Strategic planning is one of those things that every organization undertakes, but that very few organizations fully understand. Sure, it’s how you figure out what to focus on and what work you do to match that focus, but how do you ensure you have the right priorities? How do you know you’ve selected the right investments to match those priorities, and how do you know when you have to adjust and adapt to changing circumstances? What are the different models of strategic planning, and what cadence is appropriate? In this guide we aim to provide you with a clear path through the options to select what’s right for you.
What is Strategic Planning?
Strategic planning is the process of selecting the right strategic priorities, setting the right goals and objectives and then aligning the right investments, delivered in the right way, to those priorities in order to achieve the objectives. It’s also about reviewing and adapting those priorities, goals, objectives and investments based on emerging threats and opportunities and in response to the replacement of plans and assumptions with actual performance data.
The setting of priorities, goals and objectives is based primarily on the executives’ collective understanding of their industry, markets and organization and doesn’t tend to be particularly problematic. But the same can’t be said for everything else.
Strategic Planning Models
While all organizations attempt to drive their planning top-down, there are varying degrees of success achieved, often because of limitations in the ability to capture and prioritize demand in one central location regardless of where that work is coming from, what type of work it is, and how it is being delivered. Addressing this, and doing so collaboratively across the entire organization without silos, represents an evolution of planning to where it needs to be.
There are three primary models to planning that reflect varying degrees of progress in that evolution:
- Project-based Strategic Planning
- Product /Program-based Strategic Planning
- Capability-based Strategic Planning
1. Project-based Strategic Planning
This is the traditional approach to planning and is still by far the most common method used by organizations. Project-based strategy starts with key stakeholders defining and prioritizing business strategy, often within departmental silos. Separately from that process, project proposals, work requests and improvement suggestions are captured during a window, often annual) from all areas of the organization. Most of these requests originate from operational and tactical areas of the business.
Business cases are completed and include assessments of how the proposed initiative aligns with one or more of the prioritized strategies. This alignment is often subjective and is intended to help the proposal gain approval rather than accurately reflect the contribution the initiative would be able to make. These business cases are consolidated and key stakeholders determine which initiatives to approve, prioritize and schedule using a variety of techniques, many of which are interpretive and based on presentations rather than objective facts.
Top-down funding is often carried out on a departmental or business function level. This results in the larger budgets being assigned to the larger business areas, not to the investments with the greatest ability to contribute to strategic success. This compromises performance before work even begins.
When business cases are produced, they are often inaccurate, overestimating benefits and underestimating costs, resulting in challenges in the ability to deliver the work and a failure to achieve the organizational goals and objectives from those work items that are delivered. Project-based planning is slow to evolve and the next cycle usually sees a repeat of the process with no adjustments based on previous lessons learned.
The advantages of project-based planning are that the process is familiar to virtually everyone and readily understood, making it easy to implement. It also aligns with other annual processes across the organization making it minimally disruptive and is often an integral part of departmental, finance and other business processes making it simple to manage.
However, the disadvantages are significant. The bottom-up nature of the identification and development of proposals makes it very hard to connect those initiatives to the organization’s strategic priorities. This often results in the selection of the best candidates from a bad set of options, and that selection is frequently compromised by inaccurate or incomplete business case content. In addition, planning is often siloed within business verticals, resulting in flawed assumptions, conflicting dependencies, and unrealistic expectations.
This approach has worked, at least partially, in the past, but the disconnect between strategy and work planning and delivery creates significant uncertainty over the ability to generate optimal results and frequently results in failed strategic plans. As a result, it is increasingly being replaced by one of the other options.
How portfolio management can help you master strategic planning.
Learn about a wide variety of strategic planning, investment governance and portfolio execution controls that your organization may be missing, all part of one comprehensive strategic portfolio management solution.
2. Product /Program-based Strategic Planning
Program-based planning is becoming a much more popular approach to strategic planning, especially as the cadence of planning cycles accelerates (something we will look at below). Program-based planning involves the creation of programs to support strategic priorities. Those programs are created by senior stakeholders as independent investment vehicles, each of which is tasked with delivering a defined contribution to one or more organizational objectives.
Programs are then further decomposed into the work items that will execute on the various elements. Those items may be structured as projects, epics, etc. and embrace each of the tri-modal realities (traditional or waterfall delivery, agile and ad-hoc). While programs are independent of those work structures and teams, they are closely connected, and as such programs act as a bridge between the strategy and execution elements of the work. This makes it much easier to maintain alignment and confirm performance, resulting in improved abilities to achieve goals and objectives.
Another trend in this category is to create digital products as investment vehicles alongside programs. These represent ongoing, self-contained software applications that are structured in a similar way to programs, but that are always delivered using agile approaches. As a result, products are decomposed into epics.
