File Name: strategic planning and development .zip
Strategy making forces executives to confront a future they can only guess at.
On the other hand, it can also scope the entirety of business processes where different kinds of strategies can be implemented in particular time frames. If you want to create your own strategic plan, browsing through the discussion below is highly-recommended. If you want to make the most out of your planned strategies, it is important for you to be organized and tactical from the very beginning.
Strategic Planning Basics
Strategy making forces executives to confront a future they can only guess at. Discomfort is part of the process. Costs lend themselves wonderfully to planning, because the company controls them. But for revenue, customers are in charge. Even managers who avoid the first two traps may end up using a framework that leads them to design a strategy entirely around what the company controls.
A company can avoid those traps by focusing on customers, recognizing that strategy is about making bets, and articulating the logic behind strategic choices. All executives know that strategy is important. But almost all also find it scary, because it forces them to confront a future they can only guess at. Worse, actually choosing a strategy entails making decisions that explicitly cut off possibilities and options. An executive may well fear that getting those decisions wrong will wreck his or her career.
The natural reaction is to make the challenge less daunting by turning it into a problem that can be solved with tried and tested tools.
That nearly always means spending weeks or even months preparing a comprehensive plan for how the company will invest in existing and new assets and capabilities in order to achieve a target—an increased share of the market, say, or a share in some new one. The plan is typically supported with detailed spreadsheets that project costs and revenue quite far into the future.
By the end of the process, everyone feels a lot less scared. This is a truly terrible way to make strategy. It may be an excellent way to cope with fear of the unknown, but fear and discomfort are an essential part of strategy making. You need to be uncomfortable and apprehensive: True strategy is about placing bets and making hard choices. The objective is not to eliminate risk but to increase the odds of success.
In this worldview, managers accept that good strategy is not the product of hours of careful research and modeling that lead to an inevitable and almost perfect conclusion.
If executives adopt this definition, then maybe, just maybe, they can keep strategy where it should be: outside the comfort zone. Strategic plans all tend to look pretty much the same. They usually have three major parts. The first is a vision or mission statement that sets out a relatively lofty and aspirational goal. The second is a list of initiatives—such as product launches, geographic expansions, and construction projects—that the organization will carry out in pursuit of the goal.
This part of the strategic plan tends to be very organized but also very long. The length of the list is generally constrained only by affordability. The third element is the conversion of the initiatives into financials.
In this way, the plan dovetails nicely with the annual budget. This exercise arguably makes for more thoughtful and thorough budgets. However, it must not be confused with strategy. It does not question assumptions. Mistaking planning for strategy is a common trap. Even board members, who are supposed to be keeping managers honest about strategy, fall into it. They are, after all, primarily current or former managers, who find it safer to supervise planning than to encourage strategic choice.
Moreover, Wall Street is more interested in the short-term goals described in plans than in the long-term goals that are the focus of strategy. Analysts pore over plans in order to assess whether companies can meet their quarterly goals. The focus on planning leads seamlessly to cost-based thinking. Costs lend themselves wonderfully to planning, because by and large they are under the control of the company.
For the vast majority of costs, the company plays the role of customer. It decides how many employees to hire, how many square feet of real estate to lease, how many machines to procure, how much advertising to air, and so on. In some cases a company can, like any customer, decide to stop buying a particular good or service, and so even severance or shutdown costs can be under its control.
Of course there are exceptions. Government agencies tell companies that they need to remit payroll taxes for each employee and buy a certain amount of compliance services. But the proverbial exceptions prove the rule: Costs imposed on the company by others make up a relatively small fraction of the overall cost picture, and most are derivative of company-controlled costs.
Payroll taxes, for instance, are incurred only when the company decides to hire an employee. Costs are comfortable because they can be planned for with relative precision. This is an important and useful exercise. Many companies are damaged or destroyed when they let their costs get out of control. The trouble is that planning-oriented managers tend to apply familiar, comfortable cost-side approaches to the revenue side as well, treating revenue planning as virtually identical to cost planning and as an equal component of the overall plan and budget.
All too often, the result is painstaking work to build up revenue plans salesperson by salesperson, product by product, channel by channel, region by region. For costs, the company makes the decisions.
Except in the rare case of monopolies, customers can decide of their own free will whether to give revenue to the company, to its competitors, or to no one at all. Companies may fool themselves into thinking that revenue is under their control, but because it is neither knowable nor controllable, planning, budgeting, and forecasting it is an impressionistic exercise.
Of course, shorter-term revenue planning is much easier for companies that have long-term contracts with customers. For example, for business information provider Thomson Reuters, the bulk of its revenue each year comes from multiyear subscriptions.
