Strategic planning is more than a top executive's hunch about where the company is going and when. Or at least it should be.
It felt like I was reliving a scene from a grade-B movie. There I was, during last December's holiday crunch, standing amid a dozen or more seething parents all clamoring to get just one Nintendo 64 game for their kids. Attempts to grasp or clutch a new shipment of this winning toy were futile for many of us: There were none available.
After a couple of years hinting that it would start selling a successor to its super-successful basic Nintendo units (which sold 40 million units in the '80s), Nintendo started shipping its "N64" units toward the end of summer. But during the first weeks of December, the quality of Nintendo's strategic planning had to be in serious doubt, even if its new product was a blowout success.
In my local stores, all "N64" shelves were bare of product: Neither the interactive computer toy nor any of its accompanying games or accessories were available--for weeks! One Toys "R" Us customer-service clerk told me that he had more than 300 deposits from customers waiting for the interactive computer starter set to arrive. A Kmart salesperson told me that a shipment of 30 games received one Thursday evening was reduced to one game by noon the next day. An e-mail message sent to a major video-game store in the Southeastern United States yielded a quick "regrets" in return. "Sorry that we couldn't be more help to you, but those darn 64 games are flying off the shelves faster than anyone can keep up" zapped the salesman in reply. I sensed he was shaking his head in disbelief as he wrote the words. He must have been thinking, "Can't sell a product I don't have!"
Ultimately, my 12-year-old was the lucky recipient of relentless searching by her weary parents; it turned out to be an "N64" holiday for her, after all. But the strategic question remains for the rest of us to think about: How did consumer demand and manufacturer's supply get so out of whack, especially during such a critical buying-and-selling season?
If the management at Nintendo is like that at a lot of other corporations, it may be because the concept of "strategic planning" is fraught with misunderstanding. Strategic thinking is, for all its glamour, still a mystic art in most companies I visit. Too often, the strategic plan that a company follows comes down to one senior executive's hunch about what to produce, how to sell it and how much to ship. Business schools have been teaching the subject for years, and with dense textbooks and numerous articles and journals dedicated to the subject, now is as good a time as any to ask a simple question: Why is strategic planning so darn hard to pull off successfully?
To be sure, there are a few oft-quoted reasons that strategic planning seems to be clumsy and ineffective, especially inside the large corporation. Executives have complained that much of the strategic planning scholarship to date is aimed at "ground zero" companies: start-ups playing in an open field that don't need to regard the intricacies of the corporate world. Others have said that too many people are involved in their company's strategic planning process; others argue that not enough people are. I've lost track of how many managers have said that the strategic planning process inside their companies is too cumbersome, too ponderous, to be effective. It's as if the goal of some corporate strategic planning processes is only to produce a plan requiring six 3-inch binders to embrace. An impressive set of documents? Yes. Such planning muscle answers the question of "Where's the sheaR" But the "beef" has too often been lost before the real competitive game has started.
Even Michael Porter, the Harvard-based guru whose fame is inextricably linked to the word "strategy" (He's the one who wrote three books on the subject, totaling more than 1,200 pages.), felt compelled to write in the November-December 1996 issue of Harvard Business Review an article titled, simply, "What Is Strategy?"
The reason such a starting point question needs to be asked now seems to be Professor Porter's lament, that companies are failing to "distinguish between operational effectiveness and strategy." He claims that management tools, such as total quality management, benchmarking and time-based competition have supplanted genuine strategic thinking. Quite true--but then Porter goes on to lay out a convoluted blueprint diagramming strategic analysis in infinite detail.
The essence of strategy, however, seems to me much simpler. It can be represented, at heart, by the formula "O/C": opportunity divided by capacity. Each and every time I have personally witnessed a strategic misstep or blowout, it has invariably come down to managerial leaders not fully discussing and understanding the basic factors most affecting either opportunity or capacity. They often don't accurately read the most elementary strategic compass.
What's Your Opportunity--Really?
Having sat in meetings with managers blathering about the "incredible strategic window" that was about to open in the marketplace, I can attest to the reality of organizational hypnosis. As flipcharts and overheads flash, with pie charts invariably showing the manager's company capturing huge market share with staggering profit margins, it is disturbing to watch senior executives and junior managers alike grow starry-eyed at the sheer prospect of a strategic thunderbolt emanating from their factories and warehouses.
Opportunity analysis is simply the thinking through of how a company will obtain return for moving in a strategic direction.
