Ever wonder why your yearly plans and new initiatives fail to yield meaningful changes or a bold new vision? Maybe it’s because you've confused business planning with strategic planning.
If you’re not sure what the difference is between the two, you’re in good company. Here’s how I explain it to my clients whenever they struggle to separate these concepts.
Business Planning = “What are we going to do, and how are we going to do it?”
Strategic Planning = “What are we going to do, and why are we going to do it?”
Business planning is a necessary discipline: resources must be assigned, budgets must be set, tactics must be established. A business plan is, “We’ll hire three people in the Midwest region in the second quarter.” The focus is on how you’ll execute that plan (e.g., where will those hires come from, how will you recruit them, what technical skills or relationship skills do they need, etc). To be strategic, however, you have to ask why. In this particular case, you might ask, why three hires and not five? Why the Midwest and not some other region? Strategy is, of the hundreds of things you could do, why did you pick these things? An idea that simply sounds like a good idea (no matter how “doable” it is) is not enough.
You can easily have a business plan without having a strategic plan. And that’s why so many companies with business plans are disappointed with their results. They think they’re pursuing a strategic plan, when really they’re just engaging in routine business planning -- focusing on how they’re going to achieve a set of goals, rather than on why they want to achieve certain goals. This traps them in incremental thinking.
It’s important to recognize that goals are not strategy. Goals are easy. We want to be more profitable. We want happier employees. We want to grow revenue. We may even want to hire three new people in the Midwest.
These are all fine aims, but trying to decide whether you want to grow by eight percent or 10 percent isn’t a discussion about strategy – it’s a negotiation about a sales target. Ask instead why you want to grow by eight percent. Better yet, ask why you only grew by five percent in the previous year.
As I say to my clients, you can come up with a list of 10 good ideas and call that a plan. But unless you have a strategy, how do you know there aren’t 10 better things you could be doing? The lesson here is to never attempt to use a specific, measurable goal as a strategy. For example, you might tell your team the goal is to grow by 10 percent. But if your leadership doesn’t ask why you’re aiming for 10 percent, you might not realize that you actually need 15 percent growth to keep pace with the market.
One of my clients spent several years celebrating its success achieving its goals in China, where they were growing at eight-to-10 percent per year. Relative to a U.S. market that was growing at only two-to-three percent, this was impressive. But they eventually realized that the Chinese market for their offering was growing at 15-to- 20 percent per year – they were actually losing market share to increasingly capable local competitors.
Make no mistake: you need to have financial goals and business plans to achieve them. But unless you can answer the “why” questions behind these goals, you do NOT have a strategic plan.
Do you have a strategic plan in place? How is it different from your business plan? Post your thoughts in the comments section.