a briefing paper from la piana associates, inc.

WHAT IS STRATEGY?        ...
project, called Strategy Formation: Beyond Strategic      “direction,” and is thus worried that any new
Planning, is suppo...
Henry Mintzberg, “Strategy and                                                Our review of the literature
planning are tw...
strategic thinking is intuitive to many of these         your thoughts and experiences with us, please
leaders; they don’t...
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Version B-2ILaPiana11-135-3

  1. 1. STRATEGY FORMATION: BEYOND STRATEGIC PLANNING a briefing paper from la piana associates, inc. WHAT IS STRATEGY? the organization; they generally agree trategy generally refers to the S choices an organization makes about how to accomplish its F uture success will require that strategic planning is only useful if it supports strategic thinking and leads to strategic action by mission. To be successful, a nonprofit management. much more rapid must have a clear vision (the future it seeks to create), a powerful mission strategic OUR EXPERIENCE (purpose), and sound values. Based rethinking and WITH STRATEGIC PLANNING on this foundation, it can determine a piana associates has repositioning the goals it must achieve in order to advance its mission. It then must decide how – what strategies it will use – to achieve these goals. than are now the norm in the L facilitated strategic planning processes for many groups. We have seen the benefits of strategic planning, particularly as it solidifies sector. To be sustainable, nonprofits must and motivates staff and board around regularly examine and adjust their the organization’s vision, mission, strategies as situations change and opportunities and values. Additionally, the process encourages arise. Today, scarce resources and a constantly communication and inclusiveness, which is shifting environment are forcing many nonprofits especially important in organizations that have a to reconsider their current strategies or to explicitly culture of formal, less open communication. undertake strategy development for the first time. Despite these benefits, we are keenly aware of All indications are that future success will require the limitations of strategic planning, especially for much more rapid strategic rethinking and nonprofits that cannot afford the time and expense repositioning than are now the norm in the sector. that traditional strategic planning requires. In At present, nonprofits most frequently look to response, we created our own simplified process traditional strategic planning as the primary tool for enabling nonprofits to successfully develop a for forming strategies. Strategic planning is generally flexible strategic plan that can guide them into the described as an inclusive, collaborative process that future. While this process has definite benefits, we involves the following activities: have also observed that these are often unrelated to o Developing an understanding of the forming effective strategies and incorporating strate- organization’s history, gic thinking into operations on an ongoing basis. o Rigorously assessing and developing consensus In our experience, formal strategic planning on the mission, all too often is not an effective tool for strategy o Systematically examining the external formation. Many other researchers, in both the environment, business and the nonprofit sectors, have arrived at o Identifying the goals that will mark the same conclusion. advancement of the mission, and o Determining ways (strategies) to achieve these STRATEGY FORMATION: goals. BEYOND STRATEGIC PLANNING Ideally, strategic planning should make the o address the need for alternatives to organization more “strategic” – that is, better able to meet the challenges of a dynamic environment. Experts stress that the most important outcome of strategic planning is to instill strategic thinking in T strategic planning, in late 2003, La Piana Associates launched an initiative to identify, develop, and disseminate alternatives to strategic planning for forming organizational strategies. This
  2. 2. project, called Strategy Formation: Beyond Strategic “direction,” and is thus worried that any new Planning, is supported by the W. K. Kellogg commitments it makes will be out of line with the Foundation and the David and Lucile Packard official strategic direction, which is still forthcoming. Foundation, and is conducted in partnership with The organization is essentially “on hold,” unable to the Hawai’i Community Foundation. The first move until its strategic plan is completed. phase of this two-year project entails broad The usual strategic planning process also requires research, including a focus on what can be learned significant resources – both funds, and staff and from the business literature. We have conducted board time. Experts, with good reason, stress that interviews of leaders and academics in both the the process must be inclusive. But, in order to business and the achieve this, day-to-day work is often compromised; nonprofit sectors and, at times, it comes to a grinding halt. This is to learn their particularly true for small organizations. I n dynamic and unpredictable viewpoints on, and experiences Typically, the process requires environmental research, which is expensive and time-consuming, with, strategy and thus is often out of reach for resource-thin environments, formation and organizations. Further, it is often counterproductive such as the sector strategic planning. for nonprofits that function in rapidly changing is currently In this paper environments and that need to be quicker and more we summarize nimble in developing strategies for moving ahead. experiencing, the what we have The “environmental scan” presupposes that the forward-looking learned at this early nonprofit’s world will remain relatively stable, environmental date in the project’s or at least that the changes it will experience are life. We include a foreseeable. Otherwise, the scan is nothing more scan may quickly brief review of the than a snapshot in time: “This is how the world become a glance reasons underlying