Strategic Planning 1
Strategic Planning – Making it a positive exercise in any business
In some forty years experience in applying strategic planning as a process in businesses as a CEO, chairman, NED and as a consultant, I have been saddened by how many of my colleagues have adverse reactions to the concept based on prior bad experiences of the process. In many cases when we have been working in medium sized to small public and independent businesses, the aversion to strategic planning had related to very bureaucratic approaches seen by the individuals in large organisations or others importing large company planning processes into small businesses, without suitable adaption.
Experience is that a Strategic Planning process (also referenced as LRP; Long Range Planning – or Plan), properly adapted to the scale and nature of a business can make a very positive contribution even when first applied. In later years the process can become slicker and regularly effective. It is crucial to carry out strategic planning on a scale proportionate to the business. Such projects have been effective for companies down to a scale of only three employees, including the executive directors. In 2008/9 we have been buffered by major shifts in economies and in markets. Most such changes will not have been projected in earlier planning BUT an effective plan which considered contingency situations along side the core plan and scenarios for the future will have provided supporting contexts for those having to face major rapid change.
This topic is covered in two papers. This, the first paper, addresses the context, benefits and overview of Strategic or Long Range Planning. The second paper addresses the process itself.
Strategy Paper 1 Strategic Planning, an Overview
To gain the most from any strategic planning process it is as important to be clear as to the objectives of the process as it is to complete the exercise diligently. The best strategic planning projects and cycles address most of the following.
In the context of this paper I use the term Long Term Planning (or LRP Process) as the process, within a business, for strategic planning and addressing the objectives noted above. The term Long Range Plan (LRP) is used to refer to the documentation setting out the results (but not all the analysis) – objectives, strategies and plans -. The term Budget is here used to cover the financial numbers and related business plans for a (the next) business year. In that context the budget may be seen as the extension of part of year 1 of the LRP and the LRP as the backcloth for the next budget.
Do we need Long Term Planning in our Business?
In very small (one or two person) businesses the LRP is often no more than an ambition in the mind of the owner(s) while in large corporation the strategic planning process whatever called can be highly formalised with predefined output formats. The challenge for the medium and smaller businesses is how to access the advantages of a Long Term Planning process without spending time on the exercise that is disproportionate to the rest of business activity and the value of the results. I have to express the view that many large corporations could also spend less time on their bureaucratic planning processes when applied to smaller units within the family.
My earlier years in business were in large corporations when I saw some the benefits of the planning process but was concerned on their scale when I moved to run medium/small – growing businesses. One of our businesses included a range of management consulting activities when we participated in large organisation planning processes. Later as a growing group we were concerned as a main board with helping (relatively independent) subsidiaries effectively carry out their own Long Term Planning. Later still I have helped many small to medium and a few large companies in the Long Term Planning - as a consultant, non executive director or chairman.
Despite that range of business in scale, maturity and business sector I have been consistently convinced that annual Long Term Planning process is valuable for all small to medium businesses and can be scoped at a scale of activity that is sensible for that business. Indeed the smallest business where I have seen it applied was one with two founder directors, no staff initially and later contracted staff only. Here the process involved the chairman and the two directors with a level of activity limited to agreeing a plan for the process, some personal preparation (distributed tasks), a planning meeting, a few hours post meeting follow up and documentation of the conclusion - less than 1% of the resources and very beneficial.
Planning Process and Techniques
Most Long Term Planning processes (like much else) are evolutions from some past practice or plagiarised practice “copied” from elsewhere. When a Group wanted to help its multiple businesses plan more effectively we already had a number of processes that reflected the input from the Group CEO and the disparate prior experiences of the local business CEOs, so we looked for external input from leaders in the field. Books and texts were one source and another set were guest leaders/speakers for work shops at group senior management away days. What was always interesting was the emphasis placed on techniques rather than process. So often the topic was some analytical tool from Boston grids or SWOT analysis to more sophisticated approaches, or some manage theory on leadership or concept such as lateral thinking. Others who came from a corporate background tended to identify the spreadsheets that needed to be completed to document the plan. All were valuable, but mainly components than needed linking together to form a process that a team could follow.
The conclusion was that these techniques were valuable and clearly best used where those concerned mutually understood the application and limitations of the tool. However what was so often was missing was guidance on the steps from “lets do some planning” to "achieving a plan".
For one businesses we evolved our own processes for Long Range Planning with a focus on the steps to take and the outputs (broadly defined) for each step with techniques for analysis and stimulation for ideas in a much freer form than decision making sessions. Some basic approaches such as SWOTS, or tables such as 5 year summary P&L and balance sheets were proscribed.
Later as a consultant and Non Executive Director /Chairman I found my self often involved in enhancing or helping set up a planning process and nine times out of ten it was the process - the steps - that needed to defined or improved rather than the techniques. For these broad reasons my focus in this paper is on the Process.
