Strategic planning isn't dead— it changed

Strategic Planning Isn’t DeadIt Changed Ian Wilson

F

OK MORE

THAN

20 YEARS,

SINCE

ITS INTRODUCTION

onto the corporate management scene in the early 197Os, strategic planning has been on a rollercoaster ride. It has been, successively, a fad, an anathema, and just another management tool. It has bounced hiearchy in search of a around the corporate legitimate role and an appropriate home. Its obsession with a succession of planning methodologies has caused it to oscillate between quantitative and qualitative tools in its analyses, between external and internal emphasis in its situation assessment, between long-term and short-term focus in its goals and measurements. In all of this, strategic planning might be said to have reflected the turbulence, change, and uncertainty of the times in which it has been evolving.

The Continuing Effectiveness

Search for Planning

That assessment, however, is too kind. The fact remains that, in its early stages, strategic planning suffered from serious design flaws; and these flaws came close to bringing about its early demise (see Box A: What Went Wrong?). By the early 198Os, there was widespread disenchantment with the planning initiatives of the previous decade. The reasons varied from company to company-overelaborate processes and bureaucratic ‘spread’, staff preemption of the executives’ role, an emphasis on quantification over strategic insight-but focused mainly on the failure to achieve results (the so-called ‘implementation gap’). What has saved strategic planning from oblivion, and powered the continuing search for planning effectiveness, is the manifest need for a continuous

Strategic planning has changed dramatically since its inception in the early 1970s. Having survived its original design flaws, it has evolved into a viable system of strategic management (or strategic thinking), In an effort to be more specific abaut the nature and extent of these changes, the author surveyed nearly 50 corporations in a variety of countries and industries to determine their current practices and the changes that have occurred over the past 5-7 years. Among the more notable and important changes are a marked shift of planning responsibility from staff to tine managers; decentralization of strategic planning to business units [though corporate-level components retain key responsibilities); and vastly increased attention to the changing market, competitive and technological environment. Planning systems have become more sophisticated in their selection of planning techniques. There is far less reliance on a single technique {such as the growth-share matrix or the experience curve), and a greater willingness to use techniques (such as scenario planning and total quality management) that are less mechanistic in their approach and more sensitive to the critical uncertainty of many of the variables that planning must address. Perhaps the most provocative finding, however, is the growing emphasis on organization and cu$ure as critical ingredients in the execution of strategy. This change represents a recognition that the values, motivation, and behaviour of the organization’s members are critical determinants of corporate performance-and so of success or failure in implementing strategy. process of thinking and rethinking the rapidly changing conditions for corporate success in the light of: Long Kanp

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BOX 7: STRATEGIC PLANNING: WHAT WENT WRONG? Strategic planning enjoyed a heyday of almost unquestioning corporate popularity for nearly a decade-from the late 1960s to about 1978-during which period no self-respecting chief executive officer (CEO) would dare appear before the Board of Directors without a strategic planning system either in place or under development. Yet by the early 1980s executive disenchantment was rampant, and Foriune editor Walter Kiechel was delivering a series of slashing attacks on the process (e.g. his articles on ‘The Decline of the Experience Curve’ and ‘The Real World Strikes Back: Corporate Strategists Under Fire’). Criticism focused on ‘the failed promise’ of strategic planning: companies had set up elaborate planning systems and devised sophisticated strategies, but little or nothing had changed in corporate performance. Why this sudden turn-around I am convinced that a major cause was the large, and too often indiscriminant, ‘follow-the-leader’ movement triggered by General Electric’s much-heralded movement into strategic planning in 1970-1971. Having been with GE at that time, I witnessed the steady stream of corporate visitors, notebooks in hand, intent on absorbing the design and details of the GE model, with little thought for the model’s appropriateness to their situations or for the cultural differences involved. These oversights later came back, all too often, to haunt them. More broadly, however, the causes of this failure stem from what I have termed ‘the seven deadly sins of strategic planning’ (at least as it was practised during the 1970s). 7. The staff took over the process. This situation arose partly because CEOs created new staff components to deal with a new function, partly because the staff moved in to fill a vacuum created by middle management’s indifference to a new responsibility, and partly because of arrogance and empire-building. As a result, planning staffs all too often cut executives out of the strategy development process, turning them into little more than rubber stamps, and ignored the fact that strategic planning is, and must always be, an executive-not a staff-responsibility. 2. The process dominated the staff The process’s methodologies became increasingly elaborate. Staff placed too much emphasis on analysis, too little on true strategic insights. Analyses thus proliferated, impeding decision-making and creating the ‘paralysis-by-analysis’ syndrome. Strategic thinking became equated with strategic planning, while documentation became more and more elaborate. Jack Welch, the chairman and CEO of GE, described the outcome graphically: The books

got thicker,

the printing

got more

sophisticated,

the covers

got harder,

and the drawings

got better.

