Strategic issues are critical unknowns driving you to embark on a robust strategic planning process. These issues can be problems, opportunities, market shifts, or anything else that keeps you awake at night and begging for a solution or decision. The best strategic plans address your strategic issues head-on.
Conducting an environmental scan will help you understand your operating environment. An environmental scan is called a PEST analysis, an acronym for Political, Economic, Social, and Technological trends. Sometimes, it is helpful to include Ecological and Legal trends as well. All of these trends play a part in determining the overall business environment.
The reason to do a competitive analysis is to assess the opportunities and threats that may occur from those organizations competing for the same business you are. You need to understand what your competitors are or aren’t offering your potential customers. Here are a few other key ways a competitive analysis fits into strategic planning:
Learn more on how to conduct a competitive analysis here .
Opportunities are situations that exist but must be acted on if the business is to benefit from them.
What do you want to capitalize on?
Threats refer to external conditions or barriers preventing a company from reaching its objectives.
What do you need to mitigate? What external driving force do you need to anticipate?
Strengths refer to what your company does well.
What do you want to build on?
Weaknesses refer to any limitations a company faces in developing or implementing a strategy.
What do you need to shore up?
Customer segmentation defines the different groups of people or organizations a company aims to reach or serve.
A SWOT analysis is a quick way of examining your organization by looking at the internal strengths and weaknesses in relation to the external opportunities and threats. Creating a SWOT analysis lets you see all the important factors affecting your organization together in one place.
It’s easy to read, easy to communicate, and easy to create. Take the Strengths, Weaknesses, Opportunities, and Threats you developed earlier, review, prioritize, and combine like terms. The SWOT analysis helps you ask and answer the following questions: “How do you….”
Want More? Deep Dive Into the “Developing Your Strategy” How-To Guide.
Determine your primary business, business model and organizational purpose (mission) | Planning Team (All staff if doing a survey) | 2 weeks (gather data, review and hold a mini-retreat with Planning Team) | |
Identify your corporate values (values) | Planning Team (All staff if doing a survey) | 2 weeks (gather data, review and hold a mini-retreat with Planning Team) | |
Create an image of what success would look like in 3-5 years (vision) | Planning Team (All staff if doing a survey) | 2 weeks (gather data, review and hold a mini-retreat with Planning Team) | |
Solidify your competitive advantages based on your key strengths | Planning Team (All staff if doing a survey) | 2 weeks (gather data, review and hold a mini-retreat with Planning Team) | |
Formulate organization-wide strategies that explain your base for competing | Planning Team (All staff if doing a survey) | 2 weeks (gather data, review and hold a mini-retreat with Planning Team) | |
Agree on the strategic issues you need to address in the planning process | Planning Team | 2 weeks (gather data, review and hold a mini-retreat with Planning Team) |
The mission statement describes an organization’s purpose or reason for existing.
What is our purpose? Why do we exist? What do we do?
Step 2: discover your values.
Your values statement clarifies what your organization stands for, believes in and the behaviors you expect to see as a result. Check our the post on great what are core values and examples of core values .
How will we behave?
Step 3: casting your vision statement.
A Vision Statement defines your desired future state and directs where we are going as an organization.
Where are we going?
Step 4: identify your competitive advantages.
A competitive advantage is a characteristic of an organization that allows it to meet its customer’s need(s) better than its competition can. It’s important to consider your competitive advantages when creating your competitive strategy.
What are we best at?
Step 5: crafting your organization-wide strategies.
Your competitive strategy is the general methods you intend to use to reach your vision. Regardless of the level, a strategy answers the question “how.”
How will we succeed?
Want More? Deep Dive Into the “Build Your Plan” How-To Guide.
Action | Who is Involved | Tools & Techniques | Estimated Duration |
---|---|---|---|
Develop your strategic framework and define long-term strategic objectives/priorities | Executive Team Planning Team | Strategy Comparison Chart Strategy Map | Leadership Offsite: 1 – 2 days |
Set short-term SMART organizational goals and measures | Executive Team Planning Team | Strategy Comparison Chart Strategy Map | Leadership Offsite: 1 – 2 days |
Select which measures will be your key performance indicators | Executive Team and Strategic Director | Strategy Map | Follow Up Offsite Meeting: 2-4 hours |
If your team wants to take the next step in the SWOT analysis, apply the TOWS Strategic Alternatives Matrix to your strategy map to help you think about the options you could pursue. To do this, match external opportunities and threats with your internal strengths and weaknesses, as illustrated in the matrix below:
External Opportunities (O) | External Threats (T) | |
---|---|---|
Internal Strengths (S) | SO Strategies that use strengths to maximize opportunities. | ST Strategies that use strengths to minimize threats. |
Internal Weaknesses (W) | WO Strategies that minimize weaknesses by taking advantage of opportunities. | WT Strategies that minimize weaknesses and avoid threats. |
Evaluate the options you’ve generated, and identify the ones that give the greatest benefit, and that best achieve the mission and vision of your organization. Add these to the other strategic options that you’re considering.
Long-Term Strategic Objectives are long-term, broad, continuous statements that holistically address all areas of your organization. What must we focus on to achieve our vision? Check out examples of strategic objectives here. What are the “big rocks”?
Outcome: Framework for your plan – no more than 6. You can use the balanced scorecard framework, OKRs, or whatever methodology works best for you. Just don’t exceed 6 long-term objectives.
Once you have formulated your strategic objectives, you should translate them into goals and measures that can be communicated to your strategic planning team (team of business leaders and/or team members).
You want to set goals that convert the strategic objectives into specific performance targets. Effective strategic goals clearly state what, when, how, and who, and they are specifically measurable. They should address what you must do in the short term (think 1-3 years) to achieve your strategic objectives.
