Increasing the Firm’s Strategic IQ

Dynamic versus static strategic planning

In industries where change is constant and revolutionary, key managers and knowledge workers need to learn to think more and more like a CEO and to be included in a dynamic strategic planning process.

When General Electric cut its strategic planning department by 99%, that seemed to be the deathblow to the strategic planning function. Instead, it may have been the savior because at the same time GE abolished the planning department, it established the Crotonville Center to train thousands of managers in a more dynamic strategic planning process and decision-making.

Other companies, including IBM, TRW, Nucor Steel, and John Deere, have since followed suit. They have increased the number of managers and knowledge workers involved in strategic decision-making, thus giving them access to more critical information and training them in areas such as reading financial statements.[1]

One of the main reasons for this change was the need to be more responsive to the customer. Top managers were becoming increasingly isolated or frustrated by their companies’ lack of ability to meet customers’ needs. By involving lower levels of the organization in strategic planning processes and decision-making, these companies are able to design a dynamic planning process and achieve strategic goals that better fit the needs of today’s marketplace.[2]

At the roots of the dynamic strategic planning model are the core elements of the static strategic planning processes. They are not lost. However, knowledge of them is spread throughout the firm, thereby allowing for increased dynamic involvement by more people. By understanding how strategic planning is changing, companies can build more effective processes that respond to today’s competitive challenges.

Static Versus Dynamic Strategic Planning

Whether a firm engages in a traditional static planning process or a dynamic one, ultimately the purpose of strategic planning is to add value to the firm by adding new customers, new products or services, new markets, new locations, or new breakthrough technology. If the plan does not add value, it is worthless.

Static planning processes usually answer the question of fit. How does our firm fit with its environment? What are the strengths, weaknesses, opportunities, or threats (SWOT) and the “GAP” between opportunities and capabilities? Value is added when a firm’s internal capabilities fit with its external environment. Static processes optimize value creation. These “fit” models tend to provide insights that lead to incremental changes, but rarely inspirational changes. Thus, they came under attack in the 80s for “analysis by paralysis”[3] and more recently for stifling innovation for the sake of optimization.[4]

Revolutionary change requires a new, dynamic model of strategic planning. It does not ask about fit; it asks about the future. Used in such hypercompetitive industries as software and biotech, dynamic strategic planning answers two questions: “Where do we want to go and how do we want to get there?”[5] Executives become visionary and transformational on the one hand and managers of strategic context on the other. Managing this context includes training others in strategic thinking to increase the collective capacity of the organization to make strategic decisions, its strategic IQ.

In other words, in dynamic strategic planning processes, key employees learn how to think more and more like a CEO in terms of static strategic planning, thus matching strengths and weaknesses with opportunities and threats. They learn to increase their strategic intelligence by learning from their competitors, customers and suppliers to ask strategic questions, to plan for contingencies, and to engage in scenario planning.

Involving more employees in dynamic strategic planning is necessary in industries in which change is rampant. However, unless there is a need for managers and knowledge workers to think strategically, involving them in dynamic strategic planning can reduce their efficiency. In stable industries, static planning processes work. However, in dynamic environments, even leaders may need to learn new skills, including managing the strategic context.

Anchors

Managing strategic context starts with the heart of a good strategic plan: the company’s purpose, values, and strategic goals. In static models, the core purposes and values often take a back seat to rigorous analysis and data collection, but in dynamic models, they anchor the process and keep it from spinning out of orbit. Leaders need to spend a lot of time reiterating the purpose and these core values, which are the roots of strategic thinking throughout the firm.

Dynamic strategic planning processes use vision statements instead of static mission statements. Vision statements embody the core values and purpose of the firm and state them in terms that inspire and stretch the firm to achieve a broad future-oriented purpose. “We set the standard” was an embryonic vision at Microsoft. The early personal computing firms realized that they were not just creating a valuable product; they were changing people’s lives. Microsoft knew that to be at the forefront of this change, it had to be the standard bearer.

