Strategic planning and its process

As part of this series you will find basic information about strategic planning process. You will encounter here with terms such as analysis of internal and external environment of the company, vision, mission, goal/objective and strategy.

If you are interested in budget and forecast preparation, read about it in our consecutive series Forecasting and budgeting.

Planning

Planning is the process in which certain activities are undertaken to increase the probability that the desired goals or objectives will be met. The mentioned activities include setting the goals and objectives, defining strategies to achieve them and preparation of strategic and operational plans.

We can differentiate strategic planning and operational planning.

Strategic planning

Strategic planning is a long-term process during which is determined where the company wants to get in the forthcoming future and how it is going to achieve it.

The input for strategic planning is usually an analysis of the internal and external environment (position audit) and company vision and mission statements.

The output is in the form of strategic plans, which are then split into more detailed operational (business) plans. Plans are regularly reviewed with actuals in order to anticipate problems and take corrective action, and all the steps taken earlier can possibly be adapted accordingly. Strategic planning is therefore a continual process.

The process of strategic planning is presented here.

Strategic planning process

Strategic planning diagram 

Pre-conditions of strategic planning

Already at the beginning of strategic planning, the entity shall have:

• analyzed external and internal situation – position audit
• defined vision and mission statements
• possibly also defined the corporate culture (how are things done within the entity or how staff behaves etc.)

POSITION AUDIT

Position audit is continual evaluation and analysis of the company´s external and internal situation made for the purpose of strategic planning. It is possible to use various tools and analysis, for example:

• PESTEL analysis
• Five forces analysis
• Analysis of strategic capability
• SWOT analysis

VISION

Vision is a general statement emphasizing where the company wants to be in the future.

Vision is often in the form of just one inspirational sentence.

MISSION

Mission is a general statement in which is shortly explained how the entity aims to achieve its vision. It contains for example:

• what the entity aims to achieve (profit, social welfare etc.)
• definition of key stakeholder groups (mainly customers) and how the company wishes to treat them
• how it distinguishes from its competitors
• corporate values etc.

Mission statement is often in the form of just one paragraph (but in practice, the range differs from a few words to a few pages).

SETTING GOALS AND OBJECTIVES

Goal

Goal is the general and brief aim, which the entity wants to achieve over the long-term period, say during the next 5-10 years.

Goals do not necessarily need to fully meet SMART definition (Specific, Measurable, Achievable, Realistic, Time-specific), if they are broken down into a set of objectives.

The biggest challenge in goal setting is avoidance of their contradiction. Therefore, there should a limited number of goals set by the entity.  Goals shall be:

• acceptable – to the key stakeholders
• suitable - in line with the entity´s mission (22)
• feasible – achievable

A few examples of goals:

Increase of revenues / profitability / cash-flow / customers / efficiency / ROCE / market share / customer satisfaction

Objective

Objective is a more detailed goal, which the entity aims to achieve in the future in order to fulfil its goals.

A few examples of objectives:

If the entity goal is to increase profitability, the objectives could be:

• reduction of indirect costs by 10% during year 20xx
• increase of sales by 15% during year 20xx

Objectives should, in contrary to strategic goals, be SMART:

S = specific

M = measurable

A = achievable

R = realistic

T = time-specific

SETTING STRATEGY

Strategy is a method or action for achieving the chosen objectives.

The process of strategy setting involves the following stages:

• develop possible alternative strategies – scenario planning is often practiced
• evaluate them by their:
  • acceptability – whether it is acceptable to the key stakeholders
  • suitability - whether it is in line with the entity´s mission statement and exploits the opportunities and strength and minimizes threats and weaknesses
  • feasibility – whether it is achievable in terms of resources such as available raw materials or funding,  competencies and staff skills
• select the best strategy

DEVELOP STRATEGIC PLAN SPLIT INTO OPERATIONAL PLANS (INCLUDING BUDGET)

Strategic plan / Corporate plan

Strategic (corporate) plan is a long-term (the period covered can be around 10 years) higher-level plan prepared by top management for the purpose of meeting the corporate goals. It focuses on the entire entity, strongly considers the external situation and can be both quantitative and qualitative. Strategic plan is then split into more detailed operational plans.

Operational plan 

Operational plan is short-term (for a few months to approx. 3 years, typically for just 1 year) prepared by lower level management that focus on specific parts of the entity, e.g. on production or sales. Operational plans are based on more general strategic (corporate) plan and work it out into bigger detail. It is a kind of largely quantitative action plan. An example of operational plan is budget.

MEASURING PERFORMANCE

= mainly based on accounting data

EVALUATION AND ASSESSMENT OF ACTUALS COMPARED WITH THE PLAN

= so called variance analysis

CORRECTIVE ACTIONS OR PLAN/STRATEGY MODIFICATION

If the ascertained variances are controllable, corrective action is usually taken. If not, no actions are usually taken or/and the plans/strategies are adjusted accordingly.