Harvard Business Review the Big Lie of Strategic Planning

abril 20, 2022 Postar um comentário

First of all, you gotta love the provocative title of this article from Roger Martin, ex-Dean of Rotman School of Management, University of Toronto hither. Large. Lie. Hard to get past those ii words. Big Prevarication.

Why is strategy (potentially) a scary thing?

Martin starts by making the seemingly simple point that strategy is well-nigh the hereafter. Okay, so far so good, I am tracking. . And so he proceeds to remind us that the future is unpredictable – oh, sheesh, Covid-19. That seems really true.

So, how do concern executives answer to this uncertainty? Strategic planning.

The natural reaction is to make the challenge less daunting by turning it into a problem that tin exist solved with tried and tested tools. The program is typically supported with detailed spreadsheets that project costs and revenue quite far into the future. Past the stop of the process, anybody feels a lot less scared. – Martin

Strategic planning is common

Confession time. Yes, I was a strategic planner. Information technology'southward on my Linkedin resume, and frankly, I am fairly proud of the work we did. Learned a lot well-nigh how the business was run, and surely, nosotros were ameliorate off with an annual operating plan and budget than without one. Yes, strategic plans have a purpose. No, it is not strategy.

What does strategic planning look similar?

While information technology might vary from company to company, it probably doesn't. It'southward a adequately formulaic process of macro (tops downwardly) economic research on the business bicycle, finish-user demand, competitive dynamics, corporate initiatives and micro (bottom up) revenue forecasts from sales and price estimates from finance. In simple terms, it's your collective all-time guess of the next 12 months.

The intention is noble. Get all the facts and forecasts possible, then gyre them into a longer-term programme from which to run the business. It serves a few purposes:

Allows the different business units to see each other'due south plans
Coordinates corporate strategy (what the HQ was planning)
Creates budgets for capex, opex, recruiting
Sets revenue and profitability targets which bulldoze executive bonuses
Finally, gives executives a sense of comfort and security about the future

Sounds expert, what'due south the problem?

ane. Surprisingly, not a lot of strategy

Let'due south outset with the starting time stride. Strategy is about creating a set of cocky-reinforcing activities which create a sustainable competitive advantage. Information technology'due south about creating massive value for your customers and getting some of that profit. Creating an economic moat. It's most trade-offs. Yous can't re-create-cat your fashion to success.

Some potential questions to ask:

What is our strategy? Can our employees articulate information technology?
What's our strategic positioning vs. our top 3 rivals? Prove information technology.
What indicators exercise we track? What about leading indicators?
How well do nosotros know our customers' preferences? Are they changing?
Tin can a new entrant offer "less for less" and take our cheap customers?
What'south the worst matter that could happen with our supplier base?
What should we Finish doing?

If your strategic planning sessions accept that kind of rigor, bravo. Usually, it's not similar that at all. Instead, it's a little bit of kabuki theater where executives reiterate anecdotes well-nigh competitors and customers. Same ole, same ole.

[The traditional arroyo] . . . is a truly terrible manner to make strategy. It may be an excellent way to cope with fear of the unknown, simply fear and discomfort are an essential part of strategy making. In fact, if yous are entirely comfortable with your strategy, at that place's a strong chance it isn't very good. – Martin

Permit'southward await at a oldie-goldie exercise, and how we might ameliorate it. . .

SWOT. Yes, I admit it. I've done it, and so accept you. 2×2 grid with Strength, Weakness, Opportunities, Threats. Sadly, it's typically created advertizing-hoc during a workshop with limited rigor, and even less follow-through. There is very little push-dorsum among the workshop participants. It's more of a choir than an thought fight society.

Quick tip: Try to dig-into the SWOT. . i) what is the EBITDA implications of that threat/opportunity? ii) who's the possessor of that issue 3) How does that strength feed into our competitive reward? Tin we increment that? Is it an economic moat? 4) Weakness for whom? The entire corporation or a production line. 5) What are we deciding NOT TO Practise?

