FI N A N C E A N D S T R AT E GY

cO r P O r aT E S T r aT EGY B Oa r d ®

Optimal Planning
Waste-Free Strategic Planning and Execution

By Paul Edelmann and Seth Verry

KEY cOMPOnEnTS OF an OPTIMAL PLANNING IN BRIEF

OPTIMaL PLan
• Most strategic plans do not position companies to survive and thrive
amidst the recession and volatility—primarily because the plans do not
Optimal Planning
Waste-Free Strategic Planning and Implementation succinctly clarify where the company is, where it’s going, and how it will
INITIAL STATE
of the Organization
TARGET STATE
of the Organization get there. A map is of little use if one cannot plot current position, speed,
direction, and destination.
People People
Cash
Intellectual
Property

Trading Partners STRATEGIC PLAN

Trading Partners Constituted by Rationalized by Expressed as Trading Partners

INITIATIVES ASSUMPTIONS
1 SENTENCE

That…
Reconcile conflicting
assumptions and views.
That…
Are explicit and
communicated to the broader
That…
Captures the essence
of the strategy.
• Indeed, most companies have a strategy that is too vague, non-committal,
or unwieldy for each member of the executive team to fully understand it
METRICS DESCRIBING organization.
OUTCOMES DESCRIBING
the INITIAL STATE* Build strong Signals the aspiration. the TARGET STATE*
buy-in for the right Are concrete, with quantifiable
Trading Par tners Trading Par tners
projects. thresholds for monitoring Includes a limited
Net Promoter Score validity. number (less than Net Promoter Score � x
Market Share Market Share +x%

and work together to refine it—much less to cascade it to implementation

Focus resources seven!) of themes
and attention exclusively Allow for real-time course or elements.
Financials corrections aligned with
Financials
on the top 7 initiatives.
Return on Invested Capital market shifts. Return on Invested Capital +x%
Revenue Growth Revenue Growth � x%
And avoid… And avoid… And avoids…

teams.
Operations Operations
Lack of consensus, Confusion or disagreement Any doubt as to what
Perfect Order Fulfillment Perfect Order Fulfillment � x%
support, focus, and on the cognitive basis for constitutes the strategy.
Human Capital resources for key the strategy. Human Capital
Turnover as a Percentage projects. Turnover as a Percentage
of Headcount of Headcount % � x
Percentage of Employees Percentage of Employees with
with Low Intent to Leave Low Intent to Leave < x%

• To address the challenge, we recommend a lean approach to strategic

planning and execution: Optimal Planning. Similar to Lean in the
7 metrics describing the
current state manufacturing function, Optimal eliminates all but that which is
necessary and sufficient to create the intended result.
7 outcomes describing the
• Optimal yields clear, measurable strategic plans by focusing exclusively
target end-state
on (i) a few metrics that define the organization’s current and target end
7 initiatives to bridge the gap
state, (ii) the key strategic initiatives required to achieve the end state,
(iii) a concise statement that distills and communicates the strategy,
7 assumptions that rationalize
and (iv) the most critical underlying assumptions about the world on
the strategy which the planners rely.
• Optimal’s constituent parts position companies for:
1 statement that distills the
strategy – Crafting better strategy more quickly—because senior executives will
readily and fully understand the strategy, and easily be able to refine it;
All captured on a one-page – Most quickly and effectively communicating strategy to the
planning and implementation implementers;
scorecard, available in
PowerPoint here. – Course correcting earlier, when key assumptions become invalid—
as they more frequently do during volatile periods;
– Measuring success more objectively and allocating performance gaps
among strategy formulation versus implementation activities—to enable
organizational learning.

OPTIMAL PLANNING IN FOUR STEPS

First, identify a set of up to seven metrics that best describe the target state
of the organization. Start with categories used in the Balanced Scorecard if
you need help overcoming writers block. You may find it helpful to review your
vision and mission statements, and interview your CEO to get a better sense of
what the target state “looks like”. As you develop a clearer picture of the end
state, you will likely find yourself swapping the set of metrics that constitute
the seven.

