08 December 2020
What is strategic planning?
There’s plenty written about strategic planning on the internet but nothing that fits with my own practical experience helping B2B Industrial Organisations develop strategic plans.
I like to build plans that provide a strong sense of “this is how we make a start and this is what we need to achieve". Most plans require ‘stretch’ but they should always be believable and achievable.
The sign of strategic plans that will fail at implementation are those written with motherhood statements, management theory jargon, and pop-culture phrases. Typically, these plans make no sense to people who weren't involved in their development and 6 months after they're written often they don't make much sense to the original authors either.
Simple, concise language leads to powerful purposeful plans that get done.
If you need a dictionary to read the strategic plan then you've overcooked it.
Stripping unnecessary words is not just about writing punchy statements, it forces the identification of what really matters and agreement about what it means.
Ambiguous statements sometimes result because there is disagreement or someone's ego to be massaged; the remedy is to draft a vague, wordy compromise, or statements open to interpretation.
So, lets take a look at what strategic plans are and what they should contain.
Strategic planning is customer-centric
Many strategic plans start with the assumption the customer will always be there. This is particularly true of large well established organisations that have been successfully servicing a market for many years. However, things can change rapidly and such assumptions should always be challenged.
Critical strategic questions are "who is our client? which market segment(s) are we focusing on? How are we going to make them happy?" which is about the firm's customer engagement strategy, value proposition and value chain.
Strategic planning must address the revenue source the organisation 'taps' to fund its existence.
Of course, maintaining 'existence' falls short of the mark; to fund growth and to keep shareholders happy, the organisation must generate healthy surplus profits to pay for growth, innovation and dividends.
The strategic plan must consider these revenue sources (markets) and the underlying assumptions that the strategic plan is based on includes obtaining market dimension data and market trends for the planning period. How big are they? What is their rate of growth? and what is the competitive landscape in those markets?
The art of business is to influence customers;
Consequently, the definition of strategic planning must reflect its customer-centricity; it's important to answer the question "where do we compete?" In other words, which market segments are we focused on and what does our ideal customer look like?
How will we be different?
To build a truly "strategic" plan, the question of what makes the firm unique (in a way which is of value to the customer) is one of the most important decisions.
Differentiation drives customers to prefer to buy what we offer over our competitors.
According to Michael Porter, asking "how can we beat the competition?" is the wrong question. Instead, he proposes asking "How can we be different from our competitors?"
It's a clever statement that has some panache; but what he's saying is to effectively beat the competition (rather than just going head-to-head) customers need to think you have something unique that they want.
Strategic nirvana is achieved when an organisation finds a gap in the market through customer research and competitor analysis that can be filled by offering a value proposition that is significantly different from any other company, and doing so in a way that is sustainable (i.e. the competition cannot easily replicate it).
Obviously, the chosen niche needs to be of a size to deliver sufficient revenues.
The art of business is to influence customers;
the craft is being demonstrably different in a way that matters.
Of course, meaningful differentiation is not always possible, but that shouldn't stop you from trying to get close.
It's great if you can achieve total differentiation (being completely different) however this is rarely achieved either because it's just not possible or board/management are just not brave enough. The reality is most organisations live with compromise. However, it's not a discrete distribution it is continuous. Every point you can move along the scale toward differentiation is rewarded with increased competitive advantage (provided the customers "get it" and like it).
The second important question to answer through the strategic planning process is therefore "what value do we bring?"
Finish line - the vision Statement
The vision statement defines the finish line.
I like this way of describing the vision statement because finish lines are CLEARLY DEFINED. However, many vision statements written by or for organizations are full of Kumbaya...
"We aim to demonstrate global leadership through delivering best practice solutions driven by passion, leading edge, sustainable..."
Are we there yet?
Perhaps one of the greatest vision statements ever was made by John F Kennedy in 1961...
"By the end of the decade, we will put a man on the moon and bring him back safely."
Kennedy's vision was great because it was clear, focused, unambiguous and inspirational.
Developing a powerful strategic plan (one that actually drives change and kicks goals) is as much about clarity as it is about making the right choices.
And, let's not forget execution.
