Business planning is a process that companies both large and small use to determine a course of action that leads to revenue growth and increased profits — in other words, a path to success. Two important aspects of the business planning process are setting objectives, also called goals, and making strategic choices to reach these objectives.
“Planning is bringing the future into the present so that you can do something about it now.”Alan Lakein
Setting objectives, also called goals, requires the consideration of important factors, including strategy, the environment, capacities and limitations, the talents and knowledge of staff, internal and external resources, and competitors.
The planning involves the creation of strategies, or the actual course of action to achieve the plans. Strategies include tactics and make up the roadmap an organization follows to realize its objectives. The strategy to achieve a goal is informed by the environment the organization faces. For example, an environmental factor may be the existence of a major competitor. Knowing the relative strengths and weaknesses of the competition allows for an informed strategy.
The environment is also a consideration. Environmental factors are the larger influences, sometimes beyond the direct control of the organization. Climate change, for instance, is an environmental issue that could affect your business strategy. Global economic downturns can affect your strategy. News reports communicate new environmental information. Policies and regulations are also part of the environment.
Capacities and Limitations
According to Harvard Business School Professor Michael Porter, “To become and remain an industry leader in its particular field, an organization must excel and be recognized as excelling in the basic activity upon which its competitive position is based. The organization must, at a minimum, meet industry standards.” The previous statement is part of Porter’s Five Forces research, which combines industry analysis with SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis based on competitors, customers and suppliers. Fiscal and physical resources available are another important consideration of capabilities. Capacity is the ability of an organization to engage in a course of action. Capacity includes available resources, organizational capabilities or the ability of the system to implement a strategy.
Talents and Knowledge
Staff members also have skills and knowledge. Strategy is based in part on the skills and knowledge of employees.
Internal and External Resources
Another way to structure a business plan is to consider internal and external resources. Internal factors include human resources, manufacturing facilities, distribution networks and more. External factors include suppliers, vendors, consultants, banks, distributors and more. Relationships with all of the external resources should be clearly documented.
The strategy choices of an organization are dependent on the organization’s environment and the strengths and limitations of the organization, as well as on the goals of the organization. An organization may choose to emphasize a particular strength or select a strategy that will take advantage of an opportunity it sees in its environment.
Manage Resources and Make Strategic Choices
“Managers direct and coordinate people, information, and resources to accomplish the organization’s goals and objectives.”Human Resource Concepts and Strategies, 10th Edition
Managing resources and making strategic choices requires information gathering and communication. The business plan is another important information resource. Data gathered during the planning stage continue to inform the organization as it makes strategic decisions. Data gathered from customers, suppliers and other stakeholders are also useful in making choices.
As the environment and internal capabilities change, the organization also must change. It must redesign its strategies and have the ability to implement the new directions. Flexibility allows an organization to make informed choices and change with the needs of its situation.
Seven Keys to Effective Strategy Choices
By following a structured approach to strategy choices, as outlined by the following tips, you can become a more strategic thinker and, in turn, pursue a more profitable, competitive and long-lasting business model.
- Define the Situation – The first thing you need to do is to define the current situation that the business is operating in. Use a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis tool to map out the situation in its entirety.
- Develop the Strategic Options – Based on the SWOT analysis, develop multiple strategic options that will help you succeed in the current situation. In many cases, all options will not be feasible and will be thrown out in the next step. In others, a preferred option will be selected and the rest discarded.
- Take the Next Step – Conduct market research to determine which strategic options have the best chance for success.
- Determine the Strategic Objectives – Now you need to determine the top key strategic objectives that you would like the business to achieve. Strategic objectives are measures that help you determine whether your strategic decision is succeeding or failing.
- Determine the Tactics – Most businesses do not have the same long-term success in mind when they formulate their strategic decisions. Instead, they have medium- or short-term goals they are trying to achieve. That’s why you need to determine the tactics.
- Execute the Strategic Tactics – Now comes the fun part. You get to implement your game plan. Make sure you have picked a plan that is realistically possible and you have all of the resources you will need to make it happen.
- Measure the Results – Last but not least, you need to measure the results so you know whether your business made the right strategic decision. It may be necessary for you to sit down with your team and analyze whether the plan succeeded or failed. It may also be helpful to run through the process again to make sure you have the right tactics to achieve the desired strategic objective.
The Seven Steps to Developing the Business Plan
A business plan is the foundation of all business organizations. It identifies the strategies used to maximize profitability for a particular entity. The business plan outlines the purpose of the business, its activities, the personnel and labor used to perform those activities, and the resources needed to operate.
A business plan is a marketing document that explains:
- Why the business exists.
- What it sells.
- How it sells it.
- To whom it sells it.
- Why people want to buy it.
- How available resources are obtained and used to run the business.
- Estimates of expected sales, costs, and profits.
Listed below are the seven steps that will help you develop a good business plan. This list is in no particular order.
- Identify the Target Market – Research the market, environment, and competition to identify the potential market niche. Small businesses will have a more narrow focus than large businesses. Determine the product or service that you will sell, and identify the geographic marketplace in which you will operate.
- List the Competition – Make a list of all of the competitors so you can research them and have a profile of them. Research the companies, including their business model and rationale for their existence.
- Describe the Product or Service – Describe the product or service in terms of its features, components, quality, and guarantees. Describe the client/customer and how your product or service meets their needs and expectations.
- Prepare the Sales Plan – Determine the sales plan. How many units do you need to sell to breakeven? How much do you need to earn on each unit sold to achieve 100% profit? What marketing tactics will you use to sell the product or service? Will you focus on retail or direct sales? Will you sell through stores or on the web? How will you maintain an adequate inventory?
- Prepare the Marketing Plan – Determine the marketing plan. What is the projected sales forecast? Where will you sell? How will you sell?
- List the Personnel – List the personnel, including additional positions to be added once the business is running, part-time staff and volunteers.
- Prepare a Budget – Prepare a budget, including projected cash flow.
How to select the right business strategy choices?
Business Strategy is planning for actions to address a problem that a business is facing. Strategy is about possible actions in which a business can choose to implement. A business strategy is defined by actions the business must take to address the problem.
Business problems are situations that a business is facing and needs to deal with. There are many types of business problems, but they are all problems that prevent the business from achieving its desired goal. If your business had no problems, it would be just like any other business.
There are four main types of business problems:
- Management problems.
- Marketing problems.
- Financial problems.
- Technical problems.
These involve problems related to the companies management. Examples of these types of business problems include low employee motivation, poor sales management, etc
These involve problems with dealing with the customers. Examples of these types of business problems include low market share, losing existing customers, etc.
These involve problems dealing with the company’s finances. Examples of these types of business problems include high cost of sales, poor cash flow, etc.
These involve problems dealing with the company’s product or service. Examples of these types of business problems include low quality or service, poor sales, etc.
Choosing the best Business Strategy
A business strategy is how a business will address a problem. There are two main types of business strategies:
- Long term strategy.
- Short term strategy.
Long Term Strategy
Long term strategies are where a business will address a problem over a long period of time. These strategies are more long term, and are the company’s main focus in the long run. These strategies are considered the company’s main focus and is what the company is planning to achieve over a long period of time.
Short Term Strategy
Short term strategies are where a business will address a problem over a short period of time. These strategies are less long term, and are defined more as a quick solution to the companies problem. These strategies are only to be used short term, and aren’t usually permanent. These are strategies that a business will use to fix the problem over a short period of time until the problem is resolved.