Business Planning and Strategic Planning Revisited
by Herb Rubenstein

Introduction

Recently, it came to my attention that a well known consulting firm is now charging between $300,000 and $350,000 to write business plans for non-profit organizations. Given the large dollars going into the drafting of business plans and the confusion over the difference between a "business plan" and a "strategic plan", I wanted to devote this article to explaining the basic elements of business planning and strategic planning and to make some distinctions between the two.

At the annual conference of The Association of Continuing Legal Administrators during a session on "how to write a business plan" a huge debate erupted over what constitutes proper elements of a business plan and what constitutes proper elements of a strategic plan. This article will hopefully inform that debate.

History and Context

At the 1998 Strategic Leadership Forum conference in Chicago, Dan Simpson, then Vice-President for Strategic Planning for Clorox, Inc. and Peter Ellis, then Vice-President for Strategic Planning for Textron, Inc. held a fascinating debate over what constitutes the best type of strategic plan. Dan Simpson held the view that a strategic plan should evaluate the current and expected future capacities of an organization and the future needs of the market, and based on these qualitative and quantitative evaluations, a strategic plan should be in a narrative form that spells out the direction of the company or organization for the next three to five years.

Peter Ellis disagreed. Ellis suggested that at his company, Textron, an employee at any level is not considered to have a business idea worth talking much about unless and until that idea is backed by detailed quantitative spreadsheets outlining every conceivable cost, barrier to entry, revenue potential, profit margin, regulatory and liability issues, competitive analysis, and all quantitative/economic factors regarding the needed inputs into the development, production, quality assurance, marketing, sales, distribution and warranty protection and service aspects of this business idea.

Ellis's support for the position that a strategic plan must be backed up with voluminous financial data is his view that without these data, exact and verified, one can not make intelligent business decisions about a potential future course of action. Frankly put, without this information, Ellis believes an idea is too premature to put into a strategic planning document.

Who's right? This paper takes the point of view that as in most clear cut disagreements, the parties were just talking about different things in the first place. There is no doubt that a strategic plan and a business plan must be well informed. At that same Strategic Leadership Forum conference in 1998, Daniel Knight chaired a panel that included Dr. Barbara Lawton, Ph.D., (then V.P. for Business and Quality Processes at Storage Technology Corporation) and representatives from Johnson and Johnson and Hughes Aerospace, that focused on knowledge management as a business imperative. Organizations must have organized methods of gathering, sharing, storing and being able to retrieve knowledge and information that the individuals and groups within the organization acquire and develop on a daily basis. David Packard once said that HP was a 3 billion dollar company. But if HP knew and could access everything that each employee of HP knew, it would be a 9 billion dollar company.

Therefore, the first thing to realize about a business plan or a strategic plan is that it must be based on, and informed by, what the organization and its employees know. While this seems obvious, whenever consultants are brought into the strategic or business planning process (which is often) much of the knowledge of the organization and its employees is never transferred properly to the business plan or strategic plan writer.

Business Plans say "How"-- Strategic Plans say "What and Why"

Clearly, Peter Ellis's version of a "strategic" plan is what most people would call a business plan. Peter's position is that unless and until one knows all of the fundamental cost and economic prospects for a business idea or strategy, that idea or strategy does not merit inclusion into a strategic plan. Simpson's view is that strategic plans should be more general and point out the direction for an organization and explain, in qualitative terms (with some quantitative support) why an organization should focus on certain broad new markets, products, services, improvements in innovative engineering or business processes, enhanced customer service regimens, or other breakthrough opportunities.

Big debates are no accident and it is no accident that the business plan/strategic plan debate broke out at a conference of Continuing Legal Education Administrators. First, these dedicated professionals do not regularly prepare detailed business plans. They can never predict how many people will show up for a course, can never know if a new set of courses will take hold in the marketplace and can't even predict the quality of first time educational providers or instructors. However, these administrators are masters of the art of strategic planning. They can determine, with great qualitative precision, what new areas to teach, new formats for courses, new systems of planning and marketing courses, and they work very closely with State Bar Associations to set the exacting requirements for credentialing new courses. All of these elements are included in the robust strategic plans of CLE administrators around the country. So, in this crowd of people who are primarily strategic planners, not business plan writers, a business plan writing specialist is sure to start a serious debate when discussing drafting business plans.

