Countless books and articles have been written about the importance of effective strategic planning. But how do you judge its quality? Like any other process, you evaluate the goodness of the output(s) against the expectations and requirements of the customers of the process.
The Customers of Your Strategic Plan
So, who are the customers of your strategic planning process? And what are their expectations and requirements? If you’re publicly traded, even your shareholders are customers of your strategic planning outcomes. They expect growth and profitability to protect their investments in you. Your actual customers are customers of your strategic planning. They expect you to continue offering newer, better products and services and to outpace your competitors. Your suppliers are customers of your strategic planning. They expect you to continue to grow to provide their own revenue streams. Finally, your employees are customers of your strategic planning. And they expect your success in your marketplace to ensure continuation of jobs; financial results to provide for fair pay, benefits, and retirement; and growth to fuel opportunities for career development.
How Do You Evaluate Not Only the Process, But the Outcomes
I recently read an article that referenced a white paper from McKinsey & Company published back in 2011, so I looked it up. What surprised me was that it seemed every bit as relevant and insightful today as it did back then. “Have you tested your strategy lately? Ten timeless tests can help you kick the tires on your strategy, and kick up the level of strategic dialog throughout your company.”
https://mck.co/3FsjKWWThe accompanying research found 65% of the organizations they studied passed 3 or fewer of the ten tests, with only 10% passing 7-10 of the tests. These results suggest that the majority of organizations are vulnerable to changes in their operating environments and may lack the ability to achieve success now and in the future.
The Ten Tests
Test 1: Will your strategy beat the market?
The authors describe marketplace forces that drive a reversion to mean performance despite initially having a competitive advantage. These are often emulated by competitors when previous best practices (“delighters” according to the Kano model) become commonplace. So your strategy must continue to push you to the leading edge of innovation and quality.
Test2: Does your strategy tap a true source of advantage?
Competitive advantage stems from two sources. Positional advantage, which is seen in structurally attractive markets, favors the incumbents. Special capabilities is the second source of competitive advantage can be scare resources such as drug patents or leases on mineral deposits. Special capabilities tend to be specific in nature and few in number.
Test 3: Is your strategy granular about where to compete?
According to cited research, 80 percent of the variance in revenue growth is explained by choices about where to compete – geography and other types of segments. The authors suggest that the granularity should result in 30 to 50 possible market segments rather than the typical of around 5.
Test 4: Does your strategy put you ahead of trends?
To detect these trends, the authors suggest that you look at early adopters and how consumer behavior is shifting. Keeping an eye on technologies under development is also critical in changing the game.
Test 5: Does your strategy rest on privileged insights?
The authors share this insight, “In our experience, companies that go out of their way to experience the world from the customer’s perspective routinely develop better strategies.” They also recommend collecting new data through field observations or research rather than relying on the same industry reports your competitors also use.
Test 6: Does your strategy embrace uncertainty?
Four levels of uncertainty are defined:
Level one – a reasonably clear view of the future so that firm decisions may be made.
Level two – a company should prepare for a number of identifiable outcomes
Level three – possible outcomes vary across a range that is represented by a probability distribution
Level four – total ambiguity where even the probability of an outcome is unknown
Scenario planning is key developing strategy at Levels Three and Four.
Now I’m going to wrap up with the last four tests that are rather self-explanatory.
Test 7: Does your strategy balance commitment and flexibility?
Test 8: Is your strategy contaminated by bias?
Test 9: Is there conviction to act on your strategy?
Test 10: Have you translated your strategy into an action plan?
Addressing the Development of Action Plans
Category 2 in the Baldrige Excellence Framework is all about strategy. Item 2.1 focuses on Strategy Development, but Item 2.2 goes into detail on Strategy Implementation. I’ve always valued the balancing act in this category. The most brilliant strategic plan that sits on a shelf and gathers dust is every bit as useless as no strategy at all. A fundamental requirement of an effective strategy is in its translation from objectives to actions.
So, in addition to applying Tests 1 – 9 to your strategic planning process and the outcomes (your strategies), will you also apply Test 10 to see how likely you are to achieve them?
