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CHAPTER 2 What Is Strategic Planning? 2.1 Definition In general terms, strategic planning is defined as the process undertaken by an organization to define its future and formulate a road map to guide the organization from its current state to its vision for the future.1 Strategic planning is based on the fundamental concept that aspects of an organization's future can be influenced by actions taken in the present. Strategic planning requires a review of existing and potential challenges that an organization is, or may be, facing; develop- ment of a vision for how the organization will look in the future; and definition of the steps and actions that must be executed to achieve the organization's vision. Exhibit 2-1 illustrates some key questions that need to be answered during the strategic planning process. The strategic planning framework includes the following key elements: A mission statement that identifies the organization's purpose and its core values (a separate values statement may also be created); A vision statement that portrays the organization's future goal(s); Identification of the organization's strengths, weaknesses, and opportunities, as well as threats that may affect the organization; Definition of strategic issues that must be addressed over the course of the strategic plan; A set of generic and grand strategies, long- and short-term objectives, and action plans that provide a road map for addressing the gaps between the organization's current state and its vision; and Definition of key performance indicators (measures and targets) to evaluate the progress made toward achieving long- and short-term objectives. 2.2 The Airport Strategic Planning Framework Over the years, corporations, nonprofit organizations, academic institutions, and governmen- tal entities have tailored the strategic planning framework to fit their specific needs. While certain publications have addressed airport strategic planning at a conceptual level, no "how-to" guide- book has been developed specifically to assist airport operators with the strategic planning process. In light of this deficiency, the research team has reviewed the models developed by others and con- ducted focus groups and an online survey to gather input from airport executives and industry professionals. This information was used to develop a process that is specifically applicable to an airport setting. 1 This preferred definition of strategic planning was corroborated by respondents to the online survey conducted as part of this research. 6

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What Is Strategic Planning? 7 atio n , Ou r C o m p etiti r g a niz o n, O ur O and the s of En ic O ur C ha r tere d Mis si ist at is v ir er Wh on? on ct m a ar en O rg a n i z a t i o n t o Ch O ur ti Loo nt nW Wa ki ue e nt niq he hic W o e to Acco m eU Don hW D Fu Be p li w re th tu sh Ho eO to re ? s Ou perat W h at A ed rV Ne isio e? W hat What Challenges Might We Face? n? Present Future Organization's Mission Organization's Vision Exhibit 2-1. Strategic planning process--key questions. Strategic planning for airports consists of more than just ensuring the safety and security of the traveling public and achieving a strong financial performance. In the case of either a single airport or a multiple-airport system, strategic planning for airports projects a future vision for the airport orga- nization, determines strategies and objectives for the growth or prosperity of the organization (includ- ing the type of products and services it should provide), and defines how the vision and objectives can be accomplished. 2.2.1 Elements That Influence the Process The primary product offered by all airports is an infrastructure system and transportation hub that facilitates the safe and efficient movement of people and goods traveling from "Point A" to "Point B." The product evolves over time, but its purpose essentially remains the same. Similarly, airlines offer a comparable product (i.e., they transport passengers from their origin [Point A] to their destination [Point B]). But airlines such as Southwest Airlines and JetBlue Air- ways have proven that product differentiation is possible, even for companies that offer a compa- rable product. Southwest Airlines, which typically focuses on point-to-point service to midsize cities and secondary airports in larger metropolitan areas, offers limited amenities and few addi- tional service fees and primarily serves price-sensitive travelers. JetBlue Airways has placed itself in a different strategic position by offering upscale amenities (including assigned seating, real-time television, and a choice of snacks) and a somewhat more hub-and-spoke-focused route network while also serving price-sensitive travelers. Over the years, airport organizations have also sought product differentiation. Vancouver International Airport, for instance, has been reinvented from a regional airport serving the local community to a gateway airport connecting the Asia-Pacific Region, North America, Europe, and Latin America. This transformation occurred following the 1992 transfer of airport management and operational authority from the Canadian government (Transport Canada) to a not-for-profit corporation (Vancouver International Airport Authority). The airport's simple strategic planning "formula" for product differentiation is: "Low Cost High Service = Excellent Customer Value."2 2 Vancouver International Airport Authority, Strategic Plan, http://www.yvr.ca/pdf/authority/yvr_strategicplan.pdf (accessed May 28, 2009).

