It's that time of the year again: the strategic planning and financial forecasting (or budgeting) exercise. Every team needs to submit their strategic plans and their predictions in term of headcounts and resources needed for the next year.
The deadline for final submission is in less than a month.
One of your team members is off for the next 2 weeks on paternity leave, your customers are anxiously waiting for a new product update, and you are already late in implementing new data privacy compliance requirements.
You pull up the strategy and forecasting deck from last year. You haven’t even looked at it in the last 9 months. “Seriously...” you think as you start flipping through the pages. “How am I going to do this?”.
Most people dread that time of the year. It’s a huge effort, it distracts from day to day priorities and in extreme cases, it can even bring the company to a complete halt for weeks. And honestly, often times they feel it's a huge waste of time because they never look at it after.
Wait ... but why?
We know that strategy is super important, even critical to the success of the business. Then why does it feel like this monumental effort every time and why does it feel so irrelevant a few months later?
Because often times companies look at strategic planning and financial forecasting as one joint exercise that is done only once a year. In the worst cases, the strategic planning exercise is only used as a tool to prepare budgeting discussions/negotiations.
Team level strategy vs. Company level strategy
At its core being strategic is about making good decisions. The kind of decisions that will consistently lead to the creation of value for customers and shareholders.
High performing companies need everyone to make good decisions, every day, everywhere, not just once a year, not just in HQ, not just the CEO or the exec team.
Financial forecasting and projections are useful to understand an organization's use of resources, however, they can't help people to decide whether to turn left or right. That's what strategic frameworks are for.
The better we are at thinking strategically, the more likely we are to make good decisions and well articulated strategic frameworks help make better, smarter, faster, more confident and more aligned decisions.
How does it work in practice? There are essentially two types of strategic frameworks.
The Corporate Strategy - company level
Strategic Plans - group/team level
“Corporate Strategy” - the company level strategy
If you look up the term “Corporate Strategy” you will find many, many definitions. Not all of them are good or accurate, some are even misleading. Corporate Strategy is what most people usually think about when we talk about strategy.
In a nutshell, the Corporate Strategy is the strategic framework and the set of decisions that the CEO is ultimately accountable for. It is about choosing a unique combination of:-
A Direction: who is our audience and what are what problems are we solving for them, how are we going to change their world? This Direction (or vision) should be expressed in the form of customer-focused outcomes.
A set of Principles: who are we? Why do we exist? Expressed in terms of core values, philosophies, beliefs, etc. Those principles inform how we make big and small decisions along the way, they shape our culture and how we approach all activities.
A Structure and Operating model: How are we organized to deliver value? Based on our Direction and Principles, what teams do we need to build, how do we operate, how do we communicate, how do we make decisions, what processes do we use, who do we hire, which resources do we need, where do we invest, etc.
Those three pillars (Direction / Principles / Structure), if aligned and integrated in a way that makes it hard for other companies to replicate, will lead to the creation of sustainable competitive advantages.
Gaining a competitive advantage is not easy. If some Corporate Strategies look obvious and straightforward when we look back, in most cases they weren’t obvious at the time they were created.
For example, Riot Games (the developer and publisher of League of Legends) made some strategic decisions early on that, even though they look obvious today, were going against everything we knew about the video game industry before 2010:
Business model: free to play - back then it was the trademark of cheap casual games
Platform: PC - what was considered then by “experts” a dying platform
Format: multiplayer only - no solo campaign available
Evolution: bi-weekly patches - the game was (is still) changed every two weeks
Distribution: online - the game was mostly available for downloaded, not distributed through traditional retail stores
Marketing: organic - word of mouth and referrals were the overwhelmingly dominant form of new player acquisition
Crafting a Corporate Strategy is not straightforward, it is a mix of art and science, there is no 3 step process to finding YOUR Corporate Strategy.
“Strategic Planning” - the team level strategy
So if Corporate Strategy is the company level strategy, what is the team level strategy? That’s what we’ll call here Strategic Planning.
