I got a call from an old friend who was in a panic. After years of success in technical, management, and sales roles he had been assigned to --oh my God-- strategic planning! He could not imagine a worse fate. When I asked why he felt this way about the assignment he told me that as a strategic planner he would have no impact on the business. Gee, and I thought that by definition a strategic planner would be highly influential!
In truth, I understood my friends angst. In my experience most of the management and technical community in a firm consider the "strategic plan" at best worthless and at worst positively dangerous. They consider the "planning process" to be a politically charged waste of time with different interests competing for resources and control. If the organization respects the planning staff (as they did my friend) then they pity them for having the assignment forced on them. If the planning staff has not earned their "chops" in the organization then they are disrespected, ignored, and sabotaged. Not the best environment for motivated employees!
And yet the need for a plan cannot be denied. Somewhere there needs to be a place for the story of what the firm believes they can achieve and how they expect to achieve it. The audiences for this story include investors, customers, and the firm itself. Somehow, most firms lurch forward with a broken story or, perhaps, with a good story badly told, in their "strategic plan."
What my friend wanted, in addition to sympathy, were examples of truly useful strategic plans and planning processes. There are libraries full of books on strategic planning and reams of case studies describing successful plans and their creation. Some of these are undoubtedly useful. However, whatever insight these methods create they all share a fundamental limitation.
Strategy, and therefore strategic planning, describes how the firm's resource allocation decisions made "now" will produce results in the future. To accomplish this the strategist needs to develop a causal hypothesis of the processes that, over time, turn resources into results. I believe the most fundamental reason that strategic planning activities produce indifferent results is that strategists choose inadequate tools to develop, test, and communicate how they believe the cause and effect system, which is their business system, works.
Often, as strategy is developed, there is a lot of good thinking by knowledgeable, dedicated folk; yet the resulting plan falls short. Why? The usual suspects are at hand -- Powerpoint bullet slides and Excel spreadsheets buttressed by a financial reporting mindset. None of these tools has the power to describe cause and effect over time. As a result, the quality of thinking drops to the level of the tools.
My proposal to fix this is to build the strategic planning process around a sound dynamic simulation model of the enterprise. In my experience well written "Enterprise Models" are amazingly prescient about the pattern and value of results that the firm can expect in the future. I am continually surprised by how accurate and insightful "enterprise" models can be over the 2-5 year horizon.
Unfortunately, for reasons that are obvious, firms that create and use these models (as well as the firms that create and don't use them) very seldom publish their models or their experiences with them. An exception is General Motors' excellent model of the Onstar telematics business published as "A Multimethod Approach for Creating New Business Models: The General Motors OnStar Project" by Barabba et al published in Interfaces Vol. 32, No. 1, January-February 2002, pp20-34. (If you can't locate the paper drop me a note and I'll send along a copy). The strategic planning and modeling process described there contributed to a very successful business that has developed just as described in the resulting strategic plan. In this case, the team had to describe a business that did not yet exist in an industry that did not yet exist. If this can be done successfully then it seems as though enterprise models of ongoing concerns could be usefully created and in fact this is true. Enterprise models that I have been associated with have delivered excellent results over 5 year periods even though there have been significant, unpredictable events such as the 9/11 terrorist attacks.
Personally, I find it amazing that good predictions can be made over this time period in the face of significant uncertainty in the environment. Every forecasting manager knows that they can't predict what is going to happen tomorrow much less 5 year from now. How can this work?
The key is that every ongoing business is driven by a set of underlying feedback processes. I call this the structure of the business. When these processes are understood and combined with a reasonable amount of data the likely trajectory, or behavior, of the business can be simulated. A simple example of one these underlying processes driving a business goes like this: investment in R&D produces new products that produce new sales that produce profit that can be re-invested. There are many others and they can be mapped and simulated using "complexity science" tools.
To a large extent it is how these feedback processes are managed that determines the future results of the firm. So, in a very real sense, firms create their own future. But, too few firms invest in gaining a deep understanding of the underlying structures creating their future and so do not develop and nurture them to the extent they could or should. Instead, they attribute their results to factors outside of their control.
Supporting this, a number of well known academic studies report that by far the most important factor in the ongoing performance of a firm are the resource allocation choices that the firm itself makes. See this issue of the Strategic Management Review for a number of interesting articles on the topic. The McGahan/Porter paper is a classic and I like Henderson's as well.
Of course a good strategic plan is more than a good simulation model. A plan implies that the management team responsible for allocating resources has identified actions consistent with the insights from the modeling and are acting accordingly. I call this connection "actionable insight" (I am sometimes chided for this phrase as "Dilbert speak" -- what do you think about it?). Often, in my work with clients I find that the simulation model challenges their existing beliefs about the effectiveness of their current choices. Even though clients can find no flaw in the logic of their enterprise model they will not take, or are not capable of taking, actions consistent with its implications. So, of course, good simulation models are not a substitute for good management practice and thinking. It is simply a tool to help deliver the results.
So what happened to my friend? After we talked this over he observed that the "Cause-alities approach" is more than a strategic planning process. It is a way of thinking about the business. And the modeling component is best pursued in advance of the assembly of a strategic plan. In the short term he has indeed gotten stuck producing low value plans. But, for the future . . . .
