# Strategic Planning These are a series of documents that I wrote in 2002 related to strategic planning. I will save them for potential reference. # References / Links January 10, 2002                                                         1.                              Strategic Planning Final.doc **Strategic Planning** by James B. Berger **Introduction** In the process of writing these articles over the last year or so I have attempted to group related topics together. Someone pointed out to me that I should fill out some details on a couple of related topics. Beginning on March 20, 2001, I published a series of articles describing the Organizational Architecture. Then on June 19, 2001, I published Developing an Organizational Strategy, which describes the relationship between the Organizational Architecture and the Business Strategy. I did not, however, provide many details about the specifics of developing a strategic plan. Let me fill in that gap. Before I begin, I would like to disabuse you of a popular misconception—that business leaders write business plans solely for the purpose of raising money. Although many people do that, they generally end up contributing to the statistics of business failures and investor losses. Successful business people, however, make plans, and they work those plans. The leaders of the best performing businesses create dynamic plans that they live with daily. Also, I do not intend this article as an exhaustive description of business planning. I have attempted to focus on correcting some misconceptions and adding some overlooked processes that you should include in your planning process. You can think of planning a business as similar to planning a trip. **Before** you begin the trip you decide: 1) where you want to go, 2) what mode of transportation to use, 3) who you want to (or should) go, and 4) what vehicle, equipment, supplies and plans will you need. People commonly think of this step as just part of advanced planning. In fact, this step helps create a _vision_ of the trip—what things look like at the destination. Envision you and your friends standing by the bus at your destination with all your gear. **Next,** you must assess your current situation. You need to know: 1) your current location, 2) what mode of transportation can you use (Do you have a drivers license, pilot’s license, or bus ticket?), 3) if your prospective companions want to go, and 4) whether you have the vehicle, equipment, supplies and plans will you need or will have to acquire them. This second step defines your _current reality_—what your situation looks like before you start.  It seems so simple and obvious that many people overlook important detail included in that step. **Finally**, after you have defined your vision and current reality, you can plan the strategy of the trip. The strategy, by contrast, deals with how you plan to get to your chosen destination—what hours of the day you will travel, who will drive (if your travel by car), what activities such as sightseeing you will engage in along the way. **The Organizational Architecture** Just as you create a vision of the conclusion of a trip and an assessment of the current reality before you plan the details of the journey, defining a _vision_ and the _current reality_ precedes making a strategic plan for your business. (I need to point out that my trip analogy has one important weakness. When you start a business, you want to create something that will take on a life of its own and endure. You must consider that people will make much greater and longer-term commitments to the business than they will to taking a trip. This makes a higher level of care and detail in planning a business extremely important.) You should define your vision and your current reality in terms of the structure of the organization—what will your business look like in the future and what does it consist of now. The Organizational Architecture provides a universal method for describing you business organization—now and in the future. The following elements make up the Organizational Architecture: n    Guiding Ideas n    Processes & Methods n    Community n    Infrastructure & Tools I describe these elements in detail in the articles beginning with: Organizational Architecture. **The Organizational Architecture – Continued** **The Vision** The Organizational Architecture changes as a byproduct of the execution of any business strategy. Even in the most stable organizations, equipment wears out; people get older, attitudes change, and the environment changes. You should, therefore, create a vision of the future architecture of your organization as an integral part of your business plan. A vision of the future Organizational Architecture provides you a definitive image of what you want your organization to become. You should take care to define your vision of the future Organizational Architecture in significant detail. The details provide you with a clear picture of the business that you want to create with your current efforts. The vision of the Organizational Architecture also becomes the launching point for longer-term strategic planning. **The Current Reality** Even a completely new business has all the elements of the Organizational Architecture. Frequently you might hear of businesses that someone started with **just an idea**. If you talk to the founders, however, you might hear, “Joe and I [Community] started assembling [Processes & Methods] widgets as a hobby [Guiding Ideas] in our garage [Infrastructure]. Friends [Community - customers] became interested in buying our widgets. So, we decided to create a business [Guiding Ideas]. I put in $500 [Infrastructure], and we started to sell them [Processes.]” So, you can see the development of the Organizational Architecture as the business starts to grow. Although all of these elements exist, in the case of starting a brand new business I suggest that you focus on your Guiding Ideas. Well thought-out Guiding ideas can save a lot of agony and crisis management later on. See Guiding Ideas for a more detailed description of the Guiding Ideas. If you base your planning on an existing business, you must consider the Guiding Ideas in the context of the other architectural elements. It might prove a little impractical to develop the vision of an airline business if you already own a fleet of taxis. Many books and programs about business planning suggest that the creator start with market research. They argue that an entrepreneur needs to know the potential for his market before he begins completing his strategy. I believe that places too much importance on data about current and past conditions. I suggest, instead, that you, the business plan creator, should emphasize _principles_, _theories_, and _values_. You should place more importance on understanding **why** you can expect your potential customers to act in certain patterns than **how** they have behaved in