Chapter 4
Strategic Business Planning
“If you do not know where you are going, any road will get you there.” This paraphrase of text from Lewis Carroll’s novel Through the Looking Glass applies equally well to organizations. If an organization does not know where it wants to go, any set of activities will get it there.
Actually, most organizations do have some idea of where they want to go. They may want to grow annual sales and earnings, increase market share, or just win a key competition. Unfortunately, most companies fail to articulate their ideas clearly. Even worse, they fail to develop clear plans to achieve their objectives. Captured by the tyranny of daily business, serious planning for the future is overcome by more immediate issues. Like Alice, the character in the Carroll novel, they are destined to meander through an undefined maze of business activities, never quite knowing where they are or specifically where they are going.
In a business sense, knowing where you are going is referred to as strategic planning. This is a process of envisioning the future of your company and then building a plan to achieve that future. Strategic planning goes beyond just planning for the future. Done properly, it can help an organization create its future. Strategic planning differs from typical long-range planning. Practically every organization has a business plan. But planning to keep doing the same thing in the future, only better, is not strategic planning.
Strategic planning goes beyond mere long-range planning. Instead, it requires an organization to take a hard look at its products and services, the environment in which it competes, and the business ingredients necessary to succeed. Strategic planning is a process concerned with making decisions today that will affect the organization in the future. Essentially, strategic planning addresses three basic questions:
Where does the organization want to go?
What is the environment in which the organization operates and competes?
3. How will the organization get to where it wants to go (i.e., what actions are required)?
STRATEGIC PLANNING AS PART OF THE BUSINESS ACQUISITION PROCESS
Developing a strategic business plan is an important part of the overall business acquisition process. It provides a framework within which business and marketing decisions can be made rationally. It also helps focus an organization’s resources. Bid decisions, allocating internal research and development funds, marketing emphasis, development of new procedures or processes, teaming or partnering with other companies, future employee skill requirements, and a host of other business decisions should be made within the boundaries and direction established by the strategic plan. Moreover, these decisions can be based on a shared set of values and a common understanding of what the organization is trying to achieve. Proper strategic planning enhances an organization’s effectiveness and efficient use of its resources—again, all aligned by an established future direction defined clearly by a set of business objectives.
Effective strategic planning requires the approval and participation of senior management and other key people in the organization. It also requires buy-in from employees and stakeholders. Consequently, it is important to keep everyone informed during the planning process and to solicit input from employees and stakeholders. Everyone in the organization needs to be aware of the basic strategic plan and to understand the direction the organization is pursuing. Otherwise, they will be unable to coordinate their work efforts to support the plan.
Developing a strategic plan that will be placed in a desk drawer to gather dust is simply a waste of valuable resources. To be effective, the strategic plan must be used to manage the organization. Key business decisions should be made in concert with the goals and objectives delineated in the plan. Management indecision, inconsistent and parallel activities, and general organizational chaos are often due to a lack of strategic planning or a failure to effectively communicate the plan to all employees.
Strategic planning is a dynamic, ongoing activity. It is iterative. Business conditions and priorities change; the strategic plan should reflect this evolution. At specified intervals, progress against the plan is reviewed. Feedback from these reviews is then fed back into the planning process.
STRATEGIC PLANNING AS A COMPETITIVE ADVANTAGE
Given the relative importance and utility of strategic planning, you might mistakenly assume that it is a core business practice. In truth, it is not. Many organizations operate without the benefit of a true strategic business plan. Many of these same organizations are successful, at least for a season. Strategic planning, therefore, is not an absolute essential for business success. Books on business and proposal development rarely address it. Indeed, you could skip this chapter and still gain all the essential information you need to capture business from the federal government. Nonetheless, this book is about gaining competitive advantage. Over the long haul, companies that plan and manage strategically fare better than their counterparts that fail to practice strategic planning. That is why we are addressing the topic of strategic planning here.
The first step in gaining competitive advantage is to develop and implement a strategic plan. If your organization has an existing plan, you are ahead of the game. If not, you might want to initiate the process or try to convince management to get started. The world will not end if you fail. Nor will humanity cease to exist because you do not have a strategic plan. Yet, those who practice strategic planning will gain an edge in the race to capture government business.
The following sections of this chapter summarize the strategic planning process. This is not intended to be a comprehensive treatment of the subject. Instead, it is provided to familiarize or refresh readers with the basics. If you decide to develop a strategic business plan, you will need more information than is contained here. You might also consider hiring a professional consultant to help you through the process.
