With the fourth quarter of the year now underway, many business and marketing leaders have already begun their planning for 2023. Over the next few weeks, they will be evaluating how well their business performed in 2022 and looking for ways to improve performance next year.
This annual ritual is usually called strategic planning, and the output of the process – in larger companies at least – is often a lengthy document that describes what company leaders hope to accomplish in the coming year and what actions they intend to take. Most strategic plans also include a detailed description of where the company will invest in new or existing assets and capabilities.
In fact, the annual planning process is often dominated by budgeting issues. Roger Martin, the well-regarded strategy guru, has this to say about the predominant emphasis on budgeting: “The vast majority of strategic plans that I have seen over 30 years of working in the strategy realm are simply budgets with lots of explanatory words attached.”
The problem is, many business and marketing leaders confuse strategy with planning. They assume that the development of a business or marketing plan is equivalent to the formulation of a business or marketing strategy.
But in reality, formulating strategy and developing plans are fundamentally different tasks. They require leaders to address different issues, and more importantly, they demand different types of thinking.
Most Plans Have Three Components
In the course of my career, I’ve reviewed dozens of business and marketing plans, and I’ve found that most have three major components.
Goals/Objectives – Most business and marketing plans contain a set of goals and objectives that leaders hope to achieve in the coming year (or other planning period). Most of these goals and objectives are expressed in quantitative terms (increase revenue by X%, increase market share by X percentage points, etc.).
Initiatives – The second major component is a description of the initiatives that company leaders intend to implement (or continue) in pursuit of their identified goals and objectives. This is usually the longest part of a business or marketing plan. For example, a marketing plan for a B2B company will usually address several initiatives, such as:
- What marketing campaigns or programs will be run
- What marketing channels will be used
- What events (trade shows, etc.) will be attended or conducted
- What technology tools will be acquired, updated or replaced
Budgets – The third element of most business and marketing plans is a revenue projection and budget. As I indicated earlier, the annual planning process is often dominated by budgeting issues, so this part of the plan usually receives the greatest scrutiny from company leaders.
What Makes Strategy Different
The formulation of a business or marketing strategy requires leaders to address a very different set of issues from those covered in a typical planning process.
- What is our winning aspiration? (What does success look like?)
- Where will we play? (In which markets, with which types of customers, in what channels, in which product categories, and at which vertical stage or stages of the industry will we compete?)
- How will we win? (What will enable us “to create unique value and sustainably deliver that value to customers in a way that is distinct from [our] competitors?”)
- What capabilities do we need to have in place in order to win in our chosen field of play?
- What management systems do we need to institute in order to create, review, communicate about, and manage our strategy?
While all of these questions are important, questions 2 and 3 (“Where will we play” and “How will we win?”) are the two that are most crucial for developing an effective strategy. Lafley and Martin wrote, “These two choices, which are tightly bound up with one another, form the very heart of strategy and are the two most critical questions in strategy formulation.”
Strategy Must Come First
Success in business and in marketing requires both a sound strategy and a thorough plan, but strategy formulation should always precede planning. That’s because the plan should be based on (and designed to support) the choices that define the company’s strategy.
For example, a company’s strategy will include choices about what types of customers the company will seek to serve and how the company will create value for those target customers. It’s impossible to develop a sensible marketing plan until those strategic choices have been made.
Having a strategy in place actually makes planning easier because the strategy provides “guardrails” for the planning process. The content of the strategy enables company leaders to more easily determine which initiatives are most essential for the strategy to work and therefore are most likely to produce the desired outcomes.