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ColinC
Advisor
Advisor
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The Covid-19 pandemic has posed significant challenges, opportunities, and questions to organizational leaders around the globe. Many organizations have had to quickly pivot in order to thrive or stay afloat, due to significant changes in their industries. Companies that have not responded quickly have experienced significant financial and operational challenges. In some cases, they have not survived.

On the contrary, organizations that chose to engage in world-class strategic planning managed to successfully navigate the choppy waters and have even capitalized on opportunities and averted threats. This article will define strategic planning and provide a demonstrative rationale to why all organizations need to make it a major focus. Additionally, this article will clearly outline the specific steps an organization can take to develop a strategic plan and make it the basis for all planning.

Why strategic planning is important

During the pandemic, organizations that already had great strategic planning processes in place were at a significant advantage to companies that had to scramble to establish strategies for the dramatically changed business environment.

For example, e-commerce companies experienced explosive demand during the period. If they had planned for a high-growth scenario, they would then be able to unleash incremental capacity and capitalize on the increased demand. Many companies also scrambled to put together a disaster recovery plan (DRP). A robust strategic plan would have been a better substitute that could have equally addressed this important but often neglected area of business planning.

Strategic planning defined

What exactly is strategic planning? Strategic planning is a critical organizational process that analyzes the long-term business environment and sets clear KPIs and objectives for the organization. It also ensures that these objectives are resourced properly and are communicated to the entire organization.

Michael Porter is a Harvard professor who is a renowned expert in this area. He defines strategic planning as a thoughtful, systematic, and organization-wide process that helps a business identify its competitive advantage(s). Porter developed ‘The Five Forces Model’ that is widely used by organizations as it helps them develop and execute a robust approach to strategic planning.

 


 

 

 

 

The Five Forces Model

 

The strategic plan can be used as the basis for all planning in an organization. It can be translated into organizational and functional objectives that can be disseminated throughout the organization.

Key disciplines of strategic planning – learning from successes and failures:

Organizations can ensure their strategic planning process incorporates key disciplines that will enable sustainable success. Examples of these disciplines are as follows:

  • Long-term and innovative thinking


Amazon is an example of a company that looks at the long-term and dominates the global economy. Their approach to strategic planning is one of the reasons for this success. A lot of companies are trapped in dealing with short-term urgent issues and neglect the long-term consequences. Amazon encourages employees to experiment rather than become complacent. The management celebrates small wins because some of these wins will turn into long-term successes.

The long-term perspective can help companies identify areas of growth and improvement. Furthermore, a focus on experimentation gives organizations an opportunity to explore small segments that hold a lot of potential.

A successful strategic planning process considers the interests of different stakeholders including employees, customers, and shareholders. By using this all-inclusive approach, organizations can ensure that the strategic plan can be used as the basis for all planning needs.

  • Remain aware of the external environment


Wayne Gretzky famously said you should ‘go where the puck is going’ rather than where it is. This is a brilliant analogy that can be applied to the business world. Indeed, businesses with great strategic planning processes are the ones that have the ability to recognize changes in the market and take advantage of opportunities to grow.

The leadership team’s openness to innovation and new market segments plays a significant role in an organization’s success within their industry. An external viewpoint ensures that leadership does not remain insular. It illustrates the organization understands the importance of keeping abreast of consumer trends and technological advances.

Kodak famously invented the first digital camera but decided not to introduce it into the market in a big way because they dominated the traditional physical photo industry. Kodak’s competitors jumped on this massive opportunity and left Kodak behind.

  • Make the customer the center of the universe


Apple transformed the entire smartphone industry with their consumer-centric approach. Instead of just focusing on the technical aspects of their products, they focused on making their products indispensable to consumers. Companies like Blackberry, who were dominating the smartphone category at the time, lost most of their market share because they could not beat Apple’s consumer-centric approach.

There are several examples across many industries where companies have failed to take a consumer-centric strategic planning approach. In each case, they either suffered drastic consequences or missed significant opportunities.

  • Develop an organizational culture that values strategic planning


Peter Drucker famously said that ‘Culture eats strategy for breakfast’. Organizations that have a deeply embedded recognition of strategic planning’s importance, aligned across all levels, do very well. They invest a significant amount of time developing all strategic plans and ensuring that all members understand their involvement in the strategic plan. They prioritize ruthlessly and ensure organizational resources are not wasted on initiatives that do not fit within the strategic plan.

Strategic planning is a base for all plans

Organizations that have successful strategic planning processes systematically translate it into plans across the organization. The leadership team has a strict obligation to translate the agreed strategic plan into annual objectives and specific objectives for their respective areas of responsibility within the organization.

The first year of a strategic plan acts as the starting point for the annual budget. The organization needs to follow specific steps to translate the strategic plan into specific objectives. For example:

  • Sales teams across the organization need geographical customer plans to deliver top-line growth.

  • Marketing teams need to ensure they have sufficient advertising and promotional spend to secure the ROI included in the strategic plan.

  • Manufacturing teams need to align their supply chain plan to the strategic plan from a sourcing and capacity perspective.

  • Finance needs to disaggregate the strategic plan’s financial targets across the various profit and cost centers that exist in the organization, giving specific targets to each individual function.


Conclusion

Companies that have a robust strategic planning process embedded in their culture will have a much higher chance of long-term success. This will always be important but is even more important during turbulent times. Key ingredients of a winning strategic planning process are:

  • 100% sponsorship, commitment, and buy-in from leadership to ensure the process is ingrained in the organizational culture.

  • Long-term thinking, which ensures the organization does not exclusively focus on short-term urgent priorities.

  • An external view of the industry and the world that is not insular.

  • A strategic plan that forms the basis of all organizational planning.

  • Clear and consistent communication of the strategic plan that is translated into specific priorities to all levels of the organization.

  • Choosing the right technology to empower your strategic planning, making it much easier and more efficient.


By Ron Monteiro

SAP is helping customers become more agile with FP&A capabilities. Explore financial planning and analysis solutions from SAP, today!