Core Components of the Strategic Plan: Foundational Elements

Core Components of the Strategic Plan

In nearly every engagement where my goal is to craft strategy, I arrive at a point where my collaborators or clients and I need to create a narrative of the good thinking the emerged during the many processes we linked together and begin writing a master document, sometimes call a Strategic Plan. This article covers the foundational elements of the process, discusses strategic context, outlines the possible components of strategy, reviews some the important decisions that need to be made along the way, and concludes with a discussion of the difficult transition from strategy crafting to implementation.

Foundational Elements

There is a wide variety of strategic planning documents, some are short while others lengthy, some are mostly text while others feature graphics and pictures, and some are directive while others philosophical. Yet with all of the variation some commonalities shine through. The foundational elements arise from questions and considerations derived during the strategy crafting process. This section covers the early considerations and strategic context important to developing a useful strategic plan.

More often than not, those seeking to develop a strategic plan envision a single, lengthy tome that reads like a book and provides all of the collective actions necessary to achieve greatness over a defined period of time. This sort of master operating manual for the future is the hope that entices both planners and executives. Many hold on to their dream of creating such a document. In reality, these kinds of strategic plans are doomed to being marooned on bookshelves for a number of predictable reasons. While they may be grand documents shortly after being written, they exist in a changing world and lose relevance with each passing quarter and year. Vague visions lack the detail to be actionable. Individual strategies move at their own pace and become out of synch. Resource estimates made at the point of planning quickly show their error during implementation. Staff and leaders move in and out of positions and lack the knowledge of what they are doing and why. As my colleague Don Norris likes to say, “these kinds of plans quickly turn to fairy dust” and become forgotten.

My foundational principle is to consider a strategic plan not as a single grand document but as a system of living documents of many different types developed for a variety of purposes. Here is a listing of some of the possible elements in the system of documents that become a strategic plan:

• Purpose and Assumptions – the beginning assumptions of the planning process that include things like foundations upon which strategy is based, part of current plans that should be tested moving forward, recognized conditions or commitments that are believed to be unchangeable, known future states that must be accommodated in emerging plans and actions, and beliefs about what is possible in the future. This document should answer the question, why planning now?

• Strategy – this is the heart of the strategic plan and includes components such as mission, vision, values, strategies, goals, actions, outcomes, the planning horizon, and the strategic context. I explain each of the these elements more fully in the sections that follow. For many, this is what comes to mind when a strategic plan is mentioned.
  
• Imagery – I like to challenge organizations to choose to create a single page graphic or image that represents the entire strategic plan. While I sometimes experience resistance to over-simplifying, I have found that in the end, this single page image becomes the most used and referenced document in the time that follows the planning period. Executives can quickly review their strategy with their employees, boards, customers, and publics.
  
• Implementation or action – many planners and leaders know that actions need to accompany strategy or little to nothing gets done. Given that, you would be surprised at how many strategic plans do not include sufficient detail on implementation to fully execute strategy. Beyond the specific actions required to achieve each strategy of a plan, implementation depends on how the actions are sequenced, the length of time allowed for any one action to be accomplished, who will complete the action and ensure it gets done, and what outcomes should be observed once the action is complete.
  
• Financial or funding – an even more overlooked element of a strategic plan is an honest estimation of the resources required, both human and financial. So many plans exist as organized dreams with no practical connection the realities of the complexities of resourcing implementation. New strategies are often layered on all existing operations asking individuals to go from 100% to 125% of workload. Equally disastrous is a strategic plan that creates unfunded mandates. A more sound approach is to include an integrated, aligned financial and resource strategy that accompanies vision and goals.
  
• Communication – plans can be developed in any number of ways, some written by a small but wise group, others through broad participation and input. With the latter approach, communication is part of the process from the beginning. With the former, the success of the effort is highly dependent on how the plan is communicated and accepted by those that are tasked with implementation and action. I like to suggest that communication plan accompanies the strategy, action, and resource elements in a system of documents.
  
• Units, division, or specialty areas – many individuals in organization ask how does this affect me or my department during the planning process. Strategy can exist at such an abstract organization or ecosystem level that there is no way for individuals to understand what to do. Implementation and action plans help this, but the best strategic plans ensure vertical alignment. This is the connection from top to bottom in the organization. Some strategic plans require aligned sub-plans from each of the organization’s units, divisions, or speciality areas.

