Traditional Strategic Planning Models Don’t Work … There’s A Better Way

 

Traditional strategic planning models don’t work, certainly not in the rapidly changing world we live in today and, I would argue, fundamentally they never did.

Over two decades ago, Henry Mintzberg, a distinguished expert in the field of management and business strategy, chaired professor of management studies at McGill University and, at the time, a visiting professor at INSEAD, published what is arguably his most famous work, The Rise and Fall of Strategic Planning. In the book, Mintzberg lays out a compelling argument for the fallacies of traditional approaches to strategic planning. A fundamental premise of Mintzberg’s argument is that strategic planning is not strategic thinking. In practice, traditional strategic planning, a formalized, step-by-step approach to strategy development, may hinder the process of strategic thinking, which is much more intuitive, creative and non-linear.

While more progressive-thinking business schools have adopted advanced approaches to strategy, sadly too many, even today, still emphasize traditional strategic planning models. It’s often not until learners enter the business world that they face the brutal reality that the methods they learned in school don’t work.

In this article, I propose a different approach to strategy development and execution. It is a synthesis, if you will, of several advanced strategic planning models which, when combined, provide a powerful, real-world-proven approach to thinking, leading and managing strategically.

 

The Traditional Approach to strategic planning models

While there are myriad variations on the theme of traditional strategic planning, a typical approach, one that has been taught in schools for years, is shown in Figure 1.

 

 

A company’s vision and mission, driven by a set of core values, establish the framework for the development of a strategic plan. The strategic plan is shaped by a set of external and internal factors, the assessment of which forms the basis for the strategy itself. Both primary and secondary methods may be used to understand the company’s target market(s). A variety of tools and methods, such as SWOT analysis, PESTLE analysis, and many more within a veritable strategic “alphabet soup” may be deployed to facilitate the assessment. The strategy in kind drives the development and refinement of products and/or services to meet the perceived needs of the marketplace. The necessary manufacturing, distribution and business processes, infrastructure and organization are established to develop, deliver and service these offerings. When all of this is in place, the company executes to the strategic plan, which will be modified periodically based on measured outcomes.

It all seems quite straightforward, and it would be wonderful if it worked. But it doesn’t.

What’s Wrong with the Traditional Strategic Planning model?

So what’s wrong with this approach? While the list is long, I would like to focus on seven fundamental flaws that, taken together, do not bode well for the success of the traditional strategic planning models.

More often than not, the focus is on the strategic plan. Fundamentally, strategy is not about the plan but, rather, it’s about the planning process. It’s about thinking and acting strategically, as opposed to producing a nice document that lays out a roadmap that may or may not work at the end of the day.

It’s linear. The world is messy. Markets are messy. Business is messy. None of this lends itself to a linear approach. What’s needed is a non-linear process, with constant feedback loops and opportunities to adjust to an ever-changing terrain and the acquisition of new knowledge and insights.

It’s often complex, laborious and time-consuming. I have seen business leaders spend months developing strategic plans, while the market and competitive landscape shift beneath their feet. Never has the need for rapid deployment been greater than it is today. What’s needed is a straightforward, non-complex approach.

It’s static and lacks agility. Things change rapidly, and business leaders need the ability to respond in kind. Mike Tyson is credited as having said: “Everyone has a plan ’til they get punched in the mouth.” These are wise words that every business leader should never forget. How many times have we seen a well-developed strategic plan, that may have taken months to write, fail to survive first contact with the marketplace? What’s needed is a process that is agile enough to respond rapidly to unforeseen turns of events.

It’s too assumptive and too far removed from the buying customer. All the strategic planning models in the world is for naught if the dog won’t eat the dog food. Primary and secondary market research is great. SWOT analysis has its place. But nothing substitutes for actually getting the offering in front of a real, live, buying customer. The most effective approaches to strategy get the product or service in front of prospective buyers as early in the process as possible (sometimes through prototype, pilot or trial programs), learn from the experience, and modify the offering or selling approach accordingly.

