Four Fatal Flaws of Strategic Planning

Transcription

1 A NEWSLETTER FROM HARVARD BUSINESS PUBLISHING ARTICLE REPRINT NO. U0904A Four Fatal Flaws of Strategic Planning by Edward A. Barrows Jr. See a complete list of Harvard Business Publishing newsletters: Harvard Management Update reprints and subscriptions: phone or Customized and quantity orders of reprints: phone or fax Permission to copy or republish: phone

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3 Four Fatal Flaws of Strategic Planning by Edward A. Barrows Jr. Strategy execution is drawing a lot of attention these days, but that in no way means companies have abandoned their time-tested strategic planning processes. In fact, as far as management tools are concerned, strategic planning is as popular as ever, with 88% of large organizations engaging in some form of formal strategic planning, according to Bain & Company s global 2007 Management Tools and Trends survey. This number may still be on the rise as economic conditions force companies to search for new ways to jump-start business growth. Yet despite this widespread adoption, managers continue to make fundamental mistakes that undermine otherwise well-intentioned strategy-formulation efforts. Here are four fatal flaws that consistently creep into strategic planning processes that, if avoided, can significantly improve both the process and the results. 1. SKIPPING RIGOROUS ANALYSIS Many managers believe their business experience and knowledge base alone equips them with all the information they need to conduct effective strategic planning. This belief is almost always untrue and serves only to undermine the kind of critical thinking from which truly creative strategies are born. A good strategic planning process takes full advantage of the numerous tools of strategic analysis such as the five forces model, strategic group maps, or the value chain to gain key insights regarding how the industry is evolving, how competitors are changing positions, and where an individual firm s sources of competitive advantage lie. Many executive teams earnestly believe that effective strategies can be identified, explored, and agreed upon during abbreviated off-site meetings where the main driver of the agenda is the timing of meal breaks. Eric Okerstrom, vice president of strategy management for Hagerty, a national specialty insurance agency that insures collectible automobiles and wooden boats, learned this lesson during his most recent strategic planning efforts. The company conducted extensive customer analysis and market segmentation work and, in so doing, realized that its brand wasn t as well known as senior-level executives had first thought. Our entire leadership team believed that most participants in the collector market knew who we were and wanted to do business with us. What we found out during our analysis was that while our brand was strong amongst our core client base, there was room for improvement. It wasn t that Hagerty didn t have a known brand or delighted customers it did. It was just that marketing perception and share data revealed that the Hagerty name wasn t as widely recognized as company managers previously thought. We reoriented a significant portion of our strategy and reexamined who our true competitors were because of the data we encountered during the analysis, says Okerstrom. They found that while the traditional end-user insurance purchaser was still important, it was equally important to focus more intensively on the general insurance agency channel that was recommending their product. Now they have adopted an innovative sales approach with a key distributor segment that will help them reach a major portion of the market they had not focused on previously. 2. BELIEVING STRATEGY CAN BE BUILT IN A DAY In Hagerty s case, changing the minds of key managers took longer than one day. Yet many executive teams earnestly believe that effective strategies can be identified, explored, and agreed upon during abbreviated off-site meetings where the main driver of the agenda is the timing of meal breaks. While off-site meetings are useful forums in which to share information and address key issues, meetings should be adequately timed over days or weeks if necessary so that sufficient preparation and review and discussion can occur before and during the event. MDI Group, one of Atlanta s largest IT and financial staffing organizations, has engaged in annual strategic planning each year for the past decade. In preparation for their yearly offsite, the leadership team, after examining a comprehensive package of performance information, completes a series of templates including a SWOT (strengths, weaknesses, opportunities, and threats) analysis and a key capabilities review. We would Copyright 2009 by Harvard Business School Publishing Corporation. All rights reserved.