For each of these elements, I like to answer each a number of questions that helps determine if we need a document or if the issue may be addressed in another way or in another document. What is the name of this document? Names are important when working with a system of documents. Further considerations are how they hang together and how they are sequenced. Who is the audience? Not every part of the strategic plan is acceptable or necessary for every audience. In many plans for example, implementation details need only be viewed by employees and managers, while important strategic statements like vision and values need to be shared very broadly. Also, some documents may need to have multiple versions for multiple audiences. What outcome does it drive? Each document in the system should exist for a reason and beyond that it should drive some kind of outcome or impact. What are the contents? This goes without saying, but we need to be thoughtful about the length and contents of each document. Short and concise is better than the alternative. And finally, how does the system of documents hang together. This has gotten much easier now with hyperlinked online material than it was in the days of bound paper.

I often use the following graphic in a strategic planning session I call the drafting workshop where I work with the plan writing team to begin to organize their thinking about the system of documents that might emerge from the planning process. Sometimes I will construct and complete a grid containing each of the questions as rows and the documents as columns to better understand the system of documents the make up a strategic plan.

All of these considerations cannot be fully addressed at the onset of a strategic planning engagement, However, without a full vetting of the possibilities, we often end with misunderstood expectations, or even worse, a failed planning process. However, with a honest dialog about the system of documents that should result from the planning process, potential is created, and the organization is better positioned for success in the process.

Insight and Limitations

Each of these innovations have brought excitement and insight for strategic planners, but each also has its limitations and planners that adhere to any single approach can become rigid in their discipline. No one approach works for every organization every time. The following analysis reviews some of these limitations, harvests the insights gained by observing planning in practice, and suggests future innovations in strategy creation.

Advantages and Limitations. Traditional strategic planning is a planning approach with familiarity, an abundance of practicing professionals, and many experienced leaders. It is an easy “go to” approach that many can do well. In addition, traditional planning gets people out of day-to-day operational mode to thinking about, envisioning, and doing something about the future – very important to do this, at least occasionally. The methodology flows logically from step to step and is easily explainable. The approach, however, is limited; it often requires a command-and-control approach to leadership, management, and organizational structure and dynamics. In many cases, plans get shelved as they age as traditional strategic planning is generally episodic and not an ongoing organizational process. And even worse, the lack of adaptive planning and course corrections can set organizations off course, cause mission drift, and take too long to recover proper direction being less responsive to changing environments.

Long-range scenario planning utilizes recognizable drivers that make sense across the organization and its environment and therefore is can be easy to explain and translate to others. The approach also introduces competing futures that need to be considered resulting in more flexible, adaptable plans than the traditional approach. A third advantage is that the scenarios that emerge from the process can often be compelling visions of the future that get people excited; scenario planning is interesting if nothing else. There are drawbacks. Long-range scenario planning is based on assumptions that require laminar dynamics, smooth predictable paths to the future. In reality, the drivers continue to have impact and interaction effects that are often unpredictable, so the approach fails to recognize the nonlinear dynamical nature of ecosystems and can be less responsive to changing environments. Unless the approach is continually updated with great insight, it can be hard to account of novelty and unexpected innovations that radically change industries and organizations. Also, harvesting insights from scenarios may prove difficult and error rates in assumptions and drivers are high. And finally, the actual reality that results over time may be a combination of several scenarios that muddies the waters in interpretation.

Action planning overcomes some of the disadvantages of traditional and scenario planning as it tests plans continually; by its inherent design it remains responsive to changing environments. The approach especially works for many managers who prefer to “do” rather than “vision” as it is very logical and practical. And to extend that thought, action planning allows for specific functions to quickly optimize their outcomes through incrementalism. Yet, action planning can easy to get off course or fall short of grand vision by doing the practical, rather than the magical. It may be difficult to maintain alignment and coordination in large organizations when many managers and leaders are operating simultaneously. And finally, action planning requires continued planning and strategy creation and, therefore, may be overly reactive to local conditions.

Strategy creation from the systems thinking is perhaps the most responsive to the environment and recognizes the nonlinear dynamical nature of ecosystems. It also blends internal and external perspectives to seek combined system health and optimize resources and positions. The approach encourages openness, partnerships, collaborations, and win-win outcomes as system health is optimized. However, this approach may be one of the most difficult to do; it tends to be heady, theoretical, and difficult to understand and continually apply. Beyond that, systems mapping is no easy task and there is the tendency to under-represent the full complexity of the systems. And in especially complex organizations and systems, it can be difficult to coordinate and manage across large organizations. There is much hope for the future of systems thinking though as computing technologies, machine learning, and artificial intelligence continue to bring new capabilities and techniques to understand and map complex systems, so there is a good chance the systems thinking methodologies are still evolving and emerging.

