Managing for Competitive Advantage (part 5)

Planning and Strategy

 by

 Charles Lamson

 Levels of Planning

 In an earlier post you learned about the three major types of managers: top level (strategic managers), middle-level (tactical managers), and frontline (operational managers). Because planning is an important management function, managers at all three levels use it. However, the scope and activities of the planning process at each level of the organization often differ. 

Strategic Planning

Strategic planning involves making decisions about the organization's long-term goals and strategies. Strategic plans have a strong external orientation and cover major portions of the organization. Senior executives are responsible for the development and execution of the strategic plan, although they usually do not formulate or implement the entire plan personally.

Strategic goals are major targets or end results that really relate to the long-term survival, value, and growth of the organization. Strategic managers---top-level managers---usually establish goals that reflect both effectiveness (providing appropriate outputs) and efficiency (a high ratio of outputs to inputs). Typical strategic goals include various measures of return to shareholders, profitability, quantity and quality of outputs, market share, productivity, and contribution to society.

A strategy is a pattern of actions and resource allocations designed to achieve the goals of the organization. The strategy an organization implements is an attempt to match the skills and resources of the organization to the opportunities found in the external environment; that is, every organization has certain strengths and weaknesses. The actions, or strategies, the organization implements should be directed toward building strength in the areas that satisfy the wants and needs of consumers and other key factors in the organization's external environment. Also, some organizations May Implement strategies that change or influence the external environment,.

Tactical and Operational Planning

Once the organization's strategic goals and plans are identified, they become the basis of planning done by middle-level and frontline managers. Goals and plans become more specific and involve shorter periods of time as planning moves from the strategic level to the operational level. Tactical planning translates broad strategic goals and plans into specific goals and plans that are relevant to a definite portion of the organization, often a functional area like marketing or human resources. Tactical plans focus on the major actions a unit must take to fulfill its part of the strategic plan.

Operational planning identifies the specific procedures and processes required at lower levels of the organization. Frontline managers usually develop plans for very short periods of time and focus on routine tasks such as production runs, delivery schedules, and human resources requirements. 

Linking Tactical, Operational, and Strategic Planning

The organization's strategic, tactical, and operational goals and plans must be consistent and mutually supportive. Whole Foods Market, for example, links its critical tactical and operational planning directly to its strategic planning. The firm describes itself on its website as a mission-driven company that aims to set the standards for excellence for food retailers. The firm measures its success in fulfilling its mission by "customer satisfaction, team member excellence and happiness, return on capital investment, improvement in the state of the environment, and local and larger community support."

Whole Foods' strategic goal is to sell the highest quality products that also offer high value for their customers. It's operational goals focus on ingredients freshness, taste, nutritive value, safety, and appearance that meet or exceed its customers expectations, including guaranteeing product satisfaction. Tactical goals include store environments that are "inviting, fun, unique, informed, comfortable, attractive, nurturing and educational" and safe and inviting work environment for its employees.


Whole Foods' operational goals focus on providing products that satisfy its customers,


Starbucks, has built its strategy of growth and profitability around the notion of excellent service and ambience. No longer is coffee just a morning ritual; it has evolved into something with a far more existential quality. "We are trying to create a third place for our customers," says former chairman Howard Schultz. A 'third place' is a place between home and work where people can come to get their own personal time out, their respite, meet with friends, have a sense of gathering."

A key tactical planning issue for Starbucks is linking its obsession with service and quality to a healthy bottom line. Excellent service attracts new customers and keeps loyal customers coming back. Excellent service and quality depend on highly efficient processes for brewing coffee and terrific customer relations. These process in turn are carried out by a dedicated and well trained workforce. According to Schultz, "We've never viewed coffee as a commodity. And we've never viewed our people as commodities. I think the foundation of our success is the passionate commitment we have to the quality of coffee that we buy and roast, and making sure that the people in our company are not simply a line item. We view our people as business partners." The company's "Bean Stock" program gives all employees the opportunity to own stock in the company and the company's commitment to training and benefits has established Starbucks as the employer of choice in the industry (its turnover rate is one-fifth that of others in the industry).

One method for linking strategic and operational planning at Starbucks is the balanced scorecard. Figure 1 shows how the balanced scorecard works. There are four primary cells: financial, customer, process, and people/learning. In each cell, Starbucks would identify the key drivers that help translate strategic goals to operational issues. Each of those goals would also have a set of metrics. For example, on your customer metrics, Starbucks might look at percentage of repeat customers, number of new customers, growth rate, and the like. Under people/learning, managers might measure the number of suggestions provided by employees, participation in the Bean Stock program, employee turnover, training hours spent, and the like.

FIGURE 1
Applying the Balanced Scorecard for Planning

Each of these cells links vertically. People management issues such as rewards, training, suggestions, and the like, can be linked to efficient processes (brewing the perfect cup, customer service, etc.). These processes then lead to better customer loyalty and growth. Growth and customer loyalty in turn lead to higher profitability and market value. As shown in table 1, the balanced scorecard can be used to develop measures and standards for each of these operational areas. And when implemented in this way, it helps translate strategic and tactical issues into operational criteria. 

TABLE 1
Using the Balanced Scorecard for Planning

1. Clarify the vision: Executive team and middle managers use the balanced scorecard to translate a generic vision into a strategy that is understood and communicated.

2. Develop business unit score cards: Each business unit develops its own scorecard that translates strategic goals into tactical and operational goals.

3. Review business unit scorecards: The CEO and this executive team review the business unit scorecards. This review identifies cross-business issues that are used to revise the strategic plan.

4. Communicate the scorecard to the entire company: Managers and employees develop individual score cards that link strategic and tactical plans to operational issues relevant to them. Individual objectives and rewards are linked to the scorecards.

5. Conduct annual strategy reviews: The previous year's performance is reviewed, and strategies are updated. Each business unit is asked to develop a position on each issue as a prelude to strategic planning.

*SOURCE: MANAGEMENT: THE NEW COMPETITIVE LANDSCAPE, 6TH ED., 2006, THOMAS S. BATEMAN & SCOTT A. SNELL, PGS. 111-114*

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1. Clarify the vision: Executive team and middle managers use the balanced scorecard to translate a generic vision into a strategy that is understood and communicated.

2. Develop business unit score cards: Each business unit develops its own scorecard that translates strategic goals into tactical and operational goals.

3. Review business unit scorecards: The CEO and this executive team review the business unit scorecards. This review identifies cross-business issues that are used to revise the strategic plan.

4. Communicate the scorecard to the entire company: Managers and employees develop individual score cards that link strategic and tactical plans to operational issues relevant to them. Individual objectives and rewards are linked to the scorecards.

5. Conduct annual strategy reviews: The previous year's performance is reviewed, and strategies are updated. Each business unit is asked to develop a position on each issue as a prelude to strategic planning.