In the next posts we’re going to address strategic planning from a number of viewpoints. The first chapter in this series relates to business strategic planning.
Shona Browning and Kathleen Eisenhardt compared various ways to create business strategy. They came up with the observations shown in the “Four Models of Strategy” figure. The first three methods are tried-and-true so they will be discussed further below. For the Competing-on-the-Edge model, Shona and kathleen’s viewpoint was that competing-on-the-edge provided a competitive strategic advantage because it is unpredictable and based upon surprise. It’s also an advantaged approach because it is uncontrolled. It is not about command and precision planning by senior executives. It’s about strategic planning centered at the business unit, not a corporate headquarters. It’s also not about efficiency. It’s about trying things, failing and learning from them. It’s not about planning once and hoping to get it right and not changing your mind. It also has the advantages of being proactive, continuous, and diverse by involving many people from all parts of the organization and at all levels of management to participate. In short this approach was the predecessor to Agile approaches.
From a process standpoint the competing-on-the-edge approach to strategic business planning is managed to be just at the edge of chaos. It has very little structure, plans are developed just in time and consistent with industry trends and the pace of competitive offerings, as well as the rhythm of product extinctions and substitutions within your own firm. If done right the result is a continuous flow of competitive advantages from a continuous series of business strategies.
The above notwithstanding, oftentimes business strategic plans turn out to be a waste of an organization’s time and effort. Many experienced operations managers look at strategic planning with an appropriately jaundiced eye. The best way to circumvent this viewpoint is to put together strategic plans just as you would a good sales call.
In basic sales training the sales process is often outlined in six steps as exemplified by the following: (1) people need a reason to change. (2) people buy from people. (3) the product or strategic plan is in the mind of the buyer. (4) people make emotional buying decisions for logical reasons. (5) the correct use of power during the strategic planning process is key. (6) you can’t sell to someone who can’t buy. Many strategic planning cycles do not meet the basic sales selling criteria. When these guidelines are not followed, strategic plans are put together and then put on the shelf, never to see the light of day. In contrast, meeting these six criteria is a good way to ensure business strategic plans provide organization’s real guidance.
The first element when putting together a strategic plan is to remember that people need a reason to change. People involved strategic planning typically work in one of four “interest” environments: (a) The first environment is when business results are the same as what is in the strategic plan and operating plans put forward. In this case there’s very little tension with an organization and so a strategic plan may be nice but not necessary for success. As a result planning in such environments is usually not productive. (b) The second environment is when a company is in trouble and people hope for steady growth or improvement in what they’re experiencing. For example when there is a large downturn, there is interest in a plan, but too often it’s not a strategic plan but rather an operating or fix-a-crisis plan. Here again it’s often difficult to get a management team’s appropriate attention. (c) The third environment is when improvements are desired that are in excess of existing solid business performance. This is the best type of an environment in which to do business strategic planning. (d) The last category is one in which the management team is overconfident and asks for results greatly exceeding any that employees view as remotely realistic. In this case people very often create a strategic plan that is fiction and not implementable.
In summary, before putting together a strategic plan it is imported to step back and look at the kind of environment in which a management team is immersed in. Looking critically at this environment can forecast whether or not strategic planning is really going to end up being a true value-added activity or not. If not, it’s often better to put together appropriate functional strategic plans, i.e. technical, intellectual property, human resources, operations, etc. and leaving an integrated plan open.
The second element to think about before jumping into business strategic planning is to remember that people buy from people. It’s about the relationship and rapport between the individuals putting together the strategic plan and top management. If senior management does not value and trust the insight and wisdom of the individuals putting a plan together, a plan is likely to be met with skepticism and not implemented rapidly. It goes without saying that having senior individuals as part of the planning team are critical to its success at being adopted.
The third element to remember is that a strategic plan really has to be put together in a way that it matches what a “strategic plan” is in the mind of the senior management team. You really need a “vision match” between the strategic plan that’s being developed and the capabilities needed to solve the company’s problems and set the stage for growth. A good strategic plan absolutely incorporates senior management’s vision or viewpoint of what the company’s world is going to be like after the planning process is complete. As a note of caution, be careful when senior management team members transfer in and out of an organization. When they do, the expectations of what a strategic plan is may change.
The fourth element is that people make emotional buying decisions for logical reasons. The logical basis most frequently used to justify investment in new business development is growth in revenues and profits. When the outcome of a plan is a foregone conclusion to support a senior manager’s emotional needs, many times it is waste of time to go to the trouble to put together a plan. To do so is simply a waste of business resources.
