The Definition of Strategic Planning: A White Paper

This White Paper aims to more definitively define the term, “Strategic Planning” in its corporate context and explores the basic components of what should be done in the planning process to make it worthwhile - delivering value, profits and securing competitive advantage.

The Opportunity Afforded By Strategic Planning

When strategic planning is done well, with a mature and robust process that guides the effort to ensure completeness - the outcomes can be powerful and position the organization to dominate the competition. Yet only a small percentage of organizations operate with mature planning models that yield complete and comprehensive strategic plans. The majority do not fully operationalize their strategy to get maximum benefit. Fully operationalized strategic plans are more comprehensive - going further than just defining business strategy by addressing all of the actions and resources required to implement the strategy, including:

• Timelines for the actions
• Required resources
• Metrics tied to goal accomplishment
• Accountability in goal-related initiatives
• Plan governance structures
• Scenario planning
• Training
• Risk mitigation
• Industry trend analysis
• Core competencies analysis
• Core values analysis

All of this provides the holistic picture of the existing landscape and the organization’s proficiencies within it. Such plans allow managers to monitor progress and remove impediments to goal accomplishment.

Data suggests that most organizations would certainly benefit from adopting a more formalized approach to strategic planning and that many companies have routinely failed to successfully and fully implement their strategic goals.

• The Harvard Business Review estimates the ROI from traditional planning approaches to be 34% or less.
• The Economist Intelligence Unit estimates that organizations realize just 60% of the potential value of their strategies.
• Kaplan and Norton research suggest that 90% of organizations fail to successfully implement their strategies.

While the statistics related to the effectiveness of strategic planning appear somewhat grim, they can be vastly improved by understanding the discipline of planning and setting on a coarse to improve planning methods by stretching the process further into the operations layer where execution takes place. Failure to execute on strategy has several root causes, which include:

• Poor prioritization
• Lack of detail planning to support strategic goal achievement
• Poor communication and coordination
• Poor change / transformation planning
• Strategy and culture misalignment
• Strategy and operations misaligned
• Plan goals lacking accountability
• Poor planning governance
• Ill-defined strategic goals
• Lack of risk identification & mitigation strategies

Given the opportunity to better leverage the art and science of strategic planning, organizational leadership should endeavor to understand strategic planning and unlock the competitive advantages it can bring them.

Before we explore the definition of strategic planning or discuss what a good planning process should consists of, we need to review the discipline's history and understand its origins. We can then more accurately define the term.

The History of Strategic Planning

The origins of strategic planning definitely began in the military, and as mentioned, date back to the 6^th century BC. According to Webster’s New World Dictionary, “strategy” is “the science of planning and directing large-scale military operations of maneuvering forces into the most advantageous position prior to actual engagement with the enemy”. Of course, the common business usage and understanding of the word strategy and its application in the planning and management has been transformed from a point of military maneuvering to other areas that aim at achieving and giving a structural framework to reach a competitive advantage.



The business usage of the actual term, “Strategic Planning” began in the 1960s, although “strategic management”, primarily rooted in budgetary planning and control, was popularized in the 1950s.

The 1960s ushered in a new era, and strategic positioning rose to prominence in corporate America. The Harvard Business School contended that strategy could be a potentially powerful tool for linking business functions and assessing a company's weaknesses and strengths in relationship to its competitors' strengths and weaknesses. Businesses as well as consulting companies pioneered tools and techniques related to strategic positioning, focused on productivity and profits. This trend continued on through the 1970s.

Corporate organizations continued to grow in their confidence in strategic planning throughout the 1970s. In 1980, Harvard Professor and strategic planning guru, Michael Porter, wrote the groundbreaking book, “Competitive Strategy” on the topic of strategic planning. 1980 represented a peak in corporate America’s interest as confidence in strategic planning for that decade, as strategic planning popularity began a decline after that year that persisted for the remainder of the 1980s. The decline occurred because many organizations began to feel that they were not seeing enough return on investment from their efforts. Despite the decline, military strategy books such as “The Art of War” by Sun Tzu, “On War” by von Clausewitz and “The Red Book” by Mao Zedong became enormously popular reading in business circles.

During the 1980s General Electric’s Chairman, Jack Welch, became highly influential and equally controversial in the world of strategic management. Although Welch focused on gaining competitive advantage for his organization, he also began downsizing and restructuring GE. GE’s strategic planning and operational efforts began a shift toward Total Quality Management and improving productivity.



