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Creating a Strategic Framework for Business Units

Creating-a-Strategic-Framework

Category: OKR University .

Introduction

For a growing business, structuring teams for maximum efficiency is imperative. An effective business unit model can make a difference in success. A business structure ensures better financial efficiency and organization.

This guide explores what a business unit entails, the types of business units to choose from, and the pros and cons, and informs you how to create an effective strategy framework.

Let’s dive into business units and how implementing a strategic framework could benefit and streamline your organization.

What is a Business Unit?

A business or strategic business unit is a subset or independent division of a larger company. The unit’s processes, success metrics, product lines, market research teams, budget allocations, and strategic objectives align with the overall business policies.

The leaders in the unit report to the top-level executives, and the team members follow the code of conduct established by the overall HR department.

Business units aim to maximize profits by targeting different market segments. Each unit follows its direction, growth strategies, and vision.

What are the Types of Business Units?

There are numerous types of business units that you can adapt to fit your organization’s needs.

Here are three primary types of business units:

1. Geography business units

Such units focus on sales and marketing in particular geographical regions.

2. Customer business units

These units target particular customer groups. For example, you can have a business unit dedicated to selling products to large companies and another focusing on small businesses.

3. Product business units

Such units are in charge of marketing and developing products that fall under a particular category. For instance, if you have different products, you can have a business unit for each type.

Great things in business are never done by one person. They’re done by a team of people. Steve Jobs

Advantages and Disadvantages of a Business Unit

A business unit has numerous advantages and disadvantages, so comparing and evaluating all relevant factors is essential before establishing one.

Here are the advantages of a business unit:

  • Every business unit targets a different customer base and market section, which can help increase profitability.
  • Each unit functions independently, so only some permissions require a go-ahead from the central authority, simplifying decision-making
  • Bookkeeping is easier for large businesses.
  • Business units help companies become more agile and adapt to changing market conditions.
  • These units allow you to focus resources on the most productive areas, improving profitability.

Here are the disadvantages of a business unit:

  • The setup process can be challenging because every unit requires different aspects, such as goals, vision, and promotional strategies.
  • Sometimes high competition among the units negatively affects the parent company.
  • Business units can introduce silos and deter cooperation, leading to wasted resources and inefficiency because each unit focuses on individual performance.

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What Are the Characteristics of a Business Unit?

Business units have distinct characteristics that distinguish them from other business structures.

The main characteristics of a business unit are:

1. Unique values and missions

Business units have unique values and missions that assist in creating a broader customer base for the parent company. The unique objectives help every unit target a particular demographic and offer services and products that suit them.

2. Autonomous planning

Business units leverage autonomous planning to strategize business operations, including marketing, developing new products, and expansion. Strategic planning is very important to organizations to align vision and mission to execution. Each unit is a manageable entity that can operate under a different name but remains under the primary company.

3. Unique competitors

Business units focus on their respective markets, so they have different competitors. This structure encourages unique competition, creating an environment that nurtures new marketing techniques and product innovation.

4. Independent cost and revenue tracking

Business units account for revenue and costs separately. They help the parent company track revenue from different services or products like sales revenue making it easier to see which business units underperform.

How Does It Differ from a Subsidiary?

Subsidiaries refer to companies that a parent company partially or wholly owns. You can differentiate a business unit from a subsidiary through aspects such as:

1. Leadership structure

Every business unit has a manager who runs operations and reports to the parent company when necessary. Subsidiaries are under the parent company’s control, so the managers report to the executive team that oversees and coordinates subsidiary programs and initiatives.

2. Share ownership

With subsidiaries, the parent company owns most of the shares and has more say in business operations. A business unit remains independent and has individual shares.

3. Internal structure

Business units have independent internal structures and core business functions. Although subsidiaries can have internal systems, they rely more on the primary company’s structure.

4. Objectives

Subsidiaries and business units develop missions and objectives for different reasons. Subsidiaries form objectives that focus on the primary company’s vision. If the goal is expansion, the subsidiary will focus on expanding the parent company into new markets.

For instance, business units have independent objectives, so if it’s an expansion, they will focus on independent expansion and have separate plans to explore new markets.

What Are the Steps Involved in Creating a Business Unit?

Forming business units is an excellent way to promote business expansion and growth. You can create an efficient unit through the following steps:

  • Determine the business unit’s purpose and define its particular responsibilities.
  • Allocate business resources, including assets, finances, and people.
  • Establish accountability with strategic metrics and determine how to track performance and progress effectively.
  • Define goals depending on what you aim to achieve.
  • Create communication channels between the parent company and the business unit and determine how the information will flow.
  • Establish the unit’s autonomy to enable independent decision-making.
  • Plan for regular reviews and embrace adjustments to ensure success.