It doesn’t leverage failure. Tom Peters said: “Fail fast, learn fast, fix fast.” It is through our failures that we learn life’s greatest lessons. It is through our failures that we develop the understandings necessary to implement winning strategies. We should learn to leverage our failures in real-time rather than view them as shortcomings. What’s needed is a process of experimentation, failure, learning and agility.

It’s more often than not implemented top-down. While it is critical that the leaders of an organization drive the strategy initiative by clearly articulating its values, vision and mission, successful strategies are not implemented from the top down. They are not created in a board room or a conference room full of executives. And they are also not created by “strategic planning departments”. Rather, they are the result of bringing together a vertically and horizontally diverse cross section of members of the organization (and, where possible, downstream and upstream value chain participants from outside the organization), for these are the people who understand the market, the industry and the day-to-day workings of the business in a way that the top tier of the organization simply cannot. Great ideas in an organization come from the bottom up, from its rank-and-file members.

In the face of these shortcomings, one would think that traditional strategic planning models would have been abandoned long ago, but unfortunately too many companies are still wedded to them.

 

A Different Approach

Will Durant said: “Nothing is new except arrangement.” While one may challenge the universality of these words, it is true that great ideas and new approaches often result from combining existing concepts, “arranging” them if you will, in a unique way.

What I propose here is the combination of four fundamental concepts to forge a winning and sustainable approach to strategy development and execution:

• Creating a future vision through Foresight and Innovation, Scenario Development and the Cone of Plausibility
• Creating new markets and making the competition irrelevant through Blue Ocean Strategies
• Creating a platform for continuous, agile strategy development and execution using the Business Model Canvas
• Ensuring full alignment of all aspects of the organization behind its strategy employing Activity System Mapping to achieve Strategic Fit

These concepts, when they are applied to strategy development and execution are not sequential. They overlap and need to be applied, at least to some degree, concurrently with each other.

 

The “Fuzzy Front End” … and “Fuzzy Back End” of Strategic Innovation

Those of us who have been involved with innovation are all too familiar with what has been referred to as the “fuzzy front end” (FFE), popularized in the early nineties. The term represents a somewhat nebulous period on the front end of the strategic innovation process where things are ill-defined and unknowns predominate.

I would argue that there is also a compelling “fuzzy back end” in the strategy development process, wherein market needs and strategic imperatives are vague and ill-defined, and where unknowns predominate. This idea runs counter to the traditional approach, where things are well-defined by the time a strategic plan is implemented in the marketplace. In reality, the words of Mike Tyson rule, and unknowns dictate an ill-defined environment whereby, to a large extent, “trial and error” is the rule rather than the exception.

It is critical, when implementing strategy, that this “fuzzy back end” be acknowledged and respected. To a large degree, you don’t know what you don’t know until your strategy is in play, and the key to success is not predicting outcomes with any high degree of certainly but, rather, having the foresight and agility to deal with unknowns.

 

Foresight and Innovation, Scenario Development and the Cone of Plausibility

The FFE has been defined as consisting of the following steps:

• Collecting customer insights
• Developing strategic foresights
• Sense making and opportunity mapping
• Ideation and concept development
• Rapid concept prototyping
• Customer co-creation
• Brand / market assessment

Developing strategic foresights involves not predicting the future, certainly not presuming to understand future eventualities (including, for example, customer buying behavior, competitive disruptions and macroeconomic factors) but, rather, studying the future, looking at trends, forecasting sets of possibilities and developing plans for responding to them.

A key foresight teaching tool is the “cone of uncertainty”, also sometimes referred to as the “cone of plausibility”, illustrated in Figure 2.

 

 

From the vantage point of the strategic planner at a given time, the range of plausible and possible eventualities widens as the time horizon increases, as one would expect.

The cone of possibilities provides the grounding and framework for examining different scenarios (denoted by green dots in Figure 2) that could occur at some point in the future through a Scenario Planning process. Creating and studying scenarios using mental models provides a powerful mechanism for examining possible eventualities within the cone of possibility and developing specific strategies to respond to each of them. This is a radical departure from traditional methods, which would typically plan a trajectory toward an ideal future state scenario (denoted by the red line and star in Figure 2) at the exclusion of a host of other equally, if not more, probable scenarios. Such a prescriptive approach to strategic planning models is a recipe for failure.

