Plan Vs. Strategy
Updated: Jul 17, 2022
Knowing the difference between a strategy and a plan is essential for success. This article explains the difference.
This article is the transcription of Dr. Roger Martin's video presentation on Harvard Business Review's YouTube channel. I hope the English tips and slow/clear audio I provide can help you understand and appreciate Dr. Martin's wonderful ideas! Please visit the original video at Harvard Business Review's channel here.
This thing called planning has been around for a long, long time. People would plan out the activities they're going to engage in. More recently, has been a discipline called strategy. People have put those two things together to call something strategic planning. Unfortunately, those things are not the same, strategy and planning. So just putting them together and calling it strategic planning doesn't help.
0:27 What most strategic planning is in the world of business has nothing to do with strategy. It's got the word, but it's not. It's a set of activities that the company says it's going to do.
0:41 We're going to improve customer experience. We're going to open this new plant. We're going to start a new talent development program. A whole list of them, and they all sound good, but the results of all of those are not going to make the company happy because they didn't have a strategy.
1:02 So what's a strategy? A strategy is an integrative (combined, unified) set of choices that positions you on a playing field (market, place of competition) of your choice in a way that you win.
1:13 So there's a theory. Strategy has a theory. Here's why we should be on this playing field, not this other one, and here's how, on that playing field, we're going to be better than anybody else at serving the customers on that playing field.
1:31 That theory has to be coherent (logical, organized). It has to be doable. You have to be able to translate that into actions for it to be a great strategy. Planning does not have to have any such coherence, and it typically is what people in manufacturing want – the few things they want to build a new plant, and the marketing people want to launch a new brand, and the talent people want to hire more people – that tends to be a list that has no internal coherence to it and no specification of a way that that is going to accomplish collectively some goal for the company.
2:11 See, planning is quite comforting. Plans typically have to do with the resources you're going to spend. So we're going to build a plant. We're going to hire some people. We're going to launch a new product. Those are all things that are on the cost side of businesses.
2:30 Who controls your costs? Who's the customer of your costs? The answer is, you are. You decide how many square feet to lease (rent), how many raw materials to buy, how many people to hire. Those are more comfortable because you control them.
2:47 A strategy, on the other hand, specifies (identifies) an outcome – a competitive outcome that you wish to achieve, which involves customers wanting your product or service enough that they will buy enough of it to make the profitability that you'd like to make.
3:08 The tricky thing about that is that you don't control them. You might wish you could, but you can't. They decide – not you.That's a harder trick.
03:19 So that means putting yourself out (making an effort for someone) and saying,
"Here's what we believe will happen. We can't prove it in advance – we can't guarantee it – but this is what we want to have happen and that we believe will happen."
3:39 It's much easier to say, “I'll build a factory,” “I will hire more people,” etcetera,
than, “I will have customers end up liking our offering more than those of competitors.”
3:53 The tricky thing about planning is that while you're planning, chances are at least one competitor is figuring out how to win.
4:05 When US air carriers were busily planning what routes to fly
and da-da-da (so on), there was this little company in Texas called Southwest that had a strategy for winning. And at first, that looked largely irrelevant (unrelated) because it was tiny.
4:25 What Southwest Airlines was aiming for was an outcome. What they wanted to be is a substitute for Greyhound (long-distance bus) – a way more convenient way to get around (travel) at a price that wasn't extraordinarily much greater than a Greyhound bus.
4:46 Southwest said, “Everybody else is flying hub and spoke (see English tip below). They have hubs, and they fly hub and spoke.”
4:53 “We're going to fly point to point so that we don't have aircraft waiting on the ground because you only make money when you're in the air. We're going to only fly 737s – one kind of aircraft – so that our gates are set up for those, our systems are set up for those, our training, our simulations (practice models)are set up. We're not going to offer meals on the flights because we're going to specialize in short flights. We're not going to book through travel agents. We're going to encourage people to book online because that's less expensive for everybody and more convenient.”
5:22 So their strategy ended up having a substantially (significantly) lower cost than any of the major carriers so that they could offer substantially lower prices. Because it had a way of winning, it got bigger and then bigger and then bigger and then bigger and bigger and bigger and bigger until it flies the most passenger seat miles in America.
5:46 The major carriers were not trying to win against one another. They were all playing to play, as I say. They were playing to participate, maybe buy more planes, get more gates, maybe grow some – not having a theory of “Here's how we could be better than our competitors.”
6:10 And that was fine until somebody came along and said, “Here's a way to be better than everybody else for this segment (part, section). And so that segment then goes – it's gone.
6:22 And the main “playing to play” players have to share a smaller pie that's left over after Southwest takes whatever share (portion)it wants.
6:35 If you're trying to escape this planning trap – this comfort trap of doing something that's comfortable but not good for you, how do you start?
6:46 The most important thing to recognize is that strategy will have angst (anxiety, fear) associated with it. It'll make you feel somewhat nervous because as a manager, chances are you've been taught you should do things that you can prove in advance. You can't prove in advance that your strategy will succeed. You can look at a plan and say, “Well, all of these things are doable. Let's just do those because they're within our control.” But they won't add up to much.
7:17 In strategy, you have to say, “If our theory is right about what we can do and how the market will react, this will position us in an excellent way.”
7:27 Just accept the fact that you can't be perfect on that, and you can't know for sure. And that is not being a bad manager. That is being a great leader because you're giving your organization the chance to do something great.
7:46 The second thing I do is say (for example), lay out the logic of your strategy clearly. What would have to be true about ourselves, about the industry, about competition, about customers for this strategy to work?
8:02 Why do you do that? It's because you can then watch the world unfold (happen, take place). And if something that you say is in the logic that would have to be true for this to work is not working out quite the way you hoped, it'll allow you to tweak (adjust) your strategy.
And strategy is a journey. What you want to have is a mechanism for tweaking it, honing (sharpening/improving) it, and refining it so it gets better and better as you go along.
8:28 Another thing that helps with strategy is not letting it get overcomplicated. It's great if you can write your strategy on a single page.
8:38 Here's where we're choosing to play (focus, compete). Here's how we're choosing to win. Here are the capabilities we need to have in place. Here are the management systems. And that's why it's going to achieve this goal, this aspiration (hope, goal) that we have.
8:52 Then you lay out the logic, what must be true for that all to work out the way we hope.
9:00 Go do it, and watch, and tweak as you go along. That may feel somewhat more worry-making, angst-making than planning, but I would tell you that if you plan, that's a way to guarantee losing. If you do strategy, it gives you the best possible chance of winning.
Hub and spoke – Imagine the hub as the center of a bicycle wheel and the spokes as the metal sticks that reach out to the tire. A hub is a central airport that flights stop through, and spokes are the many routes that planes take out of the hub airport. Most major airlines have multiple hubs and even more spokes.
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