Strategic Planning Design Principles - BCG

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1、STRATEGIC PLANNING PROCESSDesign Principles-1-TABLE OF CONTENTS Introduction Executive summary Design principles Detailed process design Appendix A:The external perspective Appendix B:Backup materials 1 5 33 53 78 86Page-2-TABLE OF CONTENTSPage Introduction Executive summary Design principles Detail

2、ed process design Appendix A:The external perspective Appendix B:Backup materials 1 5 33 53 78 86-3-WHAT DO WE MEAN BY“STRATEGIC PLANNING”?For our purposes,“strategic planning”refers to the broad notion of developing a strategy and driving it toward execution,with care to use the word“strategic”sele

3、ctively and appropriately Our approach defines three distinct types of planning,with the following definitions“Strategy development and long-range planning”-rigorous external assessment of markets,competitors,sources of competitive advantage,etc.,to determine business strategy-as part of this proces

4、s,long-range goals and key performance indicators are established“Annual planning”(1)-mid-range evaluation of performance against the strategy-identification and quantification of initiatives to meet strategic goals-typically performed annually,with rolling three to five year time horizon;flows into

5、 annual financial and operating planning“Financial and operating planning”-detailed plans to deliver specific results-typically performed annually with one year time horizon-e.g.,budgets,capital allocations,brand plans,client plans,manufacturing plans A caveat:our approach is based on our typical cl

6、ients:large,established companies;may not be appropriate for smaller companies or start-ups(1)Often referred to as“strategic planning”-4-BCG PERSPECTIVE:FIVE BASIC“TRUTHS”OF STRATEGIC PLANNING1.A sound,forward-looking competitive strategy is critical for sustained long-term success2.Successful compe

7、titive strategy requires successful execution;strategy must be translated into the right actions throughout the organization3.A high-performing strategic planning process creates enormous valueEnsures a sound,forward-looking strategyTranslates strategy into the right actionsFocuses efforts on the mo

8、st important issues;avoids wasting resources on low-value planning activitiesCan be a means to drive shareholder value creation4.There is a set of best practices to achieve a high-performing strategic planning processBut all companies should not have the same planning processBest practices include t

9、ailoring critical aspects of the process to the companys situation5.Many companies fail to achieve a high-performing planning processSeveral patterns of failure exist-5-EVOLUTION OF STRATEGIC PLANNINGBased on Changing Business EnvironmentMajor trends in business environmentImplications for strategic

10、 planningShortcomings1950s/1960s Growth and expansion Rolling out the“military model”of management Building conglomerates Enabled basic planning and control in large organizations Based on financial controls,dominated by finance function Not integrated or strategic1970s Strategy characterizations-ex

11、perience curve-growth/share matrix-competitive environments Relieving“conglomerate indigestion”Merged financial planning with simple,powerful corporate and business strategy concepts Emergence of corporate planners/consultants Often found to be too conceptual and rigid Slow growth“Stagflation”Disman

12、tling of conglomerates,creation of SBUs Institutionalization of strategic planning Financial plans and compensation tied to strategic plans Produced better implementation and control Documentation and procedures burdensome and uninspired1980s Process reengineering Shareholders demand value Restructu

13、ring,LBO boom Removed high-cost,low-flexibility systems Improved short-term results Emphasis on line vs.staff Neglected long-term performance and planning1990s Growth and expansion Globalization E-commerce Deconstruction Matrix planning:geography and product/market focus Elaborate corporate/SBU annu

14、al planning processes Options analysis seen as alternative to long-term strategic planning Planning efforts often greater than value added Planning efforts abandoned in the face of uncertainty2000s“Back to Basics”after period of uncertainty Resurgence of competitive strategy Focus on profits Renewed

15、 focus on competitive strategy Strategy development separated from annual planning process Planning processes redesigned for lower cost,greater impact Potential for“routinization”of strategy development-6-Alternate terminologyHow are we doing?What should we change?In what segments will we compete?Wh

16、at will be our sources of competitive advantage?What are our long-range goals and key performance indicators?“Strategic planning”What are our corporate and strategic goals?How are we performing?What initiatives are required to meet our goals?What is the impact of the initiatives?“Annual strategic pl

17、anning”“Annual business planning”THE STRATEGIC PLANNING MINDSET:FOUR STAGES FROM STRATEGY DEVELOPMENT THROUGH EXECUTIONKey Questions Define Each Stage of the ProcessWhat businesses should we enter,grow or divest?What will be the greatest opportunities?What are our corporate aspirations and targets?W

18、hat planning processis best suited for our needs?What are our expectations for each business unit?How will we deploy scarce resources?What will our results look like next year?Do we have the resources we need?How will we measure and reward success?How are we doing?What should we change?Corporatecent

