Strategic planning

High level decision making process

The 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. Strategic Planning is less about short term goals.

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 potential for people to come-up with "great ideas" - a potential mess.

In reality, most organisations operate without a deliberate strategy instead develop 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.

Strategic planning is a group sport

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.

The journey

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.

Chance favours the prepared mind (Louis Pasteur)

Strategic planning is the tool for shaping the future and creating momentum, as opposed to simply reacting to the 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" will inspire no one and 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.

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.

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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. They're 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.

Rather than lack of focus, Kodak and the Swiss Watch Industry may have been pursuing the wrong business focus. 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.

What will sustain the organisation's existence?

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 for innovation and to pay dividends.

Organisations derive these profits from outside the organisation from their customers grouped together into larger categories called 'markets'.

Strategic planning 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?

Make sure the horse you've hitched your wagon to, still has some mileage left in it.

The key strategic questions are "who is our client?" which market segment 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.

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?"

Strategic planning 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.

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).

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.

Strategic planning 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.

Time frame

5 years used to be the gold standard for strategic planning. However, these days there is general agreement 3 years is better. The world is moving faster. The market place can change rapidly.

Remaining agile while focusing on achieving the Vision is recommended. Remain vigilant and if overwhelming evidence emerges that invalidates the planing assumptions - update or rewrite the plan. Winds change.