Wednesday, August 4, 2010

Strategic Planning

A company without a Strategic plan is worse than a ship without a rudder. A ship without a rudder knows where it is to be going, it is incapable of steering itself to it’s destination. A company without a Strategic plan does not know where it is heading, so it may be guided, but to where is unknown.


The purpose of Strategic Planning is to align the company with corporate goals. Without Strategic planning the flavor of the week prevails among Managers and progress is not made in the direction that the Board of Directors or President desires. The result of the strategic plan is to generate above normal returns by positioning the company to use its competitive advantages in targeted markets. Strategic Plans are based on two principles:


  • A company is stronger if Managers are aligned to the same goals
  •  Management’s responsibility is to provide the resources necessary for employees to perform their jobs
Prior to preparing the plan, research must be done to begin plan formulation


External Environment analysis


  • Competitors- define who the competition is.
  •  Determine if there are any competitors to benchmark
  •  Gather economic data as available
State of the Industry


  • Explore entry and exit barriers
  •  Explore the competitive level of the industry
  •  Determine the market maturity level
  •  The worst combination is low entry barriers, high exit barriers, high levels of competition in a declining market. This combination frequently leads to a wasted marketing effort and promotion dollars.
  •  The Best combination is High Entry barriers, Low exit Barriers, low competition levels in a growth market.
Internal Analysis
  • Resources- define what resources are available and which contribute to core competencies
  •  Capabilities- define the capabilities of the company and notate which are potential core competencies once combined with resources.
  •  Core competencies- Combining special resources and capabilities to develop a definition of the core competencies of the company. A core competency is not defined a primary processes unless the process has certain characteristics. Core competencies are combinations of capabilities and resources that distinguish the company. Core competencies possess these characteristics: Rare, Difficult to substitute, Valuable to the customer and Costly to imitate.
  •  Determine and plan how to convert core competencies into competitive advantages.
Strategic Goals- Are a picture of the future state which are used in formulating the plan. The Strategic plan is the roadmap to the goals.


Strategic mission- is the definition of firm’s unique purpose and long term goals considering all the above information and making use of the developed competitive advantages. A Strategic mission should be prepared that can be communicated and understood by all levels of management. For example:


“We will grow the company by 10% per year by pursuing acquisitions in different industries by maintaining high quality and above average financial returns.”
Or
“We will become the best company of our size by focusing on developing our current customers and partnering strategically with other organizations to fulfill our customer’s needs.”


The Strategic mission should be a statement that the company can rally behind. It should answer any questions as to priorities. Many contain ethical expectations.


There are three levels of plans generated, the Strategic level, the Tactical level and the Operational level. Strategic level plans are generated by executive level management, Tactical level plans are developed by mid-level managers and Operational level plans are created by front line managers. Based on the definitions and the Strategic mission developed in the Research and Development phase the plans should be created beginning with the Strategic Marketing plan. Plans should be prepared in the order listed below:


1) Strategic Marketing plan (5 year minimum focus, can be as many as 10 years)
a. Focused on how to achieve the strategic mission and goals
b. 4 P planning
c. Details
d. Budget
e. SWOT analysis
f. Must be communicated to Tactical marketing managers to formulate their plan


2) Strategic Operations Plan is created from the Strategic Marketing plan (5 year minimum focus based on Strategic Marketing plan time table)
a. Supports the Strategic Marketing plan
b. Requirements and resources to support the Marketing plan
c. Budget
d. SWOT analysis (see Addendum A)
e. Must be communicated to Tactical Operations managers to formulate their plan


3) Tactical Marketing plan is created from Strategic Marketing plan (1-3 year focus)
a. Prepared by middle management
b. Includes, but is not limited to the Sales Forecast
c. Further detail to support the Strategic Marketing plan
d. Budget


4) Tactical Operations plan is prepared from Strategic Operations plan (1-3 year focus)
a. Prepared by middle management
b. Further detail to support the Strategic Operations plan
c. Budget


5) Operational plans are prepared by lower level managers (upcoming year focus)
a. personnel and training requirements
b. day to day budget items
c. maintenance plan and budget


All of the above plans must be communicated to Managers for company alignment to occur. Nothing secret exists in the above plans, there is nothing that shouldn’t or couldn’t be shared. The communication of plans allow managers at all levels to adjust their plans if there is deviation from the original plan. It also holds managers accountable to each other to achieve their stated plans.


After completion of the above plans, Finance prepares the Strategic Financial plan (5 years) from the budgets submitted. The goal of the Financial plan is to support the capital and cash needs of the Marketing and Operations plans. The Financial plan only needs to be shared with Executive and Upper level management. If budget items must be cut or eliminated for the financial plan to work this should be communicated to the involved managers so their plan can be altered appropriately.


Progress and Control are monitored by measurement, the balanced scorecard approach should be used. The use of a radar graph will easily indicate areas that are not at the desired level. With this information, corrective action can be taken to place the plan back on track.


Care must be given as to what is measured so the metrics encourage progress towards the strategic goal. Caution must be taken in emphasizing financial goals as they can lead to a risk-adverse culture which will defeat the potential for above average returns.


Typical Balanced scorecard items:


Financial
Cash Flow
ROE
ROA


Customer
Ability to anticipate customer needs
Effectiveness of Customer service
Percentage of repeat business
Quality of communication with customer


Internal Processes
Asset utilization
Employee morale
Employee turnover rates
Learning


Improvements in innovation
Number of new products
Increases in skill levels


Strategic Planning is more pertinent today than ever. Some argue with the fast changing environment today a long range strategic plan is worthless. A strategic plan is more important in a fast paced environment to keep a company focused on it’s goals. If anything the planning horizon should be shortened and the plan considered a living document that is subject to revision should the competitive environment change.

Contact us for training or help in preparing your company's Strategic plan or Business plan.