17 Feb Strategic Planning for High Performance
By Jeff Kamin, Advisor – Corporate Strategic Analysis and Development and Early Stage and Angel Funding
“Planning is bringing the future into the present so that you can do something about it now.”
The quote is by Alan Lekein, the author of “How to Get Control of Your Time and Your Life”. He applied it to our everyday lives. But, it is also commonly accepted that planning and strategy development is essential for an enterprise.
Strategic Planning is a process that has become part of every major enterprise that allows for formulation of goals and strategies. But, how valuable and effective is it in achieving desired outcomes? Of the Fortune 500 firms that existed in 1955, approximately 87% were no longer in existence in 2013. Some have gone bankrupt, others merged, and the remainder are simply no longer in the top 500.
The chart below illustrates the change in the Fortune 500 from 1955-2013.
Of course, strategic planning alone will not ensure that an enterprise will be achieve its goals and objectives. However, with the right leadership and organizational agility, it can be an enabler and significant contributor to reaching its goals and objectives.
Origin and Evolution of Strategic Planning
Strategic Planning has military and political roots dating back to the Greeks. “Strategy” is from the Greek word “strategos”, which means “military general”. Early politicians in Greece, such as Pericles (495-429 BC) were thought of as “strategoi” (plural of strategos). They focused on strategic advice versus tactical advice to manage their armies. It was a “big picture” type of view and defined outcomes and results, versus how to achieve those outcomes.
In the early 1920’s, the Harvard Business School developed the first strategic planning methodologies. Strategic planning evolved in the 1950’s and 1960’s to become an emerging business methodology. It has been refined and revised extensively from the 1970’s to the present time.
Modern Strategic Planning
Kenneth Andrews, a Harvard professor, helped develop and define modern strategic planning in the 1960’s and 1970’s. His book, “The Concept of Corporate Strategy” (1971), defined corporate strategy as a unifying concept. He recognized SWOT analysis as a tool of corporate strategy. He was able to explain and simplify corporate strategy methodologies. However, he separated strategic planning from strategy implementation.
Early strategic models used explicit versus implicit strategies to map the strategic process. Explicit strategies were formulated by a group separate from the group that implemented the strategies. These strategies were formal processes developed by a “strategic planning” group. Implicit strategies were both formulated and implemented by the same group. These strategies were less formal and implemented at the business unit level. It was discovered that companies can utilize both explicit and implicit strategies. However, the implicit strategies are frequently inconsistent with the explicit strategies.
Throughout the 1980’s and continuing through the present time other strategy analytical tools were developed. The Boston Consulting Group developed the “Growth Share Matrix”. Michael Porter, of Harvard Business School, was well known for transforming a complex, multidimensional view of business strategy into workable methodologies. His “Five Forces Model” and “Cost/Focus Matrix” are well known by most practitioners of strategic planning. Other sophisticated models were subsequently developed by others. James Austin, of the Harvard Business School, developed an “Environmental Analysis Framework”. Theodore Modis developed his “S Curve Model”. Michael Lissack, in his publication “Chaos and Complexity – What does it have to do with Management” and in other publications, described how chaos and complexity necessitate a different view of corporate strategy development. He stated that
“Strategy lies between directedness and execution. It lays down lines of action that the firm intends to initiate and that are supposed to bring about desired outcomes. Since outcomes depend on the interactions with and between many other agents (inside and outside the firm’s boundaries) strategy really represents an attempt to control a process of interactions, with the firm’s own intended lines of action as control parameters.”
Mr. Lissack’s comments just reinforces that strategic alternatives and optimal paths are more difficult to understand and anticipate. That implies that we need to continuously monitor the markets, technologies, customer preferences, competition, etc. in order to be adapt and be responsive to changes.
Strategic planning has changed significantly over the past few decades. Competitive strategy is now a major feature in strategic planning practices. In addition, while strategic alliances and mergers have always been part of plans, it is now an explicit and important part of a plan that are being addressed. In a more complex and changing business landscape combined with changing economic conditions and market conditions, the technique of scenario planning must be incorporated within a strategic planning process.
Developing a long term strategic plan is certainly better than no strategic plan at all. Revisiting the plan yearly, or every two or three years may be a good approach, depending on the industry. In addition, it is now important for enterprises to link their tactics and budgets to the strategic plan. In addition, they need to measure and monitor their progress in relation to the plan.
Every planning process is different in how effective they are. It is important that the strategic planning process should be an effective process that achieves results. What is a good planning process? There are four elements to a good process.
A good planning process:
- Allows enough time for senior management to talk about strategy. This can be yearly and reviewed every couple of years. If conditions are rapidly changing, this discussion may have to be reviewed a couple of times throughout the year.
- Incorporates discussion about resources (people and capital) and time horizons to implement strategic objectives. Trade-offs have to be recognized and realistic. Prioritization is crucial.
- Is linked to the budget and tactics and disseminated throughout all layers of the organization. Other employees, in addition to the senior leadership, must understand the company’s goals, objectives and strategies, and their relationship to their own jobs and actions.