A few years ago our firm was approached to consider a research and planning project where an popular island off the coast of Virginia was seeking advice regarding whether it needed a new bridge to connect it to the mainland. In order to develop a strategic plan for the island to help them make a decision on whether to repair the old bridge or build a new one, there is a huge amount of technical engineering, environmental, sociological, demographic, economic and physical planning/zoning work that must go into the strategic plan. Certainly detailed cost studies are an important element of this process giving strong weight to the Ellis argument.

But, in this instance, clearly the development of a strategic plan to guide a community does not require the voluminous financial analysis that would be required to develop a business plan for this endeavor. A business plan would have to have great precision on all cost and financing options, all expected revenue impacts, all economic impacts to the community in the short and long run and requires certainty in a way that a strategic plan is not required to achieve. So, Dan Simpson's argument shows great merit in this situation. The idea of a bridge or road requiring a strategic plan is not new. Today, with roads and bridges often being built and owned by private companies and paid for by tolls, POV's (Pay occupancy vehicles - one pays a fee to drive in the HOV - high occupancy vehicle reserved lanes), and with transportation dollars in short supply from governments, each major road project needs both a strategic plan to help manage the "conversation" and decision making process leading up to the decision, and a business plan to help actually guide and manage the project.

The Difference is Elementary

One element of confusion in the business plan/strategic plan debate is now non-profits are writing "business plans" where they did not do this often in the past. The primary difference between a for-profit business plan and a non-profit business plan is the metrics and goals in a non-profit business plan will be different. Unlike a for-profit business plan, in a non-profit business plan, many of the metrics used and goals identified will not be financial. These goals and metrics help define and support the mission of the organization and propel the organization to undertake activities that may not prove to be financially rewarding to the organization. A for-profit business plan must include some return on investment analysis for almost every dollar the organization spends. Key elements of a non-profit organization's business plan would include:

  • Creating a revenue model (including a "fundraising model" and income model);

  • Assessment of hiring needs to meet current and expected contractual and mission specific demands;

  • Securing effective public relations support to get its message out;

  • Accurately assessing the social need for the organization's services and products;

  • Development of a marketing plan to seek new revenue and non-revenue generating activities that will allow the organization to fulfill its mission more fully than is allowed under present funding constraints;

  • Creating realistic expense and revenue budgets;

  • Building in feedback systems to inform the organization as to the success or lack of success in realizing its business plan and its goals.

Creating a for-profit business plan requires a razor sharp analysis of the market and demand factors, competitive forces, profit margins, cost factors as the company or activity scales, detailed analysis of marketing, advertising and distribution costs, and strong analytical work in the area of human capital and organizational capacity. For-profit business plans must be able to provide clear direction to show the company how to make a profit at many different levels of supply and demand. This is not the case, in large part, in the non-profit world.

The major difference between a strategic planning process and a business planning process is a business planning process builds on a strategic planning process. The business plan is more tactical and is more quantitative/financial in nature. A strategic plan focuses on identifying and clarifying:

  1. What your organization intends to accomplish by when;

  2. State clearly the vision, mission and measurable goals of the organization;

  3. Performing a gap analysis: A gap analysis has three parts:

    • Identify the present situation with clarity and gain an understanding of the history that has led to the current situation with the goal of refining the mission and vision statements and developing a clear sense of new goals for the next five year period;

    • Identify the desired or expected future with numerical precision and realistic timeframes;

    • Determine how and by when this future can or will be realized and at what cost.

  4. What resources are now available to your organization or can be recruited including volunteer, in-kind and related resources and how to account for them financially;

  5. Determination of the strategic approach to insure how these factors can be best combined to accomplish the organization's mission;

  6. What courses of action will be taken in order to direct the organization toward accomplishing these goals including what mergers, acquisitions and strategic alliances will be formed to accomplish your goals;

  7. What critical issues need to be addressed before rapid growth can be contemplated and planned for. For example, operating deficiencies, governance, board performance, leadership and staff performance, public relations, financial performance, etc.

To develop a strong, implementable business plan, anyone taking on such a project for a company or non-profit must follow these steps, at a minimum.