The final approach, competitive analysis, has seen much favor in recent years. It targets specific markets, customers, and outcomes and produces a recipe for winning. The shared understanding of strategy results in a set of five important questions captured on a single page that can shared and understood across an entire organization. The approach also naturally includes consideration and resolution of capabilities and management systems that many planning approaches do not address adequately. The approach is limited in several ways. Initially, developing a dynamic feedback loop between all five choices is not simple. The approach also forces an organization into a single position relative to the market, either low cost or differentiator when in fact there may be other advantageous positions. And finally, it is not suitable for every organization or every strategic problem.

Insights Across the Approaches. Taken together, there are several key insights obtained from evaluating the five approaches. Strategic planning done at its highest level is a blend of art and science and requires experienced professionals at all stages. The discipline and practice of strategic planning, however, has not evolved as quickly as we have seen other management tools, especially considering technology’s accelerations. We have arrived at a time where no particular strategy creation approach is dominant and no one is perfect; planners need to have awareness of all of the approaches and develop expertise across enough of the approaches to be capable. Even though the discipline of strategic planning has not produced a broad variety of approaches for leaders and planners to choose from, in most cases thoughtful decisions all along the strategy creation process can yield sufficient results. In the end, organizations must plan, so they choose from what they know. There is room to extend the tools for planners and leaders.

In conclusion. The strategy creation process has had substantial impact on organizations, governments, militaries, and other collective efforts and multiple approaches have evolved over the past 60 years that generally meet organizations’ needs. The four universal steps to strategic planning have been augmented in several ways, but we concluded that the discipline of strategic planning is in complete. The coming decades will present organizations with more challenges than they have witnessed in the last century as our world accelerates. It is quite likely that even the newer approaches to strategy creation that have managed to work for the last two decades will fail us in the near future. It is time to create new method that add value in new ways; I argue for further innovation in strategy crafting.

Early Innovations in Strategy Creation

In addition to the traditional strategic planning approach described above, it is instructive to review four early impactful innovations in strategy creation that emerged over the past 50 years, long-range scenario planning, action planning, systems thinking applied to strategic planning, and competitive advantage.

Long-Range Scenario Planning. Long-range scenario planning is an innovative planning methodology that emerged in the 1960s and 1970s, mostly from military and corporate practitioners. Early scenario planning approaches found analysts generating simulations for policy purposes which later evolved to very sophisticated culture and mindset changers by the 1980s. When broader and more complex ecosystem principles and dynamics were added through the 1990s and 2000s, scenarios evolved into complex and insightful ways to model multiple futures in convincing detail taking environmental conditions into account. The method utilizes descriptions of possible competing futures dependent on noted drivers of change in the environment. Scenarios can be simple or extraordinarily complex, but all make assumptions about the future that are tested and applied. Implementation of scenario-based plans balances insight with action in a continual evaluation of the system in which the organization is embedded.

The figure above shows some of the key dynamics in long-range scenario planning where the quest is to optimize the path from the current situation to the desired future. Scenario construction follows are relatively predictable process although there are many variants. The first step is to produce a large number of potential drivers for change then select a smaller number on which to build the scenarios. These key drivers are combined into a framework. Then it is assumed the drivers will produce a variety of potential results as they range from the best to the worst of outcomes. When the drivers are combined, certain conditions are created from which initial future scenarios (a dozen or less) are generated. Further analysis and inspection helps reduce the number of scenarios in play from ten or more to the best three or four. These final scenarios are then augmented and built into narratives accompanied by data and information that makes them rich and vivid. In the final planning steps, the implications and opportunities in each of the scenarios are fully explored to derive insight for the current situation. The desired future is navigated to by a series of actions based on these insights.

Action Planning. An early influencer and thinker in the area of action planning was Kurt Lewin, a psychologist and pioneer of social, organizational, and applied psychology. Lewin was one of the first to study and experiment in group dynamics, organizational development, group communication, and action research. Combining action research with other innovations like force field analysis, leadership, change processes, and group dynamics, Lewin practically invented action planning yet was never recognized as a traditional strategic planner. More than two decades later, organizational learning is a variant on action research, which emerged in the 1970s especially from the works of Chris Argyris and Donald Schon. The primary focus of organizational learning is the creation and transference of knowledge within an organization. The concepts of single-loop and double-loop learning extend the simple four stage action planning cycle (depicted in the figure on the next page). Double loop learning allows organizations to continually reevaluate their strategies and goals instead of merely reassessing their actions and outcomes. Often both kinds of learning are occurring in organizations, but planning extends these processes by making them intentional. Single-loop learning occurs when an organization observes mistakes and corrects them, yet continues their strategic course. Double-loop learning occurs when an organization observes mistakes then purposefully changes its strategies and goals to produce better results.