Such a triumph of form over substance is well known to any observer of corporate bureaucracy. Paradoxically, however, although the planning process became overtly elaborate and bureaucratic, in many cases it relied excessively on a single technique or methodology-the experience curve, for instance, or the growth/share matrix. Given the range of issues and factors that strategic planning has to deal with, such reliance was manifestly misplaced: no single methodology could fulfil all needs, and this approach was doomed to failure. 3. Planning systems were virtually designed to produce no results. Perverse though this idea may seem, it was true for many corporate systems. The main design failure lay in denying, or diminishing, the planning role of the very executives whose mandate was to execute the strategy. As one critic noted, the attitude of many was typified by the angry retort of one executive. ‘The matrix picked the strategy-let the matrix implement it!’ The other design fault was the failure to integrate the strategic planning system with the operations system, resulting in a strategy that did not drive action. 4. Planning focused on the more exciting game of mergers, acquisitions and divestitures at the expense of core business development. This problem stemmed in part from the temper of the times. But it also resulted from the inappropriate use of planning tools such as the growth/share matrix. Above all, it came from a radical misperception about ‘cash cows’. The biggest problem with portfolio planning involved the treatment of these mature businesses. The matrix called for a ‘harvest’ strategy, so companies raised profit goals, curtailed investments, and tightened controls. In due course, morale dropped, action plans languished, and the business failed to deliver its required cash flow. The vice chairman of a major manufacturing company summed up the problem as follows: In the 1970s. we may not have invested enough in some of our mature businesses. We just assumed that if a business was in a slowly growing market, it was not a very good business. Now we understand much better just how profitable such a business can be, even though its industry is growing by only two per cent. We have redefined the cash cow conceptand are investing a lot of money in SBUs we used to call cash cows. [emphasis added] 5. Planning processes failed to develop true strategic choices. In their anxiety to prove that they were action-oriented, too many companies devised planning systems that fell into the ‘ready, fire, aim’ trap. Planners and executives rushed to adopt the first strategy that ‘satisficed’ (i.e. met certain basic conditions in an acceptable manner). They made no real effort to search for, or analyse, an array of strategy alternatives before making a decision. As a result, companies all too often adopted strategies by default rather than by choice. 6. Planning neglected the organizational and cultural requirements of strategy. No better example of this exists than the SBU concept. The concept is wonderful for identifying and organizing the corporate entities appropriate for doing business in defined market segments against a defined set of competitors. This focus, however, overlooks or shortchanges the internal differences among SBUs. Thus, the process focused, rightly, on the external environment, but it did so at the expense of the internal environment that is critical in the implementation stages. Z Single-point forecasting was an inappropriate basis for planning in an era of restructuring and uncertainty. Despite their emphasis on the crucial externalities of the business, and despite the establishment of some sosphisticated corporate environmental analysis systems, companies still tended to rely on single-point forecasting. Scenario-based planning was the exception rather than the rule. Unfortunately, in an age of uncertainty, single-point forecasting was-and is-inherently inaccurate. Plans that relied on it suffered increased vulnerability to surprises, which abounded in the 1970s and early 1980s. Indeed it was planning’s perceived failure to foresee, and plan for, the sharp recession of 1982 that nearly administered the coup de g&e to strategic planning. There was a further problem with single-point forecasting. Because planning assumptions spelled out a single future, one that was almost always some slight variation of an extrapolation of past trends, there was an inherent bias in favour of continuing a ‘momentum strategy’, on the theory that what had worked in the past would probably work in the assumed future. Nothing, unfortunately, could have been further from the truth.

Long Range

Planning

Vol.

27

August

1994

cl

the continuing competition,

cl

economic

and industry

cl the growing 0

globalization

strategic

of

‘time compression’ of change.

and

importance

of technology,

the

resulting

political

and

from an acceleration

In industry after industry, restructuring has become the norm. The driving forces vary, but the outcome is the same: a change in the nature of the game, in the number and type of players, in the arenas in which-and the scale on which-the game is played. Restructuring mandates the need for corporate repositioning; and repositioning mandates the need for strategic thinking. The need for strategic thinking has never been greater. Michael Porter, the Harvard Business School professor, made this point in a London Economist article on ‘The State of Strategic Thinking’ (May 23, 1987): Strategic to

planning

strategic

abandon the

companies

The tinues,

companies

The

planning.

be rethought [is]

in most

thinking.

Instead,

and

recast.

techniques

and

has

answer, strategic What

not contributed

however, has

organizational

is

thinking been

under

processes

not

to

needs

to

attack which

This continuing search for improvement has profoundly changed the character of strategic planning so that it is now more appropriate to refer to it as strategic management or strategic thinking. Where this search has led thus far is the subject of the next section.

