last step in business planning

We had a marketing background but not much experience in the other functions needed to run a fashion ecommerce business, like operations, finance, production, and tech. Laying out a business plan helped us identify the “unknowns” and made it easier to spot the gaps where we’d need help or, at the very least, to skill up ourselves. Jordan Barnett, Kapow Meggings

Investors rely on business plans to evaluate the feasibility of a business before funding it, which is why business plans are commonly associated with getting a loan. But there are several compelling reasons to consider writing a business plan, even if you don’t need funding.

If you’re looking for a structured way to lay out your thoughts and ideas, and to share those ideas with people who can have a big impact on your success, a business plan is an excellent starting point.

Free: Business Plan Template

Business planning is often used to secure funding, but plenty of business owners find writing a plan valuable, even if they never work with an investor. That’s why we put together a free business plan template to help you get started.

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Business plans can span from one page to multiple pages with detailed graphs and reports. There’s no one way to create a business plan. The goal is to convey the most important information about your company for readers.

Common types of business plans we see include, but are not limited to, the following:

Check out real-world examples of different business plans by reading The Road to Success: Business Plan Examples to Inspire Your Own .

Few things are more intimidating than a blank page. Starting your business plan with a structured outline and key elements for what you’ll include in each section is the best first step you can take.

Since an outline is such an important step in the process of writing a business plan, we’ve put together a high-level overview you can copy into your blank document to get you started (and avoid the terror of facing a blank page). You can also start with a free business plan template and use it to inform the structure of your plan.

Once you’ve got your business plan outline in place, it’s time to fill it in. We’ve broken it down by section to help you build your plan step by step.

1. Draft an executive summary

A good executive summary is one of the most crucial sections of your plan—it’s also the last section you should write.

The executive summary’s purpose is to distill everything that follows and give time-crunched reviewers (e.g., potential investors and lenders) a high-level overview of your business that persuades them to read further.

Again, it’s a summary, so highlight the key points you’ve uncovered while writing your plan. If you’re writing for your own planning purposes, you can skip the summary altogether—although you might want to give it a try anyway, just for practice.

Screenshot of an executive summary by FIGS

An executive summary shouldn’t exceed one page. Admittedly, that space constraint can make squeezing in all of the salient information a bit stressful—but it’s not impossible. Here’s what your business plan’s executive summary should include:

2. Describe your company

This section of your business plan should answer two fundamental questions: who are you, and what do you plan to do? Answering these questions with a company description provides an introduction to why you’re in business, why you’re different, what you have going for you, and why you’re a good investment bet. For example, clean makeup brand Saie shares a letter from its founder on the company’s mission and why it exists.

Clarifying these details is still a useful exercise, even if you’re the only person who’s going to see them. It’s an opportunity to put to paper some of the more intangible facets of your business, like your principles, ideals, and cultural philosophies.

Here are some of the components you should include in your company description:

Some of these points are statements of fact, but others will require a bit more thought to define, especially when it comes to your business’s vision, mission, and values. This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.

This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.

To define your values, think about all the people your company is accountable to, including owners, employees, suppliers, customers, and investors. Now consider how you’d like to conduct business with each of them. As you make a list, your core values should start to emerge.

Once you know your values, you can write a mission statement . Your statement should explain, in a convincing manner, why your business exists, and should be no longer than a single sentence.

As an example, Shopify’s mission statement is “Making commerce better for everyone.” It’s the “why” behind everything we do and clear enough that it needs no further explanation.

What impact do you envision your business having on the world once you’ve achieved your vision?

Next, craft your vision statement: what impact do you envision your business having on the world once you’ve achieved your vision? Phrase this impact as an assertion—begin the statement with “We will” and you’ll be off to a great start. Your vision statement, unlike your mission statement, can be longer than a single sentence, but try to keep it to three at most. The best vision statements are concise.

Finally, your company description should include both short- and long-term goals. Short-term goals, generally, should be achievable within the next year, while one to five years is a good window for long-term goals. Make sure all your goals are SMART: specific, measurable, attainable, realistic, and time-bound.

3. Perform a market analysis

No matter what type of business you start, it’s no exaggeration to say your market can make or break it. Choose the right market for your products—one with plenty of customers who understand and need your product—and you’ll have a head start on success. If you choose the wrong market, or the right market at the wrong time, you may find yourself struggling for each sale.

Market analysis is a key section of your business plan, whether or not you ever intend for anyone else to read it.

This is why market research and analysis is a key section of your business plan, whether or not you ever intend for anyone else to read it. It should include an overview of how big you estimate the market is for your products, an analysis of your business’s position in the market, and an overview of the competitive landscape. Thorough research supporting your conclusions is important both to persuade investors and to validate your own assumptions as you work through your plan.

How big is your potential market?

The potential market is an estimate of how many people need your product. While it’s exciting to imagine sky-high sales figures, you’ll want to use as much relevant independent data as possible to validate your estimated potential market.

Since this can be a daunting process, here are some general tips to help you begin your research:

Some sources to consult for market data include government statistics offices, industry associations, academic research, and respected news outlets covering your industry.

SWOT analysis

A SWOT analysis looks at your strengths, weaknesses, opportunities, and threats. What are the best things about your company? What are you not so good at? What market or industry shifts can you take advantage of and turn into opportunities? Are there external factors threatening your ability to succeed?

These breakdowns often are presented as a grid, with bullet points in each section breaking down the most relevant information—so you can probably skip writing full paragraphs here. Strengths and weaknesses—both internal company factors—are listed first, with opportunities and threats following in the next row. With this visual presentation, your reader can quickly see the factors that may impact your business and determine your competitive advantage in the market.

Here’s an example:

Free: SWOT Analysis Template

Get your free SWOT Analysis Template. Use this free PDF to future-proof your business by identifying your strengths, weaknesses, opportunities, and threats.

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Competitive analysis.

There are three overarching factors you can use to differentiate your business in the face of competition:

To understand which is the best fit, you’ll need to understand your business as well as the competitive landscape.

You’ll always have competition in the market, even with an innovative product, so it’s important to include a competitive overview in your business plan. If you’re entering an established market, include a list of a few companies you consider direct competitors and explain how you plan to differentiate your products and business from theirs.

You’ll always have competition in the market, even with an innovative product.

For example, if you’re selling jewelry, your competitive differentiation could be that, unlike many high-end competitors, you donate a percentage of your profits to a notable charity or pass savings on to your customers.

If you’re entering a market where you can’t easily identify direct competitors, consider your indirect competitors—companies offering products that are substitutes for yours. For example, if you’re selling an innovative new piece of kitchen equipment, it’s too easy to say that because your product is new, you have no competition. Consider what your potential customers are doing to solve the same problems your product solves.

