How often should you do strategic planning?
- Every year
- Every 3 to 5 years
- Whenever you suspect the competition is about to eat your lunch
- Whenever sales and profits fall significantly short of goals
- None of the above
Select your answer and then read on to see if you are correct.
If you chose #5, congratulations! So when should you do strategic planning?
The Calendar Does Not Know Best
Many organizations adhere religiously to a strategic planning calendar. If they haven’t done it in X years, it is time! But what does the calendar know about the plight of your business? One year? Three years? Five? These are completely arbitrary time periods. How can an arbitrary time period, regardless of length, ensure that you are revisiting your game plan at the right time? Obviously, it can’t! Answers #1 and #2 make no sense.
You Must Look Beyond Lunch
Waiting until your competitor is about to eat your lunch to do strategic planning is a flawed approach for three reasons. First, you will undoubtedly be too late. Playing catch-up or dodge ball is never a sound strategy.
Second, if your competitors are mediocre, you will be mediocre too. Don’t let your competitors determine how high you set your bar.
Third, if you are gazing backwards at your competition, you will trip and fall on your face. Don’t pay so much attention to your competitors that you fail to understand everything else that is happening around you, much of which is far more important.
Beware #3. If it triggers strategic planning once, live and learn. If it happens twice, shame on you!
Success Masks Failure
Some companies leap to action only when performance falls off the cliff or projections miss their mark in a big way. Some scramble, chasing every appealing idea to get back on track, and others take a more methodical approach, which may look something like strategic planning.
When performance expectations are entirely disappointing, obviously you need to act. You need to figure out what’s happening and why you are so far off track. The cause of your failed performance may be strategic. You may be playing the wrong game. But the cause could simply be operational. Remember those three new sales guys you hired? They may be selling too little and only your least profitable products.
However, the biggest problem with #4 is that you might meet your goals. Your sales and profits might be better than expected. How could that be a problem? The answer to that question leads to the real answer as to how often you should do strategic planning.
Suppose your fabulous sales can be attributed to product A in China while you were expecting product B to take off in the Pacific Northwest. The China success is a wonderful surprise but if that success masks your failed expectations for product B and prevents you from re-examining your strategy, that is really bad news. If you simply celebrate that success and continue pouring resources into product B, you could be wasting precious resources and time. Don’t let this overly simplistic example cause you to dismiss the point here. “Who cares? We had the best year ever!” is grounds for more strategic planning, not less, if you succeeded for unexpected reasons.
So When Should You Do Strategic Planning?
Every strategy is based on assumptions. These assumptions involve trends, market needs, demographics, government policy, the strength of the economy, competitor actions, technological developments, and much more. And these assumptions drive your decisions about what products you offer to whom, at what price, and with what profit. Most companies talk about these factors and agree on assumptions when establishing strategy, but many forget about them too quickly once the strategy is set.
It is those assumptions that you need to monitor, not just sales and profits. The minute one of your key assumptions proves false, your strategy is suspect. This could be as soon as the day after you finalize your strategic planning. Obvious examples of dashed assumptions include a crashing economy or a new law that makes your product illegal. Other assumptions are less obvious. In the example above, the assumption that product B would appeal to Baby Boomers in the Pacific Northwest is an important assumption. Even if product B sells well in the Pacific Northwest, its purchase by new grads instead of Baby Boomers should be cause for concern because it proves a key assumption false.
Industry wide indicators are less obvious. You may be assuming that the demand for air travel will continue to rise and you may think your sold out flights offer proof. However, if overall air travel is dropping, your current success is masking your failed assumption.
Keep track of the assumptions that form the foundation of your strategy and monitor the strength of each. If your confidence in those assumptions is starting to erode, it is time to revisit your strategy.
That’s all a very sound approach, but what about practicalities? Should you then be on a lookout for news impacting assumptions every day? Does the manager have all the assumptions in mind? The truth is that we are driven by calendars. It’s engrained. Your thoughts?
Those are excellent questions, Sam. A strong strategic planning process requires clarity as to the critical assumptions underlying the strategy. This clarity is frequently lacking and your questions suggest you’ve experienced that lack of clarity. Senior management, at the very least, must have this clarity and, depending on the type of business and industry cycles, must be alert and prepared to change course. When Boeing embarks on a new airplane design, their assumptions are very long term and a major redirection would take a fairly cataclysmic event. That doesn’t mean they aren’t watching their key assumptions for indications that they must somehow adapt to changing circumstances. When a business decides to expand into a place like China, they make assumptions about regulations, competition, buying trends, politic stability, real estate, local employees, etc. They would be foolish to plow ahead without watching developments daily. Most businesses fall somewhere between these two examples. But how do you even know where you fall if you don’t know what assumptions are critical? If the assumptions are sufficiently clear to you, keeping your eye on them should be a pretty easy, natural, and on-going process.
As for calendars, you can and should schedule strategic reviews on a regular basis to ensure strategy receives adequate attention despite the daily grind. But what you do as a result of that review needs to be more flexible. A review can be pretty simple and frequent: What are our key assumptions? What have we learned about them since the last review? Are they still valid? What have we learned since the last review about our strategy? Does it still make sense? The answers to these questions will determine whether you stay the course or go back to the drawing board for a more comprehensive discussion.