Components of an Effective Strategic Planning System

A sense of direction

Providing an overall sense of direction for the corporation is the most important responsibility of top leadership. Followers look to leaders for a strategy that assures future viability/prosperity. Unless that direction is clear, the staff resources of the corporation may wander away from the high priority needs of the marketplace or service area.

When the direction of the corporation is clearly defined, that direction forms a pact of sorts between the board and management. It defines the expectations of the board that management is tasked to carry out.

The plan as a real, living management tool

Too often strategic plans simply sit on shelves or are submitted for purposes of securing capital/grants, but at that point their life ends. Strategic planning is useful only if it becomes the basis for management action. In short, a planning system must be alive. Plans, both long and short-range, should be made annually. When new projects are placed before the board or CEO, such as new investment, approval of contracts, etc., they should ask: “How does this fit into the plans we have already approved?” Shifting direction may be the same as taking the winding road rather than a straight line to the organization’s target. This may mean that energy or resources will not be used well. (To read about a template that better fits the bill, click here. )

Leadership must be certain that they understand and support the reasons for changes in direction. To do this, keep the plans in front of you as you consider any new business opportunities or ventures. And ask, “Why are we considering this proposal?”; “Why was it not in our original strategic plan?”; “How does this new project contribute positively to the priorities we have set?”.

Elements of the planning system

Plan-Action-smallThe following are the major elements of a sound and complete planning system:

1. Mission Statement/Purpose

This is a single sentence or paragraph that states the purpose of the organization. Why are you in business? What is your business? What difference do you intend to make? What is your unique niche? Note: sometimes this is called mission although most mission statements are a combination of purpose and vision or intended outcome. In our view these should be separated.

Example: Disney: To make people happy

Cargill: To improve the standard of living around the world

Merck: To preserve and improve human life

2. Core Values

These are the prioritized guiding principles or credo for everyone in the organization as to how they should operate, what is important to always be or do. Core values are the 3-5 values that are so fundamental to the organization and deeply held that they govern the choices made even to the point of a competitive disadvantage, Core values are independent of what is popular, “universal”, or competitive.

Example: Nordstrom:

Service to customer above all else

Hard work and individual productivity

Never being satisfied

Excellence in reputation; being part of something special

3. Long-term Vision

This is the picture of what it will be like when you get there. It is a statement of accomplishment or condition you are seeking. It may be stated with a timeframe, e.g. “By 2025, we will be “. In the earlier example from Disney, it is a statement of the result they always want, not just in the long-term, but today, and it works, i.e. ““Every guest will leave with the same smile they entered with”. In any case, it should represent a call to action, a galvanizing statement for staff. It should provide a clear sense of direction and target for all effort. The vision should be viewed as a real stretch, just shy of unattainable, yet real to everyone. (For an interesting side note on a vision statement, read our blog post: A Stretch Vision.)

Example: Microsoft’s vision early on: “A Computer on Every Desk in Every Home”.

Stanford University in the 1940’s:“To become the Harvard of the West”.

4. Strategic Agenda

What is the discrete set of projects we are going to undertake in the next 1-3 years to move toward our vision and make the needed improvements to our operations? The answer here is the strategic agenda. Note the strategic agenda is not restricted only to projects that move the company toward its vision, expand its client base, etc. The agenda also encompasses those internal projects that “fix” the organization and give it the ability to tackle its long-term goals. The estimation in the eyes of employees (the followers) of the quality of leadership in the organization, including the board, will hinge in large measure on whether they view leadership got the strategic agenda right. Do they understand the true condition and what needs to be fixed? Have they developed a winning strategy that assures a secure future for the company and all those who work within it?

5. Project Plans

For each of the projects in the approved strategic agenda, a project plan should be developed. Each project plan should include the following list of elements.

  • One year target for accomplishment for the project; a result or condition to be achieved
  • Two or three year target for accomplishment on projects that will take more than a year to implement
  • Metric: the measure that will show whether the project is having its intended impact, e.g. growth in revenue, market share, reduced employee turnover, improved customer satisfaction. Note that a solid metric is not one that measures whether or not a project is being completed, but rather that it is accomplishing the intended goal. Not all projects will have a metric, either because of the nature of the project, e.g. construction of a new building, or because it is not time- and cost-effective to do so, e.g. improved employee morale. Good metrics are ones in which it is cost-effective and appropriate to gather and assess data on a monthly basis. (For more on metrics visit these blog posts.)
  • Milestones to reach annual target. What are the major steps or milestones that must be completed to reach the target? Most projects have 3-10 major steps. Management should be spell out what each step is and when it will be accomplished during the year in order to reach the target by year end.
  • Accountability. A member of management should be assigned accountability for each milestone or major step on every project in the strategic plan. This individual is committing to see the milestone through to completion, not necessarily to do all the work. The work can be assigned to a team, but there should be one person who answers for that team in leadership meetings. Ultimately, the CEO is responsible for the plan as a whole, and is the one who answers to the board on progress.

6. Annual Budget

The budget for the year is the financial map for accomplishing this year’s objectives described in the strategic plan. The strategic plan makes clear what the priorities are and where resources should be concentrated. The budget outlays the use of resources to complete objectives and goals.

