problems with strategic planning today

The established model for corporate strategic planning has some problems in the way that it generally is practiced. Resolving those problems is the purpose of this project.

The problems are specified and described primarily through anecdotal and experiential reports made by corporate strategists, management consultants, and academicians. Those same consultants conduct occasional surveys among strategy planners to learn their feelings about the process.

As a general rule, this is not the best basis upon which to decide which are the most significant problems. Stories, anecdotes, and opinions are guides for further thinking and exploration. But they represent the expressions of only the one person from whom they originated. They may or may not be applicable to the entire population of affected individuals or organizations. Even the surveys are not as strictly scientific as they could be. The whole field of strategy making would benefit from a lot more evidence-based research into the most effective planning procedures.

Until researchers start producing such scientific data, let us see what is available, From various sources (business journals and articles, consultant reports, blogs, and webinars), and research papers, there are anecdotal  statements of these problems.

Corporate strategic planning activities and decisions occur too infrequently – typically once a year, occasionally twice. Some companies, after completing a comprehensive and ambitious plan, skip the next year. Strategy worthy events and phenomena are occurring all the time. Waiting until the next strategy retreat can be too late. Perhaps 11 months too late.

Often, there simply are not enough data to support good strategic decisions. Ideally, planners will consult data in the four domains (internal resources & competencies, external customers & markets, competitors & industries, environmental factors) for which there can be volumes of relevant statistics. Many companies are not aware of the range of data that are available; most do not have  the ability to gather even a fraction of what is there. They satisfy themselves with the more limited variety of data that their staff members have had time to collect.

There are shortcomings in the data that corporations do gather and on which they base their strategic decisions:

• they often are out-of-date, incomplete, or obsolete;
• the data do not cover all the issues – not enough to support  the decisions being considered;
• different types of data are not are not integrated and correlated (causing contradictions and inconsistencies); and
• the data are unscientific, biased, and inaccurate.

Lacking solid data support, executives make decisions on instinct, tuition, and experience. The  results are unscientific, misguided, and irrational. Company leaders create strategic plans that are illogical and erroneous, counterproductive and damaging to the business.

Because they take place in the future, strategic plans make assumptions about events that have yet to occur. They are rarely stated explicitly. Furthermore, as time passes, the assumptions are not revisited for their continuing validity. The plans can become irrelevant.

Strategic plans are often complex undertakings that require careful management over a period of years. Yet, in many cases, the plan does not lay out the steps that will be followed in putting it into practice, or require monitoring the plan’s implementation. It is not surprising then when the plan goes astray and produces less than optimal results.

The scientific evidence on problems in strategic planning appears in surveys conducted by management consulting firms. There are only a couple and they are not rigorously scientific, but here they are.

In July and August 2006, McKinsey & Associates surveyed 796 financial and strategic executives in organizations with revenues of at least $500 million. This is what they learned.

More than half (52%) of them said that important strategic decisions  are made by a small group of senior C-level executives. In about a quarter (23%) of the organizations, decisions are made through a formal strategic planning process. (Although McKinsey does not say this, decisions made by only a few high-level executives suggests that they were based more on experience and instinct, rather than hard facts. A formal strategic planning process should be considered the gold standard of modern strategy-making.)

Of those companies with a formal process, 58% said that it  plays a significant  role in developing corporate strategy. (Unfortunately, 58% of 23% is only 13% of corporations with a meaningful planning process.)

Questions about the role of the board of directors in the formal planning process indicate that it is restricted to relatively passive  activities like approving the  final strategy (64%), challenging emerging strategy (52%), monitoring performance against strategy (48%), and identifying key strategic issues (37%). Only 25% of board  directors help develop strategy content. Perhaps that is because only 7% of the survey respondents believe that greater involvement by the board would improve their company’s strategic planning.

McKinsey asked the executives how they would improve their formal strategic planning processes. They offered nine suggestions with roughly equal emphasis.

Improve company alignment with strategic plan
Develop method to monitor progress against strategic plan
Improve identification of and focus on important strategic issues
Improve market/competitive intelligence
Improve quality of strategy-development discussions
Reduce inappropriate influence of personal agendas
Increase discussions among business units
Increase involvement from all levels of company
Improve efficiency of planning process

One of the surprising findings of the survey was that companies do not generally focus their strategic planning on new growth opportunities. Fewer than half the executives said their company’s approach includes looking for growth opportunities outside their core business. Among those with a formal planning process, only 57% said that it was substantially integrated with their business development activities. (This is not necessarily a bad thing if diversified growth is not one a corporation’s strategic objectives.)

Even more remarkable, just 53% of the executives said their planning efforts focused on the most important strategic issues, rather than on tactical issues. (Quite simply, the other 47% were not engaged in true strategic planning.)

The McKinsey survey also asked about the characteristics of the companies’ formal strategic planning processes. These are the answers provided by at least 35% of the executives.

