First of all, strategy is about beating (or, better yet) avoiding competition. In order to do this, your offering to your segment of the market must clearly differentiate you from the competition in a way that the market desires, and hopefully be very difficult to copy.
Be aware that Strategic Planning (aka Strategy Planning) is only the first step in Strategic Management Strategic Management also must include 1) Execution of the plan, 2) Monitoring of developments and execution progress and 3) Feed-back into the plan. Without proper Execution, Monitoring and Feedback, planning will surely fall short of expectations. Strategy Planning must include provision for Execution, Monitoring and Feedback.
Strategy Planning is a process that provides for:
- balanced input,
- thoughtful consideration,
- selection of a course and direction that will truly differentiate your company and lead to market dominance,
- highly focused action on a few strategic initiatives in support of that course and direction,
- provision of necessary resources on those initiatives,
- provision for monitoring progress and developments,
- assessment of results,
- feedback and update to the Strategic Plan.
Strategic Planning Process
Formal strategy planning developed in large companies and business schools in the decades following the Second World War. Most models of strategy planning today reflect those beginnings and reinforce the widespread notion that planning is a big, complicated process. Nothing could be further from the truth. Like most management processes, it should be lean, structured and thorough.
What are the steps in strategic planning?
Basically, strategy is about the following critical questions:
- What will you sell?
- To whom will you sell
- How will you beat or avoid the competition?
The first two questions deal with the scope or “strategic focus” of the enterprise: What specific products and/or services will the company provide? What specific markets or customers will it serve? The third question seeks to identify the sustainable basis for competitive advantage — your Strategic Competency.
Ideally, strategy planning is a process whereby a management team comes up with answers to these questions that enables an unbeatable competitive position. Generally, the steps in the process include:
- a situation analysis (Where are we today?)
- strategy formulation (Where do we want to go?)
- implementation planning (How do we get there?)
- provision of resources (time and money) for implementation.
- scheduling of monitoring, assessment, feedback and update.
Ideally the top management team will set aside one day per month for strategic planning. There will also be some research and preparation between most meetings for some of the team members. There will also be a great deal of work in implementing the resulting strategic initiatives. It is job number one and an ongoing work-in-progress that never ends.
In some companies, a quest for perfection dooms the planning process. The managers regard the choices to be made as so momentous that they must find perfect answers or risk losing the company. This attitude can lengthen the information-gathering phase infinitely.
At one seminar for small and mid-sized companies, we asked the attendees how long their company had been doing strategy planning. A member of one group present said that they had been doing it for five years. Thinking they surely had some insights to share with the group, we asked if they did a better job with each successive planning cycle. “Successive cycle?” one responded, a bit puzzled. “We’re still gathering competitive and market information. We hope to start doing the planning next year.”
Don’t try to do the entire strategic plan in a few consecutive days. Establish a schedule that allows for time between meetings to reflect on the discussions, dig up additional data, and build consensus.
Typically, you will invest 2 to 4 percent of top management time to the process, including the planning meetings, preparation and research. As the strategy become clear, the implementation of the strategic plan becomes a normal part of the running of the business, helping the business achieve stronger results and greater efficiency.
How frequently should the strategic plan be updated? The short answer is continually. Too many think of strategic planning as an event that happens once or every few years. History tells us of the inflexibility in the Five-Year Plans produced by the Soviet Union. That is definitely not the model you want for managing your business.
There was a time when some industries such as electrical utilities had long time horizons because of the time required for adding capacity. But today extremely rapid changes in market needs and preferences, technologies, competition, regulations and economics require very short time horizons and greater speed and agility.
One day per month is comfortable and appropriate for strategic planning. This provides ample time for monitoring progress as well as for reviewing and revising Strategy and for developing new Strategic Objectives, Budgets, Action Plan and Time Schedules. This also doesn’t interfere with everyday business.
What preparation is necessary for strategic planning?
A strategic plan will succeed only if the CEO and other key executives believe in it and openly support it. While this may seem self-evident, it is surprisingly common for companies to embark on the planning process before the leaders have agreed to be bound by the outcome. Be forewarned: The planning effort will be half-hearted if the team doing it senses that they lack strong support at the top and that, indeed, their decisions may be challenged or even vetoed.
The CEO and key executives have to do more than sanction the process. They have to be active participants. In some companies the CEO tries to delegate the plan to a committee. This usually results in extreme frustration for both the team members and the CEO if the plan doesn’t measure up to the CEO’s expectations and he or she is forced to modify it substantially.
By broadening the planning group, you increase the chances of creative synergies and increase the range of skills and talents that go into the plan. You also build a sense of ownership and commitment to the plan that ultimately emerges. Team-based processes, however, do have limits. The team can get so large that there is too much discussion and too little decision-making. Research studies show that a team size of 6 to 10 people is optimal
The composition of the team is also extremely important. The best team consists of those who will be responsible for execution of the plan. Team members should be peers who can discuss openly and frankly any issue that may arise. They should represent a spectrum of perspectives, functional disciplines, business backgrounds, and experience within the company and industry. There should be a person who takes care of the agenda and minutes, pays attention to procedural details, and channels the discussion so that the other participants are free to focus entirely on strategy and content. Avoid the temptation to let the CEO fill this role. He/she needs to be fully engaged in strategizing, not managing the discussion, watching the clock, or refereeing disputes.
If a non-team member is selected as the process leader, be sure the person has sufficient stature and respect to be able to manage the team members. Some businesses chose to go outside of the company to find a person with the right mix of skills and experience to lead the process. If you decide to use an outside consultant, be sure he or she is fully competent in strategy and the process you intend to use. And, of course, never delegate your strategic decisions to an outsider. Help with process leadership and research is all to the good. But be sure that both you the outside consultant understand that he or she is there only to help the team make the crucial decisions and not to make the decisions.
How do we make sure that we get the results anticipated?
It is not easy to create a strategic vision for a company, but it is much more difficult to follow it and achieve results. As is well known, too many plans become the object of “document worship” rather than a management tool. Rarely does the management team ever consult it, let alone use it to guide the difficult choices that must be made.
A plan that doesn’t help a company anticipate changes, make tough choices, and exploit new opportunities is obviously a waste of time and effort. In our experience, companies that do a good job of implementing their strategy can expect to achieve from 80 to 90 percent of their objectives. The three tools that are vital for success in the implementation stage include:
Action plans. For each objective in the overall strategic plan, the team should develop an action plan that spells out the steps that will be taken to achieve the objective; the time and resources that will be needed, and the team member who will be responsible for seeing that each is carried out. The overall strategic plan that emerges should have a limited number of objectives — typically 10 or fewer (see sample objectives). Each should be focused on the near term. If it will be a long term objective, such as landing a man on the moon, it should become a Goal with shorter term objectives, such as launching a satellite.
Budgets. A meaningful cash flow budget is required that will allocate funds on a prioritized basis to action plans. This may be a limiting factor in scheduling the action plans.
Scheduling managers’ time. Most companies run out of time long before they run out of money. While most companies do fairly detailed financial budgets, they frequently do not assess or plan the time that top managers will need to devote to implementing action plans. Top management’s time is one of a company’s most precious resources. It is critical to determine how much time top managers will have to spend each month on implementing action plans. Delegation should be used in the Action Plans as much as possible. Time availability is crucial in scheduling the start and completion of action steps and in achieving timely completion.
If you do not thoughtfully lay out a course and direction for your business, it is likely that environment and external factors will lay out one for you. You may eventually be forced to accept a strategy that is a whole lot less satisfactory than one you could have designed for yourselves. The only way to avoid this trap and take control of your destiny is to make some form of strategic planning a regular part of your management process.