4 minute read
Today’s changeable environment requires more planning and commitment than ever before. While some companies have given up on written step by step action plan after 2008 Global Financial Crisis, others are evolving and growing their profit. Researchers confirm that companies implementing strategic planning are 12% more profitable.
Linking strategy
with budgeting
“With a clever strategy, each action is self-reinforcing. Each action creates more options that are mutually beneficial. Each victory is not just for today but for tomorrow.” Max McKeown’s quote from his The Strategy Book describes the importance of the strategy planning.
Harvard Business Review research has discovered that just the announcement of the strategic plan raises the prices on the stock market. The first thing that freshly appointed CEO of Chinese e-commerce Alibaba Daniel Zhang did was proposing the new “Let’s go Global” plan. The company’s stock price rose instantly by 1 percent, which is 2.2 billion dollars. It is not the only example and works another way around. The absence of the plan has cost Twitter $4 billion in a couple of days after CEO Jack Dorsey has admitted it to investors. As we want a new government to have a ready plan of actions in first 100 days of their appointment, same is expected from new chief executives. Besides having the strategy, it is important to go public with is to gain the profit. Next day average stock reaction on the strategy presentation adds about 5,3% to the stock price. Yet, 60% of organisations fail to bind the strategy and budgeting.
Innovation
builder
“Organizations need the courage to try something risky that they don’t know will work. Why? Because if they know it will work, they’ll only get an improvement on what they already have. Yet if they try something that is a little dangerous and new, they will realize true innovation, ” says Business Improvement Architect, Michael Stanleigh. While some argue that strategic planning has grown old, the reality is that the process has changed.
The functions of strategy planner have expanded in geometric progression. Strategy planning coordinates both, the process of formulation and implementation of the action plan. The action plan is declining the risks, and should focus on future development, not only a few coming years. The foresight takes its significant role in the strategic planning. More often company decision makers cooperate with futuristic companies relying on the trend analysis and future predictions. Focusing energy on the customers and figuring out future needs is essential to the business success.
The vision is that the company has to be built with long-term commitment of all employees. According to Balance Score Card Collective research, 95% of the typical workers do not understand the company’s strategy. The same study reports that 70% of organisations with the strategic plan fail to execute it. The strategic planning has to focus on both internal and external development encompassing the HR specialist as well.
Risto Siilasmaa, a new chairman of the Board of Directors of Nokia, underlines the importance of building the company’s vision decade ahead: “Consider what you want to get in the long run. In what kind of country we want to live in 10 or 20 years from now? What objective would require access to?” Learning from mistakes while concentrating on the future, Nokia’s plan is clear until the year 2025.
Game theory
to design the market
How to respond to the changing environment and to make the strategic plan for one, five, ten years ahead? In times of uncertainty, game theory becomes a powerful foresight strategic tool offering the different scenarios of how actors behave under various circumstances. Gathering together all valuable information and building the firm assumption about the market, the deductive method will show the outcomes of the decisions helping to develop long-term plans. Basing on the somewhat simplified model, senior leaders are prepared to meet the dynamically evolving business challenges. However, the model has to be fully understood and accepted by the board with the precise assumptions which are used in deriving the answers.
Game theory is the study of decision-making in competitive situations analysing both the conflict and the possible gain from cooperation. Paul Milgrom, an economist at Stanford University, called the science “one of the breakthroughs in the question of designing markets.” What to do when a new big actor is entering the market? Should company lower the rates forbidding him the entry with price discrimination or wait for the entrant to act securing the value by reacting appropriately?
