The silent strategy killer

Russell Andrews, SEI

By Russell Andrews (pictured), Head of Solutions UK, Europe & Asia, Asset Management Distribution at SEI – Companies across the globe, both large and small, regularly go through strategic reviews to re-assess internal and external forces that influence core components of the business. Such components, including value proposition, operating model, market segmentation and revenue models, are reviewed in order to construct a strategy for success. Success could include new market entry, new products or services, M&A activity, rebranding, organic growth or as of late, the greater inclusion of technology in the proposition.

Typically, these strategic reviews are conducted by a small group of senior management and supported by internal subject matter experts, occasionally with the additional support of external consultants. The process likely includes a fairly detailed SWOT analysis, where the group establishes how to promote the strengths of the organisation, manage the weaknesses, maximise opportunities and mitigate threats. Augmented by financial analysis, horizon scanning and blue sky thinking, the output of this process will mostly drive business activity during the following years and is believed to be what will deliver the success desired by all stakeholders.

While this approach has no doubt shown proven results historically, it doesn’t immediately address the silent threat within. No, I’m not referring to some form of industrial espionage – nothing quite that exciting. But it’s something arguably as dangerous to long-term success: the application and consideration of mental models when designing and executing a strategy. 

A clear way of thinking without prejudice or noise, a mental model is a framework or an explanation of how things work. It’s how we, as humans, can distil something potentially quite complex into something understandable so that decisions can be taken in a way that avoids the inevitable influence of others’ past successes or failures. A mental model helps us reimagine objectives from scratch—irrespective of what has gone before. 

The threat of missing mental models is a two-way street  

A strategy that lacks a “first principle” mental model is more likely to simply apply an existing mental model without thought and repeat what has gone before, perhaps with some minor or moderate iterations. You’re likely to make decisions based on inherent instincts that are subconsciously influenced by history, considered “the only way”, or alternatively, the route perceived as the easiest. Trusting your instincts is, of course, fine in certain circumstances; but when it comes to strategic thinking, planning and execution, a first principle approach will force you to assess each decision differently. Decisions can be assessed by taking things right back to the ultimate objective and applying a lens that considers all inputs and establishes what is actually possible, rather than what is perceived as possible. This is a critical part of creating disruptive innovation and not simply deferring to incremental innovation.

Arguably as important as employing first principles at the start, ensuring mental models are regularly challenged and reassessed when assessing strategy is critical. As times change, especially at the rate experienced through technology’s evolution, we run the risk that a deployed mental model – or more specifically, prior decisions taken using a mental model – is no longer the most effective approach.  Continuing to follow what’s worked prior, even when previously established using a mental model, will effectively undo the philosophical and practical benefits that underpin the mental model approach and the innovation that it brings.

Today’s physical working environment is an example of how the Covid-19 pandemic has forced many organisations to reassess a longstanding mental model. Until recently, the default strategy has been to have physical offices, employees travel to and from them each day, and a formal 9-to-5 working day. For a long time, this was the only real option available to equip employees with the tools needed to do their jobs and create an environment that enabled collaboration with colleagues and service customers. However, as the pandemic escalated and lockdown was enforced, technology, which already existed, was deployed, and business continuity was achieved. As a result, many companies are now recognising the strategic possibility of a remote work setup, using technology to successfully enable virtual interactions and all the associated benefits.

Why has it taken a global pandemic to drive this change?

The asset management industry has a number of intrinsic mental models due for reassessment. None more so than the continued manufacturing of additional investment products. This product proliferation is a result of how asset managers have traditionally responded to client demands, and for many, this has delivered significant business success. In reality, it’s now only serving to further commoditise an industry that is already being challenged.

To plan for long-term future success, asset managers need to revert back to a first principle mental model and reassess the role they play from the perspective of what investors—individuals, institutions and wealth managers—need in order to achieve success and what that success actually looks like.

Adopting or reassessing mental models in order to reimagine how things could work, rather than how things do work, and drive better decision-making is unquestionably harder than simply defaulting to what we already know and iterating on it. However, for anyone who needs convincing, it has proved demonstrably and repeatedly successful for some of the world’s most innovative companies like Amazon and Tesla.  

You know what they say: No pain, no gain.


Important Information

While considerable care has been taken to ensure the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.

The opinions and views in this commentary are of SIEL only and are subject to change. They should not be construed as investment advice.

This information is issued by SEI Investments (Europe) Limited (“SIEL”) 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, United Kingdom. SIEL is authorised and regulated by the Financial Conduct Authority (FRN 191713). )

Author Profile