What is Strategic Business Planning?

Strategic Business Planning is the action-driven process for transforming a company’s activities for optimal potential.  Strategic business planning focuses on the entrepreneurial efforts of a company, whereas traditional business planning simply defines the activities of a company.  The major tasks in developing a strategic business plan include:

• setting a mission and vision
• assessing the environment- external
• appraising the company’s capabilities- internal
• crafting a strategy through goals and objectives
• implementing the strategy and
• evaluating and controlling the strategy.

“Strategic Business Planning coordinates a company’s resources to achieve specific goals.”

Levels of Strategic Business Planning

Strategic business planning occurs at three different levels within an organization:

• Corporate Level- What business are we in?
• Business Level- How should we compete?
• Functional Level- How do we synchronize resources to compete?

Strategic planning already occurs in every business, regardless of its size, age or revenue.  Taking the time to develop a strategic business plan is simply a more effective way of doing something that is already being done. 

Unlike traditional business planning which concentrates on defining the major aspects of a company- management, products and services, marketing, etc., strategic business planning concentrates efforts on coordinating resources (human, capital and time) to meet attainable goals consistent with the analysis of the tasks mentioned above.

Why Develop a Strategic Business Plan?

Strategic business planning is useful because it forces the owners and managers of a company act with a definiteness of purpose for every action undertaken. There are several reasons to develop a strategic business plan and each company will have its own.  Below are ten:

• Maximize the use of limited capital, human and time resources for optimal efficiency and outcomes;
• Gain buy-in from your clients and employees for your vision of the company’s future.
• Develop and execute strategies to maximize your company’s performance
• Stakeholders increase responsibility and accountability for results
• Capitalize on new and emerging technologies and trends for growth
• Identify value-added opportunities to grow the company
• Clarify roles and responsibilities to create a team environment
• Realize the company’s vision

Proactive Strategic Planning: The Key to Long-Term Success

Many a mission statement includes the phrase “to always exceed the customer’s expectations.”  The phase is oftentimes added with little consideration for its meaning.  In short, what the phase implies is that there will be ongoing strategic planning and management that adapts to the changing needs of clients and environment.  Operating without a sincere effort to exceed your customer’s expectations, means that you will eventually not meet their expectations, lose market share and, sooner than expected, be forced out of business.

The Seven Step Strategic Business Planning Model

The key “inputs” of the strategic business planning process, as stated earlier, include defining a mission and vision for the company, an analysis of the environment in which the firm operates, the setting of long-term (3 to 5 year) objectives and  the crafting, implementation and evaluation of the company’s strategy.  Below is a model of the strategic business planning process.

• Step One-         Define the company’s Mission & Vision
• Step Two-         Analyze the company’s capabilities (internal analysis of strengths and weaknesses)
• Step Three-       Analyze the environment (external analysis of opportunities and threats)
• Step Four-        Set long-term objectives
• Step Five-         Craft the strategy
• Step Six-          Implement the strategy and set milestones
• Step Seven-      Evaluate, control and refine the strategy

Sample One Page Strategic Business Plan

Step 1a - Mission Statement- Defines why the company exists and what it will do.

The Mission Statement is a statement of intent.  It summarizes the specific core competencies of the business and it informs employees, customers, and business associates of who you are, what you do. The Mission Statement should capture the essence of the organization and tell the reader why your company exists.   Your Mission Statement should address these questions:

• Why does your business exist?
• What product/service do you provide?
•  Why will customers buy from you?
• What is your business committed to providing to its customers?

Sample Mission Statement

Commercial Contractors strives to offer the finest quality design, site preparation, cost estimates, construction, repair, and alteration to clients needing large scale restoration construction services, whether it be office buildings, warehouses, large apartment complexes, public works, etc.  Commercial Contractors maintains the highest standards of service in the commercial construction industry and always works to exceed customer expectations.

Now prepare your company’s vision statement.

Step 1b- Vision Statement- “What do we want to become?”

Almost everyone has a vision for their company, but some are better at articulating it than others. A Vision Statement describes to the reader what type of company you are building over the long-term (1, 3 or 5 years).  Effective vision statements need not be long, but must clearly answer some or all of these questions:

•  What type of company is being built? (Manufacturing, construction, service, consulting, etc.)
•  What market does the company serve? (local, regional, national, global)
•  Who are the target customers?
•  What will revenues be?

Sample Vision Statement

Within the next three (3) years of operations grow Commercial Contractors, LLC, into a $5 million dollar regional commercial real estate restoration company specializing in the redevelopment of historic office buildings and multi-unit residences for commercial real estate management companies.

Now prepare your company’s vision statement.

Step 2 - Company Capabilities- What is the company good at doing?

The company’s capabilities tell us how well the company’s strategy is working with its current resources.  An objective analysis of the company’s capabilities compares your company to industry averages (ratio analysis), previously set objectives and/or the best company’s in the industry.  Company capabilities should consider the marketing, operations, production, finance, human resources, information systems, sales and customer service components of your business.