© 2009 The Corporate Executive Board Company. All Rights Reserved. www.csb.executiveboard.com
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THE Idea in Practice
To deal with uncertainty in the
pharmaceutical business, Eli Lilly vets
and monitors the most critical, uncertain
assumptions underlying its strategy.
The assumptions are communicated
to the entire organization, which acts
as a testing mechanism for validity.
Performance reviews start with
assumptions first—not execution issues.
Charles Schwab emerged as a winner as
the first wave of online trading disrupters
reshaped the brokerage business.
Schwab’s bold strategy centered
on a gut-wrenching decision to cut
prices dramatically. Executives used a
dashboard of weekly and monthly proxy
metrics that instilled confidence in the
strategy logic, even as the stock price
took a severe, initial hit.
© 2009 The Corporate Executive Board Company. All Rights Reserved.
CSB1B0V6R3
Why seven? Research has demonstrated that the average person can think
contemporaneously about as many as seven things but begins to have trouble
when an eighth is added. Given that the set of metrics will be discussed with
and cascaded to hundreds or thousands of people, it is important that the set
is tractable to the average employee.
After identifying the metrics, estimate their value on day one of the
implementation period and the target outcomes for the last day of the period.
The period may be as short as a quarter or as long as five years. Given the
transaction costs of formulating and communicating strategy, the volatility
of the current environment, and the need to give a strategy a chance to work,
we recommend a period of one or two years and that progress be tracked at
least quarterly.
Second, identify the seven key initiatives required to move from the initial
to the end state. Yes…again with the seven, for the same reasons cited above.
Note that you do not need to include initiatives intended to run the business,
such as, “keep serving our customers” or “maintain employee engagement.”
These initiatives strive to perpetuate the current state or trajectory. In
contrast, the seven key initiatives represent the change-the-business agenda,
and seek to create value beyond the inertial trajectory. Strive to achieve a
level of granularity among your chosen seven by grouping smaller projects as
necessary.
Note that the key initiatives may impact important run-the-business metrics
other than those identified for this short list. If you cannot be confident that
any given critical metric will stay within an allowable range, you need to
add it to the metrics list outlined above or address it with your list of critical
assumptions, outlined below.
After specifying the initiatives, set criteria and dates for key milestones and
completion. Expect those responsible for implementing the initiatives to
want more time and budget to complete them. Expect yourself to want more
slack related to the assumption thresholds described below. Expect CEOs
and CFOs to want tighter delivery timelines and assumption thresholds and
higher target values for metrics.
Next, craft a concise statement that captures the essence of the strategy.
The essence or core elements of the strategy will address the target end-
state and required initiatives. Strive for a single, aspirational sentence, but
sacrifice concision for clarity. Focus more on getting the essential elements
right (seven or less, of course) than on finding the perfect turns of phrase.
When you find yourself caught in endless debate over wordsmithing, you
have likely gone too far.
This activity should flow directly from steps one and two. Indeed, clarity
and simplicity—in this case, of the target outcomes and supporting
initiatives—are powerful motivators. In practice, they do more to guide than
inspire. A compelling statement that passes the same tests of clarity and
simplicity nicely complements an optimal plan. You may also find value in a
similar statement simply describing the current state. This is optional.
Finally, document the seven most critical beliefs or assumptions on
which the strategy relies. Yes, up to seven. Your assumptions should
highlight cause-and-effect relationships between your business ecosystem
(initial and target), your key initiatives, and external driving forces. Some of
these relationships you’ll view as highly reliable “truths” about the business;
others will represent highly uncertain dynamics difficult to control or predict
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April 2009 2
accurately. Your seven most important assumptions will likely include ones related to macro economy, customer
behavior, competitors, or technology—the central drivers of value for your company and industry. At best, your
assumptions will reflect why the core elements of the chosen strategy (the target end-state and required initiatives)
are better than their next best alternatives. This represents the cognitive foundation of the strategy you’ve selected.
Be sure to pick metrics that enable you to differentiate between strategy and execution gaps. While execution metrics
are straightforward—on-time completion of key initiative milestones—remember that strategy metrics (assumption
thresholds) must address two related but distinct aspects of strategy: the correctness of the target end-state and
the ability of selected initiatives to achieve it. This will help you avoid subjective debates over a strategy’s success
and understand the real root causes of underperformance. Not only will this ensure that course corrections fix the
right problems, it will yield invaluable organizational learning about your strategy, planning and implementation
capabilities.
After identifying your critical assumptions, set a threshold for each—or for a proxy variable that is more easily
measured. The threshold should be loose enough that you are at least 90% sure that it will not be breached. Bear
in mind that with independent assumptions, there is a 50% chance of at least one threshold being breached at 90%
confidence. Breaches are no trivial matter. If a threshold for one of your most important assumptions is breached, you
should trigger a course correction, with key stakeholders meeting to reformulate the strategy and execution plan as
needed. Consider a compressed, 2–3 day off-site to craft a meaningful new plan on a tight timeline.
The most important recommendation within this document: Monitor your assumptions as frequently as necessary to
provide at least one month’s advanced warning of an imminent breach. Planning for an effective course-correction off-
site takes at least one month.

