Many entrepreneurs start their businesses with a relatively simple idea for a product or service. They also have a relatively simple goal of producing and selling that product or service as profitably as possible. Yet, this isn’t unique just to new entrepreneurs. Senior managers in charge of large divisions within publicly traded companies, however, also sometimes operate without a strategic plan. The global business environment, like the world itself, is constantly changing. New and existing business owners frequently find themselves struggling to catch up to changing conditions with little idea how to plan for the future. This is exactly why every company needs a strategic plan.
In this article, we’ll give you a detailed overview of everything you need to know about what a strategic plan is and how to develop a strategic plan. We’ll take you through the process of developing a strategic plan, we’ll offer an example of that process, and we’ll give you a template for developing your own strategic plan.
What Is Strategic Planning?
By now you might be wondering, what is strategic planning? A simple strategic planning definition is:
“the series of steps you will, and will not take, to achieve a particular objective by a particular point in the future.
The strategic plan provides the context and guidance for the many tactical steps and managerial decisions that will be required to reach the goal by that point in the future. Further, the plan makes provision for how the company can adapt to the inevitable changes and obstacles that will emerge over the course of the plan’s timeline.
Read onto the next section to learn the actual process for how to develop a strategic plan.
The Strategic Planning Process
Many people who lack experience or training in how to develop a strategic plan underestimate just how involved the process is. On average, the strategic planning process takes three to four months. This is because of how rigorous you have to be in learning the ins and outs of the company. Not to mention knowing the external environment, in order to make predictions that are even remotely accurate.
The strategic planning process can be broken down into five basic stages.
- Set a performance objective. What are you trying to do – reach a revenue goal, profit goal, or a stock price goal?
- Determine the company’s current position on an internal and external basis.
- Develop the strategy that will take the company where they want to go, after considering alternative approaches to getting there.
- Assemble the plan for carrying out that strategy. Include whatever transformations have to happen to get the company ready for rollout.
- Manage the company’s performance as it carries out the strategic plan, adapting as necessary.
Stage 1: Set a Strategic Performance Objective
If the employees who manage and work in a business aren’t clear on the ultimate performance goal, they might make a variety of day-to-day decisions that don’t lead towards the strategic objective. If you are trying to achieve $500M in revenue and are at $400M today, you can get there by lowering prices. But this might reduce margins quite a bit (for example), leading to a bottom line that is flat or just barely increasing. It’s important, as a first step in the planning process, to establish the objective you are trying to meet (and the timeline for getting there).
Stage 2: Establish the Company’s Current Strategic Position
Stage 2 often presents companies with difficulty in getting their strategic planning process off the ground, so we break it down into four steps.
- Assess your organizational readiness. How prepared are you to actually carry through with the strategic planning process? Do executives and employees have enough time to devote several hours per week to the strategic plan? What’s the state of your bookkeeping? Do you have a detailed enough picture of the state of your company to actually evaluate where you stand? Is there enough stability in day-to-day operations that you can even project several months or years into the future?
- Organize the team and schedule for developing the strategic plan. The strategic planning process doesn’t just complete itself. It needs real people—often those who are in high demand within the company —to devote real time and quality attention to carry the process through. The more people involved in the process, the more organized and deliberate you’ll have to be about synchronizing their efforts.
- Collect data about the current state of your company as well as the state of the business environment your company operates in. A strategic plan depends on a clear picture of a company’s actual operations, from financial & budgeting issues, to productivity in relation to capacity, workplace morale, customer relationships, and more. Further, a detailed understanding of the environment is a must. What do market trends have to say about the years ahead? What are the dynamics like among the various competition? Is there any relevant legislation that will impact the near and long-term future?
- Review the data you collected in step 3. This is where you’ll really build meaning out of the numbers. You’ll need to form a deep understanding of your company’s position in relation to where it wants to go. After this step, companies proceed to actually developing their strategy for the future.
Stage 3: Develop the Strategy – After Considering Alternatives
One of the biggest mistakes we’ve seen companies make when developing strategies is to home in on one strategy too quickly. It is critical to evaluate alternatives. For example, a company might determine that expanding to a new geographic market is a key strategic priority. They begin jumping to who they must hire, who to market to, etc. But what if there is a struggling competitor they could acquire in that market? Or, what if pursuing an e-commerce strategy is a viable alternative to entering a new geographic market. It could just as easily fill up your manufacturing capacity? The key to good strategy development is developing alternatives and evaluating them based on criteria like:
- Required investment
- Profit potential
- Degree of competition
- Risk involved
- Degree of difficulty
It’s also helpful when developing a strategy to be specific about what you won’t do when following this strategy. Too often, leaders of a company leave a strategic planning meeting hearing different things about what the strategy really is.