7. Capital Expenditures Plan

This is the plan leadership puts in place for replacement of facilities and equipment as needed. The reason for such a plan is that if equipment suddenly breaks down and must be replaced, the money has to come from reductions in funding for operations, unless you have already planned for the replacement. This can be disruptive to the financial condition of the organization and thus to operations.

Roles in strategic planning

Understanding each of the components of a strategic plan is vital to creating a solid plan. Equally important is knowing the role of both the board and the management team in the completion and carrying out of each of these pieces. Therefore we have explained below the general roles of the board and of management in terms of each strategic planning component.

Role of the Board

board_blogTo meet its responsibility to insure a viable future, provide clear overall direction and assure that the needs of the customers are being met, the board’s duties are as follows for each of the seven elements of a planning system listed above:

1. Mission Statement/Purpose

To clearly define why the organization should exist, its purpose or “what business we are in” is the responsibility of the Board.

2. Core Values

Core values also are the responsibility of the board to delineate and then to exemplify in all their dealing with the organization staff, shareholders and public.

3. Long-Term Vision

The board is responsible to determine the picture of the future for the organization, i.e., the vision.

These first three elements are referred to as the “core ideology” of an organization. It is the board’s responsibility to set this, although management is encouraged to participate in that process. The core ideology will be modified little over the years, but may be updated when warranted to insure that it is lived and realized. The core ideology serves as the touchstone that guides priority setting, strategy, and assessment.

The board’s role for each of the remaining planning elements includes the following.

4. Strategic Agenda

Recall that the strategic agenda comprises both strategic, vision-related projects and internal improvement projects.

For those projects that move the organization toward its vision, the board’s involvement is a function of the level of expertise and level of understanding of the organization and its strategic context. That is, can the board or some of its members add value to consideration of strategy? If not at this point, getting there should be a goal in the board’s development. If yes, then board members should serve on committees of management and staff that assess the strategic environment, define opportunities and threats to growth and then recommend a discrete set of priority strategic initiatives for the coming year. At a minimum, the board should assure that a sound strategic assessment process is conducted by management and then approve or revise as needed the list of recommended strategic projects for the coming year.

For improvement projects geared to operations, the board serves as a sounding board and offers final approval to management on their recommendations as to where attention and resources should be applied in order to realize improvements.

5. Project Plans
The board gives final approval to management of the projects, targets, metrics and milestones developed in the strategic plan. If done well, the set of project plans form a type of contract between management and the board as to the work committed to by the organization in the coming year. Regular review of this “contract” can keep the board current on progress and catch potential problems early.

6-7 Annual Budget and Capital Expenditures Plan

The board is responsible to adopt a financial plan. This includes an operating budget and a capital expenditures plan. Again, the level of involvement of the board will range from simply approving the work of the management team on one end to active involvement in committees that work on preparing the budget. Where the board is on that scale is a function of the expertise and understanding of the organization amongst board members. If the board can add value to the exercise, be more active. If not, they assure that it is being done well by staff. Involved in the budget exercise are major policy questions such as insurance levels, salary scale, employee incentives and benefits.

Role of staff

The role of staff in planning does not alter with the level of competency and active involvement of the board. Depending on their knowledge level, members of the board are either partnering in the processes that are spearheaded by management or only approving the results of those processes.

1-3 Mission Statement/Purpose, Core Values and Vision (i.e., the Core Ideology)

The board is ultimately responsible to develop the core ideology. However, management is encouraged to participate and lend their expertise in the discussion. Once developed, it is the responsibility of staff to incorporate these elements into both the work they do and the way they do it. In particular, when management begins its assessment for the strategic agenda, the vision should be a source of direction on where the strategic projects should take the organization.

4. Strategic Agenda

Management completes a strategic assessment that evaluates how well customer needs are being met, how the organization stacks up against competitors, uses technology and responds to political, socio-demographic, and economic trends. From this assessment should come a recommended set of priority initiatives for growing the organization and/or improving services to customers.

Also in developing the strategic agenda, management completes an internal assessment that gives the board a full report on the condition of the company. Where can performance, morale, profitability, quality, and consistency be improved? Included is the determination of what improvements to operations are needed. Again, management should be assessing how well the organization is performing on the current strategic agenda or set of products/services. Are we efficient? Is our quality high and consistent? Is our profitability where it should be? Is our morale high? Are our systems effective? There are a myriad of questions to be answered to truly understand the condition of the organization and then to define areas where attention and resources should be applied in order to realize improvements

5. Project Plans

Management develops detailed project plans for each project on the approved strategic agenda for the coming year. The plans can be tracked by the board, so that members can determine whether progress is satisfactory and if projects are meeting expectations. Included is the definition of measurement methods for evaluating whether the strategic and improvement initiatives are having their intended impacts.

6-7 Annual Budget and Capital Expenditures

Management prepares the operating and capital budget.


Strategic planning sets the course and desired future for an organization. It is the anchor to which staff and leadership can come back to again and again to say “This is who we are. This is what we desire to achieve.” A solid strategic plan should become both a key management tool for the staff and a performance contract between the board and management.

If you are interested in learning more, here are suggested resources on our site – library articles: Strategic Planning Tools and Strategic Planning Template or blog posts focused on Strategic Planning.

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