However, for commercial organisations (selling products and services) the key principal to keep in mind is...
The art of business is to influence customers.
High level decision making process
The purpose of strategic planning is to deliver to the organisation a decision making framework to guide the organisation toward achieving the vision.
Hundreds (if not thousands) of decisions made throughout organisations daily, are routine management and/or administrative decisions.
Strategic planning is about big picture decisions
Big decisions tend to be long term goals affecting the future growth or even existence of the organisation. Strategy is only about short term goals to the extent they contribute toward achieving the bigger goals. Short term goals are omitted from the strategic plan to avoid clutter that would obscure appreciating the strength of the high level strategy.
However, to truly qualify as "strategic" the high-level plan needs to define the organisation's point of difference. More on that later.
If the direction is clear and the big picture outcomes are agreed, then smaller decisions will be easier to make.
Without a strategic plan, many middle level decisions will likely be driven by individual agendas, politics, arbitrary considerations, or simply the endless tendency for people to come-up with "great ideas" - a potential mess.
In reality, most organisations operate without a deliberate strategy instead developing strategy on the fly (emergent strategy) reacting to the external business environment.
There is a school of thought advocating emergent strategy as more appropriate for today's fast moving business environment. However...
A clear mission and vision statement (if nothing else) will provide a framework to ensure emergent strategy is channeled and doesn't take the organisation in conflicting directions.
If your organisation is not kicking goals, now may be the time to undertake a total rethink and develop a well researched, and considered strategic plan.
Undertaken by executives
The executives in the organisation (the Chief Executive Officer and his/her direct reports) are the people responsible for implementing the strategic plan.
Effective organisations require team work. The senior executive team must be aligned in both their belief in the direction of the organisation and an understanding of the thinking behind the strategic plan.
To achieve this it is essential that all of an organisation's senior executives participate in the development of the strategic plan.
When discussing strategic planning, often metaphors like sailing are used. Kind of corny, but also apt.
Put simply, if you don't know where you are headed, any wind is a good wind.
Sailors take advantage of best winds to reach their destination. Which often means going off the most direct course. Like the business environment, sailors have no control over the wind - it's about taking advantage of opportunity - while making educated guesses about what the winds will do next.
However, clearly, if you do not have a destination to sail to (a vision) - it really doesn't matter which wind you choose as long as you keep moving. To avoid sailing around in a circle requires a plan.
Sailing is a classic application of emergent strategy, which Louis Pasteur famously summarised in his quote...
Chance favours the prepared mind
The prepared mind is reference to having a finish line combined with a broad strategic direction hence allowing opportunities to be spotted (and pounced on) where they may have been missed in the noise.
Strategic planning is the tool for shaping the future and creating momentum, as opposed to changing strategy regularly through simply reacting to the business environment.
Where are we headed?
Most people function best when they understand (and agree with) the purpose behind a task. What is the goal? Is it worth achieving?
The first question anybody preparing for, and embarking on a journey is "where are we headed?" The answer is more than just satisfying curiosity, it also impacts decision making; what preparations are required? What actions are needed to ensure we reach our destination?
In Greek mythology Sisyphus was punished for his bad deeds by being forced to roll an immense boulder up a hill only for it to roll down when it nears the top, repeating this action for eternity. A particularly cruel punishment, as most people are deeply impacted by being forced to perform futile tasks.
Executives and all employees will perform best when they are united in working toward a clearly defined worthy goal.
In addition, if the corporate vision is clearly articulated, employees are inspired to contribute through their actions and decision making in ways aligned with the goal, leading to instances of voluntary problem solving and going above and beyond.
The operative word here is "clear"; a muddled vision statement that tries to encompass too many trendy concepts, and is too lofty and vague "we will be all things to all people, at all times, and in all environmentally sustainable places..blah blah" is far from being a clearly defined finish line and will inspire no one instead only confirm employees' worst suspicions about the people at the helm.
The powerful effect of having a team motivated by a clear, inspirational, worthwhile goal far exceeds motivation based on personal incentive. Team performance is critical for success.