Organization-wide goals are annual statements that are SMART – specific, measurable, attainable, responsible, and time-bound. These are outcome statements expressing a result to achieve the desired outcomes expected in the organization.
Outcome: clear outcomes for the current year..
Key Performance Indicators (KPI) are the key measures that will have the most impact in moving your organization forward. We recommend you guide your organization with measures that matter. See examples of KPIs here.
Outcome: 5-7 measures that help you keep the pulse on your performance. When selecting your Key Performance Indicators (KPIs), ask, “What are the key performance measures we need to track to monitor if we are achieving our goals?” These KPIs include the key goals you want to measure that will have the most impact on moving your organization forward.
To move from big ideas to action, creating action items and to-dos for short-term goals is crucial. This involves translating strategy from the organizational level to individuals. Functional area managers and contributors play a role in developing short-term goals to support the organization.
Before taking action, decide whether to create plans directly derived from the strategic plan or sync existing operational, business, or account plans with organizational goals. Avoid the pitfall of managing multiple sets of goals and actions, as this shifts from strategic planning to annual planning.
Department/functional goals, actions, measures and targets for the next 12-24 months
Now in your Departments / Teams, you need to create goals to support the organization-wide goals. These goals should still be SMART and are generally (short-term) something to be done in the next 12-18 months. Finally, you should develop an action plan for each goal.
Keep the acronym SMART in mind again when setting action items, and make sure they include start and end dates and have someone assigned their responsibility. Since these action items support your previously established goals, it may be helpful to consider action items your immediate plans on the way to achieving your (short-term) goals. In other words, identify all the actions that need to occur in the next 90 days and continue this same process every 90 days until the goal is achieved.
1 Increase new customer base. |
1.1 Reach a 15% annual increase in new customers. (Due annually for 2 years) |
1.1.1 Implement marketing campaign to draw in new markets. (Marketing, due in 12 months) |
1.1.1.1 Research the opportunities in new markets that we could expand into. (Doug) (Marketing, due in 6 months) |
1.1.1.1.1 Complete a competitive analysis study of our current and prospective markets. (Doug) (Marketing, due in 60 days) |
1.1.1.2 Develop campaign material for new markets. (Mary) (Marketing, due in 10 months) |
1.1.1.2.1 Research marketing methods best for reaching the new markets. (Mary) (Marketing,due in 8 months) |
Want more? Dive Into the “Managing Performance” How-To Guide.
Action | Who is Involved | Tools & Techniques | Estimated Duration |
---|---|---|---|
Establish implementation schedule | Planning Team | 1-2 hours | |
Train your team to use OnStrategy to manage their part of the plan | HR Team, Department Managers & Teams | 1 hr per team member | |
Review progress and adapt the plan at Quarterly Strategy Reviews (QBR) | Department Teams + Executive Team | Department QBR: 2 hrs Organizational QBR: 4 hrs |
Implementation is the process that turns strategies and plans into actions in order to accomplish strategic objectives and goals.
Once your resources are in place, you can set your implementation schedule. Use the following steps as your base implementation plan:
Monthly strategy meetings don’t need to take a lot of time – 30 to 60 minutes should suffice. But it is important that key team members report on their progress toward the goals they are responsible for – including reporting on metrics in the scorecard they have been assigned.
By using the measurements already established, it’s easy to make course corrections if necessary. You should also commit to reviewing your Key Performance Indicators (KPIs) during these regular meetings. Need help comparing strategic planning software ? Check out our guide.
Never lose sight of the fact that strategic plans are guidelines, not rules. Every six months or so, you should evaluate your strategy execution and strategic plan implementation by asking these key questions:
Guidelines for your strategy review.
The most important part of this meeting is a 70/30 review. 30% is about reviewing performance, and 70% should be spent on making decisions to move the company’s strategy forward in the next quarter.
The best strategic planners spend about 60-90 minutes in the sessions. Holding meetings helps focus your goals on accomplishing top priorities and accelerating the organization’s growth. Although the meeting structure is relatively simple, it does require a high degree of discipline.
Strategic planning frequently asked questions, read our frequently asked questions about strategic planning to learn how to build a great strategic plan..
Strategic planning is when organizations define a bold vision and create a plan with objectives and goals to reach that future. A great strategic plan defines where your organization is going, how you’ll win, who must do what, and how you’ll review and adapt your strategy..
Your strategic plan needs to include an assessment of your current state, a SWOT analysis, mission, vision, values, competitive advantages, growth strategy, growth enablers, a 3-year roadmap, and annual plan with strategic goals, OKRs, and KPIs.
A strategic planning process should take no longer than 90 days to complete from start to finish! Any longer could fatigue your organization and team.
There are four overarching phases to the strategic planning process that include: determining position, developing your strategy, building your plan, and managing performance. Each phase plays a unique but distinctly crucial role in the strategic planning process.
Prior to starting your strategic plan, you must go through this pre-planning process to determine your organization’s readiness by following these steps:
Ask yourself these questions: Are the conditions and criteria for successful planning in place now? Can we foresee any pitfalls that we can avoid? Is there an appropriate time for our organization to initiate this process?
Develop your team and schedule. Who will oversee the implementation as Chief Strategy Officer or Director? Do we have at least 12-15 other key individuals on our team?
Research and Collect Current Data. Find the following resources that your organization may have used in the past to assist you with your new plan: last strategic plan, mission, vision, and values statement, business plan, financial records, marketing plan, SWOT, sales figures, or projections.
Finally, review the data with your strategy director and facilitator and ask these questions: What trends do we see? Any obvious strengths or weaknesses? Have we been following a plan or just going along with the market?
