Monday, January 25, 2010

Bad Strategic Planning Doesn’t Always Work

Today’s Wall Street Journal (Jan. 25, 2010) ran an article entitled “Strategic Plans Lose Favor.” In the opening paragraph, the authors claimed that “executives discovered that strategic planning doesn’t always work.” The article then goes on to explain some of the “strategic planning” that didn’t work. After reading the article, I would like to rephrase that quote to read “executives discovered that bad strategic planning doesn’t always work.”

Strategic Planning has an image problem. If I understand this article correctly, many executives have a vision of strategic planning as being like a rigid straightjacket—something that cannot be taken off or readjusted for one to five years. The straightjacket tends to consist primarily of a set of financial assumptions and other numeric data which get frozen in time and only get reassessed at on an annual basis.

The article uses words like “distant calendars,” “rigid forecasts”, “inflexible method,” and “static five-year strategic plans.”

Naturally, if this is one’s view of strategic planning, then I can understand why you might say that strategic planning did not work during the recession. Who wants to be strapped into a straightjacket when they are drowning in the depths of a recession? Even Houdini knew that if you want to escape the drowning, you have to get out of the straightjacket.

As long as strategic planning is viewed as a straightjacket, executives will be weary of putting it on. That image needs to be changed. Instead, we need to portray strategic planning as being more like putting on running shoes that help us outrun the competition in the race to the future.

The emphasis has to shift from focusing on numbers, books and annual meetings. This is an obsolete mindset. Instead, the focus needs to be on positions, paths, points on a compass, and points of inflection.

1. Position
Just because a straightjacket is too confining does not mean that we should abandon all restrictions on movement. Random motion never leads to forward progress. Moving in all directions at once is about the same as moving in no direction at all.

Therefore, one needs to choose a basic direction for the company—which I call a position. A position explains why your business has a right to exist in the marketplace and why a certain customer segment would prefer it. It is the place where you win.

It may be a position based in price, or service, or quality, or durability, or fun, or rebellion, or convenience, or variety, or personalization, or taste, or status, or coolness, or whatever. The point is that trying to be all things to all people at all times will fail. You need to find your position in the world and make the proper trade-offs so that you can be the best and win there.

Sure, the environment ebbs and flows over time. But unless you anchor yourself to a position, that ebb and flow will toss you about until you are totally adrift and lost at sea (or at least your consumers will be lost regarding what you stand for). If you are a status brand like Gucci, you cannot suddenly become a leading low price bargain brand in the recession and then try to regain the status image again when the recession is over. Sure, you may bob a bit and adjust to more of the starting price points in your mix during a recession, but a luxury status brand needs to stay true to its position or it will destroy its reason for existence.

Positioning not only tells you who you are, but who you are not. This narrowing of options allows you to be faster and more adaptive to a changing environment, because you do not have to totally reinvent the wheel with every decision. It becomes your running shoes, helping you to move faster, because the decision-making becomes more obvious—go in the direction which is consistent with your position.

Strategic planning’s new role is to help get everyone on board as to what your position is (or should become) and what it means for everyday decision-making. It needs to be there at the decision making table every day—not just once a year—so that the tyranny of the immediate crisis does not lead to random decisions which set a company adrift.

If you want to learn more on positioning, I’ve written quite a few blogs on the topic. Just search the blog for positioning, or click on “positioning” on the topic list to the right of my blog.

2. Points on a Compass
If you want to win a race, it helps to know where the finish line is. Your position will help determine where your finish line should be (not all companies have the same finish line as we discussed in an earlier blog). For example, if your position is based on superior innovation, then your finish line is in the direction of creativity, R&D and any other way to accelerate innovation. That is the direction on the compass you follow. You would not follow the direction of excessive cost-cutting and imitating the competition. That is a totally different compass point that will probably destroy your position.

So strategic planning helps you find your direction on the compass—“Go West!”—where the direction is defined as the path that gets you more strongly positioned to win.

Now in the past, strategic plans may have tried to dictate the exact route of that path, with minute detail on precisely what gets done at what time (that straightjacket idea). However, the new approach is to focus on the general direction on the compass (go West) rather than the exact path.

This new approach improves your speed and agility. For example, if the path you are on runs into an obstacle, like a tree or a mountain, the old approach might have been to stop and cut down the tree or dig a tunnel through the mountain (got to stay true to the path of master plan, even if the tree wasn’t in the plan). However, under the new approach, the idea is to just push west. If a tree or a mountain is in your way, look for an easy way around it. As long as you are generally still moving west, you are okay.

Therefore, the role of strategic planning is to be there for everyday decisions to ensure that these little detours due to the obstacles in the current environment don’t derail the strategy and that they are generally still pointing the company in the right compass direction (or to get it back on track after the detour).

3. Points of Inflection
Every once in awhile, the environment changes so dramatically that “all bets are off” on the old strategy. For example, the rise of the internet and firms like Expedia and Orbitz necessitated new strategies for travel agents. The move from analog to digital made many strategies for analog companies obsolete. The big recession has made some lasting changes in attitude for some people and how the buy.

These mammoth changes to the status quo are called inflection points. An inflection point is when a curved line changes its trajectory. “Destiny” has taken a new direction, and it is highly likely that your strategy needs a new direction as well.

These typically don’t happen all that frequently. However, when they happen, you need to be prepared to act quickly to take advantage of the change (rather than be defeated by it).

One of the key roles of strategic planning is to monitor trends to find those early warning signs (trigger points) that an inflection point is near. In addition, strategic planning has a role in preparing the company for the change, so they can act quickly and decisively when the time is right. Again, this process helps the company move faster when times change, like putting on those running shoes.

For more information on inflection points, see my earlier blog.

If you think of strategic planning as a rigid straightjacket, then you have an outdated and not very useful tool. However, if you think of it more like running shoes, then it will be a very relevant and useful tool. Running shoes focus on positioning, compass direction, and inflection points.

The race is not always won by the fastest runner, but the runner who knows the fastest path to the finish line. Don’t abandon all planning to run wildly in all directions. Take a little planning time first to orient yourself towards the finish line.

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