In today’s business vernacular, “Strategy” and “Strategic Planning” are arguably the most overused and poorly defined terms. The prevailing practice is to call any planning exercise – strategic planning. At any corporate headquarters you will hear about strategies for IT, Staffing, Risk Management, and many others. Such overuse and abuse has birthed the misconception that strategic planning and business planning are synonymous. Many professionals will argue the difference is merely a question of semantics. The result of this confusion is a deficit or outright abandonment of a critical component of business planning – real Strategic Planning.
Arguably the best articulation of strategy was penned by Kenichi Ohmae in his seminal work, The Mind of the Strategist.
“What business strategy is all about – what distinguishes it from all other kinds of business planning is in a word, competitive advantage. Without competitors, there would be no need for strategy, for the sole purpose of strategic planning is to enable the company to gain, as efficiently as possible, a sustainable edge over its competitors. Corporate strategy thus implies an attempt to alter a company’s strengths relative to that of its competitors in the most efficient way.“
To summarize, the aim of strategy is to answer the question – what will make the customer say “yes” to our product and “no” to the competition? The customer is central to any strategy – their wants and desires are the critical determinants of success or failure. There votes cast through the ring of the cash register is the gauge of whether a strategy is successful or not. Strategy is differentiation – how an enterprise delivers a product or service that is unique and enticing to customers. For this reason, seasoned strategists constantly seek to increase their understanding of both the customer and the competition. By understanding both, they can chart a path that brings delight to one (the customer)… and is hard to replicate by the other (the competitor).
So what is business planning? In contrast to strategic planning, business planning is the full allotment of improvement activities a company undertakes in any time period. Strategic initiatives, although critical to building market share, are but a subset of the complete population of business initiatives. Other initiatives focus on expanding the capabilities of the business and making existing operations more efficient. For example, identifying new financing sources (i.e. bond issuance, IPO, line of credit) is a business planning initiative that expands investment opportunities.
When strategic planning as defined by Ohmae is an afterthought, an enterprise’s strategic advantages gradually erode. The lights are still on and the financials may still appear strong, but the strategically effete enterprise is diminishing. It may take a good amount of time take for strategically flawed enterprise to slip – but we have all watched as market leaders with seemingly insurmountable advantages have tumbled from the top position. The symptoms of strategic failure include a lack of operational focus, customer feedback is ignored, and any endeavors are more to respond to the competition than to introduce significant improvements in the enterprise’s offerings. At some point an innovative competitor leaps into the fray with a better mousetrap and the enterprise plays catch up.
To avoid being outplayed, enterprises need to build a layer of strategic competence and processes to confirm their focus is on the right customer and that they produce the right offerings. Strategy is not a list of business goals and metrics and it should not be an annual exercise to complete goal templates and conduct a series of Kumbaya meetings where everyone comes out energized and ready to take the hill. In contrast, strategic planning should be dynamic – a continual reexamination of the challenges and opportunities existing today with the intent to address ways to gain advantage. Having consulted with a number of leading enterprises, I have assembled a short list of activities existing in the strategic leaders.
Activities in a World Class Strategic Planning Function
- Clear identification of the market and customer segments in which the enterprise competes
- Detailed (and regularly updated) view of the target customer’s wants and needs
- Identification of competitors and how they present themselves in the market
- An analytically based, intuitive identification of potential market offerings (product, fit, positioning, etc.)
- Continual development and refinement of strategic hypotheses
- Confirmation of the enterprise’s capabilities to execute any chosen strategy
- Utilization of game theory to predict the market reaction to strategic options
- Selection of optimal result(s) based upon competitive market models
- Development of objectives to accomplish the desired strategic result
- Creation of strategic initiatives to accomplish those objectives
If the word strategy is confusing, the actual terminology does not matter, but without the key elements of real strategic planning, an enterprise is simply drifting – relying on previously generated market momentum and just plain luck. Better to plan your future than let someone else plan it for you.
If you enjoyed this article and found it beneficial, please share it with your network. For additional insight into solid strategic planning, I highly recommend the following two books.
Good Strategy, Bad Strategy by Richard Rummelt
The Mind of the Strategist by Kenichi Ohmae