In March, I blogged about “The top ten reasons NOT to do strategic planning.” The number one reason listed? “I already have a plan.” Maybe you do. If so, great. Chances are that you don’t.
Many leaders confuse an operating plan with a strategic plan. (If you use Rockefeller Habits for example, which is a great book and program, it is more of an opeational plan.) Is it really just semantics? ? The answer is, it isn’t just about language. Let me explain.
The vast majority of leaders who do planning, focus on near term plans—largely to support a budget. These are usually one year plans that include next year’s objectives, including financial goals, and help determine how to allocate the budget. By definition, that is a business plan or an operational plan. It is a road map for the activities and results of the company in the foreseeable future.
If you don’t have an operational plan, you should. Focus and alignment are proven to help companies achieve their objectives. Every company should be working on how to increase operating effectiveness or core business profitability. Not only do I advocate this but I am starting to recommend to all clients a great new book, Islands of Profit in a Sea of Red Ink by Jonathan Byrns. The author suggests techniques to help companies determine which parts of their business are profitable and improve profitability of all of it by managing it in segments.
As great as this type of plan is, it is not a strategic plan. A strategic plan helps define where you are going and what it will take to get there. It is big picture thinking and is used to provide decision making direction for which operational improvements to pursue and where to invest. Having a great strategic plan is what puts you on the course of growth and operational plans keep you moving forward on the journey of obtaining your goals. Think of the strategic plan as the compass and the operational plan as the highway infrastructure.
Let’s be devils advocate for a minute. If you can improve profitability by 20% or more just by operating differently do you really need a strategic plan? Yes and here is why:
- Improving operations usually means saving money so more goes to the bottom line. That is great. Yet it does not grow your business in itself. A strategic plan sets the course for growth.
- An operations plan with no strategic plan may result in haphazard decisions regarding investing in initiatives. Trial and error results in a 25% return on growth initiatives according to a study in Harvard Business Review. If you would like a better return, and I would if I were you, be sure your one year plans are linked to a longer term strategy for growth.
- Finally, with no strategic plan, how can you be sure you are making improvements on a sustainable model? With the rate of change we see in the market today, yesterday’s business model may or may not work tomorrow.
Planning is always important. Profitable growth requires a blend of long term thinking with short term implementation. The strategic leader who is able to paint a clear picture of the company’s future and balance the work of today with the investments necessary for tomorrow will surpass others in their industry.