The Building Blocks of Strategic Planning
HIGHLY EFFECTIVE STRATEGIES ARE BUILT ON A COMMON APPROACH
Among the many characteristics I love about strategy work, surely variety is near the top of the list. By this point in my career, I’ve completed nearly 30 client-facing strategy projects, each with their own flavor, areas of emphasis, sticking points, unexpected twists, and executive team dynamics. While, for me, this ensures the work remains engaging and full of opportunities to learn, it makes it challenging for executives with less exposure to strategy to understand exactly where we’re going and how we’ll get there.
I maintain that truly efficient and effective strategic planning deserves a custom approach (and this lack of customization is, indeed, why so many annual strategic planning processes seem to collapse into wasteful theater), but there are a handful of fundamental building blocks that appear in every strategic effort. In fact, so fundamental are these building blocks that their absence guarantees a strategy that is weak, low impact or even harmful. These blocks are depicted in the exhibit and each step covered in greater depth below.
Exhibit: Common building blocks of strategy formulation (click to download)
Aspiration Setting:
What Are We Trying to Achieve?
Aspiration setting establishes your company’s quantitative and qualitative goals. Those goals almost always include a revenue or growth and profitability target over some defined timeframe. They sometimes also include other measurables – like valuation, return on capital or market share – or even qualitative objectives related to things like competitive positioning, global presence, employee base or culture.
How to do it: A good strategic planning process should start with a discussion of aspirations, conceptual at first, focused on the kinds of objectives that are most important, and moving towards the quantitative. A good set of aspirations inspire action by forcing your company to reach just beyond what feels possible and yet, are grounded in reality (or they risk demotivating). They also function as a filter through which you view emerging strategic options, guiding what you discard quickly and where you dig deeper. Therefore, the aspiration setting phase is long and iterative with other parts of the strategic planning process. As you learn more about your business, your marketplace and the resulting opportunities, aspirations are revised to ensure they sync up with the evolving strategy.
Pitfalls: Common mistakes in the aspiration setting step including skipping it entirely, being insufficiently specific or aspirational, or divorcing them from the bottoms-up potential of the developing strategy. Each of these pitfalls leaves the power of great aspirations – to motivate and to guide strategic decision-making – untapped.
Internal Assessment:
What Is Our Starting Point?
A thorough internal assessment evaluates where the business is today, establishing a realistic and unified view of quantitative performance along with qualitative strengths and weaknesses. It should force participants to look at the business in new ways, to call into question the conventional wisdom around what’s working and what’s not. The objective of such self-reflection is not to limit what is possible, but to provide an honest view of the springboard from which strategic aspirations will be launched.
How to do it: There are two primary components of a strong internal assessment: a quantitative view of financial performance and a qualitative view of core competencies. Despite its position in the exhibit, the internal assessment need not come before the external and is, in fact, frequently carried out in parallel.
To conduct a granular financial assessment of the performance of the business, prioritize data cuts that are aligned with natural market divisions and business cycles rather than organization structure or calendars. Consider alternative metrics such as ROIC (return on invested capital) and dig into peanut-buttered allocations to get a fresh view of performance. Disaggregate growth due to riding the market vs. M&A vs. share gain. In short, find new ways to look at your old data.
Evaluate your competencies critically by finding alternate points of view. Test with outside parties, like suppliers and customers, and your frontline employees. Play devil’s advocate and benchmark quantitatively where possible.
Pitfalls: It takes considerable effort and ingenuity to challenge the conventional thinking in a business, not to mention the emotional energy required to be vulnerable and navigate inevitable disagreements. The common mistakes in this step arise largely from an inability or unwillingness to do this hard work; the result is looking at the business in the usual way, believing our own BS on core competencies and assuming past successes will predict future ones.
External Assessment:
What Is Happening in Our Market(s)?
The external assessment is one of the most important – and most often underleveraged – elements of strategy formulation. By establishing a deep understanding of the entire relevant value chain(s) along with the macro- and micro- trends impacting each element, a great external assessment provides the impetus for disruptive thinking and breakout opportunities, but also challenges us to critically assess whether we really can win with our emerging strategy.
How to do it: It is critical to get outside of the office, especially the executive suite, when conducting a worthy external assessment. Off-the-shelf market reports can be a good starting point, but they should not be the ending point. Talk to salespeople, customer service representatives and marketers, all the frontline employees who spend every day in the field. But don’t stop there. Engage directly with customers. Bring in experts and futurists. Devote time to immersing yourself in expansive thinking; be willing to be uncomfortable.
