Strategic Planning- Avoiding the Comfort trap
It is important not to become complacent in your strategies, your business strategies should push your limits and force you to make choices outside your comfort zone.
There are three common ‘comfort traps’ most organisations face:
1. Strategic Planning – This exercise arguably makes for more thoughtful budgets. However, it must not be confused with strategy. Planning typically isn’t explicit about what the organization chooses not to do and why. Its dominant logic is affordability; the plan consists of whichever initiatives fit the company’s resources.
2. Cost-based thinking- The focus on planning leads seamlessly to cost-based thinking. Costs lend themselves wonderfully to planning, because by and large they are under the control of the company. Costs are comfortable because they can be planned for with relative precision. The trouble is that planning-oriented managers tend to apply familiar cost-side approaches to the revenue side as well, treating revenue planning as virtually identical to cost planning and as an equal component of the overall plan and budget.
3. Self referential strategy frameworks- In identifying a strategy, most executives adopt one of a number of standard frameworks. Unfortunately, the most popular ones can lead the unwary user to design a strategy entirely around what the company can control.
A company escape these traps by ensuring that the strategy-making process conforms to four basic rules.
1. Keep it simple- Two choices often determine success: which specific customers to target and how to create a compelling value proposition for those customers. If a strategy is about just those two decisions, it won’t need to involve the production of long and tedious planning documents.
2. Understand that strategy is not about perfection- Managers must internalise that fact if they are not to be intimidated by the strategy-making process. For that to happen, boards and regulators need to reinforce rather than undermine the notion that strategy involves a bet.
3. Make logic explicit- The only sure way to improve the hit rate of your strategic choices is to test the logic of your thinking: For your choices to make sense, what do you need to believe about customers, about competition, about your capabilities? If the logic is recorded and then compared to real events, managers will be able to see quickly when and how the strategy is not producing the desired outcome and will be able to make necessary adjustments.
4. Giant opportunities encourage bad strategy- Companies in many industries prefer a small slice of a huge market to a large slice of a small one. The thinking is, of course, that the former promises unlimited growth potential. And there’s a certain amount of truth to that. But all too often, the size of the opportunity encourages sloppy strategy-making. Why choose where to play or how to win when there’s a huge market to conquer? Anybody is a potential customer, so just go out and sell stuff. But when anyone could be a customer, it is impossible to figure out whom to target and what those people actually want. The results tend to be an offering that is not captivating to anybody and a sales force that doesn’t know where to spend its time. This is when crisp strategy-making and clear thinking about opportunities are most important. When you’re facing a huge growth opportunity, it is smarter to think sequentially: Determine what piece of the overall market to tackle first and target it precisely and relentlessly. Once you’ve achieved a dominant position in that segment, expand from there into the next, and so on.
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