So, how does a strategic plan differ from a business plan?
A business plan is focused on the current year of operation, and linked to the budget process. A strategic plan is a roadmap to your vision or your ambition. It looks three to five years out - say, to conquer new markets by 2015. So the big difference is that the business plan is much more operations-focused; the strategic plan is more high-level, with some form of financial analysis. It gives you a vision, a way to achieve that vision, and a way to evaluate the risk associated with that vision. It also gives you a way to discipline your organization and communicate how you're going to do it.
You mostly work with large enterprises. Why should even small businesses go through the strategic planning process?
The nature of entrepreneurs is to come up with 1,000 ideas every minute. It creates mixed signals for the rest of the organization. A strategic plan will enable the rest of the management team to empower themselves, to take their own responsibilities in line with the company's strategy.
How do you go about putting one together?
It's a process that includes a few steps. The first is an internal and external diagnosis. The second step is a discussion of key issues and the enterprise's vision. The third step is to establish strategies that will address these issues, and the final step is the development of an implementation or action plan that will be communicated down the organization and followed up on a regular basis, so your strategic plan does not collect dust. It's an active and dynamic tool.
Walk us through the steps.
Before we sit down with the management committee to conduct a session about strategy, we like to talk from facts rather than impressions. The objective of this internal diagnosis is to look at how the enterprise functions - marketing, finance, sales, HR, operations. It's based on the company's own information. Here's our performance over the past few years. Are our margins shrinking? Are we at capacity? Is there a need for expansion or optimization of existing production facilities?
We look at HR issues like succession planning and whether your employees are working within the vision of the enterprise. We also do an external diagnosis, looking at market conditions, the economic and political environment, the enterprise's competitive positioning, and other factors that will affect the company's future for the next three to five years. We'd complement our analysis with interviews with clients and prospects, and do a portfolio analysis of products to determine which product lines compete with your rivals and what are the differentiating factors.
Can you give us an example of an external issue that might affect strategic planning?
In terms of economic conditions, right now, our level of indebtedness is at a record high of 160% of disposable income. Canadians are looking for ways to spend less, not more. That might mean they eat out at restaurants less, buy less new clothing, or buy discount or private labels. So if you're in the restaurant business or fashion industry, that will affect the market size and growth.
What happens at the first strategic planning session?
We review the diagnosis with the management committee and identify between five and 10 key issues. Then we come up with a qualitative vision for the next three to five years that's supported by some quantitative analysis. Too often, you hear entrepreneurs say, "I want to double my company in five years." The plan will help you ground your vision. What does it take to make your plan work?
What comes next?
After that, we develop a strategy and action plan. What are the strategies that we identified that will correct the issues? For example, if you are at plant capacity, one of the strategies might be to re-do your plant layout or re-examine your operational process. Another strategy might be to look for expansion within your existing facilities or through acquisition. For each strategy, we tag on a responsible person, and that person and their team have to come up with a detailed series of actions that describes the strategy, with a timeline and a budget.
What's the final step?
Communicating the strategic plan down the organization. There's nothing worse than a great strategic plan that stays within the executive committee because they're afraid to communicate confidential information or they're afraid staff won't appreciate it. Of course, some portion of the plan needs to be kept confidential, but the more you delegate and explain, the better the chances that the whole organization will be mobilized toward your unique vision.
What are the challenges associated with putting your plan into action?
The big danger to any strategic plan is implementation. Too often, we see clients who come out highly motivated, but six months down the line they lose momentum because the plan wasn't put on the agenda, and they lose track of the work that needs to be done.
Any other advice for entrepreneurs?
A strategic plan is about what you want to do, as much as about what you don't want to do. Having a plan can eliminate any noise - maybe good opportunities that aren't lined up with the strategic vision. Also, a plan helps you assess the risk related to your strategy. I'll give you're an example: I worked with a company that had a great ambition to grow into a foreign market. But they didn't have bilingual staff, so the support they had to give in this foreign market didn't go very well. They didn't have any cultural appreciation, and they couldn't even communicate with the master franchisor in this new market. They had good intentions, but they tried to walk in with the same kind of recipe that was successful in their own backyard. Needless to say, their first attempt did not go very well. If they had done a risk assessment, maybe they would have slowed down - not on their ambition, but the way to go about it. A strategic plan is also excellent if you want to raise funds or you're trying to negotiate with a bank for additional financing or a line of credit. Too often, you're perceived as flying by seat of your pants.