A sense of urgency can envelop managers when hindsight indicates a missed opportunity or when foresight signals mere survival is at stake. This bone-jarring anonymous quote describes the fate of many businesses: “There are three kinds of companies: those that make things happen, those that watch things happen and the rest who wonder what happened.” The message is: preparation for the future is vital.
Strategic business planning is a process in which a company prepares for the future by figuring out how it will use and allocate resources — people, time and money — in the pursuit of goals and objectives. Although this is as a process, and to a lesser extent an end result embodied in a written report, the real objective is the individual and collective commitment by the strategic business planning team to the implementation of the strategic business plan.
The Process Overview
There is no cast-in-stone format, table of contents or cookbook approach to a strategic business planning process. In fact, beyond several basic components or topics that should be included, it is recommended that the format of the strategic business planning process be tailored to meet the needs of the company that wants and needs it.
The ski business, for example, may include a variety of businesses: hospitality (inns, lodges, food and beverage), retail and rental, education (ski school), real estate, recreation (golf, tennis, etc.) and, of course, skiing. A tailored approach to strategic business planning can involve examining just one of these businesses or it may take on an umbrella perspective and examine the entire company and all associated businesses.
In any event, the basic components typically found in most strategic business plans include:
- Situation analysis and definition of issues
- A mission statement
- Company management philosophy, principles and values
- Goals, objectives, strategies and action steps
- Physical analysis (buildings, land, environmental)
- Marketing strategy
- Financial forecasts and projections
- Measurement/appraisal of results and feedback
The Situation Analysis
The situation analysis is the first step in the process of strategic business planning and involves taking a hard introspective look at the company or specific business. This diagnostic inspection involves both an external and an internal assessment of the forces that affect the company as well as a look at past performances compared to past objectives.
The internal assessment should include an analysis of the company performance over the past five years with a financial analysis and industry comparison, a breakeven analysis (the point at which revenues = expenses) and an analysis of the key statistics for the particular businesses being analyzed. In addition, an objective look at the strengths and weaknesses of the company is mandatory. The internal assessment may include subjects such as management, availability of capital, physical assets, marketing, manpower and training and quality and service.
The external assessment (also called market analysis) focuses on competitor threats and opportunities, customers, the company’s various relationships (community, government, employees, suppliers, owners, banks, etc.) and the macro or industry outlook for the various businesses that are being analyzed.
This type of assessment was known to Sun Tzu, the Chinese military philosopher about 500 B.C. who wrote on the strategy of war: “Know the enemy and know yourself; in a hundred battles you will not be in peril.” Albeit militaristic in his outlook, R.L. Wing, his translator, wrote: “Sun Tzu believed that victory is won long before confrontation and insisted that a skilled warrior observes, calculates, outwits and outmaneuvers the adversary, and in doing so averts the destruction of battle.” [“The Art of Strategy,” Warner Books, 1989, translated by R.L. Wing.]
The results of the situation analysis process should yield a definition of the key issues that confront the company. This step forms the foundation on which the balance of the strategic business planning process is built.
Management Philosophy, Principles and Values
The preparation of a company philosophy, principles and values is probably the most subjective and difficult aspect in a strategic business plan to administer and define. The key issue is to articulate the soul, conscience and personality of the company. While there is no one right answer, the strategic business planning team must grapple with such questions as:
- What do we stand for?
- What is the manner and spirit in which we will conduct ourselves as we do our business?
- What do we expect of ourselves and each other?
- What is our relationship with our customer, our community and others?
Former IBM chairman of the board, Thomas Watson, Jr., in his book, “A Business and Its Beliefs,” (Warner Books, 1984) wrote about the importance of a company’s management philosophy, principles and values. “I believe the real difference between success and failure in a corporation can very often be traced to the question of how well the organization brings out the great energies and talents of its people.… I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs. And, finally, I believe if an organization is to meet the challenge of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life. In other words, the basic philosophy, spirit, and drive of an organization have far more to do with its relative achievements than do technological or economic resources, organizational structure, innovation, and timing. All these things weigh heavily in success. But they are, I think, transcended by how strongly the people in the organization believe in its basic precepts and how faithfully they carry them out.”
No easy answers here. But, if the strategic business planning team can reach a consensus and can communicate this to its constituencies (customers, employees, the community, etc.), the company is on its way to a fundamentally sound plan. An admonition is in order: once expectations are created, make sure promises are delivered.
