What is strategic planning and why is it important?
This article describes what strategic planning is and how it helps organizations succeed. It contains the following sections:
Benefits of effective strategic planning
Underutilization of effective strategic planning
What is strategic planning?
Strategic planning is the mechanism for defining an organization’s future — and how to achieve this future. It helps set direction, drive alignment, and realize sustainable growth.
Consider a ship and its crew exploring a vast and uncharted ocean. With the right capabilities, the ship supports its crew in determining where to go and how to get there. In this analogy, strategic planning is an organization’s ship. And when an organization has a great ship — plus a great crew underpinned by effective, aligned teamwork — it maximizes the chance of achieving the goal for the voyage it is in.
Diving deeper, strategic planning is the process an organization follows to:
Define its strategy: This involves developing a strategic framework by confirming organizational purpose, analyzing the operating environment, defining competitive advantage, confirming strategy (vision, mission, values), and establishing a strategic-level implementation plan (e.g., OKRS or OGSMs in a Balanced Scorecard format). Once done, this is incorporated into a roadmap, and KPIs are set.
Confirm how the strategy will be implemented from an operational perspective: this involves creating iterative annual or sub-annual "operational" implementation plans designed to achieve "bite-sized chunks" of an organization’s strategy — until it is achieved. And yes, every organization should strive to achieve its strategy.
Establish the financials required to fund operations and reward shareholders: often done separately – financial planning is a crucial step of the strategic planning process. At the strategic level, this typically involves forecasting profit and loss, cash flow, balances (i.e. balance sheet), and capex requirements. At the operational level, budgets are established for departments, teams, or projects.
During implementation periods — regularly review strategic priorities + operational and financial performance: often tied with strategy execution, this is an essential element of any comprehensive, "end-to-end" strategic planning process. It involves reviewing organizational strategy (point 1 above) at least once every 2-3 years. During the implementation periods, regular operational and financial performance reviews and any necessary remediation efforts occur to ensure an organization is on track to achieve its targets for the current implementation period.
Illustrated, this process can look something like the following:
An organization’s ship: what a typical strategic planning workflow can look like
Variations to the above are okay, and timelines are flexible. However, any strategic planning process should be optimized to fulfill an organization’s purpose and achieve its strategy. A crew out at sea is useless without an adequate ship.
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 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 use an effective strategic planning process? If not, why?