Successful Strategic Planning
In
times of great uncertainty, strategic planning must shift from a bureaucratic,
linear process to a more targeted approach that is both analytic and creative.
Strong strategic planning is
critical to the success of every organization. It is the process by which
strategy is translated into concrete short-term actions. It can also be a
vehicle for deciding which markets are important to your company’s future, and
which capabilities you will need to reach those markets effectively.
Over the years, the exercise of
strategic planning has created strong advocates and fierce critics in equal
measure. The recent financial crisis has renewed many people’s skepticism about
strategic planning — as unimaginably bleak scenarios forced businesses to
rapidly recast their most fundamental business assumptions and recalibrate
their priorities. But there is no reason to be skeptical if you orient your
strategic planning process to the unique needs of your company. Together, the
following five pillars of corporate strategic planning ensure that your
processes are up to the challenges of today’s dynamic business environment.
1.
Tailor Your Process to Your Business
Just as strategy means
different things to different people, so strategic planning has spawned
different approaches across the decades. Some are data-rich analytical
approaches in which measurable outcomes are expected; others are more artistic,
with an emphasis on execution and expectations of achieving an intrinsically
satisfying result. The best companies achieve an appropriate blend of art and
science. The right blend for your company depends broadly on two factors: the
characteristics of the business and the role the corporate center assumes in
steering the business.
If you have a mature, homogeneous
company operating in a relatively stable environment, you will be best served
by long-term, proactive decision making, supported through scientific
approaches to strategic planning. When your operating environment is more
volatile, diverse, and immature, then the lighter-touch dynamic and artistic
approaches to strategic planning will be more relevant to you.
Your approach to planning should
also be strongly influenced by the role of the corporate center. An active,
heavily centralized core with a strong role in business management will demand
a great deal of involvement in the strategic planning process. Companies with
such a core typically set direction from the top, providing both overall
targets and detailed business-level planning. This ensures that both the
corporate center and the business units will have similar conceptual tools and
data to manage the business portfolio and performance in the short term, medium
term, and long term.
However, if your corporate center
follows a system like that of a financial holding company, it will demand
particular results but maintain a hands-off management approach. This will
require far fewer strategic planning inputs from local business units — just
enough to evaluate the long-term portfolio decisions within the mandate of the
corporate core, and enough to keep track of basic overall performance.
The best strategic planning promotes
dynamic and outside-the-box strategic thinking underpinned by rigorous
analysis. It results in formalized plans featuring measurable outputs. It
tailors both the planning process and the underlying architecture of business
unit data to each business unit, while ensuring that sufficient commonality
across business units is retained for comparison and consolidation. The
corporate planning team should be involved in the process in a way that is
consistent with the management model, and a healthy tension should be
established between the corporate center and the business units, resulting in
productive strategic dialogues.
2.
Accommodate External Perspectives
Today’s business environment, with
its pervasive uncertainty, creates challenges for strategic planning teams. The
number of variables at play and the range of possible outcomes have never been
greater. Your comprehensive strategic planning process should acknowledge the
possibility of several different scenarios (stories about alternative futures
that may affect your business). This will help you develop and test your
strategic options.
Typically, three to five scenarios
will be enough to establish a range of plausible outcomes, without overwhelming
your thinking. Design each scenario to describe a possible end point that is
different enough from today’s world to force you to think about the challenges
and opportunities you may face sometime soon. Use a different combination of
key driving forces to generate each one: For example, one might contain a new
disruptive technology, and another might present an economic reversal (positive
or negative). Each scenario description should include its probability and
business impact. Focus on the underlying sources of uncertainty, considering
external as well as internal perspectives.
Develop some of your scenarios using
an objective and analytically sound understanding of consumers, customers,
channels, and competitors, drawing on multiple external data sources, and a
network of external advisors. Meanwhile, use creative thinking to generate
other scenarios that contain potential surprises or issues you might face in
unlikely — but still plausible and potentially business-threatening —
situations. Then test your proposed business plans by flexing the key value
drivers, imagining what would happen to that plan under different potential
futures. With each adjustment, a different outcome emerges. This process
enables you to stress test your plans and highlight key sensitivities.
Encourage strategy dialogues during
the planning process, between business management teams and corporate
strategists. These will give you a forum for assessing opportunities and
threats and formulating an aligned strategic response. Wargame-style
simulations are increasingly employed as a technique for testing a company’s
overall resilience when it is faced with a variety of scenarios.
3.
Create a Performance Culture
When strategy execution falls short
of expectations, poor performance management is often a contributing factor.
