What is the main purpose of Strategic Planning?

Strategic Planning is an annual process organizations conduct to plan their near-, mid-, and long-term strategies. A robust Strategic Planning process arms the organization with clearly defined strategic objectives across all time horizons and prepares the organization for successful Strategy Development and Execution.

Strategic Planning Process

Strategic Planning is a crucial process, but often poorly executed, leading to poor translation from Strategy to Execution. Through this article, we hope you will not only understand the purpose and scope of Strategic Planning, but also have a firm grasp of how to effectively and efficiently execute and manage the full Strategy process, from Planning to Execution.

This article breaks the full Planning to Execution processes into 3 sections. You can click on the links below to jump to the corresponding section. However, we recommend you read the full article from top to bottom, at least initially.

1. Strategic Planning
2. Strategy Development
3. Strategy Execution

1. Strategic Planning

Per Wikipedia, we can define Strategic Planning as:

In most organizations, executives complain that their Strategic Planning is overly bureaucratic, insufficiently insightful, and doesn’t accommodate today's rapidly changing, digital markets. To combat these issues, we can follow these 3 steps of Strategic Planning:

1. Explore Strategy across 3 time horizons.
2. Encourage productive and stimulating Strategic Dialogue.
3. Engage a broad, decentralized group of stakeholders.

Let’s dive a little deeper into each of these 3 steps of Strategic Planning.

1. Explore

The 3 time horizons we want to explore can be defined as short term (1-year timeframe), medium term (3-5 years timeframe), and long term (5+ years). Each horizon is uniquely considered and has different objectives.

• Short Term Horizon – The objective here is to challenge the current strategy, evaluate progress, and explore options to accelerate execution. The scope is around products, regions, and functions. As we explore the short term strategy, it’s important to encourage a culture of creativity and real dialogue. We should seek to avoid a budget-focused process and discussion.

• Medium Term Horizon – The purpose in the medium term horizon discussion is to enumerate the steps necessary to realize the vision. The scope is around the business unit. Our focus in this horizon is to develop clear, actionable business plans that describe the multi-year strategic initiatives to transform vision into value.

• Long Term Horizon – Lastly, the objective over the Long Term horizon is to define, validate, or redefine the vision, mission, and direction of the organization. This session is the forum to challenge and redefine the boundaries of our market. We want to shape our future by influencing the industry with our strategic actions.

2. Encourage

Most organizations repeat the same Strategic Planning process year after year. This leads to a situation where year after year, the usefulness of the Strategic Planning process deteriorates, as most analyses become adjustments of last year’s analyses. There is a stagnation of effectiveness. The same inputs lead to similar conclusions and creativity is sapped from the sessions.

So, how do we break this type of cycle and behavior? The answer is to encourage productive and stimulating Strategic Dialogue by asking different questions. Great strategists need to learn the “art of questioning.” Here are a few guiding principles around this regard:

• Questions shouldn’t be too broad (e.g. “How do we disrupt the industry?”).
• Questions also shouldn’t be too narrow (e.g. “What’s should the pricing be?”).
• The leadership team should engage in a strategic workshop to articulate and prioritize key questions we need to answer in the next 3-5 years.

Once the right questions are selected, we can have teams address these questions. These teams will design novel, relevant analyses, amass new knowledge, and develop strategic recommendations. Remember, as well, question-driven strategic dialogue is an iterative process.

3. Engage

Organizations that engage a broad, decentralized group (of both internal and external) stakeholders in their strategic development efforts yield stronger results than organizations that leave strategy in the hands of a small, centralized team.

Involving a broad group prevents groupthink. We should involve folks from different backgrounds, generations, and geographies. This is more likely to surface alternative ideas and perspectives. It is common to also engage participants external to the organization—e.g., customers, suppliers, consultants.

This approach improves our strategic “peripheral vision.” In other words, it makes us more adept in spotting both opportunities and risks early.

It is also important to engage stakeholders early on, as this increases buy-in, which helps with the Strategy Execution process later on.

For more information on Strategic Planning, take a look at these frameworks and tools available on Flevy:

2. Strategy Development

With the right process in place for a productive and robust Planning, we now need to ensure we have the right tools and philosophies to formulate a well thought out Strategy that is appropriate for our competitive and organizational situation.

The good news is there’s a plethora of research and consultative frameworks on Strategy Development and Strategic Thinking, perhaps more so than any other management topic. There are literally 100s of Strategy Development frameworks developed by strategists, academics, and consulting firms.

This is also the bad news. As there are so many tools available, it can be difficult to determine what the right approach is for our organization.

