May 2017 / NO. 1
TAGS: STRATEGIC PLANNING, KPI, MANAGEMENT

Why so many people get it wrong in strategic planning

“Strategic planning is really a competition for resources. All those vying for their share of the capital spending budget put forward ‘hockey-stick plans’, and you would be mad not to play along”
“One wonders why so many smart well-intentioned people can get it so wrong time after time in strategic planning”
The statements above come from McKinsey in March 2017 writing about strategic planning. How come? People are overly confident and optimistic, and informed people are even more confident (1). No one was ever promoted for putting forward a plan whose growth forecasts didn’t sail upwards? (2). Executives constantly tell themselves that they need an ambitious vision to inspire great performance (3). But when the strategy outcome is not realized after the first year, attribution bias usually kicks in: one simply blames the circumstances or others, but never oneself. This implies that management is in most cases just looking at year one. Strategic planning becomes merely the set-up for the real conversation: limited to budgets and KPIs for next year! It seems that nothing has changed in the past 20 to 25 years. McKinsey untangled two opposing errors that people make: the first is of being excessively bold in making forecasts, and the second is of being excessively timid in making choices.
The fallacy that underlies most strategies is expressed by: “I will get better results next year by trying to do roughly the same thing as last year but just a little bit better”. This is nothing more than hope and hot air!
There are four ways to improve this:
  1. Reconcile previous plans with what actually happened, and figure out why your team failed to reach the targets it set
  2. Calibrate your results to the ‘outside view’: this is the core of Strategic Competitive Intelligence
  3. Build a momentum case: throw out the baseline forecast and start by projecting what will happen if management takes their hands off the wheel
  4. Focus on moves, not promises: avoid confusing goals with strategies, which is one of the biggest mistakes in the boardroom
Many strategic-planning activities are far more focused on setting goals than on crafting choices and the necessary moves to meet those goals.
“Most strategic-planning efforts rely on the ‘inside view’, which is a breeding ground for all sorts of biases that subconsciously give more weight to facts that back your view than the inconvenient ones that don’t”
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