To many managers, the term “business planning” is a buzzword to describe what 30 years ago was conceived as the financial budget, and therefore the restricted realm of the accountant. To others it may represent a document required to obtain an overdraft or a loan from their bankers. A business plan may prove to be the most important document that may be compiled in any business. This paper aims to eliminate such taboos and simplify what the strategic business planning process is all about, and how its benefits could be maximised by the management of a business.
THE TERM “STRATEGIC BUSINESS PLANNING”
When we speak about a strategic business plan, the message to be conveyed is about the strategies and tactics to be adopted by an organisation to reach its missions and goals. An integral part of the plan is financial in nature, but the strategic business plan is no plan at all if it does not address marketing, human resources, ICT and all other resources needed to integrate and fuse the organisational efforts to achieve targets, in terms of maximisation of profits. Thus, an effective business plan should serve FOUR underlying purposes:
oIt is a tool for management to convey both within and outside the organisation the goals for the business plan period;
oIt provides the strategic framework for holistically managing the business;
oIt allows the identification of objectives and how the attainment of these objectives could be achieved and, most importantly, closely monitored
oBy demonstrating that proper controls and achievement of objectives are happening, it provides an effective means of attracting new capital to finance the business objectives.
WHAT IS REQUIRED?
Many have compared the marketing of a strategic business plan to a candidate’s CV, when applying for a job. What must be ensured is that the plan is not just figures and numbers, but also shows a good understanding of all those essential determinants in reaching the stated targets. Thus, we should first and foremost ask ourselves questions such as:
Who are we?
What do we do?
Who are our customers and what are their expectations?
What and where will our business be in one, two, three, five years?
What are we doing NOW to get where we want to be?
How should we get there?
Do we have the resources in terms of machines, people, finances, technology and so on?
Do we need to obtain external financing and what type/extent is convenient to us?
We could keep going on asking questions as much as we would like our plan to be detailed. Probably the answers to some would need more effort in terms of time and resources than others. The most important factors which determine this preliminary stage of planning is to ensure that we are asking ourselves the right questions, that they are leading our business in the direction we want it to go. On the other hand, a manager must be aware of asking too many questions that lead nowhere. The objective of this process is to enable the manager to grasp what the target is and then plan on how to achieve that target.
EFFECTIVENESS AND FLEXIBILITY
What are the nuts and bolts of an effective and sound strategic business plan that truly delivers the business targets? The mission, objectives and overall strategy must be determined. Particular attention must be focused on the implementation and evaluation stages that follow the setting of objectives and strategies. It is here that a business will succeed or fail. Experience has shown that at times, a business plan needs to be radically changed after one year, to conform with the ever-changing and volatile business environment. Do not be surprised! This is a healthy experience. As every manager knows, rigidly sticking to a particular plan, where the business encloses itself in a cocoon, can bring about those looming black clouds of ensuing business failure. Exhibit A presents the Critical Success Factors (CSFs) of good strategic business planning, whilst Exhibit B illustrates the benefits accruing from a properly organised plan that distinguishes one business from another. These benefits ensure that the organisation is homogeneously geared and glued towards the ultimate objective of maximising profits.
We must remember that even the best of business plans, which takes many hours to compile, will only take a few minutes of the reader’s time. Perhaps, a cursory glance at the executive summary and the conclusion will be the main determinants for the success or otherwise of the plan. It is true that great business ideas backed by superior management techniques will probably succeed without any written presentation. But, that minute possibility of failure necessitates extra effort for that slight edge over the chances of success. In plain words, this means that a strategic business plan MUST itself be planned! Exhibit C provides a practical guide, showing the essential requirements for the success of a strategic business plan. Managers must put themselves in the shoes of those who will read the strategic business plan and who will then subsequently take the decision, be it the board of directors, the bank manager or a creditor. Thus, what the reader wants or does not want to know, determines the structure and flow of the plan.
THE PLANNING TEAM
Before embarking on writing the plan, the business must ensure that it is written by someone or a team to whom it really matters, because of the enthusiasm and commitment that they put into it. Besides, such a team would in all probability be in possession of a substantial amount of information to determine the goals, targets and resources needed by the organisation. Of paramount importance is perhaps the message to be conveyed to the compilers of the plan. The team has to clearly and effectively show that it satisfies the following criteria:
oIt has the necessary experience in compiling good plans. The various disciplines in the organisation have to come together, thus ensuring a holistic approach.