19、erBusinessunitsWhat specific actions will we take?What is the short-term financial impact?How will we measure and reward success?“Budgeting”“Annual planning”MonitoringAnnualplanningFinancial andoperating planningStrategydevelopment andlong-range planning-7-STRATEGIC PLANNING PROCESS HAS MANY OBJECTI

20、VESObjectives to drive business performanceEnsure corporate and business unit strategies will achieve sustainable competitive advantage and drive the business forwardTranslate the strategies into actionable goals that are aligned at all levelsHelp managers make decisions and allocate resources to ac

21、tivities that will achieve the goalsMeasure progress of specific activities and performance relative to goalsObjectives to support the CEOProvide enough interaction with businesses to,at a minimumEnsure business is headed in the right directionEnable communication with the board and financial market

22、sAchieve desired level of control and accountabilityProvide forum for motivational leadershipEstablish dialogue with BUsEngage and motivate BU leadership teamAt lowest cost,with least amount of disruption-8-STRATEGIC PLANNING PROCESSES OFTEN FAIL TO MEET OBJECTIVESMost companies fail to achieve a hi

23、gh-performing planning processThree major patterns of failurePoor quality strategic thinking and decision-makingNo real impactTremendous resource drain without corresponding value addedFailures drive a wide variety of frustrations throughout the organizationBreeds significant organizational cynicism

24、Increases over time,compounding the challenge to fix the processFailures can often be traced to specific process design flaws-9-FAILURE#1:PLANNING GENERATESPOOR STRATEGIC THINKINGPoor strategic thinking and decision-makingFailure to surface major issues and options“Routinization”of strategy developm

25、ent;inadequate treatment of critical issuesIncremental thinkingPoor decisionsTypical quotes“In retrospect,we didnt surface the key strategic issues and opportunities.”-Senior executive“Our plans fail to reflect deep thought or inspire commitment.they are usually just lists of good things to do that

26、fail to explain the logic or rationale of winning in the market place.”-Senior executive“The meticulous nit-picking that goes on in most strategic planning processes creates a mental straight jacket that becomes disabling.”-CEO“The BU plans are very low quality with inadequate supporting logic;they

27、are ready to enter a brutal market with no understanding of how to succeed.”-CEO“A lot of data,but no real strategic thinking.”-Senior executive“We start out with lofty goals of discussing strategic issues,but it quickly devolves into hammering over my numbers.”-Senior executiveSource:BCG research-1

28、0-FAILURE#2:PLANNING HAS NO REAL IMPACTPlanning processes have no real impactFailure to translate objectives into prioritized actionsInadequate accountability and/or incentives for achieving plansMultiple,inconsistent planning processes with conflicting objectivesElaborate ritual for gaming and nego

29、tiation of annual budgetsTypical quotes“Our plans have not been translated into actionstrategy developers view themselves as victims of the poor work of implementers.and implementers view themselves as victims of unrealistic planners.”-CEO“We have a good strategy,but we have this long list of initia

30、tives with no idea of which ones are critical.”-Senior executive“Its a big production once a year,then it goes in the drawer.”-Senior executive“There was a sense that everyone put in a lot of time just so our boss had something to present.”-Line managerSource:BCG research-11-COMMON PROBLEM:PLANS NOT

31、 GROUNDED IN REALITYMeasuring Historical Plan Bias:“The Pitchfork”Hope springs eternal.Overheard in the hallway:Financial analyst“Hey,Jim,its strat plan time again.We need to update our projections for the division and that new plant in Washington.”Market manager“Sure,Id be glad to help.What number

32、do you need?”.Due to lack of performance accountability050100150200979899000102031999 plan2000 plan2001 planOperating income($M)YearActual performanceSource:BCG analysis-12-FAILURE#3:PLANNING IS A HIGH COST WITHOUT CORRESPONDING ADDED VALUELarge companies often commit more than 100 employee-years to

33、 the annual planning cycleOrganizational costs often 10 x planning department direct costsOften hidden in 5-50%parts of an individuals timeOften costing$10M or more,therefore potentially worth$150M in market capitalization“Strategic plans have become less and less useful as theyve become bigger and

34、bigger the extra hours have been spent on sophisticated graphics and fancy covers rather than insightful thinking.”-Chairman/CEOCompanies that have redesigned the process have reduced cost by 20-50%Source:BCG research,benchmarking and client experience Planning processes are oftena tremendous resour

