29 06 2011

Yesterday (28th June) I had a speaking engagement at ‘Business Prehab 2011’, a business event held at the famous Donington Park motor racing circuit. Afterwards, over lunch, I was approached by a number of delegates with questions individual to their businesses and one of those questions has prompted me to write this blog.

The question was, “Jim, can you explain, what is the difference between a Business Plan and a Strategy?”

The person asking me the question explained he had asked three different consultants and received three different answers; hence, seeking clarity all he had gained was further confusion!

My short answer was that in all likelihood all three consultants had, in their own view, been correct. Where they had fallen down and caused further confusion was in not explaining that views on this topic differ. I explained briefly how I apply the two (see below) and promised to write this blog to provide a fuller explanation.

What are the most prevalent views on the difference between the two?

  1. A Business Plan is for when you start a business, a Strategy is for when you grow that business (or possible shrink it or exit it in a predefined, planned way).
  2. The Business Plan is for defining the structure of the company now, the Strategy for defining where it is going and how it will get there.
  3. A Strategy is for internal consumption only, it is about growth and how it will happen and is not something you would want competitors to see. A Business Plan on the other hand is for sharing, for example in order to secure funding for that planned growth.

There are other views on the differences but these three are the most common.

All three apply the terms to vital elements of business operation and, in my opinion, all three are correct although the first stops short of providing a business with the full picture it will require. How can all three be correct? That brings me to how I apply the two terms.

When establishing a new business the Business Plan is essential in describing what the new company will look like. It will consider the skills, knowledge and experience within the business, including gaps that will require addressing. The initial Business Plan will include a budget forecast for the first twelve months of operation. Provided it is rooted in reality (which it should be) this forecast is the single most important element if you are seeking funding or investors. However, those same funders and investors will also need to know that you have researched the market well enough for them to risk their capital on your business so it should include evidence of your research.

Those investors and funders will also want to know the new organisation has a future and this is where the Strategy comes in. You should have a vision, a definition of success, which your fledgling company is pursuing and be able to provide at least outline detail on how you will go about achieving or even exceeding it.

Once the company is up and running the Strategy will continue to be about the pursuit of the vision and your route plan to that destination. The Business Plan will become about the structure of your company as it stands.

Strategy will likely (but not always) be in three to four year cycles, the medium term, in pursuit of the long term (up to 12 years) vision although the tactics within that strategy will be reviewed on a far more regular basis. The Business Plan will be updated annually and will identify whether current structure is still the best structure to support the delivery of strategy and the attaining of the vision.

This is important, for many organisations regularly restructure without consideration of the Strategy while others hold onto to structures long overtaken by strategic need. Structure, described by the Business Plan, should always follow Strategy not the other way round. Form follows function, function should not follow form.

Should further investment be required, the current Business Plan should be up to date and accurate enough to perform the same job as when starting the company, including, but not limited to, budget forecasts, skills, knowledge and experience plus gaps together with current market position. In this way it is for external consumption, when required.

Whether the Strategy is for internal and external consumption depends on the industry or sector in which your organisation is operating. For example, if you work in developing new technology it will be wise not to allow your competitors site of your plans. If you work in the third sector however your strategy will need sharing with any number of partners with whom you will share aspirations. A good example of this would be Sport England having a transparent, accessible strategy for review by both tax payer and the national governing bodies (NGBs) they fund with those same NGBs having strategies open to review by the clubs, coaches and others who they represent.

The important thing is to ensure that you cover all of the above requirements of Business Plan and of Strategy; what you call them is less important. As consultants we sometimes forget that the terminology is less important than clearly communicating what is needed in an understandable way.

And as for the question; “What is the difference between a Business Plan and a Strategy?” the answer is that your Business Plan addresses your structure where your Strategy addresses your ambition.

Or at least that’s my answer!

© Jim Cowan, Cowan Global Limited, 2011

Twitter @cowanglobal



One response

30 08 2011
Is it a Business Plan or a Business Strategy? | Strategy DIY

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