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How CEOs can get strategic business planning right, according to this Houston expert

Companies rely on strategic planning. The problem: Many are doing it wrong. Photo via Getty Images

When Jeff Immelt took the helm at General Electric in 2001, he shifted the company’s strategy radically. Under his leadership, GE grew more inwardly focused, relying more on financial engineering and acquisitions in a bid to add revenue and cut costs. The company’s stock plummeted. Yet Immelt stubbornly stuck with what many saw as a failing strategy.

Strategic planning is a core activity for senior leaders, regardless of business size. Over 88 percent of all large companies and 80 percent of small to medium-sized companies engage in strategy planning. For CEOs like Immelt, strategic planning is one of their most important duties, and they take great pains to communicate company strategy to stakeholders.

But there’s a problem: many are doing it wrong. In the research for our new book, FOCUS: How To Plan Strategy and Improve Execution To Achieve Growth, we found that many CEOs have simply been mistaken in their approach to strategic planning. Contrary to popular belief, our research shows many CEOs fail to make their strategic decisions based on a systemic, science-based, statistical process. Instead, they rely on gut feel, emotions and salient information from past experience.

In this piece, the first in a nine-part series, I’ll discuss why this is a major problem. In upcoming articles, I’ll show how CEOs can get strategic planning right.

CEOs usually rely on strategic planning to set goals for their senior executives, define major initiatives, allocate and track resources across initiatives, create budgets and hold mid-level and frontline employees accountable. Strategies become the means through which a CEO sets goals, measures success, executes plans and communicates progress to the board and outsiders.

To be sure, strategic planning is a complex process and many CEOs agree current practices need improvement. Immelt, for his part, was unsuccessful at turning GE around in part because senior and mid-level executives weren’t persuaded that his proposed strategy was coherent or would work. As one insider said, “We just became too internally focused and lost touch with our consumers.”

Another example is Wells Fargo. In 2016, regulators fined the bank $185 million for opening around 1.5 million bank accounts and applying for some 565,000 credit cards that weren’t authorized by customers. The bank’s strategy and employee incentives emphasized maximizing sales through cross-selling to existing customers rather than providing customers with real value.

Like GE and other companies that rely on a budget-based strategy to drive sales, Wells Fargo’s strategic plan prioritized how internal activities affected revenue rather than the effects of those activities on customer value. The problem was not that Wells Fargo’s strategy was poorly executed – it was that the company followed it.

But what is it, exactly, that makes a strategy fail? When strategic planning goes wrong, our research indicates that it’s typically for two main reasons. First, planning can fail when executives craft strategies based solely on their gut feelings, intuition, emotions and salient beliefs — beliefs that are top-of-mind. When these salient beliefs form the basis of the company’s strategic priorities, mission, or vision, they become a vehicle for executives’ desires and aspirations.

Strategies based on executives’ salient beliefs often fail because they discount what’s important to create customer value – and customers are the largest component of a company’s cash flow. A company that relies on executives’ salient beliefs, by default, discounts customer value and simply can’t create a healthy and sustainable cash flow.

This is what happened at Wells Fargo, which began using the salient personal beliefs of its leaders to justify its cross-selling strategy. That strategy drove employees to open accounts rather than help customers, ultimately eroding customer value, sinking the company’s stock and resulting in fines.

The second reason why strategic planning often flounders is executives’ belief that if they simply ask customers what they want, the customers will seamlessly communicate exactly what’s important to them. That’s rarely the case. Instead, what customers state as their desire often differs starkly from what actually creates value for them.

Take, for example, the relationship between a doctor and a patient. A patient walks into their doctor’s office with a health issue. Imagine what would happen if the doctor asked the patient what medicine and tests they desired and prescribed them. Or imagine the patient simply insisting on certain tests and medications without being asked. In both cases, customers have effectively stated their desires and wants, but the doctor is unable to discern what would truly help the customer. It’s up to the doctor to perform tests and use accumulated statistical benchmarks to detect how best to help the patient.

Simply put, you cannot create customer value by simply fulfilling your customers’ desires and wants.

Companies need to use the same process – using science, statistical expertise and data – coupled with effective listening, to set a customer-based strategy.

What’s important for customer value, in other words, is typically not be obvious to customers themselves. More often than not, they lack the expertise, data and statistical expertise to state what they need in a conversation. Yet a surprising number of senior executives rely on such conversations or “listening exercises” to unearth surface-level desires and wants and use them to develop a strategy. Such a strategy is doomed to fail.

Often, adversity provides the opportunity to pivot. During the COVID-19 pandemic, for instance, companies and leaders have been forced to rethink and retool their strategic habits, forced to learn about what’s most important to customers.

This transformation can be powerful. When CEOs continue to evolve – embracing humility and no longer relying on past experiences, emotions or gut feelings – they can organize around the most important, rather just than the most salient, customer needs. They can simplify their plan. As a bonus, a cleaner, simpler strategy will be more engaging to employees.

CEOs can get strategic planning right. For companies willing to dedicate the time and resources to strategic planning, the research we describe in Focus: How to Plan Strategy and Improve Execution to Achieve Growth offers a road map of exactly how to do it.

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This article originally ran on Rice Business Wisdom and is based on research from Vikas Mittal, J. Hugh Liedtke Professor of Marketing at the Jones Graduate School of Business and author of “Focus: How to Plan Strategy and Improve Execution to Achieve Growth.”

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Building Houston

 
 

This explains all the traffic. Sky Noir Photography by Bill Dickinson/Getty Images

Houston has moved up in Penske Truck Rental’s annual ranking of the country’s most popular moving destinations.

In 2021, Houston ranked first among the hottest U.S. moving destinations, Penske says. That’s up from the No. 6 position in 2020.

“It’s not hard to see why Houston is an attractive city for many people. A booming job market combined with low cost of living and sunny weather year-round make Houston a great choice for building a life and raising a family,” says Life Storage, an operator of self-storage facilities.

From 2020 to 2021, the Houston metro area gained 78,220 residents, putting it in third place for numeric population growth among U.S. metros (behind Dallas-Fort Worth and Phoenix, and just ahead of Austin).

Houston shares the Penske top 10 with three other places in Texas:

  • Sixth-ranked San Antonio, up from No. 9 the previous year.
  • Seventh-ranked Dallas, up from No. 8 the previous year.
  • Ninth-ranked Austin, down from No. 4 the previous year.

Penske compiles the annual list by analyzing one-way consumer truck rental reservations made over a 12-month span.

Houston and its big-city counterparts in Texas continue to see their populations swell for a number of reasons, including warm weather, no state income tax, relatively low housing costs, and plentiful job opportunities. From 2010 to 2020, Texas posted the third largest population increase (15.9 percent) among the states, with Utah ranked first and Idaho ranked second, according to the U.S. Census Bureau.

“There are lots of places in America with jobs and lower climate risks or jobs and racial diversity, but if you want all three, Texas will take care of you best,” The New York Timesnoted in 2021.

U-Haul, another provider of moving trucks, ranked Texas as the No. 1 destination for DIY movers in 2021.

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This article originally ran on CultureMap.

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