What is a Strategic Plan?
Entrepeneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a business review or preparation of a strategic plan is a virtual necessity.
This may not be a recipe for success, but without it a business is much more likely to fail.
A sound plan should:
- Serve as a framework for decisions or for securing support/approval.
- Provide a basis for more detailed planning.
- Explain the business to others in order to inform, motivate & involve.
- Assist benchmarking & performance monitoring.
- Stimulate change and become building block for next plan.
A strategic plan should not be confused with a business plan. The former is likely to be a (very) short document whereas a business plan is usually a much more substantial and detailed document. A strategic plan can provide the foundation and frame work for a business plan.
A strategic plan is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan which is likely to be shorter term, tactical, focused, implementable and measurable. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters).
A satisfactory strategic plan must be realistic and attainable so as to allow managers and entrepreneurs to think strategically and act operationally.
Basic Approach to Strategic Planning
A critical review of past performance by the owners and management of a business and the preparation of a plan beyond normal budgetary horizons require a certain attitude of mind and predisposition.
Some essential points which should to be observed during the review and planning process include the following:
As the precursor to developing a strategic plan, it is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture.
Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived Strengths, Weaknesses, Threats and Opportunities. This then leads to strategy development covering the following issues discussed in more detail below:
A critical review of past performance by the owners and management of a business and the preparation of a plan beyond normal budgetary horizons require a certain attitude of mind and predisposition.
Some essential points which should to be observed during the review and planning process include the following:
- Relate to the medium term i.e. 2/4 years.
- Be undertaken by owners/directors.
- Focus on matters of strategic importance.
- Be separated from day-to-day work.
- Be realistic, detached and critical.
- Distinguish between cause and effect.
- Be reviewed periodically.
- Be written down.
As the precursor to developing a strategic plan, it is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture.
Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived Strengths, Weaknesses, Threats and Opportunities. This then leads to strategy development covering the following issues discussed in more detail below:
- Vision
- Mission
- Values
- Objectives
- Strategies
- Goals Programs
Key Steps towards a Strategic Plan
The preparation of a strategic plan is a multi-step process covering vision, mission, objectives, values, strategies, goals and programs.
The Vision
The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see (or sense)?" Consider its future products, markets, customers, processes, location, staffing etc.
Here is a great example of a vision:
I will come to Jakarta, which is the dream city for me. Once there, I will become the greatest newsreader in history. I will go into broadcast media as an anchor, producer and eventually director of the media.
By the time I am 30 I will have starred in my first distinguished news TV station and I will be a millionaire. I will spare for the orphans, collecting art and buy Hyundai H-1 replacing my Bimantara Nenggala. I will marry a glamorous and intelligent husband. By 32, I will have been invited to the house of representatives to dedicate my passion in politics, and preparing for my presidential election for the year 2004.
The Mission
The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas".
A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) - the former should be very hard-nosed while the latter can deal with 'softer' issues surrounding the business. The following table contrasts 'hard' and 'soft' mission statements.
The preparation of a strategic plan is a multi-step process covering vision, mission, objectives, values, strategies, goals and programs.
The Vision
The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see (or sense)?" Consider its future products, markets, customers, processes, location, staffing etc.
Here is a great example of a vision:
I will come to Jakarta, which is the dream city for me. Once there, I will become the greatest newsreader in history. I will go into broadcast media as an anchor, producer and eventually director of the media.
By the time I am 30 I will have starred in my first distinguished news TV station and I will be a millionaire. I will spare for the orphans, collecting art and buy Hyundai H-1 replacing my Bimantara Nenggala. I will marry a glamorous and intelligent husband. By 32, I will have been invited to the house of representatives to dedicate my passion in politics, and preparing for my presidential election for the year 2004.
The Mission
The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas".
A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) - the former should be very hard-nosed while the latter can deal with 'softer' issues surrounding the business. The following table contrasts 'hard' and 'soft' mission statements.
The Values
The next element is to address the Values governing the operation of the business and its conduct or relationships with society at large, customers, suppliers, employees, local community and other stakeholders.
The Objectives
The third key element is to explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long term.
Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business. These objectives could cover growth, profitability, technology, offerings and markets.
The Strategies
Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example:
The next element is to address the Values governing the operation of the business and its conduct or relationships with society at large, customers, suppliers, employees, local community and other stakeholders.
The Objectives
The third key element is to explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long term.
Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business. These objectives could cover growth, profitability, technology, offerings and markets.
The Strategies
Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example:
- The company's internal cash flow will fund all future growth.
