Strategic planning is like chess

WHAT IS STRATEGIC PLANNING?

The essence of strategy is in the activities:
Choosing to perform activities differently or to perform different activities than rivals.

In its simplest form, strategy consists of only three things: Information, Choices, and Actions. Similar to how a game of chess only has three sets of objects (a board, white pieces, and black pieces). And much like a game of chess, there are competitors present who are always trying to take our market share, or make sure that we don’t get to take theirs.

Strategic planning is an ongoing process. New information is fed into the Strategic Cycle continuously, which impacts the choices available and the actions that are taken. In recent years, there has been significant experimentation with strategic planning and the need for strategic planning when creating a new business. One of the biggest agents of change in strategic planning has come from the Lean Startup movement. There are many merits to the Lean Startup approach, but for this article we will focus on more traditional strategic planning. If you’re interested in Lean Startup, see our post on Defining Your Problem Statement in Ed-Tech.

Strategic Cycle

The three core components of strategy, Information, Choices, and Actions, are interlocked and feed into each other in a cycle. Information forms the basis for our choices. In turn, our choices form the basis of our actions. Our actions lead to new information which we use to plan our next set of choices and begin the Strategic Cycle all over again.

Strategy is often thought of as being more of an art than a science. In many ways, strategic planning is one of the most artistic and creative activities an entrepreneur or corporate manager can do. In the Strategic Cycle, there are three points of pure artistry that we must pass through when from one step in the cycle to the next. These three artistic elements are:

  • Making Assumptions
  • Assessing Capabilities and Competition
  • Processing Results

The total Strategic Cycle is illustrated below:

Strategy Cycle by Lean Education Lab

We have identified the main components and flow for the Strategic Cycle, and have an understanding of how they fit together. Next we will look at the components individually and further expand on what sub-activities could be occurring at each stage in the cycle.

Information

The first step for starting any type of focused strategic planning initiative is to gather information. Think of the information gathering requirement as being like the radar on an airplane. Sure, it is possible to fly a plane without using a radar, if the pilot is good and the weather is always sunny. But every passenger who has ever flown on a plane will tell you that they prefer the pilots have a radar for when it gets dark and the weather gets stormy.

While there is no definitive process for gathering information as part of your strategic planning processes, for general strategic planning there are some pretty standard boxes you can check off to make sure you have good starting information to begin your strategic planning. Following, we will look at some of the most important pieces of information you should consider gathering when you kick off your strategic planning.

Vision

It may seem strange to start off the information gathering process with company vision. But you would be shocked at how many strategic planning initiatives are completely unrelated to the company’s vision. If your strategic planning is not aligned with your company vision, it will fail. It should fail. And if it succeeds, the project manager should be promoted to your next CEO. Most companies have their vision and mission prominently displayed on their websites, internal literature, and spoken about in company meetings. Confirming alignment with your company Vision and Mission should take 5 minutes or less.

If you are a new entrepreneur or thinking about venturing off on your own, fairly early in your startup planning process you should start thinking about your company Vision and Mission.

Objectives

No coordinated work should be done without first setting objectives for what you are hoping to do. There are two types of objectives:

  • Strategic Objectives: Long-term, far reaching, vision-compliant plans for the future.
  • Management Objectives: Short-term operational objectives which often follow the S.M.A.R.T. goal planning structure and were popularized by Peter Drucker. We are not covering management objectives as part of our strategic planning process, though we recognize their importance for executing strategy.

Strategic objectives are like anchors on a ship. They prevent the strategic planning process from drifting off course. It is sadly quite common for there to be no objectives, or poorly defined objectives, for teams engaged in strategic planning processes. Objectives also unify all team members understanding of what they are trying to accomplish with their strategic planning. The greater the understanding of the strategic objectives, the greater the focus the team will have throughout the process.

Review Existing Data

At the start of any project or planning process, ALWAYS review existing data that you have from previous processes. There is no reason that strategic planning processes, or projects should start from scratch every time. Especially if you are planning to do detailed market and industry analysis as part of your strategic planning, you do not want to start from the beginning every time. One of the biggest inefficiencies in companies across the world and in every industry is the lack of knowledge sharing at the start of a project from people who have completed similar projects or processes in the past.

Industry trends

There are a wide variety of approaches to researching and understanding industry trends, and how much information you really need to gather about industry trends. For smaller businesses, or startups, the general trend analysis is enough. For small businesses and startups, trend analysis is like looking both ways before crossing the street. You just don’t want to be hit by a car. For bigger companies, or for large strategic initiatives, trend analysis will need to be much more detailed because the stakes are so much higher.

