Most senior leaders in corporations have defined their leadership through the course of action(s) that has yielded a particular
desirable outcome. In many cases their decisiveness in times of uncertainty provides a level of confidence in the team to keep on task to achieve the mission. Classic examples of this are frequently illustrated in military combat. This type of leadership exudes initiative and shares the same or greater risk than their subordinates, sometimes regardless of odds and is referred to as ‘leading from the front’. Likewise, in business, the temptation when faced with a market crisis or a crisis of confidence, is to do something, anything. The feeling of insecurity and lack of control can be overpowering particularly when a senior manager is used to managing ‘from the front’. In other words, their strategy is defined and measured by their actions and resulting outcomes. However, there is an important case to make – in certain circumstances – to employ the art of the Tao principle of Wu-Wei – non-action.
In an interesting 2009 study, Penalty kicks in soccer: an empirical analysis of shooting strategies and goalkeepers’ preferences, researchers studied penalty kicks in thousands of professional soccer games.
The study noted that goalkeepers jump to the right or left 94% of the time when trying to stop a penalty kick. The result is that they correctly guess where the shot is heading about 40% of the time. But even when they’re correct, they only stop 25-30% of the shots. However, if they remain in the centre of the net and the shot is in the middle, which happens about 30% of the time, their save percentage jumps to 60%. In other words, staying in the middle increases a keeper’s chances of stopping the shot to more than 33% from about 13%.
In turbulent economic times, sometimes the best strategy is to ‘stay in the centre’ and do nothing. The strategy of inaction or sometimes referred to as ‘strategic patience’ does not imply idleness with expectations of reward but, rather, a conscious choice to act only when the conditions are ‘right’. These ‘right’ conditions can manifest themselves in the following ways:
Delaying key decisions until important uncertainties are resolved. An example of this would be to delay capital execution on an oil and gas facility expansion until new air quality or carbon emission regulations/guidelines have been released.
Waiting to learn from competitors or others experiences. If it doesn’t diminish your competitive advantage it might be advantageous to wait and learn from competitor’s trials, errors and mistakes before executing on your own plan. A good example of this can be seen in oil and gas where – as long as it doesn’t compromise mineral holdings – a producer will wait until an adjacent competitor has optimized their drilling, completions and production methodology for a certain geological zone. The producer will wait and learn from their offset competitor prior to commencing with their own program.
When inaction does not interfere with optionality. People tend to relate decisions to a physical implementation to enact their choice. However, inaction is also a decision that can open to a set of future options or close such options. A good example of this can be found in a ‘Real Option’ where the company or individual has the right but not the obligation to undertake certain business initiatives. In this case, deferring or not choosing to engage in a capital investment project does not interfere or exclude the choice to do so in the future. Conversely, an example in oil and gas, is the decision to enter into a ‘take or pay’ contract with a pipeline company. These contracts will guarantee the producer a certain volume of liquid petroleum or natural gas in a particular pipeline to get this commodity to market. If the producer doesn’t ‘take’ or fulfill the agreed upon volume, then they have to pay a penalty over a term. In this example, choosing to do nothing may interfere with options on where the producer can take their product.
As the commodities market remains in turmoil – particularly in the energy sector – it is important to take the time to decide the correct strategic approach to capital or operating expenditures. The dialogue should include both proponents for strategic inaction or patience and those who advocate immediate action.
At Ridgeline, we have the skills to help your business frame, analyze and employ the tactics to achieve the chosen strategy – particularly as it relates to Asset Retirement Obligation.
About the author:
Nathan Fraser is the Director of Strategic Planning and Execution at Ridgeline Canada Inc.
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