Good strategic planning can be very useful for your firm if done appropriately. But the current business world has opportunities and threats popping up almost weekly for most firms. This suggests to some people that strategic planning as we have known it must change or is irrelevant altogether. So how can you then strategically think about, plan for and take action in your business with all this change happening?
The Classical approach to strategic planning was invented in the early 1950s and has been used in many forms ever since. But the Classical approach to strategic planning has come under a lot of criticism lately. It is criticized as being too cumbersome, too heavy with lots of data everyone can buy, thus giving firms no advantage, and too inflexible. The product that ensues has pejoratively been labeled a SPOT – Strategic Plan On Top of Shelve. That is, once produced, few people even look at the strategic plan after “the exercise” has been completed for that year.
In my view, this criticism is mostly valid. A good Classical approach though can work in some industries. The purpose of this article is to discuss the emerging view that an Adaptive approach to strategic planning is more useful in today’s fast-paced and turbulent business world. But it will also suggest where the Classical approach can be used and what tweaks to the cumbersome version can be made to make it more effective.
To begin our sojourn, let’s define what is strategic and distinguish among strategic thinking, strategic planning, and strategic action.
Strategic – projects in the business that are large and important enough to directly influence the market value of the firm. Streamlining how you order office supplies is not strategic, although this can be important in reducing those costs and getting supplies just-in-time when needed. Changing the products and services you offer, geographic expansion, mergers, and acquisitions, taking on innovation, positioning against competitors, hiring a new CEO and trying to legally influence legislation are examples of things strategic.
Strategic Thinking – is an entrepreneurial orientation and skill set that asks and answers how your firm will compete against rivals and produce sustained superior performance relative to those and any new rivals.
Strategic Planning – is an “appropriately bureaucratic” process that makes sure you and the people in your firm take the time to think strategically. This tries to counter the ubiquitous tendency to get mired down in day-to-day fires.
Strategic Action – actually implementing your strategy and strategic plan with adequate funding, good execution with speed and very little re-work.
A generic Classical approach to strategic planning is depicted in the following exhibit:
Notice the main features of the Classical process:
- Activities in the process take place over a calendar year.
- The approach is top down. That is it is initiated and performed by the CEO and his or her direct reports and relatively few people are involved.
- It is a very linear and sequential set of steps. If a major change happens in the business, this can nullify all previous work. This causes a lot of heartburn and a reluctance to not start over again.
- The process culminates in a document called the strategic plan, which is then resourced and implemented.
- The annual budget is then set and approved based on this work.
As I mention above, the current business world though has opportunities and threats popping up almost weekly for most firms. In the extreme non-useful use of the Classical approach, these opportunities and threats are ignored until the next year and a new planning cycle. The reasoning was the business world is stable and slow enough to be able to wait. This is not true now, as many times the window to attack a new opportunity opens and closes in as little as three months. Enter the Adaptive approach to strategic planning.
In one sense, all a firm needs is a longer term Vision of where the firm is headed, a crisp Mission statement and a rolling six-month sales forecast. But this is a little too simple. All of the new emerging opportunities need to be vetted, assessed and decided upon. And adequately funding the most promising ones is critical. Years ago I remarked to a client that “an unfunded strategy is not a strategy, it is a pipe dream”. This is still true today in my view.
The Adaptive approach to strategic planning is really a disciplined approach to company-wide innovation. Google, Amazon, and General Electric are examples of masters at this. Here is what they do:
- Allow nearly all of their people ten percent of their time to find new opportunities that interest them and which are consistent with the Vision and Mission of their firms.
- Establish a process that quickly vets these ideas. Many of them are given seed funding for further development.
- These innovation ideas are then followed in a “pipeline” for how quickly they develop into real new business opportunities that are large enough to get excited about. Larger funding is approved and teams of people are assigned to implement them.
In the strong form of the Adaptive approach, there is no strategic plan document. The “strategic playbook” is really a portfolio of new opportunities, some of which will win and many will not. This is very venture capital like.
The Classical approach, properly tweaked, can be useful in industries that are heavily regulated, like insurance, financial services, transportation, or industries where a lot of prior capital investment needs to be protected, like oil and gas. The tweak I have used is to simply add a box to the exhibit above to allow a small group of “innovation experiments” to be commissioned. These are run concurrently with the sequential set of calendar activities.
If your firm finds strategic planning useful or thinks it can be, deciding which approach to use can determine how effective strategic planning can be at your firm. This is a meeting your firm should take.
This article is part of a series on what causes a firm’s value to increase
Bill Bigler is founder of Bill Bigler Associates and can be reached at firstname.lastname@example.org