The Survey of Current Practices In an effort to put some dimensions on the current scene, I recently (Spring, 1993) surveyed nearly 50 corporations in a variety of countries and industries (see Appendix: Companies Surveyed) about their current practices and the changes that have occurred in their organizations over the past 5-7 years. Although the survey makes no claim to be a statistically accurate sample, the diversity and stature of the respondents does reinforce the significance of the findings. Also these findings agree with lessons learned in the course of my own and SRI’s extensive consulting experience in this arena. The survey focused on five key lines of inquiry:

used.

search for planning effectiveness thus on two levels: content, and process.

con-

The most important is the search for the strategic ideas that will shape the vision, generate the commitment, and drive the action of the corporation. This is the substance of strategy and varies from company to company. The improvement in the processes by which these ideas are generated, agreed upon, and implemented. Although this might seem to be merely the supporting infrastructure of strategy, it is, in fact, far more than this. In a very real sense, process and content are intertwined. As companies have discovered, improvements in the planning process can enhance the effectiveness of strategy. For instance, rebalancing the roles of executives and staff in the planning process can, by itself, make a great deal of difference, both to the quality of the strategic ideas and (most Strategic

particularly) to their successful implementation. And using scenario planning has helped many companies to become more resilient, to generate a fuller range of strategy options, and to be better prepared to deal with the inevitable surprises of an uncertain environment.

restructuring,

heightened uncertainty in economic environment, and

0

markets

Planning

Isn’t

Dead-It

Changed

1. The

2.

3.

4.

5.

major changes in companies’ approach to strategic planning and strategic management over the past 5-7 years. The most critical external and internal challenges to successful strategic management. The major potential benefits they hope to gain from strategic management, and the extent to which these benefits have, in fact, been realized. Corporate-level strategic planning groups, their roles and reporting relationships. The principal techniques employed in their planning processes

Changes in Emphasis and Approach The major shifts in strategic planning during the 1980s have been toward increasing emphasis on the externalities of the business and changing the place of planning responsibility within the company (see Table 1). These are clearly the corporate responses

TABLE

I, Major changes in tirategic planning/strategic management,

What have been the major management?

changes,

in the past 5-7 years,

in your

company’s

approach

to strategic

Major

Little or no change 1 Increased

2

3

4

5

6

planning

change

Ranking

7

1

role of line managers

and strategic

5

4.22 Reduced

role of staff 3.j3

Decentralization of strategic to business units Increased

emphasis

Market

orientation

4

planning 4.b6

on: 3 4.;5

Competitive

analysis

2 4.72

Financial

I

analysis

3.91 Technology

strategy

6 4.1;

Core competencies

1 4.78

Shareholder

value

Contingency

planning

3.84 3.;3 Greater

use of modelling 2.64

Diminished

emphasis

on documentation 3.85

Shift away from (to more flexible

planning cycle schedule)

to the criticisms that brought strategic planning into disrepute a decade earlier, namely that the planning models of the 1970s tended to be (a) overly concerned with the manipulation of internal financial data, and (b) largely staff-driven exercises. Japanese respondents differed from their North American and European counterparts in reporting more change in their emphasis on core competencies and technology strategy, and less change in their emphasis on competitive and market analyses and in redefining the planning roles of managers and staff. One interpretation of this difference is that, 5 years companies were already wellago, Japanese advanced in their market orientation, and so have devoted relatively more attention to core competen-

3.20

ties and technology strategy which are more recent arrivals on the strategic planning scene. Heightening the External Emphasis Not surprisingly, in view of the radical industry and market restructuring of recent years, more sophisticated executive attention to changing market and competitive conditions-and to identifying and strengthening core competencies to deal with these conditions-has become the key to successful strategic positioning. The great majority of respondents indicated that these were the two prime areas in which there has been the greatest change in their planning systems. In most cases it has been not Long Range Planning Vol. 27

August 1994

merely a matter of more detailed analysis and monitoring, but even more a culture change. Executives have clearly heeded the advice of Tom Peters [‘Stay close to your customer’) and Michael Porter (rethink competitive analysis) in redefining the primary tasks of strategic planning. And this book learning has been strongly, sometimes brutally, reinforced by the lessons they have had to learn from a business environment changing rapidly under the hammer blows of globalized competition, new technology, economic uncertainties, rapid shifts in government regulations, and the new demographics of consumer markets. Indeed, this new emphasis in strategic planning is reflected in many of the new methodologies that have been adopted and in respondents’ conviction that ‘improved understanding of the changing business environment’ is one of the primary benefits to be gained from strategic planning. This new emphasis, it must be said, is far more than a change in planning methodology. Corporations are recognizing that they must change their thinking and behaviour-the very essence of corporate culture-to deal with this new environment, and to become truly what they always said they were: market-oriented. It is all the more surprising, therefore, that while acknowledging the inherent uncertainties in these externalities, corporations have done so little to expand their efforts in contingency planning. Only one-quarter of the respondents said they had made major changes in this regard: and there is no concase for the proposition that corporate vincing efforts in this area were already so well developed that little or no change was required. The frequency of ‘shocks’ and surprises in virtually every industry during the 1980s has evidently done something to increase decision-makers’ use of scenarios (see below, under ‘Techniques’), but little to change their ingrained tendency to rely on a go-for-broke approach to strategy. it remains to be seen whether the predictable surprises of the next few yearswhether in environmental policies, geopolitical turnarounds, or trade and economic restructuring-will succeed in forcing a recognition of the need for attention to ‘what-if’ thinking and preparation for contingencies. Changing the Internal Locus of Responsibility The survey confirms what observers have long suspected: responsibility for strategic planning has Strategic Planning Isn’t Dead-It Changed