- Should be motivating and energizing. Often plans are done and met with resistance to changes. That can take the energy out of an organization. The new priorities should be communicated in a way that is motivating to the employees and senior leadership.
Finally, a planning process must be responsive to emerging opportunities, challenges, and environmental changes. For some companies, changes can be significant and rapid and for others the pace may be much slower. But, a planning process must incorporate mechanisms to recognize changes and allow strategies to shift and adapt in response. Therefore, it requires monitoring tactics and strategies, being cognizant of changes in the environment and their impacts on the company. The plan should be revisited and adjusted when it is necessary. Not all changes will require adjustments to the plan. The response may be in the tactics and not require strategy changes.
The following trailer from the movie “21” shows a scene describing the “Monty Hall Problem” which deals with variable change. In this movie, as in a responsive planning process, shows that need to be aware of changes and modify either strategies or tactics when necessary.
I was educated in strategy development and strategic planning at one of the top MBA programs in the U.S. In addition, I have extensive experience in strategy development and strategic planning at companies ranging from startups to Fortune 500 companies. As a former internal venture capitalist at a major company, I focused on strategy formulation and development at numerous emerging growth companies in both mature and emerging industries. Based on my extensive knowledge and experience in planning, I know the attributes of a good strategic planning process and how it can add value to any organization. A good strategic planning process will facilitate the development of most major strategies. The importance of strategy development for high growth and emerging growth companies is obvious.
I also know about how to improve strategic planning processes. While many organizations, especially medium and large companies, have strategic planning processes in place, there are usually improvements that can be made to make the process. In a recent survey of 800 executives by McKinsey, only 45% of the respondents indicated that they were satisfied with the strategic planning process. In the same survey, only 23% stated that major strategic decisions were made through the strategic planning process. This implies that improvements can and should be made to improve the processes.
Research has shown that managers are generally satisfied with strategy development that results from the strategic planning process. In another McKinsey survey, over 79% of managers claimed that the formal strategic planning process played a significant role in developing strategies. In another study, 51% of respondents whose companies had no formal strategic planning process were dissatisfied with their approach to the development of strategy. Therefore, a formal strategic planning process is an enabler of strategy development. It seems obvious that it should be. But, the surveys indicate that some processes fall short of that objective.
There are five key steps to improving a strategic planning process. They are:
- Develop a list of the strategic issues facing the company. Numerous issues can be identified and then prioritized. The final list should be feasible in terms of time and resources.
- Discussion about the strategic issues should involve the right people. The people that will implement the strategy should the major participants.
- The planning cycle should match the business needs – a detailed process may not be needed every year, instead it could be a 2 or 3 year cycle. However, the plans should be revisited if conditions warrant.
- Put a system in place to measure and monitor the progress against the strategic plan. Annual budgets should be linked and be congruent with the plan,
- Evaluate and compensate managers based on successful implementation of the plan. Most companies have variable compensation tied to annual budgets or short-term objectives. Deferred compensation models for CEO’s and other senior managers should be developed that are linked to the long-term performance targets as defined by the plan.
For small and emerging growth companies, I have discovered that they generally do not have a formal strategic planning process. However, if they are funded by Angels, Venture Capitalists or Private Equity Groups, they are almost always required to have a strategic plan. In addition, their investors generally are on the Board and revisit the strategies periodically.
It is often debated as to whether or not strategic planning can significantly impact the organization’s performance. It must be combined with a good leadership and management team. An organization must also adapt to change and be responsive to changing conditions. Planning can help an organization in making optimal decisions to meet or exceed its goals and objectives.
Having a well-defined plan is important. Having no plan should not be an option.
The trailer below from “Transformers 3” illustrates the despair when facing future events if “there is no plan”.
The plan should be created using a group of strategic principles that define the problems and solutions. Once that is done, then the goals, metrics, and scenarios can be outlined. Implementations of the strategies and plans must be monitored to ensure that tactics and resources are aligned in an effective way. Plans must be revisited and adjusted as the conditions or markets change.
The advantage of strategic planning is that it is a methodology that allows an enterprise to determine what actions should be done now in order to maximize future results and outcomes. It also provides a basis of discussion about the assumptions for the strategies.
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In his current advisory role, Jeff works with BCA to assist business owners with strategic planning advice and consultation work as well as to assist with early stage funding engagements.
He has over 20 years of experience in strategy analysis and development of strategic plans for a range of industries and company sizes. From his time managing a $100 million internal Venture Capital fund at BellSouth to developing forecasts and plans for finance and insurance industry clients he has unique insights that help in understanding and providing justifiable forecasts for new and emerging industries and businesses. As a consultant with Resources Global, formerly part of Deloitte & Touche, he consulted with companies in many industries that ranged in size from small to multi-national.
Jeff has a BS in Industrial Engineering from Cornell University and an MBA in Finance and Strategy from The University of North Carolina.
Jeff may be contacted via email at jkamin@bc-advisors or by phone at (404) 857-2221.