Mike Collins in the News

Why Strategic Planning Has Not Worked For SMMs

By Michael Collins, President, MPC Management
TEQ - January 12, 2009

All businesses need some kind of a business plan -even if it is only a sales forecast, and budget, with a few goals and defined strategy.

But planning in today's economy has become a different animal. Finding a way to continuously grow when customers are shifting their business to other suppliers, and relentlessly driving price reductions is a totally new environment for small and midsize manufacturers (SMMs.)

SMMs want a simple business plan with very few written pages of narrative. They want a plan that just doesn't say what the goals are but says who and how to implement each part of the plan.

What about Strategic Plans?

The buzzword answer to a plan for all seasons is the infamous Strategic Plan. Strategic planning has been a popular method of business planning taught by business schools. These types of plans had some success when the company could depend on steady growth and stable markets. But with globalization the days of stable markets and steady growth may be gone.

Strategic Planning for all practical purposes has not produced the results that are implied by the name. It has been a failure for large publicly held manufacturers, in terms of accurate forecasting and predicting the future. And it certainly has been a failure for small and midsize manufacturing companies who really need simple plans that they understand.

Professor Henry Mintzburg wrote a book titled the "The Rise and fall of Strategic Planning¹" which reveals why it was a failure for so many companies. He makes the point that the process of doing Strategic Planning became more important than the results. People who like quantification and processes loved strategic planning because the process makes them feel they have really accomplished something.

Professor Brian Quinn from Dartmouth summarizes the problem best when he said "A great deal of corporate planning is like a ritual rain dance. It has no affect on the weather that follows but those who engage in the dance think it does."

Before discussing a practical planning process that can be tailored to the size and resources of small and midsize manufacturers (SMMs), it is useful to examine the weak points of the Strategic Planning process – from the perspective of SMMs.

1. Mission/Vision/Values Trap - The idea of defining the company's mission vision and values is a noble idea, but too often more time is spent on these definitions than in gathering the strategic information needed to plan the future.

In many cases, defining the mission/vision/ and values of the company simply leads to generalizations that are not actionable. Statements about global leadership, valuing trust and integrity, and providing superior quality and service are simply platitudes that make people feel good.

What is missing are the short, goal statements that set the direction for the company and give the managers the specific direction to do their part of the plan. Statements that define growth, sales, new customers, market share, cost reduction, new products, profitability; and exactly what is needed to turn around the manufacturing company and get back to growth.

2. SWOT Analysis - The Strategic Planning Process always begins with the popular SWOT Analysis. (SWOT) means defining the strengths, weaknesses, opportunities, and threats. The term originally was to include both internal and external information.

SWOT was supposed to include information on customers, markets, and competitors gathered by external research methods. But more often than not SWOT is an exercise that it is internally driven. It is based on the manager's perception of customers, markets, and competitors and uses historical and internal information – not real, external data. It is subjective, and seldom an accurate picture of what is going on in the market.

It is the author's opinion that SWOT analysis is not really based on up to date external research and does not realistically assess the external environment much less the company's true competitive position in the marketplace.

3. Financial and Internal Information - Reviewing historical financial information in the income statement and balance sheet can be very helpful but it is not enough.

For instance, what if a cursory review reveals that sales are declining, profit is declining, and cash flow is awful. Should the plan be stopped until the reasons for these symptoms are totally explained?

A second often-overlooked issue is cost and margin information. This point cannot be emphasized enough because micro and smaller manufacturers often do not have good cost and margin information. This problem will automatically affect pricing strategies and finding new customers and markets. Too often strategic planners will accept the financials that are available with out digging into the implications

The third issue is knowing why the company is losing orders. Understanding why a company is losing customers or orders is obviously strategic to any growth plan. However, a "Lost Order Analysis" is seldom used as a Strategic Planning tool.

If the primary objective of a growth plan is to increase sales by finding new customers and markets, or creating new products, manufacturers must know where and why they are making or losing money on current customers, jobs and products. It is dangerous to pursue new customers and projects without having a true understanding of costs and prices. In fact, if costs and margins are not adequately understood, sales success can lead to accelerated cash flow problems

4. Top Down Planning – Many strategic plans are developed by top management and as TOP DOWN processes. Top management decides the major goals, the specific business objectives and often the strategies.

Professor Mintzburg talks about the problems of detachment as fundamental to the downfall of strategic planning. He says, " It is this disassociation of thinking from acting that lies close to the root of strategic planning problems."

It is as if there is an assumption that once you have done the thinking and have written a report, the plan is complete and will somehow be executed. The reality is that at this stage, the real planning that will lead to implementation of the plan should just begin. This detachment of Top Management from bottom management and from thinking to doing is what has killed off many good plans. When the top people design the plan and the strategies you don't get "buy-in" from the people who have to execute it.

5. Developing Strategies - Before you can decide on new strategies for sales, channels, new products, pricing, promotion etc.; it is wise to first ask each department what obstacles or problems they must overcome before they can achieve sales, profit, new product and other company goals.

As obvious as this sounds, many strategic planners decide the strategies first and ask the managers last. As an example, top management may decide that a sales increase is needed in a specific product line or that there must be an increase in market share. But the reality is that the sales manager may need additional sales people, more funding for promotion, or special products developed for new markets to be able to achieve these objectives

This is an extremely important point that is often overlooked. Strategy is not a magic wand that management can wave. From many years of experience the author believes that finding the right strategies is best accomplished by the managers and people who control specific functions of the company. They must have a chance to think through all of the problems and obstacles first before deciding on the solutions that will lead to specific strategies.

6. Implementation - And Defining Tasks - Implementation is the step where even well conceived plans break down. Most strategic plans are devoted to "what" the company wants to happen and not to the details of "how" it will happen. Implementation requires that the plan be shared and known throughout the company and that problems and solutions are broken down to the specific tasks and who will do them.

7. Plans Are Written Reports – Another serious weakness of most strategic plans is that they are written in narrative form like a college thesis. For those who are the products of an MBA program, or who have background with a relatively sophisticated marketing organization, this may seem like the way things should be done.

The fact is that there has been far too much emphasis on process and paper work in planning. Process and paperwork can strangle the planning process and limit the company's ability to react to changes.

For SMMs, the simple fact is plans that are 50 to 100 pages of finely written narrative are not going to get implemented no matter how good the information is.

People in industrial manufacturing companies do not generally communicate with long narrative reports or plans. In fact, technical people often communicate in spreadsheets, board drawings, and emails – not on word processors. Suffice it to say that the more succinct the plan is and the less paragraphs there are – the better chance you will have of communicating and implementing the planning ideas.

Next- A plan designed specifically for small and midsize manufacturers – The QUAD PLAN.

¹ Rise and Fall of Strategic Planning, Henry Mintzberg, The Free Press, 1994, NY NY