- New products will progressively replace existing ones over the next 3 years.
- All assembly work will be contracted out to lower the company's break-even point.
- Use SWOTs to help identify possible strategies by building on strengths, resolving weaknesses, exploiting opportunities and avoiding threats.
The Goals
Next come the Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of $3m in three years time. Goals should be quantifiable, consistent, realistic and achievable. They can relate to factors like market (sizes and shares), products, finances, profitability, utilization, efficiency.
The Programs
The final elements are the Programs which set out the implementation plans for the key strategies. These should cover resources, objectives, time-scales, deadlines, budgets and performance targets.
It goes without saying that the mission, objectives, values, strategies and goals must be inter-linked and consistent with each other. This is much easier said than done because many businesses which are set up with the clear objective of making their owners wealthy often lack strategies, realistic goals or concise missions.
Next come the Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of $3m in three years time. Goals should be quantifiable, consistent, realistic and achievable. They can relate to factors like market (sizes and shares), products, finances, profitability, utilization, efficiency.
The Programs
The final elements are the Programs which set out the implementation plans for the key strategies. These should cover resources, objectives, time-scales, deadlines, budgets and performance targets.
It goes without saying that the mission, objectives, values, strategies and goals must be inter-linked and consistent with each other. This is much easier said than done because many businesses which are set up with the clear objective of making their owners wealthy often lack strategies, realistic goals or concise missions.
Use Hindsight when Strategic Planning
Statements on vision, mission, objectives, values, strategies and goals are not just elements of future planning. They also provide benchmarks for a historic review. Most managers will find it exceedingly difficult to develop a future strategy for a business without knowing its current strategies and measuring their success to date.
Assess Current Position
The starting point must be to determine a company's existing (implicit or explicit) vision, mission, objectives and strategies. Then judge these against actual performance along the following lines:
Is the current vision being realized?
How has the company's mission and objectives changed over the past say, three years?
Why have the changes occurred or why have no changes occurred?
Identify primary reasons and categorize them as either internal or external.
Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, technology, management etc.
Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as:
How has the company been managed?
How has the company been funded?
How has the company sought to increase sales and market share?
How have productivity/costs moved?
Take each element and quantify by reference to actual performance.
Ask of each "why not?", "why only?", or "why so?" and locate the reasons for differences between the actual and desired performance.
Drill Down
A useful technique for exploring performance shortfalls is to review the business's financial return and to drill down through the components of this return to locate and assess the key determinants of performance.
Statements on vision, mission, objectives, values, strategies and goals are not just elements of future planning. They also provide benchmarks for a historic review. Most managers will find it exceedingly difficult to develop a future strategy for a business without knowing its current strategies and measuring their success to date.
Assess Current Position
The starting point must be to determine a company's existing (implicit or explicit) vision, mission, objectives and strategies. Then judge these against actual performance along the following lines:
Is the current vision being realized?
How has the company's mission and objectives changed over the past say, three years?
Why have the changes occurred or why have no changes occurred?
Identify primary reasons and categorize them as either internal or external.
Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, technology, management etc.
Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as:
How has the company been managed?
How has the company been funded?
How has the company sought to increase sales and market share?
How have productivity/costs moved?
Take each element and quantify by reference to actual performance.
Ask of each "why not?", "why only?", or "why so?" and locate the reasons for differences between the actual and desired performance.
Drill Down
A useful technique for exploring performance shortfalls is to review the business's financial return and to drill down through the components of this return to locate and assess the key determinants of performance.
Effect not Equal to Cause when Planning Strategy
When reviewing a business it is essential to cut through the symptoms of problems and reach the underlying causes. Questions which can assist in revealing the real causes include the following:
"What stopped the business from?"
"What caused the cause of?"
"Why didn't the business achieve a 25% return?"
By way of an example consider why this company may be unable to increase its market share:
Because it cannot penetrate major customers because its product range is too narrow because the company doesn't have the capability to produce additional products because of shortcomings in R & D because of a lack of expertise and resource because R & D is not an immediate priority because of a lack of profits because of a high interest burden because the company is over-reliant on borrowings because the shareholders won't/can't raise additional permanent capital.The moral in this case is that there are no major customers due to under-capitalization !
"What stopped the business from?"
"What caused the cause of?"
"Why didn't the business achieve a 25% return?"
By way of an example consider why this company may be unable to increase its market share:
Because it cannot penetrate major customers because its product range is too narrow because the company doesn't have the capability to produce additional products because of shortcomings in R & D because of a lack of expertise and resource because R & D is not an immediate priority because of a lack of profits because of a high interest burden because the company is over-reliant on borrowings because the shareholders won't/can't raise additional permanent capital.The moral in this case is that there are no major customers due to under-capitalization !