In this approach bulk funding approaches are used, with the product and program being the investment vehicle, elevating financial allocations to this mid-tier as opposed to the execution layer funding that occurs in project-based planning. Product and program managers are given the freedom to allocate those funds across the work items in their initiatives without question and if funding adjustments are needed those are handled at the product and program level.
Achieving this change to funding requires consistency in the definition of programs, products and similar investment structures and can pose a challenge while the shift is occurring. This approach also requires a lighter governance approach at the execution layer with product and program managers leasing that oversight and lean governance being applied to products and programs.
Product- and program-based planning eliminates the potential to pick the best selection from a bad list of options and that alone represents an improvement from project-based planning. Additionally, it creates a more effective, more direct, and stronger link between strategy and delivery and it readily supports a mixed delivery environment leveraging all of the tri-modal realities.
However, product- and program-based planning isn’t perfect. It falls short of the ideal of capability-based planning that we’ll consider next and can also be disruptive to implement, requiring a cultural evolution from the very different, and often well ingrained, project-based approach. Also, as with project-based planning, it is only looking at discretionary spend. This is an increasingly important part of every business, but it’s not the whole business.
3. Capability-based Strategic Planning
This is the most sophisticated approach to strategic planning, providing the framework that provides organizations with the most effective approach to orchestrating business transformation. This approach is founded on the concept of business capabilities. These are the people, processes and technology that combine to deliver each of the core operating functions of the organization.
For some organizations this is a distinct, capability-based planning approach. For others it is a further evolution of the product-based approach we looked at above. It maps the relationship between a strategic priority and the key business capabilities that are required in order to realize that priority. That provides the optimal map for generating the most appropriate demand and execution to achieve success against objectives. Examples of this would be the creation of a new key business capability to address a gap in existing capabilities in fulfilling a strategic priority; or enhancing an underperforming current capability through investments in order to improve its contribution.
This evolved product- and capability-based planning not only represents the best way to align strategy and delivery, it also allows organizations to move beyond a project or epic based approach to work execution, enabling all work to be consolidated as part of how strategies are delivered. We are no longer restricted to only considering discretionary expenditure at this level, this is now the blueprint for the entire organization’s operating model.
Ultimately that represents the optimal way to deliver effective business transformation with minimal disruption. As such, capability-based planning represents an emerging requirement that will soon be the model that world-class organizations seek to embrace. It will provide the single view of every dollar of expenditure – discretionary and operational, across every work structure and every delivery method.
It also allows an effective view of the business over time. Leveraging roadmaps there is clarity over not just current investments, but also the investment planning that has occurred for the next several business cycles. While that planning will inevitably evolve and change with circumstances, integrated roadmapping functionality combined with a capability-based mindset make those adjustments easy to make and communicate, clear to analyze and simple to implement.
However, product- and capability-based planning is not something that can be delivered using spreadsheets and outdated processes. It requires purpose built strategic portfolio management solutions that can manage and integrate information from all business areas and present them in this unified approach. It also requires commitment from all stakeholders – it won’t work unless silos can be permanently broken down and all levels and areas of the business are committed to delivering successful strategic outcomes.
Components of Strategic Planning
Organizations frequently approve many more projects than they have the ability to deliver, and it’s not unusual for a significant portion of those projects to have only nominal alignment to the strategic priorities (or none at all). There’s a reason why 67% of strategic plans fail.
In addition, those projects are often only managed against the triple constraint of scope, schedule, and budget, not for the contribution they are making to objectives. The triple constraint is important, but not at the expense of return on investment. Project management Institute (PMI) reports that 9.4% of project budgets are wasted due to poor performance – and that comes straight off the bottom line.
Strategic planning isn’t a particularly complex discipline, but there are four key components that must be addressed:
- Communication of strategic goals and priorities
- Deriving the execution directly from the strategy
- Planning cycle frequency
- Benefits realization / outcome management
Let’s consider each of those in more detail.
1. Communication of strategic goals and priorities
If organizations are unable to communicate their strategic priorities, goals and objectives to all areas of the business in a way that is readily understood and contextualized for each business area, then no one should be surprised that planning to support those priorities is flawed. Yet that is often what happens with only one or two layers below executives being aware of strategic priorities, or different departments having differing perceptions of what’s important and where they should focus.
Unless modern communication and planning tools like strategic roadmaps are leveraged to consistently communicate the priorities, dependencies, sequencing and milestones of key initiatives, these problems will occur frequently. Those roadmaps must be integrated with an organization’s planning and delivery solutions to allow stakeholders to see the direct connection between the work being done and the purpose of that work. And those roadmaps must be shared with all stakeholders, at all levels, to ensure common and collaborative understanding. When any of those steps fail communication becomes a barrier to planning instead of an enabler of planning effectiveness.