Instead of static SMART goals (smart, measurable, appropriate, tied to rewards and timetable) that are manageable, dynamic strategic planning processes rely more on BHAG (big, hairy, audacious goals) that are motivational. According to Gary Hamel, strategic planning processes should lead to revolutionary goals with evolutionary steps.[6]

Using vision statements and BHAG goals as anchors to involve more employees in strategic planning processes is not without risk. If the freedom to make strategic decisions throughout the organization is not rooted in a strong, shared vision, rather than enhancing a company’s ability to achieve its strategic goals, that freedom can lead to chaos. Without adequate review and appropriate controls, individuals may inadvertently, or otherwise, go off on destructive tangents. Firms such as Enron have set revolutionary goals, but have failed to manage the strategic context or establish adequate controls. Thus, the next step in dynamic strategic planning is to manage the strategic context through the strategic planning process.

Process

Static strategic planning processes are like luxury liners. They are elaborate, complex, and proceed at a snail’s pace. They often result in “SPOTS,” — Strategic Plans on Top Shelves.[7]

In a dynamic planning process, the executive team and key stakeholders will often go off site for a weekend and hash out the strategic vision and goals of the company. While these provide the anchors and goal posts, they leave a lot of room for strategic thinking on the upside and running adrift on the downside. Thus, the senior team must also spend time increasing the strategic IQ of the company by determining its strategic architecture and organization. Such actions include planning processes, training, information systems, rewards, and reporting and team structures that facilitate strategic thinking in order to exploit the increased strategic intelligence of its managers and employees.

Organization

Static strategic planning is traditionally a top-down process. It is tightly controlled by an executive team with support from a centralized planning staff that provides information on markets, competition, customers, and economic forecasts. Company-wide strategic planning processes often include major plans every three to five years and annual updates. Often these updates are tied to, and sometimes tied down by, the budget process. Static strategic planning often fits well with traditional organization charts that are multidivisional or functional. Communication and decision-making follow a vertical flow up and down the chain of command.

Dynamic strategic planning processes require a more horizontal approach to communications and decision making. They are more likely to flourish in organizations that utilize teams and networks.[8] The executive team creates the vision and grand strategies that provide a context for all other strategic decision making. The team then determines whom to involve and the processes for communication and implementation. They must also plan for the training of those who are now being asked to think strategically. Once managers are trained, they must be given incentives to act. Finally, an information system that supports the flow of knowledge and shows evidence that organizational units are achieving their strategic goals must be put in place.

Training

In the 80s, CEOs became disillusioned by the level of precision and lack of accuracy of their planning processes. Savvy companies started training top managers to use the fundamental skills of the static model to think strategically even though few of them had either Ph.D.s in economics or crystal balls. These managers in turn demanded more and better information on customers, competitors, industries, environments, and internal capabilities and resources. Key sources of this information were front-line managers and knowledge workers.

Just as strategic thinking moved from CEOs to top management teams, it later moved from these teams to knowledge workers and managers, requiring that they be trained in strategic decision making skills, including understanding the firm’s strategic vision and purpose. They, in turn, began asking questions about customers, competitors, and suppliers; gathering appropriate data; determining their organizational unit’s core competencies, and obtaining evidence that they were achieving their strategic goals.

Information Systems

In static strategic planning, information is funneled through a centralized planning staff that does data manipulation, strategic analysis, and financial analysis. Thanks to information technology (IT), strategic information can be made readily available in dynamic planning processes to anyone who needs to know it. IT systems support real time decision making in new and exciting ways. Companies can now directly link their systems to those of their customers and suppliers to create faster response time and improved inventory control. Linking systems also to strategic goals can increase a firm’s value.

In the knowledge creating company, a knowledge spiral occurs when tacit knowledge is articulated by knowledge workers, then recombined in new ways, and internalized by other workers.[9] In dynamic planning processes, this knowledge spiral is used for innovation that is tied to the firm’s strategic vision and goals.

Changing an IT system from one that is data based to one that is decision based can be difficult. To break down the powerful fiefdoms of IT managers, a new breed of IT professionals is needed who can design systems for knowledge workers. They in turn then can become knowledge brokers, teaching other knowledge workers and partners how to use their specialized knowledge to better support their clients. Balanced scorecards that link processes, information, and strategic goals are one example of such knowledge transfer.

Dynamic planning systems are supported by information systems that monitor and measure progress toward strategic goals on a real time basis. Websites are created to show progress toward strategic goals, gather strategic intelligence, and allow for constant communication and feedback among the senior management team, managers, and knowledge workers.

Attitude

In static strategic planning processes, there is a clear hierarchy of strategic thinking. At the top of the command chain are the strategic thinkers. They are the queen bees. At the bottom are the worker bees or drones without the mind or desire to be strategic thinkers.