The Planning Process - The Chicken or the Egg
Most businesses, in considering the effectiveness of long term planning, are concerned in improving the process rather than starting from scratch. Even those that are applying the approach for the first time have leaders in the management team that already have a view on how to plan. Thus while in practice many planning enhancement exercises are about improving the status quo it is clearer to write on or speak to the topic as if it’s a new process.
There is a wide range of dynamics in the business undergoing its planning and planning exercises can vary from refinement to existing plans, open review with expectation of refinement to total open review of objectives and strategies. At the outset of any planning cycle it is important to decide which context is best considered for this cycle, the greater the refinement and less fundamental re thinking the tight the resources may be scheduled.
How established is the process in our business? To me Long Range Planning is an on going perhaps circular process, - initiate, plan, conclude, executive, check; initiate ….. If one is starting the process for the first time one will have close to a blank piece of paper as the existing LRP while if a regular process has been established there will be recognisable input to this cycle carried forward to the last. Experience is that while benefit can be achieved the first time a LRP is produced the process is unlikely to become refined until at least 3 years have passed. Thus every business I have helped establish Long Range Planning has started from frameworks I have brought to the party, existing practices and key player views and from that the first application of the new process there is a refinement for future years.
Thus back to the sub title – what comes first the new plans, through new processes, or old plans and old processes? In studying the topic it is probably best to look at the processes we are trying to achieve as if in the context of established regular planning and brought forward plans and having gained/improved our view of the process to then adapt to the relevant practicalities of the quality of existing plans and processes.
The Planning Cycle and how long?
In most businesses I suggest the LRP process is looked at as a cyclical process, applied once per year and closely linked to budgeting and progress reporting in each year. At the top level sequential actions within the LRP year might be.
1 Initiating and setting the time table and planning responsibilities
2 The planning process, which may involve interim steps and outputs
3 Documenting the conclusions
4 Board approval (may be in parts through the cycle)
5 Operational monitoring. As will be noted later any planning process should identify key milestone activities and reporting topics that should be part of the regular management reporting in the next period (year). This is particularly important for actions, in the following budgeting period, whose objectives relate to the longer term and may not be important to the next period P&L.
This cycle is normally annual but for a slow moving business bi annual may be more relevant (but somewhat unusual). I have not seen a faster cycle in the industries where I have worked but I have seen planning process initiated early in response to major change. For simplicity I will refer to the LRP year from here on.
The period covered by an LRP is often subject to high debate but for many businesses 3-5 years is the norm. Many management teams argue that 2-3 years makes sense as matters change and any accuracy after year 1, never minding year 2 + is difficult. I believe such arguments are based on a view of the LRP being an extended budget and miss the wider objectives of the process. I support a 5 year view with a clear understanding than any documentation on years 4-5 may be less fulsome and definitive than years 1-3. The importance of looking beyond years 2-3 is that many strategic changes may need actions next year (research, finding resources) necessary to start firm initiatives in year 2 to deliver changes that cannot then be achieved for another 2-3 years. Also seeking to look 4-5 years ahead is more likely to detect potential major shifts when 2+ years looks too close for major change. I accept there are companies and sectors where the planning horizon is far longer – they are not the focus of this paper.
In an ideal world a team will complete and approve its LRP a short period before beginning detail work on the next budget and next years business plan. In this context the budget becomes a more detailed expansion of the LRP for year 1. By separating out the year 1 detailed budget considerations from the LRP process it becomes easier to keep the LRP process at a high level, even when considering year 1. Equally running the budgeting on from the LRP process helps ensure natural integration. Thus the planning cycle has two interlinked cycles - The LRP and the Budget. Depending on the number of distinct stages in the LRP year there can be interim cross feeds from the LRP process to budgeting.
Once one accepts these two cycles then the input at the start of the LRP activity each year is: the last LRP, the last budget, YTD P&L and reports.
In one company we did not succeed to persuade colleagues to make this separation. We had succeeded in encouraging a regular LRP process but never managed to get them to separate next years budgets from being other than year 1 and the main documentation of the 3 year plan (the latter being somewhat budget oriented). Thus the LRP process tended to close with documented concept, objectives and budgets without real planning on how to move forward for years 2 +. In this business this approach was reflected in limited steps to address underlying strategic issues. There were other factors (not for this paper) impacting the situation which were only addressed by dramatic changes we made later. I believe had the board accepted the argument on full LRP that may not have been necessary – but the “other factors” also explain why they did not do so.
One aspect of the Strategic Process that worked in several companies was to separate the market analysis and current business review (where are we and what world do we operate in?) from those steps concerned with forward planning and decision making (deciding on objectives, direction and plans to achieve).
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