Strategic Planning: A New Look at an Old Process

Strategic planning is not something that only large companies do.  Smaller and medium-sized companies are just as likely to be doing it as larger companies.

There is a link between a companys market position and whether or not a strategic planning process is in place.  The research cannot prove a causal relationship but it does suggest a link.  There is also much research to show the connection between market position and the profitability of a company.

Lack of time is the major reason for not doing strategic planning.  Even though there is an apparent connection between market position and the presence of a strategic planning process, this still does not overcome the effort it takes to do planning.  There is a need to rethink, or perhaps even reinvent the process of strategic planning.

Having external facts about the market place is an essential element of effective strategic planning.  Customer research (formal or informal) and competitor analysis are frequently used tools in strategic planning to support this.  Having formal conduits that provide an unbiased view of the external world appear critical to a sound strategic planning process.

Strategic planning is seen as an important management practice but it does not seem to be living up to expectations.  Our research does not provide satisfactory answers to this conundrum.  Perhaps it is related to a need to reinvent the process itself.  Perhaps expectations for planning outcomes are unrealistic.  This bears further examination in future research.

Where Are We With Strategic Planning? 

As strategy consultants working with middle-market companies, we find strategic planning to be a somewhat alien subject to many clients and prospects.  Many companies have no plan in place or if there is a plan it is only the sketchiest of efforts.  When we ask employees in our client companies if they are aware of the strategic plan or key elements of the plan (e.g., vision, mission, objectives, etc.), the typical response is "no". 

The problem of limited time being devoted to strategic decision-making and implementation is not confined to middle-market companies.  A benchmarking study begun by Hackett Benchmarking Solutions in 1991 and continued since that time shows that in the 1,300 international companies which make up their study, managers across a wide variety of functions spend very little time on strategic decision making.[i]  Rather, these managers are spending a great deal of time doing what the authors of the research call "operational scut work". 

To better understand how strategic planning is, or is not, being applied in middle-market companies, The Daniel Group conducted a survey in early 2001 from the firms web site.The survey questionnaire was available from mid-February through April 1 of 2001.  Forty-nine companies responded to this survey.  In this report, we will share what was learned from this effort. 

What Types of Companies Are Doing Strategic Planning?

Of the 49 companies responding to the survey, 25 have some type of strategic planning process in place.  These companies with a strategic planning process in place are not just large companies, as the chart to the right shows.  Among smaller companies (sales less than $5 million), 53% of the responding companies have a strategic planning process in place.  Though the sample size is small, it is interesting to note that having a strategic planning process is not universal among the largest companies (sales greater than $200 million) as only 71% of responding companies in this size category have one in place. 

The stronger a companys market position, the more likely a company is to have a strategic planning process in place.  Among the companies with a strategic planning process in place, 70% have relative market positions in either the first or second quartile (top 25% or next 25% of competitors).  Among those companies without a strategic planning process in place, the percentage with a market position in the top two quartiles is 45%.  The question as to whether the presence of a strategic planning process help these companies establish more dominant market positions or it is simply a management practice associated with those companies with strong market positions is not answered by this study.  It is certainly a question to be answered by later studies.

Whether sales are developed more locally (i.e, within the state in which a business is located) versus out-of-state (ie, regionally, nationally, or internationally) was one factor that we thought would influence whether or not companies have a strategic planning process in place.  Companies generating the bulk of their sales from outside their local state are no more likely to have a strategic planning process in place than those companies whose sales are generated primarily in their own backyards.  Our assumption was that as the areas from which a companys sales are generated becomes more geographically dispersed, this increases the need for having a strategic planning process.  This assumption is not supported by the findings. 

Why Are Companies NOT Doing Strategic Planning?

For those companies not doing strategic planning, we wanted to know why.  Our hypothesis was that managers did not see value in strategic planning and, therefore, were not doing it.  As the chart on the following page shows, the predominant reason (more than 50% of responses) for not doing strategic planning was lack of time followed by other reasons, and satisfaction with the companys current financial performance. 

This finding suggests that there may be misunderstandings about the nature of strategic planning by those not doing it.  Managers in these companies may perceive the practice to be cumbersome, time-consuming, and something that does not mesh well in their busy schedules. 

Strategic Planning Practices in Use Today

We wanted to know something about the approaches that companies are taking to strategic planning, so the survey included extensive questions about this area. 

Strategic Plan Planning Approaches and Practices: 

Among those companies that are doing strategic planning, 84% indicated there is a formal process in place.  The balance of respondents indicate they have a strategic plan but it is, in the respondents view, an informal plan.

48% of these companies involve all levels of management in the planning process.

40% review strategic plans annually and 20% quarterly.  The remainder review the plans either monthly or every 2 to 5 years.

Techniques Used in Strategic Planning

There are three planning techniques that are the most frequently incorporated into the strategic planning process.  These are:

Customer research (80%)

Competitor analysis (68%)

Performance benchmarking (52%)

Only one respondent indicated using employee surveys as a strategic planning technique.  Sixty-eight percent of companies with a strategic planning process in place indicate consultants are used. 