The 1990s brought about a renewed interest and obsession with strategic planning, as mergers and acquisitions increased in frequency along with a rising rate of complex joint ventures. Such trends focused strategic planning on innovation through decentralized models, leveraging core competencies and emergent strategy.

Thus far in the 21^st century (2000s), strategic planning continues an orientation towards gaining competitive advantage, but with the added dimension of developing and nurturing organizational innovation. As organizations look to strategy to help them grapple with issues that include reconciling size with flexibility and responsiveness, planning has grown more complex. This can be attributed in part an increasingly interwoven global marketplace and growing number of competitive forces that have accompanied that change. Likewise, planning complexity has been affected by the economic woes of the 2000s, which have driven businesses to form many new alliances, partnerships and mergers. The net effect of these changes has resulted in the need for cooperative strategies, resulting in more planning and execution complexity. Additionally, the 2000s have brought about changes in environmental commitments and corporate social responsibility.

Faced with the worst economic conditions since the Great Depression, businesses across the board are adapting their behaviors and strategies. Today's strategic planning has transitioned from a process of trying to predict the future to one of looking backward at what we “know”, examining current-state realities in order to build effective transformation strategies for the future and leveraging lessons learned from the past.

Let us next define the term, “strategic planning”.

Strategic Planning Defined

Strategic planning is the process of devising a plan of both offensive and defensive actions intended to maintain and build competitive advantage over the competition through strategic and organizational innovation.

A well-formed corporate strategy lays out the bumper-pads to keep organizational momentum aimed in the proper direction, accomplished through unambiguously expressed strategic goals (outcomes) and operational actions to achieve those strategic organizational outcomes.

At a minimum, for strategic planning to yield competitive advantage, it must address three key questions:

• "What do we do?"
• "Who are our customers?"
• "How do we do what we do better than our competitors?"

As a point of clarification, professional services firms generally refer to their customers as “clients”. Although there is a difference between the term “customer” and the term “client”, for simplicity sake, herein we will refer to both as “customers”.

What do we do?

While it may sound almost silly to suggest that organizations should expend effort during strategic planning defining what it is that they do, but it is not as unproductive as it may seem. If an organization cannot succinctly explain what they do, how will their marketplace understand it? Furthermore, this line of analysis during the planning process often uncovers misperceptions on the part of leadership’s understanding of core lines of business and market focus. Strategic planning begins with getting leadership on the same page about the mission of the organization and the core offerings the business provides. Additionally, in strategy development, the question of “what should we do” is a corollary to the “what we do” question. This perspective relates to building competitiveness in your offering and exploring tangential markets that might be exploited, provided that the barriers to entry are not too high and organizational capabilities match the opportunities being evaluated. Truly gauging core competencies is key to this analysis, not just from leadership, but down through the organization.

Who are our customers?

An organization’s strategy cannot overlook the most important stakeholder – the customers served by the company. Data analysis of the organization’s customer base is recommended prior to, or as a part of the strategic planning process in order to firm up suspicions and debunk any incorrect perceptions. Knowing the attribution of the organization’s customer profiles helps drive value-creation, sales growth, product and service innovation and ultimately profits. A thorough understanding of the major customer groupings, segmented by loyalty, profitability and annual spend will help answer questions like:

• Why are our customers still buying from us?
• How stable is that long-term buying relationship?

How do we do what we do better than our competitors?

For an organization to understand its own competitive advantage, it must first examine its core “essence of goodness” and understand the triggers that compel customers to buy products or services from them instead of a competitor. Is it service, product superiority, pricing or something else?

Competition always exists externally from third parties, but it can also come from within current customers. Internal competition occurs when a customer develops a solution that displaces the product or service of the selling organization. Strategy must remain close to the creation of tangible customer value or risk losing market competitiveness.

When we can define and explain our value proposition succinctly, strategic goals related to innovation and value creation can more easily be developed and ultimately implemented.

A Graphical Depiction of the Elements of Strategic Planning

The graphic below shows inputs into a well-formed strategic planning process, in the context of the environmental and structural current state of the organization.



In the following sections, we will walk through various aspects of the graphical model and clarify terminology.

Ecosystem Analysis

The business ecosystem is comprised all of the functional areas that are involved in developing and delivering the offering to the marketplace. The term originated in 1985, when Harvard's Michael Porter introduced the value chain framework in his book, "Competitive Advantage". From a planning standpoint, it is important to assess is how the business ecosystem operates and more specifically, how decisions within one segment of the ecosystem can impact (or have consequences on) the enterprise as a whole or to specific segments of the chain.

