Getting a Viable Strategy Out of the Strategic Planning Process
Dismay. Disdain. Despair. They’re the common reactions of executives to the words “strategic planning.” According to Wharton management professor Nicolaj Siggelkow, “It’s often viewed as a painful waste of time. But those feelings are legitimate, because at most companies and at most times, strategic planning processes do not produce strategies.”
The faculty director of Strategic Thinking and Management for Competitive Advantage continues, “Many firms — and many consultants — pride themselves on being scientific. They say their strategic planning involves a scientific process. They run lots of numbers, using a large, standard set of analyses they apply to every situation. But ultimately, when you have to make a decision, how many of those analyses are pertinent and how many are just nice to know? Most of the time only a couple are decision-relevant, but they are done thinly because they were part of such a large group. There’s breadth but no depth, and a lot of effort is wasted.
“Running a lot of numbers isn’t scientific, and it rarely gets results. But the other approach I see, which is explicitly anti-scientific, doesn’t work either. ‘Jam sessions’ in which out-of-the-box ideas are encouraged typically produce solutions that can’t be implemented. That’s a waste of time as well. There’s a very good reason those ideas are kept outside the box.
“What I propose instead is a model that is based truly on the scientific method: the creation of novel hypotheses and focused attention and resources on select analyses that help shed light onto these hypotheses. It yields better strategies, and it reveals the risks inherent in firms’ current strategies.” To overcome organizations’ tendency to get stuck quickly on incremental refinements of existing strategies, Siggelkow proposes a number of guidelines for the idea-generation part of the strategy process.
“To generate a set of truly distinct, plausible, integrated strategic possibilities, you need a diverse, cross-functional team. It helps to have people who didn’t create the existing strategy. Include those who will ultimately be charged with implementation. If it’s a large group, work individually first rather than in brainstorming sessions. You’ll generate a broader variety of ideas.
“Tell me three to five stories with happy endings for your firm. At this stage you’re not arguing whether the stories are valid, but they have to be internally consistent. And include your current strategy; it will be subjected to the same scrutiny, and you’ll gain interesting insights into the risks and rewards of sticking with the status quo.”
During the process, ask:
- Inside-out questions, including: What does our company do especially well that parts of the market might value, that might produce a superior wedge between costs and buyer value?
- Outside-in questions: What are the underserved and overserved needs in the market, what are the needs that customers find hard to express, and what gaps have competitors left open?
- Far outside-in questions: What would it take to be the Google, the Apple or the Walmart of this market?
Siggelkow stresses that a clear distinction must be made between this stage and the evaluation that will come later. “Consider odd, potentially interesting ideas. Most are probably bad, but to create an environment in which truly novel ideas have a chance to survive, don’t argue at this stage about whether they can be true. The best ideas typically won’t be generated in one day, so have patience to think about a range of possibilities. An important shift in mindset should occur on the team: what should we do becomes what might we do?”
How do you know when you’re done with this first step? Siggelkow notes, “First, the status quo doesn’t look like a brilliant idea. There is at least one other possibility that is intriguing enough to cause the group to really question the status quo. And second, at least one possibility makes most of the group nervous. It is sufficiently different from the status quo that it makes the group question whether it would be at all doable or safe.”
Subsequent steps of the proposed strategy planning process include identifying the conditions that would have to be true for each of the proposed possibilities to be a good one; the creation and execution of tests of whether these conditions are (or are likely to be) true; and the eventual selection of the possibility that seems to meet most conditions.