Albu On Strategy

5 Reasons Why Strategy is Important

When we first started strategic planning work over 20 years ago, a client and good friend said that succeeding in strategy management is hard work. It takes time, resources, and distracts from the urgency of running the day-to-day business. Today we would totally disagree. After working with over 200 clients on a wide range of strategy management projects, we have confirmed that there are a multitude of benefits to having and working a strategy in organizations. Those CEOs and owners that recognized the value of having a strategy and made the commitment of time and resources to manage its execution consistently improved their performance.

Here are five reasons why strategy plays such an important part of any company’s success.

1. Planning – Creating and tracking progress against an annual operating plan is an essential management tool for any company. What is often missing is the relationship these plans have to the future. Too often annual operating plans are created from the rear view mirror. What happened last year and where should we go in the coming year? These are all good intentions. However, without a clear picture of what you want the future to look like, it will always be more reactive than proactive. A well-articulated 3 to 5 year long term view of the company should serve to inform the annual operating plan. The annual plan then becomes the stepping stone toward the achievement of the longer term goals.

2. Strengths and Weaknesses – At first glance this seems too obvious and you are saying to yourself, “Of course we know what our strengths and weaknesses are!” We cannot disagree. No one knows your business better than you. On the other hand, are you leveraging strengths (competitive advantages) and do you have plans to close capability gaps in your organization (weaknesses)? Strategy creates a higher level of awareness and provides greater focus on activities that will make the organization more successful.

3. Skills & Knowledge – If you know where you want to take your business over the long term, you will have a much better idea of the kinds of capabilities you will need to achieve your goals. Strategy defines and drives decisions in organizational design. Therefore by proactively pursuing new skills and knowledge, you prepare the organization for the intended future state and your odds of success increase.

4. Resource allocation – One thing is clear about any company, large and small—resources are finite. We wish they were infinite, but that will never be the case. Strategy is about making choices. What products, services and markets will be a part of the future and what we should not do? These types of decisions are critical to ensuring that limited resources are being deployed to the most promising opportunities that will provide the greatest return.

5. Environmental Scan – Too many CEOs don’t take the time to truly know the external environment that can have a positive or negative impact on performance. This is not to say that leaders are not in tune with their customers, or not aware of their competition. The question is, how thorough an analysis are they doing? Jack Welch had it right when he asked his division leaders to dig deep to understand how things might change before they really happened. Being aware and prepared for potential shifts in your market or industry provides the opportunity to take action before it happens.

There is a huge opportunity for CEOs/Owners to excel in performance with a well-crafted strategy. Bottom line, execution without strategy is aimless. Let us know what you think of these five reasons strategy is important and share with us some of your own experiences. We would love to hear from you.

Posted in Newsletter, Strategy Development, Strategy Execution, Strategy Management.