Why does it matter ?
Planning has been around for a very, very long time. People and businesses plan the activities they’re going to engage in on a weekly, monthly, or annual basis. Then there is strategy. Some have put these two together and called strategic planning. The problem is that they are not the same. Thus combining them only makes things harder.
Most strategic planning in business has nothing to do with strategy. Instead, it is a list of activities that a business commits to. For example, we’re going to improve our in-store experience.
Other examples include starting a new talent program, opening a new plant, and reducing travel expenses. While they all sound great and include clearly defined end points, they are not strategic.
So what’s a strategy ? A strategy is an integrated set of choices that positions you on a playing field of your choice in a way that you win. It requires to decide why a business should be on this playing field instead of the other one.
Subsequently, here’s how the business is going to be better on the chosen playing field than anybody else (e.g., serving the customers). The theory behind this to be coherent. It has to be achievable and translatable into actions. Compare this to planning which does not have to have any coherence.
Let’s look at the aforementioned new talent program from HR, the opening of a new plant from operations, and the reduction of travel expenses by the finance department. These items represent a list that has no internal coherence to it, but more importantly, these items have no specification of what they are going to accomplish in sum for the company.
The benefit of planning is that it is very comforting for everyone involved, it’s a clear and often siloed task to complete. Since planning typically has to do with resource allocation, it acts like a checklist. Oversimplified — develop talent program, launch talent program, evaluate talent program. Plan new plant, construct new plant, open new plant, operate new plant. Analyze travel expenses, introduce a new travel expense policy, and reduce travel expenses.
In case you have not noticed it, all of these planned items are on the cost side of a business. The business controls the costs (for the most part). How many people are going to hire, and how much will you spend on their training ? How big is the new plant going to be, and how much will it produce ? How much is the company spending on travel, and by how much can it be reduced ?
A strategy is different, it specifies a desired competitive outcome. More specifically, more customers want your product/service, and they will buy enough of it to achieve the business’s profitability goal. Unlike planning, where the company controls the in and output, in strategy, the business does not control the customer.
That’s why strategy is much harder than planning. The company essentially says, here’s what we believe will happen. We can neither prove it in advance nor can we guarantee it, but this is what we want to have happen, and we believe that it will happen.
Let’s take Ryanair and its strategy for winning. The small Irish carrier took years to become Europe’s largest airline. What Ryanair was aiming for was an outcome. What they wanted to be is a low-cost substitute for cars, trains, and flag carriers, by offering a way more convenient way to get around Europe at a price that was lower or not much greater than any alternative mode of transportation.
Ryanair decided to break up the price of an airfare into its elements. Cost of transport, carry-on, seat reservation, meals, checked bags, printed ticket. Focusing on its core competency to offer low-cost flights, Ryanair also realized that it was not a catering company, and thus cut complimentary meals. This allowed Ryanair to offer $9 one-way flights that included only the flight, but none of the ancillary amenities or services. They would also have multiple bases across the continent, as opposed to the flag carriers which were bound to their home country. This allowed flying more point-to-point routes that were underserved by flag carriers. In turn, it increased the flying hours of each aircraft which increased the revenues on a per plane basis. Ryanair also decided to fly only 737s, a single airframe, this way, operations are simplified, from the gate to staffing, certification, training, and maintenance.
Ryanair decided against third-party booking engines and instead sold its tickets only directly through its own website and mobile app, again saving on commissions and making it less expensive for customers. Their strategy ended up being having a substantially lower cost than any of the major carriers, and by offering substantially lower prices because Ryanair had a way of winning. It grew from a small regional carrier into Europe’s largest airline that flies the most passenger seat miles on the continent. Meanwhile, all flag carriers were not trying to win against one another because they remained firmly based in their home countries and solely served in- and outbound traffic. They were all playing to play.
Flag carriers were playing to participate, to buy more planes, to get more slots, and maybe grow marginally in the low single digits, but not having a theory of here’s how we could be better than other carriers. This only works until someone comes along and points out a way to be better than everybody else in a specific segment. They then dominate that segment. A segment, that in this case, was the flag carriers’ to lose. Leaving a smaller overall pie of the aviation market for flag carriers to compete over.
How do you escape this planning trap that the flag carriers were in ? How do you stop doing something that’s comfortable but not good for you ? The most important thing to recognize is that strategy will come with uncertainty. It’ll make the business nervous, on a people level this is caused by the fact that managers have been taught to only do things that they can prove in advance. Strategy is inherently uncertain and its success can’t be proven in advance.
How do you go about your strategy ? You have to clearly lay out the logic behind your strategy. Be true about the business, about the industry, about the competition, and the customers to ensure the strategy works. Why ? Because you can then watch the strategy unfold in the real world. Should something that you said not work as intended, you can tweak the strategy.
Strategy is a journey, unlike planning, it is not a final destination. Every business wants to have tools and mechanisms to tweak and refine it in order for it to improve over time. This is easier when the business keeps its strategy simple and does not overcomplicate it. Ideally, the strategy can be written on a single page — the company chose this segment to play in, and here’s how
the business chooses to win (how-to-by). You can attach a list of the required capabilities, resources, management frameworks, and management systems.
Once you have done all that, the business can lay out the logic of what has to be true for it all to work out the way it intended. Then you execute against the strategy, evaluate it, and tweak it as necessary.
Set an overarching goal, be truthful about the world the company is in, define how to get there, by specifying the required pieces that have to come together, and adjust and adapt along the way.
Strategy may feel less precise and predetermined than planning, but planning is a way to guarantee losing, whereas strategy gives you the best possible chance of winning.
