Why Traditional Strategic Planning Sucks and Best Practices are for Idiots!

I often get a lot of people asking me “what are the biggest challenges of moving large organizations into an open-innovation zone?” My answer is we need to deal with this on a strategic level. The quick answer is “Size” is the No.1 enemy. Most large organizations still prefer to develop/own those innovations even knowing that the chance for success to do it in-house is much lower. The second reason is, it's not something a division head can do. This has to come from the CEO and the management team to commit to this fundamental shift. They need to admit that their current model is not delivering the needed levels of top line growth and there’s a need to innovate and find new ways to create shareholder value.

It is not easy for any CEO to admit that their current strategy sucks and cannot provide them with the pace they need for accelerated innovation and growth. It is the CEO’s job to place that wake-up call to the management team to help them realize that this is a different kind of game they're playing. It's not that they don’t want to be innovative, but it's just that they don't know how. My advice is first stop talking about innovation. I have been counting how many times this word appears on annual reports and corporate statements. Innovation is not a slogan; it is about a plan and taking action. It is “doing by learning”. It is “structured play”. It is about experimenting with the unarticulated customer's needs (often unmet) and what is possible with the business' capabilities (including technologies). When the two things come together, that’s where magic happens.

Some folks at BCG have written a book called Payback about innovation and their argument was basically companies running out of ideas. In fact, there are too many ideas. The real challenge is taking those ideas and getting them and implementing them in a way that you can make innovation pay for itself. But to say that companies don’t need a lot of ideas to feed the top of the funnel may not be the case. There’s nothing called too many good ideas. The real challenge is how to see the true potential of those ideas and how to bring that into the organization business boundaries. Only by doing that, one can truly decide which ideas should go up the list and which are to come down.

HBS’ professor Christensen has a good theory explaining that large companies have problems dealing with disruptive technologies. Disruptive technologies are "innovations that result in worse product performance, at least in the near term." They are generally "cheaper, simpler, smaller, and, frequently, more convenient to use." Disruptive technologies occur less frequently, but when they do, they can cause the failure of highly successful companies who are only prepared for sustaining technologies. Large companies have large barriers to innovation which make it difficult to invest in disruptive technologies early on.  Baggage from precedents (both capabilities and mindsets) hinder any efficient response to disruptive business models.  Large companies usually have an established customer base that they must be accountable to.  These customers often ask for better versions of current products rather than completely new technologies.

Christensen has correctly stated that it is highly uncommon for firms that manage established lines of business effectively, to anticipate and respond well to a disruptive technology coming from an external agent, much less being able to commercialize one themselves. It is always about the attacker and the defender. But there’s more to this that Christensen did not cover. It goes beyond the general business strategic thinking and goes against the notion that any strategy’s ultimate goal is to maximize shareholder value. We must recognize the fact that if we are going to drive the effort to shape the future of our organizations and societies, rather than have our future defined for us by corporations, all of us need to radically rethink how we can engage in the work of strategy and innovation.

As a strategist for almost 30 years, I can tell you that there what are the 5 big problems with strategic planning that make it virtually impossible for any kind of innovation to emerge or happen:

- Traditional strategic planning assumes that industry boundaries are given

- Traditional strategic planning assumes all firms behave rationally

- Traditional strategic planning assumes predictability

- Traditional strategic planning does not believe in giving away value in the early phase of a big industry shift (open source or open innovation)

- Traditional strategic planning does not value sustainability and social responsibility

Many of those innovations brought by the “Attackers” all have elements that are goes against traditional strategic planning approach. Web 2.0 is powering up a wave of new “Attackers” that can potentially take tens of billions of shareholder value off from the “Defenders”. It is not only about technologies, many are simply riding the Web 2.0 wave to democratize old business models… from crowd sourcing to direct music distribution and peer-to-peer financing. The list goes on and on ….

Strategic planning does not push large organizations to think deeply about the long-term strategic sustainability of their organizations in a time of continous disruptions. The whole marketplace is under severe threat with “Attackers” popping up everywhere, and the consistent and disciplined pursuit of innovation is most likely the only viable strategy for building new business models that will secure the future of our organizations. The many flaws of traditional strategic planning methods make it virtually impossible for organizations to appreciate and internalize the depth and breadth of the responsibilities they have for the future enterprise, or the new kind of Enterprise 2.0.

Comments

[christian briggs]

Hello,

I very much enjoy reading your blog. Excellent stuff.

I am wondering if you can provide a few more specific examples of what you mean by "Traditional Strategic Planning"? There are many methods out there - some good at certain things, and some very bad. Are there particular methodologies or frameworks that you have seen that tend to stifle innovation? Having worked previously for the Balanced Scorecard Collaborative(one of the most popular strategy execution frameworks) before returning to the academy where i am currenty working on a PhD, i have seen the BSC overused to the point where it did stifle innovation - though these instances were usually a result of abuse of the framework more than of the framework itself.

[Idris]

Hello Christian,
Thanks for visiting. Tradtional Strategic Planning refers to the most comnon strategic frameworks used from Vision/Mission/Markets Served/Operations etc. Example of the first question asked is "What business are we in?". By starting with that, we are already limiting how we compete without considering how the industry are evolving that can shape industry boundaries. In fact most strategy effort aren't really about strategy, they are about operations planning to support financial planning. They are about creating predictability and innovation isn't not part of that. BSC can be very effective if used at the executional stage. Again it is not a strategy framework if we define strategy as discovering and preparing the best way to compete for tomorrow market space.
Idris

[christian briggs]

Ah yes, thanks for the clarification. I completely agree. I am currently doing a lot of work (and starting up an angel-funded venture) to combine BSC-like ideas (executionally) with more democratic innovation (visionally). Keep up the good work. I very much enjoy your blog.

[David Daniels at LaunchClinic.com]

So true. Another fatal flaw of traditional strategic planning is the group-think, safe approach. I watched from the inside as one sizeable, public software company I worked for could not react to an inflection point everyone new was coming. I vividly recall feeling like I was in a burning building but was the only one who seemed to realize it.

Big changes in strategic direction cannot be made in a group setting. There are simply too many agendas and turfs to protect.

[Manish]

Hello,

I liked your writing & views on traditional strategic planning. I am currently working on strategic planning exercise for a large firm and my recommendation for the firm is to undermine the whole importance given to annual ritual rather promote an eco-system which continuously brings new ideas in its various business units. My question to you is even if we attack traditional strategic planning approach, don't you think such exercises still help wider audiences focus on organizational mission/goal & is an essential process for the organization to challenge itself.

[Idris]

Hi Manish
You are right to say that org mission/goal has its role in organizational aligment. It is in fact am effective tool to drive change and to gain wider commitment. But it is not strategy planning. The ritual are often necessary, especially for large organization. It should be viewed as a down stream exercise or a tool to support strategy implementation rather than a strategy plannning tool itself. Thanks for visiting. Idris

[jimineykbc]

Hey, I was wondering if anyone here has a habit of coming up with cool business ideas out of nowhere, but never got around to attempting them.
Here are mine:
consumer generated power
household recycling plants
innovative ringtones (like fart ringtones for young people)
retail approach to recycling
carbon offsets by sms

share yours if you don't mind revealing your genius. :)