Stage 4: Build an implementation plan
Once you have an agreed strategy, you have to execute. Important elements of an execution plan involve assigning ownership to key decisions and actions. Then ensure those owners feel responsible for the success of the strategy. Establishing a timeline for when actions are to occur and milestone meetings to discuss progress are also important.
Stage 5: Monitor and adjust
Once you start executing according to a timeline, you should expect to engage in a series of course corrections. As Mike Tyson once said, “Everyone has a plan until they get punched in the face”. Business leaders should be expected to report on progress (using pre-agreed metrics), identify key roadblocks, and develop recommendations for corrective action to keep the strategy moving forward.
Strategic Planning Example
We could give you the most elaborate definition in the world, but until you actually see it in action in the form of a strategic planning example, you’ll still be wondering what strategic planning is. So here we’ll provide you with an example of the outcomes of a company’s strategic planning process. This will help you develop a better idea of how to develop a strategic plan yourself.
Let’s say Sweettooth Cola Company wants to overtake Pepsi for the number two soft-drink position within three years time.
Step 1: Define Objective
The first step for Sweettooth Cola will be to better define its objective. Does it want to have more market share than Pepsi or make more profit? Making more profit is most likely the goal, but market share is also important to monitor.
Step 2: Determine Current Position
Step 2 for Sweettooth Cola will be to determine its current position. Sweettooth finds that it’s a distant fourth in soft-drink sales. They also learn it doesn’t currently have the production capacity, let alone the popularity, to overtake Pepsi. However, the company has very good profit margins and money in the bank, so it should be able to scale up operations. Market trends over several decades point to just how deeply entrenched Pepsi’s number two position is. One thing Sweettooth does have is brand loyalty. Customers love the taste and report that once they try Sweettooth, they never buy anything else. However, brainstorming during a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) reveals that Sweettooth has never been successful at introducing new flavors.
Step 3: Develop A Strategy
The next step for Sweettooth is to develop a strategy. In order to overtake Pepsi—which has dozens of varieties and flavors of soft drink. Sweettooth is going to have to both scale up productivity & sales, as well as diversify its product line with more flavors. As it develops this strategy, Sweettooth decides that it is not simply a cola company, but also a nostalgia company. People drink Sweettooth because the recipe & branding never change, and because the rich cola flavor reminds them of a bygone era.
The company crafts a mission statement designed to honor this newfound identity as a company that gives people a sense of comfort and home. Leadership realizes that there is an unfilled niche in the soft-drink market for nostalgic soda flavors and plans to exploit this niche until Pepsi is defeated. Of course, Sweettooth has considered other options, including simply challenging Pepsi with lower prices, or acquiring the #5, #6, and #7 players in the market to overtake Pepsi.
Step 4: Build The Plan
Step 4 is to build the actual plan. Sweettooth develops a series of short- and mid-term goals:
- One month: Product specialists will work with marketing specialists to develop twelve potential new nostalgia flavors.
- Three months: Sweettooth will begin producing and testing prototypes of these new flavors.
- Six months: Sweettooth will have conducted market research and focus-grouping to determine the five new flavors it will begin to manufacture.
- Nine months: Sweettooth will release the new flavors in test markets, and hopefully within a year the flavors will be in stores nationwide.
Sweettooth also plans to take on new debt—holding onto cash in case of liquidity shortages—to finance increases in production capacity as well as a new nationwide marketing campaign. Sweettooth’s plan is to start siphoning customers away from Pepsi and to generate buzz in anticipation of the release of its new flavors. Key performance indicators across these fronts will include sales increases, production increases, as well as meeting target dates for the new flavors.
Step 5: Manage Performance
The final step is to manage performance as Sweettooth executes the strategic plan. The COO sets intermittent dates on the calendar by which time she will evaluate the progress toward releasing new flavors. She plans to boost company morale by promoting heavily from within as production scales, as well as by leading a company-wide retreat in which employees are exposed to the new brand identity. Sweettooth tweaks its goals and tactics every three months in response to quarterly figures. Finally, leadership revisits the strategic plan annually to determine what changes need to be made.
Strategic Planning Template
Every company is different. Therefore, the necessary steps that define how to develop a strategic plan differ with each company. But there are enough commonalities that we can offer a strategic plan template, which you should be able to adapt to just about any strategic planning process.
One of the most important things you can learn as an aspiring entrepreneur, a business owner, or a consultant is to learn how to develop a strategic plan. Every company needs an actionable vision for how it will bring itself into the future. Without that, a company is adrift, vulnerable to whatever waves come along. But a company with a well-articulated strategic plan is a powerful thing. Not only will it be controlling the way it enters the future, but will also be well positioned to deal with whatever unexpected – but inevitable – changes that come its way.
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