4. Outline management and organization

A woman does research on a laptop sitting on the floor

The management and organization section of your business plan should tell readers about who’s running your company. Detail the legal structure of your business. Communicate whether you’ll incorporate your business as an S corporation or create a limited partnership or sole proprietorship.

If you have a management team, use an organizational chart to show your company’s internal structure, including the roles, responsibilities, and relationships between people in your chart. Communicate how each person will contribute to the success of your startup.

5. List your products and services

Your products or services will feature prominently in most areas of your business plan, but it’s important to provide a section that outlines key details about them for interested readers.

If you sell many items, you can include more general information on each of your product lines; if you only sell a few, provide additional information on each. For example, bag shop BAGGU sells a large selection of different types of bags, in addition to home goods and other accessories. Its business plan would list out those bags and key details about each.

Screenshot of BAGGU reusable bags on its website

Describe new products you’ll launch in the near future and any intellectual property you own. Express how they’ll improve profitability.

It’s also important to note where products are coming from—handmade crafts are sourced differently than trending products for a dropshipping business, for instance.

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6. perform customer segmentation.

Your ideal customer, also known as your target market, is the foundation of your marketing plan , if not your business plan as a whole. You’ll want to keep this person in mind as you make strategic decisions, which is why an overview of who they are is important to understand and include in your plan.

To give a holistic overview of your ideal customer, describe a number of general and specific demographic characteristics. Customer segmentation often includes:

This information will vary based on what you’re selling, but you should be specific enough that it’s unquestionably clear who you’re trying to reach—and more importantly, why you’ve made the choices you have based on who your customers are and what they value.

For example, a college student has different interests, shopping habits, and pricing sensitivity than a 50-year-old executive at a Fortune 500 company. Your business plan and decisions would look very different based on which one was your ideal customer.

7. Define a marketing plan

A screenshot of a tweet about a marketing plan

Your marketing efforts are directly informed by your ideal customer. Your marketing plan should outline your current decisions and your future strategy, with a focus on how your ideas are a fit for that ideal customer.

If you’re planning to invest heavily in > Instagram marketing , for example, it might make sense to include whether Instagram is a leading platform for your audience—if it’s not, that might be a sign to rethink your marketing plan.

Most marketing plans include information on four key subjects. How much detail you present on each will depend on both your business and your plan’s audience.

Promotion may be the bulk of your plan since you can more readily dive into tactical details, but the other three areas should be covered at least briefly—each is an important strategic lever in your marketing mix.

8. Provide a logistics and operations plan

Brown boxes stacked to the ceiling in a warehouse

Logistics and operations are the workflows you’ll implement to make your ideas a reality. If you’re writing a business plan for your own planning purposes, this is still an important section to consider, even though you might not need to include the same level of detail as if you were seeking investment.

Cover all parts of your planned operations, including:

This section should signal to your reader that you’ve got a solid understanding of your supply chain and strong contingency plans in place to cover potential uncertainty. If your reader is you, it should give you a basis to make other important decisions, like how to price your products to cover your estimated costs, and at what point you plan to break even on your initial spending.

9. Make a financial plan

A laptop sits open with numbers and graphs on the screen

No matter how great your idea is, and regardless of the effort, time, and money you invest, a business lives or dies based on its financial health. At the end of the day, people want to work with a business they expect to be viable for the foreseeable future.

The level of detail required in your financial plan will depend on your audience and goals, but typically you’ll want to include three major views of your financials: an income statement, a balance sheet, and a cash-flow statement. It also may be appropriate to include financial data and projections.

Here’s a spreadsheet template that includes everything you’ll need to create an income statement, balance sheet, and cash-flow statement, including some sample numbers. You can edit it to reflect projections if needed.

Income statement

Your income statement is designed to give readers a look at your revenue sources and expenses over a given time period. With those two pieces of information, they can see the all-important bottom line or the profit or loss your business experienced during that time. If you haven’t launched your business yet, you can project future milestones of the same information.

Balance sheet

Your balance sheet offers a look at how much equity you have in your business. On one side, you list all your business assets (what you own), and on the other side, all your liabilities (what you owe). This provides a snapshot of your business’s shareholder equity, which is calculated as:

Assets - Liabilities = Equity

Cash flow statement

Your cash flow statement is similar to your income statement, with one important difference: it takes into account when revenues are collected and when expenses are paid.

When the cash you have coming in is greater than the cash you have going out, your cash flow is positive. When the opposite scenario is true, your cash flow is negative. Ideally, your cash flow statement will help you see when cash is low, when you might have a surplus, and where you might need to have a contingency plan to access funding to keep your business solvent .

It can be especially helpful to forecast your cash-flow statement to identify gaps or negative cash flow and adjust operations as required. Here’s a full guide to working through cash-flow projections for your business.

Download your copy of these templates to build out these financial statements for your business plan.

Know your audience

When you know who will be reading your plan—even if you’re just writing it for yourself to clarify your ideas—you can tailor the language and level of detail to them. This can also help you make sure you’re including the most relevant information and figure out when to omit sections that aren’t as impactful.

Have a clear goal

You’ll need to put in more work and deliver a more thorough plan if your goal is to secure funding for your business versus working through a plan for yourself or even your team.

Invest time in research

Sections of your business plan will primarily be informed by your ideas and vision, but some of the most crucial information you’ll need requires research from independent sources. This is where you can invest time in understanding who you’re selling to, whether there’s demand for your products, and who else is selling similar products or services.

Keep it short and to the point

No matter who you’re writing for, your business plan should be short and readable—generally no longer than 15 to 20 pages. If you do have additional documents you think may be valuable to your audience and your goals, consider adding them as appendices.

Keep the tone, style, and voice consistent

This is best managed by having a single person write the plan or by allowing time for the plan to be properly edited before distributing it.

Use a business plan software

Writing a business plan isn’t the easiest task for business owners. But it’s important for anyone starting or expanding a business. Fortunately, there are tools to help with everything from planning, drafting, creating graphics, syncing financial data, and more. Business plan software also have templates and tutorials to help you finish a comprehensive plan in hours, rather than days.

A few curated picks include:

For a more in-depth look at the available options, read Get Guidance: 6 Business Plan Software to Help Write Your Future .

Other articles on business plans would never tell you what we’re about to tell you: your business plan can fail. The last thing you want is for time and effort to go down the drain. Avoid these common mistakes:

Read through the following business plan example. You can download a copy in Microsoft Word or Google Docs and use it to inspire your own business planning.

Download sample business plan example (.doc)

A business plan can help you identify clear, deliberate next steps for your business, even if you never plan to pitch investors—and it can help you see gaps in your plan before they become issues. Whether you’ve written a business plan for a new online business idea , a retail storefront, growing your established business, or purchasing an existing business , you now have a comprehensive guide and the information you need to help you start working on the next phase of your own business.

