04 SEP 2013 WHAT DO YOU THINK?

How Relevant is Long-Range Strategic Planning?

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04 SEP 2013

HOW RELEVANT IS LONGRANGE STRATEGIC PLANNING?

17 JUN 2013

If competitive advantage is no longer sustainable, then what? Jim Heskett examines the latest thinking from Rita McGrath, who attacks aging strategies for long-range planning. What do YOU think?

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by James Heskett From time to time thinking converges around a set of ideas. For us this month, the topic is strategy planning and organization. Conventional thinking and organization that has encouraged us to seek sustainable competitive advantage in the past is being questioned in today's business environment. Some are even suggesting that the mind set that has given us strategic planning concepts such as SWOT (strengths, weaknesses, opportunities, threats) analysis, the "five forces," growth share matrices, five-year plans, and an emphasis on core competencies of the firm may lead to competitive disadvantage in a technology-transformed world in which markets, employee and customer mind sets, and innovations, evolve at a rapid rate. The conversation was stimulated (can it be 16 years ago?) by Clayton Christensen's work leading to his book, The Innovator's Dilemma. In one sense, the book was mistitled. Some of its most salient material concerned issues confronting large corporations facing innovative upstarts with disruptive ventures, the non-innovator's dilemma. But it also dealt with the challenges of achieving innovation in a world of entrenched ideas about how products are developed and used. Implicitly, the book questioned traditional concepts of strategic planning in an environment populated by increasingly innovative and agile competitors. Now comes a new book, The End of Competitive Advantage, by Rita Gunther McGrath. Hers is a frontal attack on accepted strategic planning

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JAMES HESKETT James Heskett is a Baker Foundation Professor, Emeritus, at Harvard Business School.
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methods designed, in her opinion, for another time. These are methods based on the presumption that competitive advantage is sustainable. It's a presumption that she claims "creates all the wrong reflexes" in a world in which the best one can hope for is "transient competitive advantage." McGrath's prescription for achieving transient competitive advantage includes such things as smaller, faster, more agile organizations--and where management-by-consensus is a thing of the past. The emphasis is on marshalling rather than owning assets, including talent. In order to ensure the appropriate deployment of these assets from one opportunity to another, it will be necessary to recentralize control over the resource allocation process, moving it out of strategic business units (SBUs). It raises questions about the relevancy of SBUs as opposed to transient teams as a form of organization. These organizations engage in "shape shifting" based on systematic innovation and the constant testing of assumptions, all required to maintain transient advantage. They are organizations designed to create and test options, practicing "continuous deployment," doing things "fast and roughly right" rather than relying on strategic planning as we have known it. McGrath makes her points forcefully, but laments the slow rate at which these changes are being adopted in large organizations. If these ideas are so powerful, she asks, "why hasn't basic strategy practice changed?" Is her thinking on target but just a bit ahead of the curve? How relevant is longrange strategic planning and its assumptions of sustainable competitive advantage? What do you think?

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TO READ MORE:
Clayton M. Christensen, The Innovator's Dilemma (Boston: Harvard Business School Press, 1997) Rita Gunther McGrath, The End of Competitive Advantage: How To Keep Your Strategy Moving As Fast As Your Business (Boston: Harvard Business Review Press, 2013)
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HUW MORRIS CEO AND FOUNDER, EFFICIENARTA LIMITED My sense is that our traditional strategic planning tools and techniques can continue to inform strategic direction decisions; however, they need to be used to promote agility rather than in ways that can be barriers to flexible reallocation of resources etc. to meet rapidly evolving customer opportunities. For example by strategy task forces that 'hack" rather than as part of a long annual strategic planning process and facilitiate more effective "continuous deployment," doing things "fast and roughly right" etc.

PAUL A. LEPLEY RETIRED (MBA '71) The idea "to recentralize control over the resource allocation process" reminds me of the rise of conglomerates in the 1960s: Litton Industries, Gulf+Western, etc. I recall the resentment of managers who saw resources (especially cash) being taken from their business unit and being placed into the corporate pile, which was then used to buy other businesses. There is no assurance that those in corporate staff positions will allocate such resources to best advantage. Central planning was a failure in the USSR. Be cautious.

SHADRECK SAILI PHD CANDIDATE, ATLANTIC INTERNATIONAL UNIVERSITY This is a challenging insight you have brought out prof. However it's true that long range strategic planning is beginning to loss grip in terms of being above board as numerous decisions (emanating from the long range plans)are being made along the life of stretegic plans. The increasing dynamism of business /organisational parameters has totally enhanced the sensitivity of all assumptions we make in drawing up long range plans such that every single shift of an assumption/factor (which may be termed low risk) has increased potential of derailing progress. In this light, and while i submit that long range strategic planning may still be relevant to some degree, i feel the time has come for us to modfy the traditional way of dealing with,preparing strategic plans and managing the plans. We are in an era of moving targets and the institutions that move within acceptable speed survive. The frequency of Monitoring and evaluating of strategic plans becomes therefore a relevant factor to consider.

