Strategic Planning vs. Operational Planning

In the realm of organizational development, understanding the nuances of strategic planning vs. operational planning is key to aligning long-term vision with day-to-day execution. While strategic planning sets overarching goals and directions for the future, operational planning translates those objectives into actionable tasks that teams can accomplish in the short term. This post explores the critical differences between these two types of planning and highlights their essential roles in ensuring a company’s success.

What is strategic planning?

A strategic plan describes an organization’s long-term mission and objectives. It aligns the organization’s mission, vision, and core values with both external and internal insights. A strategic plan includes a description of the current state of the business, an identification of how successful the business could become, what projects the organization can complete to reach its goals, and what metrics it will use to measure success.

For instance, it identifies external factors such as market trends, competition, business needs, and internal factors such as organizational capabilities and resources that can support the major projects the organization plans to engage in. Strategic planning involves decisions about expanding into new markets or launching a new product or service line.

A strategic plan’s time horizon is typically three-to-five years and is created by a company’s seniormost leaders, such as the CEO, CFO, Executive Directors, and/or Boards of Directors. The strategic plan is the “north star” that guides the development of an operational plan.

What is operational planning?

An operational plan (also known as a “work plan”) describes the day-to-day activities that an organization must engage in at the project, business unit, functional, or department level to execute a project that will, in turn, fulfill the objectives laid out by the strategic plan. The plan is tactical, detailed, and action-oriented, mapping out how individual business units or departments will contribute to organizational goals.

The timeframe for an operational plan is short-term, typically about one fiscal year, and is broken down into quarterly or monthly objectives. Operational plans are created by mid-level management and provide specific answers related to execution: who, what, when, where, and how much. In this way, operational plans are roadmaps for day-to-day operations.

An operational plan is crucial for success because it helps each staff member understand their distinct responsibilities, how long they have to complete their tasks, and how their actions contribute to the business’s ability to achieve its long-term objectives.

How do the plans work together?

An operational plan provides the roadmap for the achievement of a strategic plan. Therefore, a strategic plan must be built before an operational plan. A strategic plan gives an operational plan its directive, thus keeping business units and departments working towards a cohesive vision, even though departmental activities may differ greatly day-to-day.

Strategic planning vs. operational planning: a comparison

Now that we understand the aims of the two plans, let’s get more detailed on the specific differences.

Goal

The goal of the strategic plan is to lay out the pathway to achieving the organization’s vision. The strategic plan provides a broad outline of the organization’s vision, mission, and objectives, and how everyone in the organization must work together to achieve it.

The goal of the operational plan is to provide specific departments with a tactical plan that identifies short-term (i.e., quarterly, monthly, or weekly) activities that must be executed by each department, business unit, or function to achieve the strategic plan’s objectives. The operational plan is narrow in scope and focused entirely on how the team will implement the strategic plan.

Time horizon

Strategic planning focuses on more factors than operational plans, thus strategic planning takes a long-term view of the business, typically three-to-five years. Operational planning is short-term, typically yearly, quarterly, or monthly.

Updates/modifications

The strategic plan should be built to withstand headwinds and remain static for the three- to five-year period it was created to address. However, it should be evaluated yearly to ensure relevancy, should there have been new opportunities, threats, or significant changes within or outside the organization. For example, the onset of the coronavirus pandemic required many businesses to change their strategic direction for some time.

Operational plans are evaluated more frequently and are thus more fluid. They are evaluated, and thus have the potential to change, yearly, quarterly, or even monthly.

Creators/authors

The strategic plan is created by senior management, such as C-suite leaders and/or the Board of Directors. Once it’s created, cross-functional teams will work together to ensure the strategy is successful.

An operational plan is created by mid-level management, such as department leaders and functional heads of business. The creators of operational plans are tasked with detailing the actions required to achieve overall objectives and managing the allocation of resources necessary to hit the targets. While each operational plan is created for a single department, the collective implementation of operational plans will lead to organization-wide success.

Budget

A strategic plan should include a financial forecast that lays out anticipated results and critical metrics like breakeven, return on investment, profit, and cost of investment.

The operational plan should include a budget that includes all project, task, and activity costs.

How to create a strategic plan

Gather Key Stakeholders

The first step towards creating a strategic plan is to gather key stakeholders such as C-suite executives, the Board of Directors, and outside advisors or planning facilitators, such as Open Eye.

The throughline connecting everyone in the room is that there is stated awareness of and commitment to making strategic decisions in the best interests of the organization, not any one department or audience.

Mission, Vision, Values and Objectives

Before beginning the planning process, participants need to review and affirm the organization’s mission, vision, and values.

A mission statement is a concise definition of an organization’s core purpose, outlining why it exists and what it aims to achieve.

A vision statement outlines the desired future state of the organization and what it aspires to achieve over the long term. The mission statement’s perspective is present and short-term (the “why and what” of the present) whereas the vision statement’s focus is future-oriented and aspirational (the “where” and “how” of the future).

An organization’s values reflect the organization’s core principles and beliefs. They provide a foundation for guiding behaviors and are critical to shaping culture. Organizational values contribute meaningfully to decision-making and differentiate an organization from its competitors.

Market Assessment

A market assessment outlines the competitive landscape to highlight the company’s potential advantages, competitive challenges, and distinctive value proposition.