SWOTs - Keys to Business Strategies
Having built up a picture of the company's past aims and achievements, the all-important SWOT (strengths, weaknesses, opportunities and threats) analysis can commence.
Strengths & Weaknesses
Strengths and weaknesses are essentially internal to the organization and relate to matters concerning resources, programs and organization in key areas. These include:
Sales - marketing - distribution - promotion - support;
Management - systems - expertise - resources;
Operations - efficiency - capacity - processes;
Products - services - quality - pricing - features - range - competitiveness;
Finances - resources - performance;
R&D - effort - direction - resources;
Costs - productivity - purchasing;
Systems - organization - structures.
If a startup is being planned, the strengths and weaknesses are related mainly to the promoter(s) - their experience, expertise and management abilities - rather than to the project.
The objective is to build up a picture of the outstanding good and bad points, achievements and failures and other critical features within the company.
Threats & Opportunities
The external threats and opportunities confronting a company, can exist or develop in the following areas:
Having built up a picture of the company's past aims and achievements, the all-important SWOT (strengths, weaknesses, opportunities and threats) analysis can commence.
Strengths & Weaknesses
Strengths and weaknesses are essentially internal to the organization and relate to matters concerning resources, programs and organization in key areas. These include:
Sales - marketing - distribution - promotion - support;
Management - systems - expertise - resources;
Operations - efficiency - capacity - processes;
Products - services - quality - pricing - features - range - competitiveness;
Finances - resources - performance;
R&D - effort - direction - resources;
Costs - productivity - purchasing;
Systems - organization - structures.
If a startup is being planned, the strengths and weaknesses are related mainly to the promoter(s) - their experience, expertise and management abilities - rather than to the project.
The objective is to build up a picture of the outstanding good and bad points, achievements and failures and other critical features within the company.
Threats & Opportunities
The external threats and opportunities confronting a company, can exist or develop in the following areas:
- The company's own industry where structural changes may be occurring (Size and segmentation; growth patterns and maturity; established patterns and relationships, emergence/contraction of niches; international dimensions; relative attractiveness of segments)
- The marketplace which may be altering due to economic or social factors (Customers; distribution channels; economic factors, social/demographic issues; political & environmental factors)
- Competition which may be creating new threats or opportunities (Identities, performances, market shares, likely plans, aggressiveness, strengths & weaknesses)
- New technologies which may be causing fundamental changes in products, processes, etc. (Substitute products, alternative solutions, shifting channels, cost savings etc.) Against an uncertain and shifting background, the objective must be to identify and prioritize the key SWOTs in a one-handed manner
Develop Business Strategies
Once the SWOT review is complete, the future strategy may be readily apparent or, as is more likely the case, a series of strategies or combinations of tactics will suggest themselves.
Use the SWOTs to help identify possible strategies as follows:
Build on strengths
Resolve weaknesses
Exploit opportunities
Avoid threats The resulting strategies can then be filtered and moulded to form the basis of a realistic strategic plan.
Once the SWOT review is complete, the future strategy may be readily apparent or, as is more likely the case, a series of strategies or combinations of tactics will suggest themselves.
Use the SWOTs to help identify possible strategies as follows:
Build on strengths
Resolve weaknesses
Exploit opportunities
Avoid threats The resulting strategies can then be filtered and moulded to form the basis of a realistic strategic plan.
Simple & Short Strategic Plans
Notwithstanding that "battles are often lost for want of nails", a company rarely succeeds or fails for minor or trivial reasons.
The causes are usually substantial and are often self-evident, at least to an outsider. For example, the business was completely over-borrowed; management was weak; a major new product opportunity was identified; legislation changed; a major competitor went bust or expanded; the company never reinvested.
It should be possible in the course of a few pages to set down the main elements of a business's vision, mission, values, objectives, goals, strategies, SWOTs etc. The compilation of a short report along these lines is likely to prove much more difficult than a lengthy dissertation which mixes up details and principles, and confuses the broad picture.
Independent advisers or non-executive directors can play a valuable role in this process because they can readily adopt the role of devil's advocate and also bring external knowledge and expertise to bear.
Notwithstanding that "battles are often lost for want of nails", a company rarely succeeds or fails for minor or trivial reasons.
