What’s the difference between a strategic plan and an operational plan? [Does My Business Need Both?]
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” - Sun Tzu
It’s no secret that I am under the belief that the word “strategic” is used too frequently within the business world. It’s not that it is a “bad” thing to talk about being strategic.
On the contrary, businesses need a strategy if they are going to stay relevant in the marketplace. The issue is that the word is thrown around casually, and often incorrectly.
Just because you call something strategic, doesn't mean it is.
This isn't a new concern. Take a look at this excerpt from a 2003 journal article, Strategy Burnout and How to Avoid It: The Word "Strategy" Is Overused, Misused and Misunderstood:
It's a word that gets dropped into every business conversation. Put "strategy" or "strategic" next to something and it sounds really important. So we have IT "strategy", manufacturing "strategy", "strategic" human resource management.
But are we in danger of losing the plot? Of using it excessively while confusing ourselves about what strategy really is? Of kidding ourselves that we're developing strategy when, in reality, we're not?.
Kenny Graham, New Zealand Management
The Harvard Business Review discussed the use and misuse of strategic planning as far back as 1986. So why then does does it continue?
It's more than people just using "strategy" and "strategic" as buzz words. I believe it partly comes down to a fundamental misunderstanding that operational plans are not strategic plans. There is a very distinct difference between strategic planning and operational planning.
What is it, you ask?
The short answer is that strategic plans and operational plans differ in two ways: period and focus.
- The strategy covers a longer period, about three years in this economy and the operational plan is shorter — by quarter or annual.
- The strategy is informed by the company vision, while the operational plan is more focused on the plan for individual departments.
A strategy is a process to achieve the long-term objectives of a business. This includes its vision and mission.
An operational plan, is the practical, "day-to-day" plan of action to reach short-term goals along the way to that ultimate vision. It backs up the strategic plan.
What’s worse than the “misuse” of these terms, is that many privately-owned businesses do not have written strategic or operational plans.
For many companies, what takes the place of strategic and operational plans are opportunistic pursuits and budgets.
Opportunistic Pursuits are NOT Strategic Plans
Opportunistic pursuits are often described as “strategic,” but in most cases, they just represent the flavor of the month to be pursued. Little attention is given to the cost to implement, the ability to serve other customers and impact on the company vision.
For example, a local heating and air company, already serving its residential customers well, is offered the opportunity to bid on commercial work. Because the commercial work represents big dollars and the company was “invited,” the usual process goes out the window, and significant resources are devoted to winning the bid.
In the end, the company realized that it cut its margin so much that not only was the project at break-even, the penalties associated with noncompliance could ruin the company if anything went wrong.
The opportunity became more important than strategy.
A strategic decision to pursue the commercial market suggests it was already part of a three-year plan, and resources were already identified to pursue it without sacrificing the quality of the residential work.
A strategic decision would show this bid as one of many to pursue — governed by criteria that defined the best type of commercial projects to pursue.
Budgets are NOT Operational Plans
In many businesses, a budget often takes the place of an operational plan by placing markers on revenue growth, margin, and the number of employees.
A true operational plan is an outline of what the company will focus on in the near future — quarterly or for the year.
The operational plan can be very detailed to include specific department projects and their milestones. Based on the inputs for revenues and cost of sales, decisions can be made on pricing, buying ahead and finding the right people (something that is taking longer and longer) with a short-term focus.
For those companies that struggle with budgets, consider having each department first create its own operational plan, and then determine how the sum of those plans create a budget. The conversations that take place between the original and final budget represent teamwork and a plan to define reality — what is expected to be completed in the next period.
It becomes a more rational approach than what is often seen:
Budget = Last Year + Sales Growth + Courage = No Plan at All!
Make Sure Your Business is Truly Strategic!
We know that the pace of change is increasing, yet your business may be trying to survive by chasing “strategic” opportunities and making choices based on an adjustment from last year’s budget.
It is time for a more deliberate, team-based approach to crafting a strategy that is believable and achievable by everyone on your team.
This strategy tool forces you to lift your head and look at the changing environment and deciding whether the company is ready for the coming change.
Don't have a strategic plan yet? Or need a better one?
Results in a Day!
Not ready for a long-term engagement but still need help with getting your business headed in the right direction? Then a one-day, strategic planning session with you and your staff is the way to go.
