In past posts I’ve focused mainly on the tactical aspects of corporate planning (including why companies must adopt integrated business planning) but haven’t spent much time on strategic planning.
Apparently, a lot companies have decided to swear off strategic planning for now. Actually, this isn’t really new news. Back in 2002, for example, the McKinsey Quarterly published “Tired of strategic planning?” The article cited the results of its research, which found that executives think the time they spend on the annual strategic planning session does not have much of a payoff. One business cycle later and I’m certain the results of a similar study would be exactly the same. Widespread dissatisfaction with strategic planning seems to rise during and just after recessions. Executives recognize their strategic planning process’s shortcomings after it turns out that trend extrapolation (which is what I think a lot of long-term planning really is) doesn’t buy them much in good times and is worse than useless at inflection points in their business.
When you begin to drill down into the issue, one of the big problems with “strategic planning” is that the term is used to mean two related but different activities: one is strategy review and development and the other is long-range planning (this can mean 2-20 years, depending on the nature of the business). “Strategic” planning (in the sense of developing strategic approaches to guide a company’s objectives and tactics) and “strategic” planning (meaning the longer-range, non-tactical kind) are related because it’s essential to develop strategy within the context of assumptions about the world as it will be – market conditions, competitive structure, technology and so on. And it’s necessary to make formulate long-term plans in the context of a company’s strategy.
Although the activities are related, Henry Mintzberg’s view on “strategic planning” is that the terms is an oxymoron – that the two don’t go together particularly well. This is because planning is a formal process with a fixed outcome while strategy development is most successful when done in an unstructured environment. This observation is a bit academic (Mintzberg is, after all, a professor) but it’s a good point.
So, when you take into account the failings of both the strategy development and long-range planning aspects of “strategic planning” it’s not too hard to see why executives are frustrated. The solution, though, is not to abandon strategic planning but to understand how best to use it. Although a concise statement of strategy and some sort of high-level published plan are necessary work products, the focus must be on the process, not the print-outs. Strategic planning is most useful for ensuring that everyone is on the same page. It’s having everyone in the room kicking around the possibilities and how best to respond to them. It’s quantifying the scenarios to be able to see their potential consequences on the financials, on market share, the supply chain. It’s a forum for the strategic aspects of enterprise risk management. If the objective is on the end product (the natural inclination of successful, goal-seeking executives) the discussion will be too narrow. As a result, it will fail to anticipate discontinuities in the business environment and therefore be worthless as a plan as well as miss opportunities to successfully shift a company’s strategy (and tactics) to exploit what is likely to be a momentary opportunity.
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Robert D. Kugel - CFA - SVP Research