Why not plan to be great, like Elon Musk?
Elon Musk has just announced plans for SpaceX to build a huge reusable rocket (BFR) that he and his firm believe will enable a permanent self-sustaining human presence on Mars in five years. (Watch the stirring YouTube video of SpaceX's CEO and Lead Designer announcing the company's audacious plan at the meeting at the International Astronautical Congress on September 29.)
This is not a "pie in the sky" prediction. Musk and his team have seized the vision of inexpensive space travel and settlements on other planetary bodies and have created an incredibly detailed and seemingly realistic plan building on the firm's accomplishments and knowledge for achieving the vision.
Musk and SpaceX, as well as his other ventures including Tesla, stick out as spectacular examples of dreaming big and then making a challenging but potentially achievable plan and going for it.
But just how prevalent are leaders and organizations who formulate a big vision of future success and then formulate strategies and execute a solid plan to achieve the vision? Are Musk, SpaceX and Tesla really outliers?
Even accounting for a less audacious vision, to what extent do leaders and organizations use the vision-strategies-plan-execution paradigm that seems to be carrying SpaceX and Tesla to such monumental achievements?
Let's celebrate those who get it
"It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something." - Franklin D. Roosevelt
We can give half of all organizations points for at least trying to achieve a vision of greater future success by developing and implementing winning strategies and a plan to go after the vision.
It's good news that strategic planning is the number two most used business tool globally. In the U.S., 50% of organizations use it, according to Bain & Company’s latest survey of executives. Strategic planning has scored at or near the top of the most used management tools list for years. (See Bain & Company Management Tools & Trends 2015.)
Here's some more good news. 58% of leaders say strategic planning is extremely or very important in their organization’s success. That’s according to our 2013 Strategic Leader Survey involving organizational leaders in decision-making roles, which tracked closely with the results of an earlier survey we conducted and with a McKinsey & Company survey. (All of our Strategic Leader survey reports, including our latest on strategic decision making, are available for free download at www.forrestconsult.com).
Reality
But, unfortunately, the reality is not nearly as good as it might seem. Unlike SpaceX and Tesla, organizations of all types are not living up to their potential.
Our finding that 58% of organizational leaders say strategic planning is extremely or very important in their organization’s success means that four of every ten organizational leaders say strategic planning has little or no importance in the success of their organization.
If, according to Bain, 50% of organizations don't use strategic planning, it's no surprise that those organizations can't attribute whatever success they are having to intentional strategy development and execution.
That's a shame, because the evidence is clear that developing and implementing a strategic plan is the path to greater success.
The big "fail"
“Most people don't have a plan. That's why it's easy to beat most folks.” - Paul "Bear" Bryant
Unlike Elon Musk, many leaders don’t get it.
It’s a failure of leadership, a critical lack of understanding, what King George III demonstrated when England lost the American colonies under his reign.
Our finding that 42% of leaders say strategic planning is unimportant for success is only part of the problem. The woeful reality is that in a majority of organizations, like Britain during the American Revolution, the top leader or just a small group are making the strategic decisions.
Our 2016 Strategic Leader Survey revealed that organizations most frequently make strategic decisions without the leader obtaining consensus: In 66% of organizations the leader typically makes the strategic decisions.
Here's the problem with leader-centered decision making, as opposed to using the power of the team and insight from the wider group of stakeholders in the decision-making and planning process: Leaders tend to have biases:
Inability to self assess, overstating their abilities, competencies and characteristics.
Illusory superiority, overestimating their desirable qualities and underestimating their undesirable qualities, thinking they can make better choices than others.
Illusion of control, overestimating their influence on events and mistakenly thinking their actions will be effective.
Power, a sense of control that produces overconfidence in their ability to make good decisions and to overestimate what they think they know, potentially leading to excessive risk-taking.
Self-serving bias, evaluating ambiguous information in a way more beneficial to their interests than to the organization.
Evidence suggests that strategy developed through consensus decision making produces better organizational outcomes than that developed through leader-centered decision making. Our research shows that that organizations rated excellent or good are a third more likely to commonly use consensus decision making for strategic decisions rather than leader-centered decision making.