DEVELOPING A MISSION STATEMENT
The first step in developing a strategic business plan is to formulate a mission statement. A company’s mission statement defines its business mission—the reason the company exists. Four basic questions must be addressed:
What functions does the company perform?
Who are the customers for whom these functions are performed?
How (by what means) does the organization perform these functions?
Why does the organization exist?
Answers to these questions are distilled into a relatively short statement—100 to 150 words—that succinctly defines the mission of the organization. An effective mission statement is an organization’s best effort to define its future state in terms of products/services, customers, and the organization’s distinctive attributes or approach to products or customers.
What
The first question concerns the function served by the organization. There is a natural tendency to define “what” in terms of tangible products or services. A more fruitful approach is to define your organization’s function according to customer needs. Consider the following.
One of my clients builds flight simulators for military aircraft. The company could view its function as providing flight simulators to military customers. But its customers do not have a need for flight simulators. Instead, they have a need to produce trained pilots who possess the skills required to fly sophisticated military aircraft safely and effectively.
Defining organizational function in terms of customer needs will help you avoid restricting your offerings to current product lines. It will also enable you to be more creative and innovative in how you satisfy those needs. Focusing on customer needs can be a safeguard against product stagnation and obsolescence. For example, having my client define its function as training pilots versus providing flight simulators opens new vistas for how the company accomplishes that function. Instead of just offering flight simulators, it might offer a mix of training devices and training materials, or it might consider embedding some training systems into the aircraft itself.
Being sensitive to meeting the needs of customers enables an organization to respond to new contingencies in the marketplace and advances in technology, as well as to envision new ways of meeting those needs. There is a very real difference between a company that sees itself as a pretzel company and one that sees itself as a provider of snack foods.
As another illustration, consider the difference in orientation between a personal computer manufacturer and an organization whose function is to meet the computational needs of its customers. The first view is limiting; the second sets broad horizons.
Who
Identifying the “who” part of the business equation is the second part of building a mission statement. Which market or market segment is your organization targeting? Markets can be segmented in many ways. Saying that the federal government is your market is too broad to be useful. Some organizations might segment this market by agency. Others might segment it by function, such as information technology. No organization is large enough to supply the needs of everyone. Therefore, it is important to define clearly the segment of the total potential customer base that is your organization’s primary market.
Different market segments embody different needs. The needs of the Department of Defense are different from those of the Department of Justice. Clarity about market segments will enable the organization to be more sensitive to the needs of that segment and to focus its resources on its prime targets. At the same time, avoid defining too narrow a segment; you might miss some valuable opportunities.
How
The third question addressed by the mission statement concerns how the organization will meet its objectives. “How” may refer to a special competency unique to the organization, a particular application of technology, an emphasis on quality, a marketing strategy, or the manner in which services will be provided. For example, you might elect to be the low-cost provider of a particular product or service. Or, you might emphasize innovative, technology-driven solutions. Still further, you might provide products that are highly reliable, offer services provided by experienced professionals, or want to capitalize on a unique technical competency.
The “how” portion of the mission statement must match reality. If you plan to be the low-cost supplier, you must measure up to this statement or put plans in place to do so. Moving to become the low-cost supplier can be part of your strategic plan, along with the actions required to achieve that goal.
Why
The final component of the mission statement involves defining “why” the organization exists. Many organizations feel compelled to include a statement that reflects the values of the organization in their mission statement. Others do not. The “why” portion is optional. It should be included only if it adds clarity to the stated mission of the organization. “Why” statements probably have greater value and relevance for companies providing products that affect health and safety, or those providing services that address human needs.
Value of the Mission Statement
A well-thought-out mission statement provides the organization with a valuable tool. It clearly charts the future direction of the organization and establishes a basis for organizational decision-making. This will enable employees to align their efforts with organizational goals and to apply their energies to accomplishing the organization’s mission.
Developing an effective mission statement, however, can be a very difficult task. Multiple iterations, refinements, and edits are required before it is right. Once a draft statement is available, post it publicly and solicit recommendations from employees. You might be surprised at the insight of employees not involved in the process. This also will help employees accept the final mission statement, which every employee should be able to recite from memory.
STRATEGIC BUSINESS MODELING
Strategic business modeling is the process of defining what is required to accomplish the organization’s mission and how progress toward that goal will be measured. It is a way of stating concretely the desired future of the organization. The business modeling process includes defining the success the organization wants to achieve, how success will be measured, what will be done to achieve success, and the organizational culture. All the elements of the strategic business model must be consistent with the organization’s mission statement. Alternatively, it might be necessary to adjust the mission statement in light of decisions made during the strategic business modeling process.
