Monday, February 1, 2010

Is Strategic Planning Dead?

The Wall Street Journal ran a story last week on the downfall of strategic planning.  According to the article, companies learned during the recession that flexibility and quick decisions are more important to a business than planning, and that strategic planning as a practice is becoming outdated.  I hope anyone who decides to scrap a company's strategic planning process based on this article clearly understands the ramifications before doing so.

As I read the article, I found that the authors pointed out many of the misconceptions of the strategic planning process more than the problems with the concept itself.  People often mistakenly utilize the process as solely a financial review and confuse strategic planning with budgeting.  The article mentioned several examples of companies that realized during the recession that they were not reviewing sales and spending numbers often enough to react to quick changes in their markets.  By itself, this realization makes perfect sense as the last two years has been characterized as the worst since the Great Depression.  With that said, however, the need to stay on top of budgets has nothing to do with the value of an effective strategic planning process.

Strategic Planning 101

Strategic planning is a process by which an organization defines its strategy to successfully achieve its fundamental purpose.  The outputs of the process include high-level objectives (critical improvement areas) and initiatives (action plans to address the barriers that prevent achievement of the objectives).  It is a valuable process to assure the organization understands its strategies to improve its competitive position and be successful for many years into the future.

Periodic review is required to (1) assure that the initiatives are progressing as intended; and (2) assure that the initiatives - if they are progressing - are actually resulting in achievement of the high-level objectives.  For example, an organization may create an initiative to change its ERP system in order to support the objective of improving inventory management.  If the new system is implemented but inventory turns do not improve and stock-outs continue to delay shipments, it may be that the ERP system was not the problem and, therefore, should not have been an initiative.  The management team needs to revisit the inventory management system in order to determine how to improve the situation (e.g., identify other initiatives that will result in achieving the objective).

There is no single approach for strategic planning that will work for all organizations.  The process must be tailored to the specific circumstances and culture of each company.  The depth, frequency, and type of review will be different for everyone, but it must still be done if the organization is to become and remain successful.

Remember the Future

Eliminating the strategic planning process will only serve to increase the number of attention deficit disorder (ADD) companies that already exist.  The short-term behavior that has severely weakened so much of western business will continue, resulting in a continuation of dramatic swings in earnings and share price.

Let's be clear - I am not discounting the value of quick decision-making to a business.  Problems occur, though, when "quick" becomes "careless."  A company can benefit from continually focusing on speeding up decision-making without sacrificing quality.  Improving information systems and training can speed up decision-making without putting the company at risk.  If this is what a company needs, though, it will become evident through the planning process.  Those who believe that strategic planning is a slow process that does not add value are not doing it correctly.  If the process is too slow and is not helping the business grow and succeed, it needs to change.

The leader is responsible for assuring that the organization survives the short-term so it can succeed in the long-term.  Quick decision-making and frequent reviews can help take care of the short-term while effective planning (and successful implementation of the plans) is the key to taking care of the long-term.  Stop strategic planning and you might as well forget about the future of the company.


Richard Davis said...

I'm reminded of the quotes ascribed to both Churchill and Eisenhower along the lines of plans being of little importance but the process of planning being essential.

Gregg Stocker said...

Richard-Excellent point that I did not make in the post. The benefits of the planning process itself are among the things that can never be measured. It improves teamwork, gets everyone on the same page, and increases each individual's knowledge of the business.

Thanks for the comment.

Anonymous said...

In order to plan strategically as you pouint out one needs to know what the purpose of the organization is. I would also argue that to plan effectively one also needs to know what values the organization upholds. I suspect that a lack of true understanding of purpose and values is what really underlies a lack of belief in strategic planning.

Odd for Wall Street to consider that strategic planning might be of little value as that's the reason we give them all our 401k money. If strategic planning is worthless may as well keep our money in a sock.

Gregg Stocker said...

Definitely. I believe that values is every bit as important as mission/vision. Actually, I tend to refer to them together as "purpose" but it is probably clearer to list them separately.

Anonymous said...

I would challenge the WSJ to point to ANY successful business, war victory, championship sports team, presidential campaign - you name it - that did NOT have a strategic plan, and achieved success merely by "winging it". I will bet the farm you cannot mention one.

This is some DANGEROUS thinking here.

This is the WSJ's way to call a dirty little habit they have supported over the years something new. WSJ is basically saying - "react how the Street wants you to react - be able to answer analyst expectations and you will succeed" - sure you will - YOU will certainly get your bonus and hit your numbers THIS year. but this is NOT a long term solution to anything and is a fatal decision to anyone who chooses to try it out.

