Strategic 'NO' Planning

 Most companies invest a significant amount of time and effort in a formal, annual strategic planning process — but many executives see little benefit from the investment. One manager told us, “Our planning process is like a primitive tribal ritual — there is a lot of dancing, waving of feathers and beating of drums. No one is exactly sure why we do it, but  there is an almost mystical hope that something good will come out of it.” Another said, “It’s like the old Communist system: We pretend to make strategy and they pretend to follow it.” Management thinker Henry Mintzberg has gone so far as to label the phrase “strategic planning” an  oxymoron. He notes that real strategy is made informally — in hallway conversations, in working groups, and in quiet moments of reflection on long plane flights — and rarely in the paneled conference rooms where formal planning meetings are held. Our own research on strategic planning supports Mintzberg’s observation: We found that few truly strategic decisions are made in the context of a formal process. But we also found that, when approached with the right goal in mind, formal planning need not be a waste of time and can, in fact, be a real source of competitive advantage. (See “About the Research.”) Companies that achieved such success used strategic planning not to generate strategic plans but as a learning tool to create “prepared minds”within their management teams (to paraphrase Louis Pasteur). A former senior executive at GE Capital explained the logic of such thinking to us: Business is often unpredictable — two competitors merge, another develops a new technology, the government issues new regulations, market demand swings in a different direction. It is often during these real-time developments that a company’s  most important strategic decisions are made. Too often, however, companies react poorly under the pressure. Because 

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The Real Value of Strategic Planning

December 2003MIT Sloan Management Review 44(Winter):71-76

Authors:

Sarah Kaplan

University of Toronto

Eric Beinhocker

University of Oxford

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Abstract

The goal of a strategic planning process should not be to make strategy but to build prepared minds that are capable of making sound strategic decisions.

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The Real Valueof Strategic PlanningWINTER 2003 VOL.44 NO.2REPRINT NUMBER 4429Sarah Kaplan & Eric D. BeinhockerMITSloanManagement ReviewPlease note that gray areas reflect artwork that hasbeen intentionally removed. The substantive contentof the article appears as originally published.

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WINTER 2003 MIT SLOAN MANAGEMENT REVIEW 71ost companies invest a significant amount of time and effort in aformal, annual strategic planning process — but many executives seelittle benefit from the investment. One manager told us, “Our planningprocess is like a primitive tribal ritual — there is a lot of dancing, waving offeathers and beating of drums. No one is exactly sure why we do it, but thereis an almost mystical hope that something good will come out of it.” Anothersaid, “It’s like the old Communist system: We pretend to make strategy andthey pretend to follow it.”Management thinker Henry Mintzberg has gone so far as to label thephrase “strategic planning” an oxymoron.1He notes that real strategy is madeinformally — in hallway conversations, in working groups, and in quiet mo-ments of reflection on long plane flights — and rarely in the paneled confer-ence rooms where formal planning meetings are held. Our own research onstrategic planning supports Mintzberg’s observation: We found that few trulystrategic decisions are made in the context of a formal process. But we alsofound that, when approached with the right goal in mind, formal planningneed not be a waste of time and can, in fact, be a real source of competitiveadvantage. (See “About the Research.”) Companies that achieved such successused strategic planning not to generate strategic plans but as a learning toolto create “prepared minds”within their management teams (to paraphraseLouis Pasteur).2A former senior executive at GE Capital explained the logic of such think-ing to us: Business is often unpredictable — two competitors merge, anotherdevelops a new technology, the government issues new regulations, marketdemand swings in a different direction. It is often during these real-time de-velopments that a company’s most important strategic decisions are made.Too often, however, companies react poorly under the pressure. Because theyThe Real Valueof Strategic PlanningThe goal of astrategic planningprocess should notbe to make strategybut to buildprepared minds that are capable of making soundstrategic decisions.Sarah Kaplan and Eric D. Beinhocker Sarah Kaplan, formerly an innovation specialist with McKinsey & Company, is a doc-toral candidate at the MIT Sloan School of Management. Eric D.Beinhocker is a prin-cipal in McKinsey’s London office.They can be reached at sarah.kaplan@sloan.mit.edu and Eric.Beinhocker@McKinsey.com.M

