Successful Companies have a Strategic Plan
According to the Small Business Administration, there is a 95% chance a new business will fail if it does not have a well-defined strategic plan. Stated simply, failing to plan is a plan to fail. The good news is that when a firm chooses to create a strategic plan, it significantly increases its chance of success.
Strategic Plan Components
The components of a strategic plan are not complicated and include a company's defined Vision, Mission, Values, Culture, Objectives, and path to Organizational Acceptance. A strategic plan is not a guarantee of success, but it is an essential tool to guide a company to success.
The big picture purpose of a company's strategy is to identify a company's tactics to attract customers, to outperform its competitors, and to achieve superior profitability. The primary focus of a company's strategy is to implement actions that increase and strengthen the company's long-term competitive position and financial performance. This is accomplished by competing differently from rivals and gaining a sustainable competitive advantage over them.
Strategic Plan Process
An overview of the strategic planning process includes the following stages, all of which possess interlaced dependency and include:
1. Identify Culture based on Leadership traits
2. Define Vision, Mission, Values
3. Create a Strategy
4. Identify the Objectives
5. Implement the Strategy
6. Evaluate the Performance and Adjust as needed.
Customer Value Proposition
The strategic planning process includes identifying two essential issues that are unique to each company and includes answering the following questions:
· What is the customer value proposition?
· What is the profit formula?
The customer value proposition identifies the company's approach to satisfying buyer wants and needs at a price that customers accept as a good value. The profit formula explores a company's operational and cost structure that generates an acceptable level of profit bases on the customer's value proposition. The result of the strategic planning process will identify the company's unique value-price-cost structure.
The Triad of Success – Internal, External, & Sustainable
The triad of success includes the company's internal capability, the external environment, and the path to sustainability. The company's internal competency must be able to achieve the business objective, the external business environment must enable the objective's implementation, and the strategy must provide sustainability to support success. If any of these three elements are not validated, then the strategic plan must be reconsidered.
Many tools exist to assess the Triad of Success components and include the VRIN assessment of internal capability, Porter's Five Forces analysis of the external environment, and a SWOT assessment of the combined internal and external forces. The collective assessment from these assessment tools will identify a firm's probability of successfully implementing a strategic plan.
VIRN, Five Forces, & SWOT
The VIRN elements are used to evaluate a firm's internal capability and assess the extent to which a firm's internal skills are Valuable, Rare, Inimitable, and Nonsubstitutable. Dr. Porter's Five Forces model assesses a firm's external environment to identify the best market entrance strategy. The SWOT analysis evaluates the strengths and weaknesses of the firm's internal elements and the opportunities and threats presented by the external environment.
All of the elements of strategy rely on a firm's leadership to communicate the plan effectively, achieve sustainable acceptance by the staff, and remain flexible to adjust the plan based on internal and external realities. The ability to know when to adjust and how to adjust is an essential component of leadership.
Simple Action Plan
An immediate action plan to support a firm's strategic plan is to understand everything about its products and its customers. This includes examining the who, what, when, where, why, and how for each specific product or activity.
Just like writing a research paper, every strategic plan must identify the following question:
· who is their target customer?
· what are the key elements of the product?
· when is the best time to deliver the product?
· where can the customer be located?
· why would they buy it from you?
· how will it be delivered and priced?
The strategic plan must also consider:
· pricing and understanding financial dynamics
· all costs associated with the product
· the profit margin needed to achieve the desired profitability
Every strategic plan must include a 12-month financial forecast that predicts profitability based on volume, costs and profit margin, and a 3-month cash flow forecast.
In conclusion, it is important to understand that success is not random. Success flows from the effective implementation of a strategic plan. The effective implementation of a plan includes leadership choosing to do what has to be done to achieve success irrespective of the amount of time it takes to generate sales and produce a product in a profitable fashion. We also choose to do what has to be done even if it means telling a staff member their work performance needs to improve in a specific area.
The key to any business is to have a plan and stick to the plan.
To learn how to define a firm's vision, mission, and values along with a comprehensive strategic plan and implementation guide, contact Dr. Schell at DoctorSchell@MBS-team.com
Dr. Schell is the CEO of Schell Advisory Services, LLC & Mortgage Banking Solutions