shifted from staff to line managers, and from corporate level to business unit level. Both moves have been made to deal with the problem that nearly sank strategic planning-the lack of implementation. The source of this problem can be traced to the way in which strategic planning originated in the early 1970s. Like most new methodologies, strategic planning was introduced at the corporate level, and assigned to a new staff component. And like most staff components in those days, this one rapidly took on the trappings of bureaucracy: staff multiplied, procedures became standardized, methodologies proliferated, and documentation became virtually an end in itself. In the process, not surprisingly, strategic thinking was short-circuited; and line managers, largely excluded from the process, disassociated themselves from its conclusions-and its execution. It is encouraging, therefore-and one of the reasons that strategic planning has taken on a new lease of life in recent years-to see that prime responsibility for developing strategy is moving to the executives and business unit managers charged with its implementation, where it should have resided in the first place. For this reason alone, the term strategic management now more accurately describes current corporate practice. While the survey is ambivalent on the role of documentation-nearly equal numbers of respondents say there has been either major or little or no change in this regard-SRI’s consulting experience indicates that the bulk and formality of planning documents have been reduced and no longer dominate the process. While few companies have gone as far as Jack Welch and GE in stripping away the overlay of planning volumes, most now place much greater emphasis on the thinking behind the words and on focused executive dialogue on the critical issues facing the business.

The Challenges Management

for Strategic

Having evolved from its purely planning focus, strategic management faces both external challenges with which it must grapple and internal barriers to its successful execution. The replies elicited by this survey provided few surprises as to the external challenges, but some striking assertions with regard to the internal problems.

TABLE 2. The challenges to successful strtfategicmanagement. What, in your opinion, are the three most critical external, your company?

and internal, challenges

to successful strategic

management

in

External challenges

No. of mentions

Internal challenges

No. of mentions

Market shifts Competition Economic forces/restructuring Political change and government Technological change Environmental factors

21 18 18 17 12 8 7

Corporate culture Management skills, commitment Financial challenges Innovation Operartional problems Strategic planning process

38 19 18 16 15 11

Other social forces

policies

External Challenges When one analyses the responses to the question in Table 2, the reasoning behind the increased external emphasis in strategic management is immediately apparent. The tumultuous uncertainty of social, economic, political, and technological forces have changed the rules of the game for most industries, and companies’ planning efforts have had to adapt to deal with these changes. Collectively, the impacts of economic, political, and competitive restructuring dominate corporate thinking, and the evidence that respondents cite to support their statements covers a wide, but largely predictable, range of specifics (see Table 2). Perhaps the only somewhat surprising finding-surprising, that is, when one considers the now common corporate mantra-the 1990s will be the ‘decade of the environment’-is the relatively low emphasis given to environmental issues. Possibly, however, this is a change in corporate emphasis that has yet to be played out. Political change and government policies (17 mentions)-Government regulations and intervention have long been a traditional corporate anathema, viewed with the same inevitability that the public ascribes to ‘death and taxes’. What is new here is the degree of uncertainty that corporations say they are encountering on the political scene-uncertainty as to the future balance between national and regional interests in newly emerging trading blocs; uncertainty as to the outcome of many countries’ experiments with deregulation and more market-oriented policies; uncertainty in the geopolitical arena following the disintegration of the former Soviet bloc. Indeed, it is the instability and unpredictability of the political scene that companies cite most often in this regard. As I noted in an

earlier SRI report (Rewriting the Corporate Social Charter), the ‘power shift’ in the relationship between the public and private sectors in many countries can be profoundly unsettling to corporations since it entails, simultaneously, the possibility of relaxed economic regulation, increased competition, and heightened public expectations of corporate performance. restructuring (18 Economic forces and mentions)-In addition to traditional concerns about the state of the economy, the level of interest rates and the volatility of foreign exchange rates, respondents cited the challenges of anticipating and dealing with the impacts of globalization and its accompanying economic and industry restructuring. In the process of restructuring, there has been a clear shift in strategic management’s focus, emphasis and methodologies to speed the process of corporate adaptation to these changes. Technological change (12 mentions)-The challenge here, according to respondents, lies not only in the place and diversity of change itself, but also in the scale of the corporate response needed to keep abreast of these changes. Among other things, they cite institutional resistance to change, the rapidly increasing scale of investment required, and the problems of acquiring and evaluating truly strategic intelligence from the massive data flows of the ‘information explosion’. Competition and market shifts [combined total of 39 mentions)-Arising out of political, economic, technological and social changes, structural shifts on both sides of the market-the changing needs and mix of consumers; the sources, strategies and intensity of competition-have forced planners and executives alike to devote more meticulous and Long Range Planning Vol. 27

