight between the business’s competitive stance for each key stakeholder group and the results. How can you tell if a strategy is working? It’s as though the list of objectives exists in a black hole.

Shift Your Thinking About Objective-Setting

The trick to breaking away is to flip your perspective and ask what your organization wants from its key stakeholders. (This comes as an “aha” moment for most managers.) These will be your strategic objectives. For example, consider revenue from customers, innovation from employees, and support from the community. Your thinking must shift to be outside-in if you are to produce successful strategic objectives. If you picture organization objective-setting this way, you can see how it can be broken into a stakeholder-by-stakeholder exercise.

Step 1: Identify a behavioral outcome for each stakeholder group.

To illustrate, let me share a story. One CEO I advise, Stuart, heads up a mutual bank with “members.” I ran a workshop for him and his managers. We identified the credit union’s key stakeholders, one of which was, naturally, members. To break through the traditional brainstorming hodgepodge, I asked the group a seemingly simple question: “What do you want your members to do?”

This came as a surprisingly fresh approach to the group and required them to think more deeply. After some discussion, we got this: “To get members to borrow more and to get potential members to become members.” I explained how I call this a behavioral outcome.

Step 2: Convert behavioral outcomes into organization objectives.

I then led Stuart’s group to the second step, which is to convert this behavioral outcome to an organization objective. This usually starts with “to increase” or “to decrease.” After careful consideration and debate, the group agreed to: “To increase revenue from current and future members.” Notice “future.” This will be driven by positioning on the strategic factors relevant to members.

Why didn’t I just start there at the second step? The reason is that invariably the process falls back into becoming a hodgepodge. Identifying a behavioral outcome for each key stakeholder group first anchors organization objectives, which then become clear and measurable.

Step 3: Identify measures.

This brings me to the third step: identifying measures, a short list of which is usually referred to as key performance indicators or KPIs. This can be tricky, as all sorts of things become labeled as KPIs in exercises like this. In the past, Stuart’s organization had labeled actions by individuals and program descriptions as KPIs. So, I needed to point out that a key performance indicator is a key performance measure.

The clincher for Stuart and his group came when I demonstrated that there are only three ways to measure results in business and that they can be neatly summarized by three symbols: $ (or the local currency), # (number of), and % (percentage). No one had condensed results for them in that way before.

The advantage of this is that Stuart and his team now have a stakeholder-oriented objective for members that can be measured. Stuart can measure the total revenue generated by new and existing members; the number of new and existing members; and the bank’s percentage of market share. Any strategies aimed at creating competitive advantage — around, for example, product range, customer service, and pricing — can be evaluated using these hard results.

I do this for each of an organization’s key stakeholders: customers, employees, suppliers, and so on. It always gets a management group to probe what the organization is really trying to achieve.

Your Objective-Setting Journey

If you want to produce clearly targeted strategy, you simply must avoid the standard practice of brainstorming to yield a list of strategic objectives. It leads to a hodgepodge of difficult-to-measure items, as Ann’s experience demonstrates. Instead, rethink your journey by identifying who your key stakeholders are — and what you want from them.

This will provide you with clear and measurable outcomes that will help focus your organization’s strategic positions for each of your key stakeholders. Strategic clarity will be your result.

Senior executives often lament, “If we only had better forecasts, we could devise better plans.” They pressure their teams to come up with more accurate projections for how their markets will evolve, competitors will respond, and consumers will react — thinking that forecast precision is the key to defining winning strategies.

But attempting to develop precise forecasts is a fool’s errand. Meteorologist Edward Lorenz proved this nearly 60 years ago when he popularized “the butterfly effect.” He suggested: “A butterfly flaps its wings in the Amazonian jungle and subsequently a storm ravages half of Europe.” While this statement is often interpreted as meaning “small things can have big impacts,” Lorenz’s insight was actually far more profound: In complex systems, small changes in one variable may have no effect or massive ones, and it is virtually impossible to predict which will turn out to be the case.

Before Lorenz’s work, forecasters assumed that an approximate specification of initial conditions would yield an approximate prediction of future outcomes. Lorenz’s modelling proved that assumption to be entirely false. He found that without a perfect delineation of initial conditions, predictions are useless.