Nothing happens without execution
"The greatest strategy is doomed if it’s implemented badly." – Bernard Reimann
Even when organizations create a strategic plan, there is failure. According to the Balanced Scorecard Collective, more than 70% of organizations with a plan fail to implement it. For these organizations, planning is an exercise, not a core process. (Please note that even Bain & Company calls strategic planning a tool, not a process. I think that’s a disservice.)
The Balanced Scorecard Collective also reports that 60% of organizations don’t link strategy and budgeting. Hand in hand with implementation issues, a disconnect between strategy and resource allocation often exists. Resources are not focused on implementation.
The answer
“By failing to prepare, you are preparing to fail.” - Benjamin Franklin
The bleak picture of the use of strategic planning painted by the data presented above calls for an answer. The response could be, "Who cares?"
If strategic planning coupled with effective implementation were not such a powerful process for driving greater success, one might say "So what?" to the news that many organizations don't plan or implement.
Yet, way beyond the sample of one offered by SpaceX, extensive, repeated, solid research shows that organizations that plan and implement well do better.
Here's the proof
A while back, I uncovered a scholarly analysis I had not seen referenced elsewhere, conducted by a Danish researcher, published in 2010. It's a "meta-analysis" of 45 years of research involving 88 studies of the impact of strategic planning involving 32,472 organizations. The study concludes definitely that strategic planning improves performance, both in quantitative and qualitative terms.
The research was conducted by Anders McIlquham-Schmidt, now at Copenhagen Business School in Denmark. His published work has the imposing title, "A meta-analytical review of the relationship between strategic planning and corporate performance." You can read it yourself at http://www.hha.dk/man/cmsdocs/WP/2010/2010_01.pdf.
For the data geeks in the crowd, here are the correlation coefficients. For the normal people, what you need to know is that the greater the positive number (with 1.00 being the maximum possible), the greater the favorable relationship that shows that conducting strategic planning produces the resulting performance measure.
In McIlquham-Schmidt's analysis, qualitative performance measures (non-data geeks, that means measurable stuff), had very high correlation coefficients, r. To be specific, the analysis shows high positive correlations between planning and key quantitative measures of performance, from earnings per share to return on net worth, as follows:
Earnings per common share +0.79
Return on invested capital +0.64
Return on owner’s investment +0.58
Change in return on invested capital +0.56
Return on net worth +0.42
Impact is more than financial
“It is interesting to note that those businesses that perform at the highest levels usually have some sort of formalized strategic plan in place and have implemented it well. On the other hand, those businesses that struggle usually have no plan in place and seem to flounder in their attempts to be successful." - Chris Arringdale
Even better, from my perspective as a person educated in quantitative analysis but as much a "soft measures" person, the analysis also shows positive correlations between planning and performance for less tangible but very important qualitative measures, including attainment of the organization’s objectives. (Non-data geeks, here's an example of using a qualitative measure. When a supervisor is asked to evaluate an employee's attitude on a 1-5 scale, that's using a qualitative performance measure.)
Attainment of profit objectives +0.51
Community acceptance +0.48
Service efficiency +0.47
Attainment of corporate objectives +0.44
Even better outcomes from a quality process?
Let's note that this conclusive evidence about the efficacy of strategic planning does not even look at the the quality of the planning and implementation process that the organizations studied used.
I think we can surmise that the "better" planners and implementers were more likely to drive desired, positive results than those who indeed planned but planned and implemented poorly. Certainly some of the underlying studies considered in McIlquham-Schmidt's meta-analysis show this to be the case.
Debate settled?
"Planning is bringing the future into the present so that you can do something about it now." - Alan Lakein
Can we now agree that any past debate about the positive impact of strategic planning has been put to rest? Can we get on with making creation of an engaging vision of greater future success and engaging in smart and effective planning and implementation a core process in the organizations we care about?
I would hope so!
Why not envision your own version of SpaceX's "Mars settlement," your shared view of what great success can mean for your organization?
Why not focus your organization on creating and implementing strategies to get to that inspiring future vision?
Why not start now?