Competitor profiling

Having a system for identifying and profiling your competitors is a strategy in and of itself. There are many reasons to profile your competitors. One of the most important is to get an understanding of what your competition does well and what makes them succeed. In sports, athletes must adjust their strategies to match their opponents. In business, it is the same. For your main competitor profiles, it is helpful to create a consistent template that you can use for all competitors. This makes information sharing much easier among your own team.

In general, the information you want to gather about your competitors are:

  • Company name
  • Revenue
  • Founding date
  • Key people
  • Sales trends
  • Product categories
  • Recent strategic decisions

Market Size and Segmentation

Understanding your total market size and your segment in the market is very important information for figuring out the size of the total strategic opportunity. In general, small markets have weaker competitors and are easier to dominate. However, dominating a small market doesn’t make sense if the costs of dominating it are far more than the revenue you can take from it.

Market Segmentation is another type of science and is outside our general strategy discussion. We will follow up with some articles specifically discussing market segmentation in the future.

Assumptions

Now that you have collected your information, what comes next? Well, before you can line up your menu of choices, you will first need to add to your information your assumptions for what YOU predict will happen. Strategic planning is a process for positioning yourself in the future. Therefore, you must make assumptions on what you think could happen, and what the future state of the industry will look like when your assumptions play out.

Among your assumptions will such things as:

  • Market growth rates
  • Potential market share % your business can capture
  • Costs of acquiring new customers
  • Critical success factors for the market segment

Your assumptions are used to create and share several potential future states of your business or the market, and find several potential paths for how to reach that future state.

Choices

Now that you have gathered your information and made your assumptions, it is time for the fun part of strategic planning. You now have all the information you need to make your choices. When organizing your information into clear choices, you should reflect back on the strategic objectives you set at the start of the strategic planning process. The choice or choices that you make should be the ones that produce the greatest potential benefit in relation to your objectives. It is at this moment that strategic planning processes that did NOT set clear objectives start their march to failure, because they never defined what success looks like.

When initially analyzing your choices, you do not need to be constrained by limitations of resources or capabilities. These have already been included as filters by the objectives you set earlier. Rather, this is the moment to think about what the future could be, and not what your present state is.

S.W.O.T.

Assessing Capabilities and Competition

After you have lined up your choices, the next step is adding a dose of reality to your planning and determining what the risks and competition look like. This stage of the Strategic Process is where you will be defining three things:

  1. Your INTERNAL situation
    • What are your company’s strong points?
    • What are your capabilities?
    • What challenges are you facing as an organization?
    • What is your resource situation like?
  2. Your EXTERNAL situation
    • Who are your competitors?
      • What do they do well?
      • How will they react to your decisions?
    • What other new products are potential substitutes to your product?
    • What is the materials supply situation like?
  3. Your MACRO situation
    • What is the national or global economic situation?
    • What political risks are there?
    • What is the labor availability in the area?

There are so many tools and techniques that exist and can be used for this phase of your strategic planning. Here are some of the common ones that are very helpful in understanding the concept of strategic planning:

Taking Action

Now you’re ready to take action! This is where you start doing all the hard work and implementing your choices. As a result of your strategic planning process, you have probably identified a huge number of tasks and resources you will need to execute your strategy. This is the time that you will be going through all of the processes to bring your strategic plan to life. Some activities that you will experience in this stage include:

  • Product development
  • Resource planning
  • Marketing planning
  • Customer acquisitions
  • Market expansion
  • Staff hiring
  • …and soooooo much more!

Evaluating Results

The final step in the Strategic Cycle is to examine your results against the assumptions you made earlier. The results should be both quantitative (measurable by number data) and qualitative (measured more by observation and reflection). Results need to be aggressively watched. As they come in, you will be able to quickly decide if your strategy is working correctly, or if it is time to make a pivot.

Here are some of the many questions you will be asking yourself:

  • Are results meeting expectations?
  • Or are they way off?
  • What actions can you take to fix the situation if results are far behind expectations?
  • Are your costs in line with assumptions?
  • Does the market like your product, or was it a mismatch?
  • How are your competitors reacting?

Completing the Cycle

The final step in the Strategic Cycle is to connect your data and lessons learned into the next Strategic Cycle by adding your results and materials to the Information stage. The value of your lessons learned from completing a full Strategic Cycle can drastically improve the accuracy of later strategic planning initiatives.