In recent meetings with the CEOs of several large global companies in the financial services, industrial goods and consumer products sectors, it became clear to me that many corporate leaders are fed up with their strategic planning processes. Not to put too fine a point on it, there was general agreement that 97% of these efforts are a waste of time and rob the organization of essential energy. (The 97% they came up with wasn’t an actual data point, but it gives you a pretty accurate idea of how they feel.)
In previous blog posts, I’ve noted that while the nature of strategy has changed, our planning processes haven’t. Here are eight reasons why they break down:
1. They don’t really focus on strategy. Most of these processes have become conversations about budgets and resource allocation, not strategy. They allow for little debate about business definition and spend scant time asking what is the market, how is it evolving, and what products and services are in or out? As one CEO noted, “We spend a huge amount of senior management time arguing about this year’s budget, but we don’t devote the same time to debating where we’ll be in five years. And insurgent issues always seem too much at the margin—until they aren’t! I remember how long we put off the China discussion because we always thought [Chinese competitors] were only playing at the low end. Now they are our main competitor in Europe, and we’ve wasted years.”
2. They don’t really reallocate resources. A major frustration among CEOs is that too few of the resources putatively under their control are actually discretionary. It is often exceedingly difficult to free up resources from one area of the business to fund investment in another. One CEO gave the example of his time as head of his company’s global products division: “I came in all fire and brimstone. I knew our priorities, and I knew our resources weren’t even remotely deployed against them. I made clear my goals and waited for the strategic planning process to deliver the redeployment we needed. And you know what happened? We shifted less than 2% of our total resources against new priorities—2%! I was told everything else was already ‘locked up’ and any further change would lead to a collapse of the business. It took me four years to shift things by 10%.”
3. They ignore the importance of leadership and leadership economics. Leaders in a specific business enjoy superior economics. But too often planning processes don’t distinguish leaders from followers. Everyone is expected to deliver the same performance, plus or minus 10%. This lets the leaders off the hook and channels too much management time into trying to get the followers to perform at the corporate average.
4. They don’t connect strategy to frontline routines or behaviors. The planning process is typically a long, drawn-out conversation among staff members. But once strategy is defined, little is ever done to make sure it is actually translated into something that the front line does differently. One CEO said, “We spend all this time agreeing amongst ourselves about the plan, but we never lock it in. First, we haven’t sorted through the real trade-offs that happen during execution. And second, the plan doesn’t lead to marching orders. So there ends up being a whole separate effort, where we ask ourselves, what did we actually just agree to?”
5. They assume a single metabolism for all businesses. Because strategic planning and budgeting are linked—and because budgeting has an annual cadence—the process often locks folks into an annual review of strategy. But some businesses need to review strategy on a monthly basis, while others require a review every two years. A one-size-fit-all approach simply doesn’t work. As one head of China for a large multinational complained to me: “I get to talk about China once a year, just after they talk about Western Europe. During that year I’ve had four different strategies, given how turbulent the competitive environment is.”
6. They don’t link strategy to talent plans and capability discussions. Arriving at a new strategy often kicks off another process in which executives talk about the strategy’s talent or operating implications. But how can you decide if you have a credible strategy unless you’ve already sorted through the talent and operating implications? As Blackstone’s Sandy Ogg points out in our post on the talent table, talent matching is one of the top jobs of a leader and should be integrated into any strategy process.
7. They end up becoming numbers-driven abstractions. To be very clear, there is nothing wrong with numbers; good strategies must be tied directly to financial outcomes. But if strategic planning doesn’t talk about strategy, if it doesn’t allocate resources effectively, if it doesn’t connect to the front line or integrate decisions on talent, then what is it? Too often it is a debate about math—average gross margin by region, average revenue growth by product category, etc. This isolates the CEO and inhibits discussions about real things—products and people. It leads to abstraction and a loss of any real sense of accountability. The whole exercise becomes a math debate: A lot of numbers, but no real discussion of financial outcomes.
8. They are really boring and suck the life out of your people. And if that’s all the strategy planning process is, then it becomes the most effective tool of the energy vampire. Endless math discussions are no more fun in business then they were in primary school. Your people want to debate real things: customers, products, channels.
So what does a good planning process look like? The best have several key characteristics:
- They allocate ample time and space for senior leaders to talk about the strategy. And they do so at a cadence that fits the needs of each business. One of the CEOs I met last week in London had decoupled strategy from budgeting altogether. With some turbulent or highly important businesses he will review their strategy in detail, four times a year. For others he will review every two years.
- They are integrated, tying each discussion about where the company might play to a discussion of how it can win, including what talent we will put behind each strategic objective. A strategy discussion must be integrated with a talent discussion, because no strategy can succeed without the right people to implement it. One company I met with in India will not allow an initiative to proceed unless its sponsor is willing to designate a star of the business as its champion. This greatly raises the bar for new initiatives.
- They lay out a process to cocreate strategy directly with the front line. This starts by relying on the “kings” of the business to help define a set of “nonnegotiables” that ensure the strategy is translated into frontline actions and behaviors. We’ve talked a lot about this process in these posts. It is a crucial part of building Great Repeatable Models® to guide growth.
- They link tough strategy debate with real resource-allocation decisions. How do you create real resource-allocation trade-offs? The best way I’ve seen is to identify a specific time horizon for each investment item to prove itself. It is unrealistic to assume you can shift 100% of resources within a two-week time frame. But it is highly realistic that 100% of resources can be reallocated on a 20-year time frame. The goal is to make every resource discretionary: Over a realistic time frame it can and should be reallocated to strategic priorities.
- They are energizing. What? This seems naive on the surface, but that is because the energy vampires have beaten us down. We have learned to believe that planning equals pain and misery, and we have all developed defenses to deal with it. We mostly learn to keep quiet about other folks’ plans so they keep quiet about ours. But strategic planning doesn’t have to be energy zapping—it is an opportunity for the full team to zero-base the business, rethink it, reallocate resources to new priorities, lock arms and execute. It can be incredibly energizing. We just choose to do the opposite.
So what does all of this have to do with the Founder’s Mentality℠? Simply put, it is a warning. Insurgents often adopt the “best practices” of large multinational corporations, and they often seek models for strategic planning. Given the above, I’d say that’s a pretty bad idea. In fact, I’d suggest that most multinationals could learn a thing or two about strategic planning from companies with a strong Founder’s Mentality. Three simple points:
1. Companies with a Founder’s Mentality are still on an insurgent mission—they are at war with their industry on behalf of underserved customer segments. In such an environment, you can’t afford to talk about budgets without linking them to a clear review of strategy that nails down both where to play and how to win. These discussions aren’t always perfect, and they rarely follow templates. But resource allocation and fundamental strategic review are inextricably linked. Insurgent leaders can’t imagine how you could separate budgets from strategy.
2. It is equally impossible for these companies to separate strategy from talent or the front line. It is hard for the insurgent leaders to know what a strategy debate is if it isn’t a debate about where to assign talent. They wouldn’t know how to make a strategy shift without thinking hard about how it would affect frontline behaviors.
3. Finally, strategic planning is all about where to put the next dollar. Resources are chronically scarce, and the one thing strategy must do is determine how to move a dollar or a person from initiative X to initiative Y. Chaos reigns because the scarce resources are flying about all over the place. But at least they are moving from one priority to a more important priority.
Of course, Insurgents have their own issues when it comes to strategic planning. But administering a boring, template-driven exercise that sucks the life out of their people is not one of them.