Strategic Planning 4

Strategic Planning (cont'd)

What is a strategy and how do we develop one?
In strategic planning it is critical to formally consider how your organization will accomplish its goals. The answer to this question is a strategy. There are a variety of formal definitions for strategies, but everyone fundamentally agrees that a strategy is the answer to the question, "How?"
"Strategies are simply a set of actions that enable an organization to achieve results."
"Strategy is a way of comparing your organization's strengths with the changing environment in order to get an idea of how best to complete or serve client needs."
Essentially, there are three different categories of strategies: organizational, programmatic, and functional. The difference among the categories is the focus of the strategy:
Organizational strategy outlines the planned avenue for organizational development (e.g., collaborations, earned income, selection of businesses, mergers, etc.).
Programmatic strategy addresses how to develop, manage and deliver programs (e.g., market a prenatal care service to disadvantaged expectant mothers by providing information and intake services in welfare offices).
Functional strategies articulate how to manage administration and support needs that impact the organization's efficiency and effectiveness (e.g., develop a financial system that provides accurate information using a cash accrual method).

When to Develop Strategies
Strategy development follows the creation and affirmation of the organization's purpose statement, environmental and program data collection and analysis, and identification of critical issues. It is critical that strategy development follow these steps because the information gathered and decisions made in these phases are the foundation for strategy creation and selection.  Each of these steps provides the following:

The purpose statement, the statement of the organization's ultimate goal, provides the direction to which the strategies should ultimately lead.
External market data and program evaluation results provide critical data to support strategy development. Without this information and insight, the organization's strategies will not be in alignment with or effective in the marketplace.
The critical issues list serves as the specific focus and framework for the activities of the organization and the pattern of these activities (developing and selecting the strategies).

How to Develop Strategies
Strategy formulation is a combination of rational, scientific examinations and educated, intuitive best guesses. Many individuals are overwhelmed by the idea of developing strategies, but it can be a fun and invigorating process. The process entails:

examining the organization's critical issues
determining how the organization's strengths and skills can be employed to address the critical issues
analyzing opportunities and strengths and looking for ways to synthesize the two
exploring and choosing the best approaches for the organization.
During this evaluation ask these key questions: Does the strategy meet/address critical issues? Is this aligned with our mission? Is this approach financially viable?

One effective method of strategy generation is to list critical issues and organizational strengths onto flipcharts and then have staff or board members brainstorm possible uses of those strengths or other skills to address the critical issues. Once the brainstorm session is completed, use a roundtable discussion to investigate and evaluate the possible strategies. Remember to develop a list of alternative strategies to investigate and keep in the contingency planning file.

It is important not to discount the ideas that come to people during non-working hours. The Polaroid camera is the result of a three year old's question to her father: "Dad, why can't I see the picture now?"

Strategy of Development Tools
A number of analytical tools have been developed to assist organizations with the planning process (see also FAQ 8, What is a Situation Assessment? and FAQ 9, How Can We Do A Competitive Analysis? for a more detailed discussion of these tools). Many nonprofit organizations have adapted these tools, modifying the questions and criteria to align with their own specific services and markets. Listed below are analytical tools frequently used by nonprofit and for-profit organizations.

SWOT Analysis
SWOT analysis is a methodology of examining potential strategies derived from the synthesis of organizational strengths, weaknesses, opportunities and threats (SWOT). The partnering of the different elements and the extensive data collected as a result of the analysis can serve as a spark for roundtable discussions and refinement of current strategies or generation of new strategies.

The MacMillan Matrix
This strategy grid, developed by Dr. Ian MacMillan, is specifically designed to assist nonprofit organizations to formulate organizational strategies. There are three assumptions underlying this approach:
the need for resources is essentially competitive and all agencies wanting to survive must acknowledge this dynamic
given that resources are scarce, there is no room for direct duplication of services to a single constituency -- this is wasteful and inefficient
mediocre or low quality service to a large client population is less preferable to delivering higher quality services to a more focused population.
These assumptions have implications that are difficult and painful for many organizations and individuals. It might mean terminating some programs to improve core services and competencies, giving programs and clients to more efficient, effective agencies, or competing aggressively with those programs that are less effective or efficient.

MacMillan's matrix examines four program dimensions that guide placement on the strategy grid and indicate implied strategies.

Alignment with Mission Statement
Services or programs that are not in alignment with the organizational mission, unable to draw on existing organizational skills or knowledge, unable to share resources, and/or unable to coordinate activities across programs should be divested.

Competitive Position
Competitive position addresses the degree to which the organization has a stronger capability and potential to fund the program and serve the client base than the competitive agencies.

Program Attractiveness
Program attractiveness is the complexity associated with managing a program. Programs that have low client resistance, a growing client base, easy exit barriers, and stable financial resources are considered simple or "easy to administer." The level of program attractiveness also includes an economic perspective or a review of current and future resource investments.

Alternative Coverage
Alternative coverage is the number of other organizations attempting to deliver or succeeding in delivering a similar program in the same region to similar constituents.