The only variable amount in the revenue plan is the difference between new subscription sales and cancellations at the end of existing contracts. Over the longer term, all revenue is controlled by the customer.
Companies in many industries prefer a small slice of a huge market to a large slice of a small one. The thinking is, of course, that the former promises unlimited growth potential. But all too often, the size of the opportunity encourages sloppy strategy making.
Anybody is a potential customer, so just go out and sell stuff. But when anyone could be a customer, it is impossible to figure out whom to target and what those people actually want. This is when crisp strategy making and clear thinking about opportunities are most important.
The bottom line, therefore, is that the predictability of costs is fundamentally different from the predictability of revenue. This trap is perhaps the most insidious, because it can snare even managers who, having successfully avoided the planning and cost traps, are trying to build a real strategy.
In identifying and articulating a strategy, most executives adopt one of a number of standard frameworks. Unfortunately, two of the most popular ones can lead the unwary user to design a strategy entirely around what the company can control. In Henry Mintzberg published an influential article in Management Science that introduced emergent strategy, a concept he later popularized for the wider nonacademic business audience in his successful book, The Rise and Fall of Strategic Planning.
By drawing a distinction between deliberate and emergent strategy, he wanted to encourage managers to watch carefully for changes in their environment and make course corrections in their deliberate strategy accordingly. In addition, he warned against the dangers of sticking to a fixed strategy in the face of substantial changes in the competitive environment. All of this is eminently sensible advice that every manager would be wise to follow. However, most managers do not.
Notice how comforting that interpretation is: No longer is there a need to make angst-ridden decisions about unknowable and uncontrollable things. A little digging into the logic reveals some dangerous flaws in it. If the future is too unpredictable and volatile to make strategic choices, what would lead a manager to believe that it will become significantly less so?
And how would that manager recognize the point when predictability is high enough and volatility is low enough to start making choices? Any company can build a technical sales force or a software development lab or a distribution network and declare it a core competence. Executives can comfortably invest in such capabilities and control the entire experience. Within reason, they can guarantee success. Only those that produce a superior value equation for a particular set of customers can do that.
But customers and context are both unknowable and uncontrollable. Many executives prefer to focus on capabilities that can be built—for certain. Discussion in management and board meetings tends to focus on how to squeeze more profit out of existing revenue rather than how to generate new revenue. The principal metrics concern finance and capabilities; those that deal with customer satisfaction or market share especially changes in the latter take the backseat.
Probably: You have a large corporate strategic planning group. Probably Not: If you have a corporate strategy group, it is tiny. Probably: In addition to profit, your most important performance metrics are cost- and capabilities-based. Probably Not: In addition to profit, your most important performance metrics are customer satisfaction and market share.
Probably: Strategy is presented to the board by your strategic planning staff. Probably Not: Strategy is presented to the board primarily by line executives. Probably: Board members insist on proof that the strategy will succeed before approving it. Probably Not: Board members ask for a thorough description of the risks involved in a strategy before approving it.
How can a company escape those traps? This involves ensuring that the strategy-making process conforms to three basic rules. Focus your energy on the key choices that influence revenue decision makers—that is, customers. Two choices determine success: the where-to-play decision which specific customers to target and the how-to-win decision how to create a compelling value proposition for those customers.
Characterizing the key choices as where to play and how to win keeps the discussion grounded and makes it more likely that managers will engage with the strategic challenges the firm faces rather than retreat to their planning comfort zone.
As noted, managers unconsciously feel that strategy should achieve the accuracy and predictive power of cost planning—in other words, it should be nearly perfect. But given that strategy is primarily about revenue rather than cost, perfection is an impossible standard.
Looking for other ways to read this?
Strategic planning is an organization 's process of defining its strategy , or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategic planning became prominent in corporations during the s and remains an important aspect of strategic management. It is executed by strategic planners or strategists , who involve many parties and research sources in their analysis of the organization and its relationship to the environment in which it competes. Strategy has many definitions, but generally involves setting strategic goals , determining actions to achieve the goals, and mobilizing resources to execute the actions. A strategy describes how the ends goals will be achieved by the means resources.
The Big Lie of Strategic Planning
Strategic planning is a process that outlines the direction of an organization. It identifies how an organization will allocate their resources to achieve a desired future state while positioning itself to be competitive within the industry. Through this process, areas of excellence and improvement are substantiated, and organizational goals are aligned to ensure that all entities are moving in the same direction. These questions can be answered for the whole organization, individual departments, or even certain service lines.
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