Strategic planning definition
/What is Strategic Planning?
Strategic planning is the process of setting priorities and allocating resources in order to achieve a goal. It begins with a vision statement, which is then broken down into a series of manageable steps. These action items are widely disseminated through the organization, so that employees are consistently engaged in activities that will force the organization in the direction of achieving the plan.
The ideal strategic plan is intended to develop a competitive stance that cannot be easily attacked by competitors, and which allows a business to generate above-average profitability for an extended period of time. The plan should also anticipate how long this enhanced competitive position will last, so that it can be adjusted to shift the organization into an ongoing series of competitively robust positions.
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The Strategic Planning Process
The basic steps followed in strategic planning are as follows:
Assess the current environment and the company's capabilities.
Formulate strategy.
Translate the overall strategy into an operational plan.
Continually refine the plan through an ongoing feedback process.
Who is Responsible for Strategic Planning?
Strategic planning is the primary responsibility of the senior management team. More junior staff may contribute ideas to the process, but senior managers are expected to formulate the plan and ensure that it is implemented. These managers must also maintain a high level of awareness regarding changes in the competitive landscape, so that they can adjust the strategic plan on an ongoing basis to ensure that the organization's expected future position aligns with the current and expected competitive landscape.
At the top of the organization, the chief executive officer presents the strategic plan to the board of directors, which may also approve it, or at least make suggestions for alterations to it.
Strategic Planning vs. Tactical Planning
Strategic planning is typically directed at where an organization should be a number of years from now. This longer duration differs from the tactical orientation followed by most organizations, which are more concerned with simply following the direction indicated by the annual budget. Thus, the expenditures required to roll out tactics are usually quite visible in the annual budget, while little mention of the underlying strategy is made in that document.
How Accounting Assists with Strategic Planning
The accounting function of a business can play a strong supporting role in the strategic planning process. This is due to several of the analysis and reporting functions that the accounting department routinely fulfills for the rest of the organization. Here are the key supporting roles:
Budgeting. The accounting department assembles the budget for the management team each year. This is the best analysis of the organization’s ability to generate a profit, and the amount of cash it consumes. This is essential information that can be extrapolated forward into the strategic plan.
Key performance indicators. The accounting department routinely calculates the KPI information for the entire organization. This information is used in the derivation of a strategic plan.
Revenue and cost analysis. The accounting department provides the management team with a variety of analyses that break down all revenue earned and costs incurred, providing insights into whether it is possible to enhance margins. This information can be incorporated into the strategic plan.
Example of Strategic Planning
A regional coffee shop chain with 15 locations decides to create a five-year strategic plan to expand its market presence and increase profitability. The leadership team begins by conducting a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). They identify strengths such as a loyal customer base and high-quality local sourcing, while weaknesses include limited online presence and inconsistent branding across locations. Opportunities include growing demand for mobile ordering and eco-friendly products, while threats involve rising competition from national chains and fluctuating coffee bean prices.
Using this analysis, the company sets three long-term strategic goals: (1) open 10 new stores in neighboring cities, (2) develop a mobile app for ordering and loyalty rewards, and (3) reduce operational costs by 15% through supply chain improvements and green initiatives. They break these into short-term objectives—such as selecting new store locations within 12 months, launching a beta version of the app in 6 months, and renegotiating supplier contracts within the year.
The company assigns specific responsibilities to departments, allocates a budget for each initiative, and sets performance metrics like customer retention rates, sales growth, and app adoption rates. They plan to review progress quarterly and adjust strategies as needed. This strategic plan helps the business stay focused, competitive, and adaptable in a changing market.