Illustrations by Rachel Tunstall

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How to Write a Business Plan, Step by Step

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1. Write an executive summary

2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. add additional information to an appendix, business plan tips and resources.

A business plan is a document that outlines your business’s financial goals and explains how you’ll achieve them. A strong, detailed plan will provide a road map for the business’s next three to five years, and you can share it with potential investors, lenders or other important partners.

Here’s a step-by-step guide to writing your business plan.

» Need help writing? Learn about the best business plan software .

This is the first page of your business plan. Think of it as your elevator pitch. It should include a mission statement, a brief description of the products or services offered, and a broad summary of your financial growth plans.

Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.

» MORE: How to write an executive summary in 6 steps

Next up is your company description, which should contain information like:

Your business’s registered name.

Address of your business location .

Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.

Lastly, it should cover the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

» MORE: How to write a company overview for a business plan

The third part of a business plan is an objective statement. This section spells out exactly what you’d like to accomplish, both in the near term and over the long term.

If you’re looking for a business loan or outside investment, you can use this section to explain why you have a clear need for the funds, how the financing will help your business grow, and how you plan to achieve your growth targets. The key is to provide a clear explanation of the opportunity presented and how the loan or investment will grow your company.

For example, if your business is launching a second product line, you might explain how the loan will help your company launch the new product and how much you think sales will increase over the next three years as a result.

In this section, go into detail about the products or services you offer or plan to offer.

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

Your sales strategy.

Your distribution strategy.

You can also discuss current or pending trademarks and patents associated with your product or service.

Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.

Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.

» MORE: R e a d our complete guide to small business marketing

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

You may also include metrics such as:

Net profit margin: the percentage of revenue you keep as net income.

Current ratio: the measurement of your liquidity and ability to repay debts.

Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.

This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.

» NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.

Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.

List any supporting information or additional materials that you couldn’t fit in elsewhere, such as resumes of key employees, licenses, equipment leases, permits, patents, receipts, bank statements, contracts and personal and business credit history. If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

Here are some tips to help your business plan stand out:

Avoid over-optimism: If you’re applying for a business loan at a local bank, the loan officer likely knows your market pretty well. Providing unreasonable sales estimates can hurt your chances of loan approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors, taking their mind off your business and putting it on the mistakes you made. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. You can search for a mentor or find a local SCORE chapter for more guidance.

The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

How to Write a Business Plan: A Step-by-Step Guide

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A strong, well-thought-out business plan is crucial for a business's success. Without one, it's tough to maintain a vision of the future and what the next steps for your business should be. Think of it as a litmus test to prove that every step taken is part of a larger calculated effort.

Business plans are also crucial for external affairs. If you want to want to take out a loan, bring on a business partner, or more you'll need a solid plan in order. Your plan should be your pitch.

However, writing a business plan isn't easy and not everyone knows exactly what the business plan should outline. What's even more confusing is that no two business plans should look the same. We wrote a complete guide to show what your business plan should detail and how to write it.

Before You Begin Writing

How to Write a Traditional Business Plan

How to Write a Lean Startup Plan

Additional Tips

Things to know before you begin writing.

Know your audience. For example, if your business operates in a very niche space, you don't want to use niche and complex language that no one will understand if your plan will be reviewed by lenders or investors who don't have much knowledge of your space.

Also, keep the length of your plan in mind when it comes to your reader. We would always recommend keeping your plan as short as possible, but certain readers might want to see more details while others might want only the high level information. For example, a potential business partner will likely want to see a bit more details than an underwriter evaluating your business. However, don't go overboard with this and write a 50-page plan, as no one will read that.

Pick Your Format (traditional vs. lean startup)

There are now two ways you can write your business plan. The traditional route, and the most common, is likely what you'll be using. The traditional plan contains far more details and should be used for most scenarios. Alternatively, you can explore a lean startup plan , which are onepagers and detail your business only at the highest level. This is most appropriate for businesses that are likely to change quickly or are on a very, very short timeline.

A traditional plan is typically comprised of seven sections that are each crucial for explaining a different angle of your business. The length and detail of your plan will vary with the audience of the plan and how mature your business is. You'll use a business plan to sell your business to investors, qualify your business with for a loan with lenders, and more. Having a solid plan is always useful and can also help keep your actions as a business owner on track.

Step 1: Write an Executive Summary

As with any other piece of writing, this introduction to your plan is the hook. Why should the reader believe in your business? Sell your business and explain why it matters. Additionally, supplement your sell with a high level summary of your plan and operating model. However, don't go over one or two pages.

Feel free to include the following as well:

Step 2: Write a Business Description

This is your first opportunity to really go into detail about your business. What's the opportunity that your business is capitalizing on? What's the target market? How are you standing out from competitors? Highlight how your business is differentiated.

Step 3: Market and Competitive Analysis

Any good business will have done comprehensive analyses of the market that its entering. This doesn't just apply to large corporations, and your reader will likely want to see evidence of this. Here, you can describe the industry and market your business will operate in and highlight the opportunities your business will take advantage of. Did your market research reveal any unique trends? If so, this is the place to show it.

Illustrate the competitive landscape as well. What are your competitors doing well and not so well? Why are you moving into this space, and what's the weakness to be exploited in the industry? How will competitors logically react? Are you going to take competitors' customers? How?

Step 4: Operational Structure

This now gets into the tangible details of your business. How will your business operate on a day-to-day basis? Your plan should really detail this out.

What's your business's legal structure? Is it a sole proprietorship? Include this as well. We'd recommend putting together an organizational chart if there are multiple stakeholders to not only show who's involved but to also show how everyone brings something to the table.

Step 5: Product Description

Now, you finally get to discuss in detail what you'll be selling or offering. What's your good or service that's for sale? This section will likely be a bit longer than the others because of its importance.

Be sure to describe your product and how it is differentiated from similar ones. How will it be priced, and how does that play in the market compared to competitors?

Also include a marketing or promotions plan here. You could have the best product in the world but it won't matter if no one knows about it. Identify your target market and really detail out how you'll make that market aware of your product. What's the message you want to promote and why does that resonate with your specific product and the target audience? How will you build awareness and retain loyalty?

Step 6: Raise Capital

If you intend for a prospective investor or lender to read this, you'll want to include a section here on your funding request. Be clear with how much you're asking for and why. You don't want to ask for a $100,000 loan or investment without a clear plan as to what exactly that money would be used for. On top of explaining what the funds would be used for, also clearly state the projected ROI.

