The Essential Tools for Strategic Planning During the Period of Uncertainties

During the period of uncertainties, resilience of organizations depends on their ability to sense the business environment, articulate response strategies and execute them. More than ever, we need actual agility in strategic planning.

The triangle: Goals-KPIs-Initiatives and the Strategic Planning Frameworks. Source: BSC Designer

In this article, we’ll discuss the essential tools for strategic planning:

• The triangle: Goals-KPIs-Initiatives
• Value-based decomposition
• Business frameworks with their application areas

The Triangle: Goals-KPIs-Initiatives

Let’s start with a common base for most strategic planning frameworks — the triangle formed by:

• Goals
• KPIs, and
• Initiatives

The terms may vary:

• “Goal” and “Objective” terms are used interchangeably
• Key Performance Indicators (KPIs), Metrics, Measures, Indicators, Key Results… in this case, we talk about “quantification,” or mapping observation in numerical form
• Initiatives, Action Plans, Activities, or Tasks refer to actions required to achieve the goal

The components of this triangle are interconnected:

• KPIs quantify the Goals and Initiatives
• Goals give the context for the KPIs and Initiatives
• Initiatives connect Goals and KPIs with action level

Frameworks and Their Application Areas

In the explanation of the strategic planning process, I defined five steps. The second step is “strategy formulation.” That’s the application area of most of the strategic planning frameworks.

Formulating the right goals requires a skill of comprehensive analysis of the challenges and art of focusing on the right things. Each of the business frameworks has its specialization.

Specialization of the analysis: Mix of internal and external factors

Frameworks:

• SWOT
• 7-S
• Constraints Analysis

Specialization of the analysis: Mostly external factors with the projection on the organization.

Frameworks:

• Five Forces
• VRIO
• PESTEL

Specialization of the analysis: Time and Change factors

Frameworks:

• Three Horizons (now, near-future, long-term)
• Hoshin Kanri (long-term, annual, operational)
• Strategic Agenda (past state vs. future state)

Specialization of the analysis: Effect of Uncertainty, Resilience

Frameworks:

• Risk Management
• Scenario Planning

Specialization of the analysis: Cause-and-Effect, Strategic Alignment

Frameworks:

• The Balanced Scorecard (driving forces in Learning and Internal perspectives vs. desired outcomes in Customer and Finance)
• OKR

Understand Your Stakeholders Before Using Any Framework

The missing piece of the puzzle are the stakeholders of the organization. Most of the frameworks imply that there is a list of stakeholders with their interests, priorities, resources, etc., but we rarely see a specific requirement.

The starting point for the list of stakeholders was defined by Business Roundtable as:

• Customers
• Employees
• Suppliers
• Communities
• Investors

In the specific organization, the list should be more detailed. Think, for example, about different types of customers and their needs. They will all have an impact on the strategy formulation.

Triangle: Frameworks Don’t Produce “Comestible” Goals

The output of the frameworks are the change ideas and goals that are, in most cases, vague and ambiguous. They look good on the presentation slides but aren’t ready for practical purposes. A solution is to do a value-based decomposition.

I explain the function of strategy decomposition in this way:

Strategy decomposition splits up ambiguous goals into the small independent sub-goals quantified by value for stakeholders

While I share specific recommendations for better decomposition in the cited article, in practice, it’s always a sort of art.

Decomposition of the Goals in Strategic Planning: Full Guide. Source: BSC Designer.

Some frameworks (like Hoshin Kanri, for example) suggest doing decomposition by the time factor:

• Long-term goals
• Annual goals
• Specific activities

That’s a viable option, but time-based decomposition, as well as function-based decomposition, results in misaligned interests of stakeholders. Instead, look for the value as perceived by the stakeholders and decompose complex goals by this quantified value.

