Strategic Planning Made Simple

This article was written in conjunction with a client case study specifically for Family Business magazine. Although its focus is family owned businesses, the principles discussed here have been applied successfully to mid-sized businesses and divisions of large companies. This article was reprinted with permission as it first appeared in the 1996 issue. To contact Family Business call 800-637-4464 or write Family Business Publishing Company, 1845 Walnut Street, 9th Floor, Philadelphia, PA 19103.

FORMAL STRATEGIC PLANNING developed in large companies and business schools in the decades following the Second World War. Most models of strategic planning today reflect those beginnings and reinforce the widespread notion that planning is a big, complicated process beyond the scope and resources of smaller and mid-sized companies.

Nothing could be further from the truth. Most smaller and mid-sized family businesses not only benefit from planning tailored to their circumstances, they actually have a greater need for it than do larger companies. The reason is most family businesses simply cannot afford the kinds of losses that can ensue from drastic changes in the competitive environment or the economy. Big businesses can usually weather economic storms by drawing on their large asset base or going to the public financial markets to tide them over. With less access to these financing sources, smaller, privately owned family businesses need to do a better job of formulating strategy to optimize results with the resources they do have.

“Write a simple plan, using a oriented process, and don’t forget to execute it.”

The smaller size of many family businesses can in fact, be an asset in planning strategy, provided they follow a reasonable, time-efficient process. Because family firms are usually close to their markets and to their customers, they very likely have access to the critical information needed to construct a good strategic plan. The owners and managers talk frequently with customers, rather than gathering information about them once or twice a year from surveys and focus groups, as many big companies do. Private ownership, lean management structures, a strong, consistent culture devoted to the long-term results — all the family company to craft and rapidly implement effective plans.

What are the steps in the process?

In its simplest form, strategic planning addresses the following critical questions:

What will you sell?
To whom will you sell?
How do you beat or avoid the competition?

Though these questions sound simple, they require sophisticated responses. Clear and comprehensive answers to them will give you the basic elements needed for an effective strategic plan. Asking a group of managers to answer them inevitably stimulates a lively discussion.

The first two questions deal with the scope or “strategic focus” of the enterprise: What products and services will the company provide? What markets or customers will it serve? The third question seeks to identify the sustainable basis for competitive advantage — your core competencies, or “strategic competencies”.

Essentially, strategic planning is a process whereby a management team comes up with answers to these questions, and accepts and feels committed to being guided by the plan that emerges, in part because they have participated fully in its formulation. Generally, the steps in the process include: a situation analysis (Where are we today?); strategy formulation (Where do we want to go?); and implementation planning (How do we get there? How much will it cost? What is the timetable? Who is responsible for what?).

How much time will it take?

Strategic planning can take as much or as little time as you want to devote to it. Remember, you are in control. Strategic planning does not have to be a monster that eats your company alive. What you want to do is allocate a reasonable amount of high priority time to the process of developing a strategic plan, and then get the best job done in the time allotted.

In many companies, a quest for perfection dooms the planning process. The managers regard the choices to be made as so momentous that they must find perfect answers or risk losing the company. This kind of attitude often lengthens the information-gathering phase infinitely.

At one seminar for small and mid-sized companies, we asked each of the attendees how long his or her company had been doing strategic planning. A member of one group present said that their company had been doing it for five years. Thinking they surely had some insights to share with the group, we asked if they did a better job with each successive planning cycle. “Successive cycle?” one responded, a bit puzzled. “We’re still gathering competitive and market information. We hope to start doing the planning next year.”

Don’t try to do the entire strategic plan in a few consecutive days. Establish a schedule that allows for time between meetings to reflect on the discussions, dig up additional data, and build consensus.

Strategic planning should be a results-oriented process that can be adapted to the time and resources available in a company. Typically, a company allocates 2 to 4 percent of top management time to the sessions, including four to seven days for planning meetings and a few days for preparation and research. As the goals of the plan become clear, the implementation of the strategic plan becomes part of normal, everyday operations. The planning becomes a tool that helps to run the business better, rather than an abstract exercise done by little green men on some distant planet.

How frequently should the plan be updated?

The most important point is that it should be updated. Too many think of a strategy as a long-range plan that gets set at some off-site meetings and then is rigidly followed as company policy for the next 5 to 10 years. We all saw the results of the inflexibility in the Five-Year Plans produced by the Soviet Union. That is definitely not the model you want for managing your business.

A strategic plan is a management tool; it should not become a straitjacket. Authors such as Henry Mintzberg of McGill University have argued that strategic planning “while not dead, has fallen from its pedestal”. He correctly argues that as practiced in many large companies, strategic planning has become strategic programming, squeezing out any creative spontaneity in decision-making.

A good strategic plan should give guidance and stability to a company. At the same time, the leaders have to be flexible and respond dynamically to changes in the environment. Some strategic decisions have to be made “on the fly,” outside the planning process.