Since strategic planning models are intended to manage the strategic actions of an organization, the graphical model offers a simplified view of the major dimensions that the strategic planning process should account for. Each dimension will likely have plan components that relate to specific organizational actions. These actions may be offensive, defensive and proactive in nature. Reactive maneuvers do not fall into the strategic category, but are sometimes required and appropriate. Strategic actions should be mapped against several dimensions, including:

• Value creation
• Value proposition(s)
• Brand equity / Sales and marketing
• Industry direction / momentum
• Market transitions
• Innovation
• Organizational competencies
• Employee competencies
• Technology
• Socioeconomic conditions
• Scenarios and contingencies

Value Creation & Value Propositions

In most cases, value creation and the organization’s value proposition are inexorably linked and are closely related to brand equity as well. Planning in this dimension allows a shift to occur towards the customer “Key Outcome” mindset. Key customer outcomes are measurable results / goals that are oriented to value we can add for our product or service consumers. With the corporate mission and vision statements as guides, the planning process can be adjusted towards viewing strategy and goals in terms of key customer outcomes such as product or service innovations.

• How can the organization increase the efficiency of customer interactions?
• How can we improve the cost-effectiveness of our product or service?
• How can we develop better customer / client intimacy and grow customer loyalty?

These are but a few examples of questions that should be triggered when thinking about strategy with a key outcome mindset. Reiterating an earlier point, when an organization can define and explain their value proposition succinctly, strategic goals related to innovation and value creation can more easily be developed and ultimately implemented.

Brand Equity / Sales & Marketing

Brand equity is the intended outcome of marketing strategies to create name awareness for products and services. Strategies to create positive brand equity help strengthen sales, bolster pricing and product margins, promote customer loyalty and potentially lower customer acquisition costs. Strategic planning models should always include a competitive analysis. Michael Porter’s 5-Forces Analysis looks at factors like:

• Competitive rivalry
• Threat from new entrants
• Bargaining power from substitutes
• Bargaining power from customers
• Bargaining power from suppliers

This type of an analysis can be done at the brand level to drive strategic goal setting in the corporate plan and well-informed and factual marketing and sales operational plans at those levels in the organization.

Industry Direction / Momentum

By studying the movement, direction and momentum of the industry or industries served by the organization, the data can feed the strategic planning process leading to better planning decisions. For instance, if the industry data suggests that competitors are enjoying a technological advantage over our firm and that they are steering the industry in a direction that is eroding market our share, what do we do about that? If we cannot dominate, do we leave?

The decision to continue following the market or to break away from the pack will have huge implications on organizational action. When faced with a technological disadvantage such as the one posed here, strategic decisions must be made on possible exits from the market, acquisition of a competitor, partnering, mergers, increased research and development in an attempt to close the competitive gap.

All possible strategic actions will have long-term implications - rewards or consequences, therefore the importance of scenario and contingency planning along with risk management become more and more evident.

Innovation

To avoid lagging behind competitors, organizations must continue to cultivate ideas for improvements to products and services, then harness the best of the innovations into value-creation enhancements or altogether new offerings. The challenge with innovation in many organizations is framing it into a discipline that can be leveraged. Incentivizing innovation is a step in the right direction, but is only a part of the framework needed to capture, process and act on creative ideas. Such a process should outline how innovation unfolds, starting with the origination of an idea and depicting the steps that lead to its transformation into something useful and that can be implemented.

Organizational Competencies

Core competencies are what make individuals and the organization they constitute unique. The competencies are a generic list of skills- these skills as applied to the employee and the organization then becomes the foundation for what the organization possesses that set it apart from its peers. These groupings of skills are a source for identifying competitive advantage and the building blocks for future opportunities.

Definition:

Core Competency - a bundle of skills that enables an organization to provide a particular benefit. A core competence is not product or service specific.

Core competencies are the underpinnings of the organization’s skills that contribute to the development of a range of products and services and the cornerstone of successful strategy execution.

Technology

Technology should benefit the business through increased efficiency in the delivery of products and services, leading to a boost in market value and competitive advantage for the organization. Technology strategy must be aligned to corporate goals, so the planning process as it relates to technology should help identify, define, and develop both departmental and discrete initiatives that save money, improve quality, and enhance performance.

Socioeconomic Conditions

In this instance, as it relates to strategic planning, socioeconomic conditions refers to the social impact of some sort of economic change on our customer base and how that may affect patterns of consumption, the distribution of incomes and wealth in terms of purchase decisions. The overall strength of the organization’s value proposition is critically important to sustain sales and market share in poor socioeconomic conditions and boost morale and confidence internally.

