Introduction to Strategic Planning

A strategic plan is a realistic vision of the future of a business geared towards business growth. Creating a strategic plan involves stepping away from day-to-day operations to decide where a business should be headed in the long term, and then identify priorities to accomplish this vision. As a business grows, business processes become more complex, and the corresponding strategic plan also becomes more elaborate.

There are three key elements of strategic planning, one of which is knowing where a business is right now. This entails detailed knowledge of business operations and awareness of how a business generates revenues and profits.

The next element would be the growth direction of the business, or where the business should ideally be as it moves into the future. The timeline is typically five to ten years. This would include mission and vision, goals, and subgoals.

The last element would be to define what is needed to get from where a business is now to where it needs to be five to ten years into the future. Specifically, what changes should be made to aspects of the business such as the business structure, or business financing to meet strategic goals. Included in the list of options are business diversification and acquisition.

Better decisions are enabled by incorporating strategic models that illuminates critical aspects of the business. Some popular strategic models are SWOT, STEEPLE, and Five Forces.

SWOT analysis refers to strengths, weaknesses, opportunities, and threats. This model involves taking a strategic goal and noting business attributes that are in place to support the goal, known as strengths, as well as business attributes that are detrimental to achieving the goal or weaknesses. Opportunities and threats refer to external factors. Opportunities are external factors that will support the strategic goal, while threats are external factors that could block a goal or make it more difficult to achieve. Being able to define these SWOT elements clearly is a helpful aid to effective decision-making.

STEEPLE analysis refers to social, technological, economic, environmental, political, legal, and ethical. STEEPLE breaks down the business environment into these individual components for clearer assessment by business strategists.

The social aspects refer to lifestyle changes that could impact the business or demographic trends that may need to be considered. The technology aspect notes technologies that could impact the business model for good or ill. The economic focus is involved with monitoring macroeconomic information such as inflation rates and demand levels.

The environmental aspect is about changes to existing regulations or the implementation of new regulations. Political refers to relevant tax changes or trading agreements. Legal refers to changes to laws pertaining to the business or regulations that apply to business products and processes. Lastly, ethics refers to moral standards underlying business practices and policies.

The Five Forces model aims to give a greater understanding of the competitive environment. The model is composed of five determinants. The first is customers’ bargaining power. The higher the bargaining power due to limited buyers, the lower the profit margins expected. The next determinant is the supplier's bargaining power. This refers to the power of suppliers to impact the cost. For example, reliance on a single supplier means that there is a risk that a price increase from that supplier will entail higher costs and lower profits.
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The third determinant is the threat of new competition. The fourth determinant is the availability of substitute products or services. The last determinant is the level of business competition. This determinant involves the relative financial strengths between market players and the ease with which customers can switch from one business to the next.