Sample Strengths and Weaknesses 

Now identify your company’s strengths and weaknesses.

Step 3 - The Environment- You must determine your firm’s position within your industry in order to set attainable goals and objectives.

The environment comprises all persons, groups, or entities that have an interest in the company.  On the MACRO level the environment refers to economic factors, technological factors, cultural factors, political factors, legal factors, social factors and demographic factors.  On the MICRO level the environment refers to customers, suppliers and competitors.  You must look at all of the factors on the macro and micro level in order to set long-term, achievable objectives for your firm.

Michael Porter’s 5-Force Model simplifies environmental analysis.  Porter says the nature and intensity of competition in an industry is a composite of  five competitive forces:

1. Rivalry among competitors in the industry;
2. The bargaining power of buyers;
3. the bargaining power of suppliers;
4. the potential entry of new competitors; and
5. the power of firms with substitute products.

Competitive forces include industry growth rates, product innovation, customer preferences, firms entering or leaving the industry, costs and productivity, and increasing globalization.  Environmental analysis is conducted through the Opportunities and Threats of the SWOT analysis.

 Sample Opportunites and Threats

Now identify your company’s opportunities and threats.

Step 4 – Set Long-Term Objectives

After you have defined your company’s mission and vision, you need to state your goals so that they are

Specific, Measurable, Attainable, Realistic, and Trackable.  When you state a goal in such terms, it’s called an objective.

A business objective contains three elements: 1) An observable, measurable goal, 2) The conditions under which the goal should be achieved, and 3) Level of performance of the goal.

Sample Objective 

Our company will increase revenues to $5 million per year through a 50% increase in clients by the end of 2006.

Now set your company’s long-term objectives (can be a bulleted list).

Step 5 - The Strategy

Strategy is the science of planning and conducting actions on a broad scale.  Strategies should answer some of the most critical questions:

• How will you achieve your sales goals?
• How will you maintain cost controls?
• How will you secure new business?
• What strategies will you utilize to ensure you obtain 29 contracts?
• What strategies will you utilize to ensure the average contract is $175,000? What strategies will you use to combat seasonality in your industry?
• What strategies will you use to hire and retain qualified employees?

Sample Strategies (Actions)

• Implement a marketing campaign to improve our brand awareness regionally
• Use clients as referrals and references
• Bid on an average of 15 contracts per month with a gross revenue minimum of $175,000
• Maintain cost controls by developing purchasing relationships with the three top suppliers in the industry

 Now set your company’s strategy.

Step 6a - Implement the Strategy

The strategy is the broad method of coordinating the company’s resources to achieve objectives.  For example, your strategy to increase sales of product x by 10% might be an advertising campaign.  Beneath the strategy is the tactic for making good on the strategy, such as advertising on Channel 3 during the evening news.

If:

• Your goal is to attain annual revenues of $1 million and these other conditions exist:
• The average revenue per contract, sale or job is $175,000
• The average length of time to close each sale, job or contract is 2 months
• It takes an average of six employees to perform or complete each job, sale or contract

Then:

• You need to have 29 (rounded up) contracts at $175,000; You need 172 workers available (6 per contract); ~ 5 crews of six working simultaneously on 6 jobs every two months (5 jobs completed Jan/Feb; 10 jobs by Mar/Apr; 15 by May/June; 20 by July/Aug; 25 by Sept/Oct; 29 by Nov/Dec)

Sample Strategy Implementation (List in order of need or importance)

• Secure a line of credit of $75,000 for working capital expenses
• Secure 3 new contracts/projects per month
• Secure contracts at an average of $175,000
• Maintain a profit margin of 20% on all contracts to ensure regular positive cashflows

 Now define your company’s implementation strategy.

Step 6b - Strategy Implementation Milestones

Milestones are specific dates that you set to accomplish specific objectives. Milestones hold you to task by giving you deadlines. If you set reasonable milestones and you don’t achieve them by a certain date, you should go back and review your objectives and strategies and see where a miscalculation was made.

Sample Strategy Implementation Milestones

1.  Obtain Contractor’s License by February 15, 2005
2.  Obtain line of credit by January 31, 2005
3.  Bid on 30 new contracts by June 30, 2005
4.  Achieve $1 million in gross sales by September 30, 2005

 Now set your company’s milestones.

Step 7 - Strategy Evaluation, Control and Refinement

As stated in the previous section, if you don’t meet your milestones you should go back to your objectives and strategies or perhaps your SWOT analysis to see where there was a “disconnect” or miscalculation.  For example, if your objective is the addition of 100 new clients within 60 days and the method to achieve that objective is a door to door flyer campaign that garnered 30 clients in 60 days, you might look at an alternative marketing technique.  All of the planning in the world will not always work.  Keep in mind that your priorities are not the priorities of your customers, your suppliers, your competition or sometimes your investors.  Strategic business planning requires continuous revisiting in order to ensure that you develop the right mix and use of resources to grow your business over the long-term.

Norman D. Roussell, MBA