Why the Time to Check Your Strategy Is When It’s Working

Posted on April 15, 2013

Any company that has weathered the recession of 2008-2009 well should congratulate itself for exemplary performance amidst truly trying times. And with the stock market at new heights and the broader economy on the upswing, the leaders of many high-flying companies could not be blamed for feeling that now is the time to double down on their strategy. Yet ironically this could sow the seeds of trouble.

This lesson was brought home to me in a recent Alliance meeting.  One CEO’s firm, with a nine-figure top line, is growing at nearly triple-digit rates.  He and his team are working overtime to hire, train and serve customers.  Yet the board is pushing management for a full-blown strategic planning process.  Is this a waste of time—or worse, a distraction—given the rapid growth?  Two examples suggest not.

The first is Blackberry (previously known as Research in Motion Ltd.), whose once-ubiquitous Blackberry was an early leader in smart phones. Today, Blackberry is struggling to remain relevant and profitable as a one-product company amidst mega-firms.  The time for Blackberry to lay down a new strategy was before 2007, the year before its stock peaked (at 140) and long before the stock fell below 60 in early 2011 (it now trades in the low teens). 2007 was also the year that Apple introduced its iPhone, which upended the smartphone market that Blackberry had ruled.

The second example is JC Penney, which had long clung to the ever-narrowing market space between discounters and high-end department stores.  In what looked like a last-ditch effort to ignite growth, the company switched strategies with a new CEO in November 2011. The following year, however, its revenue plunged 25% and years of slim profits turned into a net loss of nearly $1 billion. Penney now needs a turnaround.  The new CEO, Ron Johnson (who had helped Apple become a hugely successful retailer in the last decade), won’t be the one to lead it. He was fired.

Companies that make a big shift in strategy need to start early, long before a crisis envelopes them. That will increase the odds that they plan carefully.  Success on short-term execution is no guarantee of longer-term stability and growth.

So what is the problem that runs through such companies? It’s that they aren’t rigorous about strategic and operational planning, often don’t realize the difference between the two, and even if when they do, they don’t connect them well. In the most successful companies I’ve seen, CEOs separate strategic from operational planning and set a cadence for each.  They call out predetermined early warning signs focused on underlying assumptions that can trigger a reevaluation of the strategy.

While all company leaders think about their strategy, the level of formality varies greatly.  Many firms blend strategic and operational planning into one process (often referred to as business planning).  Some emphasize operational planning but aren’t rigorous about long-term strategic planning.  Others spend hundreds of thousands of dollars on big consulting firms to assess and capture the macro-economic trends and competitive shifts, but don’t translate it well to actionable tactics.  Still other leadership teams work hard every day but don’t plan much at all.  What is the right balance between strategic and operational planning?

Conducting and connecting strategic and operational planning effectively first requires clearly delineating the two. This may seem obvious. However, many managers use the term “strategic planning” and “operational planning” interchangeably. Let us be specific about how we’re using the terms.

Strategic Planning
Strategic planning is a deep examination of a company’s business model — its position in the marketplace three to five years out (or longer for big or capital-intensive firms).  It sets aside the strengths, weaknesses, opportunities and threats (SWOT) of today, and strives to envision the SWOT of the future—and how the company must adapt to that future.  For example, strategic planning led IBM, which used to be a products company, to largely become a consulting firm today.

A diligent effort on a strategic plan can take hundreds of hours of top management’s time—time away from running the business.  A solid strategic planning process looks at competitive positioning, shifts in customer demand and preferences, substitutes, adjacent industries, industry maturation and more.  Consulting firms like Bain and McKinsey love to lead strategic planning exercises. But the investment is significant, and often too much for middle market firms.  This is altogether different from operational planning.

Operational Planning
Operational planning focuses on the year ahead.  It identifies priority projects for each person on the leadership team, with deadlines & scope identified in writing.  It includes monthly objectives/KPIs for each leader, and the strategies that each function will use to perform at a high level.  Good operational planning requires that all the functions confer, so that the overall plan is synchronized, and support functions (finance, IT, HR) have the capacity and willingness to support all the planned activities of the other functions.

The Balancing Act
Most firms do formal operational planning annually, although some fast-growing companies in dynamic industries find a half-year rhythm is best.  This should be guided by the firm’s existing strategy.

Many firms do a full strategic planning process every three to five years.  If it has been longer, it is without doubt time to kick off a formal strategic planning process.  If not, revisit the assumptions (and their proof points) that support the company’s strategy.  List them all, along with a cursory check of key competitors and their moves.  For each, do enough homework every year to validate that those assumptions are still solid—still substantiated in today’s environment.  That might mean as little as 30-40 hours of research followed by a one-day “strategy check-up” offsite with the leadership team.

If at the end of the day, all the key assumptions are still valid, most of leadership’s planning focus can return to execution.  However, if the environment has changed enough to challenge those assumptions, then begin a deeper strategic planning process.  At the end of that process, identify a written list of key assumptions and other triggers so management knows what to watch for on the horizon.  One type of trigger is a big competitor’s investment in your sector.

Alliance member firm Jamba Juice had focused on fruit-based smoothies for years while maintaining a small offering of carrot, orange and wheat grass fresh squeezed juices.  When Starbucks announced the acquisition of juice maker Evolution Fresh in November 2011, it triggered a strategic re-evaluation at Jamba.  Jamba’s CEO James White took notice that very same day, saying, “We will continue to accelerate our product innovation and, while we welcome new entrants to the marketplace, we will adjust our strategy as needed.”

Adjust they did, long before Starbucks’ real intentions were demonstrated.  Jamba Juice jumped to action, and has been testing stores in the San Francisco area with fresh juice blends including beets, kale, apples, ginger, and pineapple juices. It also has a new store design that puts juice at the forefront, a test that will expand to more stores this year.

A thriving business today does not mean your strategy will be effective over the long term.  Instead, diligently re-check the assumptions that underlie your current strategy on an annual basis.  Further, the management team should scan the horizon for predetermined, specific triggers that signal the need to kick off a full planning process.