Planning

Imagine you could design the ideal conditions for creating a kick-butt strategy to drive sales growth. Would the following scenario be pretty close to your vision? Start by assembling the senior management team at a three-day, off-site retreat. Only the big cheeses responsible for conceiving and implementing strategy get invited. Dispense with operational issues in favor of a singular focus on determining the company's future direction. Nothing but pure strategic thinking on the agenda!

Day 1 involves defining financial goals with emphasis on revenue growth and market share—the classic sales drivers—and operational efficiencies crucial to staying cost-competitive. Accountants run through PowerPoint graphs depicting patterns in recent years' key business measures, so reasonable goals three to five years ahead can be extrapolated. Day 2 devotes time to classic strategic planning exercises: benchmarking against the competition, competitive analysis, and scenario planning. Day 3 emphasizes decisions about future direction, constructing detailed plans with accountabilities, and resource allocations to insure flawless implementation.

Does this drill sound familiar? Even more important, does the description represent an effective process?

The answer depends on how you define effective. If your goal is to tweak your existing strategy, this process works. However, if you want to conceive an original strategy that disarms competitors, astounds customers, and achieves sustainable sales growth, this approach will kill innovation.

Dozens of senior management teams in the food industry use archaic strategic planning methods that worked in the days before the encroachment of Wal-Mart, the influx of technology, and rampant consolidation. They lack the innovative punch needed for a sustainable sales growth advantage. Why?

To appreciate the fundamental dilemma, answer these two questions with ruthless honesty: Has your senior management team ever put your strategy process under the microscope to study its effectiveness? If you did examine your strategy process, would you even know where to look to make improvements?

The research of Robert Kaplan & David Norton in The Strategy-Focused Organization indicates most strategic planning processes are flawed:

•85 percent of senior management teams spend less than one hour a month discussing strategy.

•75 percent of executive teams do not have a clear consensus on the value proposition being offered customers.

•Only 5 percent of the workforce understand their organization's strategy.

There are six fundamental shifts needed to optimize your organization's innovative capacity to design a strategy for sustainable sales growth.

Shift No. 1: From reserving strategy as the domain of the executive elite to democratizing it.

Boosting innovation requires rethinking the planning team's guest list to include more diverse perspectives. Bill Gates has marvelous foresight about the future of technology, but he nearly missed the initial window of opportunity for the Internet. Who turned Gates on to its potential? Cornell University students who demonstrated widespread applications of the Internet to campus life, and new hires at Microsoft who'd spent considerable time as early surfers of the Web.

Microsoft isn't the only company to benefit from diverse input. The idea for Starbucks' killer product, Frappuccino, came from a store manager in Los Angeles. McDonald's best money-making ideas have consistently come from franchisees, the bombs from headquarters. Can you say "Arch Deluxe?"

To bring high drama to strategic planning, invite some wild cards to the boardroom conversations. Involve newcomers who enter a business with fresh eyes. Listen to people who've spent the bulk of their careers in other industries and business cultures. Include near-retirees who bring a tell-it-like-it-is frankness to the table. Invite people from the field who have an in-the-trenches viewpoint to share with those senior managers who view the business from 30,000 feet.

A primary difference between strategic planning and strategic innovation is time spent in divergent, as opposed to convergent, thinking. The first phase of strategic innovation incorporates diverse input from a broad range of perspectives, the ideal condition for generating bold ideas. In the second phase, senior managers, armed with fresh opportunities to push their collective envelope of orthodoxy, can then evaluate the new possibilities according to their criteria of benefits and risks.

Shift No. 2: From planning as an annual ritual to strategy as a work in process.

Given the food industry's bias for short-term results, many managers determine priorities through the simple rationalization, "I have no time to think about the future because I've got a business to run." Unfortunately, an annual three-day hiatus from daily operations rarely generates eureka-scale ideas for products and services.

To insure strategic innovation is practiced year-round, consider these approaches:

•Reserve one of four monthly management meetings for contemplating long-range strategic issues and innovations.

