Every business executive recognizes that strategy is important. However, it is also challenging to make predictions about unpredictable future events. Roger Martin, in a recent Harvard Business Review article (Jan/Feb 2014), offers some advice on the three most common mistakes in creating a business strategy.
First, business plans are not a strategy. Planning involves detailing expected initiatives and operational improvements. Business plans forecast sales and revenues for the next annual cycle. Strategies, on the other hand, may be less certain in nature and should focus on the long term. Instead of describing specific initiatives, a strategic focus will identify market opportunities.
Second, strategies aren’t perfect. Whereas business plans for the next annual budget cycle should be accurate, strategies allow room for new information. A business plan must forecast revenue and costs to help manage capital, investments, and human resource processes. Strategies look further into the future and try to envision a company’s footprint in an emerging marketplace.
Finally, the third mistake companies make is to not have a strategy at all. Logically, these firms ask, if the future is not controllable, why should we try to anticipate it at all? Of course, failing to consider the future is a recipe for disaster. Firms that fail to develop a business strategy are often short-lived.
Business strategies must focus on the long-term viability of the firm. This means framing opportunities and risks in the marketplace. Strategic outlooks will examine customer needs and satisfaction far more than cost-cutting conditions. Decisions are made based on the company’s fit and alignment in the industry rather than a quarterly metric.
Creating an effective strategy is tough work. It’s easy to fall into the trap of substituting a detailed operation plan for a strategy. Yet, focusing on tough decisions and anticipating industry trends and risks will better prepare your business for long-term success. For more information on creating an effective, long-term business strategy, please contact us.