the past. Definitely use good market research when it helps to support your theories, but also consider that many successful businesses have developed products that did not previously exist. They began with _principles_, _theories_, and _values_, which they coupled with a powerful vision. (Although the best sequence for developing your Organizational Architecture consists of _vision_ then _current reality_, when you publish your plan, you might decide to place the vision after the strategy. You can make that editorial decision.) Once you have defined the Organizational Architecture—as a _vision_ in the future and in terms of the _current reality_ (particularly the Guiding Ideas)—then develop the business strategy. **Business Strategy** The strategy for all businesses, regardless of size, consists of five elements: 1) Product Development, 2) Operations & Administration, 3) Management & Personnel, 4) Marketing & Distribution, 5) Finance. The details of these elements vary considerably between businesses, but just like snowflakes, they all share the same basic structure. You should develop your strategic plan in a serial or linear fashion—in the same order given. Do this because a logical sequence exists in the design of the business functions. I will give a brief description of each of the five strategic functions together with an explanation of how each fits into the logical series: **Product Development Strategy** The products[1](#_ftn1) your organization sells embody its mission. The mission defines the benefit the organization intends to supply and the company’s products represent the form in which the company delivers those benefits. The product development strategy describes the manner in which the company designs new products, and updates and modifies existing products. Even though product design must consider production methods, don’t confuse product development with production. Product development represents an important strategic function because it helps position the business in the market by responding to the needs of the consumer and meeting the challenges of the competition. You create the product development strategy **first** because it provides the link between your business and your customer, and it provides the focus for the other functions of your company. In addition, the real product of your business consists of the business itself. You don’t want to just provide a one-time product for your customer. You want to create a long-term relationship with your customer. You want your customer to always look to your business to satisfy the particular need you have designed your business to satisfy. In short, you want your customer to “buy” your business. **Operations & Administration Strategy** The Operations and Administration function represents the core of the activities of your business. In developing this strategy, you define how your company will produce your product and how your organization will operate. The details of this strategic function will vary significantly from organization to organization. You will have to define the details for your business. You must develop your Operations & Administration Strategy after the product development Strategy because you base the design of these functions on your business products. For example, the operations and administration of automobile manufacturing business will differ from that of a computer networking business. **Management & Personnel Strategy** The success or failure of your business organization ultimately depends on the people in the organization. In the Management & Personnel Strategy, you define how your organization will hire and aid the self-development of the people in your organizational community. That community includes members of your organization and those that provide professional services to your organization. The characteristics of the people that you should include in your organizational community depend on the products you offer and the operations you design to produce those products. You can only determine the talents, skills and abilities needed in your organization after you have defined your products and operations strategies. **Business Strategy – Continued** **Marketing & Distribution Strategy** Next, your must determine how your organization will alert potential customers to the availability of its products and through what distribution channels it will deliver those products. Your marketing and distribution strategy addresses those questions. Authors have devoted whole books to the development of marketing strategies. They describe a myriad of ways to conduct marketing and distribution—some effective and some not. Follow that marketing advice that best fits your business. But I caution you to NEVER separate the marketing plan from the rest of the business plan. You need to integrate marketing with the rest of the business functions. As I have suggested before, marketing and distribution should sell and deliver your whole business. It can only do that as an integrated part of the whole entity. I recommend that you develop your marketing and distribution strategy after your management and personnel strategy primarily because of the integrated view of the business as a product. You should build a marketing strategy with a sense of the people that belong to your organizational community. You will include them in the product that you sell. **Finance Strategy** Your finance strategy deals primarily with the allocation of the resources use by your business. This strategy deals with finding and delivering the resources for all of the functions designed before it. Because of the finite amount of resources, finance also becomes a sort of strategic governor. You might have to modify previously defined strategies if they require more than the available resources. In is important to understand, however, that the other strategies drive the finance strategy—not the other way round. Too frequently, business planners develop financial objectives before they know their feasibility in terms of the other business function. Don’t let your organization become a slave to financial plans. And, don’t develop the other plans without considering financing. I would like to correct a couple of common misconceptions related to the finance strategy. First, people frequently mention _finance_ and _accounting_ in the same breathe as if they belonged to the same strategic function. _Accounting_, however, belongs to the operations and administration function not the finance function. Those responsible for managing resources simply receive and use information generated by the accounting process. Separate the processes of counting beans from that of sowing them. And second, you should include product pricing as a part of the marketing function. What customers willingly pay for your products ultimately determines their prices, not your profit objective. Obviously, you should develop pricing strategies