While it is outside the scope of this article to describe the Scenario Planning process in detail, the key takeaway is that this process, when used in conjunction with the other approaches described below, provides a highly strategic planning framework. It is highly experiential and immersive, and enables strategic planning participants to envision future scenarios, their implications and how to respond to them in a realistic, as opposed to abstract, manner.

 

Blue Ocean Strategies

Chan Kim and Renée Mauborgne, both professors at INSEAD, published Blue Ocean Strategy in 2005. Their approach represented a radical departure from common strategic planning models at the time. Its focus was on creating uncontested market space and making the competition irrelevant. The idea behind the Blue Ocean approach is that, by studying key buyer decision drivers (attributes) of existing industries that offer solutions in adjacent markets, and by endeavoring to understand competitive offerings in those markets, creative strategists can identify and respond to unfulfilled needs, thereby transcending market boundaries and creating uncontested markets for which there is no competition.

Think NetJets, which leveraged positive decision drivers in the commercial airline market (price, absence of customer responsibility for aircraft maintenance and operations, low deadhead costs) with those for privately-owned corporate jet travel (total travel time, ease of travel, flexibility and reliability) to create a hybrid solution, fractional jet ownership, that combined the “best of both worlds” and for which, at the time of its founding in the early nineties, there was very little competition. Of course, today the fractional jet ownership industry is much more crowded, which points to the need to constantly restrategize and reinvent … a winning strategy today will be old news tomorrow.

A vital tool used to create Blue Ocean strategies is the Strategy Canvas, an example of which (in this case for NetJets) is shown in Figure 3. Competitive factors (decision drivers or attributes) are shown across the x-axis. The relative positions of the commercial airline and private jet industries for each of these factors are plotted against the y-axis. The NetJets Value Curve shows how the fractional jet ownership solution leverages the positive positions across all of these attributes to create a new, uncontested market. Bear in mind that “best of both worlds” does not always mean keeping all the positive attributes of each “benchmarked” industry … often sacrifices must be made, but they are made in such a way as to minimize negative impact on the buyer. The Blue Ocean model adopts a “Create, Raise, Reduce, Eliminate” process of methodically evaluating each decision driver.

 

The Business Model Canvas

Two shortcomings of traditional strategic planning model approaches, as noted earlier, are the static nature of the strategic plan and the fact that the strategy development process is too far removed from the buying consumer. Effective strategies much be exposed dynamically to the prospective buyer and must endeavor to understand, in real-time, the consumer state and those factors that inform a buy decision and create consumer demand (market). This creates a continuous “virtuous cycle”, as shown in Figure 4, in which strategy is not static but, rather, is constantly being refined based on real-time learnings from the consumer.

 

 

The Business Model Canvas (BMC) provides a highly effective, “real world” method to address these issues as well as other shortcomings of traditional approaches.

The BMC was originally proposed by Swiss business theorist Alexander Osterwalder. He and his PhD thesis advisor, Yves Pigneur, along with a host of other collaborators, refined the BMC concept and created a highly practical framework for its application.

In contrast to traditional strategic planning models, the BMC is elegant in its simplicity, imminently practical and amenable to continual revision based on customer feedback and changing facts on the ground.

The BMC consists of nine components (also sometimes referred to as building blocks), as shown in Figure 5.  While there are various approaches to committing the methodology to practice, my preference is to populate the canvas in three distinct sections as follows:

First, focus on the market:

• What are the Customer Segments to be served?
• What are the Value Propositions that define how value will be created for the Customer and how differentiation in the marketplace will be achieved?
• Through what Channels (e.g. communication, sales, distribution, customer service) will the Customer be reached?
• What Customer Relationships need to be established with the defined Customer Segments?

Next focus on operations:

• What are the Key Activities the company must engage in to achieve its objectives and fulfill its Value Proposition?
• Who are the Key Partners (e.g. suppliers, strategic partners, distributors) necessary for the company to achieve its objectives and fulfill its Value Proposition?
• What Key Resources (e.g. people, physical assets, intellectual property, financial assets) are needed?

