More on Strategy versus Planning

Richard Rumelt is a professor at UCLA, and he has some interesting things to say about strategic planning in an interview with McKinsey quarterly:

Most corporate strategic plans have little to do with strategy. They are simply three-year or five-year rolling resource budgets and some sort of market share projection. Calling this strategic planning creates false expectations that the exercise will somehow produce a coherent strategy.

Look, plans are essential management tools. Take, for example, a rapidly growing retail chain, which needs a plan to guide property acquisition, construction, training, et cetera. This plan coordinates the deployment of resources—but it’s not strategy. These resource budgets simply cannot deliver what senior managers want: a pathway to substantially higher performance.

There are only two ways to get that. One, you can invent your way to success. Unfortunately, you can’t count on that. The second path is to exploit some change in your environment—in technology, consumer tastes, laws, resource prices, or competitive behavior—and ride that change with quickness and skill. This second path is how most successful companies make it. Changes, however, don’t come along in nice annual packages, so the need for strategy work is episodic, not necessarily annual.

Now, lots of people think the solution to the strategic-planning problem is to inject more strategy into the annual process. But I disagree. I think the annual rolling resource budget should be separate from strategy work. So my basic recommendation is to do two things: avoid the label “strategic plan”—call those budgets “long-term resource plans”—and start a separate, nonannual, opportunity-driven process for strategy work.

I think there is room for annual strategy work processes as well, but I agree you need an established opportunity-driven process. Too many associations, unfortunately, have neither. They only do planning.

Comments

[Jason]

As an employee of a large, if not the largest, tech company in the world for 10 years, I would agree that annual strategic planning took on a comical nature and mostly seemed to be a waste of time. I took these lessons with me when I started my own guiding business in Tahoe but I needed strategic planning tools to help get financing and my idea off the ground. Erica Olsen and her company, M3 Planning, http://www.mystrategicplan.com/ offered invaluable support and their online software was simple to use.
My business would may have failed w/o their assistance.
Happy Planning!
Jason