What is strategic planning?
Strategic planning is a high level decision making process undertaken by executives to set the direction for an organisation. It answers the key questions - where are we headed? what is our business focus? What will sustain the organisation's existence? How will we be different? What are the most important BIG PICTURE outcomes that must be achieved to ensure reaching the destination?
Let's break that statement down...
What is strategic planning?
High level decision making process
Hundreds (if not thousands) of decisions are made throughout organisations; from deciding what brand of coffee for the tea room, right through to major decisions about mergers, acquisitions and divestment.
Most decisions are routine management and/or administrative decisions.
Strategic planning is about big picture decisions
Big decisions affect the future growth or even existence of the organisation, and hence are referred to as strategic.
If the strategic direction of the organisation is clear and the big picture outcomes are agreed, then smaller decisions should be easier to make, and congruent with the aims and objectives of the organisation.
Without a strategic plan, many middle level decisions will likely be driven by individual agendas, politics and arbitrary considerations - a potential mess.
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.
Just in case you haven't got it yet, when sailing (we are talking boats with sails here, not power boats) the name of the game is using wind power to drive the boat in the direction you want.
The art of sailing is to position your boat to take advantage of the best winds available which may mean going slightly off the most direct course.
Two important observations from the sailing analogy. The winds aren't always favorable and the course you planned to take may not always go to plan.
Neither of these realities necessarily results in changing the strategic plan but will require problem solving.
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 the king of Ephyra. He 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. This was considered to be 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 goal.
In addition, if the corporate vision is clearly articulated, employees are empowered to contribute through their actions and decision making in ways that align with the goal, leading to instances of voluntary problem solving and going above and beyond.
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.
(continued top of right column...)
Kodak famously failed because they forgot 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, 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 thought they were in the business of 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 strategic response 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, the new technologies they were confronted with were deeply threatening to their current business models, capital investment, and the livelihoods of thousand of families; you can see why the business owners and managers did not embrace such an uncomfortable truth; perhaps instead they convinced themselves it wasn't true, or failed to react quickly enough while they analysed and debated the issue.
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 to fund innovation and pay dividends.
Organisations derive these profits from outside the organisation from their customers grouped together into larger categories called 'markets'.
The strategic plan identifies these revenue sources (markets) and the underlying assumptions that the strategic plan is based on includes analysis of the main market segments and their outlook 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 going to focus on? How are we going to make them happy? which is about the firm's 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 nirvana is achieved when an organisation finds a gap in the market 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).
Big picture outcomes that we must achieve
The ultimate output of strategic planning is a set of strategic objectives.
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).
By their nature 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 measurable goal that is easily understood and not open to interpretation.
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.
At its most basic, a strategic plan need contain no more than three parts...
...a short concise simple definition of what business the company is in.
The usual format is "We make X and sell it to Y by doing Z"
However, sometimes the statement is made more powerful by including a brief addition that includes how the company creates value for the customer.
We work collaboratively with our clients to design, fabricate and install large complex structural steel for building/engineering construction and specialist equipment manufacturers Australia wide.
..sometimes known as the "Big Hairy Audacious Goal" the Vision is a concise statement of where the organisation aims to be in the future (usually 3 years).
The Vision is a consequence of the Mission Statement, and its purpose is to create "tension." The company executives will look at the Vision and immediately ask "How are we going to achieve that?"
In 5 years, we will be the dominate player in large complex structural steel fabrication and installation (in Australia) known for our problem solving and collaborative approach. We will have annual sales of $240 million and employ 800 people.
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.
A great vision statement should be...
- Inspires excitement
More (scroll down)
The strategic objectives are a set of goals that are the 6 to 12 most important projects or outcomes that must be achieved for the company to achieve the Vision.
They are the answer to the question about the Vision "How are we going to achieve that?"
Strategic objectives are unique to every Strategic Plan but generally are assembled by answering questions similar to these...
- Where will growth come from (customers/markets/new products/diversification/acquisition)?
- What do we need to do to capture and develop that growth?
- What resources, facilities and capabilities do we need build to service that growth?
- What threats do we need to mitigate?
- What are our most capable Strengths that we can leverage?
- What are our most critical weaknesses that we need to overcome?
- How will we fund the growth plan?
- What special circumstances or changes do we anticipate that need to be addressed during the planning period?
Look's simple, doesn't it?
Well not quite. The above simple form summary of the strategic plan conceals the truth. What you are looking at above is the format for the OUTCOME of the strategic planning process. From our experience, producing a simple and clear statement of strategic intent - takes a lot of work. However, the work is worth doing because it provides...
- A clear direction for the organisation
- Clearly articulates the major steps requiring execution to completion, to drive toward the end objective (the Vision Statement)
- Leaves no doubt as to the business the company is in - which is important, because every seemingly worthwhile creative suggestion for expanding the organsisation's scope diverts resources and management time from the core business.
Most strategic plans NEVER achieve simplicity and clarity and instead, are often long winded, contain lots of nice "stuff" (purpose, culture, philosophy, and other statements) and often the words (carefully chosen and edited at the time) need interpretation and explaining when reviewed at a later date.
The other mistake executives make is to inject impressive language. There seems to be an inherent reluctance for executives to think the organisation they work for can be summarised in a few words each no bigger than "Vegemite".