Importance and Effectiveness of Strategic Planning EffortsPerceptions

The stories about failed strategic planning efforts are legend.  Managers tell us that either the process didnt work or there was no implementation or follow-through.  But the results suggest companies are having a different, and seemingly better experience than conventional wisdom suggests.  Consider the responses to several questions:

Importance of strategic planning to the success of the organization:  On a 1 to 10 scale, respondents with a strategic planning process gave a mean rating to the importance of strategic planning a 9.4 (10 means very important).

Satisfaction with strategic planning process:  Among the twenty-five companies with a strategic planning process in place, the satisfaction is relative high.

Very satisfied with the process

3

Satisfied with the process

11

Neutral about the process

11

Note:  Only 24 responses.

Effectiveness of strategic planning process and resulting implementation:  Respondents also rated the effectiveness of the process and resulting implementation relatively high.  The rating for implementation effectiveness was slightly lower than for the effectiveness of the planning process.  The implementation "piece" is the one that often trips up companies.  When asked to identify the obstacles that inhibit effective strategic plan implementation, the two most frequently chosen responses were:

No follow-through (56% of respondents)

Lack of time (56% of respondents)

Respondents from those companies with a strategic planning process in place see it as quite important to their companys future success.  The satisfaction level is relatively high.  It also should be noted that implementation efforts fall short of what is desired or perhaps needed.

Does Strategic Planning Have an Impact on a Companys Financial Performance?

The survey included several questions about the responding companys financial performance.  These questions were asked of respondents with and without a strategic planning process.  We can look at the responses of those doing strategic planning and those that are not and determine, at least to a degree, if having a strategic planning process in place has an impact on the bottom line performance of a company. 

Satisfaction with Company Financial Performance

Respondents from those companies with a strategic planning process in place, express a higher level of satisfaction with their companys financial performance than those without a strategic planning process.  It is worth noting that four of the twenty respondents not doing strategic planning indicated they were very dissatisfied with their companys financial performance. 

Financial Performance Relative to Others; Present, Past and Future

Respondents were asked to rate their companys financial performance relative to others in their industry.  The rating options were above average, average and below average.  The findings are:

100% of those companies with a strategic plan rated their relative financial performance as average or above average (23 respondents).  This compares with 78% of those companies without a strategic plan.  Interestingly, respondents from five of the companies not doing strategic planning rated their companys financial performance below average.

Respondents were asked about trends in historical performance (last three years).  The choices were "performance has declined", "remained the same", "performance has improved", or "not sure".  The findings are:

Respondents from 54% of those companies with a strategic planning process in place indicated their companies showed improved financial performance over the past three years.  Among those companies without a strategic planning process in place, none of the respondents indicated improved financial performance over the past three years. 

Respondents were asked about anticipated financial performance (projected to "improve", "remain the same", or "decline").  The findings were:

Respondents from 100% of the 25 companies with a strategic planning process in place expect their companys financial performance to improve or remain the same.  In fact, respondents from 24 of the 25 companies expect improved financial performance.

The respondents from those companies not doing strategic planning are only slightly less optimistic.  Eight-two percent of the respondents expect the financial performance of the company to improve or remain the same.  However, four respondents expect performance to decline.

What Can Be Learned? 

There are several important lessons to be learned from this research.  Most notable are:

Strategic planning is not just a "large company activity."  Our findings show that it is a management practice that is just as likely to be done in small and medium-sized companies as it is in larger companies.  If strategic planning is not a practice in your company, perhaps it is something to consider doing.

There is a link between a companys market position and whether or not a strategic planning process is in place.  While the research doesnt indicate a causal relationship, it does suggest that strategic planning is a practice associated with companies that have more dominant market positions.  If it doesnt cause a company to strengthen its market position, perhaps it allows the stronger market position to be maintained.

Time is given as a reason for not doing strategic planning.  Given the importance managers who do strategic planning attach to it and the apparent impact it has on a companys financial performance and market position, managers who are not currently doing strategic planning in their companies should consider it.

Having external facts about the market place is an essential element of effective strategic planning.  The fact that customer research (formal or informal) and competitor analysis are selected as frequently used tools in strategic planning support this.  This finding also shows the importance these companies attach to having an external focus.

Strategic planning is seen as an important management practice but it does not seem to be living up to expectations.  Why?  Our own experience shows that it is something that most managers do not understand very well or see it only as something with one purposecomplete a document that will wind up collecting dust on credenzas.  Yet, managers continue to try and make it work.

ConclusionsOur Perspectives

Somewhat to our surprise, strategic planning is very much alive in the companies that participated in our survey.  The degree to which it is done well is debatable.  In our view, it is time to seriously reexamine the practice of strategic planning.  In his book, Good to Great, the author, Jim Collins notes that one of the characteristics of those companies that move from simply good to great financial performance is a "council" that allows for dialogue, debate, decision, and analysis.[ii]  If that process is not present in your company or organization, perhaps it needs to be.  Whether you call it strategic planning or something else, it is needed nonetheless. 

[i] Management Review, New York, June 1999, Louisa Wah, pp. 27-31.

[ii] Good to Great, HarperBusiness, New York, 2001, pp. 114-116.


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