Three rules for customer-centric strategic planning
Today, CEOs and their boards are under continual pressure to squeeze incremental profit from their existing business and routinely hit the quarterly earnings figures they promised to the market, knowing that if they repeatedly fail they will soon be shown the exit.
In the first piece on strategic planning, I wrote about the dangers of following the extremes of an overly emergent or deliberate approach, and about the need to focus on tomorrow’s customers and the revenue they will generate. In this piece I am going to focus on how to make that happen. Today, CEOs and their boards are under continual pressure to squeeze incremental profit from their existing business and routinely hit the quarterly earnings figures they promised to the market, knowing that if they repeatedly fail they will soon be shown the exit.
All too frequently, this imperative of hitting short-term targets is put forward as the reason why some companies struggle at creating a sustainable, long-term future for themselves. However, we should not hoodwink ourselves into thinking the position of CEO is a rapidly revolving door. The average duration of stay of those heading up Standard & Poor’s 500-stock index companies is currently 9.7 years – and contrary to popular belief, it has been increasing, rather than decreasing, in recent years. In my book, that should give plenty of time for sorting out the situation that was inherited, improving returns to investors, and thinking about the long-term future.
A more likely explanation is that marketing–the role responsible for driving the innovation needed to create tomorrow’s customers–remains under-represented in the boardroom, and something of a fly-by-night. Back in 2006, CMOs were moving on or burning out like fireflies resulting in an average tenure of just 23 months. Fifteen years later in 2021, the average tenure of a CMO is 40 months. So if the trend continues upward and CMOs stick around long enough to gain the confidence of their boards, we might expect to see an increase in the proportion of CEOs with a marketing background, and eventually, a movement towards customer-centric strategic planning software.
Three rules for making strategic planning customer-centric
It is the responsibility of those C-level executives that sit around the boardroom table to ensure that the customer is put fairly and squarely at the center of all discussions about strategy. In an article in the Harvard Business Review called “The Big Lie of Strategic Planning,” Roger Martin of the Rotman School of Management at the University of Toronto gives three rules for making this happen:
- Keep strategy statements simple. Martin suggests that strategy documents should be no more than one page that identifies which customers will spend their money with your company and how your value proposition is superior to your competitors -the things marketers call segmentation and positioning.
- Recognize that strategy can never be perfect. A strategy that focuses on customers and how they generate revenue–rather than internal costs–will never be totally accurate. That is not its purpose. Think of it as a roadmap where the destination (the customers) is always moving, changing in size, and altering their preferences. To reach them you may need to divert from your original route plan, and, when you get there, you might find competitors with offerings better suited to the customers’ changing needs.
- Make the logic explicit. Validity is a better measure of whether a strategy is good or not. If you make the assumptions about your targeted customers explicit and how the technologies that could satisfy their changing needs might evolve, while tracking what your competitors are up to, you can then do a reality check every now and again. That way, managers can see when and how the strategy is beginning to look suspect, and will be able to make necessary adjustments.
Martin suggests once managers use such a customer-centric approach to strategic planning, they will become less apprehensive about making big decisions, and less prone to missing the important changes in their external environment. Although the most important step in developing strategy might be done, the process is far from complete. We still need to assess whether the chosen strategy will generate the level of return that investors anticipate. It is at this point that a solution such as Anaplan is needed to model the resulting revenue streams, operating expenses, and investment to determine whether the chosen strategy will deliver a satisfactory rate of return.
Planning should serve strategy rather than dominate it. You can achieve that by putting the customer squarely at the centre of the process and by deferring detailed planning until after strategy is formulated.