Management theory and practice widely accept today that businesses operate in a more and more complex, dynamic, less predictable environment. This situation requires managers to develop new ways of thinking and acting. Nevertheless, many managers still follow the old approach of strategic positioning and strategic planning. This basic model proved to be very worthwhile for decades and has become the dominant pattern of strategic thinking. However, the dynamic developments in recent years taught many businesses that this approach has its limits.
Starting with a description and critique of traditional strategic planning, this series of articles compares traditional and new approaches in strategic management.
The new ones direct companies towards more flexibility and more strategic innovativeness; but they do not present ready-to-use solutions though. Rather they are intended to provide ideas for new thinking and acting as a starting point to give all processes in the organization a new strategic direction.
Part 1 of our articles series describes the traditional strategy process, its underlying assumptions, and its benefits.
Key takeaways for the busy reader
The typical and well-known strategic planning process starts with the vision and mission of the business. This is followed by a detailed internal and external analysis, which leads to a SWOT. The results from this analysis allow developing several strategic potions. They are evaluated and finally, one option is chosen for implementation.
This approach assumes a fairly stable and predictable environment.
Although these conditions are hardly present today any more, the traditional strategy process still has its merits. The process as a whole and the accompanying models and tools are widely known and very popular. There is a huge body of knowledge. Templates for almost every thinkable situation are readily available. This gives the process and its results a high acceptance and credibility throughout organizations.
The general model of the traditional strategy process
The traditional strategy process as described in this article has evolved during the 20th century. Concepts like positioning, analysis, strategic options, portfolio management and more were developed as a response to the increasing complexity of the growing post-war economy. These were the years when more and more large, multi-national, multi-product companies evolved and finally formed global conglomerates. Competition increased and global interdependencies intensified. In this situation, businesses needed more sophisticated management tools than their predecessors, which were much smaller and more locally oriented.
(For more details, Vijaykumar Bhatia wrote a great summary STRATEGIC MANAGEMENT-History and Development)
Although there are many variations, the general model of the traditional strategy process can be described as follows:
Many business school textbooks teach you that every strategy process should be based on the vision and mission of the business. From these, medium- to long-term objectives are derived. Vision, mission, and objectives provide the framework and context for the strategy. Hence, the resulting strategy has to guide the business on its way to fulfilling its vision and mission.
After that, a thorough analysis is conducted:
- On the internal side, strengths and weaknesses are identified
- On the external side, opportunities and threats are identified
The most popular tool for summarizing analysis results is the SWOT. In addition, there are many other models and tools around for internal and external strategic analysis, e.g. PESTLE, Porters Five Forces, value chain, or the 7-S-Model.
After this analysis phase, the business should have a clear idea which Strengths (that hopefully set it apart from competitors) it can use to exploit market Opportunities or to respond to unfavorable Threats in its external development. It is also aware of its Weaknesses. These would limit the businesses strategic options or are areas to work on for improvement.
Based on this information, the business can develop several strategic options. Ideally, these should take into account different future scenarios. Again, there are some tools available for this step. Some of the best known are Ansoff’s Matrix, the Boston Box and Porters Generic Strategies.
In order to make a strategic choice, the options have to be evaluated. They should be checked for
- Suitability – do they address the most relevant external trends, opportunities and threats?
- Feasibility – is the business able to implement this options? Does it have the necessary capabilities and resources? How much change is involved? Which timeframe is needed? …
- Acceptability – is the strategy acceptable for the most influential stakeholders? Is it in sync with the vision and mission?
The standard process implies, that the business should decide for one strategy and then enter implementation phase.
Of course, it is wise to have one or two alternative strategies just in case the external environment will develop different than expected.
This strategy and its implementation progress would be reviewed on a regular basis. Many businesses follow a strategic planning cycle with a frequency of one or more years. As a result of this review, the strategy can be adjusted. However, the general idea is that these are minor adjustments. The overall strategy should remain valid at least for a medium timeframe.
Underlying assumptions of the traditional strategy process
This model assumes an understandable, fairly stable, and predictable environment. Although external analysis includes some thinking about possible future developments, these are mainly based on an extrapolation of the present.
Traditional strategy schools of thought see strategies as a means for achieving competitive advantages and a favorable position in the marketplace. This takes place in a stable or predictable environment by exploiting competences and resources.
Henry Mintzbeg describes a very similar image as above as the “Basic Design School Model” in his book Strategy Safari
. He, too, states that
The design school represents, without questions, the most influential view of the strategy-formation process. Its key concepts continue to form the base of undergraduate and MBA strategy courses as well as a great deal of the practice of strategic management. …
At its simplest the design school proposes a model of strategy making that seeks to attain a match, or fit, between internal capabilities and external possibilities.
Following Mintzberg’s terminology, the process as we use it today also comprises elements of what he calls the planning school and the positioning school:
- Planning school: Here, strategy-making is seen as a formal process. Its core element is the SWOT, which is developed in a deliberate planning process with pre-defined steps, checklists and techniques
- Positioning school: This school emphasizes the analytical elements of the strategy process. Its ideas became influential with the popularity of Michael Porters book Competitive Strategy. This school argues that only a few key strategies – as positions in the economic marketplace – are desirable in any given industry: ones that can be defended against existing and future competitors.
Adapted from Henry Mintzberg: Strategy Safari
The traditional strategy process still has some benefits
This basic process – with some variations – has been taught in business schools for decades. Hence, the process and the accompanying models and tools are well known and still very popular. Managers and specialists are familiar with the steps and terminology. It doesn’t need much prior explanation and training to perform a SWOT analysis for an organization or a business unit (although even the SWOT is not thoroughly understood by many, as the last chapter of this article shows).
Consultants, authors and strategic thinkers have built their own approaches and products for strategy consulting based upon this basic process. Thus they helped to anchor these ideas in the collective thinking of every major organization.
Such a process will gain credibility and acceptance much easier than an innovative approach for dynamic times. It also is easier to design and implement. This is an advantage that many executives and strategists value.
The traditional strategy process may still lead to reasonable results in particular industries and markets. This applies in particular to markets that are not strongly affected by disruptive changes. However, such a seemingly stable situation may vanish virtually overnight.
Finally, the analysis process and the SWOT model still can serve as a way for compiling, analyzing and structuring information. Businesses are easily overwhelmed with the vast amount of data, information, explicit and tacit knowledge when analyzing their situation. The use of well-known tools can help to filter and make sense of this information overload.
Problems with this approach
Despite these benefits, the original design of this process did not take into consideration todays dynamic and unpredictable business environment. It wasn’t designed for these circumstances. Hence, it won’t lead to optimal results. Problems arise from the following issues:
- The process and the associated tools can’t keep up with the pace of change in the business environment. They will lead to lagging results.
- Strategists are tempted to shrink their focus, due to the increasing uncertainty. Their focus shifts to internal analysis and the near-term future.
- Strategies resulting from this process are always based on the current situation and limited to thinkable futures.
- The growing number of viable future scenarios makes it a lottery to decide for a strategy that fits one particular future.
- The strategic plans may be too inflexible for today’s pace of change.
- Strategies are based on and limited to the pre-determined corporate vision, mission, and objectives.
Our book recommendations on strategic planning:
- Strategic Planning That Actually Works: A Step-By-Step Guide to Get it Done Faster, Cheaper, and Better Than Ever
- Strategic Planning: As Simple as A,B,C
- Rise and Fall of Strategic Planning
- HBR’s 10 Must Reads on Strategy (including featured article What Is Strategy? by Michael E. Porter)