Strategic Planning

I've just returned from a fascinating workshop dedicated to strategic planning - iPlan. It was financed by the European Union, being targeted at developing strategic planning competencies for a selected audience of top and middle managers (btw, for those interested, there are still future sessions open to participants).

The duration of the seminar was three days, two of which were dedicated to Markstrat, a business simulation  game taught at top universities like Harvard or INSEAD. Of course, during the two days we did not get into too much detail, but it was still enough for us to understand the basics of strategic planning and experiment with business decisions in a simulated market. To be honest, it was a lot of fun. Although we were working for roughly 10 full hours every day, I've rarely felt so engaged and energized in my life. At the end, all participants expressed their wish that the simulation would continue, eventually restarted from scratch for us to be able to apply the knowledge gained.

So what were the conclusions? I can't say for everyone but, at least in my case, I've reached some very interesting insights. Of course, as usual, the ideas I am going to list below are subjective, general, and they need to be discussed case by case, matched against specific situations. Why am I so excited about these ideas? Well, it's because I've actually been able to see them at work in classroom dynamics and in the simulation and not just read about them in a book.

• Numbers (hard data) matter:

Before jumping into any new development, you have to look at the facts: where does the revenue stream come from, what is the competition doing, what are the hard facts from the market. Starting new business or assigning project priorities based only on feeling is very dangerous as it can gravely impact established business and alienate customers. After all, a core purpose of running a business is to create revenue. 

• Organization matters: 

A point of differentiation for the winning team was that they organized themselves around a decision making process with roles and responsibilities, established from the start. This cut the debates and they were able to allocate more time and resources to actually running the business. It also helped them draw conclusions faster (learning) and apply them in the simulation.

• Spend time in analysis and planning: 

It helps to clarify the roles and responsibilities and the overall approach to be less tempted to abandon your strategy when faced with unexpected "opportunities" (more on opportunities later). Again, regarding organization, those who planned their organization and strategy early on, won the competition.

• Decide and cut losses early. Hope doesn't help a product become better:

When faced with losses and the realization that you've made a bad decision, cut it and redirect your budget to more profitable initiatives. Decide based on future income, not on past expenses. Sticking to unprofitable initiatives will only bring sub-par revenue, will impact your investment budgets thus adversely affecting all products.

• Focus:

Too much diversity means too many areas to invest and support. A portfolio not adapted to your budget and audience means less money allocated per product and less time allocated to making each product profitable. It leads to mediocre performance which, in terms, means market share and revenue lost to specialized competition.

• R&D is expensive:

Without R&D and new product launch one cannot survive. However, R&D is very expensive and the decision to launch a new product, enter a new market or improve an existing offer needs to be very well planned. You cannot afford too many of these initiatives as they are true money sinks. A solution to overcome this problem is to re-focus, cut existing unprofitable business and re-target budget to support your strategy. Once you decide to go on with an R&D project you need to make sure you have the money to support it in its later life cycle.

• Price reduction is a race to the bottom: 

You cannot afford it too much. A nice approach to maintaining profit margins on such markets (actually all markets become a red ocean at a certain point) is to invest R&D into cost reduction early. The same product developed with more efficient processes will survive longer in a competitive landscape and raise the barrier to entry to competition.

• Advertising is king. Price and quality are not only intrinsic values, but also perceptual values: 

Needless to say: it is not what your product is that drives purchasing intent but its perception. In order to survive in a competitive market with similar products, one needs to support it with promotional budgets above competition (think detergents). He who has the biggest budget gains the largest market share.

• Product needs to be fit for your niche:

As you cannot affect perception too much with advertising, you still need to have a fit product. The more the product is fit for your target niche, the more sales you have. Creating products for a wide audience is not a winning strategy because you will lose in front of the specialized offers. Create a perfect fit for your niche and then advertise it. Advertising only to your niche will keep your promotional budgets lower and also create less confusion. 

• Opportunities - do they match your strategy?

Launching on a market not on your strategic path can be very dangerous, no matter how attractive the opportunity is: you have a competitive disadvantage in front of the companies that have already targeted that niche as their core strategy. Reckless investments can leave your core business without sufficient funds to support it, thus becoming prone to being taken over by competitors.



In the end, every company is free to select its own strategy. Once you select it though, it usually pays off to stay close to your plan in spite of adversities and false opportunities - that is, of course, unless your strategy dictates otherwise. A strategy is a chart, a path to follow, a guide to where you want to go. It comes from your core values and beliefs, from your strengths, weaknesses, from your dreams and wishes. Beside the cost associated with it, abandoning your strategy may mean getting into conflict with who you are or losing your motivation to continue.