Wednesday, November 2, 2011

Strategic Planning and Reinventing Business Model:A Necessity or an Overhead?

In my blog here, I am going to talk about the concepts of strategic planning. Rather than focusing on the techniques to implement strategic planning, we will first try to understand the relevance of strategic planning, in the sense whether strategic planning is at all of any real value addition to the organization or a overhead and whether it is needed at all or not. Then we will talk a little about Balance scorecard which could be used as a framework for Strategic Management System and then by the end of the blog understand some of the benefits of revisiting your Business Model.

To start with, let us first understand whether there is at all a value addition in doing strategic planning for your organization. Many might debate by saying "few truly strategic decisions are made in the context of a formal process". However, my answer to those would be that what really matters the most is the preparedness of the organization to adapt, combat and change if needed. By brain racking with the top management and doing some of the industry followed analysis on a regular basis might eat up some of the precious times of the super busy upper management and may indirectly lead to cost overhead as well, however this will shock proof the organization and give them an edge over some of their rivals by doing the homework on their part. One of the greatest examples that I can site was the research done by the Goldman Sachs analysts wherein they presaged the oncoming of the recession one or two years prior to the actual event. This directly and indirectly helped Goldman Sachs to better combat the recession period compared to many other banking giants wherein some of them even perished in the process. May be now that we understand the importance and value of strategic planning, we should try looking at some of the frameworks which cover all or most aspects of the organization. There are various frameworks most commonly available to most or rather all managers. Frameworks like the Porter's five forces, BCG matrix, SWOT analysis, focusing on 5Cs and 4Ps are some of the most common ones. But we as management students understand that no framework is holistic and covers all aspects of the problem. The real skill of the managers is displayed by using the intuitions and come up with a plan covering all aspects of the problem just to ensure that no important stakeholders and no important process are missed while analyzing the problem. Balanced scorecard is one such framework which can be used as a Strategic Management System. The four steps of the balanced scorecard are Translation, Communication, Business Planning and Feedback. The advantage of this framework over the others lies in its simplicity and scalability. The framework is panoramic, simple and can be extended to any business model. Also with the feedback process in the model, the model is adaptive in nature and is open to changes. The flexibility of the balance scorecard can in turn be of great help in reinventing the business model. Now this is the most sensitive part of the game. If a business model is working fine and giving you enough profit, then changing the business model could backfire the organization. However, next comes the question as to what amounts of profit is good enough for an organization and herein comes the judgmental aspects of a good leader in the organization to see the future ahead. On a lighter note, god only can decide the limit of profitability if the organization is a bank by any chance wherein the profit maximization is beyond the normal relevant range satisfying the universal equation of marginal cost is equal to the marginal demand. The drive to reinvent the business model can be based on various parameters like "customer value proposition", "profit formula", process and resource optimization, etc. The business model really plays a key role in case of some of the factors as mentioned above. As you must understand that changing business model might sometimes require making an organizational change as well affecting all strata of the organization wherein people might naturally tend to resist changes. In those cases, the primary focus on changing business model will shift to "Change Management". My point here is that reinventing business model might require a change in one or more areas of the organization spanning departments like operations, technology, finance, human resources, etc.

However the question that might arise are

#When is the right time for an organization to change their business models? Is it always worth taking the risks?

# Should reinventing a business model be a regular process repeated after a certain number of years?

Citations:

# Article: The Real Value of Strategic Planning (Kaplan and Beinhocker, MIT Sloan Management Review, Winter 2003)

# Article: How to Improve Strategic Planning (Dye and Sibony, McKinsey Quarterly, 2007 Number 3)

#Article: Using the Balanced Scorecard as a Strategic Management System (Kaplan and Norton, Harvard Business Review, July-August 2007)

# Article: Reinventing Your Business Model (Johnson, Christensen, and Kagermann,Harvard Business Review, December 2008)

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