The Big Lie of Strategic Planning – I

The article The Big Lie of Strategic Planning by Roger L. Martin elaborates the pitfalls of blindly following a strategic management methodology. The author believes that most managers find the process overwhelming. It prompts them to predict the future, which can only be guessed. Further, making strategic choices rules out other possible options. So, against this background, their natural reaction is to resort to tried and tested methods. He believes this approach is not the best way, as fear and discomfort are an essential part of the process. On the other hand, if one is comfortable with the strategy, chances are it isn’t very good. He concludes that a good strategy is not an outcome of careful research and planning, which delivers a desired outcome. Instead, it is a broad approach of achieving what they want, and analysing how realistic are the various approaches. Further, he elaborates on five major traps.

So far, the take away would be to follow the procedure broadly. Also, to make the participants aware right in the beginning that the process can be as good as the insight they provide. The idea should be to make broad choices to achieve various goals. In practical terms, facilitators should give sufficient time to the participants, particularly while doing external environmental analysis.

Comfort Trap 1: Strategic Planning

The author cautions against confusing strategy with planning. Typically, managers develop a tendency of paying greater emphasis on planning – as it has a framework and is a familiar territory. Further, the planning process becomes the basis for the budgeting process. But, it has to be understood that all this is not strategy. Further, author is right when he says that planning does not question the choices an organization chose not to make. It does not question the assumptions. And, as planning forms the basis of budget, the dominant theme is affordability. This approach leads to decisions based on short-term goals. Instead, a strategy is something long-term.

Therefore, it is necessary that facilitators pay greater attention to strategy part of the process. In practical terms, that would mean paying sufficient emphasis on identifying value creating strengths and value reducing weaknesses. Also, it involves giving sufficient time to the participants for creating a strategic thinking map. As well as identifying strategic implications of competitively relevant strengths and weaknesses.

Comfort Trap 2: Cost-Based Thinking

The next trap in the planning process is when managers are tempted towards cost-based thinking. This thinking in turn supports the planning process, as both of them are in the control of a company. To put in simple terms, a company decides how much and where to spend. But, this cannot be called a strategy, which is something long-term. This thinking also put managers into a comfortable position, as it can be planned with relative precision. Also, this is an important and useful exercise. However, problems start when the same approaches are applied to the revenue side. Treating revenue planning on the same scale as cost planning is a folly. When the planned revenue is not incurred, it can even be perceived as a failure of planning. The reason why revenue planning does not deliver the same results as cost planning, is because costs are in the hands of the company, while revenue is in the hands of the customers. As the author states, revenue is neither knowable nor controllable. Therefore, predicting cost is fundamentally different from revenue.

The takeaway from this is that companies should plan for revenue very differently from costs. Rather than making plans salesperson by salesperson, channel by channel, and region by region – they should spend more time on knowing their customers and creating value proposition.

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