looks to us today.” This is problematic. In dynamic in the rearview the growing and unpredictable environments, such as the sector dissatisfaction with is currently experiencing, the forward-looking mirror. strategic planning, environmental scan may quickly become a glance and the experience in the rearview mirror. of the business Moreover, despite the desire to be inclusive, sector with the alternatives that have evolved. planning is usually carried out by a select group Additionally, we summarize the findings from of board and staff leaders. Yet the plan itself must our interviews with nonprofit leaders. be implemented throughout the organization. This typically includes many individuals who had little THE LIMITATIONS OF STRATEGIC PLANNING involvement in the creation of the plan, and thus nfortunately, the desired outcomes of may have little investment in its success. U strategic planning – creating or strengthening a culture of strategic thinking and manage- ment – are all too often not realized. For example, Paul Light, of the Brookings Institution, found that: Increasingly, nonprofit executives find that their performance assessment is tied to achieving specific goals articulated in a strategic plan. This admirable attempt at accountability by nonprofit boards can “According to a review of 66 separate studies of result in leaders working very hard to accomplish strategic planning, the link between planning and goals that have become less important in light of organizational success is weak at best.” newly emerging opportunities. In the worst case, the What leads to these less-than-optimal outcomes? plan’s goals may be rendered irrelevant by shifts in A critical limitation of strategic planning is that the external environment and the subsequent it creates too great a separation in time between responses that are required. thinking and doing. A nonprofit typically requires Thus, both the process 9-12 months to complete a strategic planning and outcomes of strategic process. During this time it is often difficult for planning can be more the nonprofit to respond to emerging opportunities detrimental than positive. or threats, because it has not yet agreed upon a According to strategy theorist
  3. 3. Henry Mintzberg, “Strategy and Our review of the literature planning are two words that do not go together.” The traditional A ccording to strategy theorist revealed other alternatives – some of which are variations of the strategic planning process can cause above. These include a learning nonprofits to lose valuable time, Henry Mintzberg, model, in which incremental expend scarce resources, and divert “Strategy and strategic decisions are based on the their attention from more strategic planning are two organization’s ongoing, collective activities. And, finally, organizations experience; entrepreneurship, in may overlook or dismiss promising, words that do not which a charismatic and perceptive but unanticipated, opportunities go together.” leader provides the strategic drive since they are not “in the plan.” for an organization; positioning, in which a nonprofit stakes out a THE BUSINESS SECTOR’S EXPERIENCE unique niche within a market; muddling through, he limitations of strategic planning have in which managers make decisions in reaction to T long been known in the business sector, where it rose to prominence in the 1950s, and fell from grace in the 1970s. It is interesting to note that, at about the same time that business events rather than in anticipation of them; and people first, in which strategy is preceded by selection of the “right” people. Approaches such as these represent an exciting strategists began to see the limitations of strategic set of strategic options for the sector. These and planning, in the mid 1970s, nonprofits embraced other alternatives have potential to address the the practice. It has now become standard and gap between the need for flexible, accessible, and has achieved the status of a near-requirement sound processes for forming effective strategies on in the sector. an ongoing basis, and the sector’s over-reliance Strategic planning has been studied extensively on inadequate, one-size-fits-all strategic planning by leading business thinkers. In fact, the business processes to achieve these ends. sector has generated a substantial body of literature on strategy formation. Little of this knowledge, NONPROFIT LEADERS’ EXPERIENCE however, has been adapted for use by nonprofits. trategy is at the heart of good nonprofit Given the heavy reliance of nonprofits on strategic planning, it is worthwhile to examine the experience of the business sector, and to draw from it as applicable. S leadership and ultimately accounts for much of the success or failure of a nonprofit enterprise. Sound strategic decisions also lead to financial sustainability. Our interviews with twenty-two strategic-thinking nonprofit leaders ALTERNATIVE APPROACHES revealed that TO STRATEGY FORMATION alternatives to n the late 1990s, Henry Mintzberg and his strategic planning I t is interesting I colleagues reviewed the strategic management literature of the past fifty years, identifying ten distinct “schools of thought” on how businesses actually form strategy, as opposed to how they are being used successfully throughout the sector. However, to note that, at about the same time that business talk about it. Planning is just one of the approach- these success stories strategists began es they identified, yet the nonprofit sector has are not widely latched on to it as if it were the only legitimate known, as the to see the way to address this essential challenge. nonprofit leaders limitations of Kevin Kearns categorized strategy formation who practice them strategic planning, into three approaches: Analytical (driven by data), may have limited Visionary (driven by the leader’s vision of the opportunities to in the mid 1970s, future), and Incremental (a gradual process of share their nonprofits finding the right answers through trial and error). practices with embraced the Strategic planning, in this articulation, is an ana- their peers. lytical approach. Moreover, practice.
