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.