Sunday, March 9, 2008

Analogy #162: Use Your Muscles

About three times a week, I work out vigorously at Bally Fitness. On a typical workout, I burn up about 1,000 calories on the elliptical machine, then do some weights for the upper body, and finally cool down by swimming about 10 lengths in the pool.

When I tell people this, I get odd looks from them as they consider how much I say I exercise and they look at the shape of my body. I don’t exactly look like a body builder. For modesty’s sake, I hide my muscles under a layer of fat.

However, for a person of my age, I’m in reasonably good shape. So the other day, my wife wanted to rent a U-Haul truck and bring a bunch of furniture to the house. Aha! A chance to show off my strength. But then she asked me to see if I could find some friends to do the furniture moving.

What’s the point of exercising if you never take advantage of the strength and endurance you build?


I don’t particularly enjoy exercising a Bally Fitness, but I do it as a means to an end. I do it to have a healthier body, one that weighs less and is less susceptible to catching the cold or the flu. I also do it to give me better strength to do chores around the house. If the exercising did not have these benefits, I would stop doing it.

When my wife wanted me to have others haul the furniture, it made me feel a bit as if all that exercising was a waste of time. I had built up that strength and endurance, so why not use it?

Athletes exercise as well. They train for hours upon hours, building up muscles and endurance. Do they do this because they like to train? In most cases, no. The athletes train because it will make them perform better in their chosen sport. Similar to me, they do it merely as a means to an end.

What would you think as an athlete if you trained very hard but were never allowed to play in the game? What if you were told you had to sit on the bench for every game, and the coach would pick a fan at random out of the stands to play in your position? These fans don’t work out as hard as you do, but they get to play in the game.

Not only is that not fair, but it is foolish. Because you, as an athlete, have been in constant training, you are better equipped to play the game. There is more risk of something going wrong if you put an untrained fan into the game. Why would a coach want to take that added risk when there is someone far less risky sitting on the bench?

Going through the process of strategic planning is like exercise for the corporation. It helps build knowledge and insight. The more you exercise the “muscles” of strategic planning, the more knowledge and insight you will have. Yet, as we will see below, many firms keep strategic planning “on the bench” and make their toughest decisions without it.

What’s the point of having a strategic planning process if you do not apply the knowledge and insight? Why increase the risk of making a less than optimal decision by ignoring the skills you have sitting on the bench?

The principle here is that strategic planning is not to be done because it is a nice thing to do. Getting a strategic plan developed is not the end in itself.

Just like exercise, planning is merely a means to another end. The primary purpose of doing strategic planning should be to reduce risk. The fate of one’s business has a lot to do with the quality of one’s decisions. Strategic planning can reduce the risk of making a weak decision because of the knowledge and insights it provides.

Unfortunately, businesses often do not take advantage of the risk reduction capabilities inherent in strategic planning. On many of the most important decisions, strategic planning is left on the bench.

Back in 2006, McKinsey & Company conducted a survey of business executives. They were asked a number of questions regarding their company’s use of strategic planning. What McKinsey found out was that most companies go through the “exercise” of strategic planning. In fact, more than three-quarters of the executives said their firm had a formal strategic planning process.

However, the study found that less than one quarter of the companies use their strategic planning process to make their most important decisions. Instead, typically top leaders just make the decision (often alone, but sometimes with a small senior group).

With strategic planning often frozen out of the decision-making process, it is no surprise that the study found that over half of the executives were not satisfied with their company’s approach to making strategic decisions. Conversely, the more that strategic planning was utilized, the greater the level of satisfaction.

The areas where executives were most dissatisfied with the decision-making appeared to center around:

1) Not enough alignment between individual decisions and the overall strategy.

2) Not enough monitoring of where a company is heading versus where the strategic plan
wanted it to go.

3) A lack of focus on what is truly important from a strategic perspective.

In other words, when strategic planning is left on the bench, decisions become isolated events. They are disconnected from any continuity to other decisions because there is little regard for any strategic context in the decision making. Without this strategic context, one can lose focus on the big picture and sub-optimize when making the decision.

With each decision sub-optimizing based on different criteria (lack of common focus), what happens is that instead of moving the entire company in the direction of the strategic plan, portions of the company are moving in all sorts of different directions.

This would not be so bad if a company had a process to monitor when a company gets off track on its strategy and a means to get back on course. Unfortunately, about one-third of executives in the McKinsey survey think their company lacks an effective method to monitor progress against the plan. In other words, not only are decisions often made in isolation from strategy, their outcomes are not measured against strategy.

This would be like making a flight plan, but once the airplane is in the air make every decision in isolation without referring to the flight plan. Then, on top of that, ignore the all the instruments on the airplane because you do not want to measure performance versus the flight plan. Under such circumstances, you would be lucky to actually land the plane safely. And if you do, I doubt you would end up at the destination placed on your flight plan.

Why take so many needless risks? Strategic planning can reduce these risks. Exercising is done for a larger purpose. If you are going to the trouble of doing strategic planning exercises, you may as well use those muscles to reduce the risk of making less than optimal decisions.

Strategic planning should not be an isolated project which has no bearing on day-to-day decision-making. Instead, strategic planning should be integrated into all major decisions. By ignoring the strategy at the time when decisions are made, one increases the risk of sub-optimizing and not reaching one’s ultimate strategic goals.

Strategic planning reduces these risks by providing knowledge, a strategic context/focus, and a means to monitor effectiveness early enough to get back on course.

Some people build muscles just for show. That’s nice, but if I’m going to work that hard at getting them, I want to use them. Is your strategic planning department just for show or do you put those muscles to use?

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