Wilmington Gives Back -

Latest News

Why do Strategic Plans fail?

I'm a strong believer in Strategic Plans.  They provide focus to an organization's work, clarify responsibility, provide a timetable to achieve goals and establish a metric for success when done correctly.  Perhaps the greatest example of a successful strategic plan was President Kennedy's call to put a man on the moon.  Kennedy addressed Congress and challenged America when he said "I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth." His statement provided a goal, a measure of success and a timetable.

But reality steps in and we know that strategic plans aren't always done right.  That problem is not limited to the nonprofit world.

It's a problem in business too

McKinsey, the giant consulting firm, studied this phenomenon of the failed strategic plan as part of its client work and summarized the findings in a recent newsletter.  The observations and conclusions can be applied to nonprofit organizations and their strategic actions.

McKinsey wrote: "Picture two global companies, each operating a range of different businesses. Company A allocates capital, talent, and research dollars consistently every year, making small changes but always following the same broad investment pattern. Company B continually evaluates theperformance of business units, acquires and divests assets, and adjusts resource allocations based on each division’s relative market opportunities. Over time, which company will be worth more?

"If you guessed company B, you’re right. In fact, our research suggests that after 15 years, it will be worth an average of 40 percent more than company A. We also found, though, that the vast majority of companies resemble company A. Therein lies a major disconnect between the aspirations of many corporate strategists to boldly jettison unattractive businesses or double down on exciting new opportunities, and the reality of how they invest capital, talent, and other scarce resources [emphasis added]."

McKinsey's observation can be applied to every organization, whether a not-for-profit or a for-profit.  Are capital, talent and other resources allocated according to the strategic plan or to the way they were always allocated?

If often comes down to a matter of power, to be blunt.  Changing a strategy requires changing the way people do things.  And people are often resistant.  Or, put another way, that hard nosed businessman might not be so hard nosed.  As McKinsey wrote:

"The independent, hard-nosed perspective that executives need to make decisions about a corporation’s businesses is often elusive. It can’t be delegated to the business units, whose managers have competing interests and may lack a corporate-wide perspective. Nor can it be folded into the existing strategy process, which is frequently a bottom-up, business unit–oriented exercise that starts with the assumption that each unit’s claims on capital and resources won’t differ significantly from year to year.

"A corporate center does have the potential to cut through the tensions, lobbying, and logrolling that often bedevil resource allocation discussions and lead to inertia. But few are well organized to play this role. Some are little more than a collection of central functions (such as treasury, legal, and human resources) that don’t fit elsewhere in the organization. Some are more strategy focused but primarily prepare board papers and support specialinitiatives for the CEO, the chairman, or the board. At the opposite extreme, certain corporate centers meddle in the tactics of business units.Others revolve around a CFO who manages the balance sheet, aggregates financial reporting, courts investors, and provides tax and treasuryservices—but seldom gets involved in strategy. Too often missing are the intense reviews, debates, and challenges that lie at the core ofvalue-creating corporate-strategy decisions."

For the nonprofit, it is up to the Board to be the "corporate center" and have the necessary steel rods in its spine to make the necessary changes.  The board must ask if there is a "major disconnect" and see that it is corrected.

A painful real life example

These issues are not just theory.  Consider the strange, sad case of Kodak.  It invented digital photography and then turned its back on the technology, repeatedly.  This corporate tragedy is all the more shocking when contrasted with a piece of Kodak history.  George Eastman twice changed the company's strategy to meet new technology.  He had steel rods in his spine and reallocated resources.  Unfortunately, his successors did not.  Don't be a Kodak.

Forbes magazine neatly recounted the series of wrong decisions that led Kodak to its demise.  It's 'leaders' did not shift to the strategy they knew they needed but instead kept allocating resources the way they always had.  Here's the complete Forbes article.

The lesson applies to nonprofits

Is your organization allocating resources the way it needs to or is it allocating resources the way it always has?  Is it suffering from McKinsey's "major disconnect?"  Determining and acting on this question is a bit more difficult for nonprofits as they don't have the simple measure of the "bottom line."  But that doesn't mean the question is any less important. 

< Previous | Next >

< Back to Latest News Main