Corporate Strategy Framework

To help navigate through the available tools, let’s take a look at the Strategy Framework Canvas (SFC). The SFC is a unifying choice framework that guides us in selecting the appropriate Corporate Strategy for the circumstances at hand and execute it effectively. This model is particularly useful for large organizations that are now stretched across a more diverse and faster-changing range of business situations.

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SFC identifies 5 distinct archetypal approaches to strategy:

1. Classic
2. Adaptive
3. Visionary
4. Leader
5. Renewal

Classic Strategy

The Classic approach is the most common approach. In this situation, the market is predictable, basis of competition is stable, and strategy is sustainable.

Classic strategy is achieved through sustainable Competitive Advantage by positioning our organization optimally in an attractive market. Since the basis of Competitive Advantage within these environments is known and non-malleable, advantage can be based on superior scale, differentiation (or, equivalently, scale within a narrower market segment), or superior capabilities.

The most well-known Strategy frameworks are the Classics, such as:

• Porter’s Five Forces
• BCG Matrix
• Consolidation-Endgame Curve

Adaptive Strategy

We use the Adaptive approach when the environment is neither predictable nor malleable. There is continuous disruption in the market.

Unlike the Classic approach of sustainable Competitive Advantage, the foundation to the Adaptive approach to strategy is the notion of serial temporary advantage. Within unpredictable and non-malleable environments, the emphasis is on continuous experimentation and real-time adjustment—as opposed to long-term analysis and planning. Because advantage is temporary, we focus on means and not ends.

Examples of Adaptive frameworks include:

• Time-based Competition
• Temporary Advantage
• Adaptive Advantage

Visionary Strategy

We take the Visionary approach when we can reliably create or re-create an environment by some degree of predictability by seeing an opportunity and pursuing it single-mindedly.

Visionary approaches are most frequently associated with entrepreneurial start-ups. However, large organizations, such as Google, also drive Visionary Strategy through Corporate Entrepreneurship programs. Corporate Entrepreneurship is the process by which teams within an established organization conceive, develop, launch, and manage a new business that is distinct from the parent organization by leveraging the parent organization's resources.

Examples here include:

• Blue Ocean Strategy
• Disruptive Innovation
• Corporate Entrepreneurship

Leader Strategy

The Leader Approach is used when the environment is unpredictable, but malleable. We can shape or re-shape the whole industry.

A Leader approach both permits and requires an organization to collaborate with others in a diverse ecosystem that distributes risk, supplies complementary capabilities and resources, and builds the market quickly through strength in numbers.

Examples of Leader frameworks include:

• Networks
• Ecosystems
• Platforms

Renewal Strategy

Lastly, the Renewal strategy approach is used when the environment is harsh. This type of strategy aims to restore the vitality and competitiveness of the organization.

In such a harsh environment, the existing circumstances prevent the current way of doing business from being sustainable. The first step is to change course to preserve and free up resources.

Examples here include any type of the following:

• Business Transformation Strategies
• Corporate Restructuring & Turnaround Strategies

Developing a Strategy

Once we determine the type of Strategy approach to take, the next step is to adopt a Strategy Development framework most befitting our organization. The Corporate Strategy Framework is a structured approach that organizations use to develop and implement their overall strategic direction. It provides a framework for making strategic decisions and aligning various elements of the organization to achieve its long-term goals and objectives.

Key considerations when developing a Strategy Plan should include:

• Leadership Style: This refers to the approach and behaviors adopted by leaders and management in guiding and influencing the rest of the employee base. Different leadership styles, such as autocratic, democratic, transformational, or servant leadership, have varying impacts on Organizational Culture, Employee Motivation, as well as Strategic Planning and Execution. The leadership style should be consistent with the Strategic Objectives and the Corporate Culture.

• Corporate Culture: These are our organization's values, beliefs, norms, and behaviors that shape the organization's work environment. It influences how employees interact, make decisions, and work together towards achieving strategic objectives. A well-defined and aligned Corporate Culture supports the execution of the Strategy.

• Organizational Structure: Organizational Structure defines how roles, responsibilities, and authority are distributed within the organization. It determines how information flows, decisions are made, and resources are allocated. The structure should evolve and be reflective of the size and type of organization (e.g. small, virtual startup vs. global enterprise with decentralized operations).

• Competitive Positioning: Positioning involves identifying and establishing a unique and favorable position in the market relative to competitors. It involves determining the target market segments, differentiation strategies, and value proposition to gain a Competitive Advantage.

• Core Competencies: Core Competences are the unique strengths and capabilities of an organization that provide a Competitive Advantage in the market. They can include specialized knowledge, technology, intellectual property, or specific skills that are difficult for competitors to replicate. The Corporate Strategy Framework should leverage and enhance these Core Competences to drive sustainable Competitive Advantage and business success.

