Strategic planning

What it means

Strategic planning is the process by which a company analyses its environment and options, sets long-term goals usually for three to five years and decides the steps and resources needed to reach them. The result is a strategy that gives direction to everyday decisions.

The process usually starts by formulating the vision and mission, meaning where the company wants to go and why it exists. This is followed by an analysis of the external environment, for example with a PEST analysis, and of its own strengths and weaknesses, often using a SWOT analysis.

A strategic plan is not a detailed budget but a framework of priorities. It answers which markets and services the company wants to focus on, how it will stand out from competitors, what it will invest in and what it will stop doing in order to concentrate on what matters.

How it works in practice

The strategy feeds into annual plans and budgets. If a company plans, for example, to add payroll services, the budget must cover hiring, software and marketing, and the financial plan must show when the investment pays back. Without this link the strategy stays on paper.

Progress is tracked with tools such as the balanced scorecard or OKRs, which break long-term goals down into measurable indicators for individual teams. Regular reviews, for example quarterly, reveal in time that the company is drifting from the plan.

In a smaller firm a simple approach is enough: once a year management sets aside time away from daily operations, reviews results, market changes and client feedback and agrees a few main priorities. More important than a lengthy document is that every employee knows and understands those priorities.

What to watch out for

The most common mistake is too many priorities at once. If everything is important, nothing is, and resources get spread thin. A strategy should also contain clear decisions about what the company will not do, even if it might bring revenue in the short term.

A strategic plan is not set in stone. When major changes occur, for example in legislation, technology or the market, the assumptions must be revisited. Regular revision is a sign of good management, not a failure of the original plan.