Strategic Business Planning

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Great insight on what constitutes and effective business plan. Learn how to develop a strategic business plan that is guaranteed to get the attention of potential investors, business partners and …

Great insight on what constitutes and effective business plan. Learn how to develop a strategic business plan that is guaranteed to get the attention of potential investors, business partners and other stakeholders.

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  • 1. ==== ====Great insight on strategic business plan development and entrepreneurship. Access business plantemplates, business plan examples, business plan videos and much more.www.business-plan.co.za==== ====To many managers, the term "business planning" is a buzzword to describe what 30 years agowas conceived as the financial budget, and therefore the restricted realm of the accountant. Toothers it may represent a document required to obtain an overdraft or a loan from their bankers. Abusiness plan may prove to be the most important document that may be compiled in anybusiness. This paper aims to eliminate such taboos and simplify what the strategic businessplanning process is all about, and how its benefits could be maximised by the management of abusiness.THE TERM "STRATEGIC BUSINESS PLANNING"When we speak about a strategic business plan, the message to be conveyed is about thestrategies and tactics to be adopted by an organisation to reach its missions and goals. An integralpart of the plan is financial in nature, but the strategic business plan is no plan at all if it does notaddress marketing, human resources, ICT and all other resources needed to integrate and fusethe organisational efforts to achieve targets, in terms of maximisation of profits. Thus, an effectivebusiness plan should serve FOUR underlying purposes:oIt is a tool for management to convey both within and outside the organisation the goals for thebusiness plan period;oIt provides the strategic framework for holistically managing the business;oIt allows the identification of objectives and how the attainment of these objectives could beachieved and, most importantly, closely monitoredoBy demonstrating that proper controls and achievement of objectives are happening, it providesan effective means of attracting new capital to finance the business objectives.WHAT IS REQUIRED?Many have compared the marketing of a strategic business plan to a candidates CV, whenapplying for a job. What must be ensured is that the plan is not just figures and numbers, but alsoshows a good understanding of all those essential determinants in reaching the stated targets.Thus, we should first and foremost ask ourselves questions such as:Who are we?What do we do?
  • 2. Who are our customers and what are their expectations?What and where will our business be in one, two, three, five years?What are we doing NOW to get where we want to be?How should we get there?Do we have the resources in terms of machines, people, finances, technology and so on?Do we need to obtain external financing and what type/extent is convenient to us?We could keep going on asking questions as much as we would like our plan to be detailed.Probably the answers to some would need more effort in terms of time and resources than others.The most important factors which determine this preliminary stage of planning is to ensure that weare asking ourselves the right questions, that they are leading our business in the direction wewant it to go. On the other hand, a manager must be aware of asking too many questions that leadnowhere. The objective of this process is to enable the manager to grasp what the target is andthen plan on how to achieve that target.EFFECTIVENESS AND FLEXIBILITYWhat are the nuts and bolts of an effective and sound strategic business plan that truly deliversthe business targets? The mission, objectives and overall strategy must be determined. Particularattention must be focused on the implementation and evaluation stages that follow the setting ofobjectives and strategies. It is here that a business will succeed or fail. Experience has shown thatat times, a business plan needs to be radically changed after one year, to conform with the ever-changing and volatile business environment. Do not be surprised! This is a healthy experience. Asevery manager knows, rigidly sticking to a particular plan, where the business encloses itself in acocoon, can bring about those looming black clouds of ensuing business failure. Exhibit Apresents the Critical Success Factors (CSFs) of good strategic business planning, whilst Exhibit Billustrates the benefits accruing from a properly organised plan that distinguishes one businessfrom another. These benefits ensure that the organisation is homogeneously geared and gluedtowards the ultimate objective of maximising profits.THE ESSENTIALSWe must remember that even the best of business plans, which takes many hours to compile, willonly take a few minutes of the readers time. Perhaps, a cursory glance at the executive summaryand the conclusion will be the main determinants for the success or otherwise of the plan. It is truethat great business ideas backed by superior management techniques will probably succeedwithout any written presentation. But, that minute possibility of failure necessitates extra effort forthat slight edge over the chances of success. In plain words, this means that a strategic businessplan MUST itself be planned! Exhibit C provides a practical guide, showing the essentialrequirements for the success of a strategic business plan. Managers must put themselves in theshoes of those who will read the strategic business plan and who will then subsequently take thedecision, be it the board of directors, the bank manager or a creditor. Thus, what the reader wantsor does not want to know, determines the structure and flow of the plan.