With an increase in trained knowledge workers, strategic thinking is not only possible, it is also needed at all levels of the firm. Dynamic planning implies an egalitarian culture in which all knowledge workers are valued and equal. For example, at McKinsey Consulting, managing director Rajat Gupta considers himself “first among equals.” At Southwest Airlines, “Everyone is a leader.” Such attitudes pervade dynamic strategic planning processes.

To achieve such dynamism, a reward system that encourages strategic thinking is needed. It is important to create incentives and career paths that reward the desired behavior that increases the firm’s strategic value.

According to Roger Martin of Monitor, the global consulting firm founded by Michael Porter of Harvard Business School, “Managers can no longer afford to think of their workers as automatons who merely execute tasks handed down from above. All workers make key decisions every day about how they do their jobs, and those decisions can affect a company’s strategy–for good or for ill.”[10]

What Can this Mean to You?

Shifting from static planning to dynamic planning is not about how to plan as much as it is about who plans. It is about shifting strategic thinking down to more and more levels of the organization so that the firm’s strategic IQ can be increased. Therefore, companies that are contemplating making this shift need to understand the following:

  1. Executives anchor strategic planning by creating visions that state the values and purpose of the organization. They manage the strategic architecture of the firm by teaching managers and knowledge workers how to think strategically and to take appropriate action.
  2. Managers and knowledge workers need to be trained in the fundamentals of strategic planning, including how to understand financial statements such as profit and loss statements, how to determine fit strategies by matching internal capabilities with external opportunities, and how to engage in scenario (what if) planning.
  3. Managers and knowledge workers need IT systems and web based support that links them to top management, strategic goals, and other knowledge workers.
  4. Executives need to be sure that the core values and vision of the company are constantly and consistently kept in focus and that there are enough controls and processes in place to monitor what is actually happening.
  5. Once the firm’s strategic IQ is increased, its managers and knowledge workers can make strategic decisions about how to use its capabilities and resources in new markets, products and services, new locations, and breakthrough technologies, thereby adding real value to the company.

Instead of having one large lawnmower to cut thousands of blades of grass, the firm has thousands of mowers cutting the grass simultaneously. By increasing the strategic IQ of these knowledge workers, the firm can respond more rapidly than its rivals to the fast moving changes taking place in today’s marketplace.


[1] Marie Gendron, “Strategic Planning–Why It’s Not Just for Senior Managers Anymore,” Harvard Business Review, (1998), p. 3-5.

[2] Ibid.

[3] Thomas J. Peters and Robert H. Waterman, In Search of Excellence: Lessons from American’s Best-Run Companies, Cambridge: Harper and Row. (1981).

[4] Gary Hamel, Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life, New York: Plume. (2002).

[5] Shona L. Brown and Kathleen M. Eisenhardt, Competing on the Edge: Strategy as Structured Chaos. Cambridge: Harvard Business School Press. (1998).

[6] Ibid., Hamel.

[7] This term was coined by two University of Michigan professors, Drs. Wayne Brockbank and Noel Tichy (designer of GE’s Crotonville Center to train managers in strategic thinking and decision-making).

[8] For an overview of how to communicate your strategy internally, see Jake Laban and Jack C. Green, “Communicating Your Strategy: The forgotten fundamental of strategic implementation,” Graziadio Business Review (Vol. 6, No. 1, 2003).

[9] Ikujiro Nonaka and Hirotaka Takeuchi, The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation,. New York: Oxford. (1995).

[10] Marie Gendron, (1998).

Author of the article
Connie James, PhD
Connie James, PhD,

, is an associate professor and chairperson of the business administration division of Pepperdine University’s Seaver College. She has published and presented articles on organizational learning, strategic thinking, and ethics, and was an Exxon Fellow at the University of Michigan, where she earned a BA in Economics and an MBA in Finance. She completed her doctorate at UCLA, where she won awards for her dissertation on organizational learning and firm effects. She has been a faculty coach at Noel Tichy’s “Cycle of Leadership” workshop and chaired the Teacher Excellence Committee for the Business Policy and Strategy Division of the Academy of Management. Dr. James has been nominated for “Who’s Who, America Teachers.” She serves on the faculty of NAMIC and the board of Team World Corps.

More articles from 2003 Volume 6 Issue 2
Related Articles