What is strategic planning and why is it important?
What is strategic planning?
Conceptually, strategic planning is the process an organization follows to:
Define its future.
Determine how this future will be achieved.
Optimize efforts and focus along its journey to achieving this future.
In business terms, strategic planning is the process an organization follows to:
Define its strategy: This involves:
Environmental analyses: evaluating external and internal forces plus confirming competitive advantage.
Confirming strategic identity: this typically includes purpose, vision, mission, and values.
Setting a strategic implementation plan: this plan achieves the strategic identity and is often in an OKR or OGSM format. The Balanced Scorecard can also be used to focus strategic objectives into themed, key success areas. Once done, this is incorporated into a roadmap, and KPIs are set.
Implement its strategy (operationally): This involves setting annual or sub-annual operational plans to accomplish "bite-sized chunks" of the strategy until it is achieved. The same planning framework used in the strategic implementation plan - either OKRs or OGSMs - is used in the operational implementation plan.
Establish financials: This involves defining the financials that are required to achieve the strategy and reward shareholders/owners where relevant. At the strategic level forecasting profit and loss, cash flow, balances (i.e., balance sheet), and capex requirements are typically undertaken. At the operational level, budgets are established for departments, teams, or projects.
Manage performance and review strategic priorities: During implementation periods (see below), operational and financial performance optimization efforts take place to ensure an organization is on track to achieve its targets for the current implementation period. Additionally, the strategy should be reviewed at least every 2-3 years.
Illustrated, this process can look like the following:
Who is involved in strategic planning? All stakeholders in an organization. This ensures maximum buy-in from top-level management down to junior-level employees. Some will be involved more than others. A facilitator is needed to steer the process. Owners, senior leadership, and the board establish high-level strategy and plans. An effective approach involves middle management and employees in defining the operational plans they are responsible for executing. This helps create a ‘bottom-up’ atmosphere and stakeholder buy-in.
Benefits of effective strategic planning
It can significantly improve an organization’s ability to fulfill its purpose and achieve its strategy, enhance survivability, and positively impact financial performance in several ways:
It helps set direction, drive alignment, and realize sustainable growth.
It can significantly improve organizational performance — particularly making organizations more efficient and effective. It can help break down silos and foster a common direction amongst all internal stakeholders (departments, teams, individuals, etc.) - ensuring efforts are synchronized vertically and horizontally.
It can enhance competitive advantage and market position by better facilitating the differentiation of an organization’s solution(s), increasing customer satisfaction and loyalty, and improving brand reputation.
It can better help prioritize profitable growth or innovation pathways. Conversely, it provides a mechanism for promptly filtering out irrelevant or unsustainable work programs, leading to less financial wastage.
Underutilization of effective strategic planning
One survey of nearly 800 executives globally (McKinsey & Company) found that just 23% use a formal strategic planning process to make important strategic decisions. Furthermore, only 45% of the respondents said they were satisfied with their strategic planning process. In the same group of respondents, approximately 80% of those who use formal strategic planning processes said it allows their company to meet its goals and overcome challenges.
Unfortunately, even fewer SMEs and start-ups use formal strategic planning processes than those surveyed above. Therefore, the failure rate of new organizations is extremely high — almost 70% fail within 10 years of operation (BLS).
Should SMEs & start-ups use formal strategic planning?
Absolutely — it increases survivability. There is no evidence that strategic planning is ineffective for modern SMEs and start-ups, creates inefficient or slow “corporate-style” organizations, or is a financially burdening process.
Research only points to it bringing positive benefits — especially for improving organizational performance and positively impacting financials.
Unfortunately, leadership in many SMEs and start-ups are seemingly unaware of the benefits effective strategic planning brings. Perhaps this is due to CEOs and the rest of the C-level being more product-oriented—or seeking a more “modern, agile and less corporate image”—therefore (and not to their fault) overlooking proven business management methodologies.
Challenges of strategic planning
It requires investment in time and resources. However, in most cases, this can essentially be a reappropriation of existing (and less effective) strategic management efforts. As an organization builds knowledge and experience in administering formal strategic planning processes, it will become easier and quicker.
Additionally, best-practice knowledge is required to implement an optimized process. This is where we come in.
Does your organization need support in implementing an effective strategic planning process? If so, contact us.