Tuesday, December 2, 2008

How Leaders Create Strategic Plans in Uncertain Times


Debbie is the Chief Financial Officer of a midsize technology firm in California. Recently, several of the division managers in her organization complained about the new financial reporting system put in place by Debbie’s team. Debbie met with these managers and explained the rationale behind the new system. She told them that it was going to allow them to better monitor the performance of their team and efficiently execute their strategy. She said their jobs would be easier because they would be able to hold their people accountable for results and obtain relevant financial reports. At the end of the meeting, the managers thanked her for her time, shuffled into the corridor, and continued to complain about the “inflexible, bureaucratic system that was not going to meet their changing needs.”

Debbie developed many skills on her path to CFO position. She was detail-oriented, organized, and clear about expectations to name a few. However, the CEO knew that the resistance that she experienced with the new system was a sign that she needed to grow her visionary leadership style. He “invited” her to attend one of our leadership courses that the CEO had attended. His hope was that she would develop what research reveals is one of the key skills of a visionary leader – the ability to adapt strategies to meet goals during uncertain times.

Visionary leaders communicate a compelling vision by optimistically discussing the future because they have thought strategically about the big picture. They spend time creating, refining, and adapting flexible plans to create the desired future. One of Debbie's problems was that most of her plans were cast in concrete. While she was competent in some aspects of the planning process, her ability to adapt the strategy based on her colleague’s feedback was lacking. She would have avoided this problem had she followed the seven simple steps of strategic planning outlined in this article.

The Seven Simple Steps of Effective Strategic Planning

1. Define the Business.

2. Develop a Situational Analysis.

3. Identify Assumptions.

4. Specify Key Objectives.

5. Create Strategic Alternatives.

6. Commit to an Action Plan.

7. Implement and Adapt the Plan.

Strategic planning combines rational thinking skills with the flexible, creative thinking required to be a visionary thinker. Planning is an organized process for anticipating and dealing with the future. To be strategically competent in the planning process requires the leader to acquire, interpret, and rapidly act upon changing information relevant to the health of the organization. While Debbie was competent in planning, her strategic competence was lacking. We will now briefly define each stage of the strategic planning process so you can see how to integrate strategic planning and strategic thinking to meet your challenges in tough times.

1. Define the Business.

The primary task in the first step is to define your mission, products, and markets. It is often helpful to look back a few years and describe where you’ve been. Then, use a crystal ball to peer into the future and determine what your unit’s markets should be. Your strategic plan is your vehicle for driving your organization to the future. Debbie may have lost sight of the fact that part of her mission was to listen to her internal customers. Here are a few questions to help you define your business:

- What business are we in?

- What is the level of profitability in our industry and why?

- Why are we in this business?

- What needs or wants do we satisfy?

2. Develop of a Situational Analysis.

After defining the business, determine the current condition of your unit. This is best accomplished by identifying the internal and external factors influencing your unit. The internal factors include areas within your company, such as: marketing, manufacturing, materials, labor, technology, finance, quality, equipment, service, distribution, and service. The external forces often include customers, the economy, regulatory climate, and competition.

Professor Michael Porter, from the Harvard Business School, points out that a primary job of the strategist is to understand and cope with the competition. (1) Yet, leaders often define the competition too narrowly. Professor Porter reminds us that competition extends beyond traditional industry rivals and should include four other competitive forces: buyers, suppliers, new entrants, and substitute products. It was this type of strategic thinking that allowed Pepsi to enter the bottled water industry, Microsoft to offer Internet browsers, and Apple to enter the music distribution business.

Brainstorm the answers to the following questions with your team:

- What are our company’s internal strengths and weaknesses?

- How strong or weak are we in the various functional areas?

- What are the opportunities and threats facing our organization?

- What is happening with the economy, government regulations...?

- What is changing regarding our customers, suppliers, competitors, possible substitutes, potential new entrants?

- What have been our blind spots in the past?

- What is happening in these areas now?

- What are our mavericks and the lunatic fringe trying to tell us?

- What signals might we be missing from the periphery or margins?

Anheuser-Busch listened to the periphery and capitalized on the low-carb trend that emerged several years ago. (2) They were pioneers in this segment when they launched their low-carb Michelob Ultra in September 2002 and captured 5.7% of the light beer market in a short period. Coors on the other hand, didn't enter the market until 18 months later. But despite $30 million investment in the launch, the Coors low-carb competitor captured a meager 0.4% of the market.