•Create a repository for collecting future trends information and hold periodic conversations to discuss how certain trends will trigger new customer needs.

•Engage the best thinkers in your organization in a series of dialogues about strategic issues (e.g., identifying core competencies, determining needs of future customers, detecting new minimally contested markets, competitive analysis). Rotate a top executive to attend each meeting and report back to his or her colleagues.

Shift No. 3: From singular focus on financial health to a balanced scorecard measuring strategic health.

Tight margins and investor demands for short-term results exert enormous influence on the food industry's strategic planning efforts. However, an exclusive financial focus causes organizations to measure success by criteria that sacrifice long-term value creation for short-term performance. When measurements don't account for a company's enduring strategic health, critical strategic issues are camouflaged. For example:

•Retail chains use a growth-by-acquisition strategy to mask weakness in generating organic sales growth.

•Consumer product manufacturers fixate on sales volume growth while new sales of new products decline, as will profit margins years later.

•Wholesalers make deals with high-volume chains at the expense of long-term profitability.

If your strategy aims for sustainable sales growth, then measures of success must align with the five-year strategy rather than be shackled to this quarter's good-looking balance sheet.

Shift No. 4: From planning as an extrapolation of history to innovation organized around future backward planning.

Assuming the past year's results are satisfactory and no obvious threats to continued prosperity, strategic planners typically study patterns reflected in key business measures of recent years, then extrapolate goals that represent a reasonable level of improvement. If the retreat adjourns without much jostling of basic strategic position, then senior management breathes a sigh of relief. But there's one dangerous mistake: Linear strategies that build on precedents aren't designed for non-linear times.

In contrast, innovative strategies are designed to achieve a sustainable advantage derived from three sources: rethinking the rules of competition in order to deliver a new value proposition, discovering new minimally contested market segments, and requiring hard-to-copy organizational capabilities. Achieving this competitor-resistant status requires developing new answers to pivotal questions such as: Five years from now, how will we define our business? Who will be our targeted customers? Who will be our competition? What will be our products and services? What will be our methods of going to market? What will be our core competencies? What new value will become our primary source of competitive advantage?

To conceive original answers to these questions requires a shift from extrapolating from the past to imagining a desired future.

Shift No. 5: From benchmarking against industry rivals to adapting ideas from outside the food industry.

Industry benchmarking works fine if the objective is making small improvements on the same value offering customers expect. But is just noticeably surpassing the competition the right strategic objective for sales growth?

Strategic innovation introduces new customer value by using world-class practitioners from outside your own industry as a reference for raising the bar on what's possible. Nordstrom borrowed the idea of a concierge service from five-star hotels. GE learned about asset management from Toyota and quick marketing intelligence from Wal-Mart. One of my supermarket clients benchmarks its video department with Blockbuster and the greeting card and gift department against Hallmark.

Shift No. 6: From treating innovation as a zero-defect process to recognizing that it takes trial and error.

Most strategists take responsibility for determining sound objectives, figuring out key environmental factors to be controlled, devising a detailed plan for implementation, and then allocating the required resources. They adopt a "get it right the first time" approach to product and service innovations. If the innovation fails to meet expected results during rollout, it's classified a failure.

Successful strategic innovation is not a zero-defect process. Instead, plan for numerous rounds of course correction in response to customer feedback. H-E-B tested its Central Market format in a single store in Austin for years before expanding to other cities. Strategic innovation is part planning and part trial-and-error learning from customers until you hit upon what works.

Name your game

If you're playing the game of staying profitable, traditional strategic planning may work for a few more years, depending on the tempo of change in your specific marketplace. But if you acknowledge with unflinching honesty that you're up to playing the game of sustainable sales growth, then the time for rethinking your strategy—its content and its process—is now.

Art Turock is a is speaker for corporate and trade association meetings and facilitator of "strategic innovation consultations." This article is based on his book Invent Business Opportunities No One Else Can Imagine. He can be reached at (800) 473-8997 or by e-mail at art@turock.com