Leads to strategic decisions that allow the company to meet its goals and challenges
Assesses risks as well as benefits
Is fact based
Focuses on most important strategic issues facing company, not tactical issues
Ensures that those who carry out strategy are involved in making it
Builds shared understanding of market dynamics
Emphasizes substantive discussion of issues, not process
Ensures that participants receive worthwhile analyses, information at right times in process

(Some of these responses are reassuring – “fact-based”, and “assesses risks”. Not so reassuring and what makes this survey not so scientific is the apparent lack of consensus on the practical meaning of these terms and phrases. For instance,  the most common response (64%) to this question:  How can it be said convincingly that certain strategic decisions allowed a company to meet its goals?)

A final question in this survey looks at the specific activities of corporate employees with primary responsibility for making strategic decisions.

Identifying key strategic issues for senior management team 79%
Developing content for strategic plans 78%
Preparing external/board presentations 77%
Managing process of developing strategy 71%
Developing market/competitive intelligence 67%
Engaging in internal consulting activities 67%
Developing metrics, measuring strategic performance 60%
Managing new business-development activities 57%
Managing relationships with external consulting partners 49%
Conducting portfolio-management activities (e.g., valuation) 41%
Managing M&A or divestment transactions implemented by outside partner 28%

This is a good standard list of personal strategic planning tasks.

In November 2014, Bain & Company conducted a survey of nearly 300 global executives. The published results are rather thin. There appear to be only two questions accompanied by some “informed” (“in our experience”) professional opinions.

The most useful question asked the executives to critique their company’s strategic planning processes. Only a 32% believe that they demonstrate strong design, execution, and adaptation in the face of change. The rest found problems with ineffective process, poor strategy design, poor execution, and poor adaptation. (None of these terms are defined so they could be interpreted differently by the respondents.)

The executives’ personal opinions were a little more interesting. Although only a third gave high ratings to their planning efforts, 60% said that they were satisfied with the results. Bain explained this contradiction in this way:  ”Some executives may have a different conception of what a good strategy looks like, but most have simply lowered their expectations. They either believe their strategic planning process is as good as it’s ever going to get, or they feel that fixing it would mean devoting even more time and effort to a difficult and tedious process.”

The Bain consultants went on to say this:  “The companies that produce great strategy … treat strategic planning as a critical capability that can and should be world class. These companies have invested in the people, processes and tools that allow them to identify the most important strategic priorities and adjust as needed to remain sharp and relevant as conditions change. The process creates time for focused strategic debates, and dials up the cadence of decision making.”

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Let us summarize what corporate executives, management consultants and academic researchers have concluded is wrong with strategic planning as it is currently practiced.

Strategic decision-making does not happen often enough. The world is changing constantly. Trying once a year to incorporate those changes into strategic plans is completely inadequate.

Strategic decision-making does not happen fast enough. Strategic planning is a clunky, ponderous process that involves data gathering by staff members that may be  spread  over weeks or months, the analysis and discussion of those data by executives that may take days or weeks, checking for appropriate resource allocation, a decision-making mechanism that may bounce back and forth among executives and managers, documentation of the agreed strategies, and dissemination to affected managers. Strategies need to be imagined and implemented as quickly as possible – to out-maneuver the competition and to move on to the next strategic challenges.

Strategic planning utilizes only a fraction of the relevant data that are available. Corporate planning activity can profitably use the large volumes of data in the four key domains. They do not do so because …. they are unaware of them, do not know where to find them and how to access them, cannot access them quickly enough, and do not know how to process them.

The data used for strategic planning are often incomplete and out-of-date. For instance, financial statements or market reports that have been superseded by more recent metrics. This means making decisions based on irrelevant information, sending strategies off in the wrong directions.

The data used for strategic planning are frequently unscientific, misguided, and irrational. If planners are going to make cogent, methodical decisions, they are going to have to start with rational, scientific data.

Data from different sources, databases, and silos are not adequately integrated and correlated with each other. The mass of data that must be taken into account in planning strategy is so dissimilar in its raw form that considerable  processing is required to homogenize it. Not all companies are able or willing to do this.

Corporate planners are not always adept at drawing accurate and useful conclusions from the available data. Various data points can be put together in different ways, some that make sense, others that lead to counter-productive decisions. Strategic plans based on data are highly preferable but only if the data are interpreted scientifically.

Corporate executives are not strictly rational and objective in their strategic decision-making. Such a decision-making ability does not come naturally to all people. They can be educated to practice it. Otherwise, they are likely to use their intuition, experience, and judgment, and feel that this is adequate. In fact, this approach will produce opinionated, unpredictable results.

The assumptions that underlie strategic plans are not expressly stated or regularly reviewed. Strategic plans make assumptions about events that will occur in the  future. They may or may not occur. The assumptions need to be explained explicitly  and checked repeatedly in the future for continued validity.

Progress toward strategy implementation is poorly managed. Strategic plans spring to life only through careful management. Once created, the plans are often ignored while executives resume their operational responsibilities. There must be a system for implementation that is monitored constantly.

These are the problems that we have found with strategic planning. These are the problems that we intend to correct.