Strategic Planning Meets Business Performance

Long-term strategic planning is giving way to flexible approaches. But agile planning requires powerful analytics tools.

Strategic planning used to mean a fairly rigid commitment for a set number of years. But try locking in a long-term plan today, and the world will pass you by. The turbulent business environment demands that corporate leaders make frequent strategic adjustments. Companies must be prepared to abandon their current course and launch off on a different path every time the market shifts or a new opportunity emerges.

As the rate of change in the external environment increases, the bond between a company's strategic planning and business performance management (BPM) processes grows tighter. When planners realize they need to change direction, they must convince not only senior managers but also employees. And they have to communicate the value of the new plan and deliver results faster than ever before.

A flexible framework for strategic planning can help a company meet these needs. But what does such a strategy look like? How do executives build adaptability into their business model? The answers lie in redefining the very terms that describe the challenge.

Developing Real Options

"Strategic flexibility" sounds like an oxymoron. "Strategy is about commitment -- to market positions, technologies, customers. Flexibility is about avoiding commitment, about creating the ability to bob and weave, to exploit whatever opportunities come along," says Michael E. Raynor, Ph.D., director at Deloitte Consulting in Toronto. "Strategic flexibility is a way to combine the power of commitment-based strategy with the benefits of flexibility in the face of an unpredictable environment."

Strategic flexibility is achievable through what Raynor calls "real options" planning. Rather than making a single, major capital purchase, the real options approach calls for a number of relatively limited capital investments in a carefully defined set of potential growth areas. For instance, a utility developing a portfolio of real options might put 10 percent of its available capital spending into deregulated markets, 10 percent into nuclear power, 10 percent into turbine technology, 10 percent into merger and acquisition possibilities, and so on. The organization exposes itself to each of these market possibilities, watches how the market treats each commitment over time, and then channels additional funds into the most promising areas.

"A real option is a limited investment that creates high-leverage exposure to the upside of a market," says Raynor. "However, where financial options hedge financial risk, real options hedge strategic risk. Think of it this way: At a time when many companies eschew promising new technologies as too expensive or unproven -- technologies that might one day support or even save them -- a portfolio of real options constitutes strategy insurance, protecting, at an acceptable cost, your ability to capture worthwhile opportunities or to avoid disastrous consequences."