Saturday, March 9, 2013

Common Strategic Planning Mistakes

The CEO of a regional engineering firm recently told me, "I've participated in about 25 strategic planning efforts with this firm, and I don't know that I've found any of them really satisfying." He's not alone. A McKinsey survey of 796 executives found that only 45% of them were satisfied with their company's strategic planning process. Moreover, only 23% of them reported that "major strategic decisions" were made through that process.

How effective has your firm's strategic planning been? If you've been less than satisfied with the results, the likelihood is that your firm has made at least one of the following mistakes:

Not really strategic. Much of what passes for strategic planning would be more accurately described as tactical and operational. There's still value in those plans, but they fall short of defining strategy and positioning the firm to achieve strategic objectives. 

So what is strategy? I like McKinsey's definition: "Strategy is an integrated set of actions designed to create a sustainable advantage over competitors." There are several important aspects of this definition that you should consider:
  • Strategy involves a cohesive approach to the business. Lack of operational alignment will undermine strategy.
  • Strategy is dependent on effective execution. It is defined in actions, not intentions.
  • Strategy has a long-term perspective. It seeks to create sustainable success over time.
  • Strategy is about creating competitive advantage. In our business, we have traditionally been satisfied with simply being competitive—winning our share. But future success will increasingly depend on being better than your competitors.
Strategy guru Michael Porter offers a useful analogy to help us distinguish between operational planning and strategic planning. The former, he says, involves defining how to run the same race faster; the latter, choosing to run a different race. 

That doesn't mean you need to change markets or service lines to be strategic. But it does involve a serious rethinking of how you'll conduct your business going forward. Bottom line: How will you create or sustain your competitive advantage?

Lack of innovative thinking. One of the biggest reasons people grow disenchanted with strategic planning is the paucity of fresh ideas that lead to breakthrough strategy. Most plans cover the same general ground year after year. In the past, this may have been sufficient. Prior to the recession, most A/E firms were successful because the business was growing. Now that kind of growth is achievable only by taking market share from competitors, something few firms are equipped to do.

The situation calls for new strategy. But most firms seem to be recycling old ideas about how to develop new business and deliver their services. As noted above, strategic planning calls for a reevaluation of the status quo, recreating (or at least recalibrating) your strategy to respond to the changes in the marketplace and society at large. For ideas on how to promote creative thinking in your planning process, see this previous post.

Too broad and disaggregated. Going back to our definition, strategic planning should define a cohesive course of action to move the company forward. In an attempt to be inclusive, many strategic plans result from simply combining input from various business units and corporate services. Yes, you should avoid leaving key managers feeling neglected by the planning process. But a patchwork of action plans does not constitute strategy.

A better approach is to define your overall company strategy first, then have managers develop their unit plans describing how they will contribute to and align with that strategy. In many firms, the process of aligning business units alone could prove strategic, regardless of what the larger goal is. Diversity can be a strength, but the lack of focused, coherent strategy (and the coordinated effort that comes from it) erodes the prospects of success. 

More action items than the firm can realistically achieve. In every planning cycle, it's easy to identify more things needing attention than your firm can possibly address at once. That's another reason why strategic plans get too broad in scope. Strategy involves clarifying which challenges and opportunities are most important and what actions will yield the greatest payoff. You don't want to stifle ambition and drive. Your plan should be aggressive; it should demand your firm's best efforts. Just be sure that it's achievable.

Focus helps you avoid getting overly ambitious. It's better to go deeper than wider. Why? Because when people are working toward the same goals there is a synergistic effect. More will get accomplished with focused effort than distributing labor across multiple unrelated action items.

Not getting the right people involved in the right way. Strategic planning is a group effort. You want to assemble a team of people who are (1) able to contribute the best ideas and insights to your planning process and (2) best suited to lead implementation of your strategy. However, the most common way to select who's involved in the planning process is to refer to the top of the org chart. Presumably your best thinkers and leaders are found there, but is that really true?

