By Michael C . Mankins



Strategic planning at most companies doesn’t really matter anymore. Sure, the process often consumes an enormous amount of time and produces reams of data, but rarely does it drive top management’s decisions or a company’s overall strategy.

Why? Well, for starters, the model most companies use for strategic planning is not well aligned with the way executives make decisions. Indeed, strategic planning at most large companies is a "batch" process – market and competitor information is first analyzed, threats and opportunities are identified and, at the end of the process, a multi-year plan is defined. This process usually takes place annually in strict accordance with a predetermined planning calendar. Strategic decision making, by contrast, happens continuously – often driven by an immediate need for action – and does not conform easily to a pre-set schedule. Strategic decision making has no clear beginning and no real end.

Ultimately, strategic planning can’t have impact if it doesn’t drive decision making. And it can’t drive decision making as long as it remains periodic and calendar-based. Thus, the only way to make strategic planning matter is to change the basic model.

Why Traditional Strategic Planning Fails
In our experience, the batch model for strategic planning has at least two major shortcomings:

1. The Time Problem – At many companies, the strategic planning process does not afford management sufficient time to address the issues and opportunities that most affect performance. Many issues – particularly those spanning multiple businesses, crossing geographic boundaries or involving entire business systems – cannot be resolved effectively in a three- or four-month planning window. As a result, executives do not use the strategic planning process to address these complex problems. They turn instead to some other process for guidance and make their most difficult strategy decisions outside the planning cycle.

Take Gap Inc., for example. The company has been a significant under-performer in the U.S. retail sector for most of the last three years. Its three major brands – Gap, Banana Republic and Old Navy – have all experienced declines in market share and same-store sales. Arguably, Gap Inc.’s core business model is broken, and senior management must therefore rethink the company’s target customers, merchandise strategy, pricing, real estate portfolio and supply chain, among other things. Is it realistic to expect Gap management to do all this in the few months allotted for strategic planning? Of course not. Such fundamental issues may take years to resolve. Thus, we suspect Gap management will choose to confront these challenges outside the regular planning process.

Gap Inc. is not alone in its inability to sort through complicated strategy issues during the planning cycle. Most executives are well aware of The Time Problem. They know that the time required to address many of their strategic priorities does not fit well with the annual, calendar-driven model for strategic planning.

2. The Timing Problem – Even when the time allotted for strategic planning is sufficient to make tough decisions, the timing of the process often creates problems. Markets and competitors are dynamic. New threats and opportunities emerge that cannot possibly be predicted in a traditional strategic plan. When these threats and opportunities arise, executives can’t wait until the next planning cycle to take action. They must act quickly to safeguard the company’s performance.

   Consider the experience of The Boeing Company. On September 10, 2001, the commercial aircraft manufacturer had a comprehensive strategic plan. Like many companies at the time, it faced a slowing economy, lackluster demand and fierce competition from a formidable rival (Airbus). Still, no matter how rigorous Boeing’s strategic planning process may have been, the company’s strategy had to change radically after September 11. New product development investments that may have made perfect sense prior to the terrorist attacks could not be justified afterwards. Opportunities that may have appeared promising in early September probably evaporated in the wake of 9/11. Thus, when Boeing management decided in mid-September 2001 to lay off 30,000 employees to cut costs, it was not the result of anything spelled out in the company’s strategic plan. Rather, it was management’s timely response to an urgent need for action – one that saved the company millions of dollars.

   The Timing Problem isn’t limited to major external shocks like 9/11. Indeed, mergers and acquisitions frequently fall victim to The Timing Problem. M&A opportunities often emerge quite spontaneously – the result of management changes at a target company, the actions of a competitor or some other unpredictable or serendipitous event. Faced with a promising M&A opportunity and limited time in which to act, executives don’t wait until the opportunity can be evaluated as part of the annual planning process. Rather, they assess the deal and make a timely decision. Thus, despite the fact that M&A can have a tremendous impact on a company’s strategy and performance, more often than not the timing of these decisions necessitate that they be made outside the planning cycle.