Strategic business modeling consists of four major elements:
Identifying the lines of business (LOBs) the organization will engage in to accomplish its mission
Establishing measures or indicators to assess progress in each LOB
Identifying the strategic activities required to realize the organization’s vision of the future
Assessing the organizational culture necessary to support achievement of the organization’s objectives.
Lines of Business
An important ingredient of strategic planning is to identify LOBs that will enable the organization to achieve its desired future. An LOB is a product or service offering that is distinct from other products or services, or significantly different in terms of the market segment it serves. An LOB analysis begins by assessing current products and services. Do not, however, restrict your thinking to current LOBs; they may not be the ones that take you where you want to be. Instead, determine what future LOBs will enable your organization to achieve its goals.
The strategic planning team should identify those businesses they want the organization to pursue. If a new LOB is identified, it must be compared with the mission statement to ensure consistency. Moreover, selecting a new LOB should be based on current capabilities of the organization, the contribution of that LOB to organizational measures of success, and the fit of the new LOB within the existing product line.
Part of the LOB analysis is to determine the mix of products and services the organization wants to offer in the future. For each LOB, you should determine its relative size in terms of expected sales and profits. You also need to identify marketing resources and any investment required. The purpose of the LOB analysis is to determine the ideal mix of products and services required to achieve the goals of the organization. This may require an adjustment to the current mix, the deletion of a current product, or the addition of a new LOB. A business plan for each LOB must be prepared, including a list of advantages and disadvantages associated with that LOB. If possible, the business plan should cover a five-year period.
Once a business case is prepared for each LOB, the role of the strategic planning team is to determine which LOB to pursue and the relative contribution of each to the organization’s success. These must be realistic decisions based on an accurate estimate of the market potential for each LOB. This estimate requires knowledge of market conditions, competitors, and potential sales.
The output of the LOB analysis is a determination of the organization’s future mix of products and services. In addition, the LOB analysis identifies the expected contribution of each LOB, the resources required to achieve that contribution, plus any other special considerations. Again, the final determination of LOBs should be compared to the mission statement to ensure consistency.
Strategic Success Indicators
Once an organization has set its sights on the future, it must select a way of assessing its progress. Strategic success measures need to be selected for each LOB and for the overall organization. Success measures typically are a mix of financial figures and “soft” indicators. Financial measures can be sales, profits, return on investment, market share, cash flow, or any number of indicators to assess the organization’s financial success (see Figure 4-1 for some examples). Soft measures refer to the human factor. They might include customer satisfaction or employee morale.
Figure 4-1. Sample Strategic Success Indicators
Other measures can be added to standard indicators. These can include the percentage of competitive proposals won, the number of new products introduced, or on-time delivery of products and services for existing government contracts. The selected measures must be clear, quantifiable, and trackable. They must also relate meaningfully to the future success your organization is trying to achieve.
With respect to soft measures, I often hear people say that you cannot measure customer satisfaction on government contracts. I disagree. Most Department of Defense agencies evaluate contract performance annually and issue a report. For Air Force contracts, this is called a Contract Performance Assessment Report. The information is subsequently used as one criterion in awarding future contracts.
Performing work for a government agency that does not regularly evaluate contract performance does not restrict you from soliciting that information. In fact, I highly recommend that you devise a method to regularly assess the satisfaction of your customers, even if they do not formally evaluate contract performance. I also suggest that you periodically assess the morale and satisfaction of employees. Employee morale can have an enormous impact on the success of your organization. Often a dime spent to improve morale will reap a dollar’s worth of increased productivity.
Strategic Activities
Strategic activities define the steps required to achieve the goals and objectives of the strategic plan. These activities may be short-term, focused activities. Alternatively, they may be long-range, far-reaching processes. Examples include:
Winning a key contract as a way of entering a new business area or maintaining dominance in that area
Improving product reliability
Obtaining certification in a key process
Increasing the size and sophistication of the marketing organization
Establishing a long-term partnership with another company
Implementing an earned value management system to improve cost tracking
Revamping employee compensation to promote teamwork and improve employee morale.
Assessing Necessary Culture
A final component of strategic business modeling involves the organization’s culture. Often omitted, it concerns the culture necessary to support the attainment of business objectives. Cultural issues include organizational structure, the organization’s attitude toward risk, how management decisions are made, and employee morale issues. Changes to an organization’s current LOBs may require corresponding changes to its culture. If so, these need to be included in the strategic business plan.
