What is the difference between Strategic Planning and Business Planning?
I get a lot of calls and email from people asking me questions about strategic planning. After the first few minutes of conversation or reading the email it becomes clear that many people are talking about a business plan when they refer to a strategic plan. So, I thought I would discuss the difference between the two.
Planning is planning, but a strategic plan has a quite different purpose to a business plan.
Usually a strategic plan is an internal document that provides an overall direction for a business that looks out over a longer timeframe than a business plan. I explain it by calling it a “helicopter view”, that is, you provide a view of the topography your business operates in, you identify your current position and you identify where you want to go, and you provide a broad “strategic” direction of your desired path to get there. There are very few details for a number of reasons.
Firstly because of the longer timeframe many details that you require to make detailed plans are unavailable. Then the purpose of a strategic plan, to set strategy, does not require detail but rather needs to identify key strategic issues that the company will face over 5 to 10 to 20 years, and the strategies it will use to get there. In my helicopter analogy, you know you want to go east – you do not at this stage need to know which of 5 available roads you will take.
A business plan on the other hand should be prepared to cover a shorter timeframe, from 1 to 5 years. Since it is expected to contain some more detail about the actual steps you will need to take to implement your strategy, the inputs that will affect your decisions need to be more predictable, hence the shorter timeframe. Logically then, you may formulate a 10 year strategic plan, then follow up with two sequential 5 year business plans.
A business plan can be given to an external reader, for example your bank or investors to obtain funding, or service providers such as marketing and advertising companies so that they are aware of your intentions. In fact a business plan can be prepared for a number of reasons.
The first reason is of course to follow up your strategic plan with more detail of the actions you will take to implement strategy in the first few years of the longer timeframe. In this case the business plan is also an internal document that management and staff can refer to from time to time to ensure that on a day to day basis they are implementing the required initiatives.
A business plan can be for the purpose of inviting funding. Depending on the business and size of the loan, most banks would ask for a business plan to see that you have carefully thought of what the extra capital will be used for and how the implementation of your business plan will provide security for the loan through a planned growth of the company. Investors will also want to look at a business plan to see what you intend to do operationally and if these decisions are attractive to their investment.
If you are thinking of starting a business, a business plan can establish the viability of that business. Used for this purpose it becomes a feasibility study, it chunks the big idea into logical sections to see if you can achieve success. It is perhaps in this use of a business plan that the different purposes of a strategic plan and a business plan are shown up – in a start up phase you prepare a strategic plan to describe your vision and aspirations for the business, you use the business plan to prove that it is actually achievable.
Another purpose of a business plan may be to help management allocate scarce resources. Your business can’t do everything it would like to do because of scarce resources, or at least, not all at once. A business plan used in this way can test the various options, break down each part and help you decide what will have to have priority, and can also schedule different initiatives so that resources are allocated as they become available.
Again, in my helicopter analogy, the business plan is where you send out a scout going east. They choose to take road 1 out of 5 available, because in examining the first few miles that they can see (the business plan’s shorter timeframe) of all 5 roads, route 1 seems to be the easiest to transverse. Accordingly they take the appropriate amount of fuel and food (resources) and decide where they stop to camp each night (milestones). After those first few miles, they now know that for the next batch of miles, while they still want to travel east (the strategic direction) they now need to switch to route 2, since route 1 has become boggy and route 2 appears to be the best option for the next few miles (the second business plan, while still following the strategic plan).
So if that is broadly what the difference is between a strategic plan and a business plan, how do you go about preparing each? As you might guess, the process is different, in order to suit their different purposes.
In a strategic planning process, I like to start with defining and clarifying your vision, mission and values statements. This is the flag you are waving as your standard, and therefore the way you behave moving forward, the choices you take, and the strategies you formulate need to be congruent with what it is you are trying to achieve.
Once vision, mission and values are clearly defined and even quantified through scenario analysis or using a balanced scorecard methodology, I would take an environmental scan. The most common form of this that most people would be aware of, is the SWOT or Strengths, Weaknesses, Opportunities and Threats analysis. However I suggest you do more than that to truly understand where you are, not where you think you are. You can use PEST or PESTLE analysis as well, and I would certainly suggest you include looking at “mandates and expectations” of your stakeholders. What do owners, investors and shareholders expect of you and will allow you to do? I would also include market and customer analysis – who are your customers, what demographics are they and why, how do they see your products, what are they expecting and wanting from you?
Having done these two steps, you should be able to identify key strategic issues. These are “issues” that you will need to deal with to get from where you are to where you want to be. These need to be strategic (in other words not operational matters such as ‘we need a newer machine’), and they need to be “key” in that they are at the apex of several issues, fix the big one and you fix several smaller ones.
Once you know your key strategic issues you can then objectify the desired outcomes into goals and objectives, and start to formulate strategy. Again, be aware this is strategy and will involve actions that take several years to fruition – they are not short term action like “open a new branch”.
As I discussed earlier, the business plan follows the strategic plan, so the preparation of the business plan involves more technical and discrete steps:-
- Define why you are preparing the business plan – is it an internal operational planning document or is it to raise capital?
- Choose the timeframe;
- Review the strategic plan to see what part of which strategies can be dealt with in the chosen timeframe;
- Break your business into its component parts, usually products, management and staff structure, marketing, manufacturing/operations/service delivery, finance;
- Work on the goals and objectives for the timeframe chosen and define desired outcomes (tactics) for each part of the business’ component parts;
- Review to ensure they are congruent with the strategic plan and with each other;
- Review sufficiency of resources (usually through the preparation of a budget and some form of critical path analysis);
- Prepare detailed action plans denoting what outcome, what steps and who is in charge;
In my opinion, both strategic and business plans are critical to your business whether it is an SME employing a couple of hundred staff, or a micro business run by husband and wife. The plans may be 10 sheets of loose-leaf paper or a hundred pages of documented work. Without a plan you cannot possibly know for sure where you are going, or more importantly, you cannot tell me you have an idea of what success means to you. If you have no plan you are like a leaf in the wind.
Join the discussion – go to https://teikoh.com and let us know how you are conducting your planning exercises. The resources section of the website have templates for planning. While you are there, leave your name and email address so that we can keep providing these valuable and free tips, templates, tools and resources to help you formulate strategy, provide leadership and grow your business.
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