Strategic Planning: Friend or Foe?

Misti Walker

Strategic Planning: Friend or Foe?

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 In 1993, Henry Mintzberg, widely recognized in the field of strategic

management, published The Pitfalls of Strategic Planning, in which he shares the

inherent and realized shortcomings of strategic planning. Three years later, in 1996,

Michael Porter published one of several articles on the topic, entitled What is Strategy?

Both men are widely respected in the field and while some of their ideas are in

congruence, many are at odds. In this paper, I will discuss the similarities and

differences among their views of strategic management.

Benefits of Planning

Strategic planning has been in the business literature since the 1960’s and, as

Mintzberg points out, has enjoyed popularity at times when the marketplace was

relatively stable, or experiencing continuous growth. After all, planning is simply

extrapolating past results, or an educated guess, if you will. Planning is not strongly

suited to instability or rapid changes in the marketplace, he maintains. However,

planning scholars have deemed every generation since WWII to be the most turbulent.

Yet, this fact has not affected the popularity of strategic planning. Mintzberg contends

that turbulence is the buzzword used by planners to describe environmental changes

that even the best laid plans cannot effectively deal with. In essence, although plans

are ill prepared to tackle big changes in the marketplace, they are precisely what

companies cling to in uncertain times. Companies continue to plan for several reasons,

such as to increase confidence, guide employees, boost productivity, attain capital, and

to acquiesce external shareholders.

This view directly conflicts with Porter’s competitive strategy theory wherein he

claims that a unique positioning strategy is necessary for a firm’s sustainability. While

Porter agrees that operational effectiveness (OE) is also needed for sustainability, he

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rejects the notion that it is sufficient by itself. For a company to prosper, it must have a

unique strategic position coupled with superior OE. In the absence of competitive

strategy, firms must compete with one another on OE. While this strategy may work in

the short term, eventually it will lead to competitive convergence and stagnant profits.

Strategy Defined?

Porter and Mintzberg diverge on the topic of strategy. While Porter sees strategy

as an analytical process, Mintzberg views it as a visionary or learning process. In fact,

Mintzberg contends that all three processes - that is, visionary, planning, and learning -

must work in harmony for a business to be effective. Mintzberg is emphatic that

planning alone will only set a company back because strategies begin to emerge

through these processes. and to force a business to develop a plan before its time

leads to a loss of productivity and can ultimately endanger the emerging strategy.

Porter, on the other hand, believes that strategic positions come from three

sources and often overlap. The first source is variety-based positioning because it is

based on the variety of goods or services offered by the firm. The second type of

positioning is called needs-based positioning, or an attempt to meet all or most of one

group’s needs. The third positioning, access-based positioning, focuses on the means

by which customers are served. This can be geographical or any method by which a

firm accesses customers.

Mintzberg created the 10 schools of thought framework to aid in the confusion

surrounding the field of strategic management. Porter belongs to the positioning school,

an analytical school of thought with beginnings in the military. Mintzberg belongs to the

learning school of thought where it is believed that strategies emerge as part of the

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learning process. This school of thought found its basis in education and learning

theory. Both schools of thought have important aspects to take away and key ideas are

summarized below.

As companies near what Porter calls the productivity frontier, incremental

improvements in processes can no longer sustain competitive advantage. As rivals

quickly adopt best practices in the industry, homogeneity occurs. To combat this trend,

companies must identify their strategy - that is companies must decide what to do and

what not to do. Porter suggests that trade-offs are necessary to maintain a sustainable

strategic position. Simply put, by making trade-offs, companies decide to compete in

certain areas and not to compete in others. Consider the alternative, by trying to be all

things to all consumers, companies risk losing their unique position and, ultimately,

customers. Why? When a company has distinguished itself as a low cost provider, for

instance, it has chosen not to compete on quality. In other words, some strategies are

complementary while others detract from one another. Another point about trade-offs is

that the longer a company competes in any given industry, the more necessary trade-

offs are to maintaining competitive edge. This is true because as the external

environment goes through changes over time, new opportunities will emerge within the

industry. Industry incumbents will face trade-offs, such as whether to continue with the

current strategy or shift focus in response to the changes. The failure to choose

eventually erodes a company's competitive advantage and causes flat returns. Both

men agree that incumbent firms in mature industries are at a disadvantage because as

changes occur, newcomers will have an easier time exploiting opportunities because

they face no trade-offs and do not have to deal with rich histories or complex business

realignments.

