Making Strategic Planning Inclusive. Michael Sternad.

Full Text: COPYRIGHT 2000 Financial Executives Institute

Top-performing companies are using technology to link top-down and bottom-up views, building plans that clearly communicate specific and realistic goals.

Just a few short years ago, strategic planning was the sole domain of the CEO and a few top executives. Leading consultants like Michael Porter were declaring that senior executives "must provide the discipline to decide which industry changes and customer needs the company will respond to" and that "managers at lower levels lack the perspective and the confidence to maintain a strategy...".

There are many indications that business today is far too fluid and fast-paced for such a deliberate and hierarchical approach to strategy. Business-to-business exchanges are one example of how organizations will depend on a complex and ever-shifting network of alliances partnerships and customer relationships to succeed. The increasingly networked nature of markets is one of the biggest factors driving constant change in the workplace today, making even quarterly strategies potentially vulnerable.

"Leaders are in a state of vertigo," says Warren Bennis, the noted professor of business administration at the University of Southern California. Almost counter-intuitively, leaders must loosen the reins to regain their strategic balance. Hierarchical organizational structures and employee roles must give way to more fluid forms.

Even today, employees from middle management down to staff levels make decisions guided not by current strategy, but reflecting the direct experience they have gained conducting transactions with customers, suppliers and partners. The question is not whether to allow the experience that guided those decisions to influence strategy, but how. Many organizations have been frustrated by their inability to foster that type of immediate and direct input.

Recent technology developments are beginning to change that. Leading companies such as Electronic Data Systems and Federal Express are using strategic planning systems that facilitate employee input across the organization and provide immediate feedback on detailed results. They are linking top-down and bottom-up views, building plans that clearly communicate specific and realistic goals, ensuring that work efforts and resources are being coordinated.

As organizations search for ways to improve returns and build more productive and happier workforces, many are finding that technology can deliver these benefits by facilitating more inclusive and real-time approaches to strategy. These new procedures and systems allow companies to develop sound strategies, based in reality, and at the same time fully harness the organization's intellectual power and entrepreneurial energy.

The most successful companies start their strategic planning process with a mission statement defining the organization's purpose and vision of the future. Unfortunately, since most companies do not have a shared view of the future, senior managers often begin by pulling together the collective wisdom within an organization.

In order to achieve (or maintain) market leadership tomorrow, an organization must get both executives and employees at many levels regularly thinking about and providing input to these questions:

* Which customers do we serve? Through what channels do we reach customers?

* Who are our competitors?

* What is the basis for our competitive advantage?

* Where do our margins come from?

* What skills or capabilities make us unique?

If an organization can't collectively produce reasonably detailed answers about the future, and if the answers aren't significantly different from the present, there is little chance that it will become or remain a market leader. There is no such thing as "sustaining" leadership; it must be regenerated repeatedly.

Many intuitive leaps are made throughout this process. Tapping into the collective experience of employees produces far more powerful insights. However, executives in this environment must be comfortable receiving ideas that are not fully refined. Daniel A. Carp, CEO of Eastman Kodak Co., explains, "Thirty years ago, by the time the idea went in to the CEO, it had a yellow ribbon tied around it." Now, Carp regularly encourages employees at all levels to send suggestions and updates by email.

Armed with better insight about market opportunities and the organization's core competencies, long-term strategic objectives and critical success factors can be established by answering these questions:

* Where do we want to be in three years, from a revenue and market share standpoint?

* What profit levels and goals can we reasonably expect?

* What resources (personnel, facilities, financial) will be needed?

* What are the timing requirements for those resources?

* What are the potential competitive responses?

The assumptions behind the answers must be tested using multidimensional models. For example, what are the effects of potential declines or increases in market demand, and what should the company adjust to meet its strategic objectives? Should staff be increased? Will new skills be needed? Will new facilities be required? How will growth be funded? Having input from the operating units on these assumptions will generate a more realistic long-range plan, which then becomes the basis for detailed budgeting.

However, no matter how well-tested the resulting strategy is, it still represents a guess. Continuous and real-time feedback of results is critical, allowing an organization to be more responsive and less vulnerable to unexpected events.

Cisco Systems, for example, was the first company to generate the "virtual close," with hourly updates on revenues, product margins, discounts and bookings. Cisco has also met or slightly beaten consensus estimates for 41 straight quarters. This performance is no accident. It is the direct result of an immediate understanding of the effectiveness and relevance of current strategies.

Another example comes from my personal experience at FedEx. I helped develop a computer-aided system for projecting resource requirements in such a way that subsequent comparison to actuals focused on four or five key factors, using multi-dimensional variance analysis to attribute positive and negative, percentage or unit performance to each. The system successfully focused lower-level management's attention on these key factors and illustrated each factor's relationship to total performance.

Fortunately, information technology has advanced enormously since my time at FedEx and now greatly enhances an organization's ability to effect this process. Web technology has made it far more cost-effective to extend the reach and two-way flow of real-time information to all levels of the organization. The emergence of business analysis software that helps facilitate and coordinate the reporting, analyzing, modeling and planning activities of employees in all functions is another significant development.

OLAP Delivers

The underlying enabling technology of business analysis software is a specialized type of database called OLAP (online analytical processing) that allows exploration of data well beyond the capabilities of traditional reporting systems. Using sophisticated statistical and mathematical calculations and intuitive multidimensional views, OLAP technology is designed to allow thousands of users to simultaneously access data in meaningful ways and create new scenarios based on that knowledge.

Moreover, packaged applications that leverage the capabilities of OLAP are available to help coordinate strategic analyses such as performance management and process-specific analyses such as financial analysis, as well as customer and partner relationship analysis across an entire organization.

All of these developments are combining to enable real-time and continuous feedback on results, and help organizations continually adapt and align their strategic and operational plans. In fact, many software industry analysts are now advising clients that analysis software should be a required component of any information technology strategy. Commenting on the recent activity in customer relationship management (CRM) software, Elizabeth Shahnam, senior program director of application delivery strategies at the Meta Group, says, "In 100 percent of the eCRM projects we've seen that lack eCRM analysis, there was a total and complete inability to effect change in the customer relationship and improve the return on the customer relationship."

Clearly, the pace and complexity of business today demand that strategic planning efforts combine both top-down and bottom-up approaches. The hierarchical methods of strategic planning that worked in the past are no longer valid, and key developments in Web and business analysis software are helping to reconcile the conflicts between the two approaches. Organizations that employ these technologies are improving their ability to respond to market changes, compete more effectively and grow faster and more profitably. As the pace of change advances, implementing these technologies will be necessary for the survival of any organization competing in the New Economy.

Michael Sternad is Chief Strategy Office at Hyperion and is responsible for positioning the company for growth and advancement.