Why your company needs a strategic plan

Goals become clear and reachable when you establish objectives, strategies, and tactics for conducting your business.

Duncan MacVicar

Strategic planning has a bad reputation. People think of it as a laborious process to produce a document that will just languish on a shelf. Many business managers consider strategic planning to be a waste of time. But these perceptions aren`t really accurate. A company needs a strategic plan for the same reason that a ship needs a rudder--to steer it. Strategic planning should be an integral part of your business.

Just about every business has a strategic plan. The problem is that, often, the plan exists only in the mind of the CEO. Think how much more efficient companies would be if these CEOs would communicate their plans to their people. Everybody in the organization would be pulling in the same direction. Customers would remain loyal in the face of competitors, knowing that the next-generation product they need is on the way. Employees, understanding the general direction of the business, would invent new initiatives in pursuit of the company`s objectives. Better yet, think of how vital the company would become if a number of the employees were involved in generating the plan and, therefore, were motivated to carry it out!

How to prepare your plan

Strategic planning doesn`t have to be laborious. It does, however, require an investment of time, especially the first time you go through the process (see "Drawing up your strategic plan," p. 106). The investment is returned later, as you progress straight toward your goals, having worked through the important issues of your business. What`s more, the process becomes much faster and easier to do the second time around.

The managers who run the business should be the ones who prepare the strategic plan. Managers who are involved in preparing a plan will be more motivated to carry it out than those not involved. In fact, it`s been my observation that the success of a strategic plan depends more on the dedication of the management team than on the quality of the plan. The team can be augmented by a few key individuals one level down, but it must include the director of each major function--product development, marketing, manufacturing, and finance.

You`ll want to limit the number of people in your planning team to less than ten, to allow vigorous discussion of issues. The leader of the discussions can be an outside facilitator, the president or general manager, or another member of the team. It is often the director of marketing or business development.

Situation analysis. The first task of planning is to assess your situation. The team should review recent financial performance data and relevant marketing data. Next, you should evaluate the strengths and weaknesses of your organization and your products, followed by the same analysis of major competitors. Finally, the team should look outside the company for forces that could constitute unfavorable threats to the business. Among these are customers, demographics, economic trends, and governments.

Evaluation of opportunities. The second step in strategic planning is to identify and evaluate the various opportunities available to the business. They are usually closely related to your present technology or market positions, but they sometimes constitute diversification. You should consult a wide range of sources in search of these opportunities. In addition to the sources used in the situation analysis, look for researchers, industry experts, academics, consultants, and company employees. Evaluating opportunities involves some data gathering and considerable discussion.

As you sort through all this information, keep in mind that, in deciding which opportunities to pursue, the key factor is your competitive advantage. Your chances of success are best in areas where your competitive advantage is greatest. Certainly, you should not diversify into a new business unless that advantage is sustainable.

Mission statement. If the future nature of your business is clear at this point, you can create your mission statement. In some circumstances, for instance, if your business is planning a major diversification, you might want to define your mission after you have devised your strategies, and a clearer picture of the future emerges.

Objectives. The planning team should set objectives for the business prior to strategizing. In this way, you can evaluate your strategies against the objective measures. I am often asked, "How many objectives should a business have?" The answer depends largely on the business and the team`s personality, but I suggest between three and nine. Objectives for high-tech manufacturers usually arise from these categories: size, efficiency, markets, products, quality, employees, culture, and contributions to society.

Strategies. Now the fun begins. In your initial work, you identified strengths to exploit, weaknesses to cover, threats to counter, and opportunities to pursue. Each of these entries should be discussed to determine whether a business strategy is needed to address it. For example, a weakness in European distribution might be addressed with the strategy, "Improve distribution channels in Europe, to counter the strength of [competitor A] and increase market share." Or, an opportunity represented by changing integrated-circuit (IC) geometries could be addressed, "Design a new generation of instruments capable of performing measurements on 300-mm wafers, to be positioned to participate in the next generation of IC technology."

Tactical plans. Some business experts would say that tactics don`t belong in a strategic plan. But my experience doesn`t bear that out. Brief references to tactics help explain strategies (see figure on p. 105). Most management teams I`ve observed will add a few concise statements of tactical plans to each strategy. It turns out that these tactics always come up in the strategic discussions, anyway.

Communicate your strategy

Once developed, your strategic plan should be written down. Managers can then use it as a reference for their own decision-making. They may also want a record of the thought process that went into the making of the plan. The written plan can also be shared with other key individuals surrounding your business--stockholders, members of the Board of Directors, attorneys, accountants, bankers, consultants, and the like.

The plan should also be shared with your employees. Communication can be accomplished via presentations, group discussions, or both. And finally, elements of your strategic plan should be communicated to your customers. Key customers can receive presentations on items that affect them--for instance, quality programs or the general direction of your product strategy. Your promotional materials should reflect your positioning and related elements of the plan.

Your strategic plan should be a living document. It will serve you best when it is allowed to grow and change according to the circumstances of your business. To make this happen, you will want to evaluate your plan periodically, at least once a year. Go through all the steps--don`t skip any--you`ll find that you will be able to do this quickly when a solid plan already exists. The planning process then becomes one of review.

Finally, communicate the plan and its changes to a broad audience. A good strategic plan effectively communicated can have a highly beneficial effect on your business. o

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A strong strategic plan has tactics supported by a bedrock of strategies and objectives.

Drawing u¥your strategic plan

Mission statement: a description of the business in one simple, concise sentence. For example: "We manufacture [product] using [technologies] for [customers] to [satisfy applications]." Often, the statement will need an accompanying second sentence or paragraph to explain it well.

Competitive advantage: the reason that customers will feel compelled to buy from your company rather than from your competitors. It arises from some uniqueness of your company that is useful to the customer. For example: a portfolio of patents that precludes competitors from copying your designs.

Objectives: succinct statements of directions in which management intends to move the business. They must be measurable, so you can determine if you`re achieving them. They must also have a timeframe associated with them, in order to know when to measure. For example: "Achieve $50 million in revenue in FY1998."

Strategies: descriptions of specific actions to be taken to achieve objectives. A strategy should be simply stated, confined to a single activity, and related to a specific objective, although these rules can be bent to accommodate good ideas that don`t fit the mold. The most obvious strategy for high-tech manufacturers is the product strategy, which has its own section in the plan outline.

Tactical plans: short-term actions to carry out strategies. They are included in strategic plans to the extent that they are needed to explain and communicate strategies.

Functional plans: the strategic plans of the various departments in your company. They must be consistent with the overall plan and operate in support of it. They need not be detailed, just summarized in the overall document.

Financial plan: contains pro forma summary financial data covering the timeframe of the plan. An effective format shows last year, this year, and projections for the next three years. The data usually include summary operating statements and statements of cash flow.

Plan outline

1. Mission statement

2. Executive summary

3. Market situation

Customer description

Customer needs

Market size, growth,

segmentation

Key influences (for example,

government regulation)

4. Competitive situation

Strengths and weaknesses