Most companies and executives invest significant time, effort and resources in an annual ritual called Strategic Planning. By definition, strategic planning involves developing/refining a longer term plan for the company focusing on major strategic choices – in the areas of scope of business, markets, positioning, technology, capabilities and financials. As much as this sounds like such an important activity in the company calendar, one would be surprised to know how least effective this is in many organizations. Executives in many companies see little benefit from investing so much on strategic planning. In the many planning sessions I have participated in, I heard comments including, “we seem to spending endless time in the nitty-gritty’s and coming up with so many possibilities that nothing really happens” and another – “why can’t I just get my financial performance targets straight up instead of spending so much time on things that will never get done?” In my opinion, strategic planning is a great management principle that helps companies and its executives prepare for the unpredictable business environment of today and to navigate through challenges ahead. But where it falls way short, is in how the whole process gets executed.
First of all, strategic planning in many companies is reduced to a bunch of PowerPoint slides and Excel worksheets that executives present as if it is a performance review. On the contrary, strategic planning is about having a robust unfettered dialogue about the anticipated changes in business, for e.g. regulatory changes, market demand volatility, emergence of newer technologies, changes in competitive landscape, and help executives agree on important assumptions and decision about the future of the company. Second, strategic planning is not a forum to display inclusiveness and involve large groups of people. Large groups by their structure, does not allow open discussion and typically leads to posturing. Only those participants critical to strategic planning such as CEO, CFO, HR head and business unit senior executives need to participate in these sessions and everyone else could be engaged downstream. Last but most important, the expected outcome from strategic planning is just not a forward looking financial plan and expected capital allocations. In fact, the outcome should be commonly agreed upon strategic direction and related decisions, assumptions and improvement areas that drive the development of a 3 year or 5 year financial plan.
Here are some additional thoughts on best practices on strategic planning that I have followed or observed:
- Though the scope of strategic planning is pretty broad, it is important to discuss and debate critical topics that affect the company in the time frame under discussion. In other words, there is no point in using a template driven approach to planning that is too broad and does not bring focus to topics that have the most impact for the company
- It is important to discuss uncomfortable issues as part of planning and come up with solutions– e.g. having the talent to support growth strategy, efficiency of operations to support cost reduction targets. Parking potential issues in a closet will only undermine the execution of the agreed upon strategy
- Expected outcome from strategic planning should go beyond aspirational statements such as “increase customer loyalty” and be more tangible “reduce existing customer churn to less than 10%”
- There should be consensus and agreement among the executive team responsible for planning on the key decisions made, assumptions and the expected outcomes
A strategic plan does not guarantee that every opportunity or challenge will be identified and addressed. In fact it would be great if companies are able plan for 70%-80% of scenarios that they would face. Having a plan also does not mean that there won’t be any deviations from it. Irrespective, a good strategic plan equips executives to run a company better by making more informed decisions. If the process is managed well, there is great deal value that could extracted from strategic planning.