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8 Strategic Planning in the Airport Industry Other airport operators differentiate their airports by focusing on unique products and ser- vices that competing airports do not provide. General aviation airports have offered services ranging from low-cost hangars to full-service fixed base operations. Diverse service offerings ranging from wine bars and day spas to flexible gate use policies have been developed at com- mercial service airports. Thus, strategic planning in an airport setting is possible, but many factors, including product differentiation, influence the process. Some of these factors are similar to those that apply to cor- porations and nonprofit organizations, while others are specific to the airport industry. When planning strategically, airport management solicits the opinions of a diverse group of stakeholders. Stakeholder roles in the process are generally diverse as well. Corporations and non- profit organizations also involve a variety of stakeholders in executing their strategic plans, but the airport strategic planning process includes added representation from the local community, such as local government, business and community leaders, and local public interest organiza- tions. This stakeholder diversity is highlighted in Exhibit 2-2. Airports serve a broad and diverse group of customers that consists of two key categories: air- port tenants (airlines, concessionaires, fixed base operators [FBOs], air cargo operators, and other airport business owners) and passengers (meeters/greeters and well-wishers, and other businesses or individuals that are users of, or dependent on, the airport). Governing entities must account for the needs and priorities of these customers when defining a vision for their airports. In contrast to corporations, airports serve the community at large and generally are economic development engines for the communities they serve. Airport operators must be responsive to the needs of both their customers and communities. While the management team of a corporation or nonprofit organization can decide what type of customers it wants to serve, the same cannot typi- cally be said for airports. Furthermore, local entities may be able to make operational and devel- opment decisions based on local needs and priorities that affect an airport's future. In contrast, communities typically have less control over a corporation's operations. The competitive environment in which airports operate is not consistent. In some instances, competition comes from other airports located in close proximity or from an airport that offers better service or pricing options. In other instances, more applicable to connecting hub airports, an airline's consolidation strategies may result in competition for new service opportunities among the airports in the airline's hub network. In addition, other modes of transportation and economic factors, such as the cost of fuel, affect the competitive environment for airports. Strategic planning in the airport industry is challenging because the aviation industry is contin- ually changing. Engaging in structured and thoughtful speculation about what the future may hold is complex. Events such as airline bankruptcies and restructuring, economic slowdowns, the intro- duction of new regulatory requirements, the emergence of low-cost carriers, or the consolidation of airlines through mergers force airport governing entities to constantly rethink how they do busi- ness and how to maintain flexibility and adaptability. Almost two-thirds of the respondents to the online survey conducted in this research stated that they try to account for the myriad of events that may influence their organization's future as part of the strategic planning process. Strategic planning also requires consideration of the airport regulatory environment. While planning for the future, trying to match capacity with the demand for airline service, and meeting the needs of airport tenants and users and the public at large, airport operators must ensure that they satisfy the regulatory requirements imposed by federal, state, and local agencies. Agencies of particular relevance to the airport industry are the Federal Aviation Administration (FAA) and the Department of Homeland Security (DHS), including both the Transportation Security Adminis- tration (TSA) and U.S. Customs and Border Protection (CBP). In addition, airports are required

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What Is Strategic Planning? 9 INTERNAL BOARD OF DIRECTORS/POLICY MAKERS SENIOR MANAGEMENT TEAM DEPARTMENT LEADERS AIRPORT STAFF STRATEGIC PLANNING PROCESS STAKEHOLDERS AIRLINES OTHER AIRPORT TENANTS PASSENGERS VENDORS FEDERAL/STATE/REGIONAL/LOCAL GOVERNMENT REPRESENTATIVES FEDERAL AVIATION ADMINISTRATION (FAA) & U.S. DEPARTMENT OF TRANSPORTATION (U.S. DOT) DEPARTMENT OF HOMELAND SECURITY (DHS) STATE AND LOCAL REGULATORY AGENCIES NON-GOVERNMENTAL/PUBLIC INTEREST ORGANIZATIONS LOCAL BUSINESS/COMMUNITY LEADERS EXTERNAL Note: Stakeholders that should actively participate in the strategic planning process should be differentiated from those that will be consulted as part of the process on a case-by-case basis. Exhibit 2-2. Stakeholders in the strategic planning process.