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The art of formulating business strategies, implementing them, and evaluating their impact based on organizational objectives
Strategic planning is the art of creating specific business strategies, implementing them, and evaluating the results of executing the plan, in regard to a company’s overall long-term goals or desires. It is a concept that focuses on integrating various departments (such as accounting and finance, marketing, and human resources) within a company to accomplish its strategic goals. The term strategic planning is essentially synonymous with strategic management.
The concept of strategic planning originally became popular in the 1950s and 1960s, and enjoyed favor in the corporate world up until the 1980s, when it somewhat fell out of favor. However, enthusiasm for strategic business planning was revived in the 1990s and strategic planning remains relevant in modern business.
CFI’s Course on Corporate & Business Strategy is an elective course for the FMVA Program.
The strategic planning process requires considerable thought and planning on the part of a company’s upper-level management. Before settling on a plan of action and then determining how to strategically implement it, executives may consider many possible options. In the end, a company’s management will, hopefully, settle on a strategy that is most likely to produce positive results (usually defined as improving the company’s bottom line) and that can be executed in a cost-efficient manner with a high likelihood of success, while avoiding undue financial risk.
The development and execution of strategic planning are typically viewed as consisting of being performed in three critical steps:
In the process of formulating a strategy, a company will first assess its current situation by performing an internal and external audit. The purpose of this is to help identify the organization’s strengths and weaknesses, as well as opportunities and threats ( SWOT Analysis ). As a result of the analysis, managers decide on which plans or markets they should focus on or abandon, how to best allocate the company’s resources, and whether to take actions such as expanding operations through a joint venture or merger.
Business strategies have long-term effects on organizational success. Only upper management executives are usually authorized to assign the resources necessary for their implementation.
After a strategy is formulated, the company needs to establish specific targets or goals related to putting the strategy into action, and allocate resources for the strategy’s execution. The success of the implementation stage is often determined by how good a job upper management does in regard to clearly communicating the chosen strategy throughout the company and getting all of its employees to “buy into” the desire to put the strategy into action.
Effective strategy implementation involves developing a solid structure, or framework, for implementing the strategy, maximizing the utilization of relevant resources, and redirecting marketing efforts in line with the strategy’s goals and objectives.
Any savvy business person knows that success today does not guarantee success tomorrow. As such, it is important for managers to evaluate the performance of a chosen strategy after the implementation phase.
Strategy evaluation involves three crucial activities: reviewing the internal and external factors affecting the implementation of the strategy, measuring performance, and taking corrective steps to make the strategy more effective. For example, after implementing a strategy to improve customer service, a company may discover that it needs to adopt a new customer relationship management (CRM) software program in order to attain the desired improvements in customer relations.
All three steps in strategic planning occur within three hierarchical levels: upper management, middle management, and operational levels. Thus, it is imperative to foster communication and interaction among employees and managers at all levels, so as to help the firm to operate as a more functional and effective team.
The volatility of the business environment causes many firms to adopt reactive strategies rather than proactive ones. However, reactive strategies are typically only viable for the short-term, even though they may require spending a significant amount of resources and time to execute. Strategic planning helps firms prepare proactively and address issues with a more long-term view. They enable a company to initiate influence instead of just responding to situations.
Among the primary benefits derived from strategic planning are the following:
This is often the most important benefit. Some studies show that the strategic planning process itself makes a significant contribution to improving a company’s overall performance, regardless of the success of a specific strategy.
Communication is crucial to the success of the strategic planning process. It is initiated through participation and dialogue among the managers and employees, which shows their commitment to achieving organizational goals.
Strategic planning also helps managers and employees show commitment to the organization’s goals. This is because they know what the company is doing and the reasons behind it. Strategic planning makes organizational goals and objectives real, and employees can more readily understand the relationship between their performance, the company’s success, and compensation. As a result, both employees and managers tend to become more innovative and creative, which fosters further growth of the company.
The increased dialogue and communication across all stages of the process strengthens employees’ sense of effectiveness and importance in the company’s overall success. For this reason, it is important for companies to decentralize the strategic planning process by involving lower-level managers and employees throughout the organization. A good example is that of the Walt Disney Co., which dissolved its separate strategic planning department, in favor of assigning the planning roles to individual Disney business divisions.
An increasing number of companies use strategic planning to formulate and implement effective decisions. While planning requires a significant amount of time, effort, and money, a well-thought-out strategic plan efficiently fosters company growth, goal achievement, and employee satisfaction.
Thank you for reading CFI’s guide to Strategic Planning. To keep learning and advancing your career, the additional CFI resources below will be useful:
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In conference rooms everywhere, corporate planners are in the midst of the annual strategic-planning process. For the better part of a year, they collect financial and operational data, make forecasts, and prepare lengthy presentations with the CEO and other senior managers about the future direction of the business. But at the end of this expensive and time-consuming process, many participants say they are frustrated by its lack of impact on either their own actions or the strategic direction of the company.
This sense of disappointment was captured in a recent McKinsey Quarterly survey of nearly 800 executives: just 45 percent of the respondents said they were satisfied with the strategic-planning process. 1 1. “ Improving strategic planning: A McKinsey Survey ,” The McKinsey Quarterly , Web exclusive, September 2006. The survey, conducted in late July and early August 2006, received 796 responses from a panel of executives from around the world. All panelists have mostly financial or strategic responsibilities and work in a wide range of industries for organizations with revenues of at least $500 million. Moreover, only 23 percent indicated that major strategic decisions were made within its confines. Given these results, managers might well be tempted to jettison the planning process altogether.