The MacMillan Matrix provides ten cells in which to place programs that have been reviewed in terms of these four dimensions. Each cell is assigned a strategy that directs the future of the program(s) listed in the cell (e.g., aggressive competition, joint venture, orderly divestment, etc.). One cell of the matrix, "Soul of the Agency," requires additional explanation. These are the difficult programs for which the organization is often the clients' "last, best hope." Management must find ways to use the programs in other cells to develop, piggyback, subsidize, leverage, promote, or otherwise support the programs in this category.

For more information on the MacMillan Matrix, please refer to FAQ #9, How Can We Do A Competitive Analysis?

Additional Strategies for Your Organization
Listed below are several strategies applicable to both the organizational and program levels, adapted from Philip Kotler's Strategic Marketing for Nonprofit Organizations. From a social need and services perspective, some are more desirable than others.

Surplus Maximization
An agency runs its organization in a manner that increases the amount of resources on hand. Usually this strategy is adopted to accumulate resources for expansion or growth.

Revenue Maximization
An agency manages its organization to generate the highest possible revenues, perhaps in an effort to establish a reputation or critical mass.

Usage Maximization
An agency works to serve the highest number of users of their services. This strategy can be used to position the organization or program for funding or budgetary purposes.

Usage Targeting
An agency provides services in a manner that encourages serving a specific number or type of constituents. This strategy is used to address unmet needs of specific populations or to cover the costs associated with providing services.

Full Cost Recovery
An agency manages its programs and services so that it financially breaks even, providing as much service as the finances will allow. Many nonprofits adopt this strategy in an effort to provide services without entering fiscal crisis.

Partial Cost Recovery
An organization operates with a chronic deficit every year, providing services that are critical and cannot be provided at a break even level of costs (e.g., mass transit or the Post Office). These organizations rely on public and private foundations, individuals, and governments to cover the annual deficit.

Budget Maximization
An agency maximizes the size of its staff, services, and operating expenditures regardless of revenue/cost levels. Organizations that are concerned with reputation and the impact of trimming services or infrastructure on that reputation employ this strategy.

Producer Satisfaction Maximization
An organization operates towards a goal of satisfying the personal/professional needs of a founder, staff, or board of directors rather than the established needs of external clients and customers.

Fees for Service
An organization provides services to clients for a fee. The fee is typically below market rates and does not cover the full cost of providing the services.

New Revenue Strategies
An organization uses direct marketing activities designed to generate new sources of revenue from specific funders. Examples include starting a new service or program, approaching a new funder, changing the way services are provided, or setting up a profit making venture.

Legitimization Strategies
An organization works to communicate to the community that it is conforming to existing standards and norms - that it is a legitimate and worthy participant in the sector. Examples include adapting services to funder priorities, contributing non cash or cash resources to other nonprofit organizations, or seeking endorsements or board participation from prominent individuals.

Retrenchment Strategies
An organization emphasizes efforts to reduce internal costs to offset the potential or real loss of revenues or grant monies. Examples include increasing staff workloads, increasing use of part time or volunteer staff, eliminating services or programs, or reducing non-fixed expenses such as training or supplies.

What should a strategic plan include?
The end is in sight! Now that everyone has had a chance to contribute their ideas, the options have been wrestled with, the choices have been made, and the details worked out, all that remains is to commit the ideas to paper and make it official.

The Draft and Review Process
First of all, who actually writes the plan? Remember that writing is done most efficiently by one or two individuals, not by a whole group - the writer simply crafts the presentation of the group's ideas. Often an executive director will draft the plan, or the task may be delegated to a staff person, board member, or a consultant who has been working with the planning committee. In the end, it really does not matter who writes the strategic plan; what matters is that it accurately documents the decisions made, that it represents a shared vision, and that it has the support of those responsible for carrying it out.

That is why the process of review and approval is the most important consideration in this step - much more so than who does the writing. The planners should decide in advance who may review and respond to the draft plan; obviously committee members will participate in the review process, but should the full board and the full staff? The guiding principle of participation in the strategic planning process is that everyone who will help execute the plan should have some input into shaping it; whether or not this includes review of the final drafts of the plan is a judgment call that really depends upon the particular circumstances of an organization.

Ideally, the big ideas have been debated and resolved, so that revisions only amount to small matters of adding detail, revising format, or changing some wording in a particular section. Still, if reviewers get bogged down in crossing too many t's and dotting too many i's, the plan could linger in draft form forever. The planning committee must exercise leadership in setting a realistic time frame for the review process and in bringing the process to a timely close: the committee needs to choose the level of review appropriate for the organization, provide copies for review to the selected individuals, and set a deadline for submitting feedback (usually allowing one to two weeks is sufficient). Upon receiving all the feedback, the committee must agree on which suggested revisions to accept, incorporate these into the document, and submit the strategic plan to the full board of directors for approval.