What gave Anheuser-Busch the insight to see what Coors did not? Anheuser-Busch had been studying “healthier” beer options for decades, including adding vitamins to beer (Beer drinkers are thankful that idea never came to market). Thus, when the low-carb craze captured the attention of millions, Anheuser-Busch’s situational analysis prepared them to take immediate action. Asking and answering many of these strategic questions had prepared them to adapt. Training for agility leads to rapid adaptability.

3. Identify Assumptions.

This step of the strategic planning process evaluates assumptions and risks that may occur in the near term. Again, involving team members will not only contribute new perspectives, but increase buy-in to the outcome of the process. Share the first two phases of your strategic plan with the team members. Then, ask them to brainstorm individually, on blank sheet of paper, the answer to this incomplete sentence: I assume...

After you process their assumptions, invite them to identify assumptions in specific areas, such as the economy, inflation, consumer demand, manufacturing capacity, labor conditions, availability of material, transportation issues, changing demographics, your five competitors (i.e., traditional rivals, buyers, suppliers, new entrants, and substitute products) and so forth. The goal is to identify the critical factors that might affect your operation positively or negatively. Then, create a probability/impact risk matrix and differentiate those assumptions that you can control from those you cannot.

Perhaps Mattel would not have lost 20% of its share of the worldwide fashion-dolls segment to smaller rival MGA entertainment between 2001 and 2004 had they used this process. MGA recognized that preteen girls were becoming much more sophisticated and maturing more rapidly. They were outgrowing Barbie and increasingly preferring dolls that look like their teenage siblings and television/music pop stars. The target market for Barbie narrowed from age’s three to eleven to three to five almost overnight. Of course Mattel responded, but not until a fifth of Barbie's realm had been lost.

4. Specify Key Objectives.

The first three steps of the strategic planning process lead to this, the heart of the plan -- your key objectives. I recommend that you write three or four financial objectives and three or four nonfinancial objectives. These objectives should be written in a S.M.A.R.T. (Specific, Measurable, Attainable, Responsible, and Timed.) manner. The time frame depends on how quickly things change in your industry. The rule of thumb has been a five-year period. However, if you are an industry where the rate of change is accelerating, you might consider a three-year time horizon.

5. Create Strategic Alternatives.

Step five asks you to write three scenarios that depict the future of the company. These include the most probable one, an optimistic one, and a pessimistic one. Each scenario should summarize a basic strategy for the company, including new product introductions, facility startups, shutdowns, equipment purchases, acquisitions, changes in supplier relationships and so forth.

The most probable scenario is the one that will deliver the company to its desired future if successfully implemented. The second scenario outlines an optimistic view of what the future may bring. (Excellent companies, such as Apple, often fail in this phase leading to shipping delays.) The third scenario is the pessimistic one. It identifies the various options that would allow you to maintain profitability if your projections are off. This ensures that you have thought through the moves that you would need to take.

An important part of your strategic alternatives involves your competition. You may have discussed the competition in a situational analysis, but detailed responses must be presented in this section. Answering questions such as the following should help:

- What are our competitors’ strengths and weaknesses?

- What is the financial condition of each of our major competitors?

- What might be our competitors’ strategies?

- How will our competitors respond to our market success?

6. Commit to an Action Plan.

Your action plan is a detailed scenario describing everything learned about your company, your unit, the environment, the competition, and the future. Of course, it's is based on your most probable scenario. Responsibilities and time frames must also be clearly defined. Contingency plans should also be developed for the pessimistic and optimistic scenarios.

7. Implement and Adapt the Plan.

The plan is useless unless it degenerates into action. It is therefore necessary to set up quarterly meetings to follow-up and adapt as the environment changes. The biggest problem most leaders make is putting the strategic plan on the shelf. Strategic planning is an ongoing process for creating a desired future. We may not be able to predict the future, but you can anticipate and occasionally create it.

These ideas helped Debbie adapt her plans to meet the needs of her internal customer during uncertain times. How can you adapt them to meet your challenges?

Keep on eXpanding,


1. Michael E. Porter: The Five Competitive Forces That Shape Strategy, ‘Harvard Business Review’, January 2008, 79 - 93.

2. George S. Day and Paul J. H. Shumaker: Scanning the Periphery, ‘Harvard Business Review’, November 2005, 135 - 148.

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