How Can You Develop a Strategic Framework for a Business Unit?

A strategic framework helps you stay focused on the overall goals by providing clarity and transparency in your strategic processes.

Strategic-Framework

Here are the steps for developing a strategic framework for a business unit:

1. Choose a suitable strategic framework

Some examples of strategic frameworks are SWOT analysis, balanced scorecards, issue-based strategic planning, OKRs, and strategy mapping.

Your choice depends on your goals and current standing, but you can have different frameworks for various elements or stages in the planning process.

2. Integrate the strategic framework into your strategy

Ensure you determine your strategic objectives and how every goal fits into your strategic framework. Decide what you must measure and the respective KPIs to know how your vision, strategic framework, and goals align.

3. Review your plan based on your strategic framework

Having a strategic framework helps you understand how the goals of the business unit contribute to the bigger picture. Strategic consulting helps in the review cycle as a course correction aimed to close the strategy execution gap.

A business or strategic business unit is a subset or independent division of a larger company.

Strategic business units help the parent company focus on potential markets or particular customers. They also bring structure to businesses with several services and products.

A business unit is independent and has separate shares from the primary company. A subsidiary has no individual shares since the parent company owns the share majority.

As a leader, you must always be keen to find new ways to enhance business performance and improve return on investment Creating an effective strategic framework is one effective way to boost performance and revenue generation.

You can use a strategic business unit plan to distinguish various product lines and increase market capitalization. Business units can help with brand recognition, market awareness, research and development, and market analysis if you plan to introduce new products or explore new markets.

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Business Unit Strategy Template

Business Unit Strategy Template

What is a Business Unit Strategy?

A business unit strategy is a plan that outlines the goals and objectives of a business unit and outlines the steps needed to achieve them. It identifies the focus areas, objectives, and measurable targets that will help a business unit achieve its goals. It also outlines the actions required to reach the objectives, as well as the resources needed to carry out the actions. The strategy is designed to maximize performance and profitability and help the business unit reach its desired results.

What's included in this Business Unit Strategy template?

  • 3 focus areas
  • 6 objectives

Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.

Who is the Business Unit Strategy template for?

The Business Unit Strategy template is designed for business unit leaders and teams who are looking to develop strategies to maximize performance and profitability. It provides a framework for business units to create their own strategies, and the templates provide a structure for each focus area, objectives, measurable targets, and actions needed to reach the desired results.

1. Define clear examples of your focus areas

Focus areas are the main areas of focus for the business unit in a given time frame. Examples of focus areas could include improving profitability, increasing customer satisfaction, or improving efficiency. It is important to identify the focus areas clearly, as they will be the basis of the strategy and inform the objectives, measures, and actions needed to reach the desired results.

2. Think about the objectives that could fall under that focus area

Objectives are specific goals that are outlined to help the business unit reach its desired results. They should be measurable and achievable, and should align with the focus areas. For example, if the focus area is improving profitability, the objectives could include increasing revenue and decreasing costs.

3. Set measurable targets (KPIs) to tackle the objective

KPIs, or Key Performance Indicators, are measurable targets that can help the business unit track its progress towards achieving its objectives. They help to provide a tangible measure of success, and can be used to measure the success of the strategy. Examples of KPIs include conversion rate, average shipping cost, customer satisfaction rate, and average time per session. An example of a KPI for the focus area of Improve Profitability could be: Increase Conversion Rate from 10% to 15%.

4. Implement related projects to achieve the KPIs

Projects, or actions, are the steps needed to reach the objectives. For example, if the objective is to increase revenue, the project could be to increase the conversion rate. It is important to identify the projects needed to reach each objective, as they will help the business unit progress towards its desired results.

5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy

Cascade is a strategy execution platform that helps business units to develop, implement, and track the progress of their strategies. It provides an easy-to-use interface to help teams collaborate and track their progress, as well as tools to help identify and set measurable targets. With Cascade, teams can see faster results from their strategies and reach their desired goals more quickly.

How to improve strategic planning

In conference rooms everywhere, corporate planners are in the midst of the annual strategic-planning process. For the better part of a year, they collect financial and operational data, make forecasts, and prepare lengthy presentations with the CEO and other senior managers about the future direction of the business. But at the end of this expensive and time-consuming process, many participants say they are frustrated by its lack of impact on either their own actions or the strategic direction of the company.

