What is Strategic Planning?
Taking on strategic challenges can be intimidating at the best of times. But in today’s complex business environment where international competition and technological innovation are upturning the apple cart, the stakes for strategy management are even higher than usual.
What makes strategic challenges so daunting is their inherent tendency to grapple with the unknown: it’s one thing to think out of the box, but how do you know when your choice of thinking is actually bringing you closer towards a real solution? You don’t. The decision-making paradigm forces managers to operate in an ever-deepening fog.
Our Strategic Survival Guide helps you navigate this unexpectedly difficult maze by providing the tools and techniques that will allow you to separate signal from noise whenever an important strategic decision needs to be made. More than just a research report, it’s a real-world toolbox for managers who need to help their organizations come up with a smart plan.
The guide provides a thorough review of the current state-of-the-art in strategic management, cutting through fads and focusing on what works. It is not “one size fits all”: each chapter outlines a unique framework with numerous examples from real life (with links to original sources when possible).
What is strategic planning?
Strategic planning is the process of determining what an organization needs to do in order to achieve its long-term objectives. It includes the steps required to create an action plan for getting there, and then executing that plan.
Strategic management is a broader term than strategic planning: it’s about how organizations go about creating and implementing their plans. Strategic management involves building organizational capabilities and following a long-term course while undertaking day-to-day tactical operations.
Why Strategic Planning is Important?
Strategic planning is key to maintaining an organization’s competitiveness, by providing a clear direction for the future. Without a viable plan in place companies can be driven off-course by short-term pressures and miss out on their long-term objectives.
Effective strategic management also empowers managers to make better decisions, giving them more control over how they deploy resources to increase market share, customer satisfaction and operational efficiency.
Processes of Strategic Planning:
What is the best process for making strategic decisions? There are four main models:
1. Simple Linear Model: A straightforward plan with a clear, single course of action. It’s hard to think of many real-life examples of this type.
2. Empirical Model: The Empirical Model seeks data to back up the need for change. The process often starts with a quantitative analysis, but then zeroes in on specific points of uncertainty. If you’re not sure where your market share is headed, maybe industry trends will help you make better decisions about what you can offer now and in the future.
3. Evolutionary Model: In an evolving market, companies have to constantly improve their products and services in order to stay competitive. The only way you can do this is by planning for change from the get-go.
4. Theory Building Model: Many organizations use a hybrid model that combines elements of the previous three models.
How do you manage the future?
Strategic management is about managing uncertainty. It requires organizations to build capabilities so they can adapt quickly to changing market conditions. The key strategic objective in this kind of environment is survival, where organizations start with a clean slate and build up their capabilities while staying nimble enough to avoid being taken over by new entrants.
What are the steps in building a strategic plan?
The process of making a strategic plan requires managers to take several important steps, including developing company-specific strategies and selecting specific objectives. Once this is done, they need to decide how much risk they are willing to take on so that they can build appropriate capabilities for achieving their goals. This is a short summary of the most common steps in creating a strategic plan:
1. Create a strategy that fits your organization’s objectives and capabilities, making sure they are in line with where the market is heading.
2. Identify competitors’ plans and strategies to determine how you can take advantage of market opportunities.
3. Consider existing capabilities and plan for future investments required to meet your objectives.
4. Set specific, measurable goals so you can track progress over the short-term and determine if you are on the right path over a longer time frame.
5. Develop a roadmap that outlines how you will achieve your long-term goals while also aligning your capabilities and resources with the strategy you have outlined.
6. Create an implementation plan that prioritizes activities, assigns responsibilities and sets deadlines for completing them.
7. Ensure management support through communication, education and training to ensure everyone is on the same page.
8. Involve other stakeholders in the planning process, including suppliers and distributors.
What are some examples of a strategic plan?
There are dozens of real-life examples of companies who have developed successful plans for their future growth. Some common examples include:
1. The Boston Consulting Group published Corporate Strategy in 1970, which outlined a strategy for growth through acquisitions.
2. In 1984, PepsiCo developed a plan of attack that focused on short-term goals while also setting the long-term objective of being the top beverage company in the world.
3. In 1993, British Airways developed a five-year plan that aimed to increase revenues by 25% and cut costs by 15%.
4. In 2000, Dick’s Sporting Goods looked to expand their market share by focusing on their niche of coaching young athletes.
5. In 2008, Petrobras employed a plan that focused on developing pre-salt oil fields in order to create massive increase in the company’s reserves.
6. In 2009, Apple set out to create a “Post-PC” world where they would lead the company in technology innovation for 21st century customers.
How can you use a strategic plan?
Organizations should regularly review their business plans and update them as necessary so that they stay current with market conditions. But, a well-crafted plan will be more than just a collection of facts and figures. It should also outline the organization’s mission, purpose and value proposition to help managers stay focused on what really matters to their customers.
