As a 22-year old working on my first Six Sigma Black Belt project at General Electric, the Master Black Belt who mentored me kept disallowing me to move forward through the various phases of the project, even though I was very eager to. He kept telling me “John, you have made up your mind about the answer too early… how do you know that there isn’t a better answer?… Remember, the treasure is in the path!“
Strategic Planning is not a math problem that one gets credit for by writing down the answer. The treasure is truly in the path of the exercise and working through a structured approach will allow a company to ensure that the outcomes are not heavily influenced by biases and preconceived notions.
Strategic Planning isn’t rocket science, but it is a somewhat complex exercise. More often than not, it is done poorly because the effort is underestimated and the right team is not put in place. There is a structured and seamless approach to run a streamlined planning exercise at a small- to mid-sized company.
First, it is important to articulate what a good strategic plan looks like. The visual below illustrates the key outcomes that every company should look for. Yes – the visual is somewhat complex and that’s the point. It takes discipline to develop a strong strategic plan.
There is no way to create a “how-to” guide on strategic planning in a few pages. It requires deep experience and every company and team requires a slightly different touch. However, there are certain guardrails that can be set for what constitutes minimum requirements for a strategic plan. Each of the following components are critical outcomes of a planning exercise. The exercise iteratively triangulates between a few outcomes to arrive at an optimal set of answers.
Deliverable 1: Strategy
Although I have stated this ad nauseam in Section III of the growth framework, it is worth repeating – the nucleus of a strategic plan is the company’s corporate strategy. Everything builds on it. For all the reasons exhaustively stated under the Corporate Strategy component of the Growth Framework, a small- to mid-sized company absolutely have to invest in reassessing its strategic direction in a structured and analytical manner frequently.
Every company should fine-tune its strategy on an ongoing basis; but among all the other distractions of running day-to-day operations, the deep analysis and market assessments necessary to develop a corporate strategy gets deprioritized. Strategic Planning provides a concrete timeframe on the calendar to reassess and refine the company’s strategy. While reviewing a strategic plan, if a clear articulation of the company’s strategy and how it will evolve is not evident, the effectiveness of the plan is questionable. i.e. what is the rest of the plan built on without this foundation?
Deliverable 2: Strategic Initiative Map
Having a strong strategy is a great start. But initiatives to achieve the strategy have to dovetail with each other and together form a streamlined path to achieve the strategy. Without this cohesive set of initiatives, the entire exercise is likely to be a waste of organizational time and resources. A Strategic Initiative Map is a very simple, but highly effective tool to frame every major initiative in one view against the strategic trade-offs that the company is targeting. It is the bridge between Strategy and Operations. Gaps in this view imply that the company doesn’t have a path to achieve all or part of its strategy.
Additionally, this exercise also offers a path to weed out initiatives that are proposed without alignment to the company’s overall strategy. However objective a planning team is, it is human to develop positive associations with ideas that worked well at past employers or pet-projects conceived without a clear vision. The strategic initiative map offers a guardrail to protect the company from investing in such distractions.
Strategic initiatives have to be detailed as part of operational planning. However, even during the early stages of planning, a concise articulation of the Steady State for each initiative is necessary to allow planning to get deeper. Why is this important? There will always be more ideas than the number of initiatives that a company can effectively undertake. A company should ensure every strategic initiative passes an investment effectiveness test before they are included as part of the strategic plan.
The framework below offers a conceptual view of how the planning team might perform this assessment. Analyses on the impact and investment associated with each proposed initiative on the strategic initiative map, will allow the team to prioritize them.
- Priority 1: Easiest to deliver with highest impact
- Priority 2: Harder to deliver; but has major impact
- Priority 3: Lower impact; lower effort [nice-to-have outcomes]
- Priority 4: Deprioritize due to likely negative return on investment
The team should leverage data to conduct analyses, where possible. Qualitative assessments can render somewhat high-quality results as well if no data is available. The key success factor is the team’s ability to make hard choices to prioritize. As a team goes through this exercise of mapping initiatives to strategy and prioritizing them, I recommend two basic sniff-tests to ensure that you are actually working with reasonable initiative proposals.
Test A: Strategic initiatives should improve company fundamentals: Often qualitative, these initiatives are enablement efforts that improve product, commercial, operational, or analytical maturity of a small- to mid-sized company.
Every strategic initiative should improve how the company operates. Unless an initiative can be proven to relevantly improve current business execution, it should not be on the Strategic Initiative Map. For example, if a company plans to hire 10 additional sales reps or 10 more engineers, these are not strategic initiatives because, by itself, this is just throwing more money at the problem (linear scaling mindset that we discussed under Corporate Strategy). A strategic initiative should improve how well existing sales reps sell or optimize the type of problems engineers and developers work on. i.e. they should improve productivity of existing investment.