. It can realise successfully the targets set, meaning that the compilers of the plan should also possibly be or include those same managers who will actually implement and monitor the plan’s performance;
oIt has already done what is being proposed – this means there is enough competence and experience to link to past plans, in terms of objectives and achievements; . It fully understands all the risks and pitfalls. Contingency planning is an integral part of a strategic business plan, where realistic risks are carefully planned for;
o It can relate the business plan to current and anticipated resource levels. Generally, each organisation has an element, large or small, of un utilised resources. The strategic business plan is the tool that identifies and effectively uses such dormant resources.
BUSINESS PLANNING TOOLS
Once the team has been identified and given the necessary powers and responsibilities, what remains is the identification and provision of the necessary tools to produce the strategic business plan. Each and every organisation should choose its tools for good planning, considering such issues as structures, staff competencies, organisational cultures, current resources, etc. However, the following list of commonly-used tools is neither exhaustive nor binding, but is an extremely efficient checklist, which is a valuable form of reference:
oClear and concise planning forms and guidelines
oA set of planning definitions
.Internal and external surveys
.Financial modelling packages ‘Organisation-wide availability and sharing of information
.Identification of standards to assess whether the targets are achieved
.Training programmes for planning staff
.Task force/Focus groups
Of course, the adoption of such tools depends on the size of the business. For example, in the case of Task Force/Focus Group, these approaches are used where the organisation tends to be rather large in size. This also applies for Internal/External Surveys, where the cost and time of collecting such information has to be viewed in terms of the accruing benefits to the quality of the plan itself.
AN EFFECTIVE PLAN
What remains is therefore the organisation of all the data collected and the composition of the strategic business plan itself. The executive summary itself is built up after the rigorous exercise of establishing the comments, figures and messages contained in the plan. The summary must be seen as conveying to its readers, in a short but effective message, where the business is to-day, and what future scenarios the plan is proposing.
It is the norm for Executive Summaries to be limited to one page of prose, but the most important element, be it one or two pages long, or even three, is that the summary, when read must immediately provide the reader with what to expect in the plan itself and what the plan’s conclusions are, the targets to be achieved, how they will be attained and what monitoring systems will assure their delivery. Exhibit D is a good example of an effective executive summary.
Another important issue for a successful strategic business plan is the way that data is applied and the manner in which it is communicated through the plan. Top management is interested in the specific targets to be achieved and will not tolerate statements with inadequate information, or which give rise to ambiguities or worse still are very generic in approach. Exhibit E compares and contrasts two different statements, illustrating what quality of data conveys in an effective manner, the message of the plan. Notice how the first statement is full of generic fluff, which does not mean a thing, and worse still, leaves the reader completely more perplexed than when he/she started.
But perhaps, the focus of the business plan user should be directed on the financial analysis and projections that support the scenarios being proposed by the plan. The financial analysis provides the effects of the strategic business plan into numbers that could be crunched. What should form part of this integral and important financial section of the plan?
-Only a Summary
-Historical performance and how it relates to the proposed scenarios
-Comments on the accuracy of previous plans, profit/loss trends, fixed costs patterns, cash flows
-An exercise in sensitivity analysis of possible scenarios
-Justification of assumptions
-Risk guarantees to investors
Other data demonstrating that the proposed plan is financially sound, cost effective and a profit motivator.
Besides the above elements, we must not over assess the other parts of the plan, especially the marketing, management and operational aspects. The team must ensure that they are able to produce a cohesive, well structured plan that will definitely deliver the message. The need for good business planning is therefore evidenced by the need for the organisation to maintain a truly effective thrust in the treacherous business environment it operates in. Business planning is a highly specialised and skilled form of determining the strategic direction, which demands and deserves some good quality effort. Without a business plan, the organisation, like an armoured tank without any ammunition, will flounder in the face of any weak opposition. Adherence to strategic business planning disciplines is not a bad indicator of those businesses likely to survive and those destined for the scrap heap.