But for those working in the overwhelming majority of corporations, the annual planning process plays an essential role. In addition to formulating at least some elements of a company’s strategy, the process results in a budget, which establishes the resource allocation map for the coming 12 to 18 months; sets financial and operating targets, often used to determine compensation metrics and to provide guidance for financial markets; and aligns the management team on its strategic priorities. The operative question for chief executives is how to make the planning process more effective—not whether it is the sole mechanism used to design strategy. CEOs know that strategy is often formulated through ad hoc meetings or brand reviews, or as a result of decisions about mergers and acquisitions.
Our research shows that formal strategic-planning processes play an important role in improving overall satisfaction with strategy development. That role can be seen in the responses of the 79 percent of managers who claimed that the formal planning process played a significant role in developing strategies and were satisfied with the approach of their companies, compared with only 21 percent of the respondents who felt that the process did not play a significant role. Looked at another way, 51 percent of the respondents whose companies had no formal process were dissatisfied with their approach to the development of strategy, against only 20 percent of those at companies with a formal process.
So what can managers do to improve the process? There are many ways to conduct strategic planning, but determining the ideal method goes beyond the scope of this article. Instead we offer, from our research, five emergent ideas that executives can employ immediately to make existing processes run better. The changes we discuss here (such as a focus on important strategic issues or a connection to core-management processes) are the elements most linked with the satisfaction of employees and their perceptions of the significance of the process. These steps cannot guarantee that the right strategic decisions will be made or that strategy will be better executed, but by enhancing the planning process—and thus increasing satisfaction with the development of strategy—they will improve the odds for success.
Ask CEOs what they think strategic planning should involve and they will talk about anticipating big challenges and spotting important trends. At many companies, however, this noble purpose has taken a backseat to rigid, data-driven processes dominated by the production of budgets and financial forecasts. If the calendar-based process is to play a more valuable role in a company’s overall strategy efforts, it must complement budgeting with a focus on strategic issues. In our experience, the first liberating change managers can make to improve the quality of the planning process is to begin it by deliberately and thoughtfully identifying and discussing the strategic issues that will have the greatest impact on future business performance.
Granted, an approach based on issues will not necessarily yield better strategic results. The music business, for instance, has discussed the threat posed by digital-file sharing for years without finding an effective way of dealing with the problem. But as a first step, identifying the key issues will ensure that management does not waste time and energy on less important topics.
We found a variety of practical ways in which companies can impose a fresh strategic perspective. For instance, the CEO of one large health care company asks the leaders of each business unit to imagine how a set of specific economic, social, and business trends will affect their businesses, as well as ways to capture the opportunities—or counter the threats—that these trends pose. Only after such an analysis and discussion do the leaders settle into the more typical planning exercises of financial forecasting and identifying strategic initiatives.
One consumer goods organization takes a more directed approach. The CEO, supported by the corporate-strategy function, compiles a list of three to six priorities for the coming year. Distributed to the managers responsible for functions, geographies, and brands, the list then becomes the basis for an offsite strategy-alignment meeting, where managers debate the implications of the priorities for their particular organizations. The corporate-strategy function summarizes the results, adds appropriate corporate targets, and shares them with the organization in the form of a strategy memo, which serves as the basis for more detailed strategic planning at the division and business-unit levels.
A packaged-goods company offers an even more tailored example. Every December the corporate senior-management team produces a list of ten strategic questions tailored to each of the three business units. The leaders of these businesses have six months to explore and debate the questions internally and to come up with answers. In June each unit convenes with the senior-management team in a one-day meeting to discuss proposed actions and reach decisions.
Some companies prefer to use a bottom-up rather than top-down process. We recently worked with a sales company to design a strategic-planning process that begins with in-depth interviews (involving all of the senior managers and selected corporate and business executives) to generate a list of the most important strategic issues facing the company. The senior-management team prioritizes the list and assigns managers to explore each issue and report back in four to six weeks. Such an approach can be especially valuable in companies where internal consensus building is an imperative.
An issues-based approach won’t do much good unless the most relevant people are involved in the debate. We found that survey respondents who were satisfied with the strategic-planning process rated it highly on dimensions such as including the most knowledgeable and influential participants, stimulating and challenging the participants’ thinking, and having honest, open discussions about difficult issues. In contrast, 27 percent of the dissatisfied respondents reported that their company’s strategic planning had not a single one of these virtues. Such results suggest that too many companies focus on the data-gathering and packaging elements of strategic planning and neglect the crucial interactive components.
Strategic conversations will have little impact if they involve only strategic planners from both the business unit and the corporate levels. One of our core beliefs is that those who carry out strategy should also develop it. The key strategy conversation should take place among corporate decision makers, business unit leaders, and people with expertise essential to the discussion. In addition to leading the corporate review, the CEO, aided by members of the executive team, should as a rule lead the strategy review for business units as well. The head of a business unit, supported by four to six people, should direct the discussion from its side of the table (see sidebar, "Things to ask in any business unit review").
Are major trends and changes in your business unit’s environment affecting your strategic plan? Specifically, what potential developments in customer demand, technology, or the regulatory environment could have enough impact on the industry to change the entire plan?
How and why is this plan different from last year’s?
What were your forecasts for market growth, sales, and profitability last year, two years ago, and three years ago? How right or wrong were they? What did the business unit learn from those experiences?
What would it take to double your business unit’s growth rate and profits? Where will growth come from: expansion or gains in market share?
If your business unit plans to take market share from competitors, how will it do so, and how will they respond? Are you counting on a strategic advantage or superior execution?
What are your business unit’s distinctive competitive strengths, and how does the plan build on them?
How different is the strategy from those of competitors, and why? Is that a good or a bad thing?
Beyond the immediate planning cycle, what are the key issues, risks, and opportunities that we should discuss today?
What would a private-equity owner do with this business?
How will the business unit monitor the execution of this strategy?