• Environmental Analysis: This involves assessing the external factors that impact the organization, such as market trends, competition, technological advancements, and regulatory changes. It helps identify opportunities and threats.

• Mission, Vision, Values: This defines the organization's purpose, values, and aspirations, outlining what it aims to achieve in the long term.

• Performance Management: Organizations establish metrics and key performance indicators (KPIs) to track progress towards goals and regularly review performance to make necessary adjustments.

• Risk Management: Organizations identify and assess potential risks and develop strategies to mitigate them. This ensures that the strategic initiatives are implemented in a controlled and sustainable manner.

The Strategic Analysis and Strategy Formulation process typically also involves a SWOT (strengths, weaknesses, opportunities, and threats) Analysis. Conducting a SWOT allows us to analyze the internal and external factors that can affect the success of the organization. Strengths and weaknesses are internal factors, while opportunities and threats are external factors. By identifying these factors, we can develop strategies to maximize our strengths, minimize our weaknesses, take advantage of opportunities, and protect against threats.

For more information on Strategy Development, take a look at these frameworks available on Flevy:

The Strategy Chessboard (listed above) is another holistic Strategy framework, similar to the SFC. For even more materials on specific Strategy frameworks, take a look at our Strategy Development Stream (here) and the Flevy Marketplace (here).

3. Strategy Execution

Strategy without Execution is merely theory. Every organization has a Strategy. But, did you know the majority of strategies fail?

Numerous studies from top consulting firms (including McKinsey, Bain, BCG) and Harvard Business Review have shown approximately 70% of strategies fail due to poor execution. Furthermore, organizations only realize about 60% of their strategies’ value.

This gap between the Strategic Plan and actual performance results is called the Strategy-Execution Gap.

Strategic Planning and Execution

For most organizations, their projected performance based on business Strategic Planning forecasts follow a “venetian blinds” pattern. In other words, when each year’s performance projections are viewed side by side, the resulting diagram resembles a series of diagonal venetian blinds. This pattern signifies a deeper issue of an institutional practice of setting unrealistic goals, which has damaging impacts to the organization’s culture.

This performance gap between Strategic Planning and Strategy Execution can arise due to various reasons, including inadequate communication and alignment within the organization, insufficient resources or capabilities, lack of clear accountability and ownership, resistance to change, ineffective performance measurement and monitoring, and failure to adapt to unforeseen circumstances, among others.

Additionally, a gap can occur when there is a disconnect between the strategic plan's goals and the day-to-day activities of employees.

Bridging this gap requires a concerted organizational effort led by effective leadership. To achieve this, here are 3 guiding principles to follow to close the Strategy-Execution Gap.

Principle 1: Keep it simple.

In most organizations, Strategy is a highly abstract concept, often misused to be synonymous with vision or aspiration. It is likewise something that’s not easily communicated or translated into action. Resultantly, without a link between strategy and performance cannot be drawn, because the strategy itself is not sufficiently coherent and concrete.

On the other hand, high-performing organizations avoid long, drawn-out descriptions of lofty goals. Instead, they utilize clear, succinct language describing their course of action. By being very clear on what the strategy is and isn’t, we can keep all employees headed in a unified direction.

Principle 2: Use a rigorous Strategy Execution/Deployment framework.

To be productive, the dialogue between corporate and the business unit about market assumptions must be conducted within a rigorous framework. Here are some frameworks available on Flevy:

The specific framework used to ground our Strategic Planning isn’t the most important. What is critical is that the framework establishes a common language for dialogue between corporate and the business units—one that also unifies and the strategy, marketing, and finance teams.

Without such a framework, it is difficult for management to determine whether the financial projections are reasonable and realistic. Thus, management can’t know with confidence whether performance shortfall stems from poor execution or a poor plan

Principle 3: Continuously monitor performance.

High performing organizations utilize real-time performance tracking. They continuously monitor resource deployment patterns and their results against plans, leveraging continuous feedback to reset planning assumptions and reallocate resources accordingly. This real-time approach allows management to identify and find flaws in the plan, as well as shortfalls in execution—and to avoid confusing one with the other.

Continual performance monitoring is particularly important in highly volatile industries. In such environments, events outside the organization’s control can render a plan useless.

For frameworks specific to Performance Management, take a look at these materials available on Flevy here.

Many of the concepts in this article are summarized in this explainer video produced by Flevy:

Furthermore, the 3 documents below highlight the core concepts of Strategic Planning, Strategy Development, and Strategy Execution discussed in this article. To develop Expertise and achieve Excellence in Strategy, we recommend taking a look at our Strategy Development Stream offering.

Source: Best Practices in Strategic Planning, Strategy Framework Canvas (SFC), Closing the Strategy-to-Performance Gap
[Full source materials below]