72 MIT SLOAN MANAGEMENT REVIEW WINTER 2003are not well prepared, discussions among top managers are oftenbased more on opinion than fact, and the subsequent decisionsend up being based on gut instinct rather than thoughtful analy-sis. GE Capital, however, believes it gains a competitive advantageby following a disciplined strategy process that focuses onpreparing it for the uncertainties ahead.As this analysis makes clear, real strategy is made in real time.It follows, then, that the goal of a formal strategic planningprocess is to make sure that key decision makers have a solid un-derstanding of the business, share a common fact base, and agreeon important assumptions. These elements of the prepared mindserve as the foundation upon which good strategic decisions canbe made throughout the year.3And one of the most importantways of building that foundation is by getting the central ele-ments of the process right.How To Create Prepared MindsMost strategic planning processes are built around a set of annual(or other time period) meetings in which the chief executiveofficer and senior corporate team review the strategies of thecompany’s business units or divisions. The CEO and top teamtypically meet separately to discuss corporate strategy as well.We found that the key to transforming these review meetingsfrom dog and pony shows into effective vehicles for learning wasto view them not as “reviews by the CEO”but as conversations.The difference is that a conversation is a two-way street in whichparticipants learn from and challenge one another — the goal isfor everyone to leave the room much better informed than when they went in. Achieving that outcome requires a lot of preparation by all the participants. The devil, it turns out, is in a host of seemingly mundane, but actually critical, details: Who should attend the reviews? Real conversations take place in groups of three to 10 people; they simply do not happen in large groups for both logistical and political reasons. Once the groupgrows in size, it is difficult to ensure that everyone can participatemeaningfully, so hierarchical forces are more likely to come intoplay. Rather than frank discussion, in larger groups one is morelikely to see posturing and politicking. Some companies in ourstudy, tempted by the values of inclusion, brought in groups aslarge as 30 or 40 people to their strategy reviews. These discus-sions were inhibited, and people came away feeling that the exer-cise had been more of a slide show than a real dialogue aboutcritical business issues.In reality, there are only two essential participants in a busi-ness-unit strategy review: the CEO and the business-unit head.Everyone else is discretionary and should be included only if heor she is truly a decision maker. The number of decision makersvaries from company to company but typically includes the cor-porate CFO, the group executive (if there is one) that the businessunit reports to, the head of corporate HR, one or two senior cor-porate executives and two to three senior members of the busi-ness-unit team. The corporate head of strategy also usually at-tends as the person responsible for making sure the conversationis effective. Thus the total number of participants can be kept tobetween five and 10, with 12 as the maximum. People will fightto be included in these meetings, but other forums can be set upto keep them informed and get their buy-in. How long should the reviews be? It’s not possible to have an in-depth strategy discussion about a significant business in less than a day. There are simply too many topics to cover: customers, competitors, technology, regulation, risks, investments and more. Spending less time prevents the careful poking and prodding of issues required to get the full benefit from the effort. It may sound like a lot to commit a full day to each major business unit, but most CEOs we interviewed said they wanted to spend about a third of their time on strategy. Given 240 working days, that leaves 80 days to devote to strategy. In that context, it seems reasonable to expect the CEO to spend 10 to 30 days in intensive, well-prepared strategy discussions. As one Emerson Electric executive told us,“At first I resented the Emerson process becauseit was such a large commitment of time, but then