Lecture on Planning vs. Strategy

Key Topics

• Difference between planning and strategy
• Misconceptions about strategic planning
• Characteristics of a good strategy
• Example: Southwest Airlines
• Overcoming the planning trap

Definitions

Planning

• Long-standing activity
• Typically involves listing activities to be done
• Covers resource allocation (e.g., building plants, hiring people)
• Comforting as it involves elements within control of the business

Strategy

• Relatively newer discipline
• Misinterpreted when combined with planning into "strategic planning"
• Integrative set of choices for winning on a chosen playing field
• Requires a coherent and actionable theory
• Involves specifying desired competitive outcomes (e.g., customer preference)
• More challenging as customer actions are beyond the company's control

Strategy vs. Planning

• Planning:

  • Lists activities and resource needs
  • Often lacks internal coherence
  • Deals with costs (controllable by the company)
  • Examples: Improving customer experience, opening a new plant

• Strategy:

  • Sets a clear plan for winning
  • Based on a coherent theory about market and competition
  • Specifies outcomes tied to customer actions (uncontrollable)
  • Example: How to position and serve customers better than competitors

Importance of Effective Strategy

• Avoids the danger of merely participating rather than winning
• Southwest Airlines Example:
  • Aimed to substitute Greyhound bus service
  • Unique strategies: Point-to-point flights, only flying 737s, no meals, direct online bookings
  • Outcome: Lower costs and prices, became a major carrier by providing better value

Pitfalls of Comfort in Planning

• Planning focuses on controllable elements
• Downside: Competitors might focus on winning during this period
• Example: Major carriers planning routes while Southwest developed a winning strategy

Steps to Effective Strategy

1. **Acceptance of Uncertainty: **

   • Strategy will naturally involve risk and unknowns
   • Managers should not expect to prove a strategy's success in advance

2. Clarity and Logic:

   • Define the logic of the strategy clearly
   • Specify what must be true about the company, industry, competition, and customers
   • Observe and adjust based on how the market unfolds

3. Simplicity:

   • Keep the strategy simple and understandable
   • Ideally, outline on one page: where to play, how to win, necessary capabilities, and management systems

Conclusion

• Strategy involves a mix of planning and dynamic adjustments
• Provides the best chance of winning over mere activity planning