Creating a Platform for Success
Profitable growth is a fundamental driver of shareholder value. Developing effective business strategies that reliably meet or exceed the market’s expectations for growth is the key to delivering superior long-term shareholder returns. Successful strategic business planning is not a mysterious process available to an exclusive group of top-performing companies. Successful strategic planning processes are the result of executive commitment, hard work and a well-defined approach.
We believe that there are four phases to a successful strategic business planning process:
- Building the foundation for value creation strategies
- Implementing strategic planning processes
- Developing strategy support systems
- Aligning the organization via strategic programming
Despite good intentions and major resource commitments, few organizations have strategic planning processes that provide an ongoing catalyst for significant strategic dialogue, or that lead to high-impact business results. At many companies, a focus on short-term results, detailed financial forecasts, and formal presentations skew the process, crowding out attention to key strategic issues. Even in cases where the right issues are identified, little external data are made available and management teams often lack the time, resources or objectivity to complete the analysis required to challenge the status quo.
While all the techniques discussed below may not be relevant for an individual company, these concepts are being embraced by a growing group of industry leaders.
BUILDING THE FOUNDATION
Senior management commitment and adequate planning resources are hallmarks of all the top organizations. We cannot emphasize enough that these are essential pre-requisites for an effective strategic planning process. To build the kind of foundation that drives a successful, high-performance culture toward its strategic goals, top-performing companies position “maximizing shareholder value” as their governing objective. It drives their business decisions and daily actions. By contrast, although many firms’ annual reports identify shareholder value as a primary objective, in practice, a range of competing financial, organizational and market priorities often prevent this goal from becoming operational.
- They establish explicit shareholder value goals to create appropriate strategic tension.
- To monitor performance against these goals, they define key performance indicators across the business so that shareholder value concepts become meaningful at the operating level.
- They reward only superior performance at all levels.
- They generate internal demand for market intelligence as a way to test long-held beliefs or close gaps in management’s understanding of the business.
- They invest in management’s capabilities to help the broadest group of managers think like strategists.
- They make management’s efforts very visible.
IMPLEMENTING STRATEGIC PLANNING PROCESSES
The best strategists have more than one model in their arsenal and reach for 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 an intensive, comprehensive strategy work-up is immediately required or whether a less comprehensive approach that mainly addresses specific issues is applied in a particular planning cycle. If a business is “off strategy” and major unanticipated threats or opportunities exist, the former is completed. Otherwise, a less comprehensive issue driven strategic planning workup is used to resolve issues and achieve organizational alignment. Here is a closer view of two planning models we have found to include the best elements of external intelligence, well-designed options, and risk management.
DEVELOPING STRATEGY SUPPORT SYSTEMS
The best strategy support systems do not simply enable the strategic planning process to take place; they increase both the efficiency and the quality of strategic planning. They help key insights to be broadcast and understood internally. They ensure that current situations are addressed with the full knowledge of historical successes. And they link common solutions and risk-reduction measures across business units.
Corporate planning is one of the areas where senior executives can make the most impact, by providing resources and setting direction in addition to helping create a strong planning culture. At its best, corporate planning is used to conduct corporate-level planning, facilitate Strategic Bussiness Unit (SBU) level planning, and align business function plans. Corporate planning is in a unique position to increase the value of cross-business synergies and to align SBU planning efforts and business function plans with corporate objectives. It can also enhance the business skills and tools of all levels of planners to improve operational planning.
- Coordinate the data collection efforts to support the corporate level environmental assessment
- Ensure the consistency of inputs from business functions and units, including consistent context and assumptions
- Conduct or contract for external research and interviews
- Synthesize internal and external inputs into business assessments
- Manage corporate level planning of strategic issues and options with cross-business synergies that may be overlooked by managers focused on the performance of their own business unit
- Facilitate SBU level planning activities, including scenario planning at the business unit level, and integrate business functions through meetings and consultative support
Corporate planning is most effective when it is seen as a Strategic Business Unit advocate. For instance, pressure testing SBU plans should be seen as a benefit to the SBU head, not part of corporate-level 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 analysis (Strengths/Weaknesses/Opportunities/ Threats) 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.
To help shorten planning cycles, SDR Ventures uses the latest analytic tools and technology to speed up and support the planning process. We use sophisticated analytic techniques including structural equation modeling, and we build predictive modeling simulators, use artificial intelligence and neural networks to validate which among several strategies will be the most effective in the market place – shortening the planning process considerably. Simulators can be built for individual managers so they can measure their individual or business unit performance instantly and continuously.
Leading companies develop a culture promoting the use of information technology in the strategic planning process. The top companies use information technology to “de-layer” interaction between hierarchical levels and to 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. Best practice is to leverage IT to follow up on implementation, with the following key benefits: consistency and quality of data gathering is enhanced, and information is selectively available to all employees. As a result, it is more likely to be used, and the cycle time to conduct manual activities is reduced. Best practice also offers 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 communication of ongoing results and the follow-up activities after implementation – not just scattershot but via structured communication that is tailored to the ways that the organization communicates most effectively. The cost effectiveness of electronic communication can make the broadest access to relevant information relatively easy.
ALIGNING THE ORGANIZATION VIA STRATEGIC PROGRAMMING
Organizational alignment can be a powerful tool for changing behavior and achieving sought after performance. While most would agree that managers want to “do the right thing,” misalignment prevents optimal performance by diffusing focus and undermining process credibility.
Organizations need to align people and management systems with the execution of a selected business strategy. To achieve this end, companies are investing in thoughtfully designed communication programs, with the premise that “more communication is better,” and the resources to communicate about strategic objectives almost continuously. They are also investing in formal programs for tracking actual results against long-term performance commitments, sharing that information appropriately throughout the organization, and creating accountability.
Assuming that an effective communication plan is in place, strategic programming should include three elements:
- Approving a strategic initiative should be viewed as the management team agreeing to a two-way performance contract. That is, resource commitments will be met by the company as long as results are on track. The execution of the business strategy should be generously rewarded, while the failure to deliver contracted results should have real consequences to the responsible group.
- Performance and resource contracts should identify key action steps, milestones, accountabilities and multi-year performance goals. Be specific.
- Making a direct link between strategic initiative milestones and incentives ensures realistic performance targets and spurs successful execution. Programs for organizational alignment are too often seen as an afterthought, or as being outside the scope of strategy work. Yet, for the top performing organizations we studied, this programming was an essential phase of the strategic planning process.
CONCLUSION: STRATEGY IS WORTH THE PRICE
SDR Ventures’ Consulting Division is prepared to help you create a robust, dynamic and successful strategic planning process that can provide for sustainable competitive advantage, more rapid growth and improvement in shareholder value. Call us so that we can listen and better understand your goals and help you design a process that works for you.