2. Deriving execution directly from strategy
Strategic planning shouldn’t be disconnected from the work that executes on those strategies, but often it is. Planning should support the ability to directly derive investments and the execution of those investments from the strategic priorities, goals and objectives. Regardless of which approach to strategic planning is used, fundamentally, work must always be directly aligned with the priorities it nominally supports. And that alignment must be understood by all stakeholders and actively managed as the environment evolves and shifts.
Too often, work is planned from the bottom of the organization and attempts are made to create alignment to the strategic priorities. At best that results in an incomplete alignment that fails to optimize performance, and at worst it results in misalignment and investments of money and resources in work that simply doesn’t matter, hurting the ability to succeed.
3. Planning cycle frequency
This is another area we’ll explore in more detail later in this guide with a focus on the evolution of planning frequency to better reflect the fast-paced reality of modern business. But for many organizations, the significant challenge is that they simply haven’t made that adjustment. Planning continues to be an annual exercise with only nominal reviews occurring during the annual cycle.
Those reviews seek to validate earlier decisions rather than drive meaningful change and result in organizations delivering solutions that are obsolete or unwanted before they are ever completed. Planning must be viewed as an ongoing process, which in turn means it cannot be highly disruptive and must not only be an acceleration of traditional processes but a fundamental rethinking of what it means to strategically plan.
4. Benefits realization / outcome management
Organizations don’t succeed when they only plan effectively, or only when they successfully execute the investments aligned with those plans. They only succeed when they achieve the business outcomes that they expect, when the solutions developed deliver benefits. For many organizations this poses many challenges.
Often the benefit metrics and success criteria aren’t adequately defined ahead of work being approved. That results in uncertainty and the distinct possibility that work will be delivered without any understanding of whether it achieved the outcomes which were the reason for it to be approved in the first place. Even when expected benefits are quantified, there is often an absence of appropriate measurement criteria, making it virtually impossible to know whether the investment succeeded. This is particularly true with non-financial benefits which consistently cause problems. This issue is so significant we have created a separate guide to outcome management.
Strategic planning must be agile, dynamic, and continuous
As indicated above, it’s not just planning models that are evolving, so too is the cadence of the strategic planning cycle. Traditionally, planning followed an annual cycle with goals and objectives set for the following period and then funds, initiatives and approvals allocated to those objectives. Even ignoring the challenges with the project-based model that we looked at above (a model that was almost universally used for annual planning), this set it and forget it approach to planning was ineffective.
The emergence of a more agile planning approach
Setting objectives as much as 18 months before the end of the planned for period resulted in guesses about what was required, guesses that were wrong more often than they were right. As the pace of business accelerated, with ever evolving technology acting as the catalyst, this approach simply didn’t work at all.
That led to the first generation of what was considered to be continuous planning, but for many organizations that was little more than the annual approach to planning accelerated to be applied quarterly instead of yearly. It was a slight improvement, but not what was needed. Today, true continuous and adaptive planning is the gold standard for planning models. That has a number of key characteristics.
Dynamically readjusting the plan
As the name suggests, it is a dynamic approach that constantly assesses the internal and external environments of the organization, adjusting priorities, goals, objectives and / or investments to ensure optimal alignment is always maintained between priorities, execution and benefit realization. This depends on the ability to deliver work using each of the tri-modal realities and assumes that the transition of planning is already underway towards a program- and capability-based approach.
Those approaches support the ability to fund and govern work in bulk – at the program and product levels rather than the individual work item level. This gives work teams the freedom to operate in ways that are most effective without compromising the ability to manage and control the work. These are necessary requirements for continuous and adaptive planning because they simplify the process of adjusting and adapting allocations of funds and resources when circumstances change.
Planning must be a continuous process
Those changes don’t occur on a quarterly cadence, or even a monthly one. They happen all the time, so continuous planning must be just that – continuous. And it must also be truly adaptive, not an opportunity to pay lip service to the review of current investments before confirming them, but an analytical and objective assessment of whether the priorities, goals and objectives are still appropriate, and whether the work being done will optimize the contribution to those objectives.
Achieving world-class strategic planning
In order to optimize your ability to plan successfully, you need to embrace the components and models outlined in this guide. But that requires a commitment from everyone in the organization to work together to deliver success. It requires a cultural evolution away from silo-based, self-serving approaches to planning and towards an enterprise first, top-down approach that aims to achieve capability-based planning techniques.
It requires the rejection of outdated business methods and approaches in favor of a business agility enabled set of processes that encourage and enable continuous and adaptive planning to evolve strategic priorities and investments in response to information, threats and opportunities. And it requires an integrated toolset capable of providing the insight into all of that while supporting the management of the entire strategic process from the setting of priorities to the measurement of benefits, and everything in between. This level of advanced strategic planning is a key aspect of strategic portfolio management. The combination of culture, processes and tools that drive effective strategic planning are the critical drivers to enable business agility and by extension the business transformation that will allow organizations to continuously optimize business performance.