External vs. Internal: The Difference between Strategy and Planning
As we enter the first days of October here in Minnesota, the leaves are turning, football is back and our clients are diving deep into their strategic planning for 2017.
When the concept of strategic planning arrived in the business world in the mid-1960’s, corporate leaders embraced it as “the one best way’ to devise and implement strategies, according to Henry Mintzberg, the internationally renowned academic and author of ‘The Rise and Fall of Strategic Planning’. By the mid 1990’s amidst the dot.com bust, however, strategic planning had fallen from its pedestal and planning departments were being dismantled.
“Strategic planning is not strategic thinking. One is analysis and the other is synthesis.”
– Henry Mintzberg
Mintzberg explained that strategic planning had become, “strategic programming, the articulation and elaboration of strategies, or visions, that already exist.” On the other hand, he wrote that strategic thinking is about capturing what managers learn from all sources (including both ‘soft’ insights from experiences and observations as well as ‘hard’ data from market research) and then synthesizing it into a vision of the direction that the business should pursue.
In his 2014 HBR article ‘The Big Lie of Strategic Planning’ University of Toronto Professor Roger Martin laments that “strategic plans all tend to look pretty much the same.” They have three major parts: a vision or mission statement, a list of initiatives, and a conversion of the initiatives into budgets. While they may produce better budgets, they are not about strategy.
|Internally focused: planning, costs, capabilities||Externally focused: customers and competition|
|Controllable||Uncontrollable in long-term|
|Accurate, predictive||Imperfect, directional|
|Risk elimination||Risk management|
|Objectives, steps, timelines||Placing bets|
Strategy is about what we choose to do as an organization (and not to do) and why. It is about where to place ‘bets’. Strategy focuses on the revenue side, where customers make decisions about whether to give their money to us, to our competitors or to a substitute. This is the hard work of acquiring and keeping customers. It is uncomfortable because our customers are making the decisions, not our own organization.
How to escape the comfort zone: embrace the angst
Because the problem is rooted in our natural aversion to discomfort and fear, Martin writes, “the only remedy is to adopt a discipline about strategy making that reconciles you to experiencing some angst.”
How can we stay focused on strategy this planning season and not fall into the trap of planning and cost budgeting? Some tips:
- Focus on choices that influence revenue (i.e.: customer decision makers). This boils down to just two basic choices: 1) where-to-play (which buyers to target) and 2) how-to-win (how to create a compelling value proposition for those customers). Customers will decide whether or not our value proposition is valuable and superior to competitors’, and whether or not to reward us with revenue.
- Acknowledge that strategy is not perfect. Managers and boards need to shift their thinking to focus on the risks involved in the strategic choices (i.e.: placing bets) rather than insisting on proof that a strategy will succeed.
- Explicitly document the logic. The assumptions about customers, industry, competition, internal capabilities, and others that drove the decisions should be documented and then later compared to real events. This helps to quickly explain why a particular strategy is not producing the desired outcome.
- Invest in data-driven decision making. Placing bets inherently involves risks. Because strategy is not perfect and risk cannot be eliminated, the objective is to increase the odds of success by understanding and managing risks. This is where knowledge and insight into customer needs and competitive offerings and dynamics provides tangible value.
Of course, successful strategic planning occurs when both strategy and planning are aligned. The strategic “sweet spot” is the value proposition that meets customers’ needs in a way that rivals can’t. It must include both the external view of customers and competitors and the internal view of our own capabilities.
When the core elements of strategy are aligned (customers – competition – capabilities – mission/vision), and when decisions are driven by solid external knowledge, organizations can confidently place its strategic bets in a way that both grows revenue and delivers it in a way that is profitable for the company.