in conjunction with finance strategies, but you cannot sell products at a price the customer will not pay. To this argument, some people object that sales and marketing people always want a lower price to meet the competition. But I say I have never met a salesperson who cannot understand the importance of selling at a profit. If you have sales people wanting to sell themselves out of a job, give them a head start. Find them an out-placement counselor. With the development of your finance strategy, you have completed only the first cycle of the strategic planning process. You should employ strategic planning as a dynamic and cyclical process in which your organization continues to adjust and adapt its business strategy. Cycle through the process using the same series of steps that I have just described. **Interdependent, Interactive Functions** So far, I have stressed the importance of using a linear approach in developing your business strategies. You need to plan the activities of one function before you can know what activities to plan in the succeeding functions. This linear planning process also allows you to assure that you accommodate the interdependent and interactive nature of your business functions. You should involve all business functions in developing the strategy for each of the individual functions. Table 1 depicts the interdependent and interactive relationships of the business functions. The left hand column represents _strategic actions_ you plan for each of the functions in your organization. The top row represents how those _actions_ **affect** the same set of functions. The boxes where _actions_ and **effects** intersect represent the interaction between these functions. The boxes on the diagonal, where the names of the functions intersect with themselves, represent the processes involved within the functions. | | | | | | | |---|---|---|---|---|---| |**Effects**<br><br> **Actions**|**Product Development**|**Operations / Administration**|**Management / Personnel**|**Marketing / Distribution**|**Finance**| |**Product Development**|**Process**|**Interaction**|**Interaction**|**Interaction**|**Interaction**| |**Operations / Administration**|**Interaction**|**Process**|**Interaction**|**Interaction**|**Interaction**| |**Management / Personnel**|**Interaction**|**Interaction**|**Process**|**Interaction**|**Interaction**| |**Marketing / Distribution**|**Interaction**|**Interaction**|**Interaction**|**Process**|**Interaction**| |**Finance**|**Interaction**|**Interaction**|**Interaction**|**Interaction**|**Process**| _Table 1. Interdependence and interaction of strategic functions._ You can use a table like this to determine interaction and interdependence of the functions in your business. For example, your marketing and distribution function depends on the operations and administrative function to produce the products it sells. A marketing function that plans to sell significantly more or less than operations can produce will either irritate customers or waste production resources respectively. I believe that using this interaction matrix will help to strengthen the results of your strategic planning process. It also represents one of the important tools that never appears in a published business plan. **Process to Structure** The processes of living systems naturally manifest as structure. The physical tree, for example, manifests from the growing processes of the tree. Similarly, the structure of your organization will change and develop as your organization carries out the processes in each of the five functions. The product designs that emerge from your product development strategy become part of the **Infrastructure And Tools**. The activities defined by your Operations and Administration Strategy make up the **Processes and Methods**. The processes of your Management & Personnel Strategy will manifest as the “internal” part of your organizational **Community**. The execution of you Marketing and Distribution Strategy, on the other hand, emerges and the “external” part of your organizational **Community**. The processes of Finance Strategy appear as part of the **Infrastructure And Tools**. All of the organizational processes influence the development of the **Guiding Ideas**. **Conclusion** The following steps briefly summarize constructing a sound strategic business plan: 1)   Clearly define the Organizational Architecture of the business as you envision it at a specific time in the future. What kind of a business do you want to create? 2)   Honestly define your current architecture. What do you have to start with? 3)   Develop strategies for the five basic business functions in the following order: 1. Product Development 2. Operations and Administration 3. Management and Personnel 4. Marketing and Distribution 5. Finance. 4)   Because of the interdependent and interactive nature of the functions, make sure to consider all the business functions when you plan each individual function. Finally, keep organizational structure in perspective with strategy. Both structure (as represented by the Organizational Architecture) and strategy play important roles in strategic planning. But I recommend that you place more emphasis on designing a sound systemic structure. In the long run organizational structure will have more influence on patterns of behavior and thereby performance than will strategy. I realize that only a few people share my opinion, so let me explain. The systemic structure of an organization includes the assumptions (or mental models) of the people in that organization—a point that people frequently overlook. When the organizational community members share the same set of principles, theories and values that your organization has adopted, it produces organizational alignment. Everyone sings from the same sheet of music so to speak. This alignment and congruence produces significant strength and flexibility in the organization. It can adjust and adapt to situations the strategic plan does not include. Military history has many examples of small forces overcoming superior strategy because the strength of commitment based on shared principles, theories and values. The Constitution of the United States provides another example of the enduring strength of systemic structure. In short, don’t underestimate a band of zealots. And excellent strategies will not make up for weak organizational structures. This article was published on Suite101.com January 10, 2002.  Copyright © James B. Berger --- [1](#_ftnref1) I use the term _products_ to mean both _products_ and _services_. Although the words have subtly different meanings, you must deliver _products_ and _services_ as a package. When a hardware store sells the _product_ called _drill bit_ it also sells the _service_ of _hole making_. Conversely marketing intangible products requires making them tangible to provide a way for the consumer to differentiate them from similar services.