Strategic Thinking Versus Strategic Planning
WHO IS THE COMPETITION?
An organization's competition used to be clear and predictable. Some competitors even bought and sold sections of each other and shared employees when they accepted employment opportunities from each other. Today, competition is complicated by technology, international markets, government intervention or lack of intervention, changing industry infrastructures, new knowledge, demographics, and a host of other variables that are new to the traditional view of strategic planning. The competition, because of dramatic world changes, has become harder to anticipate, harder to track, harder to understand, and much harder to combat.
Competition no longer encompasses just the traditional competitors. It now includes anything, anyone, any organization, any movement -that takes an organization's prospective customers' money. Today, it may be more appropriate to view competition in terms of alternative ways for the consumer of products and services to obtain the results desired, not as specific companies within an industry that are trying to underprice or outperform each other.
QUANTITATIVE VERSUS QUALITATIVE PLANNING
The foundation of most current corporate planning systems is internally generated data - highly quantitative and historical in nature. Most long range planning systems look at numerical data for the past five years and extrapolate to predict the next five years. This kind of planning does nothing to change the composition of a business in terms of products, markets and customers. It also makes the failed assumption that outside influences will remain constant, in terms of competition, government influence, labor and resource availability.
Most strategic planning systems are operational in nature. As such they fail to take the whole picture into account. These systems are accompanied by a need to do a lot of analysis, usually requiring graphs, forms, bar charts, matrixes, and volumes of numbers to be presented to corporate headquarters, and which may miss the most important parts of the strategic evaluation.
Numbers planning discourages risk taking. Many market losses experienced by American firms can be attributed to a lack of emphasis on product and process innovation. Reliance on tight financial controls by corporate headquarters encourages decision-making at the divisional level consistent with short-run profit maximization and risk avoidance. The result is often lower innovative activity and declining competitiveness.
This decline is attributed to the "quantitative" management systems espoused in the United States, such as "ROI-based financial controls and portfolio management concepts." These principles, "give rise to a short term orientation and risk avoidance. "Making the numbers" becomes everyone's preoccupation, rather than growing the business to its healthiest state of opportunity.
Product innovations create new market opportunities, and in many industries are the driving force behind growth and profitability. Process innovations enable firms to produce existing products more effectively. As such, process innovations are one of the main determinants of productivity growth. Without a continual stream of product and process innovations, firms soon lose their ability to compete effectively.
STRATEGIC THINKING VERSUS STRATEGIC PLANNING
Strategic planning does not necessarily build in good strategic thinking. Most strategic planning exercises are nothing more than systems that force people to make extrapolations of historical numbers. This type of planning does nothing to change the direction, or composition, of the company. It's "straight-ahead" type of planning. In many organizations this annual exercise becomes a fire drill that everyone does by rote and does not elicit the type of strategic thinking required. To break out of this traditional mode, one might ask, "If we were to start the business from scratch what would we do differently?" Or, "What are we currently doing that we should stop doing?"
These traditional planning exercises are normally compiled in a large book; the book is then placed on a shelf, and nobody looks at the document until the results have to be justified or the process starts all over again next year. Because of the "fire drill" orientation of most corporate strategic planning exercises, strategic thinking comes to a standstill, because there simply isn't enough time devoted to be able to think strategically.
If traditional methods of strategic planning do not work, then how does a company go about developing and implementing a successful strategy? The process needed to determine the future direction of an organization is not strategic planning but, strategic thinking. Strategic thinking is a process that enables the management team, to analyze the qualitative aspects of its business and the environment it faces. The team can then decide on a common and shared vision and a strategy for the future of its company.
VISION: THE STARTING POINT OF STRATEGIC THINKING
The president or senior officer's primary responsibility is to make certain that he or she has a clear and focused strategy and that everybody understands it. Most senior officers have a vision in their heads, but, most of them assume that their staff and employees already understand it. If they don't, it is their fault. The other major flaw in the communication of the vision is the senior officer's perception that if the staff understands the vision, they agree with it. Understanding does not automatically equate to consensus, although it is the first step in the process.
Most senior officers need to spend much more focused time articulating, communicating, and explaining the vision that will become the magnet of everyone's activities and efforts. Naturally, other people only embrace a senior officer's vision if they understand and agree with it. The vision, therefore, must be based on sound rationale - thus, the need for strategic thinking, the objective of which is to assist the senior officer formulate and articulate this vision to key executives in order to achieve successful implementation. Strategic thinking is a process that involves the entire management team, because people will commit to implementing a plan that they have helped to construct rather than one that has been imposed on them by a small group of top executives.
Many executives have difficulty articulating and communicating their vision. This is the norm, rather than the exception. Too many crises intervene and obstruct the quality time and attention needed to manage this process effectively. It normally gets done late at night when the person is tired, or on an airplane en route to another problem or opportunity. As a result, senior officers are not always successful in getting their people to implement what they want done.
