Economists need to think strategically

Robert Wynter, GUEST COLUMNIST

It was with pomp, pageantry and glitz that Jamaica College old boys honoured two of their very own at the Carlton Alexander Awards ceremony last Wednesday. Stafford Burrowes and Dr Peter Phillips joined a long line of distinguished alumni so honoured.

Michael Bernard delivered his first awards address as board chairman, MP Mikael Phillips introduced his father, and Mike Fraser introduced Mr Burrowes. Congratulations to old boys president Chris Williams and his team for planning and executing another first-class event.

In his acceptance speech, Stafford Burrowes rubbished the assertion by a well-known local economist that the crisis in Greece and Spain will adversely affect our tourism industry as arrivals from Europe will fall.

Mr Burrowes explained that, contrary to popular belief, the majority of tourists in the Spanish hotels are from North America, where the US economy is recovering and the Canadian economy remains robust. Even if the tourists were mainly from Europe, a change in the marketing campaign to North America surely would be a solution.

This got me wondering why economists tend to be business-as-usual, with a tendency to look at recent trends, as well as external happenings, then automatically predict the impact, assuming we can do nothing about gathering clouds. On further reflection, I decided to contrast the plan formulation/implementation approaches typical of economists and strategists.

Which comes first - plan or target?

Economists develop plans then determine what outcome those plans will most likely deliver. Strategists first establish a desired outcome; then design a plan to deliver on the desired outcome.

In this year's Budget, the finance ministry's technocrats developed its plans, then determined 2012-2013 growth targets based on investment information from JAMPRO.

On the other hand, technocrats at National Security set a five-year target of one murder per day (down from three now), then proceeded to design strategies to achieve that target.

I got the distinct feeling that Peter Bunting's strategic acumen heavily influenced this approach. In fact, many plans developed by our economists have no targets, chief among these being the National Export Strategy and the Growth-Inducement Strategy; hence, the unwillingness to implement them and the difficulty to determine their success.

DATA-DRIVEN VS VISION-DRIVEN

Economists tend to be data-driven (looking backwards) in setting targets in order to justify those targets. Strategists, on the other hand, start with a vision (looking forward), then quantify that vision into performance targets.

The highly respected expert on innovation, Harvard Business School Professor Clayton Christensen, stated in the March 2012 HBS Alumni Bulletin: "We are trained to back up all assertions with data and evidence. The problem is that data are only available about the past. If you are trying to innovate, and you have a data-driven mindset, you can't go forward."

While it is important to get wide stakeholder input, it is important that strategy/policy formulation be a top-down process. In developing national plans, economists tend to first develop sector plans, then aggregate to a national plan. This is tantamount to independently developing sales, marketing, production, HR and procurement strategies, then cascading up to an organisational strategy.

Strategists start with an organisational (or national) strategy; then cascade to departmental (or sectoral) strategies, ensuring alignment to the organisational (or national) strategies and to each other. Strategy/policy execution is, then, a bottom-up process in order to achieve the organisational (or national) performance targets.

Economists do not link a policy shift with the organisational capacity to successfully execute the policy shift, and are surprised when the policy shift does not occur or does not achieve desired outcomes. Strategists, on the other hand, are clear that a new strategy will require a new structure and new culture aligned to that strategy.

Fiddling with targets

Economists use a single-loop control system during plan implementation, while strategists use a double-loop control system. If the desired outcomes of a plan are not met, the problem is poor planning, poor execution, or both. Economists tend to implement using the execution-control loop (set targets, implement, measure variance against target, then adjust operations to correct variance) only. Strategists execute using both the planning - and operational-control loops - seeking to adjust either the plan or the execution to achieve the desired outcome.

Economists change targets when such targets are not achieved. Strategists have fixity of purpose on set targets and, as such, change plans or execution capabilities to achieve such targets. One of the challenges with setting annual growth targets, as opposed to a specific three-year target, is that there is usually no effort to make up in years two and three for poor performance in year one.

By this I mean, if we set a target to increase foreign direct investment by 10 per cent each year over the next three years (cumulative 33 per cent); and if we achieve only five per cent in the first year, we continue to target 10 per cent for years two and three when, in fact, we ought to be targeting 12.5 per cent average to make up for the shortfall in year one. Dr Phillips must, therefore, be commended for targeting 100 per cent debt-to-GDP ratio and a balanced Budget by 2015-2016, regardless of what may happen this or next year.

Commitment to Bold Targets

Economists have little faith in bold targets and seem not to be perturbed when off target, focusing more on day-to-day operations. Strategists encourage bold or stretch targets and focus on execution (double-control loop) to achieve such targets.

In the mid-1990s, the National Industry Policy (NIP) predicted six per cent annual GDP growth for 12 years (1997-2008), or 101 per cent cumulative growth. We actually achieved around 10 per cent cumulative growth over the period, and there seemed to have been very little effort to get back on track at any time.

By 2008, seemingly without trying to understand why the NIP did not deliver, our economic planners shifted to Vision 2030, predicting developed-country status by 2030. To achieve this, we need to achieve, among other things, nine per cent growth every year for the next 18 years. Juxtapose this with the past 18 years in which growth averaged about one per cent and you will agree with me that, deep down, neither our politicians on both sides of Gordon House nor our planners believe we will achieve that nine per cent average growth. Yet they all sail merrily along trumpeting Vision 2030.

REBALANCE STRATEGISTS, ECONOMISTS

Finance Minister Phillips has called for "a new covenant for stability, equitable growth and prosperity". In doing so, the minister has underscored the critical role the public sector must play in delivering on this covenant, declaring that public-sector transformation should be aimed at "rationalisation of agencies, improved oversight of public agencies and bodies; and divestment of public bodies".

It is no secret that our public sector has a plethora of economists and a dearth of strategists. The first step in transforming the public sector must be balancing the strategist-economist ratio or strengthening the strategic thinking capability of our policymakers and implementers.

Robert Wynter is managing director of Strategic Alignment Limited, which facilitates organisational transformation and leadership development. Comments are welcome at columns@gleanerjm.com and rob.wyn@hotmail.com.