  • 3. THE PLANNING TEAMBefore embarking on writing the plan, the business must ensure that it is written by someone or ateam to whom it really matters, because of the enthusiasm and commitment that they put into it.Besides, such a team would in all probability be in possession of a substantial amount ofinformation to determine the goals, targets and resources needed by the organisation. Ofparamount importance is perhaps the message to be conveyed to the compilers of the plan. Theteam has to clearly and effectively show that it satisfies the following criteria:oIt has the necessary experience in compiling good plans. The various disciplines in theorganisation have to come together, thus ensuring a holistic approach.. It can realise successfully the targets set, meaning that the compilers of the plan should alsopossibly be or include those same managers who will actually implement and monitor the plansperformance;oIt has already done what is being proposed - this means there is enough competence andexperience to link to past plans, in terms of objectives and achievements; . It fully understands allthe risks and pitfalls. Contingency planning is an integral part of a strategic business plan, whererealistic risks are carefully planned for;o It can relate the business plan to current and anticipated resource levels. Generally, eachorganisation has an element, large or small, of un utilised resources. The strategic business planis the tool that identifies and effectively uses such dormant resources.BUSINESS PLANNING TOOLSOnce the team has been identified and given the necessary powers and responsibilities, whatremains is the identification and provision of the necessary tools to produce the strategic businessplan. Each and every organisation should choose its tools for good planning, considering suchissues as structures, staff competencies, organisational cultures, current resources, etc. However,the following list of commonly-used tools is neither exhaustive nor binding, but is an extremelyefficient checklist, which is a valuable form of reference:oClear and concise planning forms and guidelinesoA set of planning definitions.Internal and external surveys.Financial modelling packages Organisation-wide availability and sharing of information.Identification of standards to assess whether the targets are achieved.Training programmes for planning staff.Task force/Focus groups
  • 4. Of course, the adoption of such tools depends on the size of the business. For example, in thecase of Task Force/Focus Group, these approaches are used where the organisation tends to berather large in size. This also applies for Internal/External Surveys, where the cost and time ofcollecting such information has to be viewed in terms of the accruing benefits to the quality of theplan itself.AN EFFECTIVE PLANWhat remains is therefore the organisation of all the data collected and the composition of thestrategic business plan itself. The executive summary itself is built up after the rigorous exercise ofestablishing the comments, figures and messages contained in the plan. The summary must beseen as conveying to its readers, in a short but effective message, where the business is to-day,and what future scenarios the plan is proposing.It is the norm for Executive Summaries to be limited to one page of prose, but the most importantelement, be it one or two pages long, or even three, is that the summary, when read mustimmediately provide the reader with what to expect in the plan itself and what the plansconclusions are, the targets to be achieved, how they will be attained and what monitoringsystems will assure their delivery. Exhibit D is a good example of an effective executive summary.Another important issue for a successful strategic business plan is the way that data is applied andthe manner in which it is communicated through the plan. Top management is interested in thespecific targets to be achieved and will not tolerate statements with inadequate information, orwhich give rise to ambiguities or worse still are very generic in approach. Exhibit E compares andcontrasts two different statements, illustrating what quality of data conveys in an effective manner,the message of the plan. Notice how the first statement is full of generic fluff, which does not meana thing, and worse still, leaves the reader completely more perplexed than when he/she started.But perhaps, the focus of the business plan user should be directed on the financial analysis andprojections that support the scenarios being proposed by the plan. The financial analysis providesthe effects of the strategic business plan into numbers that could be crunched. What should formpart of this integral and important financial section of the plan?-Only a Summary-Historical performance and how it relates to the proposed scenarios-Comments on the accuracy of previous plans, profit/loss trends, fixed costs patterns, cash flows-An exercise in sensitivity analysis of possible scenarios-Justification of assumptions-Risk guarantees to investorsOther data demonstrating that the proposed plan is financially sound, cost effective and a profitmotivator.
