SFO Blog - Helping You Build Your Company into a Strategy Focused Organization

Why it’s Time to Retire the Annual Strategic Planning Event

We’ve been doing it in business for quite some time and it’s quite possible that your organization has just gone through it recently in the run up to the end of the fiscal year and the beginning of the next. You know what I’m talking about - the annual planning event. That yearly ritual senior executives and their organizations go through, often over the summer months, to re-define the business strategy moving forward for the next three years or so.

However, while we have settled into this approach to “doing strategy”, we’ve become blind to, or have just decided to tolerate, the problems associated with it. For example, many people will point to the fact that strategic plans created this way are often stale when the time comes around to finally execute them. This is a fair comment because many annual strategic planning exercises can take as long as 6 months to get through – it’s no wonder that the plans they produce feel a little behind the times when you finally get around to putting them into action.

Another problem is that this approach can suck up significant organizational resources for an extended period of time getting in the way of the work that keeps your company operating, satisfying your customers or stakeholders, and producing the business performance results you want. In fact, what gets started is this weird effect where companies and their key resources (i.e. senior executives, business unit heads, and department leaders) spend 6 months of the year overly focused on strategy with the remaining 6 months spent focusing on the “doing” part of the business. Have you noticed this in organizations that take the annual approach to strategic planning? I think that if you were honest, you’d agree that this isn’t too far from the truth. All I know is that when I worked in the corporate world, everyone was relieved when strategic planning was finished so that they could get back to the backlog of everyday work that sat on the backburner while the focus was on strategy. The impact of this is that strategy rarely gets discussed through those 6 “off” months and, when it does, it’s usually because some KPI has gone off the rails and an element of the business is in crisis mode.

 

Basically, the annual approach to strategic planning has a real risk of producing a business strategy that has increasingly lower levels of relevancy to the external and internal business environment over time, and it breeds an organizational culture that sees strategy making as a project that gets in the way of business operations and an activity/event that is disconnected from strategy execution. This is a recipe for strategy and business performance sub-optimization, which leads to business results that are uneven and often underwhelming over the long-term.

 

While the drivers of these outcomes are related to the problems I outlined above, they are not, in my opinion, the true root cause problem. The real foundational problem is that the annual approach to strategic planning turns a process that needs to operate like a continuous feedback loop into an event-based linear process – one that has minimal opportunities for input and almost zero potential for fine tuning along the way.

The reality is that the annual approach to strategy demands that the strategic plan that gets created once a year must be virtually perfect in its design so that it can hold up over the upcoming year. I believe that this need for perfection is just one of the reasons why so much time is spent during the annual strategic planning “event”. However, seeking perfection in anything that includes as many moving parts as a business does is impractical and virtually impossible.

 

So here’s the thinking behind my assertion that strategic planning (and strategy management) needs to work like a feedback loop:

The external business environment changes (the economy and technology are just two areas we seem to be acutely aware of right now), as do your customers/stakeholders and their needs and expectations, and your competitors, other players, and partners in your marketplace. Your internal environment is changing as well. Your employees, their skills, your organizational culture, and the capability of your processes and equipment change over time, often at different rates, and not always in a way that positively impacts your organization.

The truth is that your company is a living system existing in a changeable environment. Nothing is static – the entire ecosystem that your business operates in is dynamic. As a result, your business strategy must be adaptable if it’s going to stay relevant as a roadmap for moving forward and making the progress you want to achieve.

The solution? Break free from the sub-optimal annual planning event and embrace the “thermostat approach” to managing your strategy!

 

The Thermostat Approach to Strategy

With this new approach to strategy you don’t do away with strategic planning – you simply move from a mindset where you talk about strategy on an annual basis to one where you focus on strategy making and execution (aka. strategy managment) when required and/or, at minimum, on a quarterly basis. Essentially, any time a change occurs in either the internal or external environment, an organizational discussion occurs to assimilate and analyze the change, explore its impact on strategy and/or the best response, and determine what changes to the strategy are required (if necessary). Sources of this feedback can include your business performance metrics or balanced scorecard, customer/stakeholder feedback, competitive intelligence, and economic trends and projections (just to name a few).

However, even without the stimulus of a change, this new approach to strategy requires a quarterly check on actual conditions and performance versus the conditions and performance outlined in your business strategy. Doing this regular maintenance on your strategy gives you the opportunity to apply strategic learnings and improve your strategic plan in a responsive (or even pro-active) way that will almost certainly enhance the quality and value of your strategic plan as a roadmap for your company’s ongoing success.  

 

The objective of the quarterly strategy execution/strategic plan review meeting is to ask and answer six critical questions: How have our strategic objectives been performing over the past quarter?; What have we learned?; What are the implications for strategy execution?; Are we moving forward/Are we moving in the right direction?; What are our key strategic issues?; and Are any changes in direction/strategy required?. Basically, over, at minimum, four 2 -3 hour discussions held during the course of the year, you keep your company’s strategy current and relevant in an evolving business and operating environment.

It actually turns out that companies that change to the thermostat approach to strategy management often spend less time on strategy formulation/refinement AND considerably more time on strategy execution and management than those that take the annual approach to strategic planning. In fact, the overall time spent on strategy often decreases with this new approach, however, the time that is spent on strategy is higher in quality and of greater value because it translates more reliably into the achievement of consistently better business results.

 

It is important to note that if you are going to make a successful change to the thermostat approach to strategy management, you must also make similar changes in the business management processes that support the execution of your strategy. These include your budgeting, KPI target setting, individual performance goal setting and management, and human capital management processes. You will only be able to achieve the maximum benefits of this new approach to strategy formulation, execution, and management once you make these additional process changes.