AT THE OUTSET you should craft a plan that has a reasonable time horizon for your industry. Generally, the time span of strategic plans ranges from three to five years, with industries that are evolving more rapidly at the shorter end of that spectrum and older, more mature industries at the longer end. Avoid a quest for perfection that leads to “analysis paralysis.” Write a good plan and get on with the execution of it. To get the best results from a good plan, monitor its progress and re-assess it at monthly meetings. The frequency of major updates to the plan should correspond to the rate of change in your industry. For most businesses, an annual cycle is most comfortable and appropriate. If your markets, competitors, and product life cycles change slowly, you may have to update the plan only every other year. Companies in the software, health care, or cable television industries, however, might need to fine-tune their strategies as often as every six months.

What preparation is necessary for planning?

A strategic plan will succeed only if the CEO and other key family members believe in it and openly support it. While this may seem self-evident, it is surprisingly common for companies to embark on the planning process before the leaders have agreed to be bound by the outcome. Be forewarned: The planning effort will be half-hearted if the team doing it senses that they lack strong support at the top and that, indeed, their decisions may be challenged or even vetoed.

The CEO and key family members have to do more than sanction the process. They have to be active participants. In some companies the CEO tries to delegate the plan to a committee. This usually results in extreme frustration for both the team members and the CEO if the plan doesn’t quite measure up to the CEO’s expectations and he or she is forced to modify it substantially.

By broadening the planning group, you increase the chances of creative synergies and increase the range of skills and talents that go into the plan. You also build a sense of ownership and commitment to the plan that ultimately emerges. Team-based processes, however, do have limits. The team can get so large that there is too much discussion and too little decision-making. Research studies show that a team size of 6 to 10 people is optimal.

The composition of the team is almost as important as the participation of the CEO and key family executives. The best team consists of a group of managers and family members who have a significant stake in the business and will eventually be responsible for execution of the plan. Team members should be peers who can discuss openly and frankly any issue that may arise. They should represent a spectrum of perspectives, functional disciplines, business backgrounds, and experience within the company and industry. A balance should be sought between creative, right brain strategic thinkers and number- crunching, detail-minded left brain types.

Be sure to select a “process leader” — or facilitator — for the meetings. The process leader takes care of the agenda and minutes, pays attention to procedural details, and channels the discussion so that the other participants are free to focus entirely on strategy and content. Avoid the temptation to let the CEO and family members with large stakes in the business fill this role. They need to be fully focused on strategizing, not managing the discussion, watching the clock, or refereeing disputes.

If a non-team member is selected as the process leader, be sure the person has sufficient stature and respect to be able to manage the team members. We have found that some of the best facilitators are company trainers, human resources people, and managers in the controller’s office (most of whom are accustomed to protecting sensitive information). But some businesses have to go outside of the company to find a person with the right mix of skills and experience to lead the process. If you decide to use an outsider, be sure he or she is fully competent in the process you intend to use and fits in well with the culture of your company. And, of course, never delegate your strategic decisions to an outsider. Help with process leadership and research is fine, but be sure the outsider understands that he or she is there only to help the team make the crucial decisions.

Don’t try to do the entire strategic plan in a few consecutive days. Establish a schedule that allows for time between meetings to reflect on the discussions, dig up additional data, and build consensus around the information and assumptions that have developed.

How do we make sure that we get the results anticipated?

It is relatively easy to create a strategic vision for a company, but much more difficult to follow it and achieve results. As is well known, too many plans become the object of “document worship” rather than a management tool. The plan is duly recorded in a sacred book and placed on a shelf for all to bow and pay homage as they pass. Rarely does the management team ever consult it, let alone use it to guide the difficult choices that must be made.

A plan that doesn’t help a company anticipate changes, make tough choices, and exploit new opportunities is obviously a waste of time and effort. In our experience, companies that do a good job of implementing their strategy can expect to achieve from 80 to 90 percent of their objectives. The three tools that are vital for success in the implementation stage include:

Action plans. For each objective in the overall strategic plan, the team should develop an action plan that spells out the steps that will be taken to achieve the objective; the time and resources that will be needed, and the team member who will be responsible for seeing that each is carried out. The overall strategic plan that emerges should have a limited number of objectives — typically 10 or fewer (see sample objectives). Each should be focused on the near term —12 to 18 months at most.

If you do not lay out a thoughtful course and direction for your family business, the environment may lay one out for you. Chances are it will be less satisfactory than one you design yourself.

Budgets. A meaningful cash flow budget should be established and used to schedule the start and completion of action steps that require money.

Scheduling of managers’ time. Most companies run out of time long before they run out of money. While most companies do fairly detailed financial budgets, they frequently do not assess or plan the time that top managers will need to devote to implementing action plans. Top management’s time is one of a company’s most precious resources. It is critical to determine how much time top managers will have to spend each month on implementing action plans and use these estimates to schedule the start and completion of action steps.

If you do not thoughtfully lay out a course and direction for your family business, it is likely that environment and external factors will lay out one for you. You may eventually be forced to accept a strategy that is a whole lot less satisfactory than one you could have designed for yourselves. The only way to avoid this trap and take control of your destiny is to make some form of strategic planning a regular part of your management process.

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