There are four approaches to strategic planning, each of which has important implications for the design and delivery of HR practices including cultural, talent, performance management, communications, and leadership development, writes Wayne Brockbank.
Strategic planning must be one of a company’s core processes. A group of colleagues and I recently reviewed the full range of approaches to strategic planning. We combined our collective experience from hundreds of businesses along with a review of dozens of books, academic articles, and professional publications, and a useful typology of alternative approaches to strategic planning emerged.
The resulting typology is based on two dimensions: the focal origin of information (internal versus external) and the process of information analysis and decision making (top-down and regimented versus engaging and dynamic). Combining these two dimensions results in four approaches to strategic planning. Each of the four approaches to strategic planning has important implications for the design and delivery of HR practices including cultural, talent, performance management, communications, and leadership development.
The first approach: successful and stable organizations. The first approach starts with internal information that is examined and utilized by a small group of expert planners at the top of the organization. They set strategic goals based on historical performance and cascade these goals down through the corporate hierarchy. Reporting of goal accomplishment flows back up through the hierarchy to the originating experts. This traditional approach to strategic planning was popularised in the 1970s and 1980s.
“This approach tends to be found in traditionally successful organizations in stable environments that are frequently monopolistic or oligopolistic”
When this form of strategic planning is applied, HR should focus on sustaining a culture of hierarchical control, discipline, and regimentation. Talent requirements include technical experts (frequently with financial backgrounds) at the top who set goals and direction with the mass of employees focusing on execution. Performance management concentrates on measuring and rewarding quantitative output goals. Leadership development emphasizes the skills and tools of strategy execution. This approach tends to be found in traditionally successful organizations in stable environments that are frequently monopolistic or oligopolistic.
The second approach: organizations with portfolio diversification. The second approach starts with information that originates from the outside and is then translated into goals and organization-wide initiatives. Frequently this approach emphasizes industry analysis such as the case Porter’s Five Forces. As in the first approach, the strategy formulation is done by a small group of strategic planners who pass their goals and initiatives to strategy implementers through the administrative hierarchy. The strategy planners will tend to have strong backgrounds in the economics of industry analysis. They determine what configuration of businesses will comprise the corporate portfolio along with the business activities will be insourced or outsourced.
“This approach tends to be found in corporations with moderate to high levels of portfolios diversification”
The senior leadership culture will emphasize innovation and competitiveness at the industry level while the rest of the organization will focus on innovation and competitiveness at the business level. Performance management will focus on measuring and rewarding these two employee groups on the basis of performance relative to industry competitors at corporate and business levels respectively. This approach tends to be found in corporations with moderate to high levels of portfolio diversification.
The third approach: entrepreneurial organizations expanding core capabilities. The third approach begins with an examination of the internal capabilities which provide the starting point for competitive advantage. Strategic capabilities are determined through the dynamic involvement of large numbers of employees. The culture is entrepreneurial and engaging. Internal information is widely shared and discussed. The goal is to make the information whole greater than the sum of the parts. Since engagement is central to this approach, performance management not only focuses on results but also on behaviors that generate and implement creative ideas.
“This approach to strategic planning tends to be found in entrepreneurial organizations which build on existing core capabilities”
People are hired and developed to contribute to present and future organizational capabilities. Leaders are facilitators of idea generation. They lead through teamwork rather than through hierarchical administration. This approach to strategic planning tends to be found in entrepreneurial organizations that build on existing core capabilities even as they continually explore the creation of new internal capabilities.
The fourth approach: organizations in fast-moving ecosystems. The fourth and final approach to strategic planning is likewise dynamic and highly engaging but rather than focusing on internal capabilities, the starting point of discussion is the requirement of the external ecosystem. The culture is externally focused, dynamic, and highly engaging. Large numbers of employees continually access and examine external information to develop the required internal capabilities. Elimination of vertical silos is a priority as people across the organization prioritize, share, and analyze external information.
“This approach will generally be found in companies in fast-moving ecosystems with short cycle time products and services”
Performance management emphasizes a balance of externally benchmarked results and behavioral indicators that encourage creativity and collaboration. Talent management requires individuals who are self-motivated and innovative and who encourage others to do the same. Leadership focuses on developing external awareness, openness to a continually changing external environment, and skills for engaging cross-functional teams in identifying and leveraging external opportunities. This approach will generally be found in companies in fast-moving ecosystems with short cycle time products and services.
3 strategic planning action items for HR
1. Understand the strategic planning process that is optimal for your company.
2. Ensure that your HR practices are designed to support your company’s approach to strategic planning.
3. Monitor the effectiveness of your HR practices in supporting the planning and implementation of your company’s strategy.