Shooting for the moon.
What is strategic planning?
The art of business is to influence customers;
the craft is being demonstrably different in a way that matters.
Best practice is filling a gap in the market with a value proposition that is highly valued and significantly different, and defending that position long term (i.e. the competition cannot easily replicate it).
This is not always possible, but that shouldn't stop you from trying to get close.
At the heart of the corporate strategy is the vision Statement
The vision statement defines the finish line.
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 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 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 high level 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.
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 management, 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 - 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)
Strategy 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.
(continued top of right column...)
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.
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.
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'.
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?
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 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.
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 specific 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. 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.
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.
At its most basic, a strategic plan need contain no more than four parts...
Point of difference
The key driver of the business strategy
A short statement describing the firm's unique high value competitive advantage, what market niche it seeks to dominate, or how it seeks to be different from the competition.
Short concise 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 design, fabricate and install large complex structural steel for building/engineering construction and specialist equipment.
For this organisation, their special niche was LARGE COMPLEX structural steel. They avoided quoting on standard steel fabrication where they had no special advantage.
Define the finishing line
..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?"
Back to John F Kennedy in 1961...
By the end of the decade, we will put a man on the moon and bring him back safely.
In 1961, that goal certainly qualified as "big hairy and audacious."
A great vision statement should be...
- Inspire excitement
Divide and conquer
The strategic objectives are a set of sub-goals that are the 6 to 12 most important projects or outcomes that, when achieved, should sum together to deliver the Vision (cross the finishing line).
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...
Point of difference
The strategic plan will need a clear statement about how the point of difference will be created, and/or reinforced.
- 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?
Strategic planning 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 work, scenario planning and a lot of paper hits the floor. Part of the strategic planning process is undertaking thorough research, and summarising using planning tools like SWOT analysis. However, the process is worth doing because it provides...
- A clear direction for the organisation (essential for inspiring the team)
- Defines how the organisation will be different, in a way which is of high-value to customers (the main driver of revenue)
- Clearly articulates the specific measurable action items to drive toward the end objective (mission, vision and strategic objectives)
- Leaves no doubt as to the business the company is in (important, because every seemingly worthwhile creative suggestion for expanding the organsisation's scope diverts resources and management time from core business).
The enemy of the strategic plan is complexity and trite language
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 most common words that appear in strategy statements are "leader", "global", “mission”, “value”, “customers”, “services”, “technology”, “help”, “quality”, "solutions", “products” and (my favourite) "sustainable"; omitting these old chestnuts will help ensure the statements have impact. It's not that they're not applicable, they are like pictures on the wall - nobody takes notice. Further, they look borrowed thus leaving the reader with the feeling the statements are generic and not directly relevant to the task at hand.
Try to avoid statements that resemble this...
We will be all things to all people at all times and in all places. We aim to be recognised as global leaders in X. And operate in an environmentally friendly, sustainable manner.
If any statements in your strategic plan require reading more than once, and a dictionary - then you've over cooked it.
Another mistake is to inject impressive language. There seems to be an inherent reluctance to think the organisation can be summarised in a few words each no bigger than "Vegemite". Further, the overuse of common management-speak suggests the authors feel including it will add gravitas; they're more concerned with how it looks rather than what it says.
It doesn't need to say everything
"Brevity is the soul of wit" applies to writing strategy statements. Kennedy didn't say "By the end of the decade we will put an astronaut on the moon using a rocket and bring him/her back safely using state of the art life support systems and best of breed technology."
Leaving these embellishments out doesn't mean they won't happen, however including them dilutes clarity.
Of course they would need best of breed technology. Omit the bleeding obvious.
The discipline of stripping out unnecessary words and concepts is not just about writing punchy statements, it also forces the identification of what really matters and forces 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 wordy compromise or a statement open to interpretation...
