With this work the author, an innovative expert in Management and Strategic Planning, analyzes and explores the current state of the art and the discipline of Strategic Planning, as an essential aspect of leading companies and organizations. The approaches made in the work are fundamentally based on the author's practice of formulating, designing, and applying strategic plans for all types of companies and businesses, and therefore constitute a rich source of reflections for managers, executives, and members. of corporate governments. The author is a Commercial Engineer trained at the University of Chile, and has an MBA from ESADE, specializing in Postgraduate programs at European and American universities.
He has taught at the University of Chile, Católica de Chile, Católica de Córdoba Argentina, ESADE Barcelona, and has been visiting professor at other Latin American universities. Currently he practices consulting, teaching management seminars and university teaching.
- Alice: Could you please tell me which way should I choose to get out of here? Cheshire Cat: That depends on where you want to go. Alice: I don't care much where. Cheshire Cat: So it doesn't matter which way I choose.
Excerpted from: Alice in Wonderland "Alice's Adventures in Worderland" Mac Millan and Co. London 1865
It is a monthly publication edited by The Buenos Aires Herald Argentina, International Edition Chile.
This article was published in June 2004 and is edited with permission from its author and Management Herald Chile.
Introduction
I write these reflections on Strategic Planning, at the suggestion of a Manager of a medium, but important Chilean company that does business in the chemical and food area.
“We have participated in many seminars on Strategic Planning with my team of executives (made up of sixteen professionals), we have made a significant effort over the last six years to develop strategic plans and they have always failed us. For this reason, your guidelines, suggestions and lessons that you have given us for the development of our last Strategic Plan for the company for the period 2003-2005 have been of great value, we had not heard them as you put them and now we have understood that we confused what essential with the secondary in the development of the strategic process and we do not act in accordance with it. For this reason, I ask you to write down what you told us in our first meetings of your consulting about our Strategic Plan, so that you share them with other executives ”.
This is what my friend and client told me when I recently finished my consultancy and this is the main purpose of this work: to share some meditations, based on my experience both as a business consultant, manager of management seminars on the subject and as a university professor from the chairs of Business Policies and Strategic Planning of the most important universities and business schools in Chile, and other countries.
In any case, the approaches that I will make below are always subject to improvement and, therefore, the topics analyzed cannot be considered definitive but are constantly evolving, an essential characteristic of all business and business sciences.
1. Strategic Planning: The current state of the art
To reflect on Strategic Planning it is necessary to understand what we understand by said concept. To begin with, I must recognize here that there are as many definitions of strategy as there are experts and gurus dedicated to it.
Today we must understand Strategic Planning much more than a set of concepts and definitions, and mainly overcome the classic trap of worrying excessively about "how" to focus on "why" and "why".
Strategic Planning today is:
“Create a flexible and integrated system of objectives and their corresponding alternatives to achieve them, (strategies) that concretize and specify the mission and vision defined for the company and its businesses.
Therefore, the most important thing in a Strategic Plan is the sharp and clear definition of the objectives that will guide the action of the company.
Here the first great paradox arises: even though the concept emphasizes strategy - understood as the alternative or way to reach the objective, this is not the most important thing.
Clarifying objectives in the mind of the management team greatly facilitates the choice of strategies and not the other way around.
The setting of objectives also requires an analysis of the environment where the company operates, and an internal examination of itself to adjust its total capacity to achieve the objectives.
Strategic Planning also means knowing with some probability, where we will be in the future, based on the decisions that must be taken today.
Today we have a position as a company, derived from the decisions that were made 2, 5 or more years ago.
In the same way, the position that you want to obtain in the next 2, 3, 5… years, depends on the decisions that we adopt today: That is what the Strategic Plan is for.
Strategic Planning is also a process:
- From the structure of strategic decisions to achieve objectives in a given environment. From the company as a whole, not from its parts or its functions. From the profit potential, and not only from the results of the past or recent. the company with all its interrelationships with the environment and therefore, its survival, self-continuity and sustainability. The search gives the essence of the business (Core Business) and therefore, the best combination of resources and alternatives to achieve the objectives. Of the company seen through its "business" or portfolio and not through its support functions.
All of the above requires a methodology, a discipline, but the important thing is to create a doctrine, a strategic mindset that allows us to define and achieve viable, innovative and motivating objectives.
Let us remember and insist that strategy is the path, it is how a goal can be reached, therefore, if the objective is defined and clarified "chemically pure", it is easier to select the best path to reach it.
That is why it is strange that the main books and manuals on strategic plans emphasize the procedure and not what it is that you want to achieve.
