The Business Plan versus the Strategic Plan

By Charles A. “Chip” Brethen
Quite often the two terms, Business Plan and Strategic Plan, are used interchangeably, but they are not interchangeable to the professional. Occasionally, I find myself trying to keep from misusing the terms. An example might be the interchangeability of terms like goals and objectives and the confusion derived from their use or misuse. It is important to define terms and make sure that everyone involved is speaking the same language.

I always like to start with the strategic planning process because elements of the Strategic Plan are critical to the development of the business plan. I also like to keep it simple. It seems as though many Strategic Plan and Business Plan facilitators and consultants try to develop and draft an ultra complex document that goes beyond the understanding of all but a few. These verbose documents are expensive, complicated and generally of little use to all but the largest, most sophisticated companies with a staff of MBA’s. Therefore, if the plan cannot be understood by those responsible for it execution and implementation why spend tens of thousands of dollars premium for a document that sits on your shelf in an exquisite binder? You could say that the chance for the success of a plan is directly proportional to its simplicity. A two page outline of the corporate Vision, Mission Statement, Goals and Objectives is much more effective than a three inch thick book with reams of complex, inconsequential and/or useless data.
Please notice that I used the term process when referring to planning. Planning is not an event. It takes weeks or months to develop a framework and gather the data necessary to make a viable plan. Part of the reason for the lengthy planning “process” is to check for viability and consistency through the input of key individuals within an organization. Ideas need time to ferment.
The pre-process of acquiring the necessary information is critical as well. For example, quite often projected sales data starts on the back of a cocktail napkin, jotted down by some salesperson that has neglected to get their report in on time and, furthermore, doesn’t recognize the significance of his or her input. That is why I recommend that most supporting data should be generated during the Action Plan phase of the strategic plan and not before. The most logical conclusion is worthless if based on erroneous data.
The Strategic Plan is a document containing the company’s Vision, Mission Statement, Goals, and Objectives over a period of time and how specific individuals within the company will achieve those Objectives within that specified time frame. The use for a “Strategic Plan” is to determine your limited resources (time, money, people, equipment, materials, technology, and facilities), evaluate those resources, then for management to get everyone on the same course such that their actions are coordinated to achieve each Objective within the resource limitations. It is an internal document to be used routinely as a roadmap for your employees, on a timely basis, to achieve success. The format is generally as follows:
  1. Vision statement
  2. Mission statement
  3. Goals
  4. Objectives
  5. Action plans
  6. Risk analysis & contingency plans
  7. Competitive analysis
  8. Financials
The above format is pretty basic, but will vary depending on the interpretation of the elements of the plan. For example, the Mission Statement can vary depending on interpretation. I generally like to include the values of the company in regards to its stakeholders (customers, employees, vendors, shareholders, board) and some explicit definition of what business the company would like to be in.
The definition of terms is also critical. For example, Goals are enduring statements of what the company is striving for concerning the medium to longer term view. “Increased market share” would be a goal. Objectives are statements or desires that include a time frame and an amount; they should be consistent with the Goal. “We want to increase our market share by 10% in the year 2005” is an Objective consistent with that Goal.
I have developed hundreds of Strategic Plans for companies I was responsible for as well as for clients. The main fallacies that I see are:
  1. Mistaking Action Plans for Goals.
  2. Inconsistent financials
  3. The incorporation of issues (future problem solving, decision making and present problem solving) as Goals and Objectives.
  4. Risk Analysis without appropriate Contingency Planning
  5. Lack of preplanning that is necessary to make the process go smoothly
  6. Lack of commitment by the CEO or other key manager
  7. No objective third party facilitator to make the planning process balanced and reasonable
Finally, the Strategic Plan is a living, dynamic document that is flexible, takes into account changes and acts as an almost daily guide to running a business.
The Business Plan is a statement about your business that follows a distinct format that will be used to evaluate the business you are in and what you choose to do with your business in the future. The use for a “Business Plan” is to demonstrate to outsiders what your business is all about. The basic format is as follows:
  1. Cover sheet
  2. Table of contents
  3. Executive summary
  4. The company
  5. The market
  6. Production, engineering and/or technology
  7. Sales and marketing
  8. Management
  9. Financials
The above format is basic and can be modified depending on:
  1. The purpose for the plan
    1. Raise money
    2. Find a strategic partner
    3. Give confidence to lenders
    4. Check the viability of your company or new programs
  2. The audience
    1. Stakeholders
    2. Investors or lenders
    3. Acquisition or divestiture candidates
    4. Strategic alliance candidates
    5. Potential key employees
  3. The maturity of the company
    1. Start up
    2. Growing
    3. Mature
    4. Declining or in trouble
The bottom line is that the first thing that your audience will want to see, especially if they are asked to take a vested interest in your company, is your business plan. NO ONE WILL RISK THEIR CAPITAL WITHOUT EVALUATING SOME TYPE OF VIABLE BUSINESS PLAN. (Unless you have enough credit and assets to basically underwrite the amount of money on your own)You will be judged by the reader by your logic, clarity, completeness, simplicity, consistency, grammar, punctuation, spelling, and your ability to demonstrate your uniqueness. Your audience will be looking for a specific format with a compelling executive summary. They will want to know that you know what you are doing, where you are going, how you will get there and, most importantly, how and when they will get paid back.
I read and review dozens of business plans every month and find that most are very poorly written. The most common flaws in the written proposal are:
  1. The inability to clearly and simply state what business you are in and how you do it in the first few paragraphs of your executive summary
  2. The use of industry jargon that is familiar to only those who are in that industry and thereby confuse the audience.
  3. The concentration on the features of the product, service or company and not the emphasis on the solutions that are provided to their target market.
  4. The inability to articulate exactly what their target market is looking for.
  5. The lack of a compelling argument in the executive summary to entice the reader to delve into the details later on.
  6. Financial inconsistency between the prose of the plan and the financial statements.
All in all, I highly recommend that a seasoned professional be involved in both processes. When I was President and CEO of AKZO Nobel Coating in North America with eight divisions, I was the facilitator for the each of the divisional plans, but I always enlisted the help of an outside professional to facilitate our North American corporate plan to ensure objectivity, keep us focused, and to keep my views from over riding those of the management team.

Another way to grasp the difference is by understanding the difference in ‘scale’ between a strategic plan and a business plan. Larger organizations with multiple business units and a wide variety of products frequently start their annual planning process with a corporate-driven strategic plan.  It is often followed by departmental plans and marketing plans that work down from the Strategic Plan.  Smaller companies and startup companies typically use only a business plan to develop all aspects of the business on paper, obtain funding and then start the business.  Many smaller companies – including startups never develop a Strategic Plan. (http://mystrategicplan.com)

Remember: The effectiveness of any plan is in its simplicity. The key is to reduce the complexities of your business into a written form that anyone can read and understand.

Xai Syndicate