Standard Format for a Strategic Plan
A strategic plan is a simply a document that summarizes, in about ten pages of written text, why an organization exists, what it is trying to accomplish, and how it will go about doing so. Its "audience" is anyone who wants to know the organization's most important ideas, issues, and priorities: board members, staff, volunteers, clients, funders, peers at other organizations, the press, and the public. It is a document that should offer edification and guidance - so, the more concise and ordered the document, the greater the likelihood that it will be useful, that it will be used, and that it will be helpful in guiding the operations of the organization. Below is an example of a common format for strategic plans, as well as brief descriptions of each component listed, which might help writers as they begin trying to organize their thoughts and their material. This is just an example, however, not the one and only way to go about this task. The point of the document is to allow the best possible explanation of the organization's plan for the future, and the format should serve the message.

TABLE OF CONTENTS
The final document should include a table of contents. These are the sections commonly included in a strategic plan:
I. Introduction by the President of the Board
A cover letter from the president of the organization's board of directors introduces the plan to readers. The letter gives a "stamp of approval" to the plan and demonstrates that the organization has achieved a critical level of internal agreement. (This introduction is often combined with the Executive Summary below.)
II. Executive Summary
In one to two pages, this section should summarize the strategic plan: it should reference the mission and vision; highlight the long-range goals (what the organization is seeking to accomplish); and perhaps note the process for developing the plan, as well as thank participants involved in the process. From this summary, readers should understand what is most important about the organization.
III. Mission and Vision Statements
These statements can stand alone without any introductory text, because essentially they introduce and define themselves.
IV. Organization Profile and History
In one or two pages, the reader should learn the story of the organization (key events, triumphs, and changes over time) so that he or she can understand its historical context (just as the planning committee needed to at the beginning of the planning process).
V. Critical Issues and Strategies
Sometimes organizations omit this section, choosing instead to "cut to the chase" and simply present goals and objectives. However, the advantage of including this section is that it makes explicit the strategic thinking behind the plan. Board and staff leaders may refer to this document to check their assumptions, and external readers will better understand the organization's point of view. The section may be presented as a brief outline of ideas or as a narrative that covers several pages.
VI. Program Goals and Objectives
In many ways the program goals and objectives are the heart of the strategic plan. Mission and vision answer the big questions about why the organization exists and how it seeks to benefit society, but the goals and objectives are the plan of action - what the organization intends to "do" over the next few years. As such, this section should serve as a useful guide for operational planning and a reference for evaluation. For clarity of presentation, it makes sense to group the goals and objectives by program unit if the organization has only a few programs; if some programs are organized into larger program groups (e.g., Case Management Program in the Direct Services Program Group), the goals and objectives will be delineated at both the group level and the individual program level.
VII. Management Goals and Objectives
In this section the management functions are separated from the program functions to emphasize the distinction between service goals and organization development goals. This gives the reader a clearer understanding both of the difference and the relationship between the two sets of objectives, and enhances the "guiding" function of the plan.
VIII. Appendices
The reason to include any appendices is to provide needed documentation for interested readers. Perhaps no appendices are truly necessary (many organizations opt for brevity). They should be included only if they will truly enhance readers' understanding of the plan, not just burden them with more data or complicating factors.

How do you develop an annual operating plan?
Upon completion of the strategic plan, an operating plan for the upcoming year must be prepared. An operating plan is a schedule of events and responsibilities that details the actions to be taken in order to accomplish the goals and objectives laid out in the strategic plan. An organization should have annual operating plans that corresponds to its fiscal year for each major organizational unit. The plan ensures everyone knows what needs to get done, coordinates their efforts when getting it done, and can keep close track of whether and how it got done.

Imagine you are driving a car on a camping vacation. It is important to have a destination in mind -- your "long-range goal." The destination alone, however, is not enough to get you there successfully. You need to have detailed instructions about which roads to take, when to make turns, estimated distance and time, where you can stop for food and gas, gauges that tell you how much gas you have in your tank, and warning systems to tell you if the engine gets overheated.

Now imagine that you are not driving the car alone, but instead you have twenty people doing different jobs simultaneously: your organization's executive director is at the steering wheel with a couple of board members looking over his or her shoulder, but four others are at each of the wheels making them spin; other people are looking out each window, reporting what they see to the driver, and someone else is in the back making sandwiches. It is going to take an impressive plan to move this crew in the same direction.

This is the stuff of operating plans: which programs and management functions are going to do what, by when, and how much "gas" (money and person power) it will require. This level of detail is unnecessary in a strategic plan itself -- in fact, it would clutter up the presentation of the long-range vision: the strategic plan focuses on the swimming hole at the camp you are going to, not which gas station to stop at along the way.

Characteristics of an Effective Annual Operating Plan
There are three important attributes to good operating plan:
an appropriate level of detail -- enough to guide the work, but not so much that it becomes overwhelming, confusing, or unnecessarily constrains creativity
a format that allows for periodic reports on progress toward the specific goals and objectives
a structure that coincides with the strategic plan -- the goal statements for the strategic plan and the operating plan are one and the same; the objective statements for the strategic plan and the operating plan will be different.

Just as monthly financial statements often present a budget for revenues and expenses and then report actual figures for a given time period, so should operating plans allow for the same type of comparison: the plan declares the "budgeted" work in terms of goals and objectives for each program area and management function, and reports the actual progress on a monthly or, perhaps, quarterly basis. This "budget-to-actual" report gives a clear reading on how the "trip" is going.

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