Why Is Strategic Planning So Important?

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Chris piece representing strategic planning

Strategic planning refers to the ongoing process of utilizing available knowledge to make decisions about a business' future direction.  An annual strategic planning process allows organizations to identify their priorities, allocate resources, align their leaders and employees around their objectives, and ensure those objectives are supported by data and analysis.  Nevertheless, it is difficult for management to develop a company culture that values and executes an annual planning, budgeting and forecasting process because effective strategic planning involves time, effort, and constant reassessment.  However, an annual strategic planning process and a performance management system are very powerful tools to guide an organization towards success and diligently applying them will lead to above average outcomes.

The company's strategy serves as an operational guide to achieve its goals by collecting financial data, business analytics, competitive information, management, employee and customer sentiments and making it actionable.  In addition to creating an operational guide for the company, the strategic plan will align the company’s stakeholders, leaders and employees.  The formulation of a strategic plan and enactment of a performance management system will create a clear sense of purpose throughout the organization.   In addition, the strategic planning process will make the employees aware of what the company's goals are, how and why those goals were selected, and what actions the employees can take to help the company reach its goals.

Let’s examine some of the steps necessary to develop a strategic plan, and why implementing a performance management system is necessary for your business to thrive.

Data Analysis

Leaders should compare financial statements and review business analytics on a monthly or even weekly basis, at times.  This will allow management to discover trends and hidden truths.  Leaders will quickly recognize negative trends, for example, declining gross profit margins month over month or increasing error rates.  This recognition will allow the leader to take decisive actions to reduce their cost of goods sold and lower their error rate.  Leaders may notice trends in other areas such as accounts receivables, inventory or other key business metrics.  Management should compare three or more years of financial and business data.  This will produce more accurate predictions about future business results.  The use of SWOTT, PEST and competitive analyses along with other tools such as benchmarking, management, employee and customer surveys will also allow leaders to gather the information necessary to make strong strategic decisions.

A woman using Data Analysis to develop a strategy
Annual Strategic Planning Process
Strategic planning process

Leaders should engineer a systematic, data-driven annual strategic planning process to capitalize on the company's advantages, address the shortcomings and attain potential goals identified by the analysis to create a roadmap for success.  It is then incumbent upon management to have their leaders develop a budget and financial forecast for each new initiative to ensure that the overall annual strategic plan is well thought-out.

Lastly, to obtain the desired financial and business outcomes it is necessary for leaders to institutionalize the annual strategic planning process by incorporating it into the organization’s culture and operational processes through a performance management system.

Performance Management

Every time I have met with a corporate CEO of a small to midsize business and seen a strategy binder on his or her shelf, almost always they are struggling to meet their goals.  For a management team, executing the most astute and insightful strategic plan can be a daunting task, especially if the strategic plan is in a binder on a shelf.  Organizations need to first, utilize a performance dashboard containing their financial goals and business metrics to capture their strategy.  Second, the performance dashboard must be coupled with a performance management system to implement that strategy.  And third, incentives must be deployed to motivate employees to achieve the organization’s aspirations.  When an organization consistently implements all three of these steps then they will succeed at reaching their goals.

Managers using Performance Management to implement a strategy
In Summary

In today’s complex business environment, leaders of small and midsize businesses must become experts at analyzing and comprehending data, developing annual strategic plans based on that data and effectively administering those plans to reach their goals. If your business needs assistance in any of these areas, consider hiring Sabacon Consulting.  A Certified Management Consultant will assist and guide your leaders with the process and development of your next strategic process and plan.