August

1994

sophisticated attention to interpreting the signals from their customers and their competitors. (As noted above, this new emphasis is more pronounced in North American and European companies than in

Japan.1

Environmental factors (8 mentions)-Survey responses give some indication of just how far most companies integrating environmental are from strategy into their overall business planning. Only eight companies cited the environment as a strategic concern (despite a heavy representation of energy, chemical, and automobile industries in the sample); and in most of these cases the issue was seen predominantly in terms of added costs rather than as a challenge to developing a proactive strategy to secure competitive advantage. Other social forces (7 mentions)-These mentions are a small reflection of the growing impact of social pressures on corporate performance. Urban crime and litigiousness, increasing public expectations and relationships with multiple stakeholders, and the problems of dealing with other cultures in a globalizing economy, all represent non-traditional planning issues which now have to be factored into the management calculus of decision-making. Internal Challenges The responses to this particular question are, perhaps a sign of the times. It is difficult to imagine that a similar survey conducted 10 years ago would have elicited, as this one did, twice as many references to cultural as to financial problems in the path of strategic success. But in 1993, with the current focus on empowerment, John Kotter’s linking corporate culture to performance, and Peter Senge’s writings on the ‘learning corporation’, such a response is less surprising. It is, however, highly significant, and possibly the most important finding to emerge from this survey. ‘culture challenge’-With 38 mentions, The culture clearly heads the array of corporate concerns in the field of strategic management. Virtually every respondent cited some aspect of this challenge, although the interpretation varied considerably from company to company. (Indeed, if one were to include in this category a number of mentions about management culture, which are currently listed under ‘Management skills and commitment’, the coverage would be nearly 100 per cent.) In broad terms, the references fell into one of three categories: Strategic Planning Isn’t Dead-It Changed

Problems-In these cases, the focus is on undesirable traits that need to be removed for strategic management to be able to operate smoothly. For instance, respondents cited such personal traits as risk aversion, executives’ ‘turf’ concerns, and internal politics, and organizational problems such as bureaucracy, poor communications, and size as a barrier to change. These problems are obstacles both to the development, and most particularly, to the implementation of strategy. One interesting observation-which many planners and executives will share-Iotas that seemingly an organization is able to change radically only when it confronts a genuine crisis. In the absence of a real emergency, it might be necessary to instill a sense of impending crisis-even an imagined one-in order to shake up corporate inertia. General attributes-Underlying respondents’ references to the general traits or attributes that strategic management should seek to instill in a corporation were change and willingness and ability to respond to it. At the most basic level, the corporate challenge was seen simply as the need to generate a ‘willingness to respond, quickly and effectively, to change’. At the same time, as another company pointed out, there has to be enough stability within the organization to provide a firm base from which to deal with change. Most individuals become ineffective in a state of total flux, so balancing stability and change becomes a key challenge for any executive who is intent on a programme of ‘organizational transformation’. and ‘empowerment’ came in for ‘Learning’ several mentions in this regard. Given the pace and complexity of change in their business environments, more and more corporations are coming to see that: planning is more a matter of continuous organizational learning (scanning, interpreting, and adapting to environmental change) than it is of control, corporate response to change can only be sufficiently rapid, flexible and pervasive if responsibility is pushed down into and throughout maximizing employee inthe organization, volvement and empowering them to take action.

A Japanese corporation used an interesting analogy drawn from anthropology in describing the culture shift they saw as necessary. The Japanese culture, they noted, is fundamentally an agricultural one: what is needed now, and what they are aiming for, is a ‘mind change to a hunting culture’. Whatever the merits of the interpretation of the Japanese character, this analogy is an interesting and provocative one, particularly if one focuses on the attributes of a hunting band: relatively small size, independence, mobility, and team-orientation. 3. Specific attributes-Respondents cited speed, flexibility, and enthusiasm as more specific attributes that need to be developed if strategy is to move from paper to the marketplace. Streamlining the organization structure can achieve only so much to achieve these qualities: a change of attitudes-and behaviour-must also take place for these attributes to characterize corporate performance. That is why culture change itself becomes a primary goal of strategic management. Revitalizing the corporate culture has been an essential in Jack Welch’s vision for the GE: stage one, relatively quickly accomplished (in 3-4 years), involved the flattening of the structure and slimming of the organizational ‘flab’; but stage two-the Work-Out programme to achieve radical culture change-will be, as Welch himself has noted, a decade-long crusade. Improved market- and customer-orientation still rates high as an area for further change, despite all the pronouncements and programmes of the past decade. This in itself is an indicator, and an admission, of the real magnitude of the effort required to break away from the ingrained internal bias that has characterized corporate bureaucracy for so long. skills commitment and Management (19 mentions)-In nearly half the responses, the quality and role of top management itself emerged as a significant challenge. The problem evidently stems from the narrow focus and operational background of top management, which are seen as antithetical to the broad strategic view required for success in today’s competitive battles. In a surprisingly frank appraisal of the limitations of today’s senior management, there were frequent references to a lack of vision and leadership, unclear [or uncommunicated) sense of strategic direction, and reactive (rather than the desired proactive) responses to change.