Step 7: Financial Analysis and Projections

It doesn't matter if you include a request for funding in your plan, you will want to include a financial analysis here. You'll want to do two things here: Paint a picture of your business's performance in the past and show it will grow in the future. Use charts and images to help make the experience easier.

If your business has already been operating for a few years, demonstrate stability through your finances. But if your business is newer and not yet profitable, be clear and realistic with your projections. For example, if your sales have been increasing at a steady 5% every quarter, you don't want to suddenly assume 50% sales growth per quarter for no reason.

Research industry norms and look up how comparable businesses have performed. Include income statements, balance sheets and cash flow statements for multiple years if possible. When showing your financial outlook, project your vision out over at least five years. Clearly state the logic behind your projections, and you can also tie this section back to your previous section on raising capital if applicable.

Step 8: Appendix

If you have any remaining pieces of information such as relevant patents, licenses, charts or anything else that wasn't able to fit in organically in the plan elsewhere, feel free to include those here. Don't use this as a space as a document dump. Instead, be absolutely sure that every piece of information that goes here goes toward supporting your business plan.

How to Write a Lean Startup Business Plan

The logic behind lean startup plans is that every business plan can be divided into nine segments. Without going into detail, you can describe each of those segments at a high enough level where they can be listed out on a single page. Compared to the traditional business plan, this allows for far more flexibility in case your business drastically changes quickly. There are dozens of templates to choose from but the most common is listed here .

Here are the basic components you'll need in a lean startup plan:

Customer Segments. Describe your target audience(s) that your business will appeal to. Most businesses will have multiple segments listed here and it's imperative that you properly identify them.

Value Proposition. Your business will potentially appeal to different customer segments in different ways. If that's the case, you should list out the different value propositions for each segment clearly and succinctly. If that isn't the case, you can list out the single value proposition your company will have. If you can't figure out what your value proposition is, that means you don't know what your business's value add is.

Channels. How is your value proposition going to be communicated to your customers? Detail out brand awareness as well as ongoing communication channels with your customers.

Customer Relationships. After you've explained how you'll be communicating to your customers, think about the kind of relationship you'll want to maintain with them. Will communication be ongoing? Will you personally be contacting them or sending automated emails?

Revenue Streams. How will your business make money? At what point in the relationship with your customers do you start to recognize revenue? Most companies will have multiple streams although if your business is just starting out, you may only have one. That's OK, but just be sure to demonstrate you know exactly where your revenue will come from.

Key Resources. You've described how you'll be capturing revenue from your customers, but what will the infrastructure look like that will support it? Supporting resources may include but aren't limited to staff or capital.

Key Activities. What are the absolute necessary activities in your plan for your business to be successful? Detail them out here and show why they're important.

Key Partnerships. As a new business, you likely won't own all of your key resources and won't be able to do all of the key activities yourself. What other entities are you working with? Consider suppliers, vendors and anyone else you're planning on doing business with.

Cost Structure. Now that you understand your business's infrastructure and needs, you can detail out the total projected costs of your business or at least identify the biggest costs you have in your plan right now. What is your plan to ensure you're maximizing the value out of those costs?

Be efficient with your plan: Be sure every single word and image in your plan serves a purpose. You don't want window dressing for the sake of window dressing here. Being concise and getting straight to the point will help make your plan more digestible and easier to understand.

If your plan starts to exceed 20 pages, really proofread tosee if anything should be cut out. Also, follow the advice we mentioned above and be aware of your audience. Don't write a plan that will confuse or bore the reader.

Keep yourself honest: Don't assume a fantasy world when writing your plan. Be honest and realistic. Use industry or sector benchmarks to determine what those realistic measures are, and be wary of inflating projections. This is a very common problem and it doesn't help anyone out.

Accept help: There are so many free resources both online and in person to help with all small-business affairs. Nonprofit organizations like SCORE offer things like free mentoring and can help you write your business plan. If you're a woman or a minority, there are many government sponsored resources like the National Women's Business Council that also provide free consulting.

What needs to be in a business plan?

The exact contents of a business plan will differ plan by plan, but in general, the typical plan should include an executive summary, a business description, a market or competitive analysis, a description of the proposed operational structure, a product description, and a pitch to raise capital if applicable.

Why is a business plan important?

Business plans are efficient ways to explain your business in a comprehensive and broad manner. Lenders may make decisions to lend to you based on your business plan. Investors may decide whether they want to invest in your business based on your plan.

Not only are plans useful to externally communicate details about your business, they're also useful as an internal reference. Plans will help keep your business on track and help align your strategic goals with actions that you make on a daily basis.

How do I write a business plan for a loan?

Most lenders will require a business plan from applicants. A business plan should always take the audience into account and in this case, you'll want to emphasize how your business stands out in the market, why it's likely to be a success, and how your plan involves paying off your loan quickly and on time. As long as a lender is confident that you'd be able to meet your loan repayments, your business plan did its job.

What's the difference between a traditional and a lean plan?

A traditional plan is far more common and will carry a lot more detail than a lean plan. While the two are relatively similar in content and structure, a lean plan only contains the bare minimum level of detail. A lean plan is usually a one-pager and only has the minimum amount of detail to be able to describe the business at the highest level and should only be used when the company is both very new and time is scarce.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Six steps to an effective business plan

At Lancasters we can provide objective assistance with writing a business plan, based on our experience in helping businesses in the Haddenham area. Here are six elements of a good business plan...

If you think your business performance can improve and, amidst the meetings, phone calls, e-mails and office crises, you find it difficult to know how to begin, then you will benefit from reviewing your business planning.

Don't confuse business planning with crisis management. The former should prevent the latter. Making time for planning now can reduce the time you spend fighting fires later. Here are six key steps that can lead to an effective plan for your business:

Step 1: Establish your mission

In essence, your mission statement explains why your business exists. When you encounter a problem or a key decision, the answer will be informed by your mission. Think about why you started the business, and imagine where you want it to be in the future. These two elements will provide your mission statement.

Step 2: Analyse your SWOT

With your mission statement in mind, analyse your business's s trengths, w eaknesses, o pportunities and t hreats. List each category in full and be honest. Done correctly, this 'SWOT' analysis will help you to take an objective, critical, unemotional look at your business in its entirety.

Step 3: Develop a plan

Try this exercise: from each SWOT category, choose three to five important items. Then set goals to maximise your strengths, correct your weaknesses, make the most of your opportunities and nullify your threats. For example, you could decide to focus more strongly on a particularly successful product or service (a strength), and abandon a side-project which is costing time and money for little return (a weakness). Remember that you can't do everything yourself. Think about how you will delegate tasks and involve all the staff. Avoid dwelling on the negatives - set yourself realistic strategies for improving the business.