Then what does the unofficial process look similar?

two. Incremental: What did we do last year?

It's merely man nature that a business executive does non want to be wrong. We are all a little risk-averse. Information technology'due south easy (and a bit lazy) to build off of last twelvemonth's program. Too, nosotros tend to think that next year volition wait like this year (lots of heuristics).

"Worse, actually choosing a strategy entails making decisions that explicitly cut off possibilities and options. An executive may well fearfulness that getting those decisions wrong will wreck his or her career." – Martin

And so the default choice is to go through a series of excel-driven templates that build off of terminal year's calcified assumptions. In defense force of the thousands of companies that have this copy/paste + iii% arroyo to planning:

The organizational G/L and cost centers are ready up similar this
For a massively big corporation, how else do you program to "herd the cats?"
Some industries (e.m., utilities, insurance) may be actually steady
Pre-Covid 19, the US had stable economic conditions for 10+ years (interest rates low, inflation depression, stock market positive); what could change?
Wall Street (unrealistically) expects adept visibility and smooth earnings

These are all ingredients to a cake that looks like planning, not strategy.

iii. Sycophant: What's the answer?

When I was a strategic planner, I was 29-32 years old, and I did not pace exterior of my lane. In fact, I aggressively worked backwards from the respond I felt the executives wanted. It'south natural to "seek to please" the customer or the executive. No shame there. However, information technology is also Non strong opinions, loosely held.

Yes, strategists and management consultants are paid to assistance clients and executives to bridge cantankerous-functional mess and get to yes. However, we should besides build up enough expertise, relational disinterestedness, courage, and eye to push our CEO/CFO/CMO/COO to call up a bit deeper, and act more than bravely.

Keep the strategy simple. Martin argues that strategy needs to focus on the customer (the ultimate arbiter of value) and enquire ii questions:

Where to compete (corporate strategy); which customers?
How to win (business organisation unit strategy); how to create great value.

That's what we should be request, not "what's the answer my boss/client wants."

iv. Internal negotiations

Ask anyone in charge of the strategic planning process (or for that matter – whatever company-wide, forecasting process), and they will tell y'all there are multiple rounds of internal negotiations on cost allocations, sales targets, and bonuses.

Too oft – definitely in my experience, the strategic planning procedure is less about winning in the marketplace, and more about organizing the internal departments and "getting alignment."

So what?

Assigned this article to the strategy grade for the first time, and the timing was eerily perfect. The global economy was systematically shut down and classes were moved to remote. Yes, the perfect plans in the syllabus were changed. In fact, every strategy grouping and strategic plan this yr was thirty-50% wrong.

Strategy involves a bet

Roger Martin is ex-Monitor, Michael Porter's firm that got caused by Deloitte. Martin argues that strategy is about placing a bet. It'due south not about coming up with some perfect excel-model-Nirvana.

At its very all-time, therefore, strategy shortens the odds of a company's bets. Managers must internalize that fact if they are non to exist intimidated past the strategy-making process. Boards and regulators need to reinforce rather than undermine the notion that strategy involves a bet. – Martin

Strategy is a portfolio of phone call options

Read an article from Bain called, "5 Ways the Best Companies Close the Strategy-Execution Gap" here and it super resonated. The thought is that we live in a VUCA (volative, uncertain, complex, and ambiguous) world, and of course, our strategy volition exist imperfect. Information technology'due south a strategy, not a program, call back?

Then if you think of it like "telephone call options", y'all can invest a little fleck here, and there, and wait and run across. If the strategy starts to bud – invest more. If it starts to die – reassess and be willing to cut bait, and de-fund the venture.

Discovery-driven strategic planning

On this topic, also a huge fan of Rita Gunter McGrath'due south (Columbia) article entiteld Discovery Driven Strategic Planning here. Very similar to the Bain thought that instead of putting together a 300+ folio PowerPoint that y'all don't look at through out the year, why non simplify it and make it easy to refer to, and marginally fund the ideas that work. Test, examination, test. Jim Collins would approve.