Business Planning: Strategic, Functional, and Operational defined
So what exactly is business planning? It is an ongoing process of decision making that guides a business in both short and long term goals. Do I need a business plan? Not every business needs a business plan to be successful, but in all reality, it doesn’t hurt to have one. So all this seems straight forward, decide where you want your business to go in the long term and wherein the short term, but as the case with many things, its just not that simple. I could set a long term goal, saying I want the company to grow big. Great, but how do we get from point A to point B? A business plan can be broken down into three parts; Strategic, Functional, and Operational.
Strategic planning is a top-level executive decision process that looks at the business overall, assets and capabilities, and defines what the purpose the business hopes to achieve in the next five years. Generally, you don’t want a business plan to go longer for five years due to reassessing where the company is at in the end. As with any goal, it must be reasonable and achievable. Some businesses grow so large and diverse that they break down into strategic business units or SBUs as we will refer to them. Each SBU will be responsible for devising their strategic plan because let’s face it, a company that manufactures clothing and runs a railroad company are going to have completely different goals. We will come back to strategic planning in a minute, but first, let’s cover functional and operational.
Functional planning is the mid-tier of planning. Here is where directors, like the director of marketing, director of IT, etc. get ahold of the strategic plan and devise from it, their functional business plan. Here they set their goals for their department that in turn, support the strategic plan. This might be anywhere from the marketing team achieving a percentage increase in sales on any new products released in the next three to five years, human resources having to hire or fire a certain number of employees to meet with the companies goal, or IT having to restructure the company’s website thoroughly.
Operational planning is the bottom tier of planning. Here are the lower level managers taking putting in the effort to achieve the functional plan for their division. It is a day to day process, so this would be the most fluid of the plans. In the sense of retail, this would be more of the assistant store managers, deciding on what products need to be pushed, which items need to be most visible and which ones need to be in high traffic areas. All three of these plans need to work together to achieve their goals. Think of it as a light bulb in a lamp in action. The light is the end goal, but without the power plant there is no electricity, without the lamp, the bulb cannot connect to the electricity, and without the bulb, there is no light; all three need to work together to succeed.
Now back to a little more on strategic planning. Under strategic planning, you have two acronyms to remember. SWOT analysis and PESTEL. Here is a breakdown of the two.
(S)trengths; the internal look at the company to identify their strengths.
(W)eaknesses; the internal look at the company to identify any potential weakness they have.
(O)pportunites; looking at the internal environment and opportunities the company has.
(T)hreat; coming from outside the company, the external environment. Use PESTEL to identify any threats to the company.
(P)olitical; government policy, political stability, tax laws, and trade laws, to name a few examples.
(E)conomic; conditions are shifting supply & demand, interest, and inflation rates.
(S)ocial; consumer wants and needs, emerging trends, population analytics, and demographics.
(T)echnological; automation, technology awareness and adoption rates, and new services or products
(E)nvironmental; access to renewable resources, weather or climate changes, and corporate responsibility initiatives.
(L)egal; health and safety requirements, labor laws, and consumer protection laws.
These are just a few examples of what can be considered external threats to a company. I am sure there are many more out there. In conclusion, we see that business planning can be very complex, but we also see that when we take the time to conduct a business plan no matter what size of the company whether it be one or one thousand+, it can help the company achieve its goal.