after a few We began our research by looking in depth at the strategicplanning processes of 30 companies, including some that have highly regarded records of long-term strategic success and others that have made serious strategic blunders in recent years. The companies represented a variety of industries and had approaches to strategic planning that ranged from seat-of-the-pants to very analytical and but-toned-up. Our sources of information for the case studies included public information, interviews with top managers, interviews with former executives, prior McKinsey researchand academic research. We then developed hypotheses about what constituted the most effective approach to strategic planning, tested them in workshops and discussions with approximately 50 additional companies aroundthe world, and worked with many of those companies totransform their strategic planning processes. Companies drawn on for case studies include ABB,Allied Signal, American Express, Boeing, BP, Capital One,Coca-Cola, Compaq, Emerson Electric, Frito-Lay, GeneralElectric, General Mills, Hewlett-Packard, IBM, Intel, J.P.Morgan, Johnson & Johnson, Lucent Technologies, MerrillLynch, Microsoft, Monsanto, Motorola, PepsiCo,  cycles I realized it was making me and my team better managers.The process of preparing for it and the meetings themselves pmade us realize things about our business we wouldn’t have found out in any other way.”Former CEO Charles F. Knight said that “more than half my time each year is blocked out strictly for planning,” a commitment to strategy that has been carried on by his successor David Farr.Where should they be held? It is best to hold planning meetings at the business-unit site; they will then feel less like a “summons from corporate.” Holding the meeting at the business unit also minimizes the distractions of day-to-day business at corporate headquarters, and the CEO’s presence at the site signals the importance of strategy to the entire organization. The CEO can often use additional time at the site to take the temperature of the business by attending formal and informal events with employees, taking a plant tour and visiting important local customers.What should be discussed? Many companies combine their strategy reviews with a discussion of budgets and financial targets.That is a big mistake. When the two are combined, the discussion is dominated by a focus on the numbers and short-term issues; long-term strategy questions receive only cursory attention. Likewise, if there is no other forum in which to discuss the financials, they will inevitably come up in the strategy meetings. Ideally, companies should have two clearly demarcated meetings: one full day on business-unit strategy and another meeting at a different time of the year to set financial targets. The two should then be linked with a common, rolling five- to seven-year financial plan that ties together strategic initiatives with budgets. Such linking is crucial: We have seen some companies use the strategy review to advocate a major change in direction but, in a separate process, build a budget that looks like an update of last year’s financials. The lack of connection is sure to stymie the change effort. Rather than near-term financial targets, the conversation should focus on long-term trends, opportunities, challenges and decisions. In businesses where decisions have a long life-time and are difficult to reverse, such as aerospace or telecommunications, “long term” might mean five to 10 years. In those where commitments have a shorter life, such as software or consumer goods, it might mean two to five years. The discussion should focus on questions over the appropriate time horizon such as: What are our aspirations? What are the critical trends regarding customers, competitors, technology and regulation? How is our business model performing, and how will it likely evolve? What are the key challenges and opportunities we face?What capabilities do we need to build for the future? What are the key risks and uncertainties we face, and what can we do toensure our adaptability?The strategic planning review is most effective when it instigates productive challenge regarding the scope of the strategy, the choices that lie behind it and the process used to develop it. 

