By Terrance M. Booysen and Paul Aucamp (CGF Lead Independent Consultant)
How can this possibly be true? Unfortunately, many companies structure strategic planning only as annual processes, ultimately as a precursor to increase the following year’s budget by for example ten percent. At the heart of this approach is a process that extrapolates the organisation’s future; it does nothing to change the nature or the strategic direction of the company. Clearly, no one in their right mind will project themselves out of existence! This is the spirit of human nature; namely to survive. The big question in business is therefore: does strategy really matter if you end up in the same place?
Perhaps part of the answer to avoid the potential pitfalls in the strategic planning process is to recognise the term strategic planning as a conundrum, which literally focuses on plans that are strategic (i.e. important to the company). The key is to distinguish between strategy and planning; and not to equate the one with the other!
A boardroom function: Creating momentum for the future
In respect of understanding one the board’s key functions, let’s consider a military analogy to clarify the differences, in simple terms, between strategy and planning. While both these actions are closely related (yet often confused in the boardroom), they are fundamentally different in nature. Strategy is the art of the conduct of war, with tactics being the subset of fighting.
Strategy requires a fundamental analysis of how to think, how to apply and how to compete against one’s ‘enemy’ in order to achieve the victory. Planning, on the other hand, is the process of organising the activities required to achieve a desired goal. Planning is more akin to a process; strategy requires fundamental analysis and strategic thinking (as opposed to strategic planning).
Good strategy creates profit; good plans that are successfully implemented realise profit. At the same time profit invariably cannot be achieved without understanding, calculating and taking the risks. That being said, the critical question to ask in the strategy development process is ‘Why’; and the critical question to ask in the strategic planning process is ‘What’? (followed by how, when, where and who).
Successful strategic planning processes carefully balance strategic thinking and strategic planning. Planning requires the quantitative analysis of input data that are numbers based on historical performance. Strategic thinking requires qualitative synthesis of input data that consists of opinions and perceptions regarding future trends. Strategic planning tends to be bottom up: it usually starts in the lower departments of the organisation and works its way up; strategic thinking however is predominantly a top down process since only one group of people have the right and the obligation to shape the company’s future direction and that is the board of directors, supported by top management.
Getting it wrong
Apart from being too focussed on the planning side of the equation, more common pitfalls exist in the strategic planning process. These include:
• the strategy itself suffers from “fuzzy vision”;
• operational thinking dominates management’s time;
• strategy is most often done on a reactive basis, but it should be carefully planned on a proactive basis;
• in times where the company has no crisis, strategy tends to become obscure;
• many boards suffer from ‘tunnel’ and short-term thinking, with potentially grave implications upon the company’s strategy;
• planning is typically done on a ‘bottom-up’ basis, with little connection to the board and the company’s strategy;
• organisational thinking is mostly quantitative, not qualitative;
• management uses ‘rose-coloured’ glasses, and are often forced to be ‘good news’ messengers;
• numbers planning generally discourages risk taking; and
• the process itself is an obstacle, with little or no connection to the company’s Corporate Governance Framework®.
A forward looking perspective
As is the case with most successful companies who have stood the test of time and won the hard fought victories, their boards of directors have been unified in their duties to the company, as well as focussed upon an agreed strategy which is shared within the ranks of the company. As part of their successes, these companies have clearly separated the powers and functions owed by the board from those which are required at operational levels. Indeed, these boards have articulated the role differences of the board’s accountabilities, as compared to the responsibilities owed by management to ensure all the components of the strategy are delivered upon. Furthermore, there are often unexpected surprises in business — grey and black swans — which can upset even the smartest strategies and plans. Of course, these unexpected (and sometimes unknown) contingencies will have been considered within well thought-through strategies so that any form of business disruption can be accommodated. Boards of directors who truly place their company’s strategic objectives at the start of their daily functions will consider a number of areas which are likely to have an impact upon the company’s strategy and revenues. Sometimes, directors will need to look backwards in order to gain a strategic perspective for the future. No matter what they learn or experience through this continual process, it is imperative that their actions are built within a robust governance framework to ensure there is amongst other; a balance of appropriate risk taking, making profit, remaining a sustainable company and being a responsible corporate citizen. Understandably this is no easy task and it is primarily one of the main reasons why directors truly need first-hand knowledge of the competitive environment, as well as great doses of experience and business ‘savvy’ – in other words, “feeling things from the gut”. No amount of formal training can be done to gain this type of experience, it really does need guidance from experienced commanders as well as having “spent the time in the trenches with the troops” so to speak. One of the world’s famous war strategists; Napoleon Bonaparte (1769-1821) reminds us, “never [to] interrupt your enemy when he is making a mistake.”