THE STRATEGIC BUSINESS EXPANSION MODEL

By Paul Chambers

In a time of expansion, strategic business modeling is essential. Strategic business modeling is the process by which the organization

specifically defines success in the context of the business(es) it

wants to be in, how that success will be measured, what will be done

to achieve it, and what kind of organization culture is necessary to

achieve it. This definition of success should be consistent with the

newly established mission statement.

Strategic business modeling encompasses the organization’s initial

attempts to spell out in detail the paths by which the organization’s

mission is to be accomplished and how progress toward achieving that

mission will be tackled. In short, strategic business modeling produces a concrete, detailed road map of the organization’s desired

future.

PROACTIVE FUTURING

The strategic business modeling phase is another excellent point for

deciding not to adapt to the hot water. It requires the planning team

to consider jumping out of the pan and creating a future. In proactive

futuring the organization takes responsibility for its own future

rather than waiting for external forces to dictate that future.

Strategic business modeling provides the planning team with the last

opportunity to either develop or reshape its vision of an ideal

future before getting down to the nuts and bolts of configuring out

how to reach that future.

CONSTRUCTING A STRATEGIC PROFILE

Prior to getting down to the details, however, the planning team

should construct a strategic profile on the organization. This is an

attempt to identify the organization’s general orientation or mind-set

to strategy formulation. The strategic profile involves four elements:

1. The organization’s approach to innovation

2. Its orientation to risk

3. Its capacity for proactive futuring

4. Its competitive stance

Each of these elements is important in setting the stage for selecting

the pathways that will achieve the organization’s mission.

THE PROCESS

The actual process of strategic business modeling consists of the

following four major elements:

1. Identifying the major lines of business (LOBs) or programs that

the organization will develop to achieve its mission.

2. Establishing the critical success indicators (CSIs) that the

organization will use to track its progress in each of the LOBs it

pursues.

3. Identifying the strategic thrusts that are required to allow the

organization to achieve its mission. (Some examples of strategic

thrusts are globalization, total quality management, and faster

cycle time.)

4. Determining the culture necessary to support the LOBs, CSIs, and

strategic thrusts.

Each of these four elements must be determined and independently

worked through during the next two phases of Applied Strategic

Planning (performance audit and gap analysis). After gap analysis, it

is sometimes necessary to loop back and revise the elements of the

strategic business model before proceeding to the action plans. This

possibility again illustrates the need for perseverance in the

Applied Strategic Planning process.

THE PERFORMANCE AUDIT

The questions raised during the performance audit are easy to ask but

hard–and sometimes painful–to answer. After envisioning the organization’s future, checking out its strategic profile, and identifying

LOBs, CSI, strategic thrusts, and the culture necessary to achieve

that future, the planning team must evaluate where the organization

stands in each of these areas. The gap between the organization’s

current status and its desired future is the measure of how far it

must travel to get where it wants to go.

Nevertheless, before the journey can be accurately planned, it is

imperative that the planning team clearly understands the organization’s present location. The performance audit is an organized, concerted effort to identify where the organization is today.

SWOT ANALYSIS

SWOT (strengths, weaknesses, opportunities, threats) analysis is an

in-depth, simultaneous study of the organization’s current internal

strengths and weaknesses and the external opportunities and threats

confronting it. The SWOT analysis examines those factors both internal

and external that may positively or negatively affect the organization’s future.

The performance audit examines the recent performance of the organization on the same basic performance indices (production, quality,

service, profit, return on investment, and cash flow) that have been

identified as critical success indicators (CSIs). Any data that can

help the organization better understand its present capabilities for

doing its work should be included in the audit. Such data might cover

life cycles of existing products, employee productivity, inventory

turnover, facilities (including capacity and condition), and management capability.

In executing the performance audit, special attention should be paid

to obtaining the hard data that indicate the organization’s capacity

to move in the identified strategic directions. Unfortunately, busi-

nesses do not always do this.

NEED FOR CANDOR

The need for candor, openness, and nondefensiveness during the per-

formance audit cannot be overstated. Defensiveness leads to finger

pointing, avoding blame, and other trust-destroying behaviors. If

such behaviors are allowed to dominate the audit process, they

quickly hinder the planning efforts. Candor, openness, and non-

defensiveness require risk taking, one of the necessary

ingredients of Applied Strategic Planning.

GAP ANALYSIS

The gap analysis represents the “moment of truth,” when the planning

team must determine the size of the gap between the strategic

business model and the organization’s current performance.

Confronting this gap can perturb and dishearten even the most hardy

members of the planning team as they confront the discrepancies

between what is and what is hoped for. The planning team’s task is

to find ways to close each of the identified gaps.

