C level executives are the stewards of their corporate vessels and are constantly facing difficult questions about what direction to take. Figuring out where to guide their vessels is referred to as strategic planning. Strategic plans can be less than one year but are usually longer term three to five year plans. They can touch all aspects of the business including: what products to create, what countries to play in, what customers to please and what resources to leverage. Listed below are few of the components that senior managers look into when thinking about strategic planning.
The global marketplace is vast and quickly changing. Any company can grow beyond its wildest dreams in the global marketplace if positioned and managed correctly. Strategic management involves optimizing operations in various internal functions such as marketing, R&D, HR, finance and operations. Through strategic management a company is able to leverage its financial, knowledge and people resources to effectively create products and services that delight their customers. Its various functions and resources should be in sync allowing it to deliver products that fulfill the needs of their customers.
Liquidity is the life blood of any company. Short term liquidity crunches can be seen as red flags indicating the possibility of unexpected operational problems. Managing short term liquidity is a key part of any senior management team. However, longer term strategic planning also requires balancing capital expenditures with concurrent capital fundraising. A transformative strategic plan can be developed but would go nowhere without the required funding in place. A key component of future strategic planning is also supervising liquidity via the statement of cash flows. Senior managers need to make sure the cash will be there when its needed.
Revenue forecasting can be as much an art as it is a science. This is especially true when looking at longer term strategic plans. Revenue forecasting is critical to understand what amount of money is expected to come in to pay for operations. Forecasting can be done top down (looking at overall industry growth and market share estimates) or bottom up (building forecasts on a customer by customer basis). What is important is to get feedback from as many different stakeholders as possible when validating the revenue forecasts.
A fundamental part of strategic planning is identifying where the company wants to be in the future. The answer may revolve around existing markets or may consist of completely new ones. Some of the highest growth industries today did not exist fifty years ago. An important question that all senior managers must ask is what customers and markets will be most relevant for them in the future. Will your company's product mix shift primarily to services, or international, or new products?
A key driver of strategic planning is maximizing profitability in the future. Part of that maximization could be about changing operations so that profitability is maximized while serving the same customers with the same products. Dissecting the drivers of profitability and then understanding how changing each one could maximize future profitability is another component of strategic planning.