Wednesday, November 30, 2011

Strategy: How Important Is It? (A.K.A How Much Do You Want To WIN?)

Introduction:

Strategy - How important do you think it is in your everyday life? Through this post, I intend on impressing upon you, the reader, the importance of strategy and planning in your professional life as well as in the future of your company. I shall give you a brief overview on strategic planning, an introduction to balanced scorecard approach, and an analysis on re-inventing your existing business model. Further, I will try to stay away from facts and focus on making you think and having fun at the same time!

Strategic Planning

Wikipedia defines strategic planning as an “organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people”. In my opinion, the real definition focuses on how an organization uses its available resources to reach its short-term objectives as well as long-term goals. Firms need to realize that strategic planning is not an exercise that is to be taken lightly, but is in fact one of the most important processes that the executives of a company can undertake. While it is easy to understand that the CEO needs to be at the heart of the process since he has the maximum exposure to the company, it should also be obvious that each business unit head needs to be closely involved in the strategic planning for maximum effect. Two important points to note while performing strategic planning are the optimal number of people involved, and the conversational nature of the meeting. The planning should be independent of the financial goals and the topics should focus on successful and unsuccessful past so that they may be leveraged in the future. There are four major steps involved – establishing baseline, designing a new process, piloting the new process, and training employees. Each of these processes needs to be planned in detail to ensure that each employee who is part of the planning and execution is prepared to take decisions. Only then can any plan be fully empowered.

Balanced Scorecard System

Managers in the past had always focused on the financial measures and mathematics to evaluate the company. However, it is imperative to note that there is more to any company than just the money. This is where the Balanced Scorecard system comes in. This new framework gives managers the option to analyze the company both in terms of financial as well as non-financial parameters, thereby enabling them to get a clearer picture of the firm. The three additional perspectives to finance are customers, internal processes, and learning & growth and the four perspectives together provide a link between short-term and long-term goals. In my opinion, this link is the most important reason why a company grows from a garage-firm to a multi-billion dollar industry. The system introduces four new processes namely translating the vision, communicating & linking, business planning, and feedback & learning. Managers need to understand that an iterative approach needs to be taken while establishing the Balanced Scorecard System because it understands the infeasibility of changing a company overnight and gives opportunities to constantly improve. I believe that one of the major advantages to this approach is that it caters to a wider range of firms including non-profit organizations by providing non-financial considerations which were not available earlier to managers. The Balanced Scorecard System provides managers with the opportunity to ensure that the values, vision and mission of the company are pursued with vigor instead of primarily focusing on the monetary plans.

Reinventing Business

Firms all over the world understand and highlight the significance of revamping their business model, but very few take the time, effort and money to do so. Most companies try to adjust to the market rather than trying to find new markets. In my opinion, real potential to succeed lies in markets where no one has ever been before. However, re-aligning the firm to such a goal requires vision, courage and strategy. It pays to do one job perfectly rather than to do many jobs well. A jack of all trades is a good employee in a conservative firm, but not a great resource in a risky situation. In order to revamp a business, the first step is to get customer input on existing and proposed products. The second step requires an in-depth analysis on the proposed model to have a better idea of what we are dealing with. The third step is to compare the existing model with the new model to decide on the magnitude of plausible change. One of the most important things that should not be forgotten is that companies need to back their business models and not the technologies within. The technologies merely facilitate the drive to effectively establish your business model in the world.

Conclusion

Strategic Planning is probably the most important exercise that managers of a firm can undertake. It needs to be done very carefully on a periodic basis to ensure success. In today's world, the Balanced Scorecard System is being used by firms extensively to clarify and communicate the business strategy as well as to link short-term and long-term goals with the strategy. It is a testament to the effectiveness of the system to note that the system has been adopted by hundreds of firms worldwide. Re-inventing a business model is a huge but necessary task that needs to be done to achieve the eternal goal of success.

References

1. Strategic Planning - Wikipedia - http://en.wikipedia.org/wiki/Strategic_planning

2. Balanced Scorecard – Wikipedia - http://en.wikipedia.org/wiki/Balanced_scorecard

3. “The Real Value of Strategic Planning” – Sarah Kaplan & Eric D. Beinhocker

4. “Using the Balanced Scorecard as a Strategic Management System” – Robert S. Kaplan & David P. Norton

5. “Reinventing your Business Model” – Mark W. Johnson, Clayton M. Christensen & Henning Kagermann

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