1. Current state: Where are we now?
The first part of the strategic planning process is to determine the current state through strategic analysis. The current state refers to the current state of the organisation in terms of its strengths and weaknesses, the current state of the markets that it operates in and/or wishes to operate in, as well as the wider business environment.
A properly performed strategic analysis gives an organisation a clear picture of where the organisation is at currently, where any opportunities lie, and what risks are present; all vital information for building a strategy.
Strategic analysis tools
A SWOT analysis helps to understand the organisation's strengths and weaknesses, as well as identify opportunities for the organisation to exploit, and identify any potential threats.
PEST (or PESTLE) analysis
A PEST analysis is a tool for scanning the business environment. It looks at political, economic, socio-cultural, and technological changes that may present opportunities or cause threats to the organisation. It is helpful to use this in conjunction with a SWOT analysis.
Porter's Five Forces
The essence of strategy formulation is coping with competition. According to strategy guru Michael E. Porter, the state of competition in an industry depends on five basic forces (as outlined in the video below). The collective strength of these forces determines the ultimate profit potential of an industry and must be considered when setting a strategy.
Value chain analysis
A value chain is a set of activities that an organisation carries out to create value for its customers. Understanding how your company creates value, and looking for ways to add more value, are critical elements in developing a competitive strategy.
2. Future state: Where do we want to be?
The second part of the strategic planning process is to determine the future state. The future state includes:
The vision is the long-term future state. It is an enduring statement about what an organisation aspires to become, to achieve or to create over the life of the organisation, for example "To be earth’s most customer-centric company" or "To create a world without hunger".
A vision doesn't need to be achievable, or time-bound. It may take 10 years, it may take 30 years, in fact the organisation may never realise the vision - but as long as the organisation is in business, they'll keep striving to achieve it.
2. Strategic goals
Strategic goals are brief, clear statements of outcomes to be reached within the timeframe of the strategic plan (usually 3-5 years) that help the organisation move closer to their vision. Goals should be a stretch from where the organisation is now, but should still be achievable.
Strategic goals are often focused around growth (e.g. increase market share, increase customer base), and/or financial performance (e.g. increase revenue, reduce costs).
3. Strategy: How will we get there?
The final part of the strategic planning process is to formulate a strategy and set strategic objectives that specify what the organisation needs to do in order to move from where it is now, to where it wants to be in the future.
Formulating a strategy
The challenge with setting a strategy is that there are many paths you can take to reach the same goal - and nothing can tell you for certain which is the right path to take.
Organisations must be able to realistically analyse their strengths and weaknesses, analyse their competitors and markets that they play in, and use that information to make smart strategic decisions about what the organisation is going to do to get to where it wants to be in the future.
For example, if the organisation's goal is to increase their customer base, they could invest in improving and marketing their products and services to gain a competitive advantage and win more customers. They could also expand their product/service offering and enter new markets and territories to get access to new customers. These two strategic decisions ultimately achieve the same goal of increasing the customer base, but they have very different operational impacts.
When formulating a strategy, some of the questions an organisation might need to answer are:
- Given all of the opportunities available to us, where are we going to play and not play?
- Where we play, how are we going to win against our competitors? (e.g. higher quality, lower cost, better customer service, better branding etc.)
- For us to win, what capabilities do we need to build?
- To maintain our capabilities, what management systems need to be in place?
Setting strategic objectives
Once an organisation has determined the strategy for achieving the organisational goals, strategic objectives need to be set. This is about clearly articulating the strategy into specific, measurable, achievable, realistic, time-bound objectives that can be cascaded down through the organisation so that every level of the organisation is working on things that help the organisation achieve its goals and ultimately move closer to realising its vision.