Theory of Constraints Handbook - James Cox Iii [345]
Formalized strategic planning, generally characterized by Drucker’s assumptions and Quinn’s factors (or equivalents), is highly representative of the process taught in most business schools. However, Quinn’s research suggests that the academic ideal is far from common practice. For example, Quinn notes that “Planning activities in major enterprises often [become] bureaucratized, rigid, and costly paper-shuffling exercises divorced from actual decision processes.” Moreover, “. . . formal planning often [becomes] just another aspect of controllership—and another weapon in organizational politics” (Quinn, 1981, 42). Most important strategic decisions in the companies that Quinn researched occurred outside of the formal strategic planning process, such that by the end of his research, Quinn noted that “. . . various purported ‘normative’ approaches to planning began to appear highly questionable, if not actively destructive, in many instances” (Quinn, 1981, 42).
Experience subsequent to the publication of Quinn’s research has failed to contradict his findings. In fact, anecdotal evidence throughout the business community suggests that in most cases, the formal “strategic plan” for the coming year (or decade) quickly becomes an exercise in futility and a great waster of human resources.
Criteria for a Good Strategy
In spite of the weaknesses of the strategic planning process as commonly practiced, businesspeople and academics alike, as well as organizational managers from nonprofit and governmental entities, virtually unanimously acknowledge the need for order and some sort of strategic development. Perhaps it would be useful to begin with expectations: What criteria do people expect as outputs for a good strategy? Several essential criteria emerge from the literature.
The two most widely cited criteria are superior performance and competitive advantage (Hill and Jones, 2007, 3). Examples encompassed by these two broad categories include profitability, responsiveness to customers, responsiveness to employees, consistency in meeting objectives, a business model that is customized to the organization’s strengths, sustainability, and the ability to handle uncertainty. Thus, contemporary theories of business strategy were developed to focus on these critical outcomes, without which the viability of an organization is in question.
Profitability in TOC terms means that Throughput, which is defined in the TOCICO Dictionary (Sullivan et al., 2007, 47) as “the rate at which the system generates ‘goal units’.” A company that does not make money will not stay in business for long (barring government bailouts, of course).
Responsiveness to customers is one of the key requirements for a viable business strategy. Customers vote with their financial resources. If one organization does not recognize and respond to a customer’s needs, she will move on to an organization that does. If a company loses enough of its customers, it’s out of business.
Since the marketplace is highly competitive, it makes sense for businesses to invest their resources to further develop and support competencies and skills for which the company is already highly capable. Companies that attempt to take on challenges for which they are underprepared compared to their competitors often experience failure.
Sustainability certainly has environmental connotations today. Companies must be responsive to governmental, regulatory, and community concerns about low impact on the environment. However, sustainability has another important implication for business as well. A sustainable strategy is one that will be successful over time, rather than being a short-term fad that quickly becomes outdated and irrelevant to the marketplace. By leveraging their resources, certain Japanese companies such as Toyota and Canon have made, over time, huge inroads on a global scale, thus enhancing their overall sustainability (Hamel and Prahalad, 1989, 64).
Finally, companies must incorporate into their strategies the means by which they can be flexible