Strategic planning is a staple of corporations. So why does it often fail?
"Tired of Strategic Planning?" by Eric D. Beinhocker and Sarah Kaplan, in The McKinsey Quarterly (2002, No. 2), available online at www.mckinseyquarterly.com.
In most big corporations plotting corporate strategy is a major production. Most have a top "strategy" executive with the usual bureaucratic accouterments, and put themselves through that elaborate and time-consuming annual ritual, the company-wide "strategic planning process." Yet in this respect, private-sector bureaucracies appear no more effective than that oft-derided administrative colossus, the federal government. Even CEOs and other high-level executives are cynical about the process. In reality, strategy is still made around the water cooler. "There is a lot of dancing, waving of feathers, and beating of drums" during the reviews, one executive told Beinhocker and Kaplan. "No one is exactly sure why we do it, but there is an almost mystical hope that something good will come of it."
Based on their study of 30 companies, the authors (he’s a principal at McKinsey & Co.’s London office, she’s a former McKinsey staffer who is now a graduate student at MIT’s Sloan School of Management) argue that the process can pay off in companies that manage it well. The trick is to avoid mounting empty "dog and pony shows" or hoping for brilliant ideas to strike like lightning. The best companies strive to create "prepared minds" rather than formulate concrete plans. "Success is more modestly measured by how well the review helps management forge a common understanding of its environment, challenges, opportunities, and economics, thus laying the groundwork for better real-time strategic decision making going forward," the authors write.
They have a number of other suggestions. For example, strategy sessions should be separated from talk about short-term financial issues, which almost always dominate such discussions. And "those who carry out strategy must also make it." A strategy concocted by the corporate strategy bureaucracy and outside consultants rather than by business unit heads and other frontline executives is doomed to irrelevance.