Why business planning is important

In recent weeks I have come across some startling survey results.  The first was a report from a survey of both UK and EU Chief Executive Officers which concluded that 67% of companies had yet to include Brexit in their strategic planning.

The second statistic came from a Microsoft webinar trying to persuade small businesses to buy Microsoft Project.  It was stated that a third of small businesses had no business plan.  It was also stated that of those SMEs who had a business plan, two thirds had a plan which looked no further forward than twelve months.

I find these survey results astounding given the importance of business planning to the successful growth and health of companies.  It seems many businesses are operating in a vacuum where change is something that happens to other people. It’s as if the marketplace is set in aspic.  Make no mistake, for a business to be productive; to be resilient; and to survive and grow; planning is a constant and critical corporate function.

In their book Management Theory and Practice, Cole and Kelly describe the functions of senior management in a business.  They see four main functions for a senior management team:

  1. Planning –  the process of formalising what is likely to happen in the future.  It is the formation of goals and objectives and arranging for resources to achieve those outcomes.
  2. Organising – the determination of activities and the allocation of planned resources for the achievement of plans.  It is the coordination of activities and responsibilities into a suitable and appropriate structure.
  3. Motivating – the activation of the driving force within individuals which they use to attempt to achieve organisational goals.
  4. Controlling – ensuring that plans are properly executed and the organisation is operating as planned.

Each of  these management roles is intrinsically linked to business planning.  You must question how firms with no business plan operate.

There are some common features to business planning whether it is human resources, finance, operations or marketing.

  1. There is an environmental analysis.  This is split into two parts; the macro-environment and the micro-environment within which a business operates.  The acronym PESTEL  covers the macro-environment.  It stands for Politics, Economy, Sociological change, Technological change, Environment and Legal.  This is where I find it astounding that CEOs of large companies have yet to include Brexit in their plans; at least to account for possible outcomes of the Brexit process;  after all Brexit affects the political climate, has an economic effect, massively affects the legal framework within which businesses operate and affects the balance of UK society.  The second part of an environmental analysis is an analysis of the environment which directly affects the business.  Often this takes account of the geographic area a business operates in.  For example, my brother’s business operates in East Lothian and Edinburgh.  The economy and environment in that area is different to other parts of the UK e.g. the West Midlands. A micro-environmental analysis will also take account of Porter’s five forces ie. the stakeholders who directly affect the business (suppliers, customers, competitors, shareholders, distributors).  The internal environment of an organisation will also be audited.
  2. Then there is objective setting based on the environmental analysis.  This is determining where you want the business to be and what you want to achieve.
  3. You then create distinctive competencies.  This is choosing your competitive weapons and choosing the tools with which you will negotiate with your environment.  In terms of marketing, this is the process of market segmentation and the creation of a marketing mix.
  4. Plans then define the power distribution within the organisation.  This is the delegation of tasks and the apportioning of responsibility within the organisation.  e.g. will regional managers have responsibility for the hiring of staff or is that process controlled centrally?  Resource allocation is the process of budgeting, staffing and use of other assets such as property and machinery.
  5. Monitoring and control of outcomes: how do you measure success.  What measures are to be used to assess achievement of goals? How do you ensure plans stay on track?  How are plans adapted to cope with environmental change during their allocated time span?

Planning is the development of corporate and management strategies.  It is the development of your competitive strategy and these strategies may alter over time as the environment changes.  Business plans are living documents which are continually adapted.

Strategic marketing is a critical function of management planning; the process of sequential analyses that increase the likelihood of developing successful competitive advantages.