I’ve helped hundreds of organizations, mostly small businesses, develop a strategy for becoming a sustainable, thriving organization. Some want to concentrate on pricing strategy, others company culture, while others want to improve their bottom line. Whatever the desired outcome, people often think of strategic planning as a mysterious process that requires a daunting level of analytical rigor and business-school-level knowledge. Naturally, then, people approach the strategic-planning process with awe and trepidation. It doesn’t have to be this way!
I’ve isolated five counterintuitive truths about strategic planning that I’ve learned over the years, which are detailed below.
You can also view my webcast on-demand, Creating Strategy in a Small Firm, where I discussed the misconceptions around strategic planning that often prevent small businesses from engaging in this very important process.
1) Profit is not an adequate foundation for a strategy
Whole Foods Market CEO John Mackey compares profit in a business to the red blood cells our bodies produce. It is a necessary condition for survival, but not something that a business or a person can wake up every day focused on producing. There has to be purpose and meaning beyond mere survival if a business or a person is to flourish and thrive.
I don’t want to diminish the importance of profits, but I do want to put them in the proper context. Peter Drucker said that “Profits are the price we pay for tomorrow.” One of the implications of Drucker’s statement is that why you do what you do should not be based solely on attaining profit. As I discussed in my previous webcast, “Creating a Shared Vision in a Small Firm,” the pursuit of profit alone—in the long run—simply isn’t enough to motivate you or your employees to come to work every day and give it their all.
2) We do not want for answers; we suffer from an inability to ask new and better questions
I owe this counterintuitive truth to the philosopher Eric Hofer, who observed that the ability to ask questions separates us from the other animals. Hofer went on to say that societies suffer not from a lack of answers, but rather from an inability to ask new and better questions. Similarly, business schools don’t offer courses on when and how to ask the right questions. I think that’s why, as we’ll see in number three, below, strategic planning too often starts with the wrong fundamental question.
3) The Mother of All Strategic Questions does not come back to revenue
When I first started helping organizations with strategic planning, I thought this was the Mother of All Strategic Questions, or MOASQ: “How much revenue do we need to produce in a given period?” There’s usually a great deal of readily available data about past financial performance, so it’s easy to look back and ask, “Based on past performance, where can we expect to land in one, three, or five years?”
But there’s a problem with revenue-based strategic planning: Using the past to predict the future is usually a pretty lousy way to predict the future. The real MOASQ is this: “How much value are we going to create for our future customers in a given period, and how are we going to do that?” Because if you think about it, revenue isn’t a function of our costs and prices; to the contrary, revenue is a function of the value we create for our customers.
4) Strategic planning is more creative than analytical
Most of the literature about strategy says that it’s all about analyzing your situation, which usually means that to create a strategic plan you need data, data, and more data. But strategy should be focused on the future, as the Mother of All Strategic Questions (number 3, above) reminds us: “How much value are we going to create for our future customers in a given future period?”
Data is, of course, important, but data looks to the past; data accounts for what happened yesterday. Strategy should be about looking forward and peering into the future, which means it’s important to embrace creativity and think hard about what kind of value you want to deliver and how you’ll do it.
5) A strategy is about effectiveness, not efficiency
In the final analysis, organizations bring in revenue because they’re effective, not because they’re efficient. There’s nothing wrong with efficiency per se, but when it becomes an organization’s focus, then there’s a problem—because really, who cares if you’re efficient at the wrong thing, or at selling products and services that customers don’t care about?
As Dr. Jules Goddard, author of “Uncommon Sense and Common Nonsense,” puts it, “Strategy is the rare and precious skill of staying one step ahead of the need to be efficient.” I’m not saying organizations should be purposefully inefficient, but we should take a lesson from the last manufacturer of buggy whips; that company probably stayed in business the longest because it eked out the last 20 percent of operational efficiency, but in the end, what did it matter?
“Creating Strategy in a Small Firm” is the second in a series of three webcasts designed to help you build a solid foundation for your small business to be successful today and well into the future. The first webcast, “Creating a Shared Vision in a Small Firm,” can be found here.