If it is impossible to bridge a gap, the planning team must return

to the strategic business model and rework it until the gap between

the profile and the organization’s capacity to achieve it is reduced

to a manageable size. Therefore, the diagram of the Applied Strategic

Planning process depicts not only arrows running forward from strategic business modeling to performance audit and then to gap analysis,

but also an arrow running backward from gap analysis to strategic

business modeling.

CLOSING THE GAP

Examining where the organization is and comparing this picture with

where it wants to be may require several iterations before all gaps

can be closed. Occasionally the mission statement also has to be

modified in the process.

A small electronics manufacturer with whom we consulted had to abandon

its growth strategy when gap analysis revealed that its debt load was

too high for the company to obtain the funds needed to reach the projected growth.

If gap analysis reveals a substantial disparity between the performance audit and the strategic profile or the strategies identified for

achieving the profile, more major changes in the organization may be

required. For example, the organization may be too centralized; it may

need to be decentralized to obtain the desired levels of performance–

a strategic thrust. Obviously, either the capability of the organization or the level of expectations of performance needs to be modified

in order to close the gaps between the plan and the organization’s

capacity.

Gap analysis is another place in the Applied Strategic Planning process

where candor–and risk taking (Key4)–are necessary. It serves little

purpose if the planning team deceives itself and the rest of the organization about how well positioned the company is to execute the

strategic business model. An inappropriately optimistic analysis of

the gap only postpones the real day of reckoning–when the organization’s resources prove to be inadequate to close the gap.

INTEGRATING ACTION PLANS–HORIZONTALLY AND VERTICALLY

Once the strategy for closing the gaps has been developed and initiated, two important issues need to be addressed:

1. Each of the various constituents units of the organization–business (the vertical dimension) and functional (the horizontal dimension)

–need to develop detailed operational or tactical plans based on the

overall plan of the organization. Each of these plans should reflect

the overall mission and should also involve budgets, marketing plans,

and timetables.

2. Each of these unit plans needs to be integrated into a comprehensive plan. Almost invariably, developing these unit plans makes it

clear that the plan exceeds the resources of the organization–time,

human, financial, production, marking, and so on. The tough decisions

then facing the organization involve how to set priorities–for

example, which lines of business will receive more attention early and

which can wait, or which strategies will be emphasized first and which

will be placed “on hold” until additional resources are available.

This integration is yet another examples of how multiple keys to successfully shaping your organization’s future are involved in every

phase of Applied Strategic Planning.

CONTINGENCY PLANNING

The Applied Strategic Planning process appropriately focuses on the

highest-probability events confronting the organization, especially

those with high impact. But this focus would result in an incomplete

set of plans, a problem solved by contingency planning.

Contingency planning focuses on those lower-probability events that

would have a high impact on the organization if they were to occur.

The most important contribution that contingency planning can make

to an organization is the development of a process for identifying

and responding to unanticipated or less likely events. Since it is

impossible for any organization to identify and plan for all the

lower-probability events that might have a significant impact on it,

developing a way of tracking and responding to such events is

generally the most functional approach.

In doing contingency planning, it is important not only to consider

the potential threats that can develop, but also the opportunities.

Contingency planning provides the organization with alternative

business-modeling strategies that can be used with a variety of

scenarios. For example, producers of building materials are heavily

influenced by new housing starts, which–in turn–are a function of

interest rates and general economic conditions. In developing its

strategic business model, a producer of building materials may

identify several alternative futures, each based on a different

volume of housing starts. Housing starts, in turn, are influenced by a

variety of governmental actions. For example, if the U.S. tax laws

were modified so that people could no longer take tax deductions for

mortgage interest paid on their residences, housing starts would

clearly be threatened. On the other hand, a large governmental program to subsidize residential construction would be an opportunity.

Contingency plans should be developed on the basis of both kinds of

alternatives, and contingency planning requires the constant use of

down-board thinking.

IMPLEMENTATION

Many strategic plans die before they are fully implemented. Careful

attention to doing what has been planned is critical.

The real test of the final implementation of the strategic plan is

the degree to which managers and other members of the organization

use the strategic plan in their everyday decisions on the job.

Ideally, the manager will pause to consider whether a proposed

solution to a problem is congruent with the organization’s strategic

plan.

If Applied Strategic Planning has been properly done, the plan will

be based on the organization’s explicit values, and the

mission statement will provide a rallying cry around which

the organization can preserve. The plan will also promote

and reward risk taking, empower the people,

encourage the development of a learning organization, and

require innovation and flexible down-board thinking with a strong market focus. If all of these keys have been

used in the Applied Strategic Planning process, the task of implementation, while never without its obstacles, will be readily

manageable.