What is Strategic Planning?
Strategic planning is defined as an organizational effort to lay out the mission goals and objectives for the company, with a typical time period of 2-5 years. A strategic plan takes into account the current state of affairs in the enterprise, wider legislation and business environment, company’s products, departments, profit /loss margins and budget distribution.
Strategic planning first entered business environments in the post-war period of the 1950s, and has been so effective that it is still widely used and applied across organizational spectrums, including non-profits.
While a strategic plan is the final outcome of the strategic planning process, here are the key factors and components that feed into creating this plan:
- Profitability and balance sheet management: For any business, profitability and the adjacent balance sheet management is and always should be a key factor to be taken into consideration during strategic planning, nvariant of the size of business. Both these factors are in fact co-dependent. For example, one of the key outcomes of a strategic plan is to set the revenue growth percentage to be achieved each year for, say, 3 years. This in turn will require evaluation of the balance sheet, including any debt payments, dividend payout, shareholder expectations etc.
Even if the business is a startup and is rich with investor cash to spend in acquiring customers in the short to medium term, it is still aspiring to be profitable and must lay out a larger strategic path to profitability.
- SWOT analysis outcomes: Strength, weaknesses, opportunities and threats – these are the outcomes and full terms of the abbreviated term, SWOT analysis. Strength refers to the business factors that indicate key factors that are contributing to the achievement of business outcomes. These may be factors related to sales, employee and talent retention, software stack, business efficiency etc. Similarly, weakness refer to factors that are holding back the growth and achievement of business outcomes, such as poor margins, lack of company data management, employee attrition etc.
Opportunity refers to areas in the business environment that the business can potentially explore. For example, one of the opportunities identified could be sales in a new market, implementing a better human resources management model, branching into new products and/ or services, etc.
- Operations management: Operations management pertains to the cohesive movement of all moving and communicating parts to produce the company’s products or services. While creating a strategic business plan, management needs to take into account how each department and team will need to interact with each other to produce the results desired as outcomes in the strategic plan. This includes ensuring the right technology stack needed for each team including communication and collaboration technology needed for remote and on-premise task execution.
4. Human resource management: Strategic planning involves taking into account all aspects HR and employee related spending and policies. One of the key aspects of a strategic plan must be to ensure a harmonious work experience for employees such that it increases employee retention and helps build an environment that enhances employee productivity and workplace satisfaction.
Importance and Benefits of Strategic Planning
A strategic plan is more than just a business tool, it also plays a key role in defining operational, cultural and workplace ethics. Here are some of the key aspects of the importance of strategic planning:
- Provides a unified goal
A strategic plan is like a unified action plan for the whole company in order to achieve common outcomes. For example, a strategic plan to achieve a certain revenue growth each year requires sales, account management, product development and marketing teams to work together to ensure a seamless lead pipeline, customer upsells and account retention, meet customer expectations etc.
- Adds to management transparency
Strategic planning is more than just for direct business growth, it also helps shine clarity to employees and shareholders as to what their mid-to-long term objectives are and how their actions are derived from these larger goals. Such a plan must always be referenced for citation and justification for key business moves and decisions to make it apparently justified and based in logic and reason. This also encourages team leads and employees to in-turn be more transparent with their team-members and peers with their plans and goals.
One of the issues most dreaded by investors and employees alike is a management that seems to take random decisions without any clear guidance on how they help meet requirements for the final business objectives or tackling the challenges of the day. A strategic plan helps build investor and employee confidence in the management and adds to build a culture of transparency in day-to-day business operations.
- Identifies hidden strengths and weaknesses
Many strengths and weaknesses in a company may be contributing, yet hidden factors in the path to meeting or hindering the meeting of business goals. A strategic plan’s primary input is a SWOT analysis of the company, which is conducted by auditing the firm to recognize and list strengths and weaknesses within the company. These may be a competitive product, a better monetization model, a weak employee incentive policy etc.
The important step here is the actual deep analysis and listing down of these strengths and weaknesses and how they can be leveraged or minimized.