Roger Smith, the ex-CEO of General Motors, may have said it best in a 1989 Fortune article just prior to his retirement: "If I had the opportunity to do everything over again ... I sure wish I'd done a better job of communicating with GM people. I'd do that differently a second time around and make sure they understood and shared my vision for the company. Then they would have known why I was tearing the place up, taking out whole divisions, changing our whole production structure. If people understand the why, they'll work at it. Like I said, I never got that across."
In most organizations, the vision and strategy is implicit and resides in the head of the most senior officer. Staff members end up having to guess the vision and strategy. Unfortunately, their guess may be wrong as often as it is right. As a result, decisions are made - some which tug the organization to the right, some to the left - and the organization zigzags its way forward.
Extracting and rendering explicit the vision of the senior officer is not an easy task. It's not a question of simply asking him or her, "Where are you taking this organization?" Most senior officers would reply with answers that are numeric in nature; they want the company to be a "billion dollar company," etc. That is an easy answer that most people can understand. But the planning process often misses the fact that it might be irrelevant and or not translatable to everyday work or decision making.
Numerical statements are not statements of vision. They are statements of the results of a vision. The vision must be stated in terms that determine the composition of the company at some point in the future. In order to describe what the organization will "look" like in the future, one must go through strategic thinking.
What sort of questions should company executives be asking themselves? In most organizations, there isn't a process for strategic thinking. Moreover, all the popular highly quantitative strategic planning methodologies, tools, and techniques have almost brought thinking to a standstill because everybody has been exercising the wrist and resting the brain.
Strategic thinking is the type of thinking that goes on within the mind of the senior officer, the strategist, to shape and clarify the organization's future strategic profile. Decisions that "fit" within the parameters of this profile are taken and implemented, and decisions that do not "fit" the profile are rejected. In effect, a clear set of filters that will determine all future resource and strategy issues is defined. Strategic thinking can be compared to painting a picture. It is the process that helps the senior officer and the management team create a profile of what they want the organization to become. It is this picture or profile that will determine the direction, nature and composition of the business.
Strategic thinking is different from both strategic planning and operational planning. In fact, strategic thinking is the framework for the strategic and operational plans, both of which are very important. This does not undermine the value of analytical evaluations, it only places the numerical manifestations of the strategic options at a different point in the process. A viable strategic thinking process has to start with the senior executives, its top management. Instead of addressing operational issues, senior executives should look at their future environment; talk about the organization's future direction; develop a strategy; and articulate their "vision" or future profile for the company.
In short, strategic thinking will help determine what the organization should look like. Operational planning, is the type of thinking that helps choose how to get there. The alternative to strategic thinking is the "Christopher Columbus school of management:"
· When he left, he didn't know where he was going.
· When he got there, he didn't know where he was.
· When he got back, he couldn't tell where he had been!
But he got there and back three times in seven years. Which means that Columbus was operationally very competent although he never knew where he was 6.
Strategic thinking is a fresh approach to the subject of strategy. It identifies the key factors that dictate the direction of an organization and is a process that the organization's management uses to set direction and articulate their vision. For strategic thinking to be successful, it is necessary to obtain the commitment of the organization's key executives and the commitment of others who will be called upon to implement that vision.
THE STRATEGIC VISION
There are four areas that reflect a company's strategy, direction, and eventual look:
· The nature of its products
· The nature of its customers
· The nature of its market segments
· The nature of its geographic markets
Everything else that goes on in an organization is either an input or an output of these four areas. Capital, people, skills, facilities, and technology are all inputs. Profits, earnings, and dividends are all outputs. It is critical for management to understand to what the strategy does not lend itself. With limited resources it is far too easy to be seduced by appealing opportunities that do not support the long term strategic vision of the company.
The results of a sound strategic thinking process must, produce a clear profile of the kinds of products, customers, market segments, and geographic areas that the strategy of the business lends itself to and that will thus receive emphasis. But just as important, the process will produce a clear profile of the kinds of products, customers, market segments, and geographic areas that the strategy of the business does not lend itself to and, thus, will not receive emphasis in the future.
Depending on which strategic area is most important to the organization, the decisions regarding future products, users, and markets will vary greatly. Because a new strategy can lead an organization in a different direction, the organization's leaders must carefully select the strategy to be pursued in order to gain competitive advantage in the future.
Change Management Group specializes in organizational assessment and restructuring, strategic planning, merger and acquisition integration, new product development, executive coach counseling and staffing evaluations. We are an international management consulting firm staffed by Industrial & Organizational Psychologists and MBAs. We introduce and guide organizations through complex and difficult changes.
Change Management Group
1625 Hillcrest Drive
Laguna Beach, CA 92651
Note: Sections of this piece were abstracted and adapted from Strategy Pure and Simple by Michel Robert, McGraw Hill Publishing, 1993. All credit for the "strategic thinking" concepts should go to Michel Robert.