In the long run this produces confusion, because to focus on the strategy is to focus on the middle and not on the end, and even though the plans are developed according to such and such procedures or methodologies, or the “twelve stages” are followed systematically, the plans fail.
The success of the strategic plan does not reside in the "quality" of the procedure or method followed to prepare it, but in the capacity of the management team, through a system of thought and action, to carry out the plan achieving its objectives or determined results with anticipation.
The ability to act in the terms that the Strategic Plan proposes is more important than its design.
For this reason, as Fortune magazine reported 20 years ago, on the subject, less than 10% of the disciplined strategic plans were successful.
But worst of all, in 1999 Fortune itself reported that the problem still persisted.
I am afraid from my own experience that the problem still exists almost beginning in 2004 or progress is very, very slow.
Most fail, but the problem is not a faulty or poorly developed plan, but its little or no implementation in terms of executive action: a managerial inability to carry out established plans is observed.
Therefore, the problem of little or no application of the plans is a Management problem.
2. Objectives: Balance, concentration and managerial time
The objectives can be defined as "the a priori results of an action or activity", that is, before carrying out an action, making decisions or allocating resources, it is anticipated the result that this action, or these decisions and their resources, will have on the progress of the company.
Therefore, any objective in business terms can be measured in advance in four dimensions or characteristics:
- Quantity: that is, how much will we achieve at the end of the action or activity (can be expressed in terms of sales volumes; market share; profitability percentage; number of quantities produced; a given report; etc.) Time: What is the time limit to achieve the desired amount with the action or activity (date on which the result of the action of an activity will be measured: June 30 of the year 200X; December 31, etc.). the degree of perfection of the quantity to be achieved within the stipulated time limit (for example: the objective of increasing the volume of sales, achieving clients who do not pay, or exaggerating discounts) cannot be achieved. Cost: How much does it cost to achieve the quantity raised in the period set with the required quality. That is, it is the economic dimension of the objective,and obviously the cost of achieving it cannot be higher than the cost of achieving it.
These four dimensions that allow measuring an objective are present in the three main levels of the company:
- Corporate or company objectives as a whole. Business unit level objectives or support functions and: Personal objectives, specific to each executive or responsible boss.
But the "praxis" teaches that the objectives have to be reduced or few objectives, because it is the only way to achieve them.
Successful companies operate with a maximum of four annual objectives and most with two.
Why is it important to work with few objectives?
For an elementary reason: The concentration of the company, its managers, its total capacity and its resources focused on few objectives, produce results superior to any other alternative.
Concentration on the objectives of the entire organization, its mental capacity, the time available to managers and its resources produces surprising results and is a guarantee of productivity, profitability, and ultimate success.
The concentration of the entire company and its staff creates a superior force that multiplies individual efforts. This empowerment is known as a business synergy.
Conversely, the shortest path to unproductivity is the deconcentration and dispersion of companies and their executives and staff in many objectives of different scopes and without prioritization. This creates eager executives, activists, but extremely incompetent.
It is then necessary to learn to concentrate and constantly prioritize the objectives in accordance with the evolution of business, but taking into consideration the Strategic Plan as "a fundamental navigation chart in the daily activity of the company".
The Strategic Plan, presented in this way, is equivalent to the scores of a distinguished conductor, who obviously all the musicians know and play their instruments according to him, under the conductor's baton, at the right times: a beautiful melody result and fascinating.
Prioritization and concentration allow the necessary balance in the company, in such a way that it breaks with the classic and narrow vision of the "single objective theory": companies are to produce only economic profits and maximum profitability.
Profitability and profits are the best proof of the success of the management team, but they are not in themselves a single objective.
To achieve this, it is also necessary to be successful with the market and the clients; with operational excellence and internal business processes; succeed in mobilizing and motivating people; with the discovery of new products and services and new businesses, in short, it is necessary to give a different dimension of the company in this 21st century, which is to create value for both shareholders, customers, internal staff and the entire community..
For this reason the objectives must balance with each other and avoid unbalanced companies.
This great challenge requires prioritization of objectives and concentration of the mental capacity and time of managers and of the corporate governance dedicated to the Strategic Plan.
3. Opportunity objectives
However, despite the fact that the management team must be focused on the actions that allow the fulfillment of the objectives of the Strategic Plan, they must also be prepared to take advantage of opportunities that arise in the environment - outside the company - and that although not initially contemplated in the prepared Strategic Plan, executives must be prepared to quickly set and develop “Opportunity Objectives”.
An opportunity objective is the eventual use of a concrete and specific situation that may arise unexpectedly, but that can substantially improve or change the business, the strategic positioning of the company, the product and / or service and dislodge competitors, creating a strategic surprise. All the assumptions that underpin the Strategic Plan and business plans can change abruptly. This creates opportunity goals that must be seized.