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 Examples

Kodak, in the late 1990’s, represented an excellent example of active inertia.

Kodak was a technologically innovative company that made the bulk of its profits from

film. With the proliferation and commoditization of digital technology, Kodak began to

see its cash cow crumble. While Kodak was at the front of the digital revolution, it was

unable or unwilling to change course, perhaps not ready to admit to the slow death of its

number one business. Because Kodak did not respond rapidly or effectively to changes

in the environment, it forfeited much of the early digital camera sales to Asian

competitors. As a result, by the time Kodak entered the digital camera arena, profit

margins had been squeezed by early competitors.

The mistake made by Kodak was an unwillingness to choose. Because film had

been such a success in the past, the leaders of the company didn’t want to make the

hard choice to go exclusively digital. Instead, the company combined its digital division

with the film division, in an attempt to introduce its digital line faster and more efficiently.

However, these two strategies were not complementary and success in one area most

likely would mean failure in the other. Another factor working against Kodak at the time

was its rich hierarchical culture left over from Mr. Kodak’s time at the company. This

way of doing business was a huge impediment to the company when it most needed to

be flexible and innovative in order to adapt to changing market conditions.

Threats to Strategy

While it may seem that market forces pose the greatest threat to a firm’s

strategy, Porter asserts that more commonly it is internal struggles that pose the

greatest risk to strategies. Specifically, “(a) sound strategy is undermined by a

misguided view of competition, by organizational failures, and especially by the desire to

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grow” (Porter, 1996). Take Kodak for instance. Technological advances threatened its

livelihood, but instead of capitalizing on the changes, Kodak simply wanted to wait for

the digital trend to run its course. It is easy to see why the company wanted to continue

along the same course. That course was familiar, comfortable and, at one time, very

successful. This is the effect that Donald Sull calls active inertia, or contentment with

the status quo (Sull, 1999). Successful companies are more prone to this because past

policies and practices have contributed to their success, making it more difficult for

these companies to face trade-offs. Porter suggests that for this very reason,

companies should have a clear strategic position that changes only once a decade or

so. The tool to use to respond to market changes, Porter contends, is the operational

agenda, as it should be dynamic, flexible, and constantly striving for best practices.

Fittingly, even companies with good strategies will suffer if operational effectiveness is

not up to par.

Mintzberg states that companies infatuated with planning are, indeed, flirting with

dangerous behaviors in the workplace. The first of these behaviors is an aversion to

risk. The Kodak example highlights the fact that even industry leaders must embrace

risk and change, at times. This is because the marketplace is dynamic and influenced

by many external forces. In the Kodak example, technological advances wreaked

havoc on the company’s strategy. Kodak could have stemmed the losses if it would

have embraced the new opportunity early on. Sull, Porter, and Mintzberg all agree that

industry leaders have the most to lose and are the least capable of responding to

change. The second behavior that Mintzberg warns against is conflict among planners

and those for whom they plan. He argues that coordination and planning are forms of

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 control and that when a company engages in control, it risks drowning the spontaneity

and innovation of its employees.

Recommendations

While there are pitfalls to strategic planning, the benefits strongly outweigh the

risks. To minimize risk while obtaining the most value from a strategy, a company

should adhere to these guidelines:

• Determine competitive positioning strategy

• Align all business activities to support that strategy

• Employ a leader that is willing to say no

• Do not be afraid of calculated risk

• Practice continuity across all business functions

Works Cited

Hamm, Steve, Symonds, W. C. (2006). Mistakes Made on the Road to Innovation.

. Businessweek,

http://www.businessweek.com/magazine/content/06_48/b4011421.htm.

Sull, Donald (1999). Why Good Companies Go Bad. Harvard Business Review, 77(4),

42-50.

Mintzberg, Henry (1993). The Rise and Fall of Strategic Planning. Macmillan, Inc.

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Porter, Michael (1996). What is Strategy? Harvard Business Review.