UDAY KAGAL PROPRIETOR, INNOVATION SOCIAL CONSULTANTS Couldn't agree more but I think it is a bit of both. We cannot do planning without strategy, but the strategy must be shape-shifting in order to constantly adapt to the fast-changing environment. There must be some givens and some not-so-givens and the challenge will be to discover which are which.

HARSHA DESAI PROFESSOR OF MANAGEMENT, LOYOLA UNIVERSITY MARYLAND For exactly the reasons Prof. McGrath states, over the years I have found use of dynamic scenario planning in strategic thinking much more useful while also using static analyses of SWOT and Prof. Porter's industrial dynamics take (five forces + complementors).

GARY JOHNSON PRESIDENT, GAP SOLUTIONS I believe a business that truly supports well thought-out strategic planning is being proactive towards achieving its growth goals and has a competitive advantage over non-strategic businesses. To not be proactive is to be reactive. I believe a successful business utilizes both proactive and reactive planning, however, a business that is continually reactive is one commonly in crisis management and will accomplish less than a strategic thinking company, and I add, implementer of those strategies. If something has shifted, I believe it is not the need for strategic planning it is that strategy is now fluid. When change wasn't occurring so rapidly, as it is today, a company could set its goals and rely quite competently on the strategies it developed to achieve those goals; only the tactics to achieve the strategies remained fluid in order to address changes or shifts impacting the business, i.e., customer need, etc. That's where rea ctiveness applies to a successful business. Today, the strategic goals remain fixed, and strategy has joined with tactics as being fluid. In order to address rapid change, companies today are developing a three-year strategic plan and not the more traditional five-year plan. Technology is here to stay and will continue to tremendously aid businesses in achieving their goals, technology is a means, a strategy, not the end. Competitive advantage and a business without strategy- one that is in constant re-activeness, seem to be an oxymoron; a "living" strategic plan will always help a business be more competitive, and more successful.

BILL SHIRLEY, BT MCC. CEO, IN SEARCH OF EAGLES, INC From my most current experience, the "sustainable competitive advantage" strategy appears to require an Agile, Enthusiastically Engaged team. Only when such a team listens to the customer's ever-evolving expectations and experiments (successfully) with adaptive changes in the business model that exceed those expectations does the "transient competitive advantage" become sustainable. But, as Alvin Toffler pointed out in 1970 (in Future Shock): "the rate of change is accelerating." The evidence is clear: the speed of change has no known terminal velocity! Our human nature, being what it, causes us to create ("reliable") systems to support our sustainable success. Our transient success appears to be sustainable once our last period of non-success fades from our short-term memory. Paradoxically, that is the moment when our "sustainable success" becomes non-sustainable or "transient." The sustainable competitive advantage strategy assumes a finite (zero sum) game market environment while the transient competitive advantage strategy assumes an infinite game market environment. The strategy required to prevail in an infinite game environment is very different from that required to prevail in a finite game environment. We have been encouraging our clients to think in terms of prospering in an infinite game market for some time.

GEOFF CLARKE NONE, NONE I write from distant left field- so rule me out from any insight if you like. However The problem with strategic planning is the assumption that the future can be forecast and therefore future action can be planned. That belongs to Soviet style illusions. What Porter gave/ gives us is a good framework to work out where we are, where our competitors are, and at least a shot of respective trajectories, hence of what options are available to us. 'No plan survives intact the first contact with the independent will of the enemy'

JOHN ARNOTT CEO, NIMBLE VENTURES INC. Caveat; I have not read Rita's book, yet. This is a fascinating subject and I shall get her book asap. But one thing I want to add to Jim's comments is the shift in management style exhibited by some leaders. One may think that GE would be one of the biggest ships around but Immelt has done what I think is masterful - management in public - he is so well published that no manager could ever pretend to not understand. Staff, suppliers, competitors, all know what he expects and unless they simply don't read, he gets the culture distributed. He's turning that

aircraft carrier like a, well not a go-cart, but something far less unwieldy.

JIM BRIGGS PRESIDENT, RANGER MACHINING, LLC Large companies are victims of being large. They do not readily adopt strategies for becoming more quick and agile because they lack the quickness and agility to do so. The chicken-and-egg problem. Also, breaking into smaller, more nimble business units requires people to give up power. People are typically reluctant to give up power, and can present many sound and sensible reasons why their business unit should not be broken up. Government is an extreme example of this phenomenon.

