05 Feb. 2013 | Comments (0) Share Follow @Conferenceboard
Any leader who has any grey hair has been through the annual drill of business planning – either at an enterprise-wide, business unit, or functional level. In this blog, we will share with you several “derailers” for strategy assessment, design, and execution. This list is an amalgam of our collective experience in leading over 50 business-planning projects, and includes lessons from companies that are renowned for their business-planning capabilities, as well as research completed on the topic. Each “business planning derailer” is discussed below:
- Treating Strategic Planning Like a Creative Writing Exercise: Business planning is more than crafting a catchy mission and vision. We marvel at the number of senior- level leaders who don’t have an ounce of strategic thinking DNA in their body. Many of these leaders incorrectly believe that the most important part of planning is coming up with a witty and pithy vision and mission statement. However, we are not aware of any company that has achieved competitive advantage through these documents alone. In fact, often times leaders would be hard pressed to find a single employee who was of aware of, much less could recite, the company’s mission or vision. Additionally, has anyone ever tabulated the costs of the executive’s time (let’s also not forget the travel costs of doing planning at a trendy resort) in completing a comprehensive “wordsmithing” exercise?
- Focusing Primarily on the Production of a “Planning Book”: Strategic planning is a data-driven, discovery-oriented, management process – not a one-off event that centers around creating a presentation. At its simplest level, this process should center around key questions the leadership team wants to answer. By collecting data around such things as market size, market profitability, competitor moves, and regulatory issues, an organization should be able to decide “where it wants to place its bets regarding business portfolio management market segments to enter or reduce presence in strategic initiatives.
- Failing to “Gut Check” Their First Draft: Like many corporate processes, strategic business planning can quickly be reduced to an organizational “tick-box” exercise where leaders focus more on getting the task done than actively surveying the internal and external market forces for insights that can help shape go-forward actions. To ensure the process stays fresh, leaders should avoid the “fill-in-the-box” mentality and actively embrace the white space. Leaders should certainly consider historical perspectives and incorporate lessons learned, but also push themselves to seriously question what should and must be done to achieve future success. Once drafted, they can then temper enthusiasm with risk and cost realities. Ironically, this type of thinking is exactly what council managers want from employees when they ask for SMART objectives. It’s advice worth taking.
- Acting as An Island: Strategic planning is not an isolated activity. It’s a complex business process that has a series of upstream and downstream links to other organizational systems and processes. As with any other process, there are data inputs and outputs. Too often strategic planning is like a “black hole,” with key deliverables being completed in a willy-nilly fashion. If treated like an end-to-end process, strategic planning is tightly linked, both chronologically and from an input/output process, with the following related processes:
√ Strategic talent management
√ Budgeting/financial forecasting
√ Management reporting
- Becoming Overwhelmed With Data and Failing to Answer Key Questions Or Make Key Decisions. Conceptualize strategic planning as a puzzle. As you collect data (puzzle pieces), a picture starts to emerge about your competitive landscape. The current challenge is that, with the advent of available digital data, it is very easy to create a strategic planning process that is either too complex (you need a Ph.D. in math to understand the data) or too simple where all the decisions are based on perception and anecdotal evidence. To circumvent this problem, start with the key questions or decisions you need to make. Examples include:
√ Which of our existing customers are most/least profitable? Do we want to stop doing business with customers that are impossible to please and consume too much of our resources versus the revenues they generate?
√ What opportunities and threats (e.g. regulation, new disruptive technologies) are we facing in the short- and mid-term?
- Excessively Focusing On The External View. Most organizations do a fairly good job at the E-Scan to identify external opportunities and threats. One of the biggest untapped opportunities is to fully understand your internal capabilities in order to ensure you take full advantage of identified market opportunities. Leading organizations use a tool called value chain analysis that allows them to compare their organizations to competitors in order to identify their internal strengths and weaknesses. They also use this analysis to compare their cost structure to their competitors and identify where/how to attack them by ultimately identifying sources of sustainable competitive advantage.
- Making Limited Used Of Strategic And Tactical Performance Measurement Systems. Most measurement systems do not have the proper balance between leading and lagging measures. This occurs because there is not consensus around the business drivers. For each key business outcome, leaders must have a common level of understanding around “cause and effect” – specifically, what variable most directly drives desired business outcomes. If you develop leading measures, you can predict the performance of the business ahead of time or take corrective action when you have a variance. Additionally, organizations often do not have a balanced set of measurements but rely excessively on financial metrics. Proponents of the balanced scorecard would argue that executive decision making is enhanced by using 3-4 categories of measures including key process, customer, and organization/people measures to run the business. The benefits of using a balanced scorecard include:
√ Improved predictive capability
√ Enhanced variance analysis
√ Better understanding and commitment to strategic direction
√ Improved capability to focus efforts and hold accountability
√ Framework for organization alignment
√ Enhanced strategy execution
√ Improved strategic capital and resource allocation
√ Improved management decision making
- Tolerating Poor Execution Of Strategic Initiatives PMO. To a large extent, strategy execution is a function of good program/project management. The following attributes should be incorporated to ensure successful strategy execution:
√ Establishment of a formal PMO office to manage your strategic initiatives to provide structure and ensure cross project coordination;
√ Common project governance, tools, and templates including the mandatory usage of formal charters for each strategic initiative. Make sure have addressed the full range of PMO functionality from project planning and risk management to issue escalation, performance and project reporting, and quality monitoring; and
√ Use formal and balanced decision criteria (financial analysis like IRR or NPV, risk analysis, etc.) to prioritize and ultimately select strategic initiatives.
- Failing to Design a Robust Cascade Process: Even the most well-crafted strategic business plan is useless if it lacks a workable method for communicating key points to various stakeholders. Leaders would be wise to engage the services of relevant business groups such as corporate communications, HR, and line leaders to ensure the message is received.
Being mindful of potential pitfalls in the planning process is an excellent first step. In our next blog, we will present a scalable process and associated best practices for completing business planning at any size organization.
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