One pharmaceutical company invites business unit leaders to take part in the strategy reviews of their peers in other units. This approach can help build a better understanding of the entire company and, especially, of the issues that span business units. The risk is that such interactions might constrain the honesty and vigor of the dialogue and put executives at the focus of the discussion on the defensive.
Corporate senior-management teams can dedicate only a few hours or at most a few days to a business unit under review. So team members should spend this time in challenging yet collaborative discussions with business unit leaders rather than trying to absorb many facts during the review itself. To provide some context for the discussion, best-practice companies disseminate important operational and financial information to the corporate review team well in advance of such sessions. This reading material should also tee up the most important issues facing the business and outline the proposed strategy, ensuring that the review team is prepared with well-thought-out questions. In our experience, the right 10 pages provide ample fuel to fire a vigorous discussion, but more than 25 pages will likely douse the level of energy or engagement in the room.
Managers are justifiably concerned about the resources and time required to implement an issues-based strategic-planning approach. One easy—yet rarely adopted—solution is to free business units from the need to conduct this rigorous process every single year. In all but the most volatile, high-velocity industries, it is hard to imagine that a major strategic redirection will be necessary every planning cycle. In fact, forcing businesses to undertake this exercise annually is distracting and may even be detrimental. Managers need to focus on executing the last plan’s major initiatives, many of which can take 18 to 36 months to implement fully.
Some companies alternate the business units that undergo the complete strategic-planning process (as opposed to abbreviated annual updates of the existing plan). One media company, for example, requires individual business units to undertake strategic planning only every two or three years. This cadence enables the corporate senior-management team and its strategy group to devote more energy to the business units that are “at bat.” More important, it frees the corporate-strategy group to work directly with the senior team on critical issues that affect the entire company—issues such as developing an integrated digitization strategy and addressing unforeseen changes in the fast-moving digital-media landscape.
Other companies use trigger mechanisms to decide which business units will undergo a full strategic-planning exercise in a given year. One industrial company assigns each business unit a color-coded grade—green, yellow, or red—based on the unit’s success in executing the existing strategic plan. “Code red,” for example, would slate a business unit for a strategy review. Although many of the metrics that determine the grade are financial, some may be operational to provide a more complete assessment of the unit’s performance.
Freeing business units from participating in the strategic-planning process every year raises a caveat, however. When important changes in the external environment occur, senior managers must be able to engage with business units that are not under review and make major strategic decisions on an ad hoc basis. For instance, a major merger in any industry would prompt competitors in it to revisit their strategies. Indeed, one advantage of a tailored planning cycle is that it builds slack into the strategic-review system, enabling management to address unforeseen but pressing strategic issues as they arise.
In the end, many companies fail to execute the chosen strategy. More than a quarter of our survey respondents said that their companies had plans but no execution path. Forty-five percent reported that planning processes failed to track the execution of strategic initiatives. All this suggests that putting in place a system to measure and monitor their progress can greatly enhance the impact of the planning process.
Most companies believe that their existing control systems and performance-management processes (including budgets and operating reviews) are the sole way to monitor progress on strategy. As a result, managers attempt to translate the decisions made during the planning process into budget targets or other financial goals. Although this practice is sensible and necessary, it is not enough. We estimate that a significant portion of the strategic decisions we recommend to companies can’t be tracked solely through financial targets. A company undertaking a major strategic initiative to enhance its innovation and product-development capabilities, for example, should measure a variety of input metrics, such as the quality of available talent and the number of ideas and projects at each stage in development, in addition to pure output metrics such as revenues from new-product sales. One information technology company, for instance, carefully tracks the number and skill levels of people posted to important strategic projects.
Strategic-performance-management systems, which should assign accountability for initiatives and make their progress more transparent, can take many forms. One industrial corporation tracks major strategic initiatives that will have the greatest impact, across a portfolio of a dozen businesses, on its financial and strategic goals. Transparency is achieved through regular reviews and the use of financial as well as nonfinancial metrics. The corporate-strategy team assumes responsibility for reviews (chaired by the CEO and involving the relevant business-unit leaders) that use an array of milestones and metrics to assess the top ten initiatives. One to expand operations in China and India, for example, would entail regular reviews of interim metrics such as the quality and number of local employees recruited and the pace at which alliances are formed with channel partners or suppliers. Each business unit, in turn, is accountable for adopting the same performance-management approach for its own, lower-tier top-ten list of initiatives.
When designed well, strategic-performance-management systems can give an early warning of problems with strategic initiatives, whereas financial targets alone at best provide lagging indicators. An effective system enables management to step in and correct, redirect, or even abandon an initiative that is failing to perform as expected. The strategy of a pharmaceutical company that embarked on a major expansion of its sales force to drive revenue growth, for example, presupposed that rapid growth in the number of sales representatives would lead to a corresponding increase in revenues. The company also recognized, however, that expansion was in turn contingent on several factors, including the ability to recruit and train the right people. It therefore put in place a regular review of the key strategic metrics against its actual performance to alert managers to any emerging problems.
Simply monitoring the execution of strategic initiatives is not sufficient: their successful implementation also depends on how managers are evaluated and compensated. Yet only 36 percent of the executives we surveyed said that their companies’ strategic-planning processes were integrated with HR processes. One way to create a more valuable strategic-planning process would be to tie the evaluation and compensation of managers to the progress of new initiatives.
Although the development of strategy is ostensibly a long-term endeavor, companies traditionally emphasize short-term, purely financial targets—such as annual revenue growth or improved margins—as the sole metrics to gauge the performance of managers and employees. This approach is gradually changing. Deferred-compensation models for boards, CEOs, and some senior managers are now widely used. What’s more, several companies have added longer-term performance targets to complement the short-term ones. A major pharmaceutical company, for example, recently revamped its managerial-compensation structure to include a basket of short-term financial and operating targets as well as longer-term, innovation-based growth targets.
