SPEAKING OUT

About 10 or 15 years ago, strategic planning was a top fetish of corporate executives, especially CEOs. Everyone had strategic [...]

November 1 1989 by Chief Executive


About 10 or 15 years ago, strategic planning was a top fetish of corporate executives, especially CEOs. Everyone had strategic planning departments, hired strategic consultants, attended strategic seminars and periodically gathered their managers together in planning retreats. Only God knows what finally happened to all of those hernia-producing tomes that were the products of these planning pundits.

With no obvious results to be seen, strategic planning fell out of favor in a lot of high places. One reason was a pretty good one: some of the strategic plans were just plain poorly done. They were too often impractical, not kept up-to-date and never got into the mainstream of the actual business of the company. Under the guise of strategic planning, too many silly acquisitions were made and too few profitable ventures got started.

A second reason fed on the first. When corporate restructuring time came along with the raiders and the leveraged buyouts, the strategic planning function and staff was one of the easiest costs to cut. Few defenders rose in righteous wrath to object. So we lopped off their heads.

Now I am sensing a swing back in favor of strategic planning-again for valid, but quite different reasons. To begin with, most companies that manufacture and market products must have a long-range plan of some type in front of them. To approve a capital project, to launch a new product, to obtain new financing, to develop managers, to talk to investors-all require a certain amount of thoughtful and coordinated forecasting of revenues, profits and cash flow. A simple arithmetical extension of the annual profit plan leaves too many unanswerable questions that demand strategic probing.

Simultaneously, old Marshall McLuhan’s prediction of “global village” is getting scarily close. Practically every business is uncomfortably aware of foreign competition. The corporations of the world are entering into a labyrinthine network of alliances, joint ventures, cartels and licensing agreements. We have worldwide financing, material sourcing, brand advertising, auditing and fax machines. Europe 1992 is now. Korean, Spanish, and Saudi competition is real. Perestroika is out of the closet and China almost opened its door.

Two of my colleagues at Columbia Business School-Professors Donald Hambrick and James Fredrickson recently conducted an international study of 870 CEOs in 20 countries. These CEOs told them that the most important talent needed by the CEO in the year 2000 is to be able to formulate strategy and that the most vital personal behavior trait is the conveyance of a strong sense of vision. Furthermore, they said that the CEO must operate in an international economy that no longer revolves around the U.S.

If these CEOs are right-and I tend to concur with them then strategic planning certainly deserves the renewed emphasis it’s getting. By the same token, however, we should be smart enough this time around to do it better. We can learn from our past errors of both commission and omission; and we can learn from peer companies that never dropped out of strategic planning and are now reaping benefits from their perseverance.

In my business experience, both as an operating executive and an outside director, I have seen well over a hundred strategic plans brought forth by well over a dozen corporations. Some were quick duds; others proved to be so after costly investment. Many were a toy of the time and, when unplanned changes occurred, were allowed to lapse into shelf furniture. Only a few plans and planning programs that I know have survived over a decade.

Here are five observations that may be useful: One, it takes at least three years to install and stabilize the strategic planning process. The first year is skewed either too much towards headquarters or operational input, or too little so. The second year, in correction, usually overcompensates. The third year begins to develop balanced discussion and logical determination of goals and action steps needed.

Two, the vigorous sponsorship of the CEO in setting realistic schedules and the active involvement of the board in appraising performance against those schedules is a sine qua non.

Three, recognize that changes are going to occur and do so faster each year. A dynamic plan is not only able to cope with change, but should be designed to make change happen. Four, communication with all key staffers and profit centers must be constant. Changes must be explained and redirection interpreted.

Finally, the CEO should never give up trying to develop a strategic base for his continuous planning. As in many things, too many quit before they have learned how to play the game.

When I think about it, the CEOs I know who were good at planning usually worked at good companies that were going places. And the companies I admire most, always have mature planning programs. Does the combination of a good CEO and a good company simply mean that good planning is easier to do? Or is it good planning that makes a CEO and a company successful? It’s a good question.


Formerly the CEO of F.&M. Schaefer (1972-1977), Robert W. Lear teaches at Columbia Business School where he is Executive-in-Residence. He is an independent general partner of Equitable Capital Partners and holds directorships with Cambrex Corporation Inc.; Crane Company; Scudder Capital Growth, Equity Income, Development, International and International Bond Funds; Korea Fund; Medusa Corporation; WICAT Systems Inc.; and Welsh, Carson, Anderson, Stow Venture Capital Co. He authored the recently published book How to Turn Your MBA Into a CEO.