Executed in the typical fashion, strategic planning is likely to be unsuccessful because it avoids the necessary discomfort and apprehension that are hallmarks of a process that should involve taking risks to increase the chance of success. The author examines the pitfalls of strategic planning and proposes a more effective solution to the problem.
Management often combines strategy and planning. The latter is about what is known and controllable. The former, by necessity, involves risk. The author discusses traits of the flawed process of strategic planning and offers simplicity and clarity as effective remedies.
How Is This Article Useful to Practitioners?
The author discusses why strategic planning is typically ineffective. Too often, management teams mistake planning, which is a comforting task with mission statements and cost projections, for strategy, which should pursue metrics of market share and customer satisfaction rather than costs and capabilities. Although profit is the objective with either approach, figuring out how to make a profit is another issue. Costs are controllable, and mission statements can be articulated, but strategy necessarily entails pursuing that which cannot be controlled—the whim of the customer. The customer is the source of a company’s revenue, which is often difficult to forecast. Given this uncertainty, management often retreats to the comfortable space of planning.
There is a way out of this ineffective approach. Effective strategy involves articulating a simple value proposition that targets a specific customer and determines how to address his or her wants and needs. Additionally, management must recognize that strategy is about risk taking, not perfection. Corporate boards often want assurances that the process will be flawless, which is an unrealistic expectation. Company management must also, as the author says, make the logic explicit—that is, understand its own capabilities and those of the competition as well as the nature of its target market and its industry. Planning is an essential corollary to strategy because its goal is to figure out how to make such strategy profitable for the company.
Effective strategy avoids group think and elaborate processes in the realm of what is known and controllable. Investment management often turns into risk management in an effort to unravel complexity. The author’s lessons should resonate with portfolio managers and risk specialists. In pricing risk, the actuarial profession confronts the strategic planning conundrum over long time horizons. Finally, corporate boards would do well to distinguish between planning and strategy because they are often in a position to validate what could well be an erroneous business decision.
Less is more. Divide and conquer is a simple process, as long as the emphasis is on managed risk taking. Management should use the planning process as a component of strategy rather than as a substitute for it. Firms that are able to make this distinction will be better positioned for success.