How Rigorous Should Your Strategic Planning Be?

By Paul J. H. Schoemaker, Ph.D., Chairman, DSI

Executives often seek guidance on how detailed and rigorous to make their strategic planning process. It can range from a few informal, flipchart-oriented workshops to protracted detailed, empirical studies of customers, rivals, channels, emerging technologies, etc. Much depends on the ultimate goal of the exercise, and generally the aim is to be roughly right as opposed to being precisely wrong. Any serious study about the future or current market place runs the risk of getting into detail that doesn’t really matter. Just as a good road map is a simplification of some complex terrain, the art is to show no more detail than is necessary to reach sound judgments about future direction. The question is one of level of resolution and detail, and companies can make a mistake in either direction. Einstein’s admonition that we should try to make things as simple as possible, but not simpler, reminds us of the danger of being simplistic. So, how should leaders decide this matter?

First, they should consider the deeper purpose of the strategic planning exercise. Is it to guide plans and budgets, which get rolled up into a corporate plan, or is the purpose more to orchestrate a deep dialog among decision makers about how they see the world in light of the strategic decisions facing them. Second, your organization’s culture matters: are you a very data-driven organization where evidence is important or more a conceptual, creative culture where exploration and entrepreneurship are valued highly. Third, the kind of decisions that need to be made are important. If they require detailed estimates of growth trends, market shares or competitive responses, a more precise assessment will be needed than in a case where the organization desires innovation and discovery, fully recognizing that many midcourse adjustments will occur later. So, the irreversibility of key decisions, as well as the value of new information that may arise later, factor into the optimal degree of precision needed.

Ultimately, each case will need to be judged on its own merits, but it is helpful to have a menu of choices so that managers can decide how detailed and rigorous to make the process as they explore the competitive landscape, the needs of customers and possible changes in how the future might play out. Typically, more detail comes at the price of additional time and money spent on the process, and so it will seldom be optimal to delve deeply into all issues. In general, a more even level of depth across the modules is preferred over an uneven treatment, unless the nature of the strategic decisions to be made requires a deep dive into, for example, a specific technology, market segment, new distribution channel or piece of pending regulation. And often, we cannot fully judge the optimal degree of rigor until we embark on the process and discover where our knowledge gaps are greatest or where more precision is needed given the sensitivity of key decisions to such greater granularity.

Figure 1 - DSI's Adaptive Strategic Planning Process
[click image to enlarge]

The process depicted in Fig. 1 will permit more scientific rigor in some modules than others, simply by the nature of their content. For example, the scenario planning module 1 is projective and thus contains a high degree of subjectivity. Although past trends can be empirically documented to varying degrees, their extrapolation into the future will require various assumptions, even if the techniques used (from linear extrapolation to two-stage least square or spectral analysis) may seem very scientific. And of course the list of uncertainties, in terms of which are most important, over what range they can play out, and how they interlink which each other, entail a healthy dose of judgment. Nonetheless, these subjective inputs can often be examined rigorously, from conceptual tests about coherence to empirical assessment about internal consistency. Such techniques as cross-impact analysis, subjective correlation matrices, or influence diagrams can help impose discipline on matters that largely reside in the domain of judgment. And often such techniques lead to beneficial changes in the original judgments.

In contrast, the empirical validity can be much higher in modules 2 and 3 where frameworks are set up to organize and structure descriptive data. Once we have a sound segmentation map of an industry for example, we can populate it with rich data about market shares, growth trends, profitability analyses, channel mix, profiles of rivals, etc. Similarly, once we have identified a set of core competencies for an organization, we can become quite rigorous about sorting out which of the alleged core competencies are real and which amount to self-delusion. If the organization claims it excels at say customer service, various tests can be devised to see how true that really is. We can ask customers about their past service experiences, compare the company to rivals or even benchmark against best in breed. Furthermore, since customer service is multi-faceted, we can break it into components – such as how quickly customer queries are responded to or how compelling the product offerings are – and measure these component attributes with increasing refinement. How does customer satisfaction compare in a call center with that of an office visit or say direct-mail response? Indeed, the danger here is that endless information can be collected that barely moves the needle in terms of strategic perspective or decisions to be made.

Module 4, which addresses the integration of various scenario views about the future, the framing of the competitive market terrain and perceptions about the organization’s current assets, capabilities and values, is inherently subjective. It entails a political weighing of what is minimally necessary to survive, what is desirable given key players’ ambitions and power position, and what would be ideal for the organization disregarding the pain and anguish that any associated change might bring. Although frameworks can be used to structure these judgments and make the tradeoffs more explicit, in the end there is no objective external guarantee exists to prove that the optimal judgment was made. Akin to deciding what career to pursue, who to marry or whether to have children, people differ – sometime fundamentally – in how they choose and they will also likely differ in the process by which they choose. We can use multiple guides in arriving at a wise judgment, such as empirical data, disciplined analysis, the counsel of others, being true to ones values, intuition, etc. But none alone can be a sufficient guarantor of optimality when dealing with such complex issues as the future direction of a large enterprise. At best, we can lay the foundation for sound judgments, in the hope that some measure of wisdom, good will, organizational harmony, and alignment of values or purpose exist to begin with. Ultimately, the heart and the mind need to connect, and as importantly, key people need to connect.

Once we reach the options stage (Module 5) or the implementation phase (Module 6), we can become quite scientific again. With the benefit of a sound and well articulated strategic vision, decisions about capacity expansion, new partnerships, shifts in the channel mix, what kind of innovation to pursue or changes in organization design can be made with increasing analytic and empirical rigor. The groundwork laid in the earlier modules can now bear additional fruit by helping others in the organization make better judgments about tactical parameters that drive the return on specific investments or change initiatives. And thus, the overall process snakes itself through phases where data, values, creativity and dialog assume varying degrees of importance, all nested within an organizational context and culture that assigns different values to these components, a priori, than other organizations.

For the above reasons, each strategic planning process needs to be highly tailored and customized to a particular organization, while drawing from the broad toolbox of strategy approaches. As any cook knows, the ultimate proof lies in the tasting of the pudding after a process of careful planning, sampling, seasoning etc. to get just the right flavor, taste and texture. In this regard, strategic planning remains very much an art as well as a science, and we should be careful not to make it overly scientific for its own sake. To invert Einstein’s earlier quote, we need to make the strategic planning process as scientific as necessary, but not more so.

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