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(originally published by Booz & Company)

Strategy & Leadership: The Essentials from Booz & Company

Successful Strategic Planning

Typically, three to five scenarios will be enough to establish a range of plausible outcomes, without overwhelming your thinking. Design each scenario to describe a possible end point that is different enough from today’s world to force you to think about the challenges and opportunities you may face sometime soon. Use a different combination of key driving forces to generate each one: For example, one might contain a new disruptive technology, and another might present an economic reversal (positive or negative). Each scenario description should include its probability and business impact. Focus on the underlying sources of uncertainty, considering external as well as internal perspectives.

Develop some of your scenarios using an objective and analytically sound understanding of consumers, customers, channels, and competitors, drawing on multiple external data sources, and a network of external advisors. Meanwhile, use creative thinking to generate other scenarios that contain potential surprises or issues you might face in unlikely — but still plausible and potentially business-threatening — situations. Then test your proposed business plans by flexing the key value drivers, imagining what would happen to that plan under different potential futures. With each adjustment, a different outcome emerges. This process enables you to stress test your plans and highlight key sensitivities.

Encourage strategy dialogues during the planning process, between business management teams and corporate strategists. These will give you a forum for assessing opportunities and threats and formulating an aligned strategic response. Wargame-style simulations are increasingly employed as a technique for testing a company’s overall resilience when it is faced with a variety of scenarios.

3. Create a Performance Culture

When strategy execution falls short of expectations, poor performance management is often a contributing factor. Use strategic planning to begin a cycle of performance management, establishing targets that are subsequently measured, monitored, and embedded in performance incentives and reports.

Your plan should identify the value drivers that become embedded in key performance indicators (KPIs). But don’t limit your measurement to internal KPIs. Extend it to include external indicators that reveal progress toward your strategic plan. Because of the current degree of uncertainty and change, you will need to closely monitor these indicators. Early warnings of deviations in your plan will give the organization a better chance of adapting and adjusting its focus as required.

Good data and monitoring are critical, but not sufficient alone. Hold regular face-to-face meetings to enable strong performance management. Establish these as respected forums for strategic discussions and business performance reviews; this will spread a sense of ownership for the plan and overall performance. In addition, treat each plan as a performance contract with management. That will create a logical flow from planning targets into management incentives, with a good balance between individual and business targets. In your discussions, include constructive critiques of plans and performance at various levels (within business units, and between the corporate center and the business units), explore root causes of performance deviations, and talk through corrective actions.

Done well, performance management contributes to a performance culture. A performance culture is one in which all employees’ empowerment is facilitated, there is widespread management by fact and by process, plans reflect the organization’s capability, capability improvement is aligned with the strategy, and continuous improvement is achieved. You can promote a performance culture by establishing formal connections between the planning process and other processes — tactical, operational, and day-to-day processes — that involve the broader organization. For example, the sales and operations processes can be formally linked to the planning process through regular meetings that address planned versus actual sales.

4. Be Execution Oriented

Many companies struggle to generate the results intended by their strategy. That’s because strategy execution is less clearly defined and understood than strategy development; further, whereas strategy is often developed by a small group of strategists in the organization, strategy execution is the responsibility of the organization at large. Booz & Company research shows that a company’s performance is largely influenced by four organizational building blocks: decision rights, information flow, motivators (such as incentives), and structure (the lines and boxes of the hierarchy). These are known as the four building blocks of an organization’s DNA. Taken together, they define an organization’s culture. (See “The Four Bases of Organizational DNA,” by Gary Neilson, Bruce A. Pasternack, and Decio Mendes, s+b, Winter 2003.)

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