Rethink Strategic Planning
Strategy, Execution, and Innovation are the growth disciplines for any company. These disciplines are usually practiced in an ad-hoc and disjointed way at great potential loss, but when practiced as a system, they can deliver over two times the growth performance when measured over a five-year period. That’s because the incremental value year-over-year compounds.
Let’s assume you are working at the business unit level. There are several strategic options to consider:
1. Do you want to sell the business? This is a great option when you fill the needs of a portfolio play from the outside. For example, if a PE firm or conglomerate is driving a vertical strategy and you fill a gap, they will pay handsomely as a strategic buyer.
2. Do you want to pivot the business? This is about applying strategy on the business and is a great option if you have low margins or you spot emerging trends that you can capitalize on. For example, Kimberly-Clark was 100 years old in 1970 when Darwin Smith was elected CEO. He decided to withdraw from the coated and commodity printing papers’ markets. That decision led to the sale of their mills and the introduction of highly successful consumer products, beginning with Huggies disposable diapers.
3. Do you want to grow the business? This is about applying strategy within the business and where most businesses design strategy. We will focus on applying strategy within your business here.
Setting the Growth Goal
You need to ask, does our strategy discussion lead or lag our financial growth target? Some entities, like Singularity University, promote having a massively transformative purpose (MTP), but these wild statements without linkage to “what can I do now” are hollow.
While it is very important to determine a company’s purpose, vision, mission, and values (PVMV), once core PVMV are in place, growth leaders launch strategic planning with financial growth targets as the future state guide. It really is that simple.
Environmental Insight
Many companies continue to use the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis matrix at the beginning of their strategic planning process and before the growth target is set. This puts the cart before the horse. When conducted once a year, it also fosters time situational bias and a low-quality understanding of your environment.
After your financial growth targets are established, you now want market, channel, and product insight. However, it’s advantageous and more cost effective to have an insight process that simultaneously harvests understanding from your macro, micro, external, and internal environments. Do you leverage scenario planning for your major strategies? And, what happens when your environment changes?
Evidence shows that organizations that tighten their Insight-Action loop outperform their peers. There are many ways to do this, but it requires a shift from the traditional Strengths, Weaknesses, Opportunities, and Threats analysis matrix. One simple approach is to assign the responsibility to the function leaders to synthesize their understanding of the various aspects of your relevant environment on a quarterly basis.
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Customer-Centered Strategy
With your growth goal and market insight determined, it’s time to allocate where the growth will come from and the investment required. Using an enhanced Ansoff Matrix is helpful for allocating your revenue and gross margin growth targets shown in Figure 1: Growth Allocation.
Each major growth endeavor may require a strategy. A lower mid-market company may have only one strategy, which could be to grow in its current market, while a mid-market company may have two to three. The maximum number of strategies a large business ought to have is five but the fewer, the better.
Once you decide on your growth strategies, you can map each one to its expected financial impact. You will have your current business growth strategy, then each of your new growth strategies, as in Figure 2: Mapping Strategies to Financial Targets.
Up to this point, we have not thought about the internals of the business. Our focus has been on external growth.
Growth executives think of problems in a positive light, they provide the organization with opportunities for problem-solving. Some problems may be discovered, such as process deficiencies. Other “problems” are actually purposefully created, such as strategies along with their accompanying financial measures. These are then set up to be solved throughout the next horizon. In order to do so, people development programs have to become a cornerstone of growth companies.
Transformation Objectives
With business strategy designed, the organization must create objectives that, when met, will enable the organization to meet the desired growth strategically and financially. This linkage is what consultants call the Strategy-Execution Gap. In reality, there is no gap, just a flawed strategy development process. In one sense, the objectives are function level or value stream strategy. Objectives aren’t business strategy but they are your means to growth and set the stage for execution.
Once again, operational-focused executives create a flat set of objectives and in many cases with key performance indicators (KPIs) detached or missing. This is a big mistake because an objective with its set of measures constitutes the goal. Not connecting them causes confusion. An even bigger issue is when the constraints in the customer-facing value streams are not addressed. In Figure 3: Value Streams, the value streams of new product development, sales and marketing, and customer fulfillment each have a system constraint.
If your objectives with accompanying measures don’t address the constraints in your primary value streams, then your strategy will be compromised and return on investment (ROI) from strategic transformation will also be diminished. The compounding effect makes the damage to growth significant. This is a critical point because the key to increasing value growth-rate is to always be attacking the system constraints in your primary value streams. By default, this will require you to have a robust people development plan that addresses growth.
Growth-focused executives understand this point very well.
Execution Speed
With a great strategy in place, it all boils down to execution. We will address ways to accelerate execution in an upcoming article. Suffice it to say, though, the limiting factor in execution is the focus, capability, and capacity of your people. Therefore, you want to work on the highest priority initiatives relative to strategy. The game changes from an ROI justification to a time-based model when you’ve identified your strategic constraints. This means initiatives that eliminate or lower your system constraints should be implemented as soon as possible, even if you need outside expertise at higher cost. In addition to eliminating your primary constraints faster, you want everyone engaged and empowered to drive improvements broad and deep in the organization.
To succeed at accelerated growth, you need automation, similar to how you need automation for sales, operations, HR, or finance.
Conclusion
Doubling your value growth-rate is not difficult and the payoff is huge, but it requires a shift from focusing on operating the business to strategically transforming it, see Figure 4: The Leader’s Dilemma.
The execution skills required are different but can be taught. It starts with strategy design, though. More importantly, it requires the recognition that you have three growth disciplines: Strategy, Execution, and Innovation. Their power increases exponentially when practiced as a system. We only addressed Strategy in this article. Stay tuned.
About Pivotal Innovation
Pivotal Innovation’s purpose is to empower leaders to grow value faster by automating the growth disciplines of Strategy, Execution, and Innovation with our Pivotal Innovator™ platform, combined with acceleration support services. Contact us for a Value Growth Discussion at https://calendly.com/kevin-fallon/15min.
We want to help you grow value faster for lower cost!