It’s not unusual for me to come across business owners and CEOs who have a fundamental misunderstanding of what strategic planning is and is not. They often confuse “strategic planning” with the more common “long-term planning.” The differences between these two concepts are not academic. They are fundamentally important if you’re looking to take your business to the proverbial “next level.”
BusinessDictionary.com provides the following definitions:
Strategic planning is a “systematic process of envisioning a desired future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them.”
Long-range planning, by contrast, “begins with the current status and lays down a path to meet estimated future needs.”
Planning “Forward”
Long-range planning is all about extrapolation. You start with where you are today and, factoring in current and planned activities, forecast forward to a future result. For example, if revenues have been growing 5% per year and you expect that growth to continue, your long-range plan would suggest that revenues five years from now will be 28% higher. That’s planning forward – starting with today’s circumstances and results and projecting them to a future point in time.
This is the mechanism used in businesses that focus on budgeting as a key decision-making tool. You forecast sales, budget expenses, and (hopefully) profits get recorded at year-end.
Don’t get me wrong. This is a worthwhile management process. But it is a process that is prone to delivering “predictable” results. You are unlikely to forecast forward to a step change or industry-disrupting future, and even less likely to see industry disruption coming in time to prepare and react.
Planning “Backward”
Strategic planning, by contrast, is all about aspirations. As a management process, it has the potential to deliver breakthrough results — to help you and your business become something different, something disruptive, something aspirational. This is the type of planning that I help drive.
A well-run strategic planning process should surface an aspiration — a desired future state – that is energizing for you and your team. This aspiration becomes the goal and is sometimes such a stretch that it is labeled a “big hairy audacious goal” (BHAG). But the point is that strategic planning begins with a stake in the ground at some point in the future. The challenge is to identify gaps between where you are today and where you want to be in the future, and to create strategies, objectives, and action plans that will move you towards your desired future state. That’s planning backward —choosing a desired future state and working backward to today to make it a reality.
Revisiting the 5% annual growth example from above, what if that company’s management team coalesced around growing the company 100% over the next five years? That’s almost four times the expectation set by the more linear long-range planning process. The challenge would be to think about things differently – about new business models, value propositions, product and process innovation, new markets, etc.
This is the realm of strategic planning — imagining what could be (i.e. aspirations) and doing the hard work of exploring ways to achieve those aspirations.
Food for Thought
The next time you find yourself thinking about the future, ask yourself this question: “What could this business become?” Allow yourself to be aspirational, to envision a future state that is more than the extension of today. If you want to take a shot at making your aspiration a reality, give strategic planning to try.
Critical thinker Werner Erhard is spot on when he declares “Create your future from your future, not your past.”