To explain simply what a Strategic Plan is, I’ll borrow a metaphor that Stephen Covey used in the book 7 Habits of Highly Effective People
Everyday work is like going through a jungle. We have to find our way through tall trees, thick bushes, tricky paths, and dangerous beasts. It's hard work, we regularly get lost, and we have to get around or climb over obstacles.
Crafting a strategic plan is like going up the highest tree, looking around, checking where our destination is and identifying what's the best way to get there.
The strategic plan captures our team’s view of the world and the most up to date articulation of how we hope to achieve our goals. With that as a compass and a road map, we go back down inside the jungle and get to work.
We should go up and down as often as we need in order to maintain an up-to-date strategic plan, it’s not something we should do only once a year. We should do it continuously.
A clearly articulated strategic plan provides a team with 4 key benefits:
It distills down the macro concepts presented in the Corporate Strategy into meaningful projects for the team. The CEO and the rest of the senior leadership team shouldn’t go granular. Why? Because they don’t have the context and deep knowledge to articulate the implications of a high-level decision and how it should be executed at a team level. They are in a helicopter hovering over the jungle, guiding all teams at the same time.
It is a source of motivation for the team as it clearly articulates how it fits into the bigger picture and can impact the company’s results. It creates a line of sight between what the team is working on day to day and high-level team and company goals.
It supports autonomous decision making which leads to more agile, empowered and effective teams. A Strategic Plan is a compass, a framework that helps teams make 3 critical types of decisions that teams have to make every day: - What problems should we focus on? How should we solve those problems? How can we use company resources?
It reduces the need for cross-team alignment effort. A well-formulated Strategic Plan creates transparency and visibility which empowers external stakeholders (ie. other teams) to make decisions that are related to that team proactively without constantly checking in with the team. That means less time spent in meetings, and who wouldn't want to spend less time in meetings?
When teams across the organization regularly go up that tree to create and update a Strategic Plan, that is when companies build strategic muscles.
To reinforce a point made earlier, this muscle needs to be flexed not just once a year; it needs to be flexed all the time.
We don’t build a Strategic Plan at the beginning of the year and then focus on execution for the rest of it, we need to constantly adapt and transform our strategy as our environment changes.
Changes circumstances could come from:
Change in priorities expressed in the Corporate Strategy
Assumptions we made that turned out to be invalid
Change in customers expectations
Change in competitors' strategy
New competitors emerging
Technological changes impact our customers or production capabilities
There is a never-ending list of reasons as to why we may need to adapt, change, pivot our strategic plan. We need to regularly go back up that tree, look around, understand how the landscape may have changed and adapt our plan based on what we see.
Bringing everything together
Building strong strategic muscles is the responsibility of everyone across the organization.
While the CEO and other top executives are responsible for the Corporate Strategy, it only becomes powerful when the strategy is being distilled down by crafting Strategic Plans at every layer of the organization.
The Corporate Strategy is the foundation upon which all Strategic Plans are built. It provides macro-level frameworks and decisions, it is a north star, but it is also a low-fidelity image, it’s not granular (and shouldn’t be).
Organizations truly grow strategic muscles when all teams (business lines, department, groups, teams, etc.) consistently evaluate and articulate how they are going to contribute to the Corporate Strategy.
This is how we transform a low fidelity strategy (corporate strategy) into a high fidelity one (team level strategy).
A high fidelity strategy has the depth, level of granularity and substance required to inspire teams, create a line of sight between day to day work and high-level objectives, inform daily decision making, drive alignment across the organization, and ultimately deliver meaningful impact for customers.
CEOs don't create high fidelity strategies, the combined effort of all teams across the organization does
My questions to you are:
How often do you exercise your strategic muscle?
When was the last time you created or updated a Strategic Plan for your team, group or business line?
Does your Strategic Plan reflect the realities of the environment your team operates in?
Is it being used consistently to inform decisions your team makes every day?