Step 4: Create a budget

All missions and strategies need money to succeed. A smart budget will help you to regularly review your expenses and make financially beneficial decisions. You may need to take a wide variety of factors into account when setting your budget. This is where we can help you - why not give us a call?

Step 5: Put it in writing

Make sure you write down your finished plan. Include the mission statement, SWOT analysis, goals and plans, budget and forecasts, and make it clear who is responsible for doing what. Share it with your key staff and shareholders, and encourage their input.

Step 6: Make it a living document

This is vital! Make your business plan a living document that you and your staff can frequently update and improve. Consider reviewing it monthly to track your progress and readjust your strategy as necessary. Hold yourself and your staff accountable for meeting the plan's goals, and think about introducing an incentive programme to keep everyone motivated.

Remember, a good business plan is as much about the process as the final document. Creating your plan will open your eyes to the realities of your business. Keeping it updated will help you stay on the right track. For help with developing your plan, call us .

Start-ups and established businesses in the Haddenham area looking for help with writing a business plan should contact Lancasters for more help and advice.

5 steps of the strategic planning process

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Posted by: Lucid Content Team

Strategic planning process steps

Every business should have a strategic plan—but the number of businesses that try to operate without a defined plan (or at least a clearly communicated one) might surprise you. Research from OnStrategy shows that 86% of executive teams spend less than one hour per month discussing strategy, and 95% of a typical workforce doesn’t understand its organization’s strategy.

Because so many businesses lack in these regards, you can get ahead of the game by using strategic planning. In this article, we will explain what the strategic planning process looks like and the steps involved.

What is the strategic planning process?

In the simplest terms, the strategic planning process is the method that organizations use to develop plans to achieve overall, long-term goals.

This process differs from the project planning process, which is used to scope and assign tasks for individual projects, or strategy mapping , which helps you determine your mission, vision, and goals.

The strategic planning process is broad—it helps you create a roadmap for which strategic objectives you should put effort into achieving and which initiatives would be less helpful to the business.

Before you begin the strategic planning process, it is important to review some steps to set you and your organization up for success.

1. Determine your strategic position

This preparation phase sets the foundation for all work going forward. You need to know where you are to determine where you need to go and how you will get there.

Involve the right stakeholders from the start, considering both internal and external sources. Identify key strategic issues by talking with executives at your company, pulling in customer insights, and collecting industry and market data. This will give you a clear picture of your position in the market and customer insight.

It can also be helpful to review—or create if you don’t have them already—your company’s mission and vision statements to give yourself and your team a clear image of what success looks like for your business. In addition, review your company’s core values to remind yourself about how your company plans to achieve these objectives.

To get started, use industry and market data, including customer insights and current/future demands, to identify the issues that need to be addressed. Document your organization's internal strengths and weaknesses, along with external opportunities (ways your organization can grow in order to fill needs that the market does not currently fill) and threats (your competition).

As a framework for your initial analysis, use a SWOT diagram. With input from executives, customers, and external market data, you can quickly categorize your findings as Strengths, Weaknesses, Opportunities, and Threats (SWOT) to clarify your current position.

An alternative to a SWOT is PEST analysis. Standing for Political, Economic, Socio-cultural, and Technological, PEST is a strategic tool used to clarify threats and opportunities for your business.

As you synthesize this information, your unique strategic position in the market will become clear, and you can start solidifying a few key strategic objectives. Often, these objectives are set with a three- to five-year horizon in mind.

2. Prioritize your objectives

Once you have identified your current position in the market, it is time to determine objectives that will help you achieve your goals. Your objectives should align with your company mission and vision.

Prioritize your objectives by asking important questions such as:

Objectives should be distinct and measurable to help you reach your long-term strategic goals and initiatives outlined in step one. Potential objectives can be updating website content, improving email open rates, and generating new leads in the pipeline.

3. Develop a plan

Now it's time to create a strategic plan to reach your goals successfully. This step requires determining the tactics necessary to attain your objectives and designating a timeline and clearly communicating responsibilities.

Strategy mapping is an effective tool to visualize your entire plan. Working from the top-down, strategy maps make it simple to view business processes and identify gaps for improvement.

Truly strategic choices usually involve a trade-off in opportunity cost. For example, your company may decide not to put as much funding behind customer support, so that it can put more funding into creating an intuitive user experience.

Be prepared to use your values, mission statement, and established priorities to say “no” to initiatives that won’t enhance your long-term strategic position.

4. Execute and manage the plan

Once you have the plan, you’re ready to implement it. First, communicate the plan to the organization by sharing relevant documentation. Then, the actual work begins.

Turn your broader strategy into a concrete plan by mapping your processes. Use key performance indicator (KPI) dashboards to communicate team responsibilities clearly. This granular approach illustrates the completion process and ownership for each step of the way.

Set up regular reviews with individual contributors and their managers and determine check-in points to ensure you’re on track.

5. Review and revise the plan

The final stage of the plan—to review and revise—gives you an opportunity to reevaluate your priorities and course-correct based on past successes or failures.

On a quarterly basis, determine which KPIs your team has met and how you can continue to meet them, adapting your plan as necessary. On an annual basis, it’s important to reevaluate your priorities and strategic position to ensure that you stay on track for success in the long run.

Track your progress using balanced scorecards to comprehensively understand of your business's performance and execute strategic goals.

Over time you may find that your mission and vision need to change — an annual evaluation is a good time to consider those changes, prepare a new plan, and implement again.

Master the strategic planning process steps

As you continue to implement the strategic planning process, repeating each step regularly, you will start to make measurable progress toward achieving your company’s vision.

Instead of constantly putting out fires, reacting to the competition, or focusing on the latest hot-button initiative, you’ll be able to maintain a long-term perspective and make decisions that will keep you on the path to success for years to come.

Get started with a strategy map template.

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Strategic Planning in Diversified Companies

The widely accepted theory of corporate strategic planning is simple: using a time horizon of several years, top management reassesses its current strategy by looking for opportunities and threats in the environment and by analyzing the company’s resources to identify its strengths and weaknesses. Management may draw up several alternative strategic scenarios and appraise them against the long-term objectives of the organization. To begin implementing the selected strategy (or continue a revalidated one), management fleshes it out in terms of the actions to be taken in the near future.

In smaller companies, strategic planning is a less formal, almost continuous process. The president and his handful of managers get together frequently to resolve strategic issues and outline their next steps. They need no elaborate, formalized planning system. Even in relatively large but undiversified corporations, the functional structure permits executives to evaluate strategic alternatives and their action implications on an ad hoc basis. The number of key executives involved in such decisions is usually small, and they are located close enough for frequent, casual get-togethers.