4 Flaws in Strategic Planning continued discuss our SWOT analysis in the morning of the first meeting day, summarizing critical issues as we went. Then we would brainstorm how to address those issues immediately following lunch, with a hard stop no later than 3:00pm, recalls Mike Cleland, president of the IT division. It always felt rushed, and it seemed like we never really got our arms around the underlying forces driving the key issues. In reality, they didn t. MDI leaders became frustrated as they kept encountering the same key issues year after year, despite putting significant time and energy into the planning process. Executing strategy requires the work of the entire organization, whereas strategic planning requires only the top team. So MDI modified its approach. For their most recent strategic planning efforts, the leadership team conducted the same up-front activities, but this time they identified four key issues a month before not the day of their meeting. Each key issue was assigned to an issue team comprised of senior managers for detailed analysis prior to the meeting. For three weeks, each team applied a structured problem-solving approach to their issue, isolating root causes and identifying plausible courses of action. Teams then briefed their findings the day before the offsite to ensure all participants had a consistent understanding of the issue, the causes, the options, and most important the team s recommended plan going forward. The result was a streamlined process and better decisions. It really accelerated the meeting, said MDI CEO Ella Koscik. Also, we have a much higher level of confidence in our actions coming out of this meeting than we ve ever had in the past. 3. FAILING TO LINK STRATEGIC PLANNING WITH STRATEGY EXECUTION According to a recent survey by the Conference Board, execution overall and strategy execution in particular hold the first and second positions when it comes to top issues in executives minds. It s no wonder executing strategy requires the work of the entire organization, whereas strategic planning only requires the top team. But part of a top team s challenge in execution often stems from the failure to link their work with ongoing strategy execution. In his article, Obstacles to Effective Strategy Implementation (Organizational Dynamics, Vol. 35, No. 1, 2006), Lawrence Hrebiniak of the Wharton School notes that Strategic success demands a simultaneous view of planning and doing. Managers must be thinking about executing even as they are formulating plan. Prescolite and Progress Lighting both brands of Hubbell (headquartered in Orange, Conn.) show how to accomplish this in practice. Both businesses use what they dub the Long Range Strategic Planning (LRSP) process. This integrated strategic planning and execution system incorporates both strategy formulation activities, such as ongoing analysis of changes in market conditions, with execution activities like management of integrated strategic programs. At the start of the planning year, they perform a deep dive on critical competitive issues facing the businesses; the remainder of the year they focus on measuring and monitoring the progress they are making relative to the strategy. As they encounter unforeseen issues which they usually do they then analyze them within the confines of the LRSP process. They also maintain a running list of must-do integrated programs that they readjust as business conditions change. We ve refined the LRSP process over the past several years to not only make it more flexible and responsive to changes in market conditions, but to also make it more integrated, says Charlie Harris, vice president and general manager of the Indoor Lighting division. The process today is at the center of what we do and largely responsible for driving successful execution of our brands strategies. These businesses have made their strategy process a continuous and dynamic one a more realistic approach than the once-a-year planning meeting that still dominates many corporate strategic planning efforts. 4. DODGING STRATEGY REVIEW MEETINGS Strategic plans quickly become obsolete when there is no activity in place to keep them alive. Worse, managers sometimes feel freed from execution accountability when reviews are continually rescheduled or dropped from the calendar altogether. People were watching to see if [FBI Director Robert S.] Mueller was serious about the strategy. By the end of the meeting, after some pretty intense questioning, it was clear he was. The most direct way to maintain a consistent focus on strategy is to schedule and hold regular strategy review 4 HARVARD MANAGEMENT UPDATE APRIL 2009

5 Flaws in Strategic Planning continued meetings. At the end of the strategic plan formulation, managers should establish a strategic governance process where strategy review meetings whether they are monthly or quarterly are scheduled a year in advance. This way, managers can be sure the time for the sessions remains sacrosanct. A typical strategy review lasts anywhere between a half and a full day so leaders must plan accordingly. To make the meetings productive, the leadership team should develop a standing agenda they can follow consistently each time they meet. The strategy that was created at the beginning of the execution cycle should be the topic of conversation at every meeting no discussion of operational issues should be allowed. Consistent with avoiding fatal flaw number one, the necessary analysis should be prepared and the findings circulated before the meeting so that the session can be dedicated to guiding decision making as opposed to conducting unbounded, unstructured discussion. The Federal Bureau of Investigation (FBI) began holding regular strategy review meetings at the end of 2007, when it started developing a new strategy execution system. While the FBI maintains a vigilant 24-hour-aday, 365-day-per-year focus on its top tactical priorities, senior-level managers had never formally held strategy review meetings. It was really interesting watching [Director Robert S. Mueller III] ask his staff how they were progressing on their parts of the strategy, noted Executive Assistant Director Tom Harrington of the FBI s Criminal, Cyber, Response, and Services branch. People were watching to see if Mueller was serious about the strategy. By the end of the meeting, after some pretty intense questioning, it was clear he was. The FBI has gone on to hold strategy review meetings quarterly at the mandate of Director Mueller. Further, both their reporting process and meeting approach has gotten more refined. The meetings get better every time. They re more focused now; we ve come a long way from where we started, says Ryan Kennedy, the strategy management analyst responsible for facilitating the process. Running effective strategy review meetings is a learned skill but one that starts with scheduling and sticking to the strategy in the first place. Edward A. Barrows Jr. is a lecturer at Babson College and the founder of edbarrows.com. He specializes in coaching executive teams to improve their strategy processes. Reach him at MUOpinion@harvardbusiness.org. Reprint # U0904A: To order a reprint of this article, call or HARVARD MANAGEMENT UPDATE APRIL

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