Here is an excerpt from an article written by Richard Verity and Simon Mills for strategy+business magazine (December 13, 2010). To read the complete article and check out other online resources, please click here.
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In times of great uncertainty, strategic planning must shift from a bureaucratic, linear process to a more targeted approach that is both analytic and creative.
Strong strategic planning is critical to the success of every organization. It is the process by which strategy is translated into concrete short-term actions. It can also be a vehicle for deciding which markets are important to your company’s future, and which capabilities you will need to reach those markets effectively.
Over the years, the exercise of strategic planning has created strong advocates and fierce critics in equal measure. The recent financial crisis has renewed many people’s skepticism about strategic planning — as unimaginably bleak scenarios forced businesses to rapidly recast their most fundamental business assumptions and recalibrate their priorities. But there is no reason to be skeptical if you orient your strategic planning process to the unique needs of your company. Together, the following five pillars of corporate strategic planning ensure that your processes are up to the challenges of today’s dynamic business environment.
1. Tailor Your Process to Your Business
Just as strategy means different things to different people, so strategic planning has spawned different approaches across the decades. Some are data-rich analytical approaches in which measurable outcomes are expected; others are more artistic, with an emphasis on execution and expectations of achieving an intrinsically satisfying result. The best companies achieve an appropriate blend of art and science. The right blend for your company depends broadly on two factors: the characteristics of the business and the role the corporate center assumes in steering the business.
If you have a mature, homogeneous company operating in a relatively stable environment, you will be best served by long-term, proactive decision making, supported through scientific approaches to strategic planning. When your operating environment is more volatile, diverse, and immature, then the lighter-touch dynamic and artistic approaches to strategic planning will be more relevant to you.
Your approach to planning should also be strongly influenced by the role of the corporate center. An active, heavily centralized core with a strong role in business management will demand a great deal of involvement in the strategic planning process. Companies with such a core typically set direction from the top, providing both overall targets and detailed business-level planning. This ensures that both the corporate center and the business units will have similar conceptual tools and data to manage the business portfolio and performance in the short term, medium term, and long term.
However, if your corporate center follows a system like that of a financial holding company, it will demand particular results but maintain a hands-off management approach. This will require far fewer strategic planning inputs from local business units — just enough to evaluate the long-term portfolio decisions within the mandate of the corporate core, and enough to keep track of basic overall performance.
The best strategic planning promotes dynamic and outside-the-box strategic thinking underpinned by rigorous analysis. It results in formalized plans featuring measurable outputs. It tailors both the planning process and the underlying architecture of business unit data to each business unit, while ensuring that sufficient commonality across business units is retained for comparison and consolidation. The corporate planning team should be involved in the process in a way that is consistent with the management model, and a healthy tension should be established between the corporate center and the business units, resulting in productive strategic dialogues.
2. Accommodate External Perspectives
Today’s business environment, with its pervasive uncertainty, creates challenges for strategic planning teams. The number of variables at play and the range of possible outcomes have never been greater. Your comprehensive strategic planning process should acknowledge the possibility of several different scenarios (stories about alternative futures that may affect your business). This will help you develop and test your strategic options.
Typically, three to five scenarios will be enough to establish a range of plausible outcomes, without overwhelming your thinking. Design each scenario to describe a possible end point that is different enough from today’s world to force you to think about the challenges and opportunities you may face sometime soon. Use a different combination of key driving forces to generate each one: For example, one might contain a new disruptive technology, and another might present an economic reversal (positive or negative). Each scenario description should include its probability and business impact. Focus on the underlying sources of uncertainty, considering external as well as internal perspectives.
Develop some of your scenarios using an objective and analytically sound understanding of consumers, customers, channels, and competitors, drawing on multiple external data sources, and a network of external advisors. Meanwhile, use creative thinking to generate other scenarios that contain potential surprises or issues you might face in unlikely — but still plausible and potentially business-threatening — situations. Then test your proposed business plans by flexing the key value drivers, imagining what would happen to that plan under different potential futures. With each adjustment, a different outcome emerges. This process enables you to stress test your plans and highlight key sensitivities.
Encourage strategy dialogues during the planning process, between business management teams and corporate strategists. These will give you a forum for assessing opportunities and threats and formulating an aligned strategic response. Wargame-style simulations are increasingly employed as a technique for testing a company’s overall resilience when it is faced with a variety of scenarios.
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Richard Verity is a partner in Booz & Company’s London office. He heads the firm’s chemicals practice and specializes in supply chain management, purchasing, and corporate transformation services for the downstream energy and chemical industries.
Simon Mills is a senior consultant in Booz & Company’s London office. He specializes in operating model and organizational transformations for the energy sector and topics on the CFO agenda.