ORGANIZATIONAL PERFORMANCE ASSESSMENT
Another one of my favorite quotes is, “If you do not know where you are going, a map will not do you any good.” The first portion of the strategic planning process involves determining where you want to go. To get there, you first need to determine your starting point. An organizational performance assessment provides this information. It is a focused analysis of the current performance of the organization. Four factors are considered. Two focus on the internal organization, evaluating its current strengths and weaknesses. The other two factors look outside the organization, evaluating opportunities and threats. Taken together, the factors form the acronym SWOT.
The internal assessment examines the organization’s current performance in terms of basic indices such as sales, earnings, cash flow, return on investment, growth (sales and personnel), quality, technology, operations, and service. The measures used to assess performance should be the same measures you will use to assess progress toward the objectives listed in your strategic business plan. For example, if you plan to increase sales 15 percent per year for the next five years, your performance assessment should include an evaluation of current and past sales.
If practical, review organizational data for the past several years. If you want to increase your proposal win rate, or the ratio of bid cost to contract value, you need to assess current and past performance in these areas. As part of the organizational performance assessment, you also need to list weaknesses that could hinder efforts to achieve your strategic objectives.
The external assessment examines opportunities and threats outside the organization that could affect future success. These may include competitors, suppliers, markets and customers, economic trends, changes in procurement practices, labor market conditions, and government regulations. Planning to expand into software development and integration as a new LOB, for example, could be significantly affected by the availability of software engineers. Likewise, it may be difficult to increase sales in a market that is expected to shrink over the next five years.
A SWOT analysis should be performed for each separate LOB. Figure 4-2 provides a sample form for recording SWOT information.
Figure 4-2. Sample Form to Record Results of SWOT Analysis
COMPETITOR ANALYSIS
A detailed assessment of competitors is an integral component of this step of the strategic planning process. Competitors are companies that compete for contracts in the markets represented by your current or proposed LOBs. Clearly, competitors represent a serious threat to many strategic objectives, especially those related to increased sales, market share, or new markets. A realistic assessment of your competitors for each LOB is essential input to the strategic planning process. It is also information that must be updated regularly and used to support decisions throughout the business acquisition life cycle.
GAP ANALYSIS
Once completed, the results of the performance assessment should be compared with the objectives of the strategic plan. The difference between where you are and where you want to go is the “gap.” Gap analysis defines differences between current and desired performance. This analysis then leads to the development of specific strategies to close the gaps. These are time-phased plans that clearly define the actions and resources required to achieve strategic objectives in light of current performance.
Sometimes the gap between current and desired performance is too great. In these cases, it might be necessary to reevaluate the strategic objective. Four basic approaches are available to close the gap:
Increase the timeframe allotted to achieve the objective.
Reduce the size or scope of the objective.
Reallocate resources as a means of achieving the objective.
Obtain new resources if possible.
DEVELOPING AND IMPLEMENTING ACTION PLANS
The output of the gap analysis phase is a set of action plans for each LOB. The collective set of action plans is reviewed to ensure they are mutually consistent and to determine an overall grand strategy for the organization. Each action plan should contain milestones, a set of success measures, and a budget, if required. Each action plan should be assigned to the person responsible for implementing it and for tracking and reporting progress.
The functional and operational units of the organization should review the overall strategic plan and the corresponding set of action plans. In many cases it will be necessary to develop a more detailed operational plan to achieve the specifics contained in the action plan. For example, part of the strategic plan is likely to include future sales and earnings. Supporting this strategic objective will require a business plan and sales forecast along with any collateral plans to acquire new business. These might include increasing marketing staff or allocating research and development funds to design a new product.
Progress toward strategic objectives must be measured and reported regularly. The strategic planning team should meet at least quarterly to review progress and annually to review the overall strategic plan. Everyone in the organization needs to be familiar with the strategic objectives of the organization, and the strategic plan must be used as the basis for day-to-day management decisions.
Knowing where you are going and why is a critical ingredient to long-range business success. Lacking this essential business focus causes organizations to waste precious resources on fruitless pursuits. Like a ship without a compass, they occasionally sail on high seas but too often blow into a bad port. Organizations need a solid foundation on which to base important business decisions, especially those related to the acquisition of new business.
Gain competitive advantage by building a strategic plan. Establish the plan as the foundation upon which business decisions are made. Use it to guide your organization effectively into a successful future. Every shred of evidence suggests that companies that practice strategic planning outperform their directionless counterparts.