How small changes to traditional strategic planning processes can make a big difference

Every organization faces an ever-present tension between short-term and long-term results. What promotes the one often hinders the other. Yet every manager must strive for both: performing well today and, at the same time, building for a strong future. As Peter Drucker put it, "He must… keep his nose to the grindstone while lifting his eyes to the hills — which is quite an acrobatic feat." In most organizations, performing such a deft double act is the job of the annual planning cycle. Well, that’s how it’s supposed to work. But for many companies, the reality is quite different.

The process on paper looks something like this: The corporate center issues guidance to the business units on desired overall financial results and invites managers to develop multiyear plans. Managers are asked to submit plans with the highest net present value and to bid for the resources they need to implement them. Each business unit discusses its strategy with the corporate center, which then adds up all the resource requests and performance projections.

Inevitably, there is a gap: more resources requested and less performance promised than the top-down guidance requires. Managers are encouraged to revise their plans. Resources are prioritized according to payback rates and whether they are discretionary or not. Attention is given to the long term by developing multiyear plans and considering net present value. Pressure is put on the short term through upfront guidance, by using payback rates and isolating discretionary spending. The result is an accommodation between short-term results and long-term investment.

Well, that’s how it’s supposed to work. But for many companies, the reality is quite different.