The Strategic Planning Process
Let me preface this note with the caveat that the purpose of this discussion is NOT to make expert strategic planners of you. However, my experience over these many years has led me to believe that every executive and manager has a responsibility for strategic planning. In whatever area you have responsibility, you need a strategy to be successful, one that is consistent with the company's strategies.
Let me start off by observing that a business or organization (or even a person) always has a strategy, whether or not it has been articulated or communicated. Even if one is bouncing from thing to thing with no clear direction, that is de facto a strategy. It is not, however, a strategic plan. And it is unlikely to be an effective strategy. None the less, it is a strategy. Strategic Planning, in contrast, is a disciplined and defined analysis approach to development of a strategic plan.
Strategic planning is a process, not a product. There are a number of issues that are dealt with during the process. These include a self-assessment, an environmental analysis, competitor analysis, technological analysis, economic analysis and legal/government assessment. You may not find each of these specifically called out in a strategic planning process. However, if the process is thoroughly done, they will be there in some form.
I highly recommend benchmarking as a tool to determine how well your organization is actually performing. Companies have been well known for superior performance in specific functions include Toyota (automotive assembly), American Express (processing high volume, low value transactions), L. L. Beane (product based mail order distribution), Nordstrom (retail customer service), Xerox (value engineering) and others. I've found that the best companies are usually willing to be benchmarked, provided that there is nothing proprietary exposed and that they are offered the chance to benchmark you. When I was CFO of the retailer, we benchmarked J.C. Penney's accounts payable processes. In return, they benchmarked our international cash management processes. Benchmarking someone in your own industry is not common, but it does occur if the companies do not perceive themselves as head-to-head competitors.
In the process systems company I was at, there was no strategic plan when I came on board. As an executive, the first two things I've learned to ask for are the Strategic Plan and the MIS sub-plan, the Strategic Systems Plan. In talking with the long-time managers, it became evident to me that the company culture was "we are the champions." This appeared to be the general attitude because, years prior, the company had been the innovator that had created the equipment and processes of its industry. It had, for many years, been the dominant player and extremely profitable. So dominant in fact that its name had, in some engineering texts, been turned into a verb to describe the process itself.
To me, basic questions that needed to be answered were:
1. Why do potential customers buy from the competition?
2. What is our real present strategy?
3. What are the apparent strategies of the competition?
4. How are we perceived in the marketplace?
To gather the information for myself, I attended a major trade show for the industry. I used an "I'm just a dumb bean-counter and I'm new here" approach to talk with lots of people there -- potential customers and competitors alike. Amazing what folks will share if you just ask them.
What did I learn?
1. We were no longer the technological leader. As it always does, the technology had migrated to the users (customers). Only about 20% of applications required help from the manufacturer for the process engineering, the rest the customer knew how to do. Therefore, about 80% of the market was buying equipment, not know-how. The two key buying decision factors were price and delivery for most of the market.
2. Our strategy was to compete for all business based on system quality and processing expertise. We did not really consider selling price to be an issue with customers ... after all they could "buy the best" from us.
3. The competition had modernized its manufacturing, had standardized its equipment and declined to quote or highballed the really tough applications. Their strategies were built around competing on price and delivery and we were, in their eyes, not a factor.
4. The market (customers) perceived our strategy to be "supplier of last resort." We had most of that 20% segment, but we were too high priced and slow to deliver to get much, if any, of the 80%. There was no doubt among potential customers that we could solve their process problems, but so too could at least 2 of the 3 major competitors. The business we got was basically the applications that were too difficult for even these 2 or 3 companies. Our costs were high because
(1) heavy engineering effort, and
(2) every system was, in effect, a prototype.
In terms of quality, the customers perceived all companies as having essentially equal product and process reliability -- the prime measures of "quality" as they expressed it.
In short, we weren't even on the same page as everyone else. What we thought was a proprietary product had become essentially a commodity. We thought our hit rate was high because we weren't even seeing the majority of system bids, only those where the process needed our expertise and, therefore, our prices were not the major issues. Our internal estimates of market share dropped from 40% to 15% as a result of the information gathered at the show.
