The Critical Step of Current-state Analysis & Review in Strategic PlanningPosted by admin on November 2, 2010
What is the definition of success and how can you get there if you don’t know where you are starting from? Obviously it makes sense that you need to know your point of origin to determine the optimal route to your desired destination. If that is the case in our day-to-day lives, then why do so many forget to apply that simple concept in business – and in this case – in our business planning? This article focuses on a major step of critical importance in your planning process – a review and analysis of your organization’s current-state.
What needs to be reviewed within the organization and how does doing so influence the planning outcome?
The current-state analysis phase of corporate strategic planning involves gaining a “business truth” of where the organization is today so that it is possible to plan effectively for moving from the current reality to the desired results. This integrated set of foundational activities is designed to accomplish the following:
- Tack down where the organization is today, reviewing:
- the organization’s vision statement
- the organization’s mission statement
- the current strategic plan and goal attainment percentage
- in the case of divisions or subsidiaries, reviewing the current alignment of strategic goals
- the organization’s hierarchy
- key executive and management job descriptions
- organization’s core competencies
- key executive and management leadership competencies
- the organization’s cultural heuristics
- Assess operations and the decision process within the enterprise "ecosystem"
- Consider all functional areas that are involved in developing and delivering value to the marketplace
- Identify potential paths to achieving the desired end outcomes
How is a Current-state Analysis Done?
To accomplish the current-state analysis, it is critical to understand the business ecosystem and "eco-cycle". Let us first define the business ecosystem and the eco-cycles.
The Current-state Ecosystem Analysis
The business ecosystem is comprised all of the functional areas that are involved in developing and delivering the offering to the marketplace. The term originated in 1985, when Harvard's Michael Porter introduced the value chain framework in his book, "Competitive Advantage". From a planning standpoint, it is important to assess how the business ecosystem operates and more specifically, how decisions within one segment of the ecosystem can impact (or have consequences on) the enterprise as a whole or to specific segments of the chain.
In 1993, Harvard business professor James Moore, described business as a “community supported by a foundation of interacting organizations and individuals. This community produces goods and services of value to customers, who are themselves members of the ecosystem”. The ecosystem includes “suppliers, producers, competitors, and stakeholders”.
The eco-cycle refers to the ebbs and flows within the ecosystem from a fiscal economic activity perspective over the organization’s planning period. This could include the subsequent four quarters (12-months) or up to 18-months. It is the fluctuations in the business ecosystem that are measured using historical growth targets and analysis of the businesses stagnation and / or periods of decline.
To accomplish an understanding both the business ecosystem and eco-cycle in the most effective manner, an internal assessment of the organization must review organizational assets, organizational hierarchies, resources, people, culture, systems, partnerships, suppliers, business process, financial model and numerous other factors. Likewise, an external assessment looks at the marketplace for the organization, competitors, social aspects, the regulatory environment, technology and economic cycles.
Since strategic planning models are intended to manage the strategic actions of an organization, a thorough understanding of the current-state provides the foundation on which to build. The graphical model, shown below, offers a simplified view of the major dimensions that the strategic planning process should account for. Without the starting point offered by the current-state analysis, no real strategy or tactics can be developed.
Each dimension of the model shown in the graphic will likely have plan components that relate to specific organizational actions, so the current-state analysis must be done in order to build strategy and supporting goals in relation to the state of the organization today. These actions will be defined in later stages of planning, and may be offensive, defensive and proactive in nature. Reactive maneuvers do not fall into the strategic category, but are sometimes required and appropriate.
Strategic actions should be mapped against several dimensions, including:
- Value creation
- Value proposition(s)
- Brand equity / sales and marketing
- Industry direction / momentum
- Market transitionsInnovation
- Organizational competencies
- Employee competencies
- Socioeconomic conditions
- Scenarios and contingencies
Let us review some of these dimensions in the context of the current-state analysis in order to better understand their importance in the formulation of strategic actions later in the planning process.
The Current-state Building Blocks
Current-state Analysis in Relation to Value Creation & Value Proposition(s)
In most cases, value creation and the organization’s value proposition are inexorably linked and are closely related to brand equity as well. Planning in this dimension allows a shift to occur towards the customer “Key Outcome” mindset. Key customer outcomes are measurable results / goals that are oriented to value we can add for our product or service consumers. With the corporate mission and vision statements as guides, the planning process can be adjusted towards viewing strategy and goals in terms of key customer outcomes such as product or service innovations.