Triangle: Quantifying Performance with KPIs

Most of the frameworks recognize the need to quantify the performance (or value created) in some or other way. The terms and the techniques of quantification might be different; in general, they are all about these principles:

• Indicators need to be indicators (people tend to mix together indicators, goals, and action plans)
• Indicators should be aligned with the goal, standalone indicators don’t make a lot of sense
• A good practice is to think separately about leading (quantify the success factors) and lagging (quantify the expected results) indicators

Some frameworks (take OKR, for example) focus on the expected results (= lagging indicators), while there are no specific guidelines to discuss the driving factors of the change (quantified by the leading indicators).

Triangle: Initiatives

From the conceptual point of view, strategic initiatives are action plans aligned with organizational goals. They should be actionable and have other attributes to look good on a Gantt chart:

• Resources (budget and timeline)
• Dependencies
• Persons responsible

A typical pitfall when formulating initiatives is that they are misaligned with the strategy. In other words, there are some action plans, but once things get more complex, it’s hard to say exactly how those specific activities support overall strategy.

To avoid this, think about action plans in the context of the business goals and discuss ways to track their achievements early.

Learning Loop

Most of the business frameworks implement in some or other way the idea of continuous improvement:

• Analyze the outcomes and improve on the conclusions

Formally, it is achieved by the analysis of the lagging indicators and more specifically by the Gap Analysis — the analysis of the reasons behind the discrepancies between the expected performance and actual performance.

The best practice, in this case, is to have the learning loop integrated across all the Goals-KPIs-Initiatives triangle.

Cascading or Alignment

The strategy we were talking about was a high-level strategy for a certain group of stakeholders (strategists or top managers).

When it comes to practical implementation, the strategy needs to be cascaded (bad term, as it implies top to bottom nature of the process) or aligned with other functional units.

That’s not a trivial task.

Comparison of Strategic Planning Models and Frameworks. Source: BSC Designer

As you can see in the comparison table of the frameworks (see the article at BSC Designer), only a few frameworks suggest some guidelines for cascading. The leaders are:

• The K&N Balanced Scorecard
• OKR

Needless to say, in both cases, the results of the successful alignment depend on the skills of your strategy team.

No framework has a built-in quality control to stop you from doing bad cascading. Probably the most important safety rule is to do cascading by the business goals, not by the KPIs. In other words, first discuss what needs to be achieved and where the functional team will start, and only then search the best way to measure the progress.

Software for Strategic Planning

When it comes to automation of strategic planning, organizations typically choose one of these options:

• Spreadsheet software + some visuals in a presentation software
• Project management tools
• Specialized software for strategic planning

Spreadsheet software is fine on the prototype stage. What will happen with the triangle Goals-KPIs-Initiatives when we need to scale the idea? Things will become complex for the end user (a spaghetti-style scorecard):

• Historical data for KPIs will be hard to maintain.
• Calculations (performance formulas, various optimization directions, targets, baselines) and normalization (taking into account weight of the indicator) will require significant effort.
• Lack of accountability for the modifications will be an issue for bigger teams.

Project management tools might be a good option if the triangle Goals-KPI-Initiatives is leaned towards the initiatives (tasks). Such tools typically provide some basic KPIs functionality but lack functionality from the world of strategic planning like strategy maps or cascading.

A specialized strategy planning software is obviously a good choice (be sure to short-list our BSC Designer). Such tools typically lean toward the goals and KPIs from the triangle. The goals are traditionally presented on the strategy maps — a main visual tool of the Balanced Scorecard framework.

An example of the strategy map. Source: BSC Designer.

The Agile Toolkit for Strategic Planning

The period of uncertainty is here, and it is going to last. Making an organization more resilient for the upcoming changes is a must. The final choice of the frameworks depends on the challenges of your organization.

Here are my favorites:

• Strategic Change Agenda — to convert strategic ambitions into the specific goals (don’t forget to start with the stakeholders)
• The Balanced Scorecard as a main strategy execution framework
• PESTEL for analysis of the driving forces and Scenario Planning for their implementation into the strategy
• Five Forces if you are concerned about competition
• Scenario Planning if you plan to exist on the market in the next decade

Plus, included by default:

• Value-based decomposition for the ambiguous goals,
• Risk definitions and mitigation plans for key goals, and
• Constraints analysis.