JANICE MAFFEI PARTNER/OWNER, VISIONFIRST We see Maslow's observation about the person with a hammer seeing every problem as a nail alive and well in many organizations. There is an illusion of control in the strat planning process - forms and templates, deadlines and reviews. Where are the new ideas, the bold thinking that will create the transient advantage? Actually, it is transient - visionary thinkers leave in droves, or "retire" while still on the job. We need to influence leaders to envision longer term possibilities while creating short term experiments - rapidly prototyping their way to today's transient competitive advantage.

GERALD NANNINGA PRINCIPAL CONSULTANT, PLANNINGA FROM NANNINGA My contention is that strategic planning allows a company to act faster, making strategic planning even more valuable in today's environment. Without strategic planning, a company is left with two options--reaction or randomness. Reaction is a rarely a path to leadership (as other contributors have pointed out) and randomness (considering everything and moving in all directions hoping something will stick) is time consuming and resource wasting. Strategic planning speeds things up by pre-defining boundaries and pointing towards where a company should increase its emphasis to build competencies. As a result, a company doing strategic planning no longer has to re-invent the wheel whenever the market shifts. Time is not lost in starting with a blank whiteboard all the time. The boundaries are set and you quickly get down to business within them. In addition, by knowing where a company adds value, you know how you have to play to win. This leads to two benefits. First, you can act faster, because you know which way to go in advance (towards your competency edge). Second, you are more likely to succeed, because you are leveraging a business model that has an innate advantage due to the superiority of the business model competencies. Rather than always being in a race with me-too products built by indistinguishable companies, you are building superiority through unique strengths. The problem is that most of the work done today in the name of "strategic planning" attacks the wrong issues. It looks at financial targets rather than what trade-offs are necessary to build a unique business model that can be applied in multiple directions (depending on market shifts) while providing an edge over the me-too chasers. Under Steve Jobs, Apple had a well-defined strategy: develop high-end closed systems which excelled in elegance, simplicity and coolness. This focus made is easier to know what to focus on and helped Apple to know where to build competencies in order to win (far better than reaction or randomness). I speak more about this topic here: http://planninga-fromnanninga.blogspot.com/2013/08/strategic-planning-analogy-509-high.html.

MUNYARADZI MUSHATO CORPORATE TRAINER, THE COTTON COMPANY OF ZIMBABWE I partly agree and partly disagree with the article. Firstly, perhaps foremost, why deliberately going out to plan to build a short-lived competitive advantage? There is no everlasting competititve advantage and sustainability of any competitive advantage is relative. The idea of strategic planning is therefore to build a competitive advantage that has a longer working life, i.e that which will take longer to be imitated by rivals, for examples creating new demand in new markets and building unique capabilities to satisfy that demand. This is what W. Chan Kim and Ren?e Mauborgne called the Blue Ocean Strategy. So the longer it takes before a competitive advantage is erased , the stronger that competitive strategy is. I do not see the logic against that way of thinking. Secondly, I do agree that change is now taking place at a much faster rate than before, especially technology-induced change. What that means is organisations need t o build and sustain change agility capabilities that will allow them to be more adaptable to their environment by moving with or ahead of change. that is the only way to build sustainable competitive advantage. Infact ,the need for a sustainable strategy is actually higher in a volatile market space.

STEVE FLICK Q9C QUALITY CONSULTING I have not read the book so I don't know if the author has dealt with the subject of "risk appetite". Businesses are generally begun by individuals who understand the risks involved in getting their ideas to fruition; they are risk takers but are not reckless. As their businesses become successful and continue to grow, however, the company's risk appetite decreases. They become more cautious and conservative, wanting to hold onto (or nurture) what they have. I believe this is a natural course of events. As businesses become risk averse, their desire to maintain the status quo increases. Change becomes increasingly difficult, which affects strategic planning. Thus, competitive advantages are lost. If we could all stay small and nimble...

DANIEL T C LEE DIRECTOR, AVONDALE GRAMMAR SCHOOL Strategic planning and focus on core competencies may lead to competitive disadvantage? Traditional or not, strategic planning has never restricted new innovation. In fact SWOT analysis / Cost Benefits Analysis and Risk analysis is constantly done in both long term and short term decision making. The issue is the extent and depth of the anlaysis and not if these lead to a competitive disadvantage. Considerations must include the dynamic environment, the expectations and timing of changes. There must be a certain level of confidence of survival, whether at the individual level or the organizational level, before innovators embark on high risk ventures and accept anticipated failures. Many companies as well as VCs have a diversified portfolio, and create successful cash cows before putting their share of funding into 'unchartered waters.' These clearly indicate the need for long term strategic planning to achieve sustainable competitive advantage in the bigger picture. On the micro perspective however, it is necessary to provide freedom for innovation within a defned framework in order not to stifle creativity and to be able to react quickly to changes.