Strategic planning is a process by which organizations put business plans into action in the marketplace. This process differs from the annual planning process in which most organizations engage in that it is typically geared toward a longer-term planning horizon. Most organizations today consider the duration of a strategic plan to be anywhere from three to five years. However, in rapidly changing industries, strategic planning timelines may be shorter.
The purpose of developing a strategic plan is to determine the long-term direction of the organization and to set it up to succeed in its endeavors. In the business world, this often means identifying “white space” in the marketplace—that is, areas in which there are few or no competitors—and identifying areas of competitive advantage for the organization. When it is crafted properly, a strategic plan can be used as a framework for decision making, provide a basis for more detailed planning, explain the purpose and goals of the business to others, engage and motivate others, and facilitate benchmarking.
In broad terms, the development of a strategic plan is typically based on a rigorous analysis of the competitive landscape in which the organization operates or wants to enter. This analysis examines competitors and competitor activity, identifies existing and emerging consumer trends, identifies market opportunities, and forecasts the growth potential of entering a particular area of the market.
Although there are many ways to approach the strategic planning process, these can all be broken down into three basic steps: (1) an analysis of the current state and resources, (2) an explication of the desired future state, and (3) a description of the steps needed to reach the future state.
Strategic Planning Step 1: Analysis of The Current State
The analysis of the current state and resources consists of conducting an internal and external environmental scan to assess the organization’s goals, resources, and competitors. Many organizations conduct what is known as a SWOT analysis during this phase. A SWOT analysis is a form of competitor analysis that is characterized by an in-depth look at the organization’s strengths, weaknesses, opportunities, and threats for the purpose of understanding how it fares against competitors in a particular industry, market space, or even market segment.
According to Michael Porter, a renowned strategist and Harvard professor, a sophisticated competitor analysis is essential to a well-conceived strategy because, without it, faulty and dangerous assumptions about competitors can creep into management thinking. For example, senior leadership may make invalid assumptions about a competitor’s plans or activities based on prior knowledge and experience that may no longer be relevant. In addition, Porter recommends conducting an industry analysis. This entails examining five essential factors: rivalry, supplier power, buyer power, threat of substitutes, and barriers to entry. Both types of analyses help to ensure that an organization’s strategic plan is based on a thorough understanding of its external environment, its competitors, and its own resources.
Strategic Planning Step 2: Definition of the Future State
In this step, most organizations construct a vision and a mission statement that describe what the future of the organization should look like. This phase often follows the environmental scan. The development of these statements, which are really guiding principles, is done by a small group—usually the company’s senior management team. The purpose of the vision statement is to identify the ideal future toward which the organization will move as a result of the implementation of its strategic plan. The mission statement typically indicates the purpose of the organization— the reason it exists. Mission statements generally contain a mixture of components that describe the company’s essence, either now or aspirationally in the future. For example, the business’s purpose, its key products and services, customers, markets, competitive advantage, philosophical underpinnings, and key organizational values are all likely to be found in a mission statement. In combination, these documents help to keep the organization on course as it implements its strategy. The idea is that the strategy should always support and guide the organization toward the achievement of its vision and mission.
Once the vision and mission are in place, detailed strategy formulation can begin. This entails using data gathered from the environmental scan and competitive and industry analyses to form a plan of attack for key products or markets.
Strategic Planning Step 3: Implementation of the Strategic Plan
The final step is focused on the activation and evaluation of the strategic plan. As a rule, in large organizations, those who are involved in crafting the plan are not the people who implement it. Therefore, it is essential that the plan is communicated in sufficient detail to ensure that it is carried out correctly. Moreover, careful monitoring and evaluation of progress is essential to the long-term viability of the strategy. As business conditions and competitor actions shift, the plan must be modified. For these reasons, many organizations dedicate a great deal of time, energy, and resources to the strategic planning process.
- Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Macmillan.