Today, the butterfly effect is almost universal. Our world is more complex and interconnected than ever before. Increasing globalization, advances in telecommunications technology, shifts in consumer preferences, geopolitical instability, and countless other factors have made the future largely unpredictable. Capturing all these relationships in a reliable forecast is impracticable.

So, what should executives do? In Bain’s work with clients, we advise executives operating under extreme uncertainty to make sure that their strategy-making is characterized by a willingness to adapt, inbuilt flexibility, and dynamic planning.

Willingness to Adapt

Stephen Hawking is famously credited with saying: “Intelligence is the ability to adapt to change.” If it is impossible to predict what is around the corner, then the secret to success is adapting quickly to what appears.

The Covid-19 pandemic serves as testimony to the importance of adaptability. In early 2020, almost no company’s strategic plan forecast the impact that the global pandemic would have on business. The most successful companies (e.g., Zoom, Amazon, GrubHub, Disney) quickly adapted to the impact that work-from-home orders and other restrictions placed on workers and consumers. Some expanded capacity in response to the sudden surge in demand; others altered their delivery model to serve customers in new and different ways.

Less successful enterprises (say, most commercial airlines and hotel operators) could not — or did not — adapt. These companies saw their revenues and profits plummet. If Covid-19 has taught us anything it’s the importance of being able to pivot quickly in response to sudden changes in the external environment.

Inbuilt flexibility

In volatile times, flexibility has enormous value. As an analogy, consider sailing. In choppy waters, sailing upwind can be extremely challenging — steering as close as possible to the wind can mean pounding into the waves, which slows the boat down. Instead, falling off of the wind can give you a better angle to the waves and allow you to build up speed. While longer by distance, this maneuver is almost always faster, largely because it’s more flexible.

A few industries have already recognized the value of flexibility in the face of extreme volatility and altered their strategies accordingly. Take aluminum production. The future returns on capital projects, such as investments in new smelter capacity, depend upon highly volatile prices for electricity and aluminum. Price uncertainty means that there may be times when the cash inflows from aluminum sales are insufficient to cover production costs, or (stated differently) lower than the revenues that could be derived from the sale of co-generated or contracted power. Most aluminum producers have strategies that enable them to temporarily suspend production during periods of high energy prices and sell available power to the grid. The few aluminum producers that have stuck with rigid, production-only plans have experienced dramatically lower returns than those opting for more flexible strategies.

Another example: sourcing strategy. Today, supply chains are being assailed by a host of exogenous factors. Russia’s invasion of Ukraine, for instance, has cut-off the flow of raw materials such as titanium, nickel, and neon. China’s zero-Covid policy has temporarily halted manufacturing in some sectors, hampering the production of everything from automobiles to smart phones. Companies with flexible supply networks, capable of sourcing from multiple suppliers in different regions, have found it easier to cope with these — and other — disruptions. Those with rigid supply chains continue to struggle in the current tumultuous environment.

Dynamic planning

In an unpredictable world, it might be tempting to throw up your hands and give up on planning altogether. But great performance is rarely the result of happenstance. It requires a direction, even if it isn’t possible to define the exact path.

To better cope with extreme volatility in crafting strategy, companies must change the way they approach strategic planning. They must evolve from a static, plan-then-do model to a dynamic and continuous approach to strategic decision-making and execution.

Dell Technologies was one of the first to adopt this new model shortly after Michael Dell took the company private in October 2013. The company shifted from a traditional planning model — where managers developed a fixed strategic plan each year — to an approach focused on continuously identifying and making critical decisions. This new model — combined with new techniques for making strategic decisions under uncertainty — has enabled Dell Technologies to increase its operating profits by more than four-fold since 2013. Leadership at Dell did not give-up on planning. Instead it adjusted the company’s model to be more fit-for-purpose, given the increasingly uncertain world of technology.

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Today’s unpredictable age demands new notions of strategy. As I argue here (and in an HBR article with my Bain colleague Mark Gottfredson, Strategy-Making in Turbulent Times) rigid plans — based on deterministic forecasts — must be discarded and replaced with a more dynamic and decision-focused approach. Flexibility and adaptability must move to the forefront of leadership’s thinking. Otherwise, too many businesses will fall victim to the vagaries of the butterfly effect.