One business financier, Victor Palmieri, made an astute observation about this somewhat routine corporate event: "Strategies are okayed in boardrooms that even a child would say are bound to fail" Said Palmieri, "The problem is, there is never a child in the boardroom." What this financier was driving at was the failure of management to ask five penetrating questions that everyone signing off on a new strategic thrust should be able to answer identically:
1. Is this a new product/service or a product/service enhancement?
A company must be sure how to position a new strategic initiative in the minds of those who will be buying it. For a new product, a customer asks, "Why should I want it?" For an enhancement, a customer needs to know, "What does this new product/service provide that I don't already have?"
2. Are we seeking new, expanded or leveraged customers?
A company must be able to discern its "customer target," whether it is seeking people who have never done business with the company before, whether it is trying to get more customers just like the ones it already has, or whether it is trying to take its existing customer base and balloon the amount of business it already does with this population.
3. Is it our design to create a new corporate image--or are we trying to advance our existing image?
Every company of any size at all has an image in the marketplace, whether it strives to compete on size, quality, price, speed or other special traits. Any proposed strategic launch must clearly establish a new face to the market, or support the image of the company that customers already have.
4. Does this strategy support an existing product/service line--or is this an attempt to manage value migration?
Countless companies have been stung by coming out with a better manual typewriter just as the world was migrating to computers. Managers must be precise whether their existing lines of business are being supported, expanded or abandoned by a new initiative.
5. Where and when will the market potential of this new product/service be realized?
A product destined to make "millions" is still a huge strategic gamble if it's unclear when customers will be inclined to fork over all this bounty. Millions generated "somewhere, someplace" after 20 years of effort is, to be blunt, unappealing. Strategic estimates are, by their nature, never really accurate; but that should not change the requirement for someone proposing a new strategic direction to lay out, with some precision, who will be buying the product in what quantity.
There is, of course, always the danger that the above questions will be answered in a strategic review with assertions and opinions that are dubious because there are insufficient facts, illustrations or research data to support them. If a company wants to back a new strategic stab based on blind faith, so be it, but the company should know that it's doing so.
Yet the far greater danger to clear strategic thinking is not that corporate managers will bamboozle one another into strategic quicksand. There is a far greater chance that, instead, beautiful opportunity analysis will be counter-balanced by shabby thinking about capacity.
Now Can You Do It?
When Robert Woodruff was CEO of Coca-Cola, he said, "A Coke should always be within arm's reach of desire." Although his words of wisdom can be extrapolated to a strategic misstep, his advice conveys a bull's-eye point: There is little to be gained by creating a demand for a product or service that your company is ill-equipped to meet in a timely fashion.
If opportunity is all about how a company will net a "return," then capacity is all about how much a company will have to invest to make sure (or as sure as it possibly can) that it will deliver on the promise of its new strategic package.
Capacity requires managers to ask equally penetrating questions:
1. Have we the skills/people/technology?
Many strategic launches have been done without the required minds and/or bodies to deliver the goods. It's not always an issue of insufficient hiring. Many times companies overlook training their existing manpower as a fundamental way to boost strategic capacity. Increasingly, the answer to the technology question is "yes." But that answer merely begs the issue of the cost of acquiring new technology, what its own shelf life will be, and whether the new capacity it brings can be transferred to other products or services, perhaps already on line.
2. How much marketing/selling will this opportunity require?
Mousetraps (and Nintendo?) aside, it's rare to see people beat paths to company offers of new products and services. Thus, most companies need to spend dollars to find out what it is that customers want and how much convincing or appetizing will be needed to assuage consumer doubt and hesitance.
3. Can we deliver again and again--and again?
It is a credit to Henry Ford, when the first "Model A" came off the production line, that he gave ample thought to the fact he would not be successful by building one car: He had to be able to build thousands, and ultimately, millions of them. A company must be able to meet demand, anticipated and unanticipated, for when this has not been thought through, the most significant thing a company can make is angry and frustrated customers.
4. What are the upside/downside risks? What, then, are our true commitment costs?
Whenever a company commits to a strategy, there are always risks. On the upside, a great market success for a new strategic launch could cannibalize demand for your current lines of products and services. On the downside, unsafe products and/or rude, undertrained employees have landed many companies in the marketplace doghouse. Perhaps the key point is that, should a company commit to a new strategic direction, the true costs of that commitment need to be assessed and available for any reasonable contingency.
