Once a business grows large enough to require separate divisions / units to support diverse lines of business, the challenges and complexity of strategic planning and strategy execution begin to grow as well. As the business portfolio expands, strategic planning models must adapt and change with the growing business for optimal results to be recognized.
Diversified businesses operate on models oriented to product and/or service lines. Often these are organized into lines of business that are managed by executives controlling their own P&L structures. Their measurements for success are tied to that particular line of business, meaning that their markets are unique and their cultures and organizational structures may not mirror those of the parent company or the other business units within the company. Likewise, the challenges they must confront to turn a profit and sustain growth are also not necessarily the same as their executive counterparts in other divisions of the company.
Monolithic corporations comprised of multiple operating divisions need more granular approaches to strategy development, not a “one size fits all” approach. Ideally, the corporate strategy for a large and diversified business serves as the umbrella strategy that provides structure, goals and measurement for the business unit strategic plans to link back to as an anchor. The business unit strategies exist to propel results for their organization that will satisfy the overall corporate strategic goals.
Strategy is all about people. It is about the people that the organization serves through the execution of its mission. Strategy is also about the people within the organization that must execute the strategy. Customers, employees, partners and suppliers are known and understood better at the business unit level where they are directly linked. As such, strategic planners in the corporate organization must develop overarching strategic plans that leave room for the nuances of tactical execution to remain the business unit management team’s responsibility.
Corporate-level strategic plans must cast the broad mission, vision and strategy in aggregate terms for the overall business, but it must also define strategic key outcomes that can be translated and measured at the business unit level (e.g. revenue growth, market share and profitability targets to name a few). Of course, business units must have strategic plans as well. Business unit plans should map back to the broader strategic goals defined in the corporate strategic plan while also relating line-of-business level strategic goals, objectives and tactics that advance the business unit strategy.
The relationship between the corporate-level strategic plan and the individual business unit plans form a synchronized structure that pushes and pulls the organization in one direction. At the same time, this symbiotic structure leaves the accountability for leveraging intimate knowledge of customers, competitors, employees and culture to the business layer closest to the action. It allows the business unit the flexibility to plan autonomously while remaining aligned with the overall corporate strategy and goals. This is the strategic planning model mirrored in most corporate to subsidiary business relationships.
Maintaining alignment between corporate goals and business unit strategies in a bi-directional planning model is the key to making this structure and process work. A planning governance model that works up and down the business layers is essential to maintaining alignment and tracking execution. So is corporate performance management. Performance management helps tie the measurement of the business unit leader’s performance to the attainment of corporate goals as well as those defined in the business unit-level strategic plan. Performance management also applies to the employees within the business units, who are measured on goal attainment within the operating unit where they have direct impact on strategic plan execution.
Bi-directional planning works well for diverse portfolio businesses. The level of detail involved in corporate strategic planning is not well-matched to that involved in business unit strategic planning. Implementation methods (execution tactics) are more effectively defined at the business unit level, as they are dependent on organization structure, culture and business knowledge. Another reason that a separation of planning layers is beneficial is because corporate strategists have a different perspective than their counterparts in the business units. Corporate strategists are more tuned into the aggregated set of competitors they face across the organization’s diversified lines of business, so strategic maneuvers at the parent company level tend to be broad. Conversely, business unit’s are more attuned to their specific competitors. With their more intimate knowledge of their landscape, business units can craft better strategies to address competitors and trends in their industry niche. Diversified planning, while it may seem more complicated on the surface, actually removes complexity by allowing each strategic plan to be written more concisely and measured more accurately.