Too often, companies just “wing-it” when it comes to creating a strategic plan. The C-levels in the company know their business, understand the competitive landscape of their industry, and are comfortable with working informally to deal with the tactical challenges that show up every day. A strategic plan requires a significant investment of time, and may be expensive due to the need for outside consultants. The one-year financial plan and departmental budget is sufficient for them to achieve their immediate goals and profitability targets.
What’s the problem with this approach? After all, many companies are very profitable and operate without a detailed strategic plan to guide them and ensure alignment across all departments. Too many companies fall into this behavior pattern, and sooner or later, will suffer because of it. New entrants, changes in the economic climate, or attrition of key executives are just a few of the causes that can dramatically influence growth and profitability. One-year corporate plans that do not bridge across multiple fiscal periods in the future are inadequate to deliver what potential investors want the most: consistency in EBITDA growth. If ownership does not care about being an attractive investment or acquisition target, then this is OK.
Assuming that ownership does indeed care about consistency in EBITDA growth and attracting investors, having a solid 2 to 3 year strategic plan is a must. Furthermore, the plan needs to be formal and documented. However, it does not need to be as detailed as the annual operating plan. This plan is a bridge that helps accomplish two key things: 1) it provides linkage of the company mission statement to the vision statement; 2) it links successive years together and enables the continuity of success in meeting financial objectives.
Establishing a positive track record of profitability and growth should be the primary goal for the leadership team. A good strategic plan is essential for the leadership team to do this.