Large, diversified corporations, however, offer a different setting for planning. Most of them use the product/market division form of organizational structure to permit decentralized decision making involving many responsibility-center managers. Because many managers must be involved in decisions requiring coordinated action, informal planning is almost impossible.

Our focus in this article is on formal planning processes in such complex organizations. However, the thought processes in undertaking planning (as described in the opening paragraph) are essentially the same whether the organization is large or small. Therefore, even executives whose corporate situation permits informal planning may find that our delineation of the process helps them clarify their thinking. To this end, formalizing the steps in the process requires an explanation of the purpose of each step.

Three Levels of Strategy

Every corporate executive uses the words strategy and planning when he talks about the most important parts of his job. The president, obviously, is concerned about strategy; strategic planning is the essence of his job. A division general manager typically thinks of himself as the president of his own enterprise, responsible for its strategy and for the strategic planning needed to keep it vibrant and growing. Even an executive in charge of a functional activity, such as a division marketing manager, recognizes that his strategic planning is crucial; after all, the company’s marketing strategy (or manufacturing strategy, or research strategy) is a key to its success.

These quite appropriate uses of strategy and planning have caused considerable confusion about long-range planning. This article attempts to dispel that confusion by differentiating among three types of “strategy” and delineating the interrelated steps involved in doing three types of “strategic planning” in large, diversified corporations. (Admittedly, although we think our definitions of strategy and planning are useful, others give different but reasonable meanings to these words.)

The process of strategy formulation can be thought of as taking place at the three organizational levels indicated in Exhibit I: headquarters (corporate strategy), division (business strategy), and department (functional strategy). The planning processes leading to the formulation of these strategies can be labeled in parallel fashion as corporate planning, business planning, and functional planning. We have to define these notations briefly before constructing the framework of the planning process:

Exhibit I Structure of a divisionalized corporation

Corporate planning and strategy —Corporate objectives are established at the top levels. Corporate planning, leading to the formulation of corporate strategy, is the process of (a) deciding on the company’s objectives and goals, including the determination of which and how many lines of business to engage in, (b) acquiring the resources needed to attain those objectives, and (c) allocating resources among the different businesses so that the objectives are achieved. (See the sidebar, “Objectives and Goals,” for definitions of objectives and goals as used in this article.)

Objectives and Goals

It is worth differentiating between objectives and goals, since these terms are used separately here.

Objectives are general statements describing the size, scope, and style of the enterprise in the long term. They embody the values and aspirations of the managers, based on their assessment of the environment and of the capabilities and health of the corporation. For example, the financial objective of a large, diversified, multinational corporation might be to rank in the top 10 % worldwide in compound rate of growth in earnings per share.

Goals are more specific statements of the achievements targeted for certain deadlines. At the corporate level these statements are likely to include such aspects as sales, profits, and EPS targets. Annual budgets constitute goals at all levels in the organization.

Business planning and strategy —Business planning, leading to the formulation of business strategy, is the process of determining the scope of a division’s activities that will satisfy a broad consumer need, of deciding on the division’s objectives in its defined area of operations, and of establishing the policies adopted to attain those objectives. Strategy formulation involves selecting division objectives and goals and establishing the charter of the business, after delineating the scope of its operations vis-à-vis markets, geographical areas, and/or technology.

Thus, while the scope of business planning covers a quite homogeneous set of activities, corporate planning focuses on the portfolio of the divisions’ businesses. Corporate planning addresses matters relevant to the range of activities and evaluates proposed changes in one business in terms of its effects on the composition of the entire portfolio.

Functional planning and strategy —In functional planning, the departments develop a set of feasible action programs to implement division strategy, while the division selects—in the light of its objectives—the subset of programs to be executed and coordinates the action programs of the functional departments. Strategy formulation involves selecting objectives and goals for each functional area (marketing, production, finance, research, and so on) and determining the nature and sequence of actions to be taken by each area to achieve its objectives and goals. Programs are the building blocks of the strategic functional plans.

Obviously, these levels of strategy impinge on each other to some extent—for example, the corporation’s choice of business areas overlaps the scope of division charters, and the delineation of the markets by the division can dictate, at the department level, the choice of strategy in the marketing function. But the distinction remains valid and useful.

Three-Cycle System

An important point to note about the planning process is that it requires formal interaction among the managers at different times. The more formal aspects—business planning, functional planning, and budgeting—are a way of organizing the interaction among managers at different levels in the hierarchy; one way of conceptualizing the planning process is as a series of meetings where executives are trying to arrive at decisions about actions to be taken. In each meeting, obviously, the basic question being addressed is the same: “What should we do?”

A detailed answer to that question is best developed by breaking it into a series of more specific questions dealt with in several meetings. These questions include: What are the objectives and goals of our company? What sort of environment can we expect to operate in? What businesses are we in? What alternative strategies could we pursue in those businesses? What other businesses should we enter? Should we make entry through an acquisition or through our research? What is the best combination of existing and new businesses to achieve corporate goals? What programs should the divisions undertake? What should each division’s operating budget be?

The series of agreements among individuals in the corporate hierarchy begin on a very broad level and then are framed in progressively more detailed terms. The options are numerous in the early stages of this ordering process but narrow gradually to the final choice: a set of specific goals (budgets) for each responsibility center in the corporation. Initially, only a small group of corporate executives is involved in the process; later, more and more managers at lower levels become involved. The process eventually engages all the managers who must be committed to making the strategy work.

The reason companies adopt a complex planning process such as that shown in Exhibit II is made clear by the example of a multibillion-dollar, diversified corporation, headquartered in Europe and multinational, which had a well-established budgeting process but found “negotiating” the final budget in the closing months of each year to be difficult. The company was divisionalized, but it had decentralized very little initiative for examining strategic options.

Exhibit II Steps in the planning process

Top management, increasingly uneasy over its ability to resolve all the strategic issues implicit in the budget, decided to ask the divisions to prepare formal five-year plans for its approval before drawing up the final corporate budget. The controller’s department was to coordinate the preparation of the detailed plans. The company moved from a one-cycle planning system to a two-cycle system, as shown in Exhibit III. The result was a flood of paper work and very little strategic thinking on the division managers’ part.

Exhibit III Examples of one-, two-, and three-cycle planning processes

When top management reviewed the first set of five-year plans—a 20-pound packet of neat notebooks—it decided the results were unacceptable. It made suggestions to the divisions and requested a new set. This process was repeated no fewer than five times during the summer and early fall before all sides reached agreement and the budgeting could proceed.

After this experience corporate management agreed that the procedure needed much improvement. So in the following year the company installed a three-cycle system. The first step required no comprehensive financial projections; instead, each division manager was asked to identify three or four strategic issues for presentation and discussion at headquarters. Agreement on those issues set the stage for orderly functional planning and budgeting, which had been so cumbersome before.