Test B: Goals do not constitute strategic initiatives: Logging desired outcomes such as “improve sales cycle by X days” or “increase development velocity by Y” are not strategic initiatives. These are just goals or metrics that track desired goals; they do not articulate how those goals will be achieved. Every strategic initiative should be action oriented.
Deliverable 3: Initiative-Resource Map
Once the planning team has mapped initiatives to strategy and prioritized them based on return on investment, how can the team decide whether and when it can execute those strategic initiatives? Enter the Initiative-Resource Map.
The idea of breaking all organizational resources into two general categories was introduced as part of the Efficient Organization concept under Leadership Approach. The first category is Overhead ‘Fixed’ Resources. These are the resources available at the company to execute on initiatives that improve organizational maturity and productivity.
The Initiative-Resource Map is a simple tool that the planning team should use to arrive at a realistic view of the strategic initiatives that it can execute on effectively. We will discuss this tool in more detail under the effective financial planning chapter. The tool allows the company to:
- identify strategic initiatives that can be executed with existing Overhead ‘Fixed’ Resources
- highlight additional initiatives that can be executed by each incremental Overhead ‘Fixed’ Resource
- validate alignment between existing Overhead ‘Fixed’ Resources and future strategic initiatives that the company has to execute on (i.e. does the company need to up-skill?)
- and critically, informs the productivity improvements that slated strategic initiatives can bring to improve Frontline ‘Variable’ Resources’ performance, which feeds the Leading Indicator Map below.
This portion of the strategic planning exercise frames additional investment required to work on top priority initiatives that improve organizational maturity and productivity. The Initiative-Resource Map directly impacts development of an effective financial plan and key decisions about Frontline ‘Variable’ Resources (see below).
Deliverable 4: Leading Indicator Map
Fast-growing, small- to mid-sized companies have to fight the urge to scale linearly because is not efficient to do so. Barring rare exceptions, all revenue must be attributable to Frontline ‘Variable’ Resources, the second general resource category in an efficient organization. Similarly, all product building and delivery will also have to be attributed to this resource category. Strategic planning will have to define the investment the company has to make on Frontline ‘Variable’ Resources and the outputs each of these resources will deliver during the planning period.
Leading Indicators, metrics that measure operational processes directly and predict desired overall outcomes, is the bridge between operations and financials. Companies that attempt to skip this bridge is delinking financials from operations and is limiting their ability to truly assess root causes behind strong or weak financial performance.
During strategic planning, leading indicators for the day-to-day responsibilities of every Frontline ‘Variable’ Resource should be identified, along with current benchmarks for those leading indicators. A company’s future operational performance, through the execution efforts of Frontline ‘Variable’ Resources, should be assumed to equal current leading indicator benchmarks, unless those benchmarks can be improved as a result of strategic initiatives slated in the Initiative-Resource Map – i.e. productivity improvement. The choice to increase investment on Frontline ‘Variable’ Resources in an efficient manner should be predicated on such productivity improvements to avoid scaling linearly.
A Leading Indicator Map, the fourth key deliverable, encompasses current performance benchmarks, slated productivity improvements, resulting target performance measurements, and decisions to add incremental Frontline ‘Variable’ Resources. A well-developed Leading Indicator Map enables fast and accurate revenue and expense forecasting portions of an effective financial plan.
Deliverable 5: Operational Plans
Rubber meets the road via Operational Plans. Essentially, this is the first of two outcomes of the strategic plan that should be visible and accessible to the whole company. This well documented and iteratively managed deliverable drives most of the work done by Overhead ‘Fixed’ Resources during the planning period. It is a deep articulation of every strategic initiative that is slated for execution on the Initiative-Resource Map.
Deliverable 6: Financial Plan
However small, companies have to demonstrate financial results promised via its financial plan, the second organizationally visible outcome of strategic planning. Every aspect of my growth framework advocates placing laser sharp focus on controllables. What are controllables? It is a term I use to describe the fundamental aspects of the business that leaders and employees can directly impact and measure through their day-to-day efforts. Culture, strategy, management of strategic initiatives, and day-to-day operations (measured by leading indicators) are the foundational variables that can be controlled internally.
Although, these controllables have to be translated into a monetary plan that forecasts revenue and expense targets, these financial targets have to be 100% driven by the fundamental aspects laid out in the other five deliverables. A financial plan that does not dovetail with the first five deliverables is symptomatic of a poor strategic plan. The relationship between the financial plan and preceding deliverables is elaborated in the next chapter on effective forecasting.
To conclude, strategic planning requires core participants to remain disciplined and expend mindshare on working through the various deliverables and trust the approach. Although, it is tempting to think that the answers are obvious, following a strong approach and creating high quality interim deliverables allows the organization to discover valuable strategic and operational lessons in developing the company’s forward-looking plan, while ensuring that biases and preconceived notions do not lead the company astray.