Every executive must be mentally prepared and have flexibility, not only to auscultate these opportunities, but to abruptly change the designed plan and take advantage of the achievement of an opportunity objective or work in parallel with both situations: Make decisions that lead to the Plan objectives Strategic and simultaneously make decisions to take advantage of opportunity objectives.
This means flexible and mentally adaptable executives. You cannot set goals by extrapolating from the past or expressing wishes.
4. Management
Strategic Planning is part of Management, it is not something separate or unrelated as many executives believe.
We said previously that the success of the plan consists in the application of the strategies and operations to fulfill the objectives of the plan.
From this point of view, Management is essential for the success not only of the strategic plan, but of the company as a whole.
Management is to define the mission and the fundamental objectives of the company.
Management is also mobilizing and organizing all human energies, people and their knowledge, for the fulfillment of the mission and the defined objectives.
Defining the company's mission is the entrepreneurial aspect and managing, motivating and organizing human energies is the part related to leadership.
The application of management technologies in each area of the company (finance, costs, accounting, production and operations, marketing and sales, human resources, etc.) is also another important Management task.
Therefore, Strategic Planning establishes the essential aspect of Management (mission of objectives), and the set of actions that the company must implement through its executives to achieve it, is pure Management.
The implementation of these actions is what allows the successful achievement of the plan.
Therefore, Management integrates people to the common project of the company expressed in its Strategic Plan.
In consequence, it establishes a commitment of these with the essential objectives and the mission, which requires intense communication between all the members and is built on the individual responsibility of each member to contribute to the fulfillment of the plan.
This implies that Management imperatively requires evaluation, control and measurement systems of contributions or performance.
Understanding then the biunivocal and indissoluble link between Strategic Planning as an integrating part of Management is essential for the success of the plan.
5. Business theory
A fundamental aspect derived from the strategic thinking process is the focus of the company on its business as a fundamental aspect of what to do.
The "what to do" is coming to make an increasingly important challenge facing management because this "what to do" is usually confused with the "how to do".
The "what to do - the goals, the business" is constantly changing as world and market conditions change drastically and mainly changes and metamorphoses in customers and people.
These changes cause business crises and not because things are being done poorly, not even that the wrong things are being managed, but that the right things are usually done - "how to do" - but towards the wrong "what to do" and this causes unproductivity.
What is actually happening is that the assumptions regarding "what to do - objectives, business" - are also changing dramatically.
These assumptions refer to the markets, the identification of clients and competitors, personal values and their behavior.
They also concern technology and its dynamics, the strengths, weaknesses and shortcomings of a company.
They concern how the company creates value for its customers, for its shareholders, for its staff and for the community.
Ultimately they concern changes in the theory of business of a company.
Every company has a business theory that explains its success, but when they change, they leave the company and “how to do” in check.
All business theory must seek the core of business (Core Business) and the relationship of these with the mission and the objectives and essential competences that must be managed to coincide with reality.
The strategic thinking of the strategic plan requires assembling these three variables and their assumptions on which it is based: Core Business, Mission and Objectives and essential Competences.
This relationship between these three variables and their assumptions is expressed in a "business model" for each company.
The fundamental purpose of the strategic thinking expressed in the plan is that the entire organization must know and understand the "business theory" of the company and the "business model" so that it can be practiced by all its members.
This requires a strategic culture, in short a doctrine of a system of thought that must be permanently tested and therefore also requires a mental discipline, since the theory of business is not engraved in "granite rock": it is a hypothesis and as such it must be permanently tested by the actions of executives and staff.
The strategic plan then has the role of structuring this theory of business, as well as the ability to change the implicit assumptions and ultimately check or change the "business model" of the company.
The business model is specified in a Business Plan that is nothing more than a Strategic Plan or level of each "Business Unit" (SBU) and therefore is aligned with the Corporate Strategic Plan.
80% of the success of a company depends on the correct definition of the theory and the business model that the company must practice.
6. Innovation, changes and opportunities
As all markets and customers are changing, then their needs and the ways of solving them change.
The products and services that the company offers within its own theory and business model, must be in accordance with these changes in needs, otherwise it fails.
But permanently adjusting the company's product and service portfolio to new customer needs is typical of innovation, understood as a systematic process of transforming ideas into business and / or service products as satisfying for the customer and at the same time for the company.
In other words, profitable products and services.
The elaboration of the strategic plan then requires people who have knowledge of the business, requires the talent to develop new ideas from those people and requires motivation, enthusiasm and the desire to contribute to the company.