35、ce drain“The Iceberg”Line directcostsExampleOpportunity costs Distracting line management Missed market opportunities Bad decision-making$10M+Planningdepartmentdirect costs$1M$9M?-13-FAILURES CAN OFTEN BE TRACEDTO SPECIFIC PROCESS DESIGN FLAWSUnderlying process design flawsInadequate focus on strate

36、gy developmentCompressed and folded into annual processes,under-resourcedAllow unresolved strategic issues to impede planningNo linkages to drive to action;inadequate focus and prioritizationCorporate strategy,BU strategy,annual plan and operating plans are separate documents with no clear relations

37、hipActions not prioritized appropriatelyBudgeting is separate process,not consistent with annual planNo accountability for resultsBU and individual targets not consistent with annual planNot enough at stake to drive behaviorProcess is inefficient and lacks integrityPoorly designed,not appropriate fo

38、r company situationGenerates unnecessary iterations and reworkRequires significant low-value data and documentation Becomes elaborate ritual for gaming and negotiation of annual budgetsPatterns of failurePoor quality strategic thinkingNo real impactHigh cost without corresponding value-14-BEST PRACT

39、ICE DESIGN SOLUTIONSADDRESS TYPICAL PROCESS FLAWSBest practice design solutionsStrategy development is a separate process With sufficient focus,resources and external perspective Strategy“spec”is“frozen”to enable planningClear and consistent linkages throughout plans KPIs are common threads througho

40、ut planning-consistent through strategy development,annual plan and operating plan at increasing levels of detail-initiatives prioritized based on KPI impact Annual budgets and capital allocations consistent with first year of strategic planMust commit more than just lip service to metrics and rewar

41、ds Metrics based on financial and strategic goals,include medium to long term performance Enough at risk to drive behaviorProcess has a clear intent,is tailored to company situation,and is efficient Clear guidance and targets set early in process,non-negotiable Constructive,value-added review proces

42、s Calendar and required documentation compressed as much as possibleUnderlying process design flawsInadequate focus on strategy development Compressed and folded into annual processes,under-resourced Allow unresolved strategic issues to impede planningNo linkages to drive to action Corporate strateg

43、y,BU strategy,annual plan and operating plans are separate documents with no clear relationship Actions not prioritized appropriately Budgeting is separate process and is not consistent with annual planNo accountability for results BU and individual targets not consistent with annual plan Not enough

44、 at stake to drive behaviorProcess is inefficient and lacks integrity Poorly designed,not appropriate for company situation Generates unnecessary iterations and rework Requires significant low-value data and documentation Becomes elaborate ritual for gaming and negotiation of annual budgets-15-DIFFI

45、CULT ISSUE:HOW TO BREAK OUTOF THE GAMING AND NEGOTIATION RITUAL Common problem:strategic planning hampered by gaming behavior“Sandbagging”to set low expectations for budgeting and incentive systemAll targets and budgets seen as negotiable The goal:unencumbered strategic planning with disciplined,non

46、-negotiable quarterly and annual budgetsLong and mid-range planning based on“best you can truly do”Quarterly and annual budgets that are non-negotiableRewards/punishments based purely on outcomesNo point in sandbagging or exaggerating:results are what matter Learnings from GE on how to get thereRequ

47、ires incentives based on“stretch”versus just“hitting budget”Requires flat organization and transparency of performers-everyone can see how peers are performing relative to targets-“no where to hide”clear accountabilityRequires rigorous HR function to promote the top performersRequires strong portfol

48、io of businesses-level playing field for all managers;not hampered by running an inherently poor business-16-CRUCIAL FIRST STEP IN STRATEGICPLANNING IS GETTING THE STRATEGY RIGHTCorporate Strategy and BU Strategy are Key Inputs to Planning ProcessBusiness unitsCorporate center“Freeze the spec”for pl

49、anningDevelop corporate strategy Long term goals KPIsIssue investigation(ongoing)Develop BU strategy Long term goals KPIsIssue investigation(ongoing)Description lensAdvantage lensFuture lensOptions lensSelection lens-17-BEST PRACTICE STRATEGIC PLANNING PROCESS:TOP-DOWN PLUS BOTTOM-UPKey principlesBe

50、st practice process:Aligns corporate and BU objectives,resource deployment and support mechanismsEstablishes constructive dialogue between center and BUTop down elements-center:Owns and designs processSets targets,approves plansAligns resources and compensationBottom-up elements-BU:Owns and develops

51、 BU annual planAligns detailed operating plansStrategy is developed outside of annual process and informs the process High level top-down plus bottom-up planning processCorporateCenterBusiness UnitsPlanningExecutionReview,challenge,consolidate,approve plansDevelop detailed operating plansAllocate re