The next element is to remember that the correct use of power is key. Drawing many individuals into the strategic planning process when the return is likely to be modest, can be met with criticism. It’s always wise to remember that B+ is good enough, that the 80/20 rule is alive and well, and that a little bit wisdom goes a long way. Since many of the assumptions that go into strategic planning are what drive the ultimate outcome, it’s important to remember that the amount of work required to develop a plan’s assumptions should be consistent with the certainty that the plan is going to inherently possess when it’s completed. Far too often planning assumptions that are deeply researched mixed with others that are top-of-the-head assumptions. A strategic plan is only as good as its weakest assumption. Spending money to create just a few strong links doesn’t make a good plan.
The last element when selling strategic planning is that you can’t sell to someone who can’t buy. This means getting access to someone senior enough in an organization to carry the plan out. A good plan needs somebody who can “sign the check” and is emotionally invested in its outcome. The latter requires creating a vision and a compelling reason to change. Therefore strategic plans need to go together in a way that management can see. Plans need to be actionable and implementable.
For the business plan itself, in his seminal work on business strategy (“Competitive Advantage”), Michael Porter lists a number of generic competitive business strategies. They were cost leadership, differentiation, focus, and stuck in the middle. As a way to understand competitive advantage, Porter describes how competitive advantage can come from carefully defining the value chain surrounding a product. He advocates various competitive strategies based on the vertical linkages up-and-down the value chain from your position, the value chain product scope, the value chain geographic scope, the industry scope and coalitions. Porter also advocates that cost can be a business strategy, but to really succeed you have to have a good understanding of the relevant costs competitors’ products and a means by which you can gain a superior sustainable cost advantage. Differentiation is a business strategy that typically brings the biggest return, especially when it’s coupled with a technological change that affects the value offered to customers.
Of note is that each generic strategy employs different skills and requirements for success. Which commonly translates into differences in organizational structure and culture cost leadership implies tight control systems, overhead minimization, pursuit of scale economies, and dedication to the learning curve. The same competencies and cultural aspects could be counterproductive to a firm attempting to differentiate itself through constant stream of creative new products.
The advantage large multi divisional corporations have over smaller ones is the opportunity to leverage resources. With respect to how multiple products from a single corporation can benefit multiple divisions, the “Possible Sources of Interrelationships” figure shows how advantaged positions can been be established. Note that although this is with respect to several divisions in the same Corporation cooperating, it could equally be true for companies that establish similar relationships with external partners or service providers.
So how can leaders translate the complexity of strategy into guidelines that are simple and flexible enough to execute? Rather than trying to boil the strategy down to a pithy statement, it’s typically better to develop a small set of priorities that everyone gets behind to produce results. This observation comes from the fact that a series of strategy experts have argued that managers should distill their strategy to a concise statement (less than 35 words) summarizing a few core choices. The strategy distillation approach hinges on a few fundamental strategic categories — such as the choice of target customer or core competencies — that can summarize the heart of any company’s strategy. However, that this approach only works best with companies that have relatively straightforward strategies to begin with. Simple strategies don’t work for companies that compete in multiple businesses, serve multiple customers, or are in the midst of a strategic transition.
Instead of trying to summarize their strategy in a pithy statement, managers should translate it into a handful of actions the company must take to execute that strategy over the medium term. Strategic priorities should be forward-looking and action-oriented and should focus attention on the handful of choices that matter most to the organization’s success over the next few years.
Many executives report that they use strategic priorities but say that the approach isn’t working as well as they had hoped. To set the strategic agenda and drive implementation effectively, it has been found that strategic priorities need to balance guidance with flexibility, counterbalance the inertia of business as usual, and unify disparate parts of the business. Crafting strategic priorities that do all of these things — and do them well — is a tall order. The “Seven Characteristics of Effective Strategic Priorities” figure, can help managers set better objectives.
Most of the characteristics are self-evident. A few comments however are worth making. First, the number of priorities should be between 3-5. Second, strategic priorities must provide concrete guidance to the troops. American Airlines five imperatives for 2014 were so vague that they could’ve applied to any industry. By contrast, Southwest Airline strategic initiatives were concrete enough to provide action and investments. This is shown in the “Vague Versus Concrete Strategic Priorities” figure. Third, executives rightly focus on how to craft a great strategy, but often pay less attention to how their strategy can be implemented throughout a complex organization. To steer activity in the right direction, strategy should be translated into a handful of guardrails that provide a threshold level of guidance while leaving scope for adaptation as circumstances change.
A final comment on business strategy is from by Robert Burgelman’s analysis of Intel Corporation. In that book he contrasts strategy versus destiny. Destiny is an archaic idea of a fixed and inevitable future. Strategy, in contrast, is a modern idea, of an open-ended future to be determined by it. In reality the two ideas exist in perpetual tension. Successful and unsuccessful strategies shape a company’s destiny. But if the strategy shapes destiny, destiny has ways of asserting itself in constraining strategy. New sources of strategy create the possibility of future destiny, and help the company evolve. Strategy is a means to gain and maintain control of a company’s present and future destiny, and successful strategic planning efforts are ones that impact destiny.