The Real Value of Strategic Planning

Most companies invest a significant amount of time and effort in a formal, annual strategic planning process — but many executives see little benefit from the investment. One manager told us, “Our planning process is like a primitive tribal ritual — there is a lot of dancing, waving of feathers and beating of drums. No one is exactly sure why we do it, but there is an almost mystical hope that something good will come out of it.” Another said, “It’s like the old Communist system: We pretend to make strategy and they pretend to follow it.”

Management thinker Henry Mintzberg has gone so far as to label the phrase “strategic planning” an oxymoron.1 He notes that real strategy is made informally — in hallway conversations, in working groups, and in quiet moments of reflection on long plane flights — and rarely in the paneled conference rooms where formal planning meetings are held. Our own research on strategic planning supports Mintzberg’s observation: We found that few truly strategic decisions are made in the context of a formal process. But we also found that, when approached with the right goal in mind, formal planning need not be a waste of time and can, in fact, be a real source of competitive advantage. See “About the Research.”) Companies that achieved such success used strategic planning not to generate strategic plans but as a learning tool to create “prepared minds” within their management teams (to paraphrase Louis Pasteur).2

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References

1. H. Mintzberg and J. Lampel, “Reflecting on the Strategy Process,” Sloan Management Review 40 (spring 1999): 21–30.

2. Pasteur famously said that “chance favors the prepared mind” in describing his own breakthrough research.

3. Prepared minds, however, are a necessary but not sufficient condition for good strategy making in today’s intensely competitive markets. Long-term success also depends on a company’s ability to develop truly creative and innovative strategies, which is why formal processes must be balanced by informal ones that allow for creative experimentation. See E. Beinhocker, “Robust Adaptive Strategies,” Sloan Management Review 40 (Spring 1999): 83–94; S.L. Brown and K.M. Eisenhardt, “Competing on the Edge: Strategy as Structured Chaos” (Boston: Harvard Business School Press, 1998); R. Foster and S. Kaplan, “Creative Destruction: Why Companies That Are Built To Last Underperform the Market — and How To Successfully Transform Them” (New York: Currency/Doubleday, 2001); and G. Hamel, “Leading the Revolution” (Boston: Harvard Business School Press, 2000).