Firms that replace traditional planning with continuous, issues-based
approach make more than twice as many high-impact decisions

NEW YORK, Dec. 29, 2005 – Despite all the time and energy most companies put into strategic planning, the process produces very few worthwhile decisions, according to a new survey by management consulting firm Marakon Associates, conducted in collaboration with the Economist Intelligence Unit (EIU).

Companies following the traditional planning model – which is annual and focused on individual business units – make an average of only 2.5 major strategic decisions a year, the survey found ("major" was defined as having the potential to increase annual company profits by 10% or more). By contrast, companies that develop strategy continuously and focus on individual issues make more than twice as many strategic decisions per year (6.1), on average.

The survey’s findings indicate that traditional planning fails to influence most companies’ strategies because the process clashes with the way executives actually make important strategy decisions, which are neither constrained by the calendar nor defined by business unit boundaries.

For example, 66% of the executives surveyed described strategic planning at their companies as a periodic event, often conducted as a precursor to the yearly budgeting and capital-approval processes. Yet 100% of respondents said they make strategic decisions continuously, without regard for the calendar. Similarly, two-thirds (67%) of the executives polled said that planning at their companies was conducted business by business (i.e., focused on units or groups of units). Yet 70% of respondents said they make strategic decisions issue by issue – be it entering China, outsourcing or acquiring a distributor.

"Because traditional planning obstructs good decision-making, executives routinely sidestep the process and determine their company’s strategy and future haphazardly, without rigorous analysis or productive debate," say Marakon’s Michael Mankins and Richard Steele, who oversaw the research and co-authored an article summarizing its findings in the January 2006 issue of Harvard Business Review. "To significantly improve performance, many should make their strategy development process continuous and issues-focused so they can make more, better and faster decisions."

The survey, conducted last fall, elicited responses from 156 senior executives at large companies worldwide, all with sales of $1 billion or more. Forty percent of the companies polled had revenues over $10 billion.

Other key findings of the survey:

• Only 11% of senior executives believe strongly that strategic planning is worth the effort
• Only 13% feel that top managers are effectively engaged in all aspects of strategy development at their companies
• Companies that follow an annual planning calendar devote less than nine weeks a year to strategy development. That’s barely two months to collect relevant facts, set strategic priorities, weigh competing alternatives and make important strategic choices. "Many issues – particularly those spanning multiple businesses and crossing geographic boundaries – cannot be resolved effectively in such a short time," note Mankins and Steele.

A small number of forward-looking companies have thrown out the traditional planning model and replaced it with a continuous, issues-focused approach. In their HBR article, Mankins and Steele cite as examples Boeing, Microsoft, Diageo, Textron, Cardinal Health and Cadbury Schweppes. They also describe five practices that companies can follow to improve their strategic decision-making, such as separating decision-making and plan making, focusing on a few key themes and structuring strategy reviews to produce real decisions.

For additional background on the survey or to arrange an interview with Mankins or Steele, please contact Aviva Tropp at Marakon Associates, +1 212 377 5084.

About Marakon Associates:

Marakon Associates is an international management consulting firm that works with senior executives of large companies on the issues that most drive corporate performance and long-term value. The Economist has called it "a consultancy that has advised some of the world’s most consistently successful companies." Marakon has offices in New York, London, Singapore, Chicago and San Francisco.

About the Authors

Michael C. Mankins is a Managing Partner in the San Francisco office of Marakon Associates. Richard Steele is a Partner in the firm’s New York office. Earlier this year, they co-authored an article on strategy execution – "Turning Great Strategy into Great Performance" – which appeared in the July-August 2005 Harvard Business Review, a special edition on "The High-Performing Organization." They are currently at work on a book about strategy development and execution at large global companies.