Four Principles of Strategic Planning

Jan 04, 2007 3:01 AM  By

One of the best things about being a consultant is the opportunity to see so many kinds of businesses. Though different companies are certainly at different stages of their lifecycles, strategic planning plays an important role in all of them.

It is easy to get caught up in the day-to-day growth (or even survival) of a business and postpone strategic planning. Without strategic planning, however, a business will flounder. To keep from floundering, bear in mind the four main principles of strategic planning.

1) The value proposition In any business venture, there needs to be a proposition that creates value. This value is the foundation of the offering to the marketplace; it is the value that the market perceives in the offering by the business.

While we are all somewhat jaded by the “mission statement” fad of idealistic and vague statements during the past few decades, a business enterprise has to have a clear business proposition! As consultants, one of the first things we try to understand about a client is what the value proposition is. When it is difficult to identify, it often parallels poor or erratic business performance.

The value proposition is also the foundation for planning and direction of the enterprise and the unifying theme that keeps the founder(s) and staff on the same page and going in the same direction.

“Treat every customer fairly” is not a value proposition, it is a value. “We provide avid road cyclists with the knowledge to make the right choices in selecting bicycles and cycling gear, and with a selection of bicycles and cycling gear that has been carefully screened for high quality and functionality” is a clearly defined value proposition.

Principle 1: The clearer the value proposition, the more likely the business is to be successful.

Corollary 1a: A value proposition is not the same as corporate values; it is a clearly identified, fundamental principle that has value to the market.

2) Identifying core (and distinctive) competencies

The value proposition should be well-supported by competencies or skill sets of the business. To the extent that these competencies are unique, or that the company is particularly skilled in those areas, they create competitive advantage. There are classic examples of companies that have developed distinctive competencies and used them successfully: Dell with supply chain and logistics excellence, Apple Computer with user-centric innovation, Proctor and Gamble with brand management.

In the multichannel merchant arena, the competencies can vary, but, in all cases, they must begin with merchandising and the product offering. A catalog/Web merchant must start with a well-targeted product offering that gives it identity. In fact, there is no other competency that is more important: merchandise is king.

There are many other competencies that enable direct businesses to develop competitive advantage. Some provide exceptional customer service through their inhouse product expertise; others do a fabulous job of marketing and presenting their products to the market. When these skills are exceptional, they provide competitive advantage.

Just to participate in the direct marketing business requires many competencies. For example: being able to take orders through multiple channels in an efficient manner, being able to ship orders in a timely manner, and being able to cost-effectively target advertising. All of these skills are requirements, but all can be learned or outsourced. Those skills don’t provide competitive advantage, but lacking them is competitively disadvantageous. In fact, competitive advantage can be gained by a business that focuses on its distinctive competencies and doesn’t divert attention to activities that can be outsourced effectively.

Principle 2: A merchant business must have a strong core merchandising competency, but can learn or outsource many of the other necessary skills.

3) The strategic plan and management commitment Identifying the value proposition, distinctive competencies, and other core competencies is the foundation of the strategic plan for a business. Establishing a vision of where the enterprise ought to be in three years, supported by the value proposition, drives development of the strategic plan. The plan should set goals and identify the major steps necessary to get there.

A strategic plan crosses all departmental boundaries of a business. This can present a challenge for some businesses, but is ultimately a benefit. Going through a strategic planning process is a great way to build a team and gain consensus on objectives. There are two extremes that challenge the consensus-building process.

The first challenge is a business with a strong leader and a passive management team. It is too easy for the leader to set the business strategy, have management “agree” as they always do, but then have no buy-in or commitment. Worse, management may disagree but managers simply verbalize their views, giving them a personal “out” if the plans are not executed (the “I didn’t believe in this anyway” excuse). By far the worst outcome, however, is when the strategy is not challenged and refined by the team, and is sub-optimal as a result.

The other challenge is a business with strong, independently thinking managers. In this case, everyone has lots of ideas and shares them and the individual ownership of those ideas is so strong that it is hard for the leader to gain consensus. The team may eventually be forced to “agree” to the plan, but will not own it collectively.

The solution is to go through a planning process that starts with a “green light” session that involves key management from all disciplines, where all of the ideas go on the table, and vetoes are withheld until later. Then a process of review and challenge refine the plan. Finally, the result is specific goals and action items that require accountability of each manager.

When successfully done, strategic planning results in bringing the management team onto the same page, with buy-in, with specific goals for each manager, and with mutual support for the process. Ideally, there should be varied opinions on many aspects–but when everyone leaves the room, there is uniform commitment to the plan.

Principle 3: A strategic plan is of no value if it is not first challenged, then developed, and finally committed to by the management team.

Corollary 3a: A brilliant strategy that is not embraced by management across all disciplines has a poor chance of success.

Corollary 3b: A good, but not necessarily brilliant, strategy that is embraced by management across all disciplines has a good chance of success.

4) Measuring progress The part of the strategic planning process that makes everything work is measuring progress and comparing it to the plan. This is a critical step because it does two things: It gives management feedback on how execution is going, and it provides feedback on how attainable the plan is and what refinements are needed.

Think of the planning process as a circle that begins with planning, goes to execution, reporting of results, and then refinement of the plan and re-allocation of resources, all in a never-ending process.

Measurement extends to the choice of metrics that are viewed on a daily, weekly, and monthly basis. Of the hundreds of metrics that a direct marketing business can follow, the metrics that are used should:

1. Be actionable–metrics that cannot be acted upon are not useful.

2. Monitor the performance of core and distinctive competencies–these are critical to future performance and sustain competitive advantage.

3. Monitor the chain that supports the value proposition–this is the foundation of the business. Each point in the value chain should be evaluated.

Principle 4: Choosing the right metrics to monitor is key to successful execution of a strategic plan and to maintaining focus.

Ongoing strategic planning is important for a business and its management team. It provides focus and helps the team move in a consistent direction. It begins with a planning process, with identification of the value proposition and core competencies, includes team feedback and commitment, and is followed up with measurement and adaptation as results unfold. As the saying goes, “If you fail to plan, you plan to fail.”

Al Bessin is a partner with Lenser, a San Rafael, CA-based catalog consultancy.