By Gary Miller – Managing Director, Consulting Division, SDR Ventures
Recently, I was visiting with a client who told me he believed that his strategic plan was only 30% effective. He said, “I know our strategic plan is not producing the profits we had hoped for, but I don’t know if the problem is the plan or my people.”
Most CEOs know that profitable growth is the key driver to creating shareholder value and that developing effective business strategies is the key to profitable growth. Successful strategic planning is not a mysterious process available only to an exclusive group of top-performing companies that can afford to hire an expensive outside consulting firm. It is the result of executive commitment, hard work, and a well-defined approach.
Before any successful planning process is developed or reevaluated, business owners must create a platform for success. This “platform” includes five critical steps:
1) Build the Foundation.
Senior management commitment and adequate planning resources are hallmarks of all top organizations and are essential prerequisites for an effective strategic planning process. Owners and senior staffs of top performing companies build a successful, high-performance culture that drives their decisions by executing their chosen initiatives. Maximizing shareholder value should be the overarching objective. Here are a few ways to do so:
- Explicit shareholder value goals permeate all levels of the organization including “frontline” employees.
- Define and measure key performance indicators (KPIs) across the entire business.
- Reward superior performance generously at all levels.
- Do not tolerate poor performance at any level.
- Gather and analyze market intelligence to close gaps in management’s understanding of the business environment.
- Provide management development programs to teach employees to think like owners.
- Makes sure communication up and down the organization is consistent and continuous.
2) Implement Strategic Planning Processes.
The best companies have more than one model in their strategic arsenal and use the best one to suit the occasion. For example, the outcome of a strategic performance review (evaluating if a business unit is “on strategy”) and an environmental scan (evaluating if major threats or unanticipated opportunities exist) would determine whether a comprehensive strategy work-up is required or whether a less comprehensive approach is adequate at that time.
3) Develop Strategy Support Systems.
The best support systems increase both the efficiency and the quality of strategic planning. They help key insights to be broadcast and understood internally and ensure that current situations are addressed properly. Owners and senior executives are in a unique position to increase the value of cross-business synergies and align business functions with corporate objectives, while enhancing the business skills and tools to improve operational planning.
At its best, corporate planning is used to facilitate SBU (strategic business unit)-level planning and align business function plans. For instance, pressure testing SBU plans should be seen as a benefit to the SBU head, not part of corporate-level interference or validation.
A number of tools and frameworks are used by leading companies throughout the strategic planning process to achieve optimal results. Tools used to identify key strategic issues include external customer research, competitive benchmarking, technology evolution mapping, market segmentation and scenario analysis. An external focus on customer and competitor developments helps an organization identify strategic opportunities as well as threats. Porter’s Five Forces and SWOTs (Strengths/Weaknesses/Opportunities/Threats) analysis are effective frameworks for assessing market attractiveness and competitive position, while value driver mapping is useful for identifying potential sources of value creation and communicating what is expected of people across the organization. Using analytic tools and technology (e.g., structural equation modeling and predictive modeling simulators) can help speed up and support the planning process.
4) Promote Information Technology.
Leading companies develop a culture promoting the use of IT in the strategic planning process. For example, IT can help delayer interaction between hierarchical levels and cross organizational boundaries.
IT resources provide shared tools to manage the planning process timeline and activities, support decision making, provide online documentation of the strategy, and communicate the finalized plan.
Leverage IT to ensure key information is made available to all employees. This will make the information more likely to be used and reduce the cycle time to conduct manual activities. Best practice also includes systems that provide information at an aggregate level to corporate functions and at a detailed level to business units – preferably in a format that managers can query.
IT also supports broader communication of ongoing results and the follow-up activities after initial implementation.
5) Align Organization Decision-Making to the Plan.
Organizational alignment can be a powerful tool to change behavior and achieve sought-after performance. While most would agree that managers usually want to do the right things, misalignment prevents optimal performance by diffusing focus and undermining process credibility.
To achieve alignment of people and management systems when executing a business strategy, companies should invest in thoughtfully designed communication programs to communicate strategic objectives. They also should invest in formal programs for tracking actual results against performance commitments, create accountability, and share information appropriately throughout the organization.
Strategic planning is hard work. To do it properly, it demands strong commitment, adequate resources and the well-defined disciplined processes described above. Decision processes must be tied to the strategic planning process and incentive programs have to be aligned to the plan. But strategic planning does not need to be mysterious, overly complicated, and/or excessively costly. Done properly, strategic planning can pay huge dividends that justify the effort.
Owners and senior managers play an essential role in the planning process by setting direction and expectations, and by providing resources that match the plan goals. Finally, communicating the Plan’s goals and results is key to consistent improved performance.
Gary Miller is managing director of Denver-based SDR Ventures Inc.’s consulting division. SDR is an investment banking firm that advises privately held middle-market businesses. Miller specializes in helping companies prepare for sale, exit planning, company valuations, strategic business planning and M&A consulting. He can be reached at 720-221-9220 or firstname.lastname@example.org. For more info about SDR Ventures’ consulting division, please click here.
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