Your competitors change. Your customers change. Your suppliers change. The available pool of talent from which you employ key resources changes. Technology, a proxy for the wide universe of possibilities and risk, also changes. At times, and in some industries, this pace of change can be very slow, while in others, by contrast, the change can seem impossibly fast. One thing is for sure… change is not likely to happen on the cadence of your annual planning cycle.
Most well-run companies have some kind of planning cycle, which may start with a strategic review and adjustment, followed by a setting of goals and budgets for the coming year. While there are many variations, the process usually contains the following elements:
- The Current Mission, Vision and Strategy
- The near term (perhaps 3 to 5 year) Objectives
- The Performance to plan during the previous year
- The core Capabilities, the integrated processes throughout the value chain
- The core Competencies and the resource pool needed to retain them, including changes and trends
- The current Customers, including changes and trends
- The Competitions’ strategy and performance, including changes and trends
- The key Suppliers, including changes and trends
- The current Product and Service offerings
- Major changes proposed to the Mission, Vision and Strategy
- The new Product and Service plans, including their status, upside potential and downside risk
- A financial analysis, such as a pro forma P&L, for the business, including sensitivity analysis
- Any concerns about what could go wrong
- Recommended actions to the sponsors
- The plan for next year, including financial performance, the release of new products and services, and any major changes to the current direction
This is an excellent process, even if firms use only a subset of the above and perhaps even less frequently that annually. In that process, business sponsors hope to add value through their critical review of the information, and by giving feedback on what they want delivered next year. Managers strain to understand what their sponsors want to see and hear, while at the same time identifying and communicating what their business needs to be more successful. Well-meaning people drive the process to be tighter, less messy, and have fewer surprises and holes. Managers learn over time that uncertainty, surprises, and holes will not get you a good grade in strategic and annual planning, and may be career limiting.
As a result, these practices often become laborious, and degenerate into report-giving rather than really managing the business. Strategy planning becomes a self-sustaining annual exercise that demonstrates the ability of a business manager to check a box, rather than generating important discussions about business changes in a timely manner.
There are at least two problems that may result by relying solely on this annual planning method:
- Business managers become more worried about filling in the blanks and getting a good grade than thinking creatively about a needed overhaul of their business. This issue is due to the natural tendency to want to please the boss. And if a process is given to a manager to please the boss, the process will be used, even if it’s confining.
- The impact of information on the strategy and plans may not be discovered and addressed as it happens, and in a timely manner. This problem is due to the “internal-event-driven” cadence of this annual planning cycle.
The former issue is best addressed through good people management processes, and keeping your processes light. Make sure your people know you care about critical thinking and content over format and good debates about the essential issues over pretty slides, tidy answers and discussions without contention. This awareness takes hard work, driving toward mutual trust.
Additionally, continually ask whether your processes have become over-burdensome and revamp them completely from time to time. All companies get “process arthritis” as they get older, the condition where the processes have grown so painful and arduous over time that you can barely move. It’s a natural by-product of making mistakes, putting in place a process so the issue never re-occurs, making another mistake, putting in another process… ad infinitum. Before long, companies have processes protecting them from very rare occurrences but costing them heavily in time and creative energy. Resetting processes is essential to avoid this process arthritis.
The latter issue (late discovery and reaction to important changes impacting your strategy) does not argue for eliminating the annual strategic planning process completely. On the contrary, the annual strategic planning process plays a key role in setting a minimum cadence for careful examination of your business, marking successes and failures, and aligning the organization. What firms often lack are the processes, roles and responsibilities for continually scanning the industry and market for changes that will impact strategy. Similarly, most firms lack the ability to respond to new information before their next annual strategy and budget session. Plans are set once a year and any news that would disrupt these plans would have to be dire news indeed.
Truly agile businesses assign people to investigate and report on changes much more frequently then annually. Savvy business organizations have methods to collect and respond to the latest information. They have cash reserves to invest in significant new opportunities, to address key emerging risk areas and to quickly re-assign priorities to cover changing market expectations. Your business processes, including your strategy setting processes, must be built to address this needed agility.
As always, the key to maximum success is to avoid the extremes and strike the proper balance. Possess too little agility and you may only address key issues in your annual planning process. For most industries, this pace is too slow for some emerging problems. However, if a firm changes its plans too frequently, the likely result is little to no useful output. It’s the same problem any engineer faces when designing systems with delays and feedback loops. If your typical time through the new product development process is 2 years, significant changes in strategy, staffing, direction, roadmaps on a quarterly or even semiannual basis are likely to deliver little if any productive work.
Strategy is dynamic. Adjust as necessary, but with caution.
Over the last several months in this blog I have related ten tenets or key principles in setting up and maintaining your strategy. These tenets are not meant to be a step-by-step process. Nor are they an exhaustive list of all considerations in designing your strategy. And while I have shown a few specific tools, the choice of tools is less important than maintaining these tenets while using those tools for illumination and communication. I contend that these core principles, these ten tenets, are essential for developing a strategy for any case in which you wish to build a sustainable, defensible business.