A strategic plan should not be confused with a business plan. A business plan is about setting short or mid-term goals and defining the steps necessary to achieve them. A strategic plan is typically focused on mid to long-term goals and explains the basic strategies for achieving them.
The purpose of strategic planning
The purpose of strategic planning is to set overall goals for your business and to develop a plan to achieve them. It involves stepping back from your day-to-day operations and asking where your business is headed and what its priorities should be.
Strategic planning and growing businesses
Taking the decision to grow a business means embracing the risks that come with growth. Spending time on identifying exactly where you want to take your business - and how you will get there - should help you manage those risks and take charge of the growth process.
As your business becomes larger and more complex, strategy formulation will need to become more sophisticated.
To do this, you might want to start collecting and analysing a wider range of information about your business - both about how it operates and about how conditions are developing in your current and potential markets.
The difference between strategic planning and writing a business plan
The process of strategic planning is about determining the direction in which you want to take your business. By contrast, the purpose of the business plan is to provide the detailed route map that will take you in your desired direction.
Effective strategy development requires a shift in focus from day-to-day concerns to your broader and longer-term business options.
The three key elements of strategic planning
Developing a strategy for business growth requires you to deepen your understanding of the way your business works and its position relative to other businesses in your markets. As a starting point, you need to ask yourself the following three questions:
- Where is your business now? This involves understanding as much about your business as possible, including how it operates internally, what drives its profitability, and how it compares with competitors. Be realistic, detached and critical.
- Where do you want to take it? Here you need to set out your top-level objectives. Work out your vision, mission, objectives, values, techniques and goals. Where do you see your business in five or ten years? What do you want to be the focus of your business and your source of competitive advantage over your rivals in the marketplace?
- What do you need to do to get there? What changes will you need to make to deliver on your strategic objectives? What is the best way of implementing those changes? What changes to the structure and financing of your business will be required and what goals and deadlines will you need to set for yourself and others in the business?
While the second question is at the heart of the strategic planning process, it can only be considered usefully in the context of the other two.
You should balance your vision for the business against the practical realities of your current position. You need to take into account the implications of any changes, such as increased investment in capital and other resources. A strategic plan needs to be realistically achievable.
Getting started with strategic planning
As with any business activity, the strategic planning process itself needs to be carefully managed. Responsibilities and resources need to be assigned to the right people and you need to keep on top of the process.
Who to involve
Try to find people who show the kind of analytical skills that successful strategic planning depends upon. Try to find a mix of creative thinkers and those with a solid grasp of operational detail.
Don't try to do it all yourself.
Take on board the opinions of other staff - key employees, accountants, department heads, board members - and those of external stakeholders, including customers, clients, advisers and consultants.
How to structure the process
There is no right or wrong way to plan the process of strategic planning, but be clear in advance about how you intend to proceed. Everyone involved should know what is expected of them and when.
Consider holding a series of weekly meetings/workshops with a strategy team before delegating the drafting of a strategy document to one of its members. Or you might decide to hold strategy brainstorming sessions - which might involve seeking contributions from a broader range of employees and even key customers.
Getting the planning document right
It's important to get the process right. But don't neglect the outcome - it's also important to make sure you capture the results in a strategic planning document that communicates clearly to everyone in your business what your top-level objectives are. Such a document should:
- reflect the consensus of those involved in drafting it
- be supported by key decision-makers, notably owners and investors
- be acceptable to other stakeholders, such as your employees
Build your plan on solid strategic analysis
Strategic planning is about positioning your business as effectively as possible in the marketplace. So you need to make sure that you conduct a thorough analysis of both your business and your market.
There are a range of strategic models that you can use to help you structure your analysis.