In a few cases, respondents were concerned about senior managers’ role in the strategic management process-their willingness to participate fully in strategy development; and their ownership of, and commitment to, the strategies that evolve from this process. These two problems are, of course, connected: without full participation in the development of a strategy, no executive is going to be other than lukewarm in commitment to its implementation. Fortunately, the evidence suggests that these problems are diminishing in their incidence as responsibility for stategic management shifts from staff to line managers. Financial challenges (18 mentions)-In this age of intensifying competition, traditional financial concerns rank high on the corporate agenda. More than a third of the companies in this survey, citing these concerns as being among the most critical challenges they face, recognized the need to: P

reduce head),

and control

P

improve productivity

P

sharpen

investment

Cl improve portfolio

costs

(both

direct

and over-

and profitability, focus, and

management.

There is nothing surprising in these responses. However, the importance of financial acumen and controls to a company’s strategy is well illustrated by the careful attention given, both by company executives and by the financial community, to the recent replacement of chief financial officers at IBM, Kodak, and Chrysler. And the manoeuvring between and Volkswagen over hiring General Motors J. Ignacio Lopez de Arriortua was clearly a battle for competitive advantage. Operational problems (15 mentions)-The appearance of operational problems on a list of strategic challenges serves as a solid reminder that strategic management is, or should be, concerned with both strategy and tactics. Indeed, five respondents expressed concern over the lack of co-ordination between operations and strategy, indicating that these two systems still operate separately rather than as meshed cogs in an integrated system. Other linkage problems that were mentioned were those between production and marketing, and between R & D and operations. Taken together, these problems reveal a growing dissatisfaction with Long Range Planning Vol. 27

August 1994

traditional functional organization (and the problems of interfunctional co-ordination) and a slow movement toward organizing instead around processes-‘business process redesign’ (see Table 4). The innovation challenge (16 mentions]-Along with speed and flexibility, innovation is perhaps the most desired quality in competitive performance these days. Most of these responses were concerned with technological innovation (although there is widespread recognition of the need for creativity in all aspects of performance), and stress the need, given the pace and global reach of technological development, to: 0

improve basis,

the monitoring

of R & D on a world-wide

0

increase external technology acquisition (recognizing that not even the largest corporation can be world-class in every aspect of needed technology],

cl

speed new product

cl

improve management

development,

and

of the R & D portfolio.

The importance of this need is reflected also in the growing emphasis now being placed on technology strategy [see Table 1) as an integral part of total business strategy. Strategic planning process (11 mentions)-There is no longer the same obsession with process and methodology that there was 20 (or even 10) years ago; but there is still lingering concern over some aspects of the process. Particular challenges include maintaining the credibility of planning staff; keeping in bounds the commitment of management time required for a quality job; clarifying the respective roles of corporate and business unit strategy; improving the scanning and monitoring systems, especially in the domain of competitive intelligence: and-as always-tightening the linkage between strategic and operational planning.

The Benefits Management

of Strategic and Their Realization

Clearly, the ultimate measures of strategic management’s effectiveness must be stake-holder satisfaction, and corporate vitality, profitability and competitive positioning. However, short of that, Strategic Planning Isn’t Dead-It Changed

there are gains in organizational clarity, drive and efficiency that a sound approach to strategic management can achieve. Responses to this survey make clear that companies have high and diverse hopes for strategic management, but also recognize that they have still far to go before realizing these benefits to the full (see Figure 1). The three most highly rated benefits are: A clearer ization.

sense

of strategic

vision

for the organ-

Sharper focus, in planning and implementation, on what is strategically important. Improved understanding business environment.

of a rapidly

changing

Close behind them comes the still elusive goal of improved integration of strategy and operations. It is instructive to relate these views of the desired goals of strategic management to the critical challenges that companies had earlier identified: To deal Ltrith the external challenges, strategic benefits are seen as a better management’s understanding of the dynamics of change in the business environment and, hopefully, reduced vulnerability of being blindsided by surprises. However, reduced vulnerability remains exactly that-a hope: and, whether from resignation or lack of effort, reducing vulnerability remains a lower rated priority and also the area in which the least progress has been made to realize its potential. Improved understanding of the business’s externalities, on the other hand, is one of the three critical benefits, and one which has been more fully realized than most. To deal IGth internal challenges, the list of potential benefits is longer. In addition to clearer vision and sharper focus, respondents cited the cultural benefits of a heightened willingness to change, greater flexibility of response, a better balance between long-term and short-term goals, and closer linkage between strategy and operaInterestingly, three of these benefitstions. clearer vision, sharper focus, and improved integration-exhibit the largest gaps between and potential, possibly once again actuality underscoring the inherent difficulties in promoting cultural and organizational change.