- Leads to better financial health
A company with a clear strategic plan is able to better plan expenses and set right expectations on return-on-investment (ROI). It takes into account balance sheets, profitability, accounting and expense management, all of which contribute to better bookkeeping and financial health of the company.
- Improves management-employee relations
Employees and teams work in silos when the management works in silos. But when a company shares a strategic plan with employees and lays out exactly how each team will be working towards contributing to this larger plan, it gives each team and its members a sense of belonging and importance within the larger company, In today’s environment of hybrid or remote work cultures, it is a key step to ensuring that the company remains cohesive and collaborative in getting work done and meeting final objectives.
Strategic Planning Models
Strategic planning inputs may require one of many of the following business analysis models:
- SWOT analysis
SWOT analysis is the process and visual template for identifying and listing a company’s strengths, weaknesses, opportunities, and threats. These are cornerstone considerations for any leadership team and play a key role in the strategic planning process.
- Business model canvas
A business model canvas is a process used to identify and represent existing business models of an enterprise, and develop new models to better meet company goals and objectives. Like SWOT analysis, business model canvas is also a standard business template.
- PESTEL analysis
PESTEL is an abbreviation for political, economic, social, technological, environmental and legal, and PESTEL analysis aims to identify the impact of these external factors on a business.
- Cost-benefit analysis
A cost-benefit analysis is a method of evaluating an investment in the business based on the benefits it would bring to the table. This is a good method for ensuring a healthy financial balance sheet where spending and budgeting is carefully analyzed to ensure only those investments that bring back reasonable ROI.
- BCG Matrix
Most companies have 2 or more products/ services streams, or even 2 or more businesses. A BCG matrix is a visual process of managing an enterprise’s portfolio by prioritizing profitable companies with good market share and growth.
Strategic Planning Process: 6 Key Steps
An effective strategic planning process requires the following key steps:
- Identify core business objectives
Strategic planning begins with first identifying your business objectives- what does it produce? What does it do better than competition? What is the quality-profitability balance? These are examples of the questions that need to be asked to identify core business objectives. The strategic planning tools can be applied at any stage of the planning process to help answer these questions.
- Identify objectives of each department
Once the core business objective is ready, it needs to trickle down to an execution plan that involves each department. This in turn will result in breaking-down of the core objectives to smaller objectives for the teams. This needs to be laid out with clarity and precision since the team leaders will further use this team goal to assign individual targets for members.
- Identify potential road-blocks
Before formulating the final strategy, it is important to discuss it with relevant leaders in the company to ensure an error-free process that is achievable with minimal roadblocks. Ofcourse, as the execution work begins, the management should be flexible enough to absorb unforeseen and small issues which are inevitable. The goal here is to avoid any big boulders which may cripple the strategy at a later stage, such as data security, pricing estimations, hiring new employees or expansion to new departments/ teams, investment in new product development, mergers and acquisition plans etc.
- Formulate the final strategy
Once the objectives and goals have been scanned for potential roadblocks and alterations/ safeguards have been accommodated, this is the first draft of the final strategic plan for the company. This strategy may be applicable for the foreseeable future or have a specific deadline, it should however be pulled up for revision annually. For small companies or startups who have much to learn on the way, they need to keep an active eye on the larger strategy based on changing business realities.
- Re-evaluate based on feedback
Before you iron out the processes and policies that will enable the execution of the new strategic plan of the company, it is important to hear back from your employees. This doesn’t have to be every single employee, especially if you have a large team, but to the extent possible. You may at first discuss the strategy with team leaders, who if needed, may take it further down the chain to their own team members and absorb their feedback. Complete agreement may not be possible, but it is important that both sides remain flexible while discussions are on but must be prepared to execute once the discussions are over.
- Set or revise adjacent policies and processes
Now that the strategic plan for the business is complete and sealed, the leadership team needs to start the execution with necessary changes to the processes and policies as the need may be. This may need to include data management process changes, technology stack updates, issue escalation matrix etc. In some cases it may not require any change, and the right processes may already be in place with just a new direction based on the strategic plan.