A SWOT analysis identifies the internal and external factors that are favourable and unfavourable to achieving a business goal:
- Strengths - attributes of the business that can help achieve the objective
- Weaknesses - attributes of the business that could be obstructive to achieving the objective
- Opportunities - external factors that could be helpful in achieving the objective
- Threats - external factors that could be obstructive to achieving the objective
PESTLE breaks the business environment down into the following components:
- Political - e.g. changes to taxation, trading relationships or grant support for businesses
- Economic - e.g. interest rates, inflation and changes in consumer demand
- Social - e.g. demographic trends or changing lifestyle patterns
- Technological - e.g. the emergence of competing technologies or productivity-improving equipment for your business
- Legal - e.g. changes to employment law or to the way your sector is regulated
- Environmental - e.g. changing expectations of customers, regulators and employees on sustainable development
The Five Forces model aims to help businesses assess how competitive a market is. The model looks at:
- your customers' bargaining power - the higher it is (perhaps because there is a small number of major buyers for your product or service) the more downward pressure on prices and revenue they will be able to exert
- your suppliers' bargaining power - the ability of suppliers to push prices up (for instance if you rely on a single firm) can impact significantly on costs and profitability
- the threat of new competitors entering your market or industry - more businesses competing makes it more difficult to retain market share and maintain price levels
- the threat of customers switching to newer products and services
- the level of competition between businesses in the market - including the number and relative strength of the businesses and the cost to customers of switching between them
What a written strategic plan should include
There is no set blueprint for how to structure a strategic plan, but it is good practice to include the following elements:
- Analysis of internal drivers - corresponding to the strengths and weaknesses of a SWOT (strengths, weaknesses, opportunities and threats) analysis.
- Analysis of external drivers - this should cover factors such as market structure, demand levels and cost pressures, all of which correspond to the opportunities and threats element of a SWOT analysis.
- Vision statement - a concise summary of where you see your business in five to ten years' time.
- Top-level objectives - these are the major goals that need to be achieved in order for your vision for the business to be realised. These might include attracting a new type of customer, developing new products and services, or securing new sources of finance.
- Implementation - this involves setting out the key actions (with desired outcomes and deadlines) that will need to be completed to attain your top level objectives.
- Resourcing - a summary of the implications your proposed strategy will have on your business' resources. This will reflect financing requirements, as well as factors such as staffing levels, premises and equipment.
You may also want to consider using a framework for this process. For example, The Business Model Canvas allows you to describe, design, challenge, and pivot your strategy. It works in conjunction with the Porter's Five Forces and other strategic management and execution tools and processes.
Strategic planning and ownership
Growing a business can pose some considerable personal challenges to the owner or manager, whose role can change dramatically as the business grows.
Effective strategic planning involves challenging the way that business has been done up to this point. It may be that decision-making in some areas will be handed to others, or that processes which have worked well in the past will no longer fit with future.
It can be tempting for owners or managers to overlook alternatives that are uncomfortable for them personally. However, utilising the options open to you will underpin the healthy growth of your business.
Examples of issues that tend to get overlooked by growing businesses include:
- The future role of the owner - for example, it may be in the best interests of the business for the owner to focus on a smaller number of responsibilities, or to hand over control to someone with greater experience.
- The location of the business - most small businesses are located close to where the owner lives. But as a business grows it may make sense to relocate the business to be closer to greater numbers of customers or skilled employees.
- Ownership structure - growing businesses in particular should ensure that they get this right. The more a business grows, the more sophisticated it needs to be about meeting its financing needs. In many cases, the best option is for the owner to give up a share of the business in return for equity finance - but this can be emotionally difficult to do.
It is the owner of the business who decides the strategic plan. Growing a business is not something done 'at all costs'. However, an honest assessment of the options allows for any decisions made to be as informed as possible.
Implementing a strategic plan
The strategic plan needs to be implemented, which is a process that requires careful planning. The key to implementing objectives identified in the strategic plan is to assign goals and responsibilities with budgets and deadlines to responsible owners - key employees or department heads, for example.
Monitoring the progress of implementation and reviewing it against the strategic plan will be an ongoing process. The fit between implementation and strategy may not be perfect from the outset and you may find it necessary to tweak your plans as you progress.
Monitoring implementation is the key. Using key performance indicators (KPIs) and setting targets and deadlines is a good way of controlling the process of introducing strategic change.
Your business plan is another important tool in the implementation process. The business plan is typically a short-term and more concrete document than the strategic plan and it tends to focus more closely on operational considerations such as sales and cashflow trends. If you can ensure that your strategic plan informs your business plan, you'll go a long way to ensuring its implementation.
Remember that strategic planning can involve making both organisational and cultural changes to the way your business operates.
Use this quick, interactive benchmarking tool to compares the relative size and performance of your business to others in the area/ sector.
Techniques that help you understand your competitive environment; identify the options open to you; set strategic priorities; deliver your strategy; and work intelligently in areas like purchasing, marketing, operations, and manufacturing.