Tuesday, March 8, 2011

Strategic Planning Analogy #380: Where Should Strategic Planning Report?

Baking soda has an interesting quality. It will absorb the odors around it. After awhile, the baking soda will smell like the odor of its environment. Then it is no longer useful for baking.

Strategic planning departments can be like baking soda. Just as baking soda can take on the odor of its environment, planning departments can take on the culture of their location within the organization.

For example, if you place a strategic planning department within the finance department, it will tend to take on a lot of the characteristics of finance. Planning will tend to be more data driven and concern itself more with implications to the income statement and balance sheet. Strategies will more likely be framed in terms of asset allocation and in the buying and selling of pieces of the portfolio.

If you place the strategy department somewhere else, that culture and orientation will move in bit of a different direction. Therefore, if you want the proper “odor” for your strategic planning department, it is important to consider where you place it within the organization.

The principle here is that there is no law forcing a company to place a strategic planning department into a particular silo in your organization. In theory, it can go almost anywhere. So, even though most businesses have Strategic Planning reporting either directly to the CEO or into the Finance Department, you have other options.

Strategists are supposed to think outside the box, so I am going to do that with the idea of where to locate Strategic Planning. Why can’t it report somewhere else?

Why couldn’t Strategic Planning report into marketing? After all, the chief strategist and the chief marketing officer have much in common. Both are concerned with the long-term strength of the brand/company. Strategic positioning is a lot like Brand positioning.

A good strategy needs to provide a superior solution for a consumer segment. That sounds a lot like marketing, too. Marketers usually know the customers better than anyone else, so a strategy lead by marketing would probably be consumer centric and appropriate for the marketplace.

One of the major complaints against many current strategic planning programs is that the plan is poorly communicated throughout the organization. I bet that if marketers ran strategic planning, the communication issue would be less of a problem. They’re good at communications.

I know of a retailer who recently conducted a major strategic reanalysis of the company. It was run by the marketing department and I think the process went very well.

Of course, there would also be some issues if strategic planning reported into marketing. Marketers are not known as being the most astute when it comes to containing costs. Financial issues tend not to be at the top of their priority list. So the plans might lack some of the financial or risk-based rigor which comes from a finance department.

In addition, marketers do not always understand all the nuances of the business model. As a result, they may underestimate the ramifications of their strategy on the capabilities of the organization. In other words, they might create a great strategy which is a bit out of touch with what the company can accomplish.

Human Resources
Why couldn’t Strategic Planning report into human resources? Lots of CEOs say that their people are their most important asset. Therefore, why not place strategy in the hands of those managing the most important asset?

Many of the complaints against how strategy is currently done talk about issues like mishandling of corporate culture, improper alignment, poor organizational structure, and poor integration of people after a merger. Aren’t these the types of things human resource departments are supposed to be good at? They could help solve all these issues.

Because human resources is not closely tied to the status quo of operations, they may be better able to push innovative, out of the box solutions (this could also apply to marketing).

I’d bet that if strategic planning reported to human resources, the plans would be better at getting alignment between people, functions and strategic issues. There would probably be more thought given to how to organize to get the strategy accomplished more efficiently and effectively.

I know of a company where the chief advocate of strategy came from human resources. It can be done.

The down side to human resources is that although they are good with processes, they are not always the best at knowing how to get business results. In other words, they may create a great “means” for doing strategy, but not have a great “end” in terms of what strategy to do.

How about having strategic planning report into research and development? Both areas are involved in research. Both areas are looking out long term. Both areas are looking for the next big thing. I think there is even a cultural fit, since strategists and R&D people both tend to be a bit nerdy.

If you want to build a plan around the art of the possible, the R&D folks are best suited for knowing what is possible. If you want innovation in your planning, this could be a great place to be.

And it also works in the opposite direction. If the strategists are closely tied to R&D, they will make sure that the R&D efforts are focused on what is needed to make the strategy a reality.

The down side is that although this approach could create some of the best ideas, it may not be the best place to create the game plan to get the rest of the company on board. It could be great on strategy conception, but not strategy implementation.

How about having strategy report into operations? Your operations people understand the details of how things get done. One of the biggest complaints about strategy is in the poor handoff from idea to implementation. If you put the responsibility for strategy in the hands of the implementers, you stand a better chance of getting it implemented. Operators would be able to easily reject ideas which are disconnected from the strength and skill-sets of the organization, because the operators are a large part of that skill-set.

Strategic objectives will probably be very realistic and doable, because it is run by the people who know how to do what needs to get done. And they will be more inclined to do it, because they would have a larger vested interest in the plan if it reported to them.

Of course, the down side is that operators are highly tied to the status quo. They will tend to resist radical changes which put their operations at risk. Your plans will tend to create only incremental improvements to the status quo. That may not be enough.

The point I’m trying to make here is that nobody has a monopoly on everything needed to create and implement great strategy. Every area in the organization has unique skills and insights which are beneficial. In addition, every area in the organization has blind spots preventing them from seeing the whole picture. Therefore, narrowly slotting strategic planning into any one department is probably a mistake (even if put in finance). You are not getting the richness of all the flavors the company has to offer.

For strategic planning to work best, it needs to be owned by everybody. That way, you get the unique insights of each area, while also having everyone’s blind spot covered by another area for whom that is not a blind spot.

So how do we accomplish this? One way is by rotating people through strategic planning. Strategic planning departments would benefit from having people from finance, marketing, human resources, R&D and operations rotate into the area for awhile. If your company is large enough, I would suggest that strategy departments have a blend of both strategy professionals and rotating experts from all these areas.

I used to run a strategy department which did this, and I thought it worked well in many ways. The strategy formation was better, because there were broader insights from all these areas of expertise. The strategy implementation was better because there were stronger ties and greater credibility with the ones outside the strategy department who have to get the work done. And once someone in rotation went back to their old part of the organization, they took a greater strategic orientation to that department.

Even if you do not rotate people through the department, you can still get some of the benefits by opening up more opportunities for the teams of strategy and elsewhere to work together throughout the year. Get strategists on the committees where decisions are being made on a regular basis.

If strategy people are hidden away for most of the year and are only exposed to the rest of the organization at some annual off-site planning meeting, then you are missing all this richness.

I’m not sure what victory smells like, but I do know that victory is more likely if you absorb the rich aromas of the entire organization.

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