Strategic planners pride themselves on their rigor. Strategies are supposed to be driven by numbers and extensive analysis and uncontaminated by bias, judgment, or opinion. The larger the spreadsheets, the more confident an organization is in its process. All those numbers, all those analyses, feel scientific, and in the modern world, “scientific” equals “good.”

Yet if that’s the case, why do the operations managers in most large and midsize firms dread the annual strategic planning ritual? Why does it consume so much time and have so little impact on company actions? Talk to those managers, and you will most likely uncover a deeper frustration: the sense that strategic planning does not produce novel strategies. Instead, it perpetuates the status quo.

One common reaction is to become explicitly antiscientific—to throw off the shackles of organized number crunching and resort to off-site “ideation events” or online “jam sessions” intended to promote “out of the box” thinking. These processes may result in radical new ideas, but more likely than not, those ideas cannot be translated into strategic choices that guide productive action. As one manager put it, “There’s a reason we keep those ideas outside the box.”

Many managers feel they are doomed to weigh the futile rigor of ordinary strategic planning processes against the hit-or-miss creativity of the alternatives. We believe the two can be reconciled to produce creative but realistic strategies. The key is to recognize that conventional strategic planning is not actually scientific. Yes, the scientific method is marked by rigorous analysis, and conventional strategic planning has plenty of that. But also integral to the scientific method are the creation of novel hypotheses and the careful generation of custom-tailored tests of those hypotheses—two elements that conventional strategic planning typically lacks. It is as though modern strategic planning decided to be scientific but then chopped off essential elements of science.

The approach we’re about to describe adapts the scientific method to the needs of business strategy. Triggered by the emergence of a strategic challenge or opportunity, it starts with the formulation of well-articulated hypotheses—what we term possibilities. It then asks what would have to be true about the world for each possibility to be supported. Only then does it unleash analysts to determine which of the possibilities is most likely to succeed. In this way, our approach takes the strategy-making process from the merely rigorous (or unrealistically creative) to the truly scientific. (See the exhibit “Seven Steps to Strategy Making.”)

Seven Steps to Strategy Making

Step 1: Move from Issues to Choice

Conventional strategic planning is driven by the calendar and tends to focus on issues, such as declining profits or market share. As long as this is the case, the organization will fall into the trap of investigating data related to the issues rather than exploring and testing possible solutions.

A simple way to get strategists to avoid that trap is to require them to define two mutually exclusive options that could resolve the issue in question. Once you have framed the problem as a choice—any choice—your analysis and emotions will focus on what you have to do next, not on describing or analyzing the challenge. The possibilities-based approach therefore begins with the recognition that the organization must make a choice and that the choice has consequences. For the management team, this is the proverbial crossing of the Rubicon—the step that starts the strategy-making process.

In the late 1990s, when Procter & Gamble was contemplating becoming a major player in the global beauty care sector, it had a big issue: It lacked a credible brand in skin care, the largest and most profitable segment of the sector. All it had was Oil of Olay, a small, down-market brand with an aging consumer base. P&G crossed its Rubicon and laid out two possibilities: It could attempt to dramatically transform Oil of Olay into a worthy competitor of brands like L’Oréal, Clarins, and La Prairie, or it could spend billions of dollars to buy a major existing skin care brand. This framing helped managers internalize the magnitude of what was at stake. At that point P&G turned from contemplating an issue to facing a serious choice.