Most businesses have some sort of business plan, even if it is only or a few lines on one sheet of paper. Larger businesses may have a formal business plan, which charts out the expected development of the business over the next few years in a systematic and quantified way. Business plans often incorporate a section which sets out the specific strategic aims of the business. The business plan represents the tactics by which the strategy is to be carried out.
The process of keeping the business moving forward in line with the appropriate strategy is called strategic review. It is the process by which the strategy that drives the business plan is reviewed regularly. If the strategic plan is found wanting, it is altered and the implications for the business plan are that new tactics are adopted. A strategic review is composed of three processes.
- The first process is to gather information about the performance of the business and in particular to tease out any trends in performance. Having ascertained the way the business is going, the information gathering can be augmented by further research to uncover detailed measures of significance to the business. For example, if gross profitability is below target, an analysis by product may be undertaken to discover if it is due to certain products or is a general effect.
- Once the necessary information has been gathered, the second phase can begin. In this phase, the reasons for variations in performance compared with the business plan can be evaluated and their effects considered. The aim of this stage is to create a range of options that should be considered to revise the strategy. For example, if a product line has insufficient sales, the options could be to invest in additional marketing, or to cease sales of the product.
- The third process is that of evaluating the options and picking those which offer the best way forward for the business. This may well mean going back and gathering more information. For example, a fall in profitability may be due to increased competition from other products or a fall in demand for the product due to changes in taste, fashion, or technology: it is essential to know which. Once the range of options has been identified, these can usually be reduced fairly to the 'workables' which can then be evaluated in detail for consideration for the business plan.
The process is simple in theory, but to be accomplished successfully in practice, there are a number of things which have to happen and these can make demands on businesses who do not give sufficient thought to the process.
Firstly, the process of collecting information makes two demands. The first is that the selection of what information is gathered has to be carefully thought out. it is easy to gather a lot of information, but that is of little use if the information isn't actually what you need to make the right decisions. The second is that this work should be entrusted to people who are careful and able to make sense out of information presented in different ways or measuring somewhat different things. Often figures from different sources will not be strictly comparable, so it is essential that whoever undertakes this task is able to make sense of the differences in their analysis. Acting on incorrect analysis is normally as risky as acting in inadequate information.
Having a solid information base means the firm can then let the 'blue sky thinkers' loose to come up with a range of options for future development. So-called 'brainstorming' sessions are useful for this. Normally, this stage will lead to a large number of ideas, which should be culled by the more senior management of the firm, preferably also by having a preliminary meeting together.
Options that may look very good from one perspective may be complete non-starters from another. For example, the desire to launch a new product may be impossible due to lack of warehouse space. The senior management have the greatest experience of and knowledge of the business and its markets, so having them conduct a first review should save a lot of time in narrowing the range of options to a workable set.
Next, pass the options under consideration back to the strategists and business planners to consider in terms of the overall implications for the business and to be costed and draft business plans prepared based on pursuing each one. These can then be returned to the management for the final decisions to be made.
For the smaller business with a small staff, the process should be the same as far as possible, but it may mean asking the same people to put on 'different hats' to do different parts of the process