I'd like to tell you that the older management group readily accepted the new information. They did not. I've learned that no one thanks you for challenging their pre-conceptions (or for removing excuses for poor performance, either). The COO, also new to the company, did accept the information ... how else to explain large losses and flat to down sales trends?
Bottom line ... if you're fooling yourself, you can not effectively compete.
Creating The Vision
Fred Golove, retired IBM strategist, described visioning as "literally being able to get a mental picture of what [things] would be like at the end of the planning horizon." (personal communication)
Many athletes mentally take themselves through performance of their event before actually doing it. They "see" themselves successfully jump, run, or what ever. Successful executives with whom I've talked often describe "mental rehearsals" of a meeting, speech or decision as being a way to ensure they get it right. A friend who is a particularly successful trial attorney said she does much the same thing.
So how does this relate to business strategy? To me, visioning is looking at what is and imagining what could be. What would the organization look like (in terms of all relevant factors) as a successful competitor, one that has overcome its present weaknesses and competitors' strengths? That sets the goal. The vision must be written down. It becomes a part of the plan. The vision need not solve all the organization's problems ... that is unattainable -- success brings its own problems. It must, however, be of a better, more competitive organization, one that has made significant relative progress.
At the retailer where I was CFO, we came up with a vision that: "Navy Exchanges will provide military families and other authorized patrons with desired merchandise at both low price and high value in an attractive and comfortable shopping environment. Merchandise is always in stock and we are at the front of the first wave of stores to carry the fashion merchandise wanted by our customers. Our sales people are friendly, courteous, efficient and knowledgeable. They can solve customer problems without supervision. Our general and administrative expenses are contained within the best quartile of mass merchandisers. Our profits are sufficient to provide required dividends and adequate reinvestment."
That's what we wanted to be like at the end of the planning horizon. It is descriptive and visual. It highlights the important. It sets an end point to achieve. Notice that other than being in the best quartile for G&A, it is largely subjective and qualitative.
I've seen many other vision statements. Some include relationships to other factors or company culture. Ben & Jerry's vision statement included the company's impact on the environment and its social obligations. I would expect any public company to be willing to share its vision with you if you ask.
Developing the Strategies
At last we come to the crux of the matter ... how we get from here to there. Here is where the skill and knowledge gained in the first part are put to use. It is beyond the scope of this note to get into actual strategy development. But I do want to give you the flavor of it.
In his book, The Mind Of The Strategist, Kenichi Ohmae states:
"When resources of capital, people and time are as scarce as they are today, it is vital to concentrate them on key functional or operating areas that are decisive for the success of your particular business. Merely allocating resources in the same way as your competitors will yield no competitive advantage. If you can identify the areas which really hold the key to success in your industry and apply the right mix of resources to them, you may be able to put yourself into a position of real competitive superiority."
The global executive needs to be constantly thinking about resource allocation in relation to gaining competitive advantage. Compared to the purely domestic company, the global company has greater restraints and constraints on resource allocation. It has less flexibility to relocate resources, and often, less ability to decrease resources (particularly people - some countries even require governmental permission to lay off workers) in a particular situation. Its supply lines tend to be longer both from vendors and to customers.
Therefore, initial allocation of resources and decisions to add resources must be carefully considered in developing business strategies for international operations.
Again quoting Ohmae:
"In business as on the battlefield, the object of strategy is to bring about conditions most favorable to one's own side, judging precisely the right moment to attack or withdraw and always assessing the limits of compromise correctly. Besides the habit of analysis, what marks the mind of the strategist is an intellectual elasticity or flexibility that enables [one] to come up with realistic responses to changing situations, not simply to discriminate with great precision among different shades of gray."
Developing strategies is a creative process. The term "thinking outside the box" is appropriate. Unfortunately, most business strategies are neither creative nor focused on gaining competitive advantage. However, the best companies (General Electric for example) repeatedly find ways of staying ahead. Others stumble, find a good strategy and pick themselves up. Still others never quite get it correct and eventually disappear from the scene.
As in Chess, the strategically oriented executive must think moves ahead in terms of move, response, counter-response and so on to be successful.
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The posting is basically saying that any business needs a clear strategic plan to stay ahead of the competition. It is never just about price or quality or value but rather it is about a combination ...