An important point to note about Exhibit II is its demarcation vertically, by cycles, and also horizontally, by activities at the three managerial levels. The degree of involvement at these levels is different in each planning cycle.

In the first cycle, corporate executives and division managers are primarily involved. A division manager draws his functional subordinates into discussions about the unit’s strategy, but the functional managers’ role usually remains informal. At this point the division manager regards the strategy as “his”; then, seeking the head office’s endorsement, he formalizes it for better communication.

Once the division’s strategy is set, the second cycle begins; here functional managers play a much more important part. In both that cycle and the budgeting cycle, they have the primary responsibility for developing detailed programs and budgets. The division manager and his staff are involved more or less actively in these two cycles, while top management limits itself to a review of division proposals.

Exhibit II, of course, makes no pretense of depicting the planning process as it is universally practiced; it is only illustrative. Nor is the process as neat and orderly as it appears here. For one reason, the process does not start from scratch each year; the previous year’s efforts feed into the first cycle. Moreover, while managers plan, the world keeps turning; so during a cycle events may oblige them to hold many meetings involving two levels.

First Cycle

The first cycle of a formal planning process serves a dual purpose: (1) to develop a tentative set of agreements between corporate management and the division managers about overall strategy and goals, and thereby (2) to provide focus for the more detailed planning in the next cycle. The process of reaching these initial agreements requires three discrete activities: establishing corporate objectives, drawing up division charters, and setting corporate goals. The ensuing discussion centers on these activities in a hypothetical (but representative) corporation whose fiscal year corresponds with the calendar year.

Establishing Corporate Objectives

In the initial dialogue between corporate and division management—starting in early February—the two groups form a statement of the corporation’s purpose and objectives. Naturally, its scope and the degree of detail provided vary greatly from one company to another. Company X prepares a detailed statement, starting this year with the general assertion that it is a “systems-oriented, high-technology, multinational, and socially conscious company.”

The principles set out mainly for strategic planning include breakthrough strategies (such as “seek projects, internal or external, waiting for application rather than invention”), resource management (such as “continuous emphasis on market orientation as opposed to product orientation”), financing (“utilization of the borrowing power of subsidiaries to escape the provisions of the debentures and foreign investment regulations”), public relations (“genuine concern for the quality of life, inside and outside the company”), acquisitions, joint ventures, licensing (“export and import technology in the form of licenses or joint ventures, including third countries”), and so on.

The preparation of such a statement gives division managers guidance as they begin strategic planning for their businesses. So as a minimum the statement must include the intended company policies for allocating resources among the divisions. In effect, such policies constitute a statement of strategy for the entire corporation—although many businessmen are uncomfortable using the term “strategy” in such an abstract sense. Therefore, the delineation of an explicit statement of corporate strategy is often deferred until the final step in the first cycle.

Whether corporate strategy should be enunciated early or late in the planning process depends primarily on the degree of diversity in the company’s businesses. In general, the more diverse the corporation, the less feasible it is to develop an explicit, cohesive strategy for its businesses and, therefore, the more desirable it is to make the resource allocation policies explicit at an early stage. On the other hand, less diversified companies frequently delay preparing a strategy statement until the division heads have developed strategic proposals for their own businesses. Many large corporations are divisionalized, but not so many are highly diversified. The more common practice is to delay the definition (or redefinition) of corporate strategy until it can be stated in fairly explicit terms.

Drawing Up Division Charters

In mid-March headquarters calls on each division manager to (a) write or review the “charter” of his division, specifying the scope of its activities and his objectives for the business as he defines it, and (b) propose a strategy for the business and a tentative set of goals for the coming year.

Giving the initiative to the division manager at this step challenges him to think strategically about the scope of his activities and then propose a charter broad enough to permit him to contribute significantly to achieving corporate objectives. Formalizing this step in the planning process is an important device by which corporate management widens the horizons of division heads. An explicit charter also serves two secondary purposes: (1) it increases the likelihood of clear agreement between the top executives and the division manager about the scope of his activities, and (2) it reduces the risk of redundant efforts or competition between divisions.

Establishing a division’s charter is not a discrete activity; it is inextricably connected to the task of identification and analysis of alternative strategies that exploit the charter selected. Obviously, the decision based on this analysis is crucial because the long-term performance of any division is a function of the strategy it adopts, and the performance of the company as a whole is likewise a function of the strategies of its particular businesses.

Although the initiative for identifying and analyzing strategic options lies with the division manager, guidelines that headquarters gives him for presentation of his proposals affect the way he pursues the task. Increasingly common is a request by corporate management that when he proposes a strategy and specifies goals, at the same time he also present a statement of the alternative strategies which he has evaluated and rejected. The intent is not to permit the head office to second-guess the division manager’s thinking, but to ensure that he used strategic thinking in arriving at his recommendations.

In mid-May, four to ten weeks after headquarters presents its request for division proposals, the unit’s manager presents his recommendations to the corporate management group. The presentation consists at least of an integrated proposal for the division’s charter, its objectives, the strategy to be pursued, and tentative goals. The recommendations may also include a general statement of the action programs that would be developed to implement the strategy (developed in more detail in the second cycle) and a crude estimate of the resources that would be required. Detailed financial data are usually not included at this step because such information is not necessary to evaluate the strategy and because the effort of preparing it may go to waste if the recommendations are modified.

In the ensuing discussions, which extend over several meetings in late spring, corporate management and each division chief work toward reaching an agreement about the appropriate division strategy and goals.

Setting Corporate Goals

By the middle of June top management has prepared an explicit statement of corporate strategy and goals. In some companies this document is, in effect, a set of decisions on how resources are to be allocated among the divisions, as well as a forecast of the results expected from each. In most cases, however, the statement is not intended to constitute a final resource allocation decision; rather, it is designed to provide feedback to the division managers about the corporate implications of the agreed-on business strategies. The presentation and discussion of corporate strategy and goals are also commonly used as a device to initiate the second cycle of the planning process.

The sum of the recommended division goals is likely to be inadequate to achieve the goals envisioned by headquarters for the entire organization. In trying to close this “planning gap,” corporate management has only three choices:

1. It can improve division performance by pressing, during the review of division recommendations, for more aggressive strategies and more ambitious goals.

2. It can divert company resources into more promising businesses. This move may give rise to an acquisition program.

3. It can decide that the corporate goals are unrealistic and scale them down.

The fact that the corporation’s goals normally are more or less the sum of those division goals sought by top management implies that headquarters is concerned with rather minor adjustments of this portfolio of goals. If so, the first cycle of formal planning has the salutary effect of providing an annual “mid-course correction” to the trajectory of the combined businesses. Momentum is a factor in the continued success of a diversified corporation—as with a rocket headed for the moon—and a wise chief executive does not dissipate it needlessly. Rather, he nudges the bundle of energies represented by his division managers, trying to make minor adjustments early enough to be nondisruptive and at the same time affect the corporation’s position several years ahead.