Then focus on financial aspects of the business:

• What are the Revenue Streams that will be generated from the defined Customer Segments?
• What is the Cost Structure that will be required to execute the business plan?

 

 

Based on work with clients over the years, I have found that the most effective way to create a strategic plan using the BMC is to assemble a diverse group of participants, representing a cross section across business functions/departments and levels in the organization. Once the values, vision, mission and overall strategic objectives have been clearly articulated, the participants are divided into small breakout groups and tasked with populating the canvas, one section at a time. The breakout groups then come together, share and discuss findings and develop a coherent strategy for each of the three sections of the canvas. Downstream and upstream value chain stakeholders from outside the organization can also be involved in this process where appropriate. This collaborative process is powerful in that it leverages knowledge and insights across the organization and results in broad buy-in throughout the organization. The process is illustrated at a high level in Figure 6.

Unlike strategic plans developed the traditional way, which more often than not are voluminous and end up on a shelf or in a file cabinet, the BMC is ideally suited for regular revision and deployment as an ongoing tool to facilitate strategy execution and continuous improvement.

 

Activity System Mapping and Strategic Fit

So let’s assume you’ve developed an innovative, value-driven, differentiating business strategy. How do you ensure that all of the activities the organization engages in are fully aligned with your strategy and with each other? At the end of the day, one of your most significant competitive advantages may derive from how you execute, how all of your processes are aligned strategically. This is the essence of Strategic Fit, a concept popularized by Michael Porter.

The practice of achieving Strategic Fit is best illustrated through a real-life example, for Southwest Airlines. Strategic Fit is facilitated by creating an Activity System Map (ASM), developed by Porter and shown in Figure 8.

The key drivers of the ASM are overarching Strategic Themes (shown as dark grey circles in Figure 8), which are determined from the defined Blue Ocean attributes (ref. “Blue Ocean Strategies” above) and the Value Propositions (ref. “The Business Model Canvas” above). These Strategic Themes are aligned with each other to create a coherent strategic differentiation. All of the company’s Key Activities (light grey circles) are tightly linked to the Strategic Themes and to each other.

The idea here is that it is relatively easy for competitors to copy one or more of your Strategic Themes or Key Activities, but it is very difficult to replicate an entire system of coherent, interdependent and interlocking components of an organization that has achieved enterprise-wide Strategic Fit.

 

 

It should be pointed out that, while Southwest Airlines achieved significant differentiation and competitive advantage in its early years, as it has grown it has veered from its original commitment to Strategic Fit as defined above. In addition, other players in the industry have successfully implemented many of the concepts pioneered by Southwest Airlines. This points to the need for constant strategic refinement and reinvention. Nothing stands still.

 

Pulling It All Together

While we’ve only scratched the surface in this article, there are many resources available to learn more about these strategic planning models. We have used them for years to help clients implement winning and sustainable strategies.

 

 

When used in combination, these vital tools achieve what traditional strategic planning approaches cannot.

The approach I’ve recommended here focuses on strategic thinking and planning. Not creating a plan document that more often than not will end up on a shelf or in a filing cabinet, to be referenced only occasionally, if at all.

It’s non-linear and continuous, with constant feedback loops and opportunities to adjust to an ever-changing terrain and the acquisition of new knowledge and insights. The way the real world works!

It’s simple and straightforward. Responding to the needs of today’s business leaders, who don’t have time for laborious and complicated approaches.

It’s dynamic and agile. Business leaders need to respond quickly to change. This approach does that.

It involves real-life customers every step of the way. Nothing matters at the end of the day like a buying customer.

It leverages trial-and-error and failure. “Fail fast, learn fast, fix fast.” It is an approach that thrives on experimentation, failure, learning and agility.

It involves stakeholders from throughout the organization. Great ideas in an organization are not top-down. With the right strategic leadership, they well up from throughout its ranks.

Please don’t hesitate to reach out to me. I would be delighted to hear your comments and to answer any questions you may have.