52、sources to support plans,measure,monitor,rewardDesign process,set targetsResolve conflicts,iterate as requiredDevelop BU annual plan“Freeze the spec”on strategy-18-BEST PRACTICE PROCESS:DETAILED TOP-DOWN PLUS BOTTOM-UP FLOWProcess Will Be Tailored to Meet Company NeedsNote:Shading represents heavier

53、 emphasis for strategic planning process(1)Budgets,cap ex,brand plans,etc.Iterate plans to resolve issuesDevelop annual planAggregate,allocate,approveReview annual plansSet annual BU targets,provide strategic guidanceBusiness unitsDevelop corporate strategy Long term goals KPIsChallenge/defendDeterm

54、ine individualperformance metricsDevelopbudgetsMeasure,monitor,reward,adjustAllocate capital(ongoing)Corporate centerIssue investigation(ongoing)Financialand operating planningStrategy development and long-range planningAnnual planningTargetsettingPlan developmentMonitoringValue-addedreviewAggregati

55、on and approvalCommunicate with board and investorsFunctional or operatingunitsDefine process structureReviewstrategy and performanceSetobjectives and goalsDefine and quantify initiativesIssue investigation(ongoing)Develop BU strategy Long term goals KPIsDevelop operating plans(1)“Freeze the spec”-1

56、9-ALTERNATIVE PROCESS FLOWGreater Emphasis on Ongoing Strategy DevelopmentFinancial and operating planningIterate plans to resolve issuesAggregate,allocate,approveReview annual plansSet annualBU targets,provide strategic guidance“Freeze the spec”Corporate strategyBU strategyChallenge/defendAnnual pl

57、anningTarget-settingPlan developmentMonitoringValue-addedreviewAggregationand approvalReviewstrategy and performanceSetobjectivesand goalsDefine and quantify initiativesDevelop annual planBusiness unitsCorporate centerFunctionalor operatingunits(1)Event-driven and/or top priorities(2)Budgets,capex,b

58、rand plans,etc.Note:Shading represents heavier emphasis for strategic planning processDefine process structureStrategy development and long-range planningCorporateBUOngoing issue investigation(1)Determine individualperformance metricsDevelopbudgetsMeasure,monitor,reward,adjustAllocate capital(ongoin

59、g)Communicatewith boardand investorsDevelop operating plans(2)-20-BEST PRACTICE PLANNING PROCESS IS TAILORED TO INDIVIDUAL COMPANY NEEDSDesign PrinciplesFive key dimensions shape the planning processCompany must be assessed along each dimension continuumTailored process mayvary in four aspectsRelate

60、dness of business unitsLocation of strategic capabilitiesExternal environmentCEO styleFinancial track recordCompany position on each dimension has specific implications for process designCompany characteristics may have conflicting implications for process designMust weigh trade-offs,determine domin

61、ant dimensionsNot a formulaic approachIndividual business units may have distinct profiles and require different planning modelsDegree of top-down vs.bottom-up orientationNature of value to be added by corporate centerDegree of standardization vs.variations across business unitsStyle of interaction;

62、degree of formalization-21-Location of strategic capabilitiesExternal environmentFinancial track recordFIVE DIMENSIONS SHAPE THE PLANNING PROCESSEach Dimension Is a Continuum,Not an AbsoluteDimensionsContinuum of characteristicsBUs are highly related;Integrated,share significant resources or have si

63、milar KPIsHigh capability strategic thinking and/or analytic rigor at the corporate center;High value to additional support for BUsTurbulent environment;Probable need for major strategic shift(s)Seeks to“command and control,”drive accountability and avoid surprisesPoor performer;Capital markets dema

64、nd significant improvement;often capital constrainedBUs are unrelatedHigh capability strategic thinking and/or analytic rigor at the BUs;Low value to additional supportStable environment;Probable focus on staying the courseSeeks to establish autonomy and ownership at BU levelTop performer;Virtually

65、unlimited access to capitalRelatedness of Business UnitsCEO style-22-EACH DIMENSION HAS DISTINCT IMPLICATIONS FOR PLANNING DESIGNCompanies Must Be Assessed Along Each ContinuumDesigned to capture value across businessesDesigned to drive strategic thinking and rigor into BUsDesigned for maximum flexi

66、bility in changing environmentDesigned for maximum control and implementation of best practicesDesigned to drive improved performance in BUsImplications for planning designAppropriately tailored to each businessDesigned to push BUs to ever higher levels of performanceDesigned to push forward on well-charted courseDesigned to achieve corporate goals with maximum buy-in from BUsDesigned to continue successful performanceImplications for planning designRelatedness of BUsHighly relatedUnrelatedLocat