Annual Strategic Planning

Annual Strategic Planning

Many companies have an annual, offsite, strategic planning meeting. Far too often, all it entails is a look at last year’s results, followed by a meaningless exercise in financial goal setting. They say something like, “Let’s increase our goals by ten percent this year.” And they cascade these goals down throughout the organization.

Goal setting is important. But setting goals is not a strategy. We all want to grow. But growth is not a strategy. We all want to improve our businesses. But improvement is not a strategy. We all want to be more efficient. But efficiency is not a strategy. We want to be better than our competitors. But beating our competitors is not a strategy. Neither is some version of “bigger, better, faster, cheaper!”

Strategy is understanding how your industry is likely to play out and making wise choices about the moves you need to make that will position your company for future success.

There are profound changes occurring in many industries. Business Execution for RESULTS is a discipline that requires business leaders to put down their tools once a year, get their heads out of the day-to-day business, think about those trends, and choose the right actions to address the changes. If you don’t step back and look at the big picture every year, or if you do the analysis in a cursory fashion, you risk being surprised by reality.

Consider how this works using Clayton Christensen’s disruption theory. As Christensen has shown for industries as diverse as disk drives and excavators, disruptive competitors often enter at the low end of the market.

This kind of potentially devastating competition won’t usually be considered in routine business assessments. That’s because they’re in what most of the industry thinks of as the unprofitable segment of the market. Routine assessments also rarely identify threats coming from outside the industry. That’s why you need a thorough Annual High-Level Strategic Review to make sure your analysis catches the first glimmer of potentially lethal competitive threats.

There’s no quick and easy way to do this review. You need to go back to redo your Industry Analysis. You redo Michael Porter’s Five Forces analysis. You redo your PEST analysis. You analyze your Target Market Customers again. As Albert Einstein said, “The questions remain the same, it’s the answers that keep changing.” You must go back and revisit the questions and discover how the answers have changed.

Companies that have already been through the planning process described in this book should redo this industry analysis a week or two prior to their offsite meeting.

You can almost bet that your Industry Analysis will identify changes from the year before. They will usually affect the OT part of your SWOT analysis. That should start you thinking about new Opportunities and Threats. You will be considering what the changes may mean. And you’ll be doing this thinking well before the day arrives for the Annual High-Level Strategic Review.

How to run your annual high-level strategic planning meeting.

Hold the Review meeting offsite. That minimizes distractions and interruptions.

Get your team together for the offsite the night before the review to share a meal. This enables people to catch up with each other (for those who do not work in the same office), clear the air over any minor grievances so these issues don’t cloud the next day’s agenda, and generally talk about the business in an informal setting. Make sure you have an early night, because tomorrow will be a mentally taxing day!

Start the day like the Quarterly Strategic Review sessions; the only difference is that you use the year instead of the quarter as the time frame. We review results from the prior year and then turn the team loose to discuss the results and their implications. Conduct an After Action Review to ask and answer the following questions:

·   What did you achieve last year?

·   What did you start doing last year?

·   What did you stop doing last year?

·   What were your Numerical Targets, and what did you actually achieve?

·   What were your Strategic Projects, and what did you actually achieve?

·   What valuable lessons did you learn last year?

Now you’re ready to look toward the future. Start with the vision, made up of your Core Values, your Core Purpose, and your BHAG. Companies hardly ever change anything in the vision section of the strategic plan, but it does happen. This is the opportunity for people to voice their opinions.

Industry Analysis is next. The basic analysis of what has changed and what remains the same should be done before the Annual High-Level Strategic Review Session. You and your team should discuss the implications of any changes and what impact they may have on your strategic choices. It’s most productive to review each of Porter’s Five Forces individually and then discuss all the changes. Remember, the Five Forces you need to analyze each year are Competitive Rivalry, New Entrants, Substitutes, Suppliers, and Customers.

Environmental Analysis considers changes that aren’t caused by industry forces. You used the PEST Analysis to examine Political, Economic, Social, and Technological forces. You should already know what has changed. Discuss the implications. In recent years changes in technology have accelerated. Make sure you understand the implications of that for your business.

Let me stop here for a moment. At this point, you’ve done a complete Industry Analysis. So you know what’s changed. Now you have to do something with what you know.

Sure, there are environmental and competitive forces beyond your control. That’s just the way it is. Your challenge is to make wise strategic choices based on what you know and what you can do.

The book Ruthless Focus points out that we know about the predictable crises that go with growth. And the book Stall Points shares research that indicates that almost 90 percent of “stall points” are preventable. Your choices and strategic decisions are what make the difference.

Here’s my experience: Most growth stalls occur because a strategic assumption that was once true no longer applies to your business model. The assumptions that you hold most deeply, the ones that you “know” are true and don’t question, pose the greatest threat to your long-term growth and survival.

Business history should teach us that even the mightiest and most successful companies can be brought down if they ignore changes in the marketplace and the world. Consider the case of Bethlehem Steel.

Bethlehem Steel was once a symbol of industrial might. But, after more than a century of success, it went into decline and filed for bankruptcy in 2001. There are many reasons for the bankruptcy. Two of the important ones are ignoring basic changes in the marketplace and ignoring new, more productive technology.

As the steel industry changed in the 1960s and 1970s, Bethlehem kept doing business the same way. Foreign competition was changing the landscape. But Bethlehem kept doing business as it always had, ignoring the changes, even when the average price of foreign-made steel dropped below the average price for US-made steel.

The company also continued to invest in old technology, even when there was a better way. Newer competitors, like Nucor, adopted mini-mill technology to reduce both costs and competitive vulnerability. Not Bethlehem. It rode the old technology all the way to bankruptcy. The Bethlehem Steel story illustrates two common issues:

Clayton Christensen showed how disruptive competitors often fly under the radar by starting in the low-cost, low-profit part of the industry. The only way to spot them is to take a break on a regular basis and update your Industry Analysis.

But there’s another powerful force at work, too. Researcher James Utterback has documented that:

“Firms are remarkably creative in defending their entrenched technologies, which often reach unimaginable heights of elegance and design and technical performance only when their demise is clearly predictable.”

That’s human nature at work. When we’ve been successful doing things one way, we resist changing to a different way. So we invest in what we know instead of what we need. We get stuck “improving what is” when we really should be “creating what will be.” The only way to beat that is to ask and answer tough questions about your situation and what you should do next.

Good, robust debate is crucial. You’re probably not digging deep enough or questioning strongly enough if there aren’t raised voices and an argument or two. Just remember that the purpose of this analysis and debate is to create a winning strategy that will set you up for future success in your industry.

What you decide may even cause you to change your 3 to 5 Year Strategic Moves. It will certainly affect the Strategic Projects for the next quarter.

So choose those new Strategic Projects wisely. Reset your Numerical Targets and adjust your KPIs to reflect what you’ve learned and decided.

Repeating this process on an annual basis is crucial to driving Business Execution for RESULTS.

Then it’s time to set off on another 90-day sprint. You’re more likely to make rapid progress if you maintain a rapid cadence. Meetings can help you there, too, and that’s what we’ll consider in the next chapter: “Meetings that Drive Execution.”

Excerpted from the book: Business Execution for RESULTS, by Stephen Lynch

Need help? Contact me to discuss your strategic planning needs.

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Until next time…
Stephen

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