Yogi Berra once said that “if you don’t know where you are going, you will likely end up somewhere else.” The same is true in business. Unless you have a carefully crafted business strategy, you are essentially flying blind.
Former U.S. President and military commander, Dwight D. Eisenhower, remarked that “a finished plan is generally worthless, but careful planning is absolutely essential.” In other words, while a given plan may change based on what happens with your business, taking the time to thoroughly examine where your firm is now and where it is headed gives you the information to make course changes intelligently, against the backdrop of a clear business strategy.
Kmart, a leader in the discount retailing industry in the late 70’s, had close to 1900 stores and average revenues of well over $7 million per store. Wal-Mart, on the other hand, was a much smaller retailer with just over 200 stores and average revenues per store only half those of Kmart. But just ten years later, Wal-Mart had become the largest and highest profit retailer in the country with an annual growth rate at 25% per year with a 32% return on equity.
What happened? Kmart’s response to business challenges was to try to seal off and defend its markets, a common tactic years ago when the industry was characterized by defined markets, stable customer needs and clearly defined competitors. Wal-Mart found competitive advantage by realizing that success would not come from capturing and holding a market but by being nimble and responsive to changing market conditions. It built business processes and core competencies in such areas as transportation and information sharing which allowed it to respond to rapidly changing conditions and move inventory quickly to serve store-by-store customer demand.
Kmart’s inability to respond to changing market conditions and to continue to ride a dead strategy eventually led to its reorganization under Chapter 11. It’s a fact that those organizations that adapt to changing conditions thrive and grow. Those that remain unaware or misjudge these challenges and opportunities and fail to develop a new business strategy eventually die.
Why Build a Strategic Plan? In a word, the answer to this question is focus. Strategy creates context for operating decisions. It establishes the playing field and provides guidance for decision-making about the types of experience and skills needed by employees, how marketing and advertising should be positioned, the priority of initiatives, how to structure the organization, and a host of other issues. A plan is necessary to guide decision-making, channel resources and define direction. Because of that, building a strategic plan should be well worth the time it will take to develop it, debate it and secure agreement on its direction.
Strategy is the way in which an organization meets the challenges and opportunities of its environment. It is often an overused and misunderstood concept. Strategic thinking does not necessarily imply long term. In some industries, long term is less than one year. It is not tactics, though strategy needs to be supported through tactics. It doesn’t necessarily imply something big. The decision to move across town may have more human impact than the decision to do business in another city.
Strategy is a set of choices that defines the nature, direction and value system of an organization. It is not a document. It is a mindset which should be understood by every person in the organization and used to guide all decision-making within the organization. In developing strategy, leaders make conscious and informed choices about who they are and what they stand for:
* What are our core values and beliefs?
* What markets and customer groups will we serve?
* What products or services will, or will we not, deliver?
* What competitive advantages will cause us to succeed?
* What core competencies must we have to fuel our growth?
* What infrastructure, core processes and resources must we have to succeed?
* What financial results will we achieve?
* What should be our planning horizon?
* What is the quality-of-life contribution we want to make to our customers, our employees or the places in which we operate?
Next, and the hardest part, is plan implementation. In the United States, the average firm only achieves about 63% of its strategic plan. Studies also show that 90% of strategies that fail do so because of lack of execution. Research in the last several years has pinpointed many reasons why business plans fail, including the following:
1. Poorly understood strategy — most organizations have a strategy but, according to one study, fewer than 5% of their employees know what the strategy is.
2. Weak strategy execution — Studies show that up to 90% of strategies fail due to execution.
3. Inability to adapt to change — Once a business makes plans, the chaos of everything changing around it may gradually erodes those plans unless the organization can adapt. Many cannot.
4. Lack of a systematic approach – When an organization reaches a certain size, lack of alignment between different people or departments who handle different functions may hamper success.
5. People are not engaged – An engaged worker is one who is personally committed to the goals of the company. Unfortunately, 90% of the time what passes for commitment is compliance. If you cannot get people engaged, no improvement will last.
6. A gap between knowing what to do, and doing it. Many things can get in the way including substituting talk for action, employee fear or mistrust of management, using the firm’s history instead of sound judgment to dictate action, and badly designed or complex measures.
In the end, a solid business strategy and implementation plan may not solve all of your problems but those firms that do plan enjoy a much brighter track record. Plan well and beware of the pitfalls in implementation and you can enjoy your best year yet.