Strategic Business Planning

What is strategic about strategic business planning?

In general, a strategic plan is a broadly defined plan aimed at creating the desired future. In organizations, strategic planning is a systematic way of creating this plan. It also includes translation of this vision into objectives and a set of programs and projects to achieve them. The kind of thinking involved in business planning that is ‘strategic’, differs from long-range planning. Long-range planning with the present and sets out steps to meet estimated future needs. This usually involves extrapolating from past performance to forecast likely future performance. This makes sense in a stable or very slowly changing environment.

At each stage, the planner asks, “What must be done here to reach the next, projected stage of performance?”

In contrast, ‘strategic’ business planning does not assume you can simply extend the recent past into the forecast future. It requires taking into account a significant change in the environment. It begins with the desired-end and works backward to the present. At every stage of strategic-planning, the planner asks, “What must be done at the earlier stage to reach here?”

Strategic planning looks at the wider picture. It is flexible in choice of its means of achieving the desired end state.

What is the business in strategic business planning?

A business plan summarizes the firm’s operational and financial objectives for the near future. It is usually for one to no more than three years. For the audiences inside the organization, a business plan functions as a kind of blueprint to guide the organization’s activities. When the business plan clearly expresses the corporate strategy, the process of preparing it may be ‘strategic’. However, things often do not stay this clear.

External audiences such as prospective investors can also use strategic business plans. The usual ‘business plan’ details the past, present, and forecast performance of the business in financial terms. Therefore, it usually contains pro-forma balance sheet, income statement, and cash flow statement. This shows how the funds requested will affect the organization’s financial position.

To convince the prospective finance providers that the seekers know what they are doing, they go into a lot of detail. However, as the details become finer grained, the confidence we can put in the figures starts to fall. Very detailed financial projections, which might extend much beyond one or at most two years, cannot be believed.

Separating the strategic from the business in corporate business planning

The description ‘strategic business planning’ may be confusing. If such business planning is business planning aligned with and designed to implement corporate strategy there would not be much of a problem. However, sometimes it is just a matter of trying to make the ordinary business planning sound a bit more important than just a budget!

It is helpful to separate the term ‘strategic’ from the term ‘business’.

Strategic planning is a systematic, formally documented process for deciding the handful of major decisions that an organization, as a corporate whole, must get right in order to thrive over the next few years. The process results in the production of a corporate strategic plan.

What distinguishes this approach is the emphasis on strategic issues that must be addressed by the plan. It is large in nature and long-term impact on organizational performance that sets strategic planning apart from other types of planning.