Developing strategic plans is a tough topic. But, implementing the plan, putting it into practice facing and living with the problems of daily living, is even harder.
Innovation is welcomed by the Strategic Planning process because it is essential to revitalize plans, programs, operational and productive processes, motivate staff and their executives and place the customer at the center of decisions.
For this reason, any strategic plan must constantly set objectives for innovation and continuous improvement, looking to the future in the new needs of the markets, analysis of changes in trends and developing innovative strategies that allow adjusting to these new realities.
Changes in the values and economic characteristics of markets and industries constitute a very rich source of innovation and opportunities, which allow creating profits for the client and the company, modifying the economic value of the products or markets, or adapting the current products or services to the economic or social reality of the clients.
But innovation is always related to providing the customer and the market - through its portfolio of products or services - with what has value for it.
Any product or service that ceases to have value for a certain group of customers or markets is the beginning of the failure of a company or business and therefore means that the assumptions of theory and business model have changed.
Strategic planning is constantly concerned with reviewing value propositions and changes in these proposals to adjust them to market opportunities, which are often right in front of us, but which we do not see due to the disturbing internal bureaucracy or clinging to mentally to an obsolete theory or business model.
7. People, strategic alliance and common company project.
We said previously that the ability to carry out the plan is more important than the quality of its method, because it requires people throughout the organization who are making decisions that lead to the objectives: it requires the mobilization of all human energies, requires passion, requires leadership.
For this, it is essential that an “alliance” be produced between the personnel and the corporate government - board, managers, executives - with a higher purpose that is the good of the company itself.
This “strategic alliance” between staff and corporate governance must be expressed in a joint company project, materialized and made explicit in the strategic plan.
This "strategic alliance" then is a political, medium and long-term value agreement that integrates the different legitimate objectives of personnel and corporate governance, but based on a superior interest that is to build the shared future of the company itself.
This future "shared superior" is the very meaning of the strategic plan and therefore the expression of this alliance, of this common project of the company is the plan itself.
The joint company project expressed in the strategic plan is a dynamic agreement in relation to the company's mission and corporate objectives.
In short, it is the “what to do”, the raison d'être of the company towards where all the energies of the personnel are directed, synergistically practiced to create superior value to the one achieved, it is based on this strategic alliance, and without it there is no common company project and therefore, strategic plans are diminished and eroded.
Every strategic plan must be constituted from the common project of the company and be aligned with the corporate objectives and the mission to be fulfilled, which will be transformed into reality through actions and efforts carried out daily by all the personnel.
In this way, the company's human and intellectual capital and common intelligence are of interest in the strategic plans of companies in this century.
Strategic planning requires a set of actions that the company must put into practice, as already stated, to achieve objectives that are at least superior to the current situation.
These actions or action plans will be based on developing and identifying the possibilities of increasing business with current customers, entering new markets, innovating with new products and services to create value, developing suppliers that collaborate with the company to make it more productive and / or establish strategic alliances that allow it to be more competitive.
8. Management Control
As it has already been stated, 90% of the plans fail due to lack of application, which expressed in another way means scarcity or no management control.
Management control has become a vital aspect to guide disciplined efforts to optimize the achievement of the objectives of the strategic plan. Management control implies focusing on the executive lines that are responsible for the implementation of the actions that lead to the achievement of the objectives.
For this then we must set some signs that guide us and give us early indications if we are on the right path.
These signals are called management indicators that allow us to check if the real results are leading us to the objectives of the plan.
Management control also means making corrective decisions when indicators indicate that we are deviating from the plan.
It also means taking all necessary corrective actions.
In this way, management control becomes a system integrated into the strategic plan and is part of it, in the same way that the strategic plan is integrated into Management.
The integrated management control system reviews and evaluates the corporate governance performance of executives and staff, compliance with corporate objectives, functional operational business units in terms of the contribution they make to compliance.
The indicator system allows us to establish the signals or alarms that allow us to act on the go and with enough time to reverse deviations in order to detect problems and needs when necessary and not "after" when there is practically nothing to do.
The integrated management control system is the indissoluble feedback to the strategic plan and acts rather to help you achieve the objectives, rather than a coercive system that is the traditional approach to control.
In recent years, a system has been developed that allows and facilitates the management control process that has been expressed here.
This system is called The Balanced Scorecard and has been developed by professors Robert S. Kaplan & David P. Norton from Harvard University and its greatest value is to harmoniously integrate the strategic plan and the management control system so that in a way Corporate governance can quickly and globally analyze the progress of the company and its businesses, through a reduced set of four strategic areas expressed in objectives and in turn transformed into indicators.