The causes are usually substantial and are often self-evident, at least to an outsider. For example, the business was completely over-borrowed; management was weak; a major new product opportunity was identified; legislation changed; a major competitor went bust or expanded; the company never reinvested.
It should be possible in the course of a few pages to set down the main elements of a business's vision, mission, values, objectives, goals, strategies, SWOTs etc. The compilation of a short report along these lines is likely to prove much more difficult than a lengthy dissertation which mixes up details and principles, and confuses the broad picture.
Independent advisers or non-executive directors can play a valuable role in this process because they can readily adopt the role of devil's advocate and also bring external knowledge and expertise to bear.
Using the Strategic Planning Worksheet
When using the Strategic Planning Worksheet, note the following suggestions:
Relate the planning exercise to a specific company or, if diversified, to individual strategic business units.
Ideally the worksheet should be compiled by a multi-discipline management group, or separately by 2/3 groups and then discussed in plenary session if a large business unit is involved.
If working on your own, complete the worksheet and then return to it a few times over the following few days and critically review what you wrote - why, why, why etc. and ask yourself whether you have seen the "wood for trees".
A completed worksheet should be edited down into a 1-2 page document and reviewed by the group(s). The final form of the document need not follow the worksheet's layout provided all the matters are covered.
All ideas, issues etc. should be internally consistent and realistic.
You need a very good understanding of the market, competitors etc. in order to make a clear assessment of your SWOTs. If you haven't got this insight, suspend work on your strategic plan until you have done this basic research. Allow enough time as you may find it much more difficult to write a short plan than a long one !!!!
When using the Strategic Planning Worksheet, note the following suggestions:
Relate the planning exercise to a specific company or, if diversified, to individual strategic business units.
Ideally the worksheet should be compiled by a multi-discipline management group, or separately by 2/3 groups and then discussed in plenary session if a large business unit is involved.
If working on your own, complete the worksheet and then return to it a few times over the following few days and critically review what you wrote - why, why, why etc. and ask yourself whether you have seen the "wood for trees".
A completed worksheet should be edited down into a 1-2 page document and reviewed by the group(s). The final form of the document need not follow the worksheet's layout provided all the matters are covered.
All ideas, issues etc. should be internally consistent and realistic.
You need a very good understanding of the market, competitors etc. in order to make a clear assessment of your SWOTs. If you haven't got this insight, suspend work on your strategic plan until you have done this basic research. Allow enough time as you may find it much more difficult to write a short plan than a long one !!!!
Contents of the Strategic Plan
- Assess the business's EXISTING strengths, weaknesses, threats and opportunities:(Strengths & Weaknesses are internal to the business and Opportunities & Threats are external. All SWOTs should be 'one-handed' - something is either a Strength or a Weakness but cannot be both. Enter up to six items under each heading and then rank them in order of importance. If you are planning a new business, consider the project's and its promoters' existing SWOTs):
- Vision of business in 3/4 years time:(What will the business look like? If a visitor from Mars dropped in what would be seen and evident. Write in future tense. Maximum of 150 words).
- Mission/purpose statement for business to cover next 3/4 years:(What will the business really, really be doing? What activities will it perform, where, how etc.? What makes the business special/competitive? Every noun, adjective and verb in the statement is important and must be justified. Maximum of 150 words)
- Statement of corporate values and beliefs:(Covers employees, customers, environment etc. etc. Maximum of 150 words)
- Set out key long-term objectives:(These are the primary underlying reasons for being involved in the business, and are not specific targets - these come later).
- Identify key strategies for business and major functional areas:(Build on strengths, resolve threats, exploit opportunities and avoid threats. Add any new dimensions revealed by Vision and Mission. List and prioritize up to ten or so major strategies.
- Assess possible FUTURE strengths, weaknesses, threats and opportunities:(Do the foregoing strategies improve the initial SWOTs? If they don't, then they should have done so).
- Review your vision, mission, values and objectives:(Refine and revise/restate key strategies to deal with the perceived FUTURE SWOTs).
- Specify major goals achievable over the next 3/4 years:(Quantify in terms of sales, market shares, finances, operations etc.)
- Define strategic action programs:(Indicate who, what, where, when, how etc. Set targets and prioritize)
Next Steps in Developing a Strategic Plan
If you have prepared a strategic plan along the lines suggested above, you have several possible pathways. These include the preparation of a full-blown business plan, compilation of financial projections, undertaking market research, product development, management team-building etc.
If you have prepared a strategic plan along the lines suggested above, you have several possible pathways. These include the preparation of a full-blown business plan, compilation of financial projections, undertaking market research, product development, management team-building etc.