  4. 4. strategic thinking is intuitive to many of these your thoughts and experiences with us, please leaders; they don’t necessarily identify themselves contact Michaela Hayes, Director of Research as doing anything unusual. and Development, at 510-653-0282 or As the project progresses, we NEXT STEPS will issue periodic updates. Currently, our Web site, key purpose of the project is to surface, has a section dedicated to this A effective, alternative methods of strategy formation and to share these approaches with nonprofit leaders in ways that will be most useful to them. In the next phase we will develop project where we will periodically post updates. Bibliography Collins, Jim. Good to Great (New York: Harper practical tools that leaders can apply in their Business, 2001) organizations to support strategic thinking and Collins, Jim and Jerry Porras. Built to Last (New strategic management. Along the way, we will York: Harper Business, 1994) share drafts of these tools with capacity builders Kaplan, Robert and David P. Norton. The Strategy and others, seeking their input. Focused Organization (Boston: Harvard Business Following this, we will pilot the tools with a School Press, 2001) sample of nonprofits, whose feedback will help Kearns, Kevin. Private Sector Strategies for Social us further refine the tools. While every nonprofit Sector Success (San Francisco: Jossey Bass, 2000) is unique, we will Light, Paul C. Pathways to Nonprofit Excellence seek to determine (Washington, D.C.: The Brookings Institution, whether some of 2002) A lternatives to the alternatives are more generally Mintzberg, Henry. The Rise and Fall of Strategic Planning (New York: Free Press, 1994) strategic planning effective than others Mintzberg, Henry; Ahlstrand, Bruce; Lampel, and/or whether Joseph. Strategy Safari (New York: The Free are being used there are specific Press, 1998) successfully organizational Porter, M.E. Competitive Strategy: Creating and characteristics that Sustaining Superior Performance (New York: throughout the influence which Free Press, 1985) alternative will be Porter, M.E. What is Strategy? “Harvard Business sector. However, most effective for Review” (November-December, 1996: 61-78) these success an organization. Following the pilot La Piana Associates inaugurates stories are not phase, we will new series of briefing papers widely known. disseminate the tools a Piana Associates, a management and the project’s findings broadly to the sector. A key objective of the project is to share L consulting firm serving the philanthropic and nonprofit sector, is continually engaged in research and development activities aimed at bringing new and promising practices to the sector. Some of knowledge broadly in the sector. This paper is these efforts – such as our Strategic Solutions project, just one part of our effort to achieve this end and which developed tools and knowledge about strategic is intended to stimulate an ongoing discussion. We restructuring – are well known, as evidenced by the are extremely grateful to all the business leaders, 4,000+ visitors to our Web site ( consultants, and nonprofit leaders who have taken each month. Other research efforts are under the time to share their experiences and knowledge development. In order to share our learning and with us. We will seek additional input continually engage the sector in a dialogue on an important over the course of the project. Our purpose is to and interesting topic, we will occasionally produce aggregate and synthesize this knowledge into tools a briefing paper, such as this to be shared with the entire sector. one, highlighting an aspect of If you have questions or would like to share our current R&D agenda.