By Patrick Sweet, P.Eng., MBA
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At some point, engineering managers will have the privilege and responsibility of being involved in strategic planning and management in their organization. Strategic planning is the process of setting up, launching, adjusting and improving a corporate-level strategic plan. Strategic management, on the other hand, constitutes the set of tools and techniques to put that strategy to work.
Coming up with strong, focused strategies and executing them well is critical to the success of any organization in a competitive, global market. Engineering managers play a central role in making that happen. We, as engineers, are uniquely positioned to understand our organizations’ products and technology, and how they can fit into the bigger picture.
In this post, I’ll provide a summary of Domain 3 in the Engineering Management Body of Knowledge: Strategic Planning. I’ll cover the main sections in that domain, including the planning process, strategic management, strategy formulation, and executing strategy.
Strategic Planning Process
The first step in the strategic planning process is to understand the organization and its current state. You need to understand where you are before you can plan to end up somewhere else. Once you establish a baseline, you can launch into a “plan, do, check, act” cycle.
Plan – This involves creating the organization’s mission and vision statement, understanding the relationships between the firm and its suppliers, customers, and competitors. Next, medium and short-term goals are set in order to realize the long-term vision. Finally, specific strategies (such as growth strategies, acquisitions, partnering, etc.) are chosen in order to realize the overall vision.
Do – This stage is all about the day-to-day work to actually execute the strategy. This often happens in the form of projects and requires strong project management.
Check – The checking process happens in parallel with the other steps, and is used to control the strategic planning and management activities.
Act – This final step is to adjust work in response to having checked the work in the previous step to make sure things stay on track. Using the measurement in the “check” step above, corrective action is taken, and the PDCA cycle starts again.
Strategic management is about implementing strategy and making changes as problems and opportunities arise mid strategic-planning cycles. The tools and techniques used to do this should help make sense of the organization’s current state, what the future should look like, and how to get from the current state to the future state.
A number of tools have been developed that can help with strategic management:
CROPIS Analysis – CROPIS stands for Customers, Requirements, Outputs, Processes, Inputs, and Suppliers. An in-depth analysis of each of these elements can help to reveal opportunities for improvement throughout the organization.
SWOT Analysis – SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. In a SWOT analysis, an organization is looks at the good and bad in the organization’s internal and external environments. This can help an organization understand which risks and opportunities to address and how.
Boston Consulting Group (BCG) Competitor Matrix Analysis – This tool uses a matrix to plot products, services, divisions and companies on two axes: sales growth rate, and market share. Products and services fall into one of four quadrants, called Stars (high growth, high market share), Cash Cows (low growth, high market share), Dogs (low growth, low market share), and Question Marks (high growth, low market share). Understanding what quadrant your products or services fall in can help you understand what to do with them in order to improve your company and help it meet its strategic goals.
The Product Life Cycle Model – All products progress through a life cycle. They move from introduction to growth, maturity, and decline. Understanding which phase your products are in will inform how you treat those products and what kind of investments you make in them – a brand new product needs to be treated differently than one that is in decline, but both can help the company reach its goals if treated properly.
Strategy is fundamentally about choosing a way to try and realize an organization’s vision. There are three fundamental steps to forming strategy:
1. Use strengths to capitalize on opportunities
2. Mitigate weaknesses by acquiring new resources
3. Adjust course in response to environmental changes
Numerous models can be used to understand an organization’s strategic environment, including the SWOT analysis and BCG matrix described above.
Porter’s Five Forces – Michael Porter’s Five Forces model distills what an organization needs to consider with respect to the formulation of strategy into five elements: rivalry among existing firms, threat of new entrants, buyer power, supplier power, and threat of substitute products. All of these forces need to be evaluated in order to know where a firm should go with its strategic direction.
Porter’s Generic Strategies – Michael Porter also developed a series of generic strategies that companies can use as starting points for understanding how they should position themselves in the market. Strategies can be plotted on two axes. The first axis has cost leadership (providing a product or service at the lowest cost) on one end of the spectrum and differentiation (offering something unique and valuable in the market place, which commands a high price) on the other end. The other axis deals with market focus, with a focus strategy (trying to appeal to a specific, niche market) on one end, and a global focus (selling to a broad market) on the other.
Core Competence Strategy – The core competence strategy focuses an organization’s business activities on areas of expertise that would be difficult for competitors to replicate. This strategy grew in response to the failure of vertical integration strategies that had worked so well previously.
Services-Based Strategy – Many companies in the West have started making moves toward becoming more service-based than manufacturing-based. This is in response to the dominance that regions outside the West have enjoyed in manufacturing in recent years due to lower worker wages. Companies such as IBM, who used to focus their attention on hardware and computer products, now offer services such as consulting as their main business.
Joint Ventures, Outsourcing and Partnering – Joint ventures and outsourcing are two strategies that can be used to help a company compete in a market where they either don’t have all the core competencies themselves, or they are too expensive. Partnering with other companies is an effective way to leverage the strengths of both organizations. Outsourcing can be a way to shift scope to another organization in order to realize cost reductions, take advantage of special capabilities, or shift risk. Partnering is sometimes achieved through joint ventures, and other times through acquisition.
Once a strategy has been established, it needs to be put into practice. This can be either in the form of permanent teams that take care of ongoing operations, or special teams organized to achieve a one-time objective. Regardless, teams need to be clear on their mandate, and be comfortable and competent at leading change.
The Strategic Planning domain covers topics that are critically important to organizations of every size and in every industry. When an organization is technical, engineering managers play a vital role in the formation and execution of the company’s strategy. Developing a strong sense of strategic management and the tools used to develop and implement strategy can be very beneficial to both the engineering manager and the organization as a whole.
About Patrick Sweet
Patrick Sweet, P.Eng., MBA is a recognized expert in engineering management and leadership with expertise in systems engineering, project management and product management. You can read more from Pat at the Engineering & Leadership blog.