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10 Strategic Planning in the Airport Industry N G ACTIVIT P LA N NI I ES PRE VALU ES, A N D EN STRATEGIC PLANNING S ION, VIR , VI O NM ON FRAMEWORK SI A ND L E A DI N EN IS S T M IS SUE GS TR IC AT EG E AT TI V E S A N D A G R JE C CT I OB IO ES ST C N FI P CE AND EV I AN LA EC A LU M NS SP R O AT RF IO PE N Exhibit 2-3. The airport strategic planning process framework. to comply with various state and local regulations that protect airports and the surrounding com- munities from incompatible development, define airport design and construction standards, and provide environmental guidelines. Respondents to the online survey indicated that the reporting and regulatory environment of airports is what most differentiates formulating a strategic plan for an airport from formulating a strategic plan in other industries. In addition, strategic planning in an airport setting is influenced by the "uniqueness" of airports, with the operation of each airport differing from that of any other. Airports vary in size, location, type of operations and passengers that they accommodate, and governing structure, among other factors. Each airport organization also has its own values and culture. Such uniqueness makes it difficult to benchmark airport organizations.3 Because of this uniqueness, the airport strategic plan- ning process must be tailored to each airport to account for its individual characteristics. 2.2.2 The Airport Strategic Planning Process The airport strategic planning process begins with preplanning activities. The strategic plan- ning process then proceeds to assessment and development of (1) the organization's historical context, mission, vision, and core values; (2) the internal and external environment in which the organization operates; (3) the organization's strategic issues and strategies for creating competi- tive advantage; (4) specific long- and short-term objectives and action plans that must be imple- mented for the organization's vision to be successfully achieved; and (5) an evaluation plan using key performance indicators and targets. The framework of the strategic planning process is high- lighted in Exhibit 2-3. The airport strategic planning process can also be segmented into four main phases: (1) pre- planning, (2) analysis/evaluation, (3) implementation/execution, and (4) monitoring. Many of the steps within these phases are common to all airport strategic plans irrespective of airport size or the type of airport being considered. However, the amount of data to be collected, reviewed, and analyzed, as well as the outcomes of the process, will vary depending on the airport organi- zation's size and complexity, the amount of time and the level of effort invested in the strategic planning process, and the number of stakeholders involved in the process. 3 Despite the difficulty of benchmarking, 68 percent of respondents to the online survey stated that their organization was engaged in some form of benchmarking.

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What Is Strategic Planning? 11 Similar to the strategic planning process for other types of organizations, the airport strategic planning process is dynamic and continuous. Airport strategic planning is a classic example of a "wicked problem," or a "problem that has innumerable causes, morphs constantly and has no cor- rect answer."4 Wicked problems require (1) broader participation of parties affected either directly or indirectly by planned outcomes and (2) gathering a broad spectrum of data from a large and diverse range of sources.5 It should be noted that, in an airport setting, the strategic planning process typically incorporates elements of a "bottom-up" approach, in which stakeholder needs and wishes are considered and consensus among different interest groups is achieved to the extent possible. A change in the environment in which an airport operates may necessitate a change in various elements of the strategic plan. The process is perpetual, and the organization's strategic plan is fre- quently updated to align its key objectives, performance measures, and targets with the environ- ment and uncertainties that arise. A flow chart of the steps to be taken in each of the four main phases of the airport strategic planning process is presented in Exhibit 2-4. The first, or preplanning, phase establishes the pur- pose and method for undertaking the strategic planning process. This phase includes identifica- tion of the need and reasons for developing the strategic plan, an assessment of the organization's readiness to participate in strategic planning activities, development of the scope and schedule for the planning process, identification of planning team members and the roles that other stake- holders should play in the process, and determination of whether there is a need to select an external facilitator. The analysis/evaluation phase develops the airport organization's mission, vision, and values statements. This phase also includes an evaluation of the historical context and culture of the orga- nization and a scan of the environment in which the organization operates, including a review of the organization's internal strengths and weaknesses and external threats and opportunities. The findings of these evaluations and reviews provide a means for the organization to assess and ana- lyze critical gaps between current performance and established vision. The review of the critical gaps may also lead the organization to reassess its vision so that it is harmonized with the organi- zation's internal strengths and weaknesses and is adaptable to a range of future environments in which the organization may operate. The implementation/execution phase provides the vital link between an organization's mission and vision, resulting in the formulation and communication of strategies and objectives that must be implemented for the vision to become reality. In this phase, strategic issues are identified, generic and grand strategies are developed, and long- and short-term objectives are set, prioritized, assigned, and implemented throughout the entity's organizational structure. The process for formulating objectives includes weighing resource requirements (e.g., capital and personnel) against the poten- tial benefits that may result from achievement of the objective. Formulation of an action plan for each short-term objective guides the day-to-day activities of staff at the departmental level. The implementation/execution phase also includes determining how to best communicate the content of the strategic plan to stakeholders and developing key performance measures and tar- gets for each of the objectives set in the strategic planning process. Key performance indicators are used to measure and evaluate incremental performance improvement and the achievement of objectives established through the strategic planning process. This phase also includes imple- mentation of an incentives/rewards program to ensure that individual performance is linked to 4 John C. Camillus, "Strategy as a Wicked Problem," Harvard Business Review, 86 (2008): 98101. 5 Harry T. Dimitriou and Robin Thompson, Strategic Planning for Regional Development in the UK (Abingdon, UK: Routledge/ Taylor & Francis Group, 2007).

