The 2008 recession changed how many businesses manage their companies. Strategic plans from prior years were changed and in some cases completely scrapped for a greater focus on reducing costs. As a result, many c-level executives are now beginning to question the importance of a five year plan. Despite this sentiment, we believe strategic planning is effective when done properly and continuously.
The objective of a strategic plan
Many companies follow a strategic plan to guide them on how to allocate their resources effectively to achieve their objectives. Without a plan, it’s very difficult for senior management and employees to work together in achieving company goals. Unfortunately, these plans are sometimes designed with little regard to internal and external factors.
Updating your strategic plan
First, you may be asking why you need a five year plan when it’s very difficult to predict future business conditions. The simple answer is that you need to prepare for unexpected events when building a long lasting company. Typically, it takes several years to achieve results from developing new products, services and competing in new markets. The same holds true when making changes to existing products and services or setting new financial goals.
You’re not going to be able to predict exactly what will happen in the future. However, you can certainly prepare for it by utilizing scenario analysis when testing your financial model. For instance, if during the last recession sales dropped 20% year over year, you can expect a similar result during a future economic downturn. This may mean that you can better anticipate headcount reductions or delaying new product development initiatives due to cost concerns.
Scenario analysis can also work in your favor when planning for growth. Suppose you’re launching a new product, it’s likely that you can use past product performance as well as industry data points to gauge your additional sales force needs. In addition, you can allocate your resources more effectively when you know which division performs best under specific economic conditions.
The point here is that your strategic plan should incorporate your assumptions and be updated frequently as time progresses. You’re not going to be able to predict the future, but you can certainly plan for it. This will help you to reduce costly mistakes and improve future growth.
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