This sense of disappointment was captured in a recent McKinsey Quarterly survey of nearly 800 executives: just 45 percent of the respondents said they were satisfied with the strategic-planning process. 1 1. “ Improving strategic planning: A McKinsey Survey ,” The McKinsey Quarterly , Web exclusive, September 2006. The survey, conducted in late July and early August 2006, received 796 responses from a panel of executives from around the world. All panelists have mostly financial or strategic responsibilities and work in a wide range of industries for organizations with revenues of at least $500 million. Moreover, only 23 percent indicated that major strategic decisions were made within its confines. Given these results, managers might well be tempted to jettison the planning process altogether.

But for those working in the overwhelming majority of corporations, the annual planning process plays an essential role. In addition to formulating at least some elements of a company’s strategy, the process results in a budget, which establishes the resource allocation map for the coming 12 to 18 months; sets financial and operating targets, often used to determine compensation metrics and to provide guidance for financial markets; and aligns the management team on its strategic priorities. The operative question for chief executives is how to make the planning process more effective—not whether it is the sole mechanism used to design strategy. CEOs know that strategy is often formulated through ad hoc meetings or brand reviews, or as a result of decisions about mergers and acquisitions.

Our research shows that formal strategic-planning processes play an important role in improving overall satisfaction with strategy development. That role can be seen in the responses of the 79 percent of managers who claimed that the formal planning process played a significant role in developing strategies and were satisfied with the approach of their companies, compared with only 21 percent of the respondents who felt that the process did not play a significant role. Looked at another way, 51 percent of the respondents whose companies had no formal process were dissatisfied with their approach to the development of strategy, against only 20 percent of those at companies with a formal process.

So what can managers do to improve the process? There are many ways to conduct strategic planning, but determining the ideal method goes beyond the scope of this article. Instead we offer, from our research, five emergent ideas that executives can employ immediately to make existing processes run better. The changes we discuss here (such as a focus on important strategic issues or a connection to core-management processes) are the elements most linked with the satisfaction of employees and their perceptions of the significance of the process. These steps cannot guarantee that the right strategic decisions will be made or that strategy will be better executed, but by enhancing the planning process—and thus increasing satisfaction with the development of strategy—they will improve the odds for success.

Start with the issues

Ask CEOs what they think strategic planning should involve and they will talk about anticipating big challenges and spotting important trends. At many companies, however, this noble purpose has taken a backseat to rigid, data-driven processes dominated by the production of budgets and financial forecasts. If the calendar-based process is to play a more valuable role in a company’s overall strategy efforts, it must complement budgeting with a focus on strategic issues. In our experience, the first liberating change managers can make to improve the quality of the planning process is to begin it by deliberately and thoughtfully identifying and discussing the strategic issues that will have the greatest impact on future business performance.

Granted, an approach based on issues will not necessarily yield better strategic results. The music business, for instance, has discussed the threat posed by digital-file sharing for years without finding an effective way of dealing with the problem. But as a first step, identifying the key issues will ensure that management does not waste time and energy on less important topics.

We found a variety of practical ways in which companies can impose a fresh strategic perspective. For instance, the CEO of one large health care company asks the leaders of each business unit to imagine how a set of specific economic, social, and business trends will affect their businesses, as well as ways to capture the opportunities—or counter the threats—that these trends pose. Only after such an analysis and discussion do the leaders settle into the more typical planning exercises of financial forecasting and identifying strategic initiatives.

One consumer goods organization takes a more directed approach. The CEO, supported by the corporate-strategy function, compiles a list of three to six priorities for the coming year. Distributed to the managers responsible for functions, geographies, and brands, the list then becomes the basis for an offsite strategy-alignment meeting, where managers debate the implications of the priorities for their particular organizations. The corporate-strategy function summarizes the results, adds appropriate corporate targets, and shares them with the organization in the form of a strategy memo, which serves as the basis for more detailed strategic planning at the division and business-unit levels.

A packaged-goods company offers an even more tailored example. Every December the corporate senior-management team produces a list of ten strategic questions tailored to each of the three business units. The leaders of these businesses have six months to explore and debate the questions internally and to come up with answers. In June each unit convenes with the senior-management team in a one-day meeting to discuss proposed actions and reach decisions.

Some companies prefer to use a bottom-up rather than top-down process. We recently worked with a sales company to design a strategic-planning process that begins with in-depth interviews (involving all of the senior managers and selected corporate and business executives) to generate a list of the most important strategic issues facing the company. The senior-management team prioritizes the list and assigns managers to explore each issue and report back in four to six weeks. Such an approach can be especially valuable in companies where internal consensus building is an imperative.