Although these changes help persuade managers to adopt both short- and long-term approaches to the development of strategy, they don’t address the need to link evaluation and compensation to specific strategic initiatives. One way of doing so is to craft a mix of performance targets that more appropriately reflect a company’s strategy. For example, one North American services business that launched strategic initiatives to improve its customer retention and increase sales also adjusted the evaluation and compensation targets for its managers. Rather than measuring senior managers only by revenue and margin targets, as it had done before, it tied 20 percent of their compensation to achieving its retention and cross-selling goals. By introducing metrics for these specific initiatives and linking their success closely to bonus packages, the company motivated managers to make the strategy succeed.
An advantage of this approach is that it motivates managers to flag any problems early in the implementation of a strategic initiative (which determines the size of bonuses) so that the company can solve them. Otherwise, managers all too often sweep the debris of a failing strategy under the operating rug until the spring-cleaning ritual of next year’s annual planning process.
Some business leaders have found ways to give strategic planning a more valuable role in the formulation as well as the execution of strategy. Companies that emulate their methods might find satisfaction instead of frustration at the end of the annual process.
Renée Dye is a consultant in McKinsey’s Atlanta office, and Olivier Sibony is a director in the Paris office.
This article was first published in the Autumn 2007 issue of McKinsey on Finance . Visit McKinsey’s corporate finance site to view the full issue.
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Strategic direction: why is it important for business.
Strategic direction is critical to propelling companies forward and enacting meaningful change. It helps create a strong structure and determines what each department, as well as each individual employee, is responsible for.
It gives your organisation clear purpose and objectives, and ensures that everyone knows how they are helping to achieve them.
Strategic direction consists of determining the core processes and values that position you to succeed – your mission, vision, daily operations, how you bring your team into alignment, and what you do to generate positive morale.
Strategic analysis, including management tools such as SWOT and MOST Analysis , helps teams, departments, and organisations get from where they are now to where they want to be, unified with a strong direction and common goals.
According to Investopedia the 4 main reasons businesses fail are:
All of these areas should be covered in your Business Strategy which needs to be reviewed regularly. Monthly for big businesses and quarterly for small businesses.
The kind of scrutiny and reflection you need to develop your strategic direction in the first place means you would be aware of the strengths and weaknesses internal to your company and the opportunities and threats external to your company.
Using MOST Analysis you can create an actionable business strategy that drills right down into the tactics that individuals need to action in order to support the strategies that in turn support the objectives that help the business achieve its mission.
Keeping this under review means you can more easily spot when things are working or not working and take remedial action in a timely manner.
Strategic direction is also the single most important thing that board advisors help businesses with.
Once business strategy or corporate strategy has been decided upon, your business can then move into planning.
If you would like to discuss how Boardroom Advisors could support you in developing your strategic direction contact us to speak with your local Regional Director.
1. the business strategy toolkit.
The Business Strategy Toolkit will help you create a new business strategy or review your existing strategy to ensure you have the best plan in place for your business growth.
This free resource includes a video tutorial on how to use all the tools in the kit and how to develop your strategic direction for your business.
This Essential Guide to Scale-up Business Challenges eBook provides an easy reference to all the different challenges you are likely to encounter as your business grows. It’s designed to help reflect on each challenge and provides suggestions for how to tackle them and get support.
Learn about how to overcome the challenges when scaling up your business.
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The Scale-up Growth Diagnostic asks 32 questions across the topics of Strategy, Sales and Marketing to provide a score for each section and an overall growth score. Your report will be packed with recommendations based on your scores and includes a priority list for low scoring areas.
Each of your Board members can take the diagnostic to see if you are all aligned. You can also use it to benchmark so you can make and measure improvements.
Complete the growth diagnostic to get your personalised scorecard and priority list.
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❖ Business Planning – have you got a business plan that would impress potential investors? Make sure your business plan includes all the essential elements you need so you don’t lose out on great opportunities. A weak business plan will cost you wasted time as well as potentially missing out on timely cash injections.
❖ Business Growth – do you have the strategies and tactics in place that you need to scale-up your business? Having a well thought out and clear growth strategy means you can drive your sales and profits in the right direction and scale-up with confidence.
❖ Monitoring Performance – having measures of success in place is essential to the success of your growth strategy. Using hard numbers in your mission means you can work backwards to see exactly what changes you need to make to take the steps you need to achieve your goals.
Why do you need a business valuation.
You can’t rely solely on a good product or service to survive in today’s business climate. With all of the complexities of running a business, you often don’t know what you don’t know. In the last 40 years, small businesses have more than doubled. That’s a lot of competitors, and to stay afloat, you need to be on top of…
Businesses are established to thrive in the market. If you’re a business owner, you understand that you always have to look forward and aim for the next level. Planning it into your growth strategy is the only way to keep your business in the game. However, growing your business can be a complicated venture. There are several costs, processes, and…
What is “strategic” business planning? In order to start or grow your business, it’s best to plan ahead by setting your goals and creating a method to achieve them. However, if you want the best chance of success, you have to be strategic about it. What does being “strategic” mean in this context? For business owners, being strategic means that…
At whatever stage, the key to a successful business is a well-written business plan. It’s a simple document that articulates your goals and the step-by-step process of how to achieve them. It doesn’t matter if you’re just starting out or growing an established business because you’ll still need a plan so that you’re not just taking action blindly. Why you…
Are you an aspiring business owner with an idea to grow into a business, but unsure of how to turn it into reality? Are you already trying out a business strategy, but it isn’t producing the results you expected? One solution to your problem is to simply create a strategic business plan. A business plan is a written document of…
Businesses create strategies with the intention of succeeding, but these plans can sometimes fall short. And when failure happens, it can be frustrating for business owners since they’ve spent a lot of time and resources. In order to avoid this fate, especially for scale-ups that are gearing towards growing exponentially, it’s important to understand how business strategies fail. The reason…
When you make your business plan, you set out what you want the future of your business to be. No matter how experienced the planner, no one can accurately predict the future, and it’s good to recognise when it’s time for the business’s path to change. There’s a few situations where going back to your business plan is a good…
Strategic direction is important for any business, but it’s particularly important when scaling up your business. A Scale-up business has ambitions of growing quickly with a significant upwards trajectory, which isn’t something to rush. The successful execution of a strategy requires clear and concise goals, as well as a plan to achieve them. Without a strategic direction, a business can…
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Every business leader wants their organization to succeed. Turning a profit and satisfying stakeholders are worthy objectives but aren’t feasible without an effective business strategy.
