When businessman Lou Gerstner stepped into the role of chief executive officer at computer company IBM in 1993, the business was facing several major challenges. It suffered from low profits, struggling sales figures and an eroded brand identity. The company, which had once managed to ride the personal computing wave as a “seller of solid technology” was now on the verge of collapse.
IBM needed more than a facelift, it needed a complete strategic redirect. Gerstner, as it happened, was the one for the job. He set about the often painful process of driving a culture change. After some years, the business had reidentified itself as a “deliverer of high value services”. Within IBM, there were many new leaders, a new employee mindset and a changed level of drive and creativity.
The change-around that Gerstner steered is seen conversely as a re-branding and an ethos change. But it all started with a strategic business plan.
What is a strategic business plan?
In short, a strategic business plan is a long-term plan for the business with one thing in mind: to help achieve its mission. Conceptually speaking, the strategic business plan starts with a well-defined mission for the company. Practically speaking, the strategic business plan starts with its finances. It is not concerned with detail, but provides broad, general guidelines to keep the business on its course.
University of South Africa (Unisa) professors GS du Toit, BJ Erasmus and JW Strydom give the following pointers about what a strategic business plan should be:
- It is carried out by top management. The strategic business plan is compiled by those who make strategic decisions on behalf of the business as a whole. This should include, at minimum, the chief executive officer, the chief financial officer and the most senior operations personnel. If the company has a particular focus, it might also include senior departmental heads, for example its chief information officer, its highest-ranking sales manager and so forth.
- It has a time frame of three to ten years – or more. In this (and other ways) the strategic business plan differs from medium-term functional strategies or short term operational strategies.
- It is focused on the business as a whole. This is one of the reasons input from several key top managers is needed, in order to give depth of understanding and perspective to the focus of the plan. For example, the business owner should ensure the overall direction of the document, and the chief financial officer should ensure that the goals being outlined are financially viable.
- It is future-oriented and includes constant adaptation to the environment. A document with a ten-year scope could not possibly identify all of the opportunities and threats that will rear their heads over the decade. In Gerstner’s case, the original strategic business plan doubtlessly evolved with the introduction of new technologies such as the tablets and smartphones to the market.
- It acts as a blueprint for the deployment of resources and skills in the business. Decision-makers in the company should be using the strategic business plan to guide how best to react to risks in the environment, and steer the business as profitably as they can towards its mission. Operational decisions should be taken with the strategic business plan as a foundation.
For example, in rolling out his strategy, Gerstner decided to tie employee compensation to the performance of the whole of IBM rather than to an employee’s particular division. The thinking behind this was to drive a culture change of cooperation rather than internal competition. But the roll-out of the idea had implications for the short- and medium-term operations of the business.
A strategic business plan that is well-thought out by top management, and adopted as a ‘way of life’ by all in the company can be a powerful tool for change and progress. In order to make your strategic business plan a successful one, you need the assistance of an experienced, prescient financial executive who can help provide insight to the current and future financial risks your business faces.
If you do not have such a resource internally, The Finance Team has a network of experienced financial professionals who can provide you with this service for the time that you need it.
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