A further and necessary step in delivering the corporate business strategy is making it clear every team member's role in contributing toward achieving the vision. This is achieved through business planning (translating the strategic plan into a schedule) and appointing designated roles. From there the CEO makes sure it is delivered on. This is a separate topic, suffice to say...
- Don't confuse strategic planning with business planning: Business plans are cost-centric whereas business strategy should be less constrained.
- Strategic plans should be created without being constrained by resourcing and who will do what. That comes later.
Mission Statement - What is our business focus?
Knowing where you are headed is important, but knowing what type of vehicle you are riding to get there is also important.
This is answered by asking the question "what business are we in?"
It may seem strange, but some organizations find it difficult to answer this question. Of course, they'll have a general idea, but nuance can be critical.
Most executives focus on "feeding the beast" - keeping business operations moving, and forget it's actually about the customer.
Kodak famously failed by forgetting they were in the business of facilitating image capture and thought they were in the business of developing film, and didn't adapt to the digital revolution fast enough. Worse, when they did finally respond (playing catch-up), their digital solution was based on an old paradigm; they thought people still wanted hard copies (prints) of their digital images - and invested heavily in developing printing hardware.
The entire Swiss watch industry made the same "what business are we in?" mistake in the seventies. Their business was selling precision watch making, they were actually in the business of selling precision time keeping. Even the cheapest quartz movement was several orders of magnitude more accurate than the most expensive Swiss mechanical movement. Quartz technology enabled production of watches at a fraction of the price; reliability and accuracy became a commodity.
Their ultimate strategic response (after suffering devastating loss of market share) was to launch the Swatch - which became a winner.
The above are two special examples that perhaps, may have more to it than lack of business focus; rather, they had the wrong business focus.. The new technologies were deeply threatening to their current business models, capital investment, and the livelihoods of thousand of families; business owners and managers did not want to embrace the uncomfortable truth. Instead they convinced themselves it wasn't true, or failed to react quickly enough while they analysed and/or debated the issue.
Nokia famously debated for 12 months the best choice of operating system platform (Symbian vs open source Android) needed to drive their transition from market dominance in feature phones to launching their smart phones and lost the initiative to Apple. Nokia went from being the world's largest mobile phone manufacturer to relative obscurity, almost overnight.
Failure to adapt is a big reason for not just corporate failure but decimation of entire industries.
The answer to the question "what business are we in?" is encapsulated in the Mission Statement.
Big picture outcomes that we must achieve
The ultimate output of strategy planning tools is a set of strategic objectives. It's really simple, if management achieves each objective, summed together - they will have achieved the corporate Vision (the finish line).
Strategic objectives will fall into one of the following categories…
- Creating or improving competitive advantage
- Building the value chain
- Contributing toward achieving the vision.
This is where strategic plans differ from other plans (such as corporate plans and business plans). Anything that isn't strictly speaking directly related to business strategy should be stripped from the strategic plan and moved down the planning hierarchy. Any objective that really is simply within the realm of competent day-to-day management should be taken out of the strategic plan and listed in another plan.
Strategic plans sit at the top of the planning hierarchy and drive all other plans.
As a general rule, the ideal number of strategic objectives is between 6 to 12.
Less than 6, each objective is likely to encompass too large a topic to address efficiently. More than 12 objectives and the list loses focus (too many to keep track of).
Each strategic objective should be 'big-picture' that is, the detail should be stripped out and the statements should be short, clear, concise statements of a specific measurable goal that is easily understood and not open to interpretation. When being set a target to hit, people will perform better when the goal is clear and "believable and achievable."
Strategic objectives should be challenging and will require 'stretch' to be achieved however they also needed to be grounded in reality.
Every strategic plan has to be tested for financial viability, however, usually not fully 'business cased' but should pass the back-of-the-envelope calculation test. However, caution here is needed. The future of the organisation should be considered from the stand point of value creation and not become cost-centre- centric. Many an organisation has shrunk to an unsustainable size because survival was rooted in cutting expenses rather than investing in revenue growth.
5 years used to be the gold standard for a strategic plan. However, these days there is general agreement 3 years is better. The world is moving faster. The market place can change rapidly.