The key is to build a strong, executive team with proven character, build a solid strategic plan with effective risk assessment and management techniques to be prepared for contingencies, which would include short term contingency plans. Thats how you react to unforseen changes in the market.

This is basic human nature 101 - training and preperation ALWAYS results in a cool head in times of crisis. Lack of preperation in times of crisis will ALWAYS result in fear and panic. Name ONE executive team out there that operates well in "fear and panic" mode. None.

This idea of scrapping strategic planning outright is a shocking indicator that we have learned NOTHING in the past 10 years.

This is perhaps the dumbest thing I have ever heard come from the WSJ in all of my years.

Lindsay Gorrie said...

In my arena Strategic Planning is understood to be that which takes place to guide the overall direction and required outcomes; the day-to-day reactive and proactive planning is done closer to the coal face, where the aims and processes "handed down" from the hierarchy are turned into real-world results.

Certainly budgetry considerations are involved but only as data; they do not dictate what is handed down.

Strategic plans are developed at a pace that matches the exterior forces. Quiet times allow to long involved planning processes; a volatile environment results in shorter, more focused planning.

This give the "lower" managers the direction they need to keep them all on the "same page" while giving them the freedom to stay on top of what is happening around them.

Careful use of resources so that waste does not occur and efficiencies are maintained or increased is part of that day-to-day planning.

Failure to make and take into account strategic plans means that the day-to-day stuff can get totally off track leading to a failure to connect with the overall thrust of the organisation or even result utter disaster.

Oh, my arena? Fire fighting. :)

Julia Lindsey said...

I think a business can spend too much time planning and forget to take action. I think if a business is to succeed there must be a plan and a way to measure result. Without a good system in place you can go a year and never get closeer to your target and have no idea why your actions are not working.

Crispin Garden-Webster said...

Was strategic planning ever alive? No seriously lets be quite clear on this...the 101 definition offered misses a fundamental point. Planning is simply a series of actions that chart the execution of an idea, i.e. planning is just planning and is not in and of itself strategic.

What is strategic is the 'thinking'; this is where the value has always lived. Strategic thinkers create the direction and context by describing the future up close and placing the status quo at a distance in a place where it doesn't block their view.

Strategic thinking is not shackled by any lingering anxiety about trying to predict the future and moves instead to taking accountability for deciding what future we actually want to create; and doing this in a manner that avoids the traps of deficit thinking.The conflict based language of missions,objectives and targets can often be accompanied by a mindset of resource scarcity. When we combine scarcity and threat it is an effortless step to slip into deficit thinking and focus on protection and competition with other players in the same sector.

Likewise the prediction mindset assumes that influences other than our own are totally in charge of the future and we are simply hoping to work out what that is. Hope is not a method and if we don’t take an active role in determining the future then indeed we will have to live in someone else’s definition of future and it may not be the one we want. This is what strategic thinking is about.

I'm not sure that strategic thinking and planning are complementary skill sets and perhaps this is where the breakdown occurs. People skilled in planning are not necessarilly skilled in strategic thinking and vice versa, so organisations might be wise not to assume that one goes with the other.

Gregory Gull said...

It would seem that holding the position that strategic planning has no value is advancing the notion that quick reaction to what chance provides is all that is needed--hoping for lady luck to shine favorably upon you. This is not a prescription for lasting success, as all losers at the black-jack table will attest. Progress requires the long-view; it requires both hindsight and foresight--thinking beyond what the immediate moment requires.

Anonymous said...

Strategy primarily is to differential a company. Planning the same would be a quintessential component of Business strategy. WSJ is clouded in its definition. I would assume agility ( reacting quickly) would be one of the organizational cultural challenges. One might argue that being agile might be a strategic need. Thats right and it is a subset of overall startegy planning.

Joseph Patuto said...

All business need to know where they are going; if not you could end up anywhere. Strategic alignment is a tool that implements business plan objectives. It is not that hard, it just requires discipline, strong and a committed leadership team, something surely lacking in many business.

Unknown said...

I still believe in the power of strategic planning, if the company thinks a quick decision and planning will bring remarkable out comes they probably don't know how to run a real business. The writer also believe that eliminating the process will bring the company in a attention deficit disorder. The concept of business strategic planning is to put everything in order, I don't see any reason why they are killing the beautiful concept.