  1. Document review and analysis - Review all previous business and strategic plans, all budgets, all significant internal memoranda, all Public Relations generated by outside sources (newspapers, etc) and internally generated information (ad copy and brochures) about the organization since its inception. Other key documents such as job descriptions, survey results and membership data will also be reviewed, where available.

  2. Learn what the entire organization knows and use it in the business plan.

  3. Project kickoff meeting - Hold meetings with all key leaders of the organization to finalize the planning of the project, discuss findings of the document review, set schedule. At this meeting a reasonable timeframe, budget and allocation of research, writing and quality assurance responsibilities will be developed.

  4. Agree on the Outline: Begin to address the questions listed above and agree on outline for the business plan Deployment of Agreed Upon Strategic Development Planning Tools:

  5. Ongoing Meetings with key leaders and key stakeholders: These meetings will be held weekly or as needed to share information, to update all parties on progress, provide preliminary findings and to refine the scope of the project as necessary to meet current needs.

  6. Document Preparation and Review: Prepare key planning documents and sub-plans on such areas as:
    • Operating budgets including revenue and expenses;
    • Develop revenue/resource model citing the optimal mix of funding from various sources including volunteers and in-kind contributions;
    • Competitive Analysis;
    • Identify appropriate entrepreneurial activities for organization, including:
      • New products/ services that will help attract and sustain revenue;
      • Strategic alliances and partnering opportunities to expand offerings;
      • Create revenue and cost projections for each income producing idea;
      • Develop Marketing and Communication Strategies and Public Relations, including:
        • Develop Case statement/Value proposition;
        • Message development;
      • Cultivation strategies;
      • Prepare overall capital, budget and financial plans;
      • Analyze all Technology requirements;
      • Analyze all infrastructure requirements;
      • Develop feedback systems and identification of evaluation measures of organizational success.

  7. Implementation Planning and Assistance: Strategic plans and business plans do not stop the day they are written. They are living documents that must change as the organization learns more about its successes and failures. Business plans will include recommendations for tactical strategies to implement the business development plan, and some work and some fail. Developing systems to catch failures rapidly is a key element in promoting the success of a business plan.

    A business plan, much more than a strategic plan, must develop the proper timing and sequencing for each activity to be undertaken and each sub-activity necessary to accomplish all major activities in the business plan. "Prioritization" and sequencing are major roles of business plans that are not key elements of a strategic plan. To emphasize this point, we paraphrase Marvin Bower, the former head of McKinsey & Company, from his book, Perspectives on McKinsey:

    Any consultant can figure out what needs to be done quite quickly, however few can figure out exactly what order is best for an organization to begin implementing things so that the best result is achieved and the goals of the plan can be reached or exceeded.

Conclusion

Now that some light has been shed on the difference between a strategic plan and a business plan, remember that many people will not make such a clear distinction. There has been a new movement among non-profits, especially, to develop a hybrid document, called the "Strategic Business Plan." At $300,000 a pop for a business plan, it is no surprise that an organization would want to get as much bang for its buck as possible. What is most important in drafting both strategic and business plans for the writer or team assigned to the project is that they understand all of the knowledge, expertise, capacity, objectives and needs of the company or organization, and feed these properly into the plan.

Whether an organization wants to develop a strategic plan first, or skip this phase and go straight to the creation of a business plan, the planning process must be as much a research oriented process as it is an analytical or creative process. Research, analysis and creativity, in that order are the essential ingredients in either a business plan or a strategic plan. Significant resources are necessary to do an adequate job in each of these three categories and to make the plans a contribution to the organization.


Herb Rubenstein is an attorney and the CEO of Growth Strategies, Inc., a leadership and management consulting firm. He is co-author of Breakthrough, Inc. High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999). He also serves as an Adjunct Professor of Strategic Planning and Leadership at George Washington University, is a founding director of the Association of Professional Futurists, and is the author of numerous articles on boards of directors, leadership and strategic planning. He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@growth-strategies.com and he can be reached at (301) 718-4200 in Bethesda, Maryland or (202) 236-7626 in Washington, D.C.

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Copyright 2004 by Herb Rubenstein. All rights reserved.

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