Scoring*

Clearer sense of ‘vision’

Sharper focus

Improved understanding of changing business environment Improved integration and operations Heightened

of strategy

willingness

to change

Better balance between long-term and short-term goals Reduced vulnerability

to surprises

Greater flexibility of response

*Scoring:

Potential benefit

Secondary 1

Extent realized

Primary 2

3

Slight

4

5

Fully

FWJREI. The benefits of strategic management. I

The Role of Corporate Planning Units Despite the decentralization of strategic planning to business units, a valid role for corporate planning components remains. Overwhelmingly (there were only four exceptions), companies said that they

maintained a strategic planning capability at the corporate level. And the components’ positioning is indicative of the perceived importance of their role: in half the cases, the planning component reports to the CEO (in some Japanese companies, to a senior management committee); in most remaining companies, to a senior [or executive) vice president. Long

Range

Planning

Vol.

27

August

1994

The functions of corporate planning groups (see Table 3) reflect a division of responsibilities between the corporate centre and decentralized business units. Appropriately, the key central responsibilities are judged to be: Identification and analysis of company-wide strategic issues, and the development of corporate responses to them. Development of overall corporate portfolio investment priorities.

strategy,

e.g.

Drafting guidelines (e.g. economic and other assumptions, likely capital resource availability) for executive approval, to assist strategic business units in the development of their strategies. On the other hand, planning appears to have outgrown its origins in the financial function, if the low ranking of corporate budgeting is a reliable indicator; and its role as ‘corporate inquisitor’ in reviewing business unit plans also seems to have diminished. Business development is more the of decentralized business units, responsibiiity whereas market and competitive analysis and mergers/acquisitions analysis is a shared function of both corporate and business unit planning. The size of corporate planning staffs has slimmed in recent years-a fact that this survey reflects. Setting aside two major Japanese companies, each of which reported a staff of 70, the average staff size for TABLE3. Responsibilities of the corporate-level

planning group. Number of responses* For which functions responsible?

Strategic

Planning

Isn’t Dead-It

Changed

Ten years ago, one of the main criticisms of strategic planning was its preoccupation with methodologies and its tendency to build the whole planning process around a single methodology. Despite a continuing tendency to be drawn toward the latest fad in methodology, process or approach, most corporate strategic planning now avoids the trap of overdependence on a single ‘silver bullet’. Indeed, the results listed in Table 4 suggest that, on average, most companies employ four methodologies in their process. (This finding should not be interpreted too literally; but it does provide encouraging evidence of a more sophisticated and comprehensive approach to what is perhaps the most difficult task confronting management.) The most frequently mentioned methodologies are core competencies analysis and scenario planning, with benchmarking close behind. The use of scenarios has been growing slowly since its introduction into the Royal/Dutch Shell system during the 1970s. More recently, it has received an added impetus from the prevalence of truly surprisin the business environment and ing ‘shocks’

planning processes. Yes

*Totals do not add to 46 since not all companies each point.

The Use of Key Techniques

TABLE4. Principal techniques employed in strategic

is this component

0 Strategic issues analysis l Corporate strategy development 0 Strategy guidelines for business units 0 Market/competitive analysis 0 Business unit plans review l Economic forecasting 0 Mergers/acquisitions analysis 0 Business development 0 Modelling l Corporate budgeting

other reporting companies is just under 10. Although reductions are in part the result of the general downsizing of corporate staff, strategic planning components in particular have shed responsibilities (and, some would say, power), both upwards to senior management, and downwards to business units.

No

40 33 31

1 6 8

24 23 21 20 16 14 6

17 16 20 17 25 24 33

responded

on

Technique/approach 0 Core competencies analysis 0 Scenario planning l Benchmarking 0 Total quality management 0 Shareholder value analysis l Value chain analysis l Business process redesign 0 Time-based competition Note: Only 36 out of the 46 companies the survey.

General usage

Little or usage

26 25 20 16 16 16 12

10 11 16 20 20 20 24 27

9 completed

this section of

companies’ growing admission of the need to come to grips with uncertainty in planning. Core competencies and benchmarking are relatively recent arrivals on the planning scene, and are the product of the new feeling of urgency to develop ‘best practices’ and an organization’s innate capabilities in order to ensure competitive survival. The relevance of these three methodologies to dealing with the critical external challenges mentioned earlier should be obvious. So far, the spread of time-based competition and business process redesign has been decidedly limited. This fact may, however, be due to the relative novelty of these approaches. Certainly, a reading of current management literature suggests that they are both destined for much greater usage in the near future.