A SWOT analysis is a strategic planning tool commonly used as part of a market assessment to help organizations understand their internal strengths and weaknesses and external opportunities and threats.

The competitive environment can be further analyzed using Porter’s Five Forces.

1. Bargaining Power of Suppliers - This measures how much leverage suppliers have to increase costs, decrease product quality, or restrict supply availability within an industry.
2. Bargaining Power of Buyers - This gauges the ability of customers to negotiate for reduced prices, enhanced quality, or additional features from businesses in the industry.
3. Threat of New Entrants - This evaluates how easily newcomers can penetrate the market and challenge established companies.
4. Threat of Substitute Products or Services - This assesses how readily customers can shift to different products or services that fulfill the same need.
5. Rivalry Among Existing Competitors - This examines the strength and vigor of competition between current businesses operating in the industry.

Lastly, it is important for an organization to assess the political, economic, social, and technological environment (PEST analysis).

Taken together, these three frameworks help a company’s leadership predict oncoming shifts in their market so they can develop strategies to adapt.

Financial forecast

Strategic planning must include a financial forecast that projects the organization’s future financial performance to guide decisions related to budgeting, resource allocation, and long-term goals. The financial forecast helps an organization estimate key financial metrics like revenue, expenses, cash flow, break-even point so it can make informed financial decisions pertaining to strategy and allocation of resources.

A financial forecast is data driven, based on historical financial data, current market conditions, and a projection of future trends. Notably, the forecast is driven also by assumptions about factors such as sales growth, cost changes, and economic conditions.

Strategic objectives

Organizational leadership must define organizational success. Determining which metrics matter most enables them to appropriately assess their wins and losses. It is important for the leadership to keep in mind what is reasonable and feasible to accomplish within the timeframe and resources contemplated within the strategic plan. In making decisions and prioritizing objectives, leaders should keep the organization’s mission, vision and values close at hand.

Metrics are often determined in four areas:

1. Financial key performance indicators (KPIs) - a rapidly growing company may prioritize expanding their market share and increasing revenue to attract investors whereas another company may prioritize long-term stability through metrics such as net profit margin, gross profit margin, and return on investment.

2. Customer satisfaction - organizations targeting price-sensitive customers in industries with a lot of competition focus on building a strong reputation, attracting new customers, and retaining existing ones. This strategy necessitates a focus on customer satisfaction, value, and quality for cost.

3. Operational efficiency - organizations facing increased competition, cost pressure, economic downturns, supply chain disruptions, diminished customer satisfaction, a need for greater profitability, and/or seeking a competitive edge will prioritize operational efficiency. Organizations in these scenarios will set goals around productivity, cost, quality, and employee engagement.

4. People - organizations with high employee turnover or low employee engagement struggle to achieve long-term success and innovation. Metrics to follow to gauge progress in these areas include employee retention, job satisfaction ratings, and absenteeism.

Strategic initiatives

Once strategic objectives are in place, the organization must determine how it plans to achieve its KPIs. What products or services will it launch or strengthen? Which markets will it expand into or withdraw from? What change will it make to how it serves customers and engages employees? This section of the strategic plan identifies the organizational approach (strategy) and tactics it will utilize to reach its objectives while saving the nitty-gritty detail for the operational plan.

Performance measures, analysis and evaluation

The final section of the strategic plan describes how success will be measured and on what frequency the KPIs will be assessed. Since a strategic plan is typically 3-5 years in scope, organizations benefit from an annual (at minimum) or quarterly review that includes the prior year’s or quarter’s financial performance.

How to create an operational plan

Goals

An operational plan brings forward the strategic plan objectives.

Requirements

The operational plan details the people, processes, supplies, and technology necessary to successfully execute the strategic plan. Which departments need to be involved in achieving which goals? What department leaders are vital to the organization’s ability to stay on course towards this objective? What tangible assets does the organization have, and what resources does it lack? What financial risks does pursuing these objectives expose the organization to?

Timeline

The operational plan provides a calendar of what needs to happen, when, to achieve the strategic plan objectives.

Performance measures

Key milestones and performance metrics are identified to spotlight the progress made (or lacking) at various intervals. It’s critical to be realistic in setting progress benchmarks; if they’re too audacious, they can be detrimental to morale, whereas if they’re too easy to achieve, they will not motivate the staff to grow in performance and efficiency. Assigning responsibility to specific teams and leaders will keep the team on track while demonstrating a clear workflow when it’s time to assess progress.

Budget

The operational plan includes a budget that associates appropriate costs with projects, tasks, and activities necessary to achieving each strategic objective. It’s important to budget a contingency to prepare for unexpected expenses and changes in priorities.

Reporting

The operational plan includes milestones for evaluation during plan execution, such as monthly or weekly. Reporting on operational plan success or failure can provide an early indication of whether an operational project, activity or task, or even a strategic objective, needs adjustment.

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Strategic planning and operational planning are both vital components of an organization’s success, each serving distinct yet complementary purposes. By understanding their differences and how they work together, leaders can effectively drive their organizations toward achieving long-term goals while ensuring day-to-day operations align with that vision. Emphasizing both planning processes ultimately fosters a cohesive and resilient organizational framework.