Use strategic planning to begin a cycle of performance management, establishing
targets that are subsequently measured, monitored, and embedded in performance
incentives and reports.
Your plan should identify the value
drivers that become embedded in key performance indicators (KPIs). But don’t
limit your measurement to internal KPIs. Extend it to include external
indicators that reveal progress toward your strategic plan. Because of the
current degree of uncertainty and change, you will need to closely monitor
these indicators. Early warnings of deviations in your plan will give the
organization a better chance of adapting and adjusting its focus as required.
Good data and monitoring are
critical, but not sufficient alone. Hold regular face-to-face meetings to
enable strong performance management. Establish these as respected forums for
strategic discussions and business performance reviews; this will spread a
sense of ownership for the plan and overall performance. In addition, treat
each plan as a performance contract with management. That will create a logical
flow from planning targets into management incentives, with a good balance
between individual and business targets. In your discussions, include
constructive critiques of plans and performance at various levels (within
business units, and between the corporate center and the business units),
explore root causes of performance deviations, and talk through corrective
actions.
Done well, performance management
contributes to a performance culture. A performance culture is one in
which all employees’ empowerment is facilitated, there is widespread management
by fact and by process, plans reflect the organization’s capability, capability
improvement is aligned with the strategy, and continuous improvement is
achieved. You can promote a performance culture by establishing formal connections
between the planning process and other processes — tactical, operational, and
day-to-day processes — that involve the broader organization. For example, the
sales and operations processes can be formally linked to the planning process
through regular meetings that address planned versus actual sales.
4.
Be Execution Oriented
Many companies struggle to generate
the results intended by their strategy. That’s because strategy execution is
less clearly defined and understood than strategy development; further, whereas
strategy is often developed by a small group of strategists in the
organization, strategy execution is the responsibility of the organization at
large. Booz & Company research shows that a company’s performance is
largely influenced by four organizational building blocks: decision rights,
information flow, motivators (such as incentives), and structure (the lines and
boxes of the hierarchy). These are known as the four building blocks of an
organization’s DNA. Taken together, they define an organization’s culture. Of
these four attributes, information flow and decision rights matter most to
strategy execution. Therefore, you must set up your strategic planning process
to promote them. This means that you should not develop your strategic plan in
a vacuum, with only a small group of strategists who are disconnected from the
rest of the organization. Instead, improve information flow by involving a
virtual network of strategic planners across the organization, right from the
start. This will promote sharing of insights, strategic thinking, alignment,
collaboration, and ultimately a deep-rooted understanding of the strategic plan
and a greater sense of ownership among more people.
Define decision rights and
accountability rigorously; articulate them clearly, and assign them to the
right people. Accountability should be clear to avoid passing the buck, but the
work and accountability should be appropriately cascaded to motivate the lower
levels of the organization. Also, link decision rights and accountability
transparently to your performance incentive schemes.
5.
Promote Efficiency
Strategic planning is a
multilayered, multi-frequency process that must be engineered for efficiency.
Combining a top-down and bottom-up approach is key to minimizing cycle time. In
your planning processes, emphasize strategic discussions, align everyone on key
business initiatives, and set targets before you undertake detailed planning.
This top-down alignment and direction sets clear boundary conditions for
developing detailed business plans. It also minimizes the number of iterations
that are required to align plans between local businesses and the corporate
center.
Optimize the planning process
further by simplifying it, and by standardizing your data structures. Focus on
key drivers of value; eliminate discretionary detail that is not required for
business steering purposes. Your information technology infrastructure can
yield further efficiency benefits to the process by consolidating planning
data, integrating it with actual reporting, supporting the process workflow,
and facilitating data integrity.
The
Context of Coherence
As we said at the beginning of this
article, every company’s strategy should be distinctive. In your planning
process, you will want to create the context for your decisions by identifying
those factors that distinguish your company from all others. These will include
a considered choice about the markets you most want to reach, and a careful and
accurate assessment of the small number of capabilities that allow you to do
some things better than anyone else. (See The Essential Advantage: How to Win
with a Capabilities-Driven Strategy, by Paul Leinwand and
Cesare Mainardi [Harvard Business Press, 2010]).
A good planning process will move
your firm toward coherence — and greater coherence leads to added value.
Moreover, although all businesses will take different routes to their
destination, the five best practices of strategic planning outlined above will
apply regardless. With careful attention and dedication, you can evolve your
current planning process into one that is more tailored, more accommodating of
external perspectives, more aligned with a performance culture, more execution oriented, and more efficient. The
results will be worth the effort.
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