Left in the hands of a committee, Kennedy might have said "We aspire to achieving in the near future, putting a living creature (possibly even human) on a nearby celestial body, and returning them home in a fit state. It is our firm and passionate belief that such an achievement, or a similar grand achievement befitting the great nation of the United States of America, would add value to our country's national image, make our founding fathers proud, and be an inspiration to future generations. God Bless the United States of America."
Strategy is different from planning.
I know we call it "strategic planning" however, planning is more associated with task and budget setting. Many strategic plans consist of strategic statements at the start and then morph into action plans and budgets. Action plans with budgets are more properly called "business plans."
The problem with business plans is the dominant logic is affordability, and aren't explicit about what the organisation chooses to do, and chooses not to do...
Strategy is about making choices.
At the heart of making choice is to consider and discard alternatives.
To develop truly powerful business strategy, there must be an element of risk that takes executives outside of their comfort zone. Cost based thinking anchors strategy into the world of the affordable. Costs are inherently easy to control (we either spend it, or we don't), however business strategy is customer focused and therefore drives revenue. It's much harder to build a revenue plan that is reliable, as revenue is largely controlled by customers. The art of business is to influence customers.
Business strategy by it's nature should challenge comfort zones.
Management and boards tends to focus on how to squeeze more profit out of existing revenue rather than sales growth. The discussion centres around finance and capabilities; strategies for finding new customers and revenue often do not receive the attention they deserve. They do this because it's safe. They will get away with it for a few years, and then the world will move past them. A new challenge for corporate governance is the board model is anchored in "steady the ship" thinking. The world however has sped up. Boards now need to add pace of innovation to their growing list of concerns.
"The Kodak moment" now refers to the point in their history when they were blind sided by digital photography. Boards are now facing Kodak moments on a more regular basis.
Strengths weaknesses opportunities and threats
There are many planning tools that form part of the strategic planning process. SWOT analysis, Porter's Five Forces, Growth Planning, PESTLE Analysis, VRIO Framework, and one my favorites The Business Model Canvas. Each has its strengths and weaknesses.
Speaking of Strengths and Weaknesses, do not underestimate the power of the humble SWOT analysis as a planning tool. Properly utilised, the SWOT has enormous power in summarising lengthy research and analysis to make obvious and transparent what management needs to focus on.
There is some skill required to building a useful SWOT analysis, but here is a big hint; start with a big list under each category (strengths, weaknesses, opportunities, and threats) and then consolidate the list combining items that are related or are essentially saying the same thing. Eliminate anything that is really day-to-day management. "Photocopier breaks down all the time" is not a strategic issue.
Planning tools are great, but having a strong conceptual understanding of business strategy is key to the development of game changing strategic management. We've assembled a collection of videos and resources below to aid in building this understanding.
Further resources and perspectives
A short video explaining strategic planning
In this video, Erica Olsen argues a strategic plan isn't really strategic unless it includes strategies that seek to define how the organisation will differentiate itself from its competitors.
The four key questions for developing strategy
A very clear video that explains the difference between strategy and tactics, and provides four key questions to ask that will help you to define your corporate strategy.
What is strategy?
This guy talks a bit slowly, but well worth watching. Highlights: Strategy is about choice; Only when you have identified the things you are not going to do can you be sure that you have made a choice. And 'Define the finishing line" - a great finish line is one that clearly defines the goal and gets people excited "By the end of the decade, we will put a man on the moon and bring him back safely."
How quartz killed the mechanical watch
Excellent video explaining how the development of the quartz watch created a paradigm shift in the global watch market. Initially, the Swiss were blind sided by this innovation but responded with a new business strategy.
How Kodak went from the top of the world to bankruptcy
Kodak had a history of innovation and even invented the first digital camera. In 1976 Kodak had 90% of the US Film market. Kodak executives feared the digital camera they invented would cannibalize their film business. In 1990 competitors started producing mass market digital cameras. In 1991, 14 years after Kodak was granted the patent for the worlds first digital camera, Kodak launched their own version - but too late. Worse, they backed the wrong horse; they thought people still wanted prints.