Occasionally—perhaps inevitably—a major corporate shift is necessary, affecting one of its businesses. Care must be taken to isolate the effect on the remaining businesses. In late spring a couple of years ago, for example, top management of a major diversified corporation went through its usual review of division strategic plans. One operation, created to develop a substantial new business for the corporation, presented its usual story: “Buying market share in this high-technology business is very expensive, break-even is still two or three years away, and additional investment of several hundred million dollars is required. But the eventual profits will be enormous.”

The division’s management concluded that it was progressing about as expected and that its strategy was sound, and it recommended continued aggressive investment. With minor modifications, top management approved the proposal. Three months later the company abruptly announced that the business would be discontinued and the investment written off.

Poor planning? Obviously, the decision to enter the business was a mistake. But implementation of that decision, and the planning done to minimize the investment exposure without compromising the chances for success, were probably sound. There are two important lessons here about the process of corporate planning:

1. Strategic decisions—like this divestment—are not made in accordance with some precise timetable. They are made whenever top management reaches the conclusion that interference in a unit’s affairs is necessary.

2. Formal planning procedures are not intended to facilitate strategic decisions such as this—if only because a division manager rarely recommends the disposal of his operation. Rather, formal corporate strategic planning has the more modest, if no less crucial, purpose of seeking to optimize the collective thrust of the continuing businesses.

Approving a division’s strategic plan but closing the unit three months later is not hypocrisy or poor planning. The ax is much more merciful than the slow strangulation of providing inadequate resources. In the meantime, until the ax falls, division management must prove the viability of its business. For its part, headquarters must not fail to recognize the difference between a sound plan and a sound business. A sound plan deserves approval, but only top management can decide whether the business is sound enough to continue implementation of that plan.

Second Cycle

The second planning cycle also has two purposes. First, each division head and his functional subordinates should reach tentative agreement on the action programs to be implemented over the next few years. Second, the involvement of functional managers in the long-range planning process should deepen and sharpen the strategic focus of the business and thus provide a better basis for the even more detailed budgeting task to follow.

The division manager in Company X initiates the functional planning process in the middle of June after reaching tentative agreement with top management about his organization’s charter, objectives, strategy, and goals. In the first planning meeting with subordinates, he briefly reviews the corporate/division dialogue that has just concluded and describes the approved division objectives and strategy.

At this time he usually does not make explicit the sales or profit goals, even though tentative agreement on targets has been reached. There are two reasons for dealing in generalities at this point. First, being specific might constrain the thinking of the functional managers, who have the chance in this cycle to make a creative contribution toward achieving the division’s objectives. Second, division goals will become final only when corporate management has approved the unit’s programs and allocated resources to implement them.

Long-range planning by functional managers is conceptually a simple process, being limited by the tentative agreements reached in the first cycle. It is operationally more complex than the planning activity in the first cycle, however, since it requires substantially more detailed plans and involves many more people. The purpose of such “programming”—so called because the activity focuses on specific programs—is to translate the division’s externally oriented business strategy into an internally directed, coordinated set of activities designed to implement it. Inasmuch as the resources available for implementation are always limited, programming must help ensure their optimal use.

Obviously, the scope, magnitude, and duration of a program depend on the nature of the goal. In the broadest sense, a product division of a diversified corporation might be conceived of as a “program.” The division manager’s goal may be stated in simple financial terms and extend over several years, and his discretion may be constrained only by a charter for his product line and the availability of corporate resources. In such a situation, the division program may be international in scope, almost unlimited in breadth of product line, and may involve hundreds of millions of dollars in expenditures. At the other end of the spectrum, the sales manager for a district in the northeast region of that division may have been charged with improving market penetration by 10 % over the next 18 months. His actions also fulfill the definition of a program.

Formalized Programming

The need to formalize the programming process grows as functional interdependence in the business increases and as more time is required to evaluate the effectiveness of alternative functional plans. Formalization is designed to improve the specification of programs and the matching of programs and goals.

The charter and strategy for the business and the objectives and goals that top management has set for it limit the functional manager’s strategic planning. Within those constraints, however, he may still enjoy very broad discretion concerning the best course to take. His challenge is to devise more effective ways to combine the available resources in order to achieve his goals. A useful way to look at the specification of programs is in terms of the chronology for involvement of the functional departments. In a typical manufacturing enterprise there are four types of programs to be developed:

The programming process, even when formalized, is inevitably haphazard because it requires repeated interaction among the departments. The intended result is a plan that is integrated like the two sides of a coin. On one side is the set of action programs and on the other a coordinated statement of the resources needed by each functional manager to execute his part of the program.

A major purpose of the formal programming process is to review the ongoing programs to see whether they can be expected to fulfill the goals for which they were designed. Or, if more effective programs have been devised, the existing ones must be modified or discontinued. At the same time, some “old” programs may be nearing completion, and new ones will need approval if the goals are to be met. Programming also involves coordination of functional activities to ensure that the selected programs can be implemented efficiently. Each functional department must understand the implications of a set of programs for its own activities, and the department manager must accept the tasks assigned him and the resources to be made available to him.

In our mythical Company X, after much analysis and discussion the division manager and his functional subordinates finally agree by the end of August on a set of programs to recommend to headquarters. This time, in contrast to the first, a more elaborate presentation is in order and a large number of managers—corporate and division, line and staff—may attend.

Third Cycle

The third cycle of the formal planning process needs little explanation. Naturally, throughout the planning process top managers and division executives often discuss the allocation of resources among the divisions. But it becomes the focus of attention in the last step of the second cycle, when the divisions have completed their program proposals and sent them to the head office for approval. At this point (mid-September at Company X), decisions on allocation of resources can be made, subject to final approval when the detailed budgets are submitted (in mid-November). These general points are worth making here:

Raising the Odds

The formal long-range planning process in large, diversified corporations is both simple and complex. Conceptually, the process is very simple—a progressive narrowing of strategic choices—although it may involve many steps along that path. Operationally, the process is far more complex than the activities we have described because the formal part of the process is only the tip of the iceberg. Good strategic planning can take place only when qualified managers engage in creative thinking—and creativity, by definition, cannot be produced on a schedule.

Yet there is little doubt that formalizing the planning process is worthwhile; it ensures that managers at all levels will devote some time to strategic thinking, and it guarantees each of them an audience for his ideas. While formal strategic planning cannot guarantee good ideas, it can increase the odds sufficiently to yield a handsome payoff.

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