19th April, 2018

Scenarios in strategic planning

Strategic planning is important to all businesses to make sure they’re on the right track, but most get stuck in the here and now.

For most businesses, strategic planning should cover a three to five-year span.

Strategy encompasses improving your internal performance, but more importantly, making sure that your company’s direction is aligned with the context of what is happening in the outside world.

Companies tend to look at markets when creating strategic plans and common strategic questions include:

  • Who am I competing with?
  • What products am I competing with?
  • At what price can I buy or sell?’

At its heart, strategy should be a high-level plan to achieve one or more goals under conditions of uncertainty.

A major determinant of strategy is your view of the economic outlook. This will guide your strategic planning and the future direction of your business.

While banks and financial institutions regularly publish their view of where the economy is headed, their forecasts tend to be noncommittal and therefore not very useful for planning purposes.

Information is very important when creating long-term plans.

The reality is that no one can create these long-term plans for you; you are responsible for gathering as much information as you can, verifying it, and taking a view on what the future holds.

No one has a crystal ball, but if your plans are based on a particular scenario and that scenario doesn’t eventuate, you’re in a far better position to change your plans.

Without initial assumptions, you would not have an overarching framework to return to when reviewing your overall strategic plan in light of new information.

Therefore, it’s critical to document your assumptions and scenario planning so reviewing and changing your plans will be a more robust exercise.

Without this documentation, you may not even realise that your strategy needs to change.

Michael Porter defined ‘Strategy’ as “the creation of a unique and valuable position, involving a different set of activities. It involves trade-offs in competing and choosing what not to do”.

Therefore, the beauty of strategic planning is that you don’t need to be an economist to get the best out of it.

You can base your strategic planning and preparation on three broad economic scenarios – recession, static or growth conditions.

Strategies if you’re anticipating a recession

If you are anticipating an economic recession, you may adopt some of the following strategies:

  • Batten down the hatches
  • Weed out bad paying customers
  • Deal with outstanding debtor accounts
  • Minimise borrowing
  • Reduce overheads
  • Reduce capital expenditure

Strategies if you’re anticipating growth conditions

In this instance, your outlook will be somewhat optimistic. It is likely that you would:

  • Prepare your company for growth
  • Strengthen your team
  • Ensure sufficient capital
  • Increase marketing spend
  • Look at eliminating constraints to growth

Strategies if you’re anticipating static conditions

You would review your current business procedures and perhaps complete the following:

  • Improve efficiencies
  • Tighten financial control
  • Take out competitors
  • Nurture your clients
  • Review financial and non-financial remuneration of team members

By focusing on one of these economic scenarios, you’ll be able to formulate a strategic plan that considers the economic climate and appropriate methods that will guide your business in the future.