  • 5. Besides the above elements, we must not over assess the other parts of the plan, especially themarketing, management and operational aspects. The team must ensure that they are able toproduce a cohesive, well structured plan that will definitely deliver the message. The need forgood business planning is therefore evidenced by the need for the organisation to maintain a trulyeffective thrust in the treacherous business environment it operates in. Business planning is ahighly specialised and skilled form of determining the strategic direction, which demands anddeserves some good quality effort. Without a business plan, the organisation, like an armouredtank without any ammunition, will flounder in the face of any weak opposition. Adherence tostrategic business planning disciplines is not a bad indicator of those businesses likely to surviveand those destined for the scrap heap.EXHIBIT AThe Critical Success FactorsSENIOR SUPPORTThe top people should "walk the talk". The board of directors and the senior managers shouldpresent the concept of business planning to all levels, in all programmes, to all functional supportunits, to financial officers, personnel officers and operational managersACCOUNTABILITYUltimate accountability for the strategic business plan being developed, carried out and evaluatedlies with top management. The maxim is to ensure that each person is responsible for achievingeach goal stated by the businessOWNERSHIPIn simple language this means that the managers should be responsible and accountable for thecontent, time frames and deliverables for the specific area they superviseMECHANISMSIt is important that the strategic planning process is seen as a "hierarchical" process that links thehigher to the lower levels of the business structure. It begins with the long-term businessobjectives and moves down into individual performance objectives and targetsFEEDBACKStrategic business planning must be INTERACTIVE - it can only improve through trial, evaluationand feedback. Important milestones are periodic meetings at top management levels to assessand, if necessary correct the planREWARD/RECOGNITION PROGRAMMEEmployees need to be motivated and encouraged to ensure an efficient cost/benefit approach.Recipients of rewards/recognition will signify to their colleagues that this kind of behaviour is what
  • 6. the organisation wantsEXHIBIT BThe Benefits Of Business PlanningProvides guidance and direction to the business itselfPromotes cross fertilisation opportunities, for example sharing of resources/knowledge and costascertainment initiativesEnhances managerial alertness to change and opportunitiesCreates, fosters and energises a results-oriented climateProvides managers with a rationale for evaluating competing interests regarding budget requests,staffing allocations, critical proposalsSteers resources where they are most neededHelps to unify the myriad of decisions made throughout the business, by providing horizontal andvertical linksCo-ordinates disparate and diverse activitiesEncourages pro-active thinking and responsive programme deliveryProvides a business culture throughout the organisation which facilitates the flow of information upand down its hierarchyEXHIBIT CThe 8 Rules of Business PlanningOpen with a summaryShould be no longer than a page and ensure readers attention. It enumerates the key points;gives some facts for the overall case.Focus on the audience and the final resultIt must arouse the readers interest, leaving out details which may be relevant only to yourself.Avoid ambiguityUse plain language. Organise your message through references, clear figures and illustrations andmake good use of graphs and tables.
  • 7. Project your achievementsA business plan backed by good, solid management is what the reader looks for. Highlightimportant achievements of management.Use clear narrative and figuresThe reading must be interesting, logical and provide clear flow through to the end.Do not forget the underlying evidenceThe data (both external and internal) should be of high quality, relevant and easily communicatedto the reader.Provide for feedbackInvolve the active participation of the reader through his/her comments, enquires andexplanations.Ensure senior supportMost business plans originate at the bottom echelons of the management structure. The championof the plan must be supported by a mentor on the board of directors.EXHIBIT DAn Effective Executive Summaryo Booboo Ltd is a family-owned confectionery business established 50 years ago by the father ofthe present owner. Turnover has grown rapidly over the past five years to $750,000 and pre-taxprofits to $150,000. A new outlet has been opened this year, to make up for the increaseddemand. This has also reduced operating costs by 10%.o Present market analysis indicates that there is demand to increase the number of outlets byanother two. These will be serviced and controlled by the Main Area Outlet. Management believesthat they could win business from local competitors who cannot compete on neither price norquality.o The investment cost involved in setting up the two units is $300,000, whilst average runningcosts at to-days prices will amount to around $85,000 annually. The funds required will befinanced as to 30% from the additional funds invested by the owner and the rest by means of anassets-secured 10-year bank loan.o This investment together with a projected increase of 8% on present day turnover would boostup the pre-tax return from the present 19.6% to 25% of turnover.EXIDBIT E
  • 8. Good Quality DataNot...This rapidly growing massive market will soon become absolutely vast and once we haveconquered it in a few years time we will also start on the even enormous international market,where there is even more potential and no competition. And in any case, nobody can copy ourunique product.But...The local market is estimated to be worth around $4.5 million per annum and to be growingat about 12% per annum. If development follows the course for neighbouring states, the potentialmarket size is around $7.6 million, which provides considerable room for growth. Trade sourcessuggest that current market players are finding difficulty meeting demand, with the currentdemand/supply ratio running at 1.15. This supports our sales forecasts.We believe there are further opportunities for expansion in the international arena, where themarket is approximately at a similar stage of development as it was two years ago. Our plansshow a modest entry into other international markets within 18 months...Our products have minor improvements compared with competitors, which are protected by bothlocal and international registrations.Sandro Azzopardi is a professional author who writes several articles on various subjects on hisweb site and local newspapers and magazines. You can visit information about this article andothers on: [http://www.theinfopit.com/business/planning/strategicbusinessplanning-1.php]Article Source:http://EzineArticles.com/?expert=Sandro_Azzopardi==== ====Great insight on strategic business plan development and entrepreneurship. Access business plantemplates, business plan examples, business plan videos and much more.www.business-plan.co.za==== ====