Goals, Objectives, Strategies and Action Steps
Goals and objectives are at the heart of any strategic business plan; they are descriptions of what it is that the strategic business planning team, by consensus, wants to accomplish. They must be molded and crafted to be realistic, achievable, measurable, actionable, economically viable and manageable. Following that, strategies and action steps are the details of how the goals and objectives set forth are to be realized.
Peter Drucker, in his book “Management” (Harper & Row, 1974) states, “Objectives are not fate; they are direction. They are not commands; they are commitments. They do not determine the future; they are means to mobilize the resources and energies of the business for the making of the future.”
Several examples of how goals and objectives can be defined along quantitative and qualitative lines are listed below:
- Customer segments can be identified as an objective and targeted by demographic, geographic and psychographic profiles.
- Market position can be expressed as an objective in terms of market share percentage for skier visits, golf rounds, homes sold or for any business service or product sold.
- Customer satisfaction can be tracked over time by comparing previous customer responses and ratings in surveys and questionnaires.
- Growth rate can be identified as a company objective and measured in revenue or by unit sales (skier visits, rounds of golf, meals sold, etc.).
- Differentiation can be a company goal when management decides to create a different look, feel and perception to the resort. Differentiation can be measured by customer feedback on how the company or business is perceived to be different from competitors.
- Diversification can be a business objective where a goal may be to launch an array of new resort or recreation businesses that mitigate the risk exposure resulting from reliance on only one major business.
- Cost reduction is frequently cited as an objective where realistic overhead cost reductions, consolidation or elimination is a possibility.
- Culture and style as mentioned above under Management Philosophy, Principles and Values can be a management goal measured by employee and management surveys.
- Profitability is the most common goal or objective, but one that is difficult for many employees and managers to understand relative to their particular job performance.
The bottom line (profitability) is where it belongs, at the bottom. As George Day wrote in his book “Market Driven Strategy” (The Free Press, 1990): “The drawback of purely financial targets is their remoteness from actions in the market that actually create value. Profits and cash flows are the outcomes — not the determinants — of performance and cannot be managed directly. This also means that they have little relevance to most employees, because they can’t see how their day-to-day actions influence the financial results. This certainly undercuts their motivational impact. This is why businesses have to translate their financial expectations into performance targets that can be more readily managed.”
Strategies and action are the linked steps taken to achieve the goals and objectives articulated by the strategic business planning team. Strategies and action steps must contain the following minimum information:
- A clear and concise explanation of the strategy in support of the intended goal or objective.
- A clear and concise explanation of the logic and rationale in support of why the strategy is necessary.
- Identification of the individual or team that is responsible and accountable to implement the strategy.
- An accounting of the total costs related to the implementation of the strategy.
- The time frame and schedule related to the implementation of the strategy.
- The measurement and calculation of the return on and return of investment.
Like goals and objectives, strategies and action steps must be realistic, achievable, measurable, actionable, economically viable and manageable.
When confronted with multiple strategies that compete with one another, the “Rule of Ockham’s Razor” should be invoked. Ockham, a twelfth-century philosopher, said, “The simplest of two or more competing theories is preferable.” Use the razor to eliminate the more complicated strategy. Try to keep strategies and action-steps simple. If things get too complicated, the risk of not achieving goals and objectives increases significantly.
Physical Analysis
Because land is a finite, depletable and environmentally sensitive resource, how it is used and allocated is an essential and critical question in the strategic business planning process. Typically, a complete environmental analysis, an opportunities and constraints analysis and a land-use analysis go hand-in-glove with the other facets of the plan, including a market analysis and an economic analysis. For example, both a market analysis and the economic analysis may argue persuasively for additional ski terrain or a golf course or vacation homes. However, when a land analysis is performed, environmental (wetlands, wildlife, water quality) or other constraints may eliminate what appeared to be possible.
In addition to an analysis that evaluates the land, a physical analysis may also include an inspection of all existing physical assets — buildings, ski trails, chairlifts, snowmaking systems, other existing recreational elements (i.e., golf courses or fitness facilities that may need improvement). Finally, it is appropriate to review all pertinent local, state and federal ordinances that may impact further land planning.
