Too often when companies pursue strategic planning, the efforts are ineffective at best and a waste of time and resources at worst. In other instances, the “strategic plan” is more of a long-term business plan or an FP&A exercise, which have very different purposes. A truly effective Strategic Plan centers on making strategic choices around the company’s most critical go-forward imperatives, and then aligning an executive team and resourcing around those choiceful imperatives. Only then will a strategic plan chart a path toward greater, sustainable profitability.
If your company is contemplating a strategic planning effort, here are a few common pitfalls HighPoint Associates typically sees, which you should avoid:
1. Countless Imperatives
“It is a golden rule in business that most companies don’t die of starvation but die of indigestion.” Jorgen Vig Knudstorp, former CEO of Lego*
When it comes to the final outcome – aligned, strategic plan imperatives – less is most certainly more. Five is a good maximum to hold one’s executive team to: Businesses must optimize talent and assets around those few imperatives that offer the greatest competitive and financial returns, and that fit most closely with the firm’s capabilities and potential. Audacious goals can be applaudable, and even necessary to prompt transformational thinking, but too many are a guaranteed recipe for failure. And, when strategic imperatives are translated into annual goals, they are multiplicative. An excessive total of 15-20 strategic imperatives will result in 60-80 goals at the second level of the executive team. No matter the size of the company, this is unmanageable and will diffuse a business’ talent and resources to the point of ineffectiveness.
2. Neglecting the Core
Devoting mental resources to adjacent businesses is a healthy part of strategic planning, but not at the expense of growing and protecting the core business. As much or more energy should be devoted to what could go wrong with the core business – changes with its customers, resellers, and competitors, including technology disruption – and to prioritizing the most important imperative(s) around that set of core business dynamics, as should be devoted to adjacent opportunity considerations. Too often, firms will treat their core business as a given in a strategic plan and expend all mental energy on adjacent businesses that depend on a healthy core.
3. Misaligned Leadership
A management team may invest time, resources, and offsite travel in a standard strategic planning effort, and can still be as misaligned at the end as when it started. One of Amazon’s Core Leadership Principles is “Disagree and Commit,” with a pledge to challenge options in meetings, but once the meeting ends, the final decision must move forward with full commitment. Often, company culture behaves just the opposite in matters of strategic choice: Participants feign alignment during critical decision-making meetings, then immediately undermine that alignment with ensuing re-definition of imperatives. Our experience is that executive teams which perceive greater choicefulness in a strategic plan effort will more effectively align around the down-selected choices. This may be counter-intuitive. When a Board or CEO demands choicefulness, the quality of the content – and alignment around that content – improves.
4. Homogenous or Unrealistic Time Horizons
Not delineating between near-term, medium-term, and longer-term imperatives and investment frameworks can be hazardous to even the soundest strategic plan. Parameters are different for strategic imperatives in the next 2-3 years versus those in the next 5 years. In all circumstances, a careful balance that reflects the health of the core is needed with the prescribed delineation, at a minimum, between short and longer term efforts. Less frequently, we have seen businesses land on insufficient strategic planning time windows with interest in only the next 12-18 months. While that is a useful business planning timeline, it is not one that incorporates all of the medium-term disruptions that can occur from technology, competition, channel shifts, etc. At the opposite end, HPA is underwhelmed with any effort to anticipate and prepare for disruptions 7-10 years out. While select capital-intensive businesses include long build periods, a firm should ask whether scenarios a decade out are actionable in the near-term.
5. Metrics As Afterthought
In less frequent circumstances, a business may optimize all of its strategy exercise definition, core business prioritization, choiceful narrowing of key imperatives, and time horizons…but neglect the translation of 3-5 year imperatives into its first-year annual objectives and metrics. This is the equivalent of a wide receiver carrying the football to the ten-yard line and dropping the ball for a premature celebratory dance. While a strategic imperative may span 3-5 years, it must be translated into next-year goal(s) with specific, measurable metrics that monitor progress against the goal.
In short, a well-defined strategic choice effort with executive team alignment and resources committed to anticipating core business disruption, the appropriate time horizon delineations, and corresponding short-term and long-term metrics will maximize a business’s probability of achieving its most important imperatives.
Justin Moser is COO of HighPoint Associates, a strategy consulting firm headquartered in El Segundo, CA. Previously, Justin served as Group CFO and SVP at Mattel over its global commercial finance, FP&A, brand finance, and Investor Relations functions, and headed its North American Online/Amazon Sales and Corporate Strategy teams. He began his career as a Consultant with Bain & Company.
* Source: Meet the Boss