7 Success Factors of Effective Strategy:
1. Clear Objectives – the need to set a clear objective which is achievable, measurable and relevant.
2. A Robust Model – the need for several models from which managers can choose as they receive new information, in order to simplify the decision-making process.
3. Consistent Performance – the need to ensure that employees are incentivized to perform well through rewards and potential promotions.
4. Good Execution – setting up an organization with clear roles and responsibilities is critical for successful execution of strategy.
5. Adaptability – it’s important to be able to adapt in the midst of changing circumstances.
6. Leverage & Alignment – leverage refers to the degree of fit one has with an organization. Alignment is the degree to which an individual’s talents are well matched to their assignments and responsibilities within strategic plans.
7. Visibility & Clarity – good organizational performance requires visibility and clarity of roles, responsibilities, communication channels and decision-making processes.
Where should I invest my energy – trying to outperform competitors, or beat industry averages?
Here are two possible models for making this decision:
(i) the Efficient Market Hypothesis (EMH), which claims that market prices reflect all relevant information;
(ii) the Competitive Ladder, which looks at how an organization’s strategy impacts its ability to compete.
Where is my industry headed? How can I build a compelling map for where my business could go?
Here are two possible models for helping you to think about this question: (i) The Adjacent Possible, which suggests that an organization should exploit not only existing possibilities but also those that lie in the adjacent possible; (ii) Foresight, which focuses on identifying and exploiting emerging trends.
Do I need another plan – or just better execution against the one I already have in place?
Here are two possible models for this question:
(i) SWOT, which stands for Strengths, Weaknesses, Opportunities and Threats;
(ii) the Portfolio Planning Process – a way to consider a portfolio of different initiatives, invest in those that have a strong value proposition at their core.
How do I adapt my strategy when faced with unexpected changes in the industry or market?
There are many possible models for making this decision. Here are two:
(i) the Resource-Based View (RBV);
(ii) Scenario Planning.
What are my organization’s strengths and weaknesses? How can I put them to use?
Here are two models that cover these questions:
(i) Balance Scorecard, which includes both financial and non-financial measures for assessing performance;
(ii) the Product Portfolio Matrix, which sorts products into four categories. Organizing by category can help an organization take a broad-brush approach to portfolio management.
Where should my resources be invested – in strengthening our core businesses or developing new ones?
Here are two models that might help to answer this question:
(i) the Growth-Share Matrix, which recommends investing in cash cows and stars – while building a position in a dog, before deciding whether it should be retained or disposed of. If a company decides to divest a business unit, there are several accounting strategies for doing so;
(ii) the New Product Development Process, which helps an organization to understand how different factors influence its ability to make decisions on new products.
How can I break down my strategic plan into more manageable pieces?
Here are two models that may help:
(i) Strategy Map: a way to represent the relationship between different strategic factors, helping hierarchy and decentralization work together;
(ii) Strategy Canvas: an approach to positioning a new initiative in the context of an established strategic plan.
What is the difference between strategic planning and operational planning:
OPERATIONAL PLANNING: is the process of developing a sequence of detailed actions to be taken by an individual, team, or organization in order to achieve a goal. Operational planning is the bridge between strategic planning and tactical execution. Operational planning may also include longer range goals that are not part of the organization’s mission statement.
STRATEGIC PLANNING is a process that defines an organization’s direction and approach towards meeting its objectives, by creating approaches for the future. Strategic planning refers to “a broad-based examination of an organization’s mission, goals, operating procedures, organizational positioning, market position and competitive dynamics.” Strategic planning also takes an organization’s mission statement and gives it depth by establishing operating principles.
Strategic planning leads to:
* Operational Planning (detailed action plan)
– Tactical Execution (Execution of operational plan)
– Performance Management (Evaluation of performance; Retention/Attrition, etc.)
What is the difference between a strategy map and a balanced scorecard?
STRATEGY MAPS are a visual aides used to represent the relationship between a set of parameters. The map presents information in a way that is actionable by an organization. The data presented in the Strategy Map can be used to support analytics, which may include segmenting markets, analyzing competitive advantage, assessing risk and opportunity, making investment decisions, measuring progress towards strategic objectives or long term viability.
STRATEGY MAPS are made up of the following components:
– Strategic Objectives (cause/effect)
– Themes (measurement for cause/effects)
– Key Performance Indicators (KPIs) (measurement for themes)
– Initiatives (focus areas – part of a theme)
BALANCED SCORECARDS are a visual aide used to represent the relationship between multiple sets of parameters. Balanced scorecards typically consist of four quadrants: Financial, Customers, Internal Business Processes and Learning & Growth. The four quadrants are designed to work in balance, representing mutually beneficial relationships between organizational objectives and key performance indicators.