The Role of Strategic Planning in Building Business Value
Obtaining answers to three basic business questions can help drive strategy and business value.
The term strategic planning is shrouded with great misunderstanding. It was initially derived from the military, whereby strategy dealt with the overall direction of an entire war effort — what the military would attack, defend and destroy. It considered many factors that could affect the quest for victory, including resources, capabilities, limitations, strengths and weaknesses.
Once the generals formulated their grand strategy, they made detailed plans as to how the defensive and offensive objectives were to be achieved. These tactical plans turned the generals’ vision into victory and required solid coordination, including fluid communication, a high degree of risk and flexibility at all levels. This meant that the generals considered various scenarios in response to a variety of possible future events and developments. Together, the tactical plans and the various scenarios created a vision as to how the war would be won, regardless of the opposition’s defenses. Strategy has, therefore, become synonymous with leadership’s sense of vision as to the overall course and direction of any enterprise.
Strategic planning, as it relates to business, can generally be defined as obtaining the answers to three basic business questions:
- Where are we now?
- Where do we want to be?
- How do we get there?
Where Are We Now?
Answering this question requires that companies take a hard look at themselves and determine their strengths, weaknesses, opportunities and threats (SWOT). A popular method of obtaining answers to these questions is polling employees, owners, customers and suppliers so that all internal and external stakeholders provide feedback and are part of the process. Most companies prefer to engage outside service providers to perform the SWOT analysis in order to get anonymous responses and more honest feedback.
Many business owners believe that since their finger is on the pulse of the business, no surprises will come about from this exercise. Unfortunately, they’re usually wrong. Finding out how people really feel about an enterprise highlights multiple critical facts. Learning how others perceive your business can help shape future marketing and sales plans as well as determine which projects should be undertaken to improve the business and, ultimately, its value.
Where Do We Want to Be?
This question helps companies identify changes they need to make to be more successful. Typically, the SWOT analysis serves as an answer key. The analysis helps companies to maintain current strengths, improve weaknesses, pursue opportunities and minimize threats. However, it’s not as simple as it sounds. All companies have limited resources, so every plan and task needs to be prioritized to ensure a methodical, realistic approach.
The time frame typically associated with strategic planning is between three and five years. In practice, though, most issues can be addressed within 12 to 18 months from the first time a company uses this process to chart a future business direction. It is difficult to envision change in an organization if change has never been planned before — most people can only imagine implementing short-term business improvements. As companies continue the strategic planning process, the vision that is created becomes long-range, until a three- to five-year time frame is comfortable for all participants. This long-term planning exercise is also a risk mitigation tool for would-be prospective buyers as it provides a clearly articulated vision for success.
How Do We Get There?
Answering the first two questions provides tremendous insight into a business and what activities will shape its future. But determining the "how to" is the crux of a strategic plan. It is said, "A decent plan that is implemented is worth a thousand times more than a perfect plan never executed." By clearly documenting how a company’s objectives will be fulfilled, including who will be responsible, what the time frames are, and what the rewards and consequences are for performance or lack thereof, the likelihood of implementing the plan is significantly increased.
Creating a Plan
Strategic planning has become increasingly critical for small- and mid-sized businesses because economic trends have created a more competitive business environment, whereby geographical location and personal relationships are trumped by greater quality or better prices from larger competitors. For companies that want to succeed, defining its direction is of utmost importance.
Every enterprise needs its own individual strategic plan, since no one strategic plan can accommodate every enterprise. The process of answering the three questions above applies to each business, in every industry.
Spending the time to determine your strategic plan will be one of the best investments your business will make. It helps chart the course of success, starting with the strengths and weaknesses of your organization, and determines the actions that need to be taken to achieve the important value creation goals the company should pursue. With a well-defined path it becomes clear and easy for everyone in the company to assure the decisions they make today will help drive the enterprise value to where it should be tomorrow.
From my experience, CEOs and business owners find that the initiation and creation of a strategic plan, even before accounting for any of the benefits of implementation, provide great insight and value.
When developing a strategic plan, companies should expect all planning team members to:
- Identify and agree on company strengths, weaknesses, opportunities and threats
- Create a mission statement that rings true
- Create a vision statement that evokes images of a better, stronger company
- Prioritize projects and resources to achieve the vision
- Select leaders to champion strategic planning initiatives
- Establish agreed-upon plans to accomplish goals (including valuation expectations)
- Gain energy, enthusiasm and passion for improving the company
- Appreciate and recognize the power of the "team"
These achievements change the atmosphere at companies, yet their impact is minuscule compared to the effect of implementation. Implementation is accomplished over time, through accountability and constant progress. Since each plan is unique, the return on investment varies widely, but in all cases, an implemented plan creates value that far exceed the costs of time invested and dollars spent.