Many business leaders are frustrated with their strategic planning process. Decisions are often based on top of mind thinking rather that fact based analysis. "Me-too" strategies are all too common. There is frequent failure in turning intentions into results.
Strategic planning should be a process that provides for:
- balanced input,
- thoughtful consideration,
- selection of a course and direction that will differentiate your company and lead to profitable growth,
- and finally, provide highly focused action on a few strategic initiatives in support of that course and direction.
If your process is virtually non-existent or fails to attain the intended results you will be interested in the following.
Strategic Planning Process
Formal strategic planning developed in large companies and business schools in the decades following the Second World War. Most models of strategic 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 the process?
Basically, strategy is about the following critical questions:
- What will you sell?
- To whom will you sell?
- How do you beat or avoid the competition?
Though these questions sound simple, they require sophisticated responses. Clear and comprehensive answers to them will give you the basic elements needed for an effective strategic plan. Asking a group of managers to answer them inevitably stimulates a lively discussion.
The first two questions deal with the scope or "strategic focus" of the enterprise: What products and/or services will the company provide? What markets or customers will it serve? The third question seeks to identify the sustainable basis for competitive advantage — your core competencies".
Ideally, strategic planning is a process whereby a management team comes up with answers to these questions, and accepts and feels committed to being guided by the plan that emerges, in part because they have participated fully in its formulation. 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? How much will it cost? What is the timetable? Who is responsible for what?)
How much time will it take?
Strategic planning can take as much or as little time as you want to devote to it. Remember, you are in control. Strategic planning does not have to be a monster that eats your top management alive. What you want to do is allocate a reasonable amount of high priority time to the process of developing a strategic plan, and then get the best job done in the time allotted.
In many 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 kind of attitude often lengthens the information-gathering phase infinitely.
At one seminar for small and mid-sized companies, we asked each of the attendees how long his or her company had been doing strategic planning. A member of one group present said that their company 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."
Strategic planning should be a results-oriented process that can be adapted to the time and resources available in a company. Typically, a company allocates 2 to 4 percent of top management time to the sessions, including four to seven days for planning meetings and a few days for preparation and research. As the goals of the plan become clear, the implementation of the strategic plan becomes part of normal, everyday operations. The planning becomes a tool that helps to run the business better, rather than an abstract exercise done by little green men on some distant planet.
How frequently should the plan be updated?
The most important point is that it should be updated. Too many think of a strategy as a long-range plan that gets set at some off-site meetings and then is rigidly followed as company policy for the next 5 to 10 years. We all saw the results 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.
A strategic plan is a management tool; it should not become a straitjacket. Authors such as Henry Mintzberg of McGill University have argued that strategic planning "while not dead, has fallen from its pedestal". He correctly argues that as practiced in many large companies, strategic planning has become strategic programming, squeezing out any creative spontaneity in decision-making.
A good strategic plan should give guidance and stability to a company. At the same time, the leaders have to be flexible and respond dynamically to changes in the environment. Some strategic decisions have to be made "on the fly," outside the planning process.
At the outset you should craft a plan that has a reasonable time horizon for your industry. Generally, the time span of strategic plans ranges from three to five years, with industries that are evolving more rapidly at the shorter end of that spectrum and older, more mature industries at the longer end. Avoid a quest for perfection that leads to "analysis paralysis." Write a good plan and get on with the execution of it. To get the best results from a good plan, monitor its progress and re-assess it at monthly meetings. The frequency of major updates to the plan should correspond to the rate of change in your industry. For most businesses, an annual cycle is most comfortable and appropriate. If your markets, competitors, and product life cycles change slowly, you may have to update the plan only every other year. Companies in the fast paced industries, however, might need to fine-tune their strategies as often as every six months.
What preparation is necessary for 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 quite 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. A balance should be sought between creative, right brain strategic thinkers and number- crunching, detail-minded left brain types.
Be sure to have a "process leader" — or facilitator — for the meetings. The process leader 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. We have found that some of the best facilitators are company trainers, human resources people, and managers in the controller's office. But some businesses have 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 outsider, be sure he or she is fully competent in the process you intend to use and fits in well with the culture of your company. And, of course, never delegate your strategic decisions to an outsider. Help with process leadership and research is fine, but be sure the outsider understands that he or she is there only to help the team make the crucial decisions.
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 around the information and assumptions that have developed.
How do we make sure that we get the results anticipated?
It is relatively easy to create a strategic vision for a company, but 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. The plan is duly recorded in a sacred book and placed on a shelf for all to bow and pay homage as they pass. 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 —12 to 18 months at most.
Budgets. A meaningful cash flow budget should be established and used to schedule the start and completion of action steps that require money.
Scheduling of 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 and use these estimates to schedule the start and completion of action steps.
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.
Strategic Planning Questions
- What Is Strategic Planning?
- Strategic Planning Benefits
- Who Needs a Strategic Plan?
- Why Strategic Planning?
- Strategic Planning in Smaller Company
- Smaller Company Resources
- Time for Strategic Planning
- Strategic Planning in an Uncertain World
- Why Strategic Planning Now?
- Successful Strategic Planning
- Strategic Planning Seminar, Who Should Attend?
- Center for Simplified Strategic Planning
Your business climate has just changed dramatically. It has now become critically important that you step back and take a fresh and thorough look at your strategy.
Review how your external environmental factors have changed: particularly market segments, supplier markets, competition, regulation and the economy.
Review your internal situation: particularly profitability analysis.
Challenge all your working assumptions: particularly market segments, competition, opportunities, threats, industry scenario and winner's profile.
Rethink your strategic issues and how many ways you could shoot yourself in the foot.
Having done this, you will now be able to craft your revised course and direction, goals, objectives and action plans.
Success in today's business environment requires that a company's leaders have the ability to create a vision of the organization's future direction as well as the course it needs to get there.
For information about our proprietary Simplified Strategic Planning process, click here.
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