Concluding Observations Despite the limitations of this survey, its results do lead to a number of overall conclusions about the current state of strategic management in the Triad countries. and these conclusions jibe pretty well with those reached by Henry Mintzberg and other observers of the corporate scene (see for instance, Henry Mintzberg’s articles on ‘Rethinking Strategic Planning’, Long Range Planning, 27(3), 12-30). First, and most important, strategic planning is clearly transforming into strategic management. That is, it is moving: away from a largely staff-driven exercise, heavily dependent on analytical methodologies and elaborate documentation, and focused on the development of strategies; toward an executive-driven activity, balancing ‘hard’ (quantitative) and ‘soft’ (judgmental) tools and approaches, and focused on the implementation of strategies. The whole strategic planning process has driven down into the organization, with much of the activity taking place in business units rather than at the corporate level (although corporate planning components are still the norm, albeit with truncated responsibilities). The evidence suggests that this transition is far from complete: most companies indicate that they are far from realizing the full potential of their

strategic planning systems. However, the transition has progressed sufficiently far to have earned executive acceptance of the important benefits of strategic management. This acceptance stems in part from the increasingly pressing need to think strategically about the external and internal challenges confronting corporations; in part, from the increased involvement, and hence ‘ownership’, of line managers in the process. Compared with its record 10 years ago, strategic management is now a far more effective instrument for shaping the course of a corporation or a business unit. This increase in effectiveness starts with much more sophisticated and holistic thinking about the truly strategic issues, gains power from a more thorough and patient examination of options, and gathers further momentum from more careful linking of strategy to operational implementation. All told, the emphasis is now on results, on truly making a difference in corporate performance, rather than on making an impression on boards of directors and shareholders. One indicator of this greater sophistication is the greater selectivity in the choice of planning techniques. There is far less reliance than there was lo15 years ago on a single methodology such as the growth-share matrix or the experience curve: now the usual practice is to employ an appropriate mix of methodologies, with ‘appropriateness’ being determined by the needs and planning culture of the corporation. A pronounced shift is also occurring to methodologies-such as scenario planning and total quality management-that are less mechanistic in their approach and more sensitive to the critical uncertainty of many of the variables that planning must address. Perhaps the most provocative conclusion, however, is the one already noted: the growing emphasis on organization and culture as critical ingredients in the execution of strategy. This emphasis has not come about at the expense of external analysis: indeed, this survey indicates a broad awareness of the external challenges of today’s business environment. Rather, the attention to culture represents perhaps the greatest departure from the past, and is all the more surprising for being an essentially ‘soft’ factor in a process prone to rely on ‘hard’ analyses. ‘Culture’ is, in effect, the internal equivalent of the customer-orientation in the corporation’s outwardfacing posture: it represents a recognition that the Long Range Planning Vol. 27

August 1994

values, motivation and behaviour of the organization’s members are critical determinants of corporate performance-and so of the success or failure in implementing strategy.

Appendix:

The Companies

Although

small.

this

responses)

cowrs

a broad

region,

industry,

and

and thf: fact that namt:s

lend

weight

of

c,urporatt:

cross-section

size.

ospori(:nu:

of companies,

The thoughtfulness

the majority dift’erenws

from

(47

b!; global

of the rt:spf,nses

of companies

to the lessons

interregional

Few

sampling

Surveyed

have

globally

the survey

c:xisted

in

kncl\vI1

conclusions.

vie\v-point

and

r:xpr:rif:nc:e.

The

majority

of

region-15

respondents

are in North

(Eklgiurn,

Finland.

Germanq.

and ,Sn~ilzc:rlanct);

arc!as (Australia. Industry

anti

arc

America Italy.

locatctl (llSA,

Africa,

the

Netherlands,

17 ill Japan.

South

in

Canada):

Only

three

key

‘Triad’

12 in Europe Sorxvag,

come

from

Spain.

othci

Tai\van).

cfistribulioll

A wide

diversity

of industries

lation,

including

resources

chemicals,

pharmaceuticals.

eiectmnics,

utilities

transportation, consumer

and

in the sur\rtry

gas.

machine

(electricity.

automobiles, products

is represented (oil

papw,

tools. gas.

shipbuilding,

office

equipment,

t~lec:omnillnic:atio~is). financial

and tIefence.

Size distribution

Number

Size Number

of employees

(thousands) 30

< 25 25 to 50

5

50 to 100

6 5

> 100 Sales (billions of dollars)

10


20 5

10

9

> 10

Note; Sales figures do not apply to two government-funded organizations.

Strategic

Planning

isn’t

Dead-It

Changed

popw

aluniinium),

of companies

services,

ian Wilson is Principal of Wolf Enterprises in San California. PreRafael, viously he has been on the strategic planning staff of General Electric Company (US) and a senior management consultant with SRI International.