Action planning, like its counterpart action research, is a method for taking action, observing the results, and continually modifying course. There are four steps in the process that form the action planning cycle. Initially plans are made, strategy is formulated, and actions are determined much like the traditional strategic planning method. Then action is taken and while the best course of action is hoped for, there is an understanding that many actions will have unknown or unexpected consequences. These consequences, both positive and negative, are closely watched and monitored. When the actions move the organization away from its hopeful destination, adjustments in course or made and plans and future actions are reformulated. The innovation here is the cyclical nature of action planning. The cycle is ongoing and morphs in response to changing conditions. These cycles can be long or short, but they are generally much shorter than the multi-year cycle of traditional strategic planning. Action planning can be applied as a strategic or tactical technique depending on the range of plans, focus of the actions, aspects that are monitored along the way.

Systems Thinking. At first glance at the figures, systems thinking may appear as an incremental innovation on action planning, but in reality the innovation is much more. Systems thinking arose out of the life sciences in the late 1880s as evidence mounted about the interdependencies of living things and their environments. This thinking was dramatically opposed to the pervasive linear paradigm of basic science, cause and effect, and scientific management. It spread rapidly as a revolution as the limits of linear thinking were evident. Driven by new insights in the science of chaos and complexity theory, by the 1960s systems thinking reached organizations and planners began to take note. In the last three decades, strategic planning based on systems thinking has more fully emerged. It is dependent on a mindset based on nonlinear dynamics, complexity beyond simple explanations, ecosystem qualities and dynamics, and mathematics only recently understood due to advances in big data analytics. The figure below shows an organization’s ecosystem with basic planning mechanisms.

Strategic planning from the systems perspective is highly dependent on understanding and intervening in the broader environments and ecosystems in which the organization is embedded. In the figure, the cloud represents an organization as it continually interfaces with its environment and ecosystems. Within this larger system, the organization activates multiple feedback loops to create action. Each of the these feedback loops has three components: understanding, mapping, and taking action. Understanding is a blend of qualitative and quantitative analyses and syntheses of results. These results are them mapped to portray the dynamics of the portion of concern of the overall ecosystems. From these maps, action plans are built, actions are taken as interventions in the system, and observations are made that enhance understanding. A number of these feedback loops are activated (the figure above shows two) and simultaneously manipulated to drive changes in the external ecosystem as well as the organization’s systems. Strategic planning from the systems perspective is not for the faint of heart or inexperienced, but the results can be transformative resulting in much broader environmental impact if the organization has the capacity and perspective necessary to endure long-term system change.

Competitive Advantage. There are many methods for building strategy based on competitive analysis, but here I will select one as example taken from the book Playing to Win: How Strategy Really Works (2013) by A.G. Lafley, Roger Martin, and Jennifer Riel. The authors suggest that “Every organization must find a combination of where to play and how to win that is appropriate, doable, and decisive for it, within its unique context.” and when entering a competitive marketplace… “Strategy is a choice; it is a set of choices about what we will do and what we will not do, so as to create advantage over the competition.” They base strategic formulation on five questions shown in the figure as interconnected choices –What is your winning aspiration? Where will you play? How will you win? What capabilities must be in place? What management systems are required?

A winning aspiration is far more specific and direct than a mission or vision statement. It describes what winning is, includes tangible outcomes that may result from winning, gives specific details about the particular places and particular ways in which it will happen, and makes reference to competition, customers, and winning. The playing fields represents a set of choices that narrow the competitive field here the organization chooses to compete and specifies in which markets, with which customers, in which channels, in which product or service categories, with which competitors, and at which vertical stages of the industry.

The method for winning describes how the organization will win and is dependent on where it decided to play; this should include determinations of how to create unique value, how to sustainably deliver that value to customers, and how to hold competitive advantage, either by having lower costs or through differentiation. Next, organizations must focus on a finite number of key activities to make the difference in winning and losing. These core capabilities bring where-to-play and how-to-win choices to life, focus more on what the organization needs to do win in new markets, self-reinforce, and set the organization apart from competitors. Finally, the authors suggest that to truly win, an organization needs management systems in place to support and measure the strategy that include robust processes for creating, reviewing, and communicating about the strategy, support management of the core capabilities, and metrics to determine whether a strategy is working or not.

