Business Plan or Strategic Plan: What's the Difference?

By Hank M. Harris
Copyright by FMI Corporation; reprinted with permission.

Everyone talks about the need for a firm to have a definitive plan. What kind of plan does your firm need--a strategic plan or a business plan? The easy answer is that you need both. But you may need one more than the other.

What's the difference between the two plans? Simply put, a strategic plan is a leadership tool; a business plan is a management tool. To decide which plan your firm needs, ask yourself these questions: Is leadership different from management? Does your company need both? Which is needed more?

Defining the problem

Management generally plans, organizes, and controls the resources of the firm. Management focuses on keeping the organization alive and using its resources well in the short run. Getting general agreement on a definition for leadership is tougher--but leadership is usually concerned with the longer view; it aims at getting people to do the right things to accomplish the vision.

Every firm needs both leadership and management. The problem is that they usually don't exist in equal amounts. New firms usually have more leadership than management. The firm is small, the vision is clear, the direction is focused and well communicated, and the people are aligned. But detailed planning doesn't exist, the organizational structure is fuzzy, and standard procedures and systems have not been implemented.

In older firms, systems typically are in place, organization charts are only somewhat dated, and standard operating procedures have become routine. However, perhaps because of size and loss of energy, the vision has become unfocused. People are not aligned; motivation is lacking. What's lacking is leadership.

Which do you think your firm needs most--more leadership or more management?

Strategic planning

A strategic plan sets the direction for the firm in the mid- to long-term future. It spells out the company's mission statement, primary goals, and measurable objectives, and explains the basic strategies for fulfilling the mission and achieving the goals. The table of contents of a strategic plan is a one way to view the value of strategic planning.

Contents of a Strategic Plan

1. Current situation
2. Values
3. Vision
A. Mission Statement
B. Goals
C. Strategies
4. Objectives
5. Action plans by function
6. Budgets/resource allocations
7. Controls

The value of strategic planning lies in the process. Thus, the participation of key managers is essential to the success of a strategic planning effort. Different viewpoints on directions, goals, and strategies will emerge, but they can lead to creative solutions. Alignment begins to occur as a consensus is reached on vision, values, mission, goals, strategies, and objectives.

A successful strategic planning process also relies on hard data. The company's future should not depend on a strategic plan built solely on feelings, impressions, and approximations. A strategic plan that intends to provide management tools in addition to leadership should include a business plan as well.

Business planning

Setting short- or mid-term objectives and defining the steps necessary to achieve them is the purpose of the business plan. A business plan may also be used to reassure stockholders, creditors, or other parties interested in, or critical to, the firm's success. Properly developed, a business plan enables an organization to measure its progress toward short-term objectives and serves as an aid in controlling the activities of the organization.

Sound business plans can be built by the three people in the firm most involved in work acquisition, money management, and project operations. Larger groups of senior and mid-level managers may get involved in problem-solving sessions to improve tactics for getting work, performing work, and managing the money.

The business plan aims to improve the effectiveness of the organization without significantly changing its direction. The business plan may also be used to translate the strategic plan of the company into a short-term management control tool.

Contents of a Business Plan

1. Business definition
2. Finance
A. History
B. Projected income statement(s)
C. Projected cash flow
3. Work Acquisition
A. History
B. Market description
C. Market strategies
D. Work acquisition objectives
4. Work Execution
A. Performance history
B. Work execution resources, planned changes
C. Performance capacity
5. Action plans and controls

Reaching a decision

If your firm lacks a clear direction, if your people don't understand your vision, or if you're headed in the wrong direction, then you need a strategic plan. If your vision is clear and your people understand it, if motivation is not a problem but lack of control is, then you need a business plan. If yours is a young firm, probably need a business plan; if you have an older firm that seems to be stalling out, you need a strategic plan.

Deciding that you need either plan, or both plans, is not a sign of weakness, but rather a sign of enlightenment. Good leaders need plans, and good managers need plans. Put strategic and business planning on your agenda soon.

Hank Harris is responsible for the management of all FMI consulting services to engineering, architectural, and environmental firms the design and construction industry. FMI is a management consulting firm specializing in the design and construction industry.