 

The biggest benefit of changing to the thermostat approach to strategy is the creation of a strategy-focused culture in your organization – one where everyone is so engaged with your business strategy that they are making day to day work decisions that work with, not against, where you are trying to go and the business performance results you are trying to achieve. You reach this goal with this approach because strategy making, execution, and management combine to become an ongoing business process and feedback loop rather than an event. You also get there because more people from across your company get involved with your strategy through their contributions in the various feedback loops and discussion opportunities that exist.

But the biggest reason why the thermostat approach to strategy works is because it makes your business strategy a relevant roadmap and decision-making tool that employees at all levels of your organization can use to achieve success in their own work that contributes to the success of the overall company.

 

Though current business conditions demand that your organization becomes more agile if it is going to survive and thrive over the long-term, this isn’t the most compelling reason for retiring the annual approach to strategic planning. The benefits of changing from a strategy event to a continuous strategy process will be transformational for your organization, giving it the ability to actually achieve the strategic goals for your company. This should be the REAL motivator that prompts you to take the leap to this new approach to strategic planning and strategy management for your organization.

     

Measuring Success – Is GDP the Best We Can Do?

I had my own “Tedx” experience on Tuesday, October 23, 2012 when I spoke at Ignite Waterloo. In my talk I discussed how to deal with the complexity associated with defining and measuring success (and, more specifically, a country’s success), and explored just some of the alternatives we could consider when measuring success (and any other complex thing or idea you're trying to measure).

Watch the video by clicking on the link below and/or read the text of my talk here.   

Watch video 

 

"So, let’s talk about success. It’s something we all strive to achieve but what exactly do we mean when we think about success? Is there a uniform definition of success? What exactly does success look like and how do we know it when we see it?

If I asked any of you what your definition of success is, here’s just a few of the things you’d probably talk about: your family; hopefully satisfaction at work; your health; having a roof over your head. The bottom line is that success, and how you measure it, is kind of complex. It’s so complex that if I tried to evaluate your personal success using just one factor, you’d probably tell me that that’s a bad approach

So, why is it that when it comes to countries, we seem to be ok with evaluating success using just one metric – GDP? We seem to have settled into evaluating the success of nations using one factor – an economic one. How did we get here?

Well, we can all thank President Herbert Hoover for getting it started. After the Depression, Herbert needed a way to keep track of the recovery and growth of the US economy. GDP was what he came up with. Since then, GDP has grown to be considered to be THE indicator of the economic progress of a country. This slide shows how it’s calculated. In essence, governments and businesses look to GDP to provide a temperature check on the health and wellness of a country and its economy.

But did you know that “consumption” includes the depletion of natural resources? That creating more garbage is a good thing? That GDP goes up with increased pollution? That crime is viewed as an economic benefit? That debt is positive? And that disasters like Hurricane Katrina are actually counted as a plus for the economy? When you look closer, GDP just doesn’t feel like success to me.

Here’s the problem: GDP doesn’t distinguish between financial transactions that contribute to and diminish well-being. It doesn’t distinguish between costs and benefits so it’s a blunt instrument at best. In fact, economists have been saying that GDP is a bad metric for a long time. But here’s the more important question in my mind - who says that focusing on the economy is the best take on a country’s success?

Success is a complicated idea. And here’s the problem when you try to simplify the complicated. When you oversimplify the complicated stuff the wrong stuff gets measured and the right stuff gets missed. So, the solution is to work with the complexity when it comes to defining and assessing a country’s success. And that’s exactly what the 4^th Dragon King of Bhutan wanted to do. In the early 70’s, he wanted to modernize his country but he wanted to measure success on his own terms - the Gross National Happiness Index was what he came up with. 

It includes: Spiritual and psychological balance and well-being; Physical health; Education; Preservation of culture and cultural identity; and the Use of time for work, leisure, and to benefit society. It also includes: Good governance and the population’s perception that their government is honest and effective; Community vitality; Environmental diversity; and the Standard of living. Specific measures within each dimension have been developed in consultation with citizens.

GNHI combines objective, quantitative measures with subjective results gathered through surveys (which drives some people crazy by the way!). But here’s the thing. More countries like France and the UK are taking a second look at replacing GDP with something like GNHI. Or one of these: the Better Life Index, which focuses on welfare outcomes, or the Happy Planet Index which looks at human well-being and environmental impact. Regardless of which approach you take, there are two things they all have in common. 1 – they look at a bunch of variables that contribute to success and resist the temptation to boil it down to just one measure.  And 2 – they take the big picture approach to defining success rather than taking the narrow view that it all comes down to money.

I guess what I really want to come back to is the problem of simplifying the complicated. Look at this little do-dad! Is it a toy? A counting device? A puzzle?  Maybe to give it a fair shake we just need to take a more sophisticated approach to evaluating it. Here’s what I’ve learned: when you want to measure complicated things it’s best to figure out what’s in and what’s out before you start trying to measure it. If you just sit down to talk about complicated ideas and get agreement on what’s in and what’s out you can solve a lot of problems and produce really great results.

So, let’s go back to the definition of success. What does it mean when we’re talking about Canada? What does it look like and how should we evaluate it. I think that the time is right to have a chat about it because, given the state of the world, GDP is continuing to get a bit of a free ride. So let’s get the conversation going – you, me, and everyone in this country. The conversation won’t be easy but it’s critical and the time is right. What does a successful Canada look like and what does it mean to you?

It’s time to talk!"

 

What do you think? Should we continue looking at GDP as our primary measure of success? What alternatives do you prefer? What should/does success look like for your country? How do you feel about the growing disconnect between GDP and indicators of the population's well-being? What's the solution?