5. Do you have ongoing competitive advantage?
Closely connected to this area of inquiry is the source of capital to fund a strategic initiative. Often, this seems to be the area least researched and thought through. It's as if "the money will come from somewhere" is the answer to every strategic doubt. But every company's attempt to procure new business must be supported either from current cash flow, from borrowed dollars (even if the source of funds is actually retained corporate dollars), or from partnership/alliance treasuries (be it the selling of stock or an arm's reach to another corporation).
This is one area where the strategy scholarship has been invaluable to lots of strategic thinkers. But it, too, is a point of common sense rather than erudition. "If it were easy, then everyone would do it" is an axiom that many state during times of painful setback and disappointment. It's also something worth thinking about when plotting new strategic horizons. A company that invests heavily in opening the path for a new product or service that is easy to replicate is a company sure to soon lose its sleeves if not its whole shirt. Being unique in some competitive dimension that protects a company's investment is, in this sense, part of your capacity to deliver successfully. You need as few other competitors as possible threatening to rob you of skills, people, technology, parts--whatever is needed to dominate your chosen market.
Capacity, then, is what a company has to invest in toto to yield its projected return. The quintessence of strategy is opportunity divided by capacity.
Larger Voices Calling?
But let's not overlook the fact that, if you are planning strategy within a larger corporate organization, there are some crucial compass points that potentially influence the answers to all the above questions.
First, there may be issues related to corporate direction. If you are planning a 21st-century, high-tech rollout of a product that requires immense research and development investment--at the same time your corporation is devising a back-to-basics strategic umbrella, then think again. Computerized axles for cars and trucks probably won't be supported by a corporation that is more interested in building better steel beams.
Second, since many companies are owned, or at least supported, by investors (read: stockholders), any new strategic thinking has to account for investor psychology and patience. A billion dollars in sales is breathtaking, but not for investors who want a 20 percent profit margin on those sales, and want it in a year. Likewise, if the launch of your new strategic whiz bang veers the company in a direction which is deemed suspicious by investors (What television networks rushed into cable at the beginning? Why didn't the railroads pioneer the aerospace industry?), then you will probably face very tough sledding trying to get your first units ever sold and shipped.
Third, there may be social and political factors that need to be weighed very carefully. Many major corporations are lustily eyeing the population in China as a market of vast potential. Which it emphatically is. But the distinction between Communist China and the free-enterprise West is no small one. And the amount of time, and money, needed to quarry this marketplace mine may be overwhelming to a company without the patience of Confucius and the deep pockets of a Microsoft.
Lastly, what makes the world of strategy so exciting and enigmatic is that one can never be sure how competitors will respond. Sure, competitor intelligence has come a long way. But there are still elements of a good horse race in every strategic battle.
Strategically Straight Ahead?
Beta and VHS technologies emerged about the same time; the market battle was never a question of whether someone could out-Beta Sony; only by successfully establishing VHS as the norm did Sony's competitors leapfrog the best strategic thinking to make Beta No. 1. FedEx plainly didn't expect to see a facsimile machine in every office when it invested heavily in Zap Mail, which required you to hand-carry your document to a FedEx location and pay substantial dollars to get it faxed and delivered by FedEx personnel. And many insist, to this day, that the ease-of-use and technological underpinnings of the Macintosh make it the superior choice of discerning customers. The only problem is that Apple Computer is clinging to less than 10 percent market share. Plainly either customers want something Apple doesn't understand--or customers still don't understand what Apple has to offer.
Perhaps as a backlash to the abundance of strategic studies that have confronted us in recent times, there are those who insist that it's flexibility, not strategy, which ought to be revered and studied. "A strategic plan," these agnostics argue, "isn't worth the paper it's printed on. It's out-of-date before it's photocopied. Just keep moving!"
The most valuable strategic thinking is all about preparing your company to make a journey. There will be inevitable bends and turns in the road, and when you get to your chosen destination (unless you're very lucky), there will probably be others soon joining you offering their wares against yours. To those who scoff at sound strategic thinking, one can only reply that the longest journey really does start with some simple steps--like asking and answering key questions before you start to move. For a really l-o-n-g journey, no matter how flexible you are, try moving in the completely wrong direction.
The value of strategic thinking, then, is not that it will keep your company from making mistakes. You think strategically to keep your company moving in the right direction.
Tom Brown writes and speaks about managerial leadership. His company, Management General, is based in Louisville, Ky. He can be reached via e-mail at email@example.com or at http://www.mgeneral.com.…