Strategic Business Planning

Strategic business planning is the planning done by top managers to guide the progress of an organization as a whole.

Using such a description for planning at the corporate level can be confusing because it muddles two things. These two things are strategic planning and business planning. These would be better understood as distinctive kinds of plans; separate and related.

Unfortunately, the terms strategic planning and business planning have multiple meanings. Each of them individually can be confusing. When put together as strategic business planning it can be even less clear.

Let us look at each individually, and then see what sense we might make of them together.

What is strategic about strategic business planning?

In general, a strategic plan is a broadly defined plan aimed at creating a 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 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!

I think it is helpful to separate the term ‘strategic’ from the term ‘business’.

Corporate strategic planning differs from business planning. The strategic plan is different from the business plan. They are separate. They are related. They have different planning time horizons, different flavors of forecasts, different levels of detail, mostly different intended audiences, and a different balance of words and numbers.

Strategic planning is different from business planning

If you must use the phrase strategic business planning, I urge you do it with a clear definition of strategic planning in mind. Understand that a strategic plan differs from a business plan in three ways -

  • it looks much further ahead
  • it consists largely of words with just a few figures to indicate the scale of the planners’ intentions. A business plan, on the other hand, consists largely of figures. Because these are often unreliable beyond a few months, managers are reluctant to look ahead as far as they may need to. Strategic plans can look further ahead because so few figures are employed, and also
  • what few figures they do contain are tested by risk analysis techniques.

I define strategic planning differently to some others. Do not start with a vision of the future. Begin with a clear understanding of and commitment to the enduring purpose of the organization.

Strategic planning is a systematic, formally documented process for deciding the handful of major decisions that an organisation, 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 the elephantine nature and long-term impact on organizational performance that sets strategic planning apart from other types of planning.

Spell out these broad strategic intentions of the strategic plan in other types of plans, including business plans. You might call business planning that converts the corporate strategy into clear actions with resources strategic business planning.

The figure shows distinctions I am making.

Who is the intended audience for
a strategic business plan?

While there may be some overlap between strategic planning and business planning, they are not the same thing. The differences are such that the umbrella term strategic business planning may be unhelpful.

Return from Strategic Business Planning to Definition of Strategic Planning.

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