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Business strategy is the strategic initiatives a company pursues to create value for the organization and its stakeholders and gain a competitive advantage in the market. This strategy is crucial to a company's success and is needed before any goods or services are produced or delivered.
According to Harvard Business School Online's Business Strategy course, an effective strategy is built around three key questions:
Many promising business initiatives don’t come to fruition because the company failed to build its strategy around value creation. Creativity is important in business , but a company won't last without prioritizing value.
A business strategy is foundational to a company's success. It helps leaders set organizational goals and gives companies a competitive edge. It determines various business factors, including:
Without a clear business strategy, a company can't create value and is unlikely to succeed.
To craft a successful business strategy, it's necessary to obtain a thorough understanding of value creation. In the online course Business Strategy , Harvard Business School Professor Felix Oberholzer-Gee explains that, at its core, value represents a difference. For example, the difference between a customer's willingness to pay for a good or service and its price represents the value the business has created for the customer. This difference can be visualized with a tool known as the value stick.
The value stick has four components, representing the value a strategy can bring different stakeholders.
The difference between each component represents the value created for each stakeholder. A business strategy seeks to widen these gaps, increasing the value created by the firm’s endeavors.
The difference between a customer's WTP and the price is known as customer delight . An effective business strategy creates value for customers by raising their WTP or decreasing the price of the company’s goods or services. The larger the difference between the two, the more value is created for customers.
A company might focus on increasing WTP with its marketing strategy. Effective market research can help a company set its pricing strategy by determining target customers' WTP and finding ways to increase it. For example, a business might differentiate itself and increase customer loyalty by incorporating sustainability into its business strategy. By aligning its values with its target audiences', an organization can effectively raise consumers' WTP.
The value created for the firm is the difference between the price of an item and its cost to produce. This difference is known as the firm’s margin and represents the strategy's financial success. One metric used to quantify this margin is return on invested capital (ROIC) . This metric compares a business's operating income with the capital necessary to generate it. The formula for ROIC is:
Return on Invested Capital = Net Operating Cost After Tax (NOCAT) / Invested Capital (IC)
ROIC tells investors how successful a company is at turning its investments into profit. By raising WTP, a company can risk increasing prices, thereby increasing firm margin. Business leaders can also increase this metric by decreasing their costs. For example, sustainability initiatives—in addition to raising WTP—can lower production costs by using fewer or more sustainable resources. By focusing on the triple bottom line , a firm can simultaneously increase customer delight and margin.
By decreasing suppliers' WTS, or increasing costs, a company can create value for suppliers—or supplier surplus . Since increasing costs isn't sustainable, an effective business strategy seeks to create value for suppliers by decreasing WTS. How a company accomplishes this varies. For example, a brick-and-mortar company might partner with vendors to showcase its products in exchange for a discount. Suppliers may also be willing to offer a discount in exchange for a long-term contract.
In addition to supplier WTS, companies are also responsible for creating value for another key stakeholder: its employees. The difference between employee compensation and the minimum they're willing to receive is employee satisfaction . There are several ways companies can increase this difference, including:
There are several ways to increase supplier surplus and employee satisfaction without hurting the company's bottom line. Unfortunately, most managers only devote seven percent of their time to developing employees and engaging stakeholders. Yet, a successful strategy creates value for every stakeholder—both internal and external.
Crafting a business strategy is just the first step in the process. Implementation takes a strategy from formulation to execution . Successful implementation includes the following steps :
Throughout the process, it's important to remember to adjust your plan throughout its execution but to avoid second-guessing your decisions. Striking this balance is challenging, but crucial to a business strategy's success.
Business strategy constantly evolves with changing consumer expectations and market conditions. For this reason, business leaders should continuously educate themselves on creating and executing an effective strategy.
One of the best ways to stay up-to-date on best practices is to take an online course, such as HBS Online's Business Strategy program. The course will provide guidance on creating a value-driven strategy for your business.
Do you want to learn how to craft an effective business strategy and create value for your company's stakeholders? Explore our online course Business Strategy , or other strategy courses , to develop your strategic planning skills. To determine which strategy course is right for you, download our free flowchart .
by Graham Kenny , Marek Kowalkiewicz and Kim Oosthuizen
For business leaders, especially at relatively small companies, the idea of applying gen AI to strategic planning is mouthwatering. This article explores the potential and limits of AI in helping such companies chart their strategies. Through the lens of two disguised case studies the authors show how gen AI can help companies identify some challenges and opportunities that managers missed, overcoming the human biases, but by the same token missed some possibilities rooted in the company’s specific capabilities. And although gen AI was less able to imagine possible future scenarios because its forecasts were entirely rooted in historical data, clever promoting enabled it to surface issues and questions that human managers ignored. The authors conclude that knowing gen AI’s weaknesses allows managers to take advantage of its strengths. The key is to view gen AI as a tool that augments, rather than replaces, your strategic thinking and decision-making.
