Tag: executive leadership

Strategic Planning That Can Survive Reality

It was the second day of a two-day strategic planning retreat. Revenue projections stretched across the screen. The CFO walked through all the assumptions in his spreadsheet. Customer acquisition costs will flatten, churn will improve by two points, and the new product will capture eight percent market share within six months.

Everyone nodded along, acting as if these forecasts represented knowledge rather than elaborate guesses built on dozens of assumptions, any one of which could be wrong.

Three months later, a competitor launched an unexpected feature. Customer behavior shifted. The CFO’s projections became relics of a reality that never existed. The entire strategic planning process had been built on an illusion.

What we pretend to know

In his 2022 memo The Illusion of Knowledge, Howard Marks explored how investors mistake confidence for clarity. He began with a line from historian Daniel Boorstin:

“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.”

Leaders face a brutal paradox. Boards expect forecasts. Teams want confidence. Investors demand projections. The machinery of leadership demands certainty.

So, we build elaborate forecasts and make decisions based on assumptions we know to be fragile. We treat detailed guesses as facts.

Physicist Richard Feynman once said, “Imagine how much harder physics would be if electrons had feelings.” Electrons follow discrete laws, unlike people. People innovate, resist, panic, and occasionally do something amazing nobody saw coming. Competitors behave differently than our models assume. Markets shift for reasons we never thought possible.

Marks describes forecasting as a chain of predictions. “I predict the economy will do A. If A happens, interest rates should do B. With interest rates of B, the stock market should do C.” Even if you’re right two-thirds of the time at each step, your chance of getting all three predictions correct at once is only about thirty percent.

Leadership forecasts work in a similar way. We predict customer adoption rates. If adoption hits those numbers, we’ll need a certain operational capacity. With that capacity, we can achieve specific margins. Those margins will attract investment.

Each assumption depends on the previous one. The chain is only as strong as its weakest link.

The tools we trust

Walk into any strategic planning session and you’ll likely encounter two frameworks treated as gospel:

-SWOT analysis (strengths, weaknesses, opportunities, and threats)

-SMART goals (specific, measurable, achievable, relevant, and time-bound).

Business schools teach them. Consultants recommend them. Leaders deploy them with confidence. Each relies on assumed knowledge that may not exist.

A SWOT analysis claims to know which possible developments count as opportunities versus threats. It’s a snapshot of assumptions masquerading as strategic insight. An opportunity exists only if you can identify it, execute against it, and do so before circumstances change. The framework provides no way of acknowledging uncertainty.

SMART goals often confuse precision with accuracy. “Increase market share” becomes “increase market share in the Northeast region from 12% to 15% by Q4 2026.” It sounds specific, and therefore rigorous. It’s easy to be precise about something unpredictable.

And how do we know a goal is achievable? We make assumptions about resources, market conditions, and competitor behavior, then write a goal that treats our assumptions as facts.

Both frameworks serve a valuable purpose. They force structured thinking. But they also seduce leaders into believing they know more than they do.

What should we do instead?

To be clear, this isn’t an argument for abandoning planning. Organizations need direction, priorities, and coordinated action. The question is how to plan in ways that acknowledge what we can’t know while still making decisive progress.

A better path involves changing how we plan and how we talk about the future.

Distinguish between direction and destination. Amazon knew it wanted to be “Earth’s most customer-centric company” without knowing exactly what that would look like in year ten. “We’re moving toward increased automation” carries more truth than “we’ll reduce costs by seventeen percent by Q3 2026.” The first creates direction. The second creates false precision.

Separate what you know from what you assume. Customer complaints increased forty percent this quarter. That’s knowledge. Saying the trend will continue is extrapolation. Predicting that fixing the issue will increase retention by five points is speculation. Present plans that show what you know, what you’re inferring, what you’re assuming, and what you’ll do if you’re wrong.

Build optionality into everything. Create strategies that work across multiple futures. Hire people who can do, or think about, more than one thing. Build modular systems with flexibility in mind. Create decision points where you can change course.

Use familiar tools differently. Run a SWOT analysis, then list three ways each opportunity might fail to materialize. Write SMART goals, then document the assumptions those goals depend on and how you’ll adapt if they prove incorrect.

Here’s a concrete example. You’re deciding whether to build a new product line. The traditional approach creates a detailed business case with market projections and revenue forecasts. You present it. People debate assumptions. A decision gets made.

An alternative approach defines what success means, then identifies what must be true to achieve it. You sort those conditions into things you can validate quickly, things you can validate over time, and things you can validate only much later. Stage investments to match the timing of the validations, rather than an arbitrary quarterly schedule.

The difference in these approaches is critical. In the first, the business case pretends to represent knowledge. In the second, it becomes a set of hypotheses to test over time.

The harder path

Amos Tversky observed, “It’s frightening to think that you might lack knowledge about something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.”

We select leaders for their ability to project confidence about an unknowable future. We reward decisiveness over doubt. Then we wonder why strategies fail when reality diverges from our projections.

Most of us live in this system. We’ve built organizations that demand the illusion of knowledge.

Real leadership creates organizations resilient enough to find answers as circumstances unfold. It builds teams that can adapt rather than simply execute a plan written many months ago.

When did you last change a forecast because reality diverged from your assumptions?

When did you last reward someone for identifying that a plan was failing?

Start small. Pick one decision where you can be explicit about uncertainty. Structure one investment to test assumptions instead of betting on a forecast. Have one conversation where you separate what you know from what you’re guessing.

Plan in ways that acknowledge uncertainty and position your organization to learn. Lead with confidence about principles while staying adaptable around specifics. Build organizations that can adapt when reality diverges from the plan.

Because it will. The measure of leadership lies in how well your culture can face that truth.

The CFO’s spreadsheet was never the problem.

The illusion that it represented knowledge was.

Photo by Michael Shannon on Unsplash