The Critical Success Factors
The top people should “walk the talk”. The board of directors and the senior managers should present the concept of business planning to all levels, in all programmes, to all functional support units, to financial officers, personnel officers and operational managers
Ultimate accountability for the strategic business plan being developed, carried out and evaluated lies with top management. The maxim is to ensure that each person is responsible for achieving each goal stated by the business
In simple language this means that the managers should be responsible and accountable for the content, time frames and deliverables for the specific area they supervise
It is important that the strategic planning process is seen as a “hierarchical” process that links the higher to the lower levels of the business structure. It begins with the long-term business objectives and moves down into individual performance objectives and targets
Strategic business planning must be INTERACTIVE – it can only improve through trial, evaluation and feedback. Important milestones are periodic meetings at top management levels to assess and, if necessary correct the plan
Employees need to be motivated and encouraged to ensure an efficient cost/benefit approach. Recipients of rewards/recognition will signify to their colleagues that this kind of behaviour is what the organisation wants
The Benefits Of Business Planning
Provides guidance and direction to the business itself
Promotes cross fertilisation opportunities, for example sharing of resources/knowledge and cost ascertainment initiatives
Enhances managerial alertness to change and opportunities
Creates, fosters and energises a results-oriented climate
Provides managers with a rationale for evaluating competing interests regarding budget requests, staffing allocations, critical proposals
Steers resources where they are most needed
Helps to unify the myriad of decisions made throughout the business, by providing horizontal and vertical links
Co-ordinates disparate and diverse activities
Encourages pro-active thinking and responsive programme delivery
Provides a business culture throughout the organisation which facilitates the flow of information up and down its hierarchy
The 8 Rules of Business Planning
Open with a summary
Should be no longer than a page and ensure reader’s attention. It enumerates the key points; gives some facts for the overall case.
Focus on the audience and the final result
It must arouse the reader’s interest, leaving out details which may be relevant only to yourself.
Use plain language. Organise your message through references, clear figures and illustrations and make good use of graphs and tables.
Project your achievements
A business plan backed by good, solid management is what the reader looks for. Highlight important achievements of management.
Use clear narrative and figures
The reading must be interesting, logical and provide clear flow through to the end.
Do not forget the underlying evidence
The data (both external and internal) should be of high quality, relevant and easily communicated to the reader.
Provide for feedback
Involve the active participation of the reader through his/her comments, enquires and explanations.
Ensure senior support
Most business plans originate at the bottom echelons of the management structure. The champion of the plan must be supported by a mentor on the board of directors.
An Effective Executive Summary
o Booboo Ltd is a family-owned confectionery business established 50 years ago by the father of the present owner. Turnover has grown rapidly over the past five years to $750,000 and pre-tax profits to $150,000. A new outlet has been opened this year, to make up for the increased demand. This has also reduced operating costs by 10%.
o Present market analysis indicates that there is demand to increase the number of outlets by another two. These will be serviced and controlled by the Main Area Outlet. Management believes that they could win business from local competitors who cannot compete on neither price nor quality.
o The investment cost involved in setting up the two units is $300,000, whilst average running costs at to-day’s prices will amount to around $85,000 annually. The funds required will be financed as to 30% from the additional funds invested by the owner and the rest by means of an assets-secured 10-year bank loan.
o This investment together with a projected increase of 8% on present day turnover would boost up the pre-tax return from the present 19.6% to 25% of turnover.
Good Quality Data
Not…This rapidly growing massive market will soon become absolutely vast and once we have conquered it in a few years time we will also start on the even enormous international market, where there is even more potential and no competition. And in any case, nobody can copy our unique product.
But…The local market is estimated to be worth around $4.5 million per annum and to be growing at about 12% per annum. If development follows the course for neighbouring states, the potential market size is around $7.6 million, which provides considerable room for growth. Trade sources suggest that current market players are finding difficulty meeting demand, with the current demand/supply ratio running at 1.15. This supports our sales forecasts.
We believe there are further opportunities for expansion in the international arena, where the market is approximately at a similar stage of development as it was two years ago. Our plans show a modest entry into other international markets within 18 months…
Our products have minor improvements compared with competitors, which are protected by both local and international registrations.