Scenarios & Contingencies

Scenario or contingency planning is an extremely important aspect of a strategic planning model. Contingency plans include specific strategies and actions to deal with particular variances to the strategic plan’s assumptions. If any of the scenarios or variances do occur, they will likely result in a problem affecting the execution of plan goals and their outcomes. A thorough contingency plan should be developed to correspond with each scenario that is considered likely or severe enough to be detrimental to the otherwise normal execution of the plan. Each contingency plan should include a monitoring process to alert executives of “triggers” for initiating planned contingency actions.

Moving On To The Next Part of the Model

As shown in the model graphic below, each of the dimensions just discussed:

• value creation
• value proposition,
• brand equity / sales and marketing,
• industry direction / momentum,
• market transitions,
• innovation,
• organizational competencies,
• employee competencies,
• technology
• socioeconomic conditions, and
• scenarios & contingencies

should be addressed in terms of the following:

• Risk management
• Transformation
• Change & Communicate
• Monitor & Control

A strategic planning process is not complete without these factors included in the strategy, from both an internal and an external point of view.

Risk Management

Risk management refers to the identification of potential threats to an objective and the defined actions to mitigate those threats. In the context of strategic planning, the risks to be managed are the threats to the organization’s strategy being successfully accomplished.

Transform

Transform is a component of the model related to planning changes to business process, perhaps for the absorption of another entity or to reorganization. Strategic goals often require transformation; therefore this element of the planning process is an essential component and a prerequisite to the next major element, “Change & Communicate”.

Change & Communicate

Change management and communication sub-strategies are far too often underestimated in terms of their importance and impact to strategy implementation.

Change

To effect change in the desired manner, one must understand some fundamentals of human behavior. This knowledge is imperative, at least at a high level, before delving into a large-scale change program.

Listed below are four important principles that are basic to understanding human nature (i.e., human behavior):

• Never accept at face value what people say they feel or believe. Instead, watch what they do; this will give a much more accurate understand of their real feelings and attitudes. Staff may suggest that they are willing to accept the changes proposed, then do everything in their power to stall it.
• The consequences of an action have an enormous impact of behaviors. The organization must reward the types of behaviors that it wants to promote and sanction that which it wants to discourage.
• Staff and managers alike are full of contradictions and paradoxes because that is the nature of social life.
• Frequently, the only way to understand another person or group is to empathize (affected only by one’s understanding of self).

_{Source: Brill, Peter and Worth, Richard. The Four Levers of Corporate Change. New York: 1997}

In order for organization transformation to be successful, the executive management team must be able to look inside the minds of the staff and recognize what motivates them as individuals and as a team. They must also realize that staff are not only motivated by the rational, but the irrational as well. The leader of this transformation program will be able to know how to and will be effective at battling for key employees “hearts”.

Communicate

Both clear and well-timed communication is required to translate plan goals into strategy statements that the organization can embrace and enact. Communication must target the right messages to the right people in the organization at the time that they need to receive the message. Timing and messaging constitute “effective” communication. Effectively spreading the enterprise vision throughout the ranks of the organization empowers and energizes employees to contribute to the successful execution of the strategic goals.

As with the other planning elements of business strategy, the communication of the business goals must be carefully orchestrated to achieve the intended results. A multi-disciplinary communication strategy that works with the corporate culture is the most effective. Multi-disciplinary means that we have to look at the organization as a whole and take into consideration the way communication is occurring within the current state.

Monitor & Control

Monitoring and controlling fall under the general classification of governance. Strategic Plan governance, whether implemented as a formal Plan Management Office or administered through a less formalized committee structure, should be responsible for the functions of selecting, managing and measuring of everything entering or within the plan portfolio. Governance provides a method to view strategic plan-related initiatives to be grouped into related programs for synergistic reporting and management activities. The plan portfolio is the overall macroscopic view of all programs and initiatives involved with strategy implementation.

A complete strategic plan model assesses each dimension covered in the preceding section and contains plans for risk management, transformation, change and communication and monitoring and controlling as described. Such a model positions the organization with a strategy for gaining or maintaining competitive advantage.

The Other Attributes of Strategic Planning


Strategic planning should also consider environmental as well as structural inhibitors / accelerators. Inhibitors can detract from progress, and should be considered as factors to mitigate. On the opposite end of the spectrum, accelerators can speed progress and facilitate faster achievement. Accelerators should be identified, understood and leveraged during planning.

