A strategic plan is about as useful as a tattoo if you're not sure why you need one. If your motivation for planning is to keep up with the Joneses, you won't invest the time, resources, and commitment it deserves. Implementing the plan will produce frustration and failure, not the healthy, thriving company you hoped for.
Too often strategic planning is viewed as an expense rather than an investment. Company leadership begins the process without a clear idea of the rewards. And once the plan is implemented, the managers have no idea how to measure the results or assess the gains that might not otherwise have been achieved.
Such measurements would be tricky to say the least. You'd have to have an evil twin - an identical company operating in an identical manner, except with no strategic plan - and compare its position to yours at the end of a trial period.
Do blondes have more fun?
A few decades ago, a research project actually claimed that blondes had more active social lives than people with dark hair (or no hair). The jury is still out, however, on tattoos.
Researchers (not the same ones) have measured the effects of planning on financial performance, comparing firms that did strategic planning with those that didn't. Though the quality of the planning process is impossible to standardize, many studies during the last 20 years have found that strategic planning positively affects the bottom line:
- Banks that did strategic planning averaged 12-percent annual increases in net income, compared to 4 percent for a control group of nonplanners. Net-income growth was three times greater for the banks with strategic plans.
- Electronics companies that did long-term planning had 155 percent higher sales volume, 410 percent greater net income, and 321 percent higher earnings per share than those without long-range planning. Similar results were found in the machinery industry.
- Chemical and drug companies that undertook formal planning experienced 150-percent revenue growth and 139-percent profit increases over six years. Other companies also grew but more slowly, with increases of 89 percent in sales and 59 percent in profits. While all grew, planners grew nearly twice as fast as nonplanners.
- Real estate brokers practicing formal planning saw net income grow 47 percent more quickly than brokers who didn't plan. The planners had 132 percent greater growth in gross-income than their counterparts.
- Small companies that failed to plan failed to succeed - at a rate of 20 percent going out of business over a three-year period, compared to only 8 percent that did strategic planning.
They could have had fun!
Bottom-line figures tell the story better than percentage points.
Interpreted in dollars and cents, the picture looks like this: A company with $100 million in sales and 5 percent net income today that does strategic planning will sell $10 million MORE of its product and services than one that doesn't. It will also generate $400,000 MORE in profits. A company with $20 million in sales will sell $2 million MORE and bring an ADDITIONAL $80,000 to the bottom line.
These are incremental revenues and profits, above and beyond those the company would theoretically have received, and these are only the numbers for one year!
A well-executed strategic plan can accelerate your company's growth, increase margins, reduce risks, and create incremental shareholder value. Planning is an investment that will yield abundant returns. Don't do it just to join the club. What will you do when all the other CEOs show up with tattoos of their ticker symbol on their arm?