The Marketing Strategy
All strategic business plans, at their core, should be market driven. Market driven means it should respond directly to a customer need or want; the marketing strategy should concentrate on the customer. Unfortunately, many strategic business plans fail to grasp the importance of focusing on the customer first, which is the way to profitability. The temptation is to concentrate on profitability without understanding or articulating the necessary steps that make profitability possible.
Ted Levitt, in his book “The Marketing Imagination” (The Free Press, 1983) is not guilty of equivocation when he writes: “Profit is a meaningless statement of the corporate purpose. Without customers in sufficient and steady numbers, there is no business and no profit. No business can function effectively without a clear view of how to get customers — what its prospective customers want and need, and what options competitors give them — and without explicit strategies and programs focused on what goes on in the market place.”
In the strategic business plan, the framework for a marketing strategy need only be outlined. At this level, the strategic business planning team should not be addressing the details of advertising copy, pictures, narrative or ad placement; they need to look at the broader issues of positioning and image (the customer needs to be filled and the advantages available), differentiation (what makes a ski area or resort different from the others) and the market niche (customer group) intended as the target.
The message cannot be simpler: In the marketing strategy as part of the strategic business plan, focus on the customer.
Financial Forecasts and Projections
Conventional wisdom has it that a strategic business plan is an endless series of spreadsheets where running the numbers is de rigueur. Not to minimize the importance of a financial analysis, the bottom line does matter and is extremely important. Without profitability and return-on-investment, no business can survive.
In the building-block approach to strategic business planning, however, it is important to first establish the groundwork through the situation analysis and the creation of goals and objectives with related strategies focusing on achieving goals and objectives. Resting on the foundation of all the other tasks of strategic business planning, the strategic planning team can create informed assumptions about the capital investment required, the operating pro-forma that will result and the measurement of the return of and return on the investment.
For example, a strategic business plan may include a new chairlift or a new snowmaking system or a baselodge renovation or a golf course or vacation home development. Investors, banks, owners and management must know the anticipated results of capital commitment so risk and reward can be analyzed. A thoughtful, detailed financial analysis should spell out all key assumptions that support every line item in the financial analysis. The numbers will be no better than the assumptions on which they are based. Be rigorous. Adopt the validation techniques of a good newspaper reporter and cross-reference all sources two or three times to support the key assumptions that, in turn, drive the financial analysis.
The financial analysis is the quantitative measurement or scorecard on which much of the qualitative aspects of the strategic business plan will be measured.
The Mission Statement
In the Overview section of this article, the reader will note that the mission statement follows situation analysis. Typically, in the finished strategic business plan document, the mission statement is placed at the beginning as the guiding light and a primary item to be read. It represents a consensus by the team, in the form of a written statement, stating the overall purpose of the business in a clear and concise way; it explains why the company is in existence and what it expects to accomplish.
However, in the building block approach to the strategic business planning process, the mission statement should deliberately be put off to the end in order to see which way the process takes the team. From the conclusions of each major section of the process, the team can formulate the central theme for the present and the future.
The mission statement is the end result and by-product of the stratgic business planning process.
The importance of a well-constructed mission statement is stressed in one of the most influential articles published in Harvard Business Review. Theodore Levitt wrote in his article, “Marketing Myopia” that “Today’s growth product is tomorrow’s buggy whip. . . . a company must learn to think of itself not as producing goods and services, but as buying, creating, and satisfying customers. … Marketing myopia is not easy to overcome.” In one of his most famous examples of how a limited vision and outlook on a business can lead to decline, Levitt wrote, “The railroads did not stop growing because the needs for passenger and freight transportation declined. They grew. The railroads are in trouble today not because the need was filled by others (cars, trucks, airplanes, even telephones), but because it was not filled by the railroads themselves. They let others take customers away from them, because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad-oriented instead of transportation-oriented; they were product-oriented instead of customer-oriented.”
Every ski area — small or large — can examine Levitt’s epiphany in the context of its own purpose and mission, its own place and its own direction as it is reflected in the mission statement.
Evaluation, Appraisal and Feedback
The strategic business planning process should be thought of as a repetitive process. There will be lots of trial and error, lots of fine tuning, retracing of steps, revisions of goals and objectives and accompanying strategies. But, don’t stop — it is a continuous responsibility. The strategic business planning team must set up and commit to a monitoring system for all objectives and strategies or action steps along the way.
