Most boards and senior executives engage in strategic planning exercises on a routine basis. What’s wrong with that? Maybe nothing. If your organization is performing well against objective measures of what matters most, then congratulations to you. If you understand how and why performance is good, even better. Finally, suppose you have a clear, simple, teachable framework for success that doesn’t depend upon a heroic chief executive. In that case, you are on your way to guiding an organization that can achieve success over time.
However, boards have a strong tendency to overstate how well they hold management’s feet to the fire on strategic plans. Too often, and perhaps in an attempt to avoid meddling, they err on the side of accepting the ideas and veracity of strategic plans and the budgets that accompany them.
How is it that a group of intelligent, successful people can settle for so little from management? Three reasons 1. Senior leaders, including directors, are human beings, 2. Strategy is hard, 3. Methodology and analysis are easier. We can’t change the first reason, but the others are subject to intellect and judgment for those willing to do the hard, sometimes ambiguous, work.
Strategy is hard. It takes hard work to create a robust yet simple strategy. It’s easier to analyze, look backward, and compare to prior results. It may sound like a joke - self-referential benchmarking, but it is common, whether by quantitative, qualitative, or experiential measures.
However, a group that marches through predictable exercises might believe that they have done “strategy.” But strategy is about making choices, not engaging in an activity that exists only for its own sake. If directors or senior executives are to choose wisely, they need to do more than review; they need to think, think about their thinking, and consider what is influencing them. Hint: What affects our thinking and decision-making is information and analysis and also the social environment and our own needs and fears.
Methodology is an easy way out. Legions of consultants have methods for strategy development, and most will yield huge presentations that look great and have a lot of analysis, some of it relevant, some not. The essence of the strategy is usually on the first page, and all the rest is justification. Senior executives and directors should not get lost in the analysis; instead, they should expect the strategy to be articulated in straightforward language. Good leaders can do this, while weak ones hide behind charts.
It may sound comical, but there is profound truth in what Rita McGrath, PhD, Professor at the Columbia Business School, says about strategic planning. She says:
“Most strategic planning exercises are budgeting in a Halloween costume!”
Indeed, prior year budgets and Pro-forma updates often have an enormous influence on strategy processes. Unfortunately, this is but one reason why strategic planning often kills both strategy and innovation. Also troubling is the absence of rigor when assessing risk, leading to two practices: 1. Tight control of financial and operational risks and, 2. Little or poor assessment of strategic risk (James Lam, Director at RiskLens.) Without a framework for risk assessment, people can make the mistake of leaning toward “safe decisions” that aren’t safe at all, just as keeping money in cash isn’t a zero-risk decision.
How to steer away from strategic planning traps:
1. Be clear about what strategy is and isn’t. Strategy is about what we intend to become, not how we will get there. Strategic planning can drain the life out of strategic thinking. This is especially true when focusing on how, when, and who, giving little attention to what and why.
2. Get familiar with how you and your colleagues behave when you are uncomfortable. Human beings don’t like discomfort and have an endless number of ways to avoid or reduce it. Courageous leaders can work through tensions while being honest with themselves and each other. A vibrant, courageous board or executive team can self-monitor and self-regulate, and they are brave enough to routinely invite expert input and advice about how they function as a team.
3. Call out default positions or decisions. Directors that frame up conversations with the correct language can help the entire board slow down long enough to recognize they are taking a default position when they should be more thoughtful (Kahneman.) Saying “This is going to be tough” can signal everyone to dial in not only to the content but to their own, very understandable tendencies to take shortcuts when things are hard.
4. Be on the lookout for what will distract you from strategic thinking. When conversations take a turn to the tactical, it can be a way to avoid the complex and sometimes messy strategic dialog that is necessary. Likewise, a bully can derail meaningful conversations by saying things like, “This is a waste of time, we all know what the answer is” or other bombastic, demeaning comments. It’s best to shut the bully down quickly rather than try to ignore them. Aggressive behavior is not soon forgotten, just as a bell can’t be un-rung.
5. Engage leaders who will implement the strategy. Senior executives and directors should know top leadership and not just from formal presentations. If a board is too reliant on the opinion of the CEO about who can do what, it is difficult for them to give advice that could make a big difference. Likewise, when senior executives are too isolated, they are vulnerable to what they don’t know.
Too often, leaders who express confidence, regardless of what they are confident about, escape further inquiry. However, confidence is a poor measure of accuracy, as numerous studies have shown. Still, people can be very influenced by a confident leader, well beyond the point of reason.
6. Expect a one-page statement of strategic intent with no more than five priorities. A strategy that leaders can’t easily explain is almost certainly not strategic. For example, when Cheryl Bachelder became CEO of Popeyes, the company needed to turn around quickly. So she announced a clear strategic vision that described a “daring destination,” followed by four priorities created by the leadership team. Bachelder later shared their work and the story of how the strategy was developed in her book Dare to Serve.
An effective strategy is clear and compelling, and the priorities and measures of success are equally so. It’s not enough to say, “we’ll be the greatest.” Leaders should insist that terms are operationalized and valid measures employed to indicate whether progress is being made or not. In the ten years following the creation of Popeyes’ strategy, priorities, and relevant metrics, brand equity improved, and revenue, profit, and share price ($15 to $79) all increased dramatically.
7. Tie budget approval to the priorities. If something shows up in a budget proposal that isn’t related to the strategy, the discussion should come to a screeching halt. What is it? Why? There might be a great reason, but it could also be a way to keep one foot on the dock while trying to launch the boat, a plan that almost surely ends up with losses.
Sometimes, in a legitimate effort to steer clear of tactics, leaders miss their opportunity to ask pertinent questions and be appropriately skeptical (not cynical.) However, these seven ideas can help boards and senior executives operate at the right level and add value as shareholders, employees, partners, and communities expect.
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