The issue is when leaders confuse this planning process with strategy. In fact in many organisations, the annual planning process is called ‘strategic planning’ which makes it sound important and strategic. But it isn’t strategy. It’s a rolling budget combined with some market share projections. These plans cannot deliver what a good strategy should deliver: a pathway to substantially higher performance.
Some organisations have recognised this trap and have implemented a separate ‘strategy process’ that is removed from the planning and budgeting cycle. These typically take the shape of some sort of strategy forum where the most senior leaders remove themselves from the everyday operational distractions and create some time to develop strategy. They get together for a ‘strategy offsite’ and make suggestions as to things they would like to see done. The whole day’s collection of “things to do” is then swept together into a ‘strategic plan’. But this is not strategy, it is just a list of executive things to do dressed up as strategy.
So what is strategy and when should the real strategy process happen? In our opinion, the best definition of strategy comes from Professor Richard Rumelt, the author of ‘Good Strategy, Bad Strategy’:
“The term ‘strategy’ should mean a cohesive response to an important challenge.”
What Rumelt identifies is that strategy is typically about adapting to change and change can throw up both challenges and opportunities. As Jack Welch famously said “When the rate of change on the outside (of the organisation) is greater than the rate of change on the inside, the end is in sight”. To continue to flourish and grow, organisations need to respond to the big changes that are happening within the markets in which they compete. These changes could come from many different sources: competition, supply chains, geopolitics, customers’ expectations, technology, society, regulation - the list goes on.
The first step towards effective strategy is assessing the change drivers and diagnosing the specific structure of the challenge or opportunity that is occuring. The second step is choosing an overall guiding policy or strategic response for dealing with the situation that builds on, or creates, some type of leverage or advantage. The third step is the design of a coherent set of actions and resource allocations that implement the chosen guiding policy.
Given strategy is about responding to change, the answer as to when strategy should be formulated is always a case of ‘it depends’. It should be driven by the pace and intensity of change that is occurring in the markets in which the business competes. If change is happening fast, then organisations need to be adapting quickly and re-evaluating their strategic responses and coherent action plans on a regular basis and ensuring that the pace of change on the inside of their organisation is always faster than the rate of change on the outside.
So if you’re getting frustrated with your strategic planning process or have concerns that your strategy is not developing a coherent response to the changes occurring in your marketplace, then it might be time to take Rumelt’s advice and start identifying your biggest challenges to forward progress and devising a coherent approach to overcoming them.