After a period of immersion, a great external assessment patiently distills that information into a few critical analyses: first, a value chain analysis that makes sense of the overall and individual performance of and within the industry through structure, conduct and any exogenous shocks. Second, an articulation and quantification of the key trends that matter most, organized by time horizon and whether they are headwinds or tailwinds (or both). Finally, a characterization of critical uncertainties, identifying ranges of possible outcomes, timeframes, and leading indicators of change.
Pitfalls: Most companies assume they know their markets well and tend to regurgitate executives’ conventional wisdom. But all too often, executives haven’t spent real time in the marketplace for years, even decades; they’re playing old tape. Ignoring the frontline and other challenging sources of insight is the primary pitfall of the external assessment. Other common errors include staying within comfort zones, assuming the future is entirely unknowable (or entirely knowable) and neglecting competitors or defining them too narrowly.
Option Generation & Evaluation:
What Could We Do and What’s It Worth?
This is the step that springs to mind when most people think of strategy: a room full of businesspeople hashing out the future, making decisions about where to take their company. Quite a lot of iterative work goes into making sure those decisions are grounded in facts, robust to marketplace dynamics and sufficiently considerate of the range of possibilities. Defining a set of discrete, plausible alternatives inspired by the external and internal assessments launches this phase of work. Quantitative and qualitative exploration of the implications of each of those alternatives follows, gradually eliminating some options while raising new questions that may require additional fact-finding, until a single alternative rises above the others to become your strategy.
How to do it: Creativity and synthesis reign supreme to convert the milieu of aspirations, business performance, company capabilities, marketplace insight, trends and uncertainties into strategic possibilities. To choose among them, establish the decision criteria that will be used, factoring in ability to meet aspirations but also likelihood of success and fit with your company’s core strengths relative to competitors. Conduct financial analysis with an appropriate level of specificity and the flexibility to account for uncertainties. As one (or a few) preferred options begin to surface, consider wargaming or role-playing to test their robustness to competitive moves and a premortem (like a postmortem, but beforehand – assume the strategy has failed; what went wrong?) to identify thus far unforeseen risks.
Pitfalls: When it comes to strategic decision-making, the most important – and often hardest – thing to do is choosing what to say “no” to; avoiding this hard work, instead trying to have it all, is a key pitfall. Other common pitfalls include assuming hockey-stick results in your financial analysis and neglecting competitive responses.
Roll-Out and Execution:
Mobilizing for Impact
Having done the hard work of collecting facts, challenging your assumptions, debating with colleagues, and arriving, at last, at a strategy that provides a pathway to achieving your ambitions, it is now time to figure out how to implement it, to turn those strategic answers into operational choices. Some might say the work is just beginning.
How to do it: Strategic communication should be a major focus of every execution effort. While you might have engaged a good portion of your organization at some point in the strategy formulation process, most were probably not involved in making the final decisions. You will need to bring the entire employee base along, get them to believe in the chosen direction and help them understand the changes that will be demanded of their teams and of themselves.
Beyond communication, there will be other key initiatives suggested by the strategy itself. Define, sequence and resource them and assign strong executive sponsorship to each. Establish an appropriately scaled project management office to ensure progress continues apace, identify and eliminate roadblocks, and make adjustments as the strategy evolves.
Measure everything you can, from financial performance to initiative progress, cultural acceptance to the key marketplace trends and assumptions underpinning your strategy. A great strategy lives and breathes; tend to it.
Pitfalls: Strategy formulation can feel like a marathon and the accompanying desire to be “done” can prevent leadership teams from turning to strategy execution with the necessary level of energy and commitment. Communication can get rushed; one memo and a townhall will not result in the deep organizational change demanded by most strategies. Finally, a strategy that conceives of a substantially new direction often requires top-down reallocation of resources to make sure that the scarcest assets – whether talent, capital or operational spend – are aligned in a new way.
Putting the Pieces Together
Assembling these pieces – with the right proportion and depth – in a way that reflects the unique needs of your company and circumstances is an art around which an entire industry has been built. Still, with each exposure to strategy formulation, you will become more familiar with the pieces, their value and how they come together to result in provoking discussion, new ways of thinking about old businesses and, when done well, great strategies that lead us into a bright and promising future.
Do you recognize each of these building blocks from your prior strategy efforts? Anything you think is missing? Pitfalls you wish you’d known about? Leave your thoughts in the comments and don’t forget to subscribe to hear about future postings!