Common Paths to Strategy Creation

Common Paths to Strategy Creation

Strategy – even given its weighty impact, or lack of as the case may be, on organizations, governments, militaries, and other collective efforts – is not rocket science. In fact, there have not been many novel ways to generate strategy invented in the last 200 years. This article explains four universal steps to strategic planning that exist across the many approaches and variants of strategy creation. I then move on to depict, compare, and contrast five different variants of strategy generation popular over the last four decades. Finally, I explore the insights and limitations of the approaches and go on to establish the argument for innovation in strategy crafting, upon which the remainder of my writing will focus.

A Typical Path and Steps

Traditional strategic planning rose to prominence in modern organizations in the 1960s and continues as a core aspect of leading and guiding organizations today. Overall, the process results in direction setting, choices for action and decisions, and implications for resource allocation and management. Strategic planning is often a facilitated process, led by specialized strategic planners, organizational leaders, and a variety of analysts and participants.

There are four universal steps that many have used to generate strategy with traditional strategic planning techniques. Initially the need arises to engage in the generation effort and is followed by an assembly of facts about the environments internal and external to the organization. Then the actions are organized into some kind of short list of things to do and priorities are selected. These selected strategies and goals are often organized into a hierarchy which is then prioritized. Finally, an attempt is made to add enough detail that it makes sense to take action. Sounds simple, but there is more to it.

The graphic below depicts the four stages in the traditional strategic planning process.

Recognize the Need. There are many ways an organization comes to the strategic planning process. For those with a history of planning, a common signal is the approaching expiration of the current strategic plan. Often a year or so ahead this date, a planning period is launched. The process can also be triggered by other events such as a new executive taking the helm, significant changes in the organization’s environment, changes in organizational purpose or mission, or demands of an outside entity or agency such as a regulator, accreditor, or new owner or major partner. Whatever the initial driver, once the leadership team realizes the time is right, significant preparation needs to get underway to ready for strategy creation. Key activities of this stage include discovering and putting form to the existing strategic issues, updating and evaluating progress on prior plans and efforts, inventorying any significant changes within the organization or its environment, and generating an early draft of the key planning assumptions that will guide the effort.

Gather Facts. The second stage of the traditional strategic planning process is generalized by the gathering, organizing, and synthesizing of facts. There are a variety of tools and techniques that include traditional research, collecting secondary research from others, surveying the external landscape and environmental scanning, and forecasting. Many traditional planners recommend SWOT analyses (strengths, weaknesses, opportunities, threats), where internal and external forces and factors are identified and sorted based on the kinds of effects they are having or could have on the organization, its customers and partners, and its industry broadly. SWOT analyses may be inclusive of or augmented by internal organizational assessments to diagnose strengths and weaknesses. Other traditional strategic planners conduct deep environmental scans often using the PESTE framework (political, economic, social, technological, environmental). Many also include competitor analyses during fact gathering. Relatively newer tools give planners the ability to develop sophisticated forecasts and foresight which is useful in more dynamic markets where change is occurring rapidly. Key activities of this stage include selecting the tools and techniques to be used to gather and organize data, a data collection and analysis period, and a series of conversations aimed at making sense of all of the information.

Organize and Prioritize. The key outcome of this stage is the formulation of strategy and setting of goals that form a strategic plan. While the environment is changing dynamically, the organization needs to envision its future, identify the opportunities, formulate specific strategies and goals, and prioritize their importance. The idea of generating SMART goals during strategic planning has been traditionally recommended. SMART goals are Specific – target a specific area for improvement; Measurable – quantify or at least suggest an indicator of progress; Assignable – specify who will do it; Realistic – state what results can realistically be achieved, given available resources; and Time-related – specify when the results can be achieved. Generating a strategic plan is a topic that requires greater discussion. Key activities of this stage include harvesting insight, uncovering gaps, formulating strategy, building a plan, and setting reasonable goals.

Act and Monitor Progress. The final stage of traditional strategic planning goes beyond making plans to taking action. The strategies and goals formulated in the strategic plan need to be operationalized in such a way they can be understood and achieved. Often, strategic plans include specific recommendations for actions, or they may be augmented by detailed action plans created during the strategic planning process. The second part of operationalization is resourcing the plan. This requires that the organizational structure is readied for action, the necessary resources are gathered or anticipated, and communication is high. This ensures that the drivers exist for implementation and change accompanied by mechanisms for control and feedback. The third part of operationalization is building the measures, metrics, and scorecards or rubrics that allow for the strategies and goals to be monitored and evaluated. Monitoring and evaluation should result in any necessary course corrections so that strategy can remain adaptive to changing conditions. Key activities of this stage include generating action plans, taking action, monitoring impacts and outcomes, and adjusting course to manage toward the strategy’s hopeful end.