This article is by three senior people from the Boston Consulting group (BCG) whose reputation in the area of business strategy is strong and whose latest thinking is likely to be interesting. The article challenges conventional wisdom around strategic planning and offers a new two by two matrix to help us find the ‘right’ approach. But, though thought provoking, it is doubtful if this new framework will attract as much attention as BCG’s earlier famous matrix that divided companies’ products and businesses into dogs, stars, cows and question marks.
The basic thrust of the article is that the style of strategic planning should be varied according to two factors, the degree of predictability in the industry, and the extent of malleability, how much power one player has to change the environment. The authors contend that ‘classical’ approaches to strategic planning – frameworks like Porter’s five forces and the BCG matrix mentioned above – assume a predictable environment that is difficult for one player to change. The oil industry is quoted as an example of this situation; for Exxon and Shell it is worthwhile having analysts and strategists using traditional approaches, developing long term plans and making multiyear financial forecasts.
While accepting the logic of the two dimensions, I was unsure about the oil sector as an example – for instance the impact of the BP Gulf Oil disaster was hardly predictable – and my reservations were confirmed later in the article where the Oil sector is only rated near the middle on both dimensions. The BCG ratings suggest that the two sectors with the most predictable but least malleable characteristics are Tobacco and Paper, for whom ten year plans and classical frameworks are particularly appropriate.
Three other planning approaches are suggested, depending on where each company falls within the matrix. Where the environment is unpredictable but the power to change things is low, an ‘adaptive’ approach is required, planning that is much more flexible and over much shorter timescales. Even annual planning may not be flexible enough; planning has to be embedded in operations and must be highly responsive to short term changes. Fashion retailing is quoted as an example, where the ability to respond to trends quickly is imperative; a flexible supply chain and speedy innovation are key to success.
This seems to make sense though I did wonder if ‘fast moving’ might be a more appropriate dimension for the matrix, rather than predictability; nevertheless it is almost self-evident that conventional strategic planning techniques are less appropriate for certain volatile market sectors. However, it was when the article moved on to the ‘malleability’ dimension that I became less sure of its value, particularly when the ‘shaping’ approach to strategic planning is introduced. This is for sectors where there is high unpredictability but where players have the ability to change the dynamics of the sector. My reservation about this approach is that surely it depends on market share of the company concerned, unless there is innovation that changes the rules of the game. The fact that Facebook is quoted as the example increased my concern that this scenario is not likely to happen too often and only to the mega players; Apple is the only other company that obviously falls into this category.
The final approach to strategic planning is ‘visionary’ for companies that are lucky enough to operate in sectors which are predictable and where it is possible to change the dynamics of the sector. Here the company can devise its own future and implement a strategy to exploit it. UPS is quoted as a company that adopted this approach, because they were able to predict the rise of package deliveries following the growth of e-commerce and develop a strategy to take 60% of the market. I can see how this applies in their case but again the issue of market share seems to be fundamental; the reason why UPS could do this might have been the strong base they were working from; surely it is market position as much as industrial sector that determines whether such a strategy is possible.
Overall, this article provides an interesting new perspective on strategic planning and the fact that it comes from BCG means that it has to be taken seriously. But its most powerful message is one that is perhaps too obvious to be a major breakthrough; that traditional strategic planning does not work in companies which are unpredictable and fast moving. And, after reading the article, I wondered if we could develop a better ‘MTP’ matrix, based on whether the industrial sector is fast moving and the size of market share of the particular player. But an MTP matrix might not have as much impact as one from BCG!
Read the article;