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12 Strategic Planning in the Airport Industry Identify the Need and Reasons for Developing a Strategic Plan Assess the Organization's Readiness for Strategic Planning Define the Scope of the Process and a Schedule for Planning Activities PREPLANNING Identify the Planning Team Determine the Stakeholders That Should Participate in the Process and Their Roles Evaluate and Understand the Organization Articulate Mission, Vision, and Values ANALYSIS/EVALUATION Scan the Environment and Predict Developments Analyze Critical Gaps and Reassess the Vision Identify Strategic Issues Determine Generic and Grand Strategies Set Long-term Objectives, Formulate Short-term Objectives, and Create Action Plans IMPLEMENTATION/ Determine How to Communicate the Strategic Plan to Stakeholders EXECUTION Define Deadlines and Responsibilities Select Key Performance Measures and Targets Implement Incentives/Rewards Programs Create Training and Development Programs Decide Who Should Be Responsible for Monitoring Implementation Determine How Frequently Implementation Status Should Be Monitored and How Results Should Be Reported MONITORING Establish a Process for Conducting Periodic Reviews of Implementation of the Strategic Plan Objectives and for Modifying the Strategic Plan When Necessary Exhibit 2-4. Four phases of the airport strategic planning process. organizational performance and creation of training and development programs to ensure proper implementation of the plan. Monitoring, although listed as the final phase in the planning process, needs to occur through- out the process. In this phase, the key performance indicators defined during the implementation/ execution phase are monitored to assess the effectiveness of the strategic plan and the need for any adjustments. The steps and considerations required to complete these four phases are the subject of this Guidebook and are discussed in detail in the remaining chapters. The definition and development

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What Is Strategic Planning? 13 of these steps is based on a review of relevant literature, research conducted for this project, pub- lished practical guidance, and previously implemented techniques. The strategic planning process generally results in the development of one key document, the strategic plan, which can be accompanied by a communications plan and a monitoring plan. Key inputs to the process include internal and external stakeholder views, information relative to the organization's competition and internal strengths and weaknesses, key industry trends, and exist- ing constraints that are likely to impact the organization's future. Exhibit 2-5 graphically depicts the inputs and outputs of the strategic planning process. The strategic plan, the communications plan, and the monitoring plan constitute the main outputs of the process. A comparison of the con- tents included in the interrelated plans is provided below: A strategic plan provides a high-level statement of strategic directions and priorities. The strate- gic plan generally includes generic and grand strategies, long- and short-term objectives, an action plan that defines what needs to be accomplished and who is responsible for each action, and corresponding expected results or performance targets. The strategic plan serves as the basis of comparison for the monitoring plan. A communications plan establishes the processes for (1) gathering feedback/input from stake- holders and informing all stakeholders of the progress of the strategic planning process and (2) distributing the strategic plan to stakeholders. The first part of the communications plan is developed during the preplanning (first) phase of the strategic planning process and the second part is developed during the implementation/execution (third) phase. A communications plan sets the rules to ensure that communication is maintained among the various individuals or enti- ties involved in the planning process and maximizes opportunities to engage all stakeholders. Development of a communications plan as part of the strategic planning process is particularly relevant for organizations that interact and collaborate with many stakeholders. A monitoring plan details how to evaluate implementation of the strategic plan and helps ensure that the organization is following the action plan established during the strategic planning process. Management generally benefits from the monitoring process by learning how its orga- nization reacts to specific events. The process helps "trigger" needed adjustments to the strate- gic plan to effectively respond to unanticipated events or business opportunities. Monitoring of strategic plan implementation also allows management to document the evolution of the orga- INPUTS OUTPUTS Internal and External Stakeholder Views Strategic Plan Mission and Vision Statements Competition Information Strategic and Objectives Internal Performance Action Plans and Responsibility STRATEGIC Assignments Industry Trends PLANNING PROCESS Key Performance Indicators and Targets Existing Constraints (environmental, operational, financial) Communications Plan Monitoring Plan Exhibit 2-5. Inputs and outputs of the strategic planning process.