FREQUENTLY-ASKED QUESTIONS
Q. “Honestly, we have no idea what Response: This lack of clarity is not entirely uncommon, and compounded
our target end-state is. It would be by the current environment of volatility and upheaval. Organizations truly
lost as to long-term strategy will need to work the process outlined above
foolish for us to try to define it by a essentially in reverse, starting with core beliefs and assumptions. Only by
set of metrics.” surfacing, debating and reshaping your foundational beliefs about your
business can you begin to visualize the alternative pathways and end-states
for creating value, along with their implied choices and requirements.
Q. “I work in a large, complex Response: Remember that 80% of the value of your strategy probably comes
organization. There is no way I can from 20% of your strategic initiatives. The best strategies are ones that make
tough choices and stake clear bets on the organization’s future. Even if you
simplify my strategy down to seven find it impossible to narrow your strategy to seven initiatives, at least make
metrics, initiatives, and assumptions.” sure that you and your executive team devote 80% of your strategic focus to
those top seven projects.
Q. “I’m not thinking about course- Response: Volatility can quickly make strategic assumptions—and the
corrections. We need to stay focused plans they support—outdated or invalid. Indeed, times like this are when
companies are twice as likely to gain or lose a quartile in industry rankings.
and keep moving forward with our Some of the best companies have been derailed by invalid assumptions even
strategy.” in good times. In this unprecedented macroeconomic environment, the
ability to sense and respond will separate the winners and the losers.
NEXT STEPS
Are you able to plot your company’s position, destination, and speed on the map? Would your company’s top
five executives almost identically describe the organization’s current state, target state, strategic initiatives, and
underlying assumptions? If they cannot, do you think that middle management can—or can appropriately make
difficult decisions in this extraordinarily dynamic economy?
Contact your CSB account manager, executive advisor, Seth or Paul to discuss supporting research, translation for
your organization, or on-site facilitation. A PowerPoint template for optimal planning may also be downloaded here.

Ben Seesel contributed to this newsletter.

© 2009 The Corporate Executive Board Company. All Rights Reserved. w w w . e x e cwww.csb.executiveboard.com
utiveboard.com
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 Optimal Planning
Waste-Free Strategic Planning and Implementation

INITIAL STATE TARGET STATE

of the Organization of the Organization
People People
Cash Cash
Intellectual Intellectual
Property People Property People

Cash Trading Partners STRATEGIC PLAN Cash Trading Partners

Trading Partners Constituted by Rationalized by Expressed as Infrastructure Trading Partners

Inventory INITIATIVES ASSUMPTIONS SENTENCE Inventory

People People
1 Processes
Processes Processes
That… That… That…
Reconcile conflicting Are explicit and Captures the essence
assumptions and views. communicated to the broader of the strategy.
METRICS DESCRIBING organization.
OUTCOMES DESCRIBING
the INITIAL STATE* Build strong Signals the aspiration. the TARGET STATE*
buy-in for the right Are concrete, with quantifiable
Trading Par tners Trading Par tners
projects. thresholds for monitoring Includes a limited
Net Promoter Score validity. number (less than Net Promoter Score � x
Market Share Focus resources seven!) of themes Market Share +x%
and attention exclusively Allow for real-time course or elements.
Financials corrections aligned with
Financials
on the top 7 initiatives.
Return on Invested Capital market shifts. Return on Invested Capital +x%
Revenue Growth Revenue Growth � x%
And avoid… And avoid… And avoids…
Operations Operations
Lack of consensus, Confusion or disagreement Any doubt as to what
Perfect Order Fulfillment Perfect Order Fulfillment � x%
support, focus, and on the cognitive basis for constitutes the strategy.
Human Capital resources for key the strategy. Human Capital
Turnover as a Percentage projects. Turnover as a Percentage
of Headcount of Headcount % � x
Percentage of Employees Percentage of Employees with
with Low Intent to Leave Low Intent to Leave < x%

* Illustrative metrics and measurement categories.

© 2009 The Corporate Executive Board Company. All Rights Reserved. www.csb.executiveboard.com
CSB1B0V6R3
April 2009 4