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Why strategic plans are a waste of time, money

  Jan 8, 2014
 

By Dr. Fredrick Ogola


Many organisations often delay implementing some of their key and strategic projects that require a huge budget.


More often than not, this is because their strategic plans have not yet been approved by the relevant boards.


This leads to missed opportunities and actions that later become a source of competitive disadvantage to the firms. But is there a need to have a strategy document, also known as strategic plan?

In my opinion there is no need. Is there a need to have a strategy? Yes. And the strategy, I opine, should be written after every quarter or annual financial report, not at the beginning.


Many organisations’ success, it appears, can’t always be explained by their strategic document. There often exists a wide gap between the two.


Pick up any company’s strategy document and try comparing it with its financial or sustainability report; the explanations they give for their performance are seldom what they had outlined in their strategy document.


Their successes, however, are better explained by strategy: the sets of choices and activities they perform in order to give value to the customer and turn revenues of a particular margin into profit.


MANAGEMENT CHOICES DETERMINE PERFORMANCE

In other words, it is the sum of choices the management, under the guidance of the board, makes in a financial year that determines the company’s performance. This being the case, how then can a firm justify the amount of money it spends on its strategy planning?


Next time you are in a strategic planning session, try adding up the salaries around the room, just for fun. For example, if there are 20 participants, each pocketing $100 per hour, that comes to $2,000 per hour.


Is that planning session worth $2,000 per hour? In case the session goes for eight hours, it will cost $16,000. That’s a rough estimate and it might be significantly more in many companies with high-salaried executives.


Moreover, this doesn’t include consultation fees, travel costs, administrative charges and production costs. If it takes a few days to generate, as it often does, a company may spend $100,000 or much more just to develop a strategic plan.


Does that plan even recoup the cost of making it? Are there no better things on which to spend $100,000?


Reading books on how some of the world’s latest and greatest corporations like Facebook and Google were founded and managed, I discovered something quite interesting. Both companies didn’t seem to spend any time, money, or effort on strategic planning when they started.


IDEAS FIRST


Ideas came first, action second. Where was strategic planning?


Do you think the authors who wrote about these companies suffered from selective memory, forgetting that part where the founders hired a consulting firm to map out their future?


But in case the authors are right that there was no strategic document for Google and Facebook but only business ideas, which needed a set of choices and action, then that’s what strategy is: a set of choices to create value for the customers, turn revenues for the company and create wealth for its shareholders.


It even gets worse when an organisation fails to effectively execute the product of strategic planning, the document of its strategic plan, however effectively formulated it is, by consultants.


In fact, according to reliable statistics published by Fortune Magazine, “Less than 10 per cent of strategies effectively formulated are effectively executed.”


This is enough to tell you how companies could be wasting money in coming up with strategy documents from which they may only utilise 10 per cent of their potential.


In that regard, it is advisable not to spend too much time and money on a strategy document: drafting it, refining it, editing it and getting the strategy consultants terms right — like ring-fencing, pressure-testing, leveraging, horning and business process re-engineering among other terms, which even the managers who are to execute the strategy may not understand.


Instead, it is better to spend time generating business ideas, performing the right actions that create value for customers, turn revenues and create shareholder/investor wealth.


The author is a senior lecturer, strategy and execution, and academic director, MBA Programme, Strathmore Business School.


Source:Daily Nation



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