- How can the organization increase the efficiency of customer interactions?
- How can we improve the cost-effectiveness of our product or service?
- How can we develop better customer / client intimacy and grow customer loyalty?
These are but a few examples of questions that should be triggered when thinking about strategy with a key outcome mindset, amplified through evaluation during the current-state analysis. Reiterating an earlier point, when an organization can define and explain their value proposition succinctly, strategic goals related to innovation and value creation can more easily be developed and ultimately implemented.
Current-state Analysis in Relation to Brand Equity / Sales & Marketing
Brand equity is the intended outcome of marketing strategies to create name awareness for products and services. Strategies to create positive brand equity help strengthen sales, bolster pricing and product margins, promote customer loyalty and potentially lower customer acquisition costs. Strategic planning models should always include a competitive analysis. Michael Porter’s 5-Forces Analysis looks at factors like:
- Competitive rivalry
- Threat from new entrants
- Bargaining power from substitutes
- Bargaining power from customers
- Bargaining power from suppliers
This type of an analysis can be done at the brand level during current-state analysis to drive strategic goal setting later on in the corporate plan in addition to well-informed and factual marketing and sales operational plans at those levels in the organization.
Current-state Analysis in Relation to Industry Direction / Momentum
By studying the movement, direction and momentum of the industry or industries served by the organization, the data can feed the strategic planning process leading to better planning decisions. For instance, if the industry data suggests that competitors are enjoying a technological advantage over our firm and that they are steering the industry in a direction that is eroding market our share, what do we do about that? If we cannot dominate, do we leave?
The decision to continue following the market or to break away from the pack will have huge implications on organizational action. When faced with a technological disadvantage such as the one posed here, strategic decisions must be made on possible exits from the market, acquisition of a competitor, partnering, mergers, increased research and development in an attempt to close the competitive gap. All possible strategic actions will have long-term implications - rewards or consequences, therefore the importance of scenario and contingency planning along with risk management become more and more evident.
Current-state Analysis in Relation to Innovation Efforts/Programs
To avoid lagging behind competitors, organizations must continue to cultivate ideas for improvements to products and services, and then harness the best of the innovations into value-creation enhancements or altogether new offerings. The challenge with innovation in many organizations is framing it into a discipline that can be leveraged. Incentivizing innovation is a step in the right direction, but is only a part of the framework needed to capture, process and act on creative ideas. Such a process should outline how innovation unfolds, starting with the origination of an idea and depicting the steps that lead to its transformation into something useful and that can be implemented.
An evaluation of the current-state of innovation (formal programs or informal frameworks) becomes an essential building block for future strategy enhancements to maintain or improve competitive positioning.
Current-state Analysis in Relations to Organizational Competencies
Core competencies are what make individuals and the organization they constitute unique. The competencies are a generic list of skills, and as applied to the employee and the organization then becomes the foundation for what the organization possesses that set it apart from its peers. These groupings of skills are a source for identifying competitive advantage and the building blocks for future opportunities.
Definition: Core Competency - a bundle of skills that enables an organization to provide a particular benefit. A core competence is not product or service specific.
Core competencies are the underpinnings of the organization’s skills that contribute to the development of a range of products and services and the cornerstone of successful strategy, therefore, an objective current-state review of the match-up of core competencies to the organization’s vision, mission and strategy is a must. This data will serve the strategy planning effort after the future-state has been defined, as operational plans will be dependent on closing any gaps that are found to exist.
Current-state Analysis in Relation to Technology
Technology should benefit the business through increased efficiency in the delivery of products and services, leading to a boost in market value and competitive advantage for the organization. Technology strategy must be aligned to corporate goals, so the planning process, as it relates to technology, should help identify, define, and develop both departmental and discrete initiatives that save money, improve quality, and enhance performance. Technology current-state represents another key building block for the strategic actions that will be defined later in the planning process.
The Other Attributes of Current-state Analysis in Strategic Planning
Strategic planning should also consider environmental as well as structural inhibitors / accelerators. Inhibitors can detract from progress, and should be considered as factors to mitigate. On the opposite end of the spectrum, accelerators can speed progress and facilitate faster achievement. Accelerators should be identified, understood and leveraged during planning. For consideration of how this might work in practical application; core competencies, culture and resources might be thought of as “environmental” conditions, while organizational design, process and strategy and vision are more “structural” in nature. So where might inhibitors and accelerators be found so that we can begin identifying and unlocking them?