For consideration of how this might work in practical application, the graphic below shows how core competencies, culture and resources might be thought of as “environmental” conditions, while organizational design, process and strategy and vision are more “structural” in nature.

So where might inhibitors and accelerators be found so that we can begin identifying and unlocking them?

Environmental Conditions

Core Competencies, Resources and Culture

Core competencies were defined earlier in this paper, but are worth a mention again in terms of environmental inhibitors or accelerators that can be leveraged in the plan. Lack of adequate skills employee skills related to the organization’s core competencies represents an inhibitor that must be addressed through planning. Likewise, this same environmental condition might be a tremendous accelerator if an employee base is being acquired through a merger and their core competencies will already be in place to execute plan goals well.

The resources of the organization are many, but include:

• The employees of the organization and their general capabilities
• The actual skills and competencies of the employees working for the organization
• Technological resources like patents on products and processes
• Access to financial assets / resources

During strategic planning, strong consideration of available resources plays directly into operational execution of plan goals.

Another environmental condition to consider during strategic planning is culture. Organizational culture usually starts with the style of leadership adopted from founders or senior executives of the organization.

There are many variations of corporate cultures, but for the purposes of this White Paper, we will classify cultures into one of four models:

Cooperative: The organization or team focuses on the needs of the customer and the delivery, resulting in customization and tailoring to customer needs.

Merit Focused: The organization or team focuses on how it can organize and create predictability, reliability, low cost and structure.

Actualized: The organization or team focuses on fulfilling the human potential, helping create better lives for its customers and offering self-actualization.

Creative: The organization or team focuses on creating superiority of product or service, uniqueness, one of a kind value-add service and product.

Associated with these four distinct culture signatures are corresponding organizational hierarchies. The differences in culture and hierarchy relate back to the “how” the organization works and “how” work gets accomplished. Aligning strategy, tactics and governance to address these dimensions will greatly affect the outcome of planning efforts.

Structural Conditions

Organizational Design or Hierarchy and Process

The hierarchy of the organization will determine the best methods for communicating the strategy and is a major consideration in how messaging should be constructed. By hierarchy, we are referring to the way the organization architected and who reports to whom. The hierarchy also impacts the way accountabilities should be defined and outcomes measured. Unless reorganization is intended, the structure of the organization and the business process architecture will be “givens” that must be factored into planning.


Core Values

At the center of the model are “core values”. Core values are broadly shared values of the company that are evidenced in the corporate culture and the general work ethic of the employees. Some refer to core values as a shared “value system”, meaning a group shares a common set of cultural and moral beliefs. Strong core values benefit the strategic planning effort and would generally be classified as an accelerator towards goal achievement. The exception to this generalization is in the case of a negative culture that is out of step with the organization’s leadership values. In that situation, core values become an inhibitor and must be changed over time to facilitate strategy achievement. In such circumstances, the strategic planning process would need to address transition strategies for changing corporate core values.

Inhibitors need to be identified because they are roadblocks to progress. Conversely, Accelerators, once identified, promote rapid progress. Both are essential to know and leverage or mitigate as the case may be.

Pulling The Pieces Together

For strategic planning to be effective, corporate strategy must be broadly communicated through the organization. Communication of strategy is analogous to the game of “Phone Tree”, where someone starts a message on one end and whispers the message to the next person in line. The message gets whispered from person to person until it reaches the end of the line. At that point, the final person reveals what he or she has heard. Usually the final product is much different than the original message. The organizations strategy and the plan for execution can be thought of in much the same way. Think of the strategic goals as a message packet that must be passed through the organization, understood by all and acted upon in orchestration. If the message is garbled, ambiguous or not communicated well, the intent will be lost in translation and operational execution will become misaligned with the corporate strategic goals.

Initiatives related to strategy execution must be monitored and controlled to ensure that they are accomplished over the plan’s specified timeframe, as the plan tasks are generally additions to the daily activities and procedures that staff members engage in to get their normal job duties accomplished.

Conclusion

By understanding the discipline of strategic planning and how to manage its execution, organizations can begin improving upon their planning capabilities and systematically building their competitive advantage. In doing so, organizations will measurably improve in performance, decision making, customer satisfaction and long-term competitive positioning.

Other Suggested Reading:

• Mapping Out Strategic Execution: Part 2 of “Why We Fail at Strategic Implementation“
• So You’ve Finished Your Strategic Plan, Now What?
• The 2010 Twelve-step Checklist to Evaluate Your Strategic Business Planning Process
• The CEO Conundrum – Balancing Strategic and Tactical Responsibilities