The fact is that many senior managers add little value to strategic planning. They may not be visionary or embrace change or be effective leaders of new initiatives. You might argue that their position in the firm alone dictates that they be involved, which I would agree with. You need the support of your senior managers. But it's worth considering who might be excluded by rank who could really contribute to your strategy development.

As one who facilitates strategic planning meetings, I can testify to the advantages of having a smaller group. But that means leaving some out who might be helpful. There are techniques for dealing with larger groups (e.g., small group breakouts), but perhaps a better way is to approach strategic planning as a process rather than an event. Consider ways to get others involved that doesn't require participation in the main meeting. There are many ways to do this—perhaps a topic for a future post.

Failing to adequately address the details of implementation. Consultant David Maister once observed that the biggest difference he saw between the most successful firms and the rest was not the content of their strategy, but how well they executed it. The greatest shortcoming in strategic planning is obviously found here. That's why I push my clients to be sure they emerge from the process not only with a strategic plan, but an implementation plan.

What does an implementation plan entail? The usual action items with deadlines and responsible individuals assigned. But go further and determine how much time is involved. Do your implementation leaders have that time available? If not, what do they need to offload or who else can help? Remember, strategy execution usually involves change. Therefore, don't ignore the steps involved in making change successful.

I recommend monthly progress updates, with perhaps an associated meeting or conference call to share ideas and encourage follow-through. Beware of "front-end loading" your action items, having most of them occur within six months after the plan is finalized. It's good to get things done promptly, but you need to guard against losing momentum afterwards. If you can accomplish your strategy in six months, it's probably not much of a strategy. Like any plan, you want to be periodically updating it to keep pace with your progress and changing circumstances.


D'arcy Elliott said...

I really like the article - nice and tight and focused, and it truly does highlight six of the biggest issues with strategic planning. However, I am not sure your definition of strategy actually adds clarity.

You say the following shortly after pointing out that operational actions are not strategies:
•"Strategy involves a cohesive approach to the business. Lack of operational alignment will undermine strategy."

Cohesive, yes obviously, but what does "operational alignment" mean? I don't think you really mean the strategy should relate to the operational construct of today - after all, strategy is about the business we could be in the future, not just an extrapolation of what we are today. If I interpret the language at face value, I think the definition is limiting and, well, not really strategic.

You go on to use the following to define strategy:
•"Strategy is dependent on effective execution. It is defined in actions, not intentions."

Again, not exactly differentiating strategy from operational plans. In fact, I would argue that strategy is very much more about intentions than actions. Strategy is not about what (specifically) to do - i.e. actions - but about what directions, approaches and (missing entirely from your definition) values should be employed in the future. In short, intentions.

To be fair, I suspect what I have focused on are simply editorial comments around the definition language, intended not to define but to discuss strategy. However, like you, most organizations I deal with really struggle with what strategy actually means, and often wind up down the path of a list of operational tasks for the next few years. A more concise and understandable definition would be very valuable.

Just wanted to share.

Mel Lester said...

Hi D'arcy,

I really appreciate your in-depth response to my post. Your points are well taken. People have long debated the distinctions between strategy, tactics, action plans, etc. The reason there is so much confusion is that the lines between them are blurred.

The old fable of the stone cutters comes to mind. All three men were engaged in the same activity. But one was acting strategically; he was building a cathedral. His work was connected to a grander vision, to a higher purpose.

Strategy has that effect on an organization. At the "quarry level," it is action plans, best practices, performance metrics, restructuring. These things done independently are not strategic, but are essential to bringing strategy to life when aligned for that purpose.

So I probably have a more practical view of strategy. I work with clients to try to help them think more strategically, but even more importantly, to act strategically. Ultimately I am judged by the results (as is the value of company strategy).

Hopefully that explanation helps. Thanks again for your comments!

irahak said...

Strategy is the path that connects where you are to where you want to be.

Drew W. said...

Another common mistake is overusing metaphors, especially on the front end. Too often, it seems like the metaphor is created first (because it might seem to fit), but then the rest is jammed in to make it work. Great examples: A house with pillars! A baseball glove! Running shoes! A moving van with pallets inside!

In most SP sessions, if the leader starts with a metaphor, it just seems amateur.