The strategic areas, where objectives must be set, are four:
- Strategic financial area Strategic client area Strategic area internal business processes Strategic area of innovation, continuous improvement and qualitative growth.
The objectives of each of these areas are transformed into indicators or signals and these are reviewed through a management dashboard at each level of the company.
The Balanced Scorecard system and management control boards are based on current computer technology, so they can be viewed day by day online through computer screens that are accessible to all managers, executives and responsible lines of command., giving great agility to management and an objective measurement of the contribution of each executive to the achievement of the objectives of the strategic plan.
9. Synthesis and Conclusions
Strategic planning
Strategic Planning is essentially the creation of a ductile and comprehensive system of objectives, as well as the approach of alternatives that allow the company and its executives to achieve them.
The achievement of the stated objectives allows the company to fulfill its mission and its vision and its businesses.
A Strategic Plan without objectives or with fuzzy objectives, is a set of wet roles that do not serve to act, although the strategies are very well defined or the procedures to which the preparation of the Plan was limited, are rigorous.
It is also not appropriate for a plan to contain too many corporate objectives (experts recommend no more than four a year) because an excessive number of objectives implies dispersion of human efforts and resources that lead to the unproductiveness of the company.
Concentration on a small number of specific objectives, widely known throughout the company and clearly established, increases the probability of success of the plan and the performance of its management team and corporate governance.
Strategic Planning is an essential part of Management, it is not something different or separate.
Management is the definition of the mission and fundamental corporate objectives and allows the management team to mobilize all human energies, knowledge, attitudes and competencies to achieve these objectives and the mission.
Management is also decision-making and action that mobilizes all the resources of the company: capital, money, equipment, technologies and systems at the service of the objectives.
The only ones who make decisions and allocate resources in the company are corporate governance and executives. Therefore, they are those who practice Management.
And they must be measured and evaluated by the impacts of their decisions on current and future results.
Strategic Planning also focuses on business objectives and each company has and must constantly review its own theory of its business.
Defining and clarifying the essential elements of business (Core Business), and the model to be practiced, is also essential for the success of the Strategic Plan and the derived business plans.
Strategic Planning must also include innovation, change and take advantage of opportunities, mainly focused on new customer needs and additional or cross services that improve the business.
10. Implementation: The fifth column
As the weakest point of any strategic plan has been raised, it is the implementation and control.
And both elements depend on the people who are members of the company or organization: These constitute "The fifth column" in reference to the Republican general who defended Madrid in the Spanish Civil War.
When the opposing troops advanced on Madrid to conquer it, this republican general asked his officers, paraphrasing his words: "How many enemy columns attack us?" And the answer was: "Four columns, my general." To which he replied: "I am not concerned with the four columns." I am concerned with the fifth column, that is, whether our officers and soldiers will follow the defense plan that we have designed. ”
This is the same situation that a Manager in the Company must face, since
Strategic Planning integrates personnel into a common company project and developing a strategic alliance with them is another aspect that must be considered in the process being analyzed.
However, there is an immense gap or “gap” between the mission and the objectives developed in senior management regarding what people are doing at the bottom of the organizational pyramid.
Strategic planning focused as outlined in this work, allows closing this gap and although many consulting companies such as the Boston Consulting Group, or academics such as Michael Porter or Igor Ansoff, formalized and developed the strategic theory for senior executives, it was never It brought the day-to-day activities of the staff in line with these broad global strategic approaches.
For this reason, the development of the Management control system called The Balanced Scorecard allows bridging and aligning the main global objectives and strategies (“what to do”) with (“how to do it”), which is the daily work carried out by the operational personnel on the lower levels of the structure.
Consequently, in order to link the strategic plan, the daily tasks and the common project - companies, it is necessary to delegate power and responsibilities at the lowest levels. This process is known as "Empowerment".
If information is also shared and “personal objectives” aligned with the strategic plan objectives are developed at all organizational levels of the company, a great driving force is generated that allows the objectives to be met with greater precision and improves overall performance, creating value through decisions, coordination and communication beyond classical evaluation and control.
In summary, the more intangible elements are included in the strategic plan, (although not everything can be written down on paper), the possibility of optimizing the objectives is greater.
Consequently, decisions based on the strategic plan to meet objectives must create value for the company through its intellectual - or intangible - capital, which is the only way to make physical or financial capital productive.
This is the greatest challenge that Management and Strategic Planning will have to face in the near future.
© Management Herald, Chile - Argentina.
Published with exclusive authorization for the seminars dictated by prof. José Ricardo Ibarra Gallardo.