Some examples of challenge questions include:

■What assumptions about market trends, competitor behavior, new entrants, changes in technology and customer needs have you made? If those assumptions are wrong, how would the strategy be affected?

■Are there trends that could force you to change the way you do business now?

■If you had to triple your growth, what new businesses would you enter?

■What is the definition of the market you are in, and what is the logic behind that definition?

■What new uses for your products and technologies have you explored?

■What strategic choices are you making, and what are you rejecting? What is the rationale? Are there circum-stances or situations that would cause you to choose differently?

■Are you pursuing growth aggressively enough? Are you compromising growth by failing to provide adequate resources?

■Can you reverse a basic assumption held in the industry? 

How, and what would be the benefit?■How are your plans the same as or different from those of your competitors? How will you ensure that you havea distinctive value proposition?

■What actions have your competitors taken in the last three years to upset global market dynamics?

 What are the most dangerous things they could do in the next three years?

■What have you done to affect global dynamics over that period, and what are the most effective things you could do in the next three years?

■How many customers did you interview? How many non customers?

■How did you involve different markets from around theworld?

■What approaches did you use to develop creative or breakthrough strategies?

■Have you committed sufficient resources to your strategic initiatives? Are they linked to your financial and HR plans?Challenging the Strategy

... Many of these studies find that strategic planning, with its emphasis on the collection and analysis of hard data, offers many benefits to firms. Specifically, planning enables key decision makers within a firm to achieve strategic coherence i.e., come to a unified understanding of the business based on a common fact base and agreed-on assumptions (Kaplan & Beinhocker, 2003;Lusiani & Langley, 2019). Strategic planning thus provides a context for decision making and a medium-and long-term control mechanism that complements the short-term control mechanism of budgeting (Grant, 2003). ...

... This literature finds that the strategic planning routine results in a variety of proximal outcomes such as increased communication, coordination, and integration; these outcomes eventually lead to the more distal outcome of organizational learning (Grant, 2003;Wolf & Floyd, 2017). Other studies explicitly identify strategic planning as a direct precursor to learning (de Geus, 1988;Kaplan & Beinhocker, 2003;Stata, 1989). These studies suggest that the benefits of planning are not just the strategies or initiatives that emerge from it, but the learning that occurs because of the planning process (De Geus, 1988). ...

... The finding that learning mediates the relations between planning and performance supports the central idea of our study: planning has a positive effect on performance when firms are able to learn from planning. These results provides empirical evidence for the theoretical arguments made by some previous studies that planning provides the formal framework within which organizations learn (de Geus, 1988;Kaplan & Beinhocker, 2003;Stata, 1989). At the same time, they challenge the implicit assumption of an average effect of planning on performance by identifying an important contingency factor namely, slack. ...

A moderated-mediated examination of the relations among strategic planning, organizational learning, slack and firm performance 

... Transparency will play an important role in promoting knowledge sharing (Abrams et al., 2003). The focus will likely be on workshops in which learning can take place, through deeper conversations and trust-building (Shaw, 2002;Kaplan & Beinhocker, 2003;Liedtka, 2001Liedtka, , 2008Beer, 2020aBeer, , 2020bPregmark & Berggren, 2020). Attending workshops alone will not build learning and trust. ...

... Attending workshops alone will not build learning and trust. Learning and trust will also emerge through continuous reflection and action (Liedkta & Rosenblum, 1996;Liedtka, 2001Liedtka, , 2008Edmondson, 2002;Kaplan & Beinhocker, 2003;Pregmark & Berggren, 2020). Skills to design and guide these conversations will emerge through practice (Shön, 1987). ...

... Designing workshops.-Conducting strategic conversations within small teams during dedicated meetings will be central to this process (Senge, 1990(Senge, , 2014Kaplan & Beinhocker, 2003;Whittington, 1996;Jarzabkowski, 2005;Bourgoin et al., 2018;Beer, 2020aBeer, , 2020b. ...

STRATEGIC DOING: A STRATEGY MODEL FOR OPEN NETWORKS

... Especially after 1980, studies on this field gained intensity, and researches show that effective use of resources and preparing different tactical plans provide a competitive advantage. Strategic planning has benefits in solving and overcoming problems in case of uncertainty, setting goals specific to the organization, and deciding the best choice among alternatives . The word strategy comes from the Greek word "stratego" a combination of Stratos and agos, meaning army and leader literally (O'Toole, 1987). ...

Strategic Plan Perception Scale; A Scale Development Study

... During making these kinds of strategic planning it is planned, what would be an effective step to neutralize the problems faced. Usually, most companies perform very poorly under pressure and instant situations [4]. An organization is made up of people and if they are capable enough of taking strategic decisions then the organization as a whole would be capable enough of facing any kind of situation. ...

A Comparison of Corporate Strategic Planning Between UK and 

... A former DoD official commented, "The greatest value of the QDR is probably the process of having strategy discussions, more than the product" (interview, February 2013). This insight is consistent with other research on strategic planning, which has found that the greatest contribution of formal planning often lies in helping leaders understand their organizations and strategic matters more thoroughly (Kaplan and Beinhocker 2003, Erdmann 2009). Dwight Eisenhower famously captured this insight when commenting that "plans are useless. . . ...

Tradeoffs in defense strategic planning: lessons from the U.S.

... No one is exactly sure why we do it, but there is an almost mystical hope that something good will come out of it" (cit. ex: [Kaplan, Beinhocker, 2003]). ...

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