The business community is all atwitter at the prospect that gen AI — through the likes of ChatGPT, you.com, and Claude.ai — will revolutionize business decision-making. Sam Altman, CEO of OpenAI, even declared “you are about to enter the greatest golden age of human possibility.”
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Here are the main components of strategic direction: Vision: A vision is a future-oriented, aspirational statement describing where the organization wants to be.It provides a clear idea of what the organization seeks to achieve in the long run. Mission: A mission statement describes the organization's purpose or reason for existence.It clarifies the organization's core business and its ...
Strategic planning is a business process that helps you define and share the direction your company will take in the next three to five years. During the strategic planning process, stakeholders review and define the organization's mission and goals, conduct competitive assessments, and identify company goals and objectives.
The primary purpose of a strategic business plan is to provide direction and guidance to the company's management team and stakeholders. The plan typically covers a period of three to five years. Operational business plan. An operational business plan is a detailed document that outlines the day-to-day operations of a business.
Your strategic planning process should start well before you write your strategic plan. The pre-planning phase is crucial for gathering the data and strategic insights necessary to create an effective plan. 1. Conduct Strategic Analysis. Strategic analysis is a crucial step before writing your strategic plan.
3. Create Value for Customers. With an understanding of the market and your company's purpose, you can determine how your organization provides unique or greater value and strategize ways to improve. On the value stick, the value captured by customers is called "customer delight.".
1. Basic model. The basic strategic planning model is ideal for establishing your company's vision, mission, business objectives, and values. This model helps you outline the specific steps you need to take to reach your goals, monitor progress to keep everyone on target, and address issues as they arise.
Strategic planning is the ongoing organizational process of using available knowledge to document a business's intended direction. This process is used to prioritize efforts, effectively allocate resources, align shareholders and employees, and ensure organizational goals are backed by data and sound reasoning. ...
Strategic plans bridge the gap from overall direction to specific projects and day-to-day actions that ultimately execute the strategy. Job No. 1 is to know the difference between strategy and strategic plans — and why it matters. Strategy defines the long-term direction of the enterprise. It articulates what the enterprise will do to compete ...
Strategic planning is not a to-do list for the short or long term — it is the basis of a business, its direction, and how it will get there. ... vision, and strategic plan. "[Strategic management] closes the gap between the plan and executing the strategy," Stockmal of ASP says. Strategic management is part of a larger planning process ...
Estimated Duration. Determine organizational readiness. Owner/CEO, Strategy Director. Readiness assessment. Establish your planning team and schedule. Owner/CEO, Strategy Leader. Kick-Off Meeting: 1 hr. Collect and review information to help make the upcoming strategic decisions. Planning Team and Executive Team.
The goal of developing a strategic plan is to ensure everyone in the business is aligned when it comes to your small business's goals and objectives, as well as to create a formal strategic plan document. 1. Discussion Phase. The discussion phase is meant to gather as much information, opinions, and input as possible.
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Strategic planning is the ongoing organizational process of using available knowledge to document a business's intended direction. This process is used to prioritize efforts, effectively allocate resources, align shareholders and employees on the organization's goals, and ensure those goals are backed by data and sound reasoning. It's ...
Summary. Many strategic plans aren't strategic, or even plans. To fix that, try a six step process: first, identify key stakeholders. Second, identify a specific, very important key stakeholder ...
Strategic planning is the art of formulating business strategies, implementing them, and evaluating their impact on organizational objectives. ... The term strategic planning is essentially synonymous with strategic management. The concept of strategic planning originally became popular in the 1950s and 1960s, and enjoyed favor in the corporate ...
A strategic plan is more than just a business tool, it also plays a key role in defining operational, cultural, and workplace ethics. Here are some of the key aspects of the importance of strategic planning: 1. Provides a unified goal . A strategic plan is like a unified action plan for the whole company in order to achieve common outcomes.
In conference rooms everywhere, corporate planners are in the midst of the annual strategic-planning process. For the better part of a year, they collect financial and operational data, make forecasts, and prepare lengthy presentations with the CEO and other senior managers about the future direction of the business. But at the end of this ...
Save. Summary. Chief strategy officers and those responsible for shaping the direction of their organizations are often asked to facilitate "visioning" meetings. This helps teams brainstorm ...
Describe Your Services or Products. The business plan should have a section that explains the services or products that you're offering. This is the part where you can also describe how they fit ...
Identify your future direction and include your stakeholders in the process. You can involve them through various ways such as meetings or phone surveys. Set periodic goals. Create short-, medium- and long-term goals. Start with your long-term goals that can ultimately help you achieve your mission and vision.
Strategic direction consists of determining the core processes and values that position you to succeed - your mission, vision, daily operations, how you bring your team into alignment, and what you do to generate positive morale. Strategic analysis, including management tools such as SWOT and MOST Analysis, helps teams, departments, and ...
Business strategy is the strategic initiatives a company pursues to create value for the organization and its stakeholders and gain a competitive advantage in the market. This strategy is crucial to a company's success and is needed before any goods or services are produced or delivered. According to Harvard Business School Online's Business ...
7 examples of strategic direction. Here are some common examples of strategic direction: 1. Mission. A mission establishes a company's purpose, explains why it exists and supports its future objectives. Companies use their mission statement as a guide for meeting their goals and communicating their direction to stakeholders.
For business leaders, especially at relatively small companies, the idea of applying gen AI to strategic planning is mouthwatering. This article explores the potential and limits of AI in helping ...
2. Shift the focus away from financial precision and toward strategic success. This turns the targeted outcomes developed in step one into strategic portfolio guidelines for determining budgets ...