Core Competencies, Resources and Culture
Core competencies were defined earlier in this article, but are worth a mention again in terms of environmental inhibitors or accelerators that can be leveraged in the plan. Lack of adequate skills employee skills related to the organization’s core competencies represents an inhibitor that must be addressed through planning. Likewise, this same environmental condition might be a tremendous accelerator if an employee base is being acquired through a merger and their core competencies will already be in place to execute plan goals well. The resources of the organization are many, but include:
- The employees of the organization and their general capabilities
- The actual skills and competencies of the employees working for the organization
- Technological resources like patents on products and processes
- Access to financial assets / resources
During strategic planning, strong consideration of available resources plays directly into operational execution of plan goals.
Another environmental condition to consider during strategic planning is culture. Organizational culture usually starts with the style of leadership adopted from founders or senior executives of the organization.
There are many variations of corporate cultures, but for the purposes of this article, we will classify cultures into one of four models:
Cooperative: The organization or team focuses on the needs of the customer and the delivery, resulting in customization and tailoring to customer needs.
Merit Focused: The organization or team focuses on how it can organize and create predictability, reliability, low cost and structure.
Actualized: The organization or team focuses on fulfilling the human potential, helping create better lives for its customers and offering self-actualization.
Creative: The organization or team focuses on creating superiority of product or service, uniqueness, one of a kind value-add service and product.
Associated with these four distinct culture signatures are corresponding organizational hierarchies. The differences in culture and hierarchy relate back to the “how” the organization works and “how” work gets accomplished. Aligning strategy, tactics and governance to address these dimensions will greatly affect the outcome of planning efforts.
Organizational Design or Hierarchy and Process
The hierarchy of the organization will determine the best methods for communicating the strategy and is a major consideration in how messaging should be constructed. By hierarchy, we are referring to the way the organization architected and who reports to whom. The hierarchy also impacts the way accountabilities should be defined and outcomes measured. Unless reorganization is intended, the structure of the organization and the business process architecture will be “givens” that must be factored into planning.
At the center of the model are “core values”. Core values are broadly shared values of the company that are evidenced in the corporate culture and the general work ethic of the employees. Some refer to core values as a shared “value system”, meaning a group shares a common set of cultural and moral beliefs. Strong core values benefit the strategic planning effort and would generally be classified as an accelerator towards goal achievement. The exception to this generalization is in the case of a negative culture that is out of step with the organization’s leadership values. In that situation, core values become an inhibitor and must be changed over time to facilitate strategy achievement. In such circumstances, the strategic planning process would need to address transition strategies for changing corporate core values.
Inhibitors need to be identified because they are roadblocks to progress. Conversely, Accelerators, once identified, promote rapid progress. Both are essential to know and leverage or mitigate as the case may be.
Pulling The Pieces Together
The current-state analysis helps put everything about the organization into a singular context – with a holistic-360 degree, multi-dimensional view that allows for comparability and planning to occur effectively. Traditional planning practices usually follow a standard SWOT analysis format and provide indications of Strengths, Weakness, Opportunities and Threats. The current-state analysis as prescribed in this article provides far more relevant attribution of the organization and the environment in which it must operate (the business ecosystem and eco-cycle) – inclusive of critical aspects, such as: relationships with customers, partners, employees, suppliers and reflective of the economic fluctuations that occur within that system. This assessment yields a more complete picture of the organization’s strengths and weaknesses, and the same is true for the external assessment. Far more is understood and uncovered relative to opportunities and threats using this approach than when using the more traditional SWOT analysis.
The organizational profile resulting from the current-state analysis, as described, encapsulates key data that will feed the planning process with richer data - broken down into three major components: 1) Operating environment & business processes; 2) Business relationships and 3) Key performance categories. The comparison of the organizational profile to the challenges identified during this step result in the gap that serves as the basis for planning.
For permission to use or reprint any portions of this copyrighted article, contact Method Frameworks at firstname.lastname@example.org.
About the Author:
Joe Evans is the President and CEO of Method Frameworks. Joe is a published author, frequent speaker and recognized expert in corporate strategic planning. To contact Method Frameworks about scheduling Mr. Evans about an upcoming speaking engagement, visit www.methodframeworks.com/business-speaker or email requests to email@example.com.
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