Is your strategic planning designed to fuel growth? Unknowingly and all too often, the answer for leadership teams is “No.”
When strategic plans, effectively executed, fail to drive growth a number of root causes are usually at work.
Leaders view strategic planning as the process for achieving next year’s revenue goals. Every organization needs a process for resource allocation to achieve annual financial targets. But when you start strategic planning as that exercise, you end up with largely incremental improvements that get quickly copied by competitors.
True strategic planning is a design process in which you assess the strength of your business models in light of a changing external environment and identify:
- New business model experiments
- Innovations to existing business models, not merely incremental improvements
- Strategies to strengthen the competency, process, technology and solution platforms that your business models leverage.
All markets get commoditized and its happening at a faster and faster clip. If you don’t want to win on price, innovate your business models before its too late. A strategy-as-design process enables you to do just that.
Leaders organize planning around how their company is structured, rather than around business models and the platforms that they leverage. In large companies, the commercial side of the business is separated from the product side business units housing product management, R&D and manufacturing. Commercial does its planning while the business side does its planning, all in silos. And the individual business units never get together to see how they might collaborate to deliver more customer value. Even worse is the situation in which R&D and manufacturing are centralized and planning is done in these silos, separate from commercial insight and significant involvement of business unit product management.
When you organize planning by how your business is organized, you end up with product, process and operational innovations, but rarely business model innovations. To create new business models and truly innovate the ones you have, you must organize strategic planning with highly cross-functional and cross-business unit teams that engage in creative thinking to innovate the business model(s) for serving their shared target market(s). Platform teams and business units should also do their planning (e.g., a shared manufacturing resource or a business unit defined around a product), but this planning should be informed (and inform) the business model ideation work.
Finance and marketing undermine the process by not providing managerial information. An example from a recent client assignment will make this point. The company’s value promise is to offer the “best experience” to customers in its category. But the leaders (of this large dealership) had no database or insights to answer questions such as these:
- Penetration rate of different services
- Win rate on repeat purchases
- Lifetime customer value
- Elements of the experience that matter most and least to customers
- Why lost customers bought elsewhere
- Which marketing approaches were bringing the best leads to the direct sales force
In essence, the financial information system produced good accounting information but woefully little managerial information and marketing did not dig into the system to pull out whatever insight could be had. (I tried in advance to get the data without success, believe me.) The company was for all intents and purposes driving strategy from a car without any headlights on a pitch-black night with heavy fog.
You can drive in the dark when no one is on the road if you can drive very slowly and the road is empty except for the one car you are following. But that is not today’s economy – customers have fragmented into multiple smaller markets filling the highway and competitors can ram you from any direction unexpectedly at any time. Today, advanced analytics of digital data is a competitive advantage. Tomorrow it will be a requirement to compete.
Are your strategic planning approaches fueling growth? If not, might one of these root causes be dampening your growth rate?
Kevin Mackenzie says
While I enjoyed your blog, I was concerned with an implicit assumption you make about strategy always having to create growth. I believe your point about “strategic planning as that exercise” is far more sinister than you expressed. When strategy becomes as set of growth goals we practice in my opinion bad strategy. I am always frustrated when I hear management say their strategy is to grow by x%. My concerns are base on the following:
1. Growth is only valuable to the extent it’s profitable (ROI > WACC)
2. I believe strategy is problem solving. In most companies making next year’s numbers is only one of your problems
My philosophy is never let the pursuit of growth be your strategy driver. I would take better over growth any day. Improving the fundamentals of your demand creation function, optimising your supply chain systems, deepening competitiveness within your core markets may well stint short term earnings but may significantly enhance a company’s strategic posture.
Great points Michael. In talking about growth, I was assuming profitable growth. But there are times in a company’s history when not growing is the right strategy, a focus much harder to pull off with public companies than private companies. And I fully agree that strategy without diagnosis of problems is merely dreaming. Great companies focus on what is keeping them from being even greater in delivering value to customers, employees, owners and community.