Bring together the right people

An issues-based approach won’t do much good unless the most relevant people are involved in the debate. We found that survey respondents who were satisfied with the strategic-planning process rated it highly on dimensions such as including the most knowledgeable and influential participants, stimulating and challenging the participants’ thinking, and having honest, open discussions about difficult issues. In contrast, 27 percent of the dissatisfied respondents reported that their company’s strategic planning had not a single one of these virtues. Such results suggest that too many companies focus on the data-gathering and packaging elements of strategic planning and neglect the crucial interactive components.

Strategic conversations will have little impact if they involve only strategic planners from both the business unit and the corporate levels. One of our core beliefs is that those who carry out strategy should also develop it. The key strategy conversation should take place among corporate decision makers, business unit leaders, and people with expertise essential to the discussion. In addition to leading the corporate review, the CEO, aided by members of the executive team, should as a rule lead the strategy review for business units as well. The head of a business unit, supported by four to six people, should direct the discussion from its side of the table (see sidebar, "Things to ask in any business unit review").

Things to ask in any business unit review

Are major trends and changes in your business unit’s environment affecting your strategic plan? Specifically, what potential developments in customer demand, technology, or the regulatory environment could have enough impact on the industry to change the entire plan?

How and why is this plan different from last year’s?

What were your forecasts for market growth, sales, and profitability last year, two years ago, and three years ago? How right or wrong were they? What did the business unit learn from those experiences?

What would it take to double your business unit’s growth rate and profits? Where will growth come from: expansion or gains in market share?

If your business unit plans to take market share from competitors, how will it do so, and how will they respond? Are you counting on a strategic advantage or superior execution?

What are your business unit’s distinctive competitive strengths, and how does the plan build on them?

How different is the strategy from those of competitors, and why? Is that a good or a bad thing?

Beyond the immediate planning cycle, what are the key issues, risks, and opportunities that we should discuss today?

What would a private-equity owner do with this business?

How will the business unit monitor the execution of this strategy?

One pharmaceutical company invites business unit leaders to take part in the strategy reviews of their peers in other units. This approach can help build a better understanding of the entire company and, especially, of the issues that span business units. The risk is that such interactions might constrain the honesty and vigor of the dialogue and put executives at the focus of the discussion on the defensive.

Corporate senior-management teams can dedicate only a few hours or at most a few days to a business unit under review. So team members should spend this time in challenging yet collaborative discussions with business unit leaders rather than trying to absorb many facts during the review itself. To provide some context for the discussion, best-practice companies disseminate important operational and financial information to the corporate review team well in advance of such sessions. This reading material should also tee up the most important issues facing the business and outline the proposed strategy, ensuring that the review team is prepared with well-thought-out questions. In our experience, the right 10 pages provide ample fuel to fire a vigorous discussion, but more than 25 pages will likely douse the level of energy or engagement in the room.

Adapt planning cycles to the needs of each business

Managers are justifiably concerned about the resources and time required to implement an issues-based strategic-planning approach. One easy—yet rarely adopted—solution is to free business units from the need to conduct this rigorous process every single year. In all but the most volatile, high-velocity industries, it is hard to imagine that a major strategic redirection will be necessary every planning cycle. In fact, forcing businesses to undertake this exercise annually is distracting and may even be detrimental. Managers need to focus on executing the last plan’s major initiatives, many of which can take 18 to 36 months to implement fully.

Some companies alternate the business units that undergo the complete strategic-planning process (as opposed to abbreviated annual updates of the existing plan). One media company, for example, requires individual business units to undertake strategic planning only every two or three years. This cadence enables the corporate senior-management team and its strategy group to devote more energy to the business units that are “at bat.” More important, it frees the corporate-strategy group to work directly with the senior team on critical issues that affect the entire company—issues such as developing an integrated digitization strategy and addressing unforeseen changes in the fast-moving digital-media landscape.

Other companies use trigger mechanisms to decide which business units will undergo a full strategic-planning exercise in a given year. One industrial company assigns each business unit a color-coded grade—green, yellow, or red—based on the unit’s success in executing the existing strategic plan. “Code red,” for example, would slate a business unit for a strategy review. Although many of the metrics that determine the grade are financial, some may be operational to provide a more complete assessment of the unit’s performance.

Freeing business units from participating in the strategic-planning process every year raises a caveat, however. When important changes in the external environment occur, senior managers must be able to engage with business units that are not under review and make major strategic decisions on an ad hoc basis. For instance, a major merger in any industry would prompt competitors in it to revisit their strategies. Indeed, one advantage of a tailored planning cycle is that it builds slack into the strategic-review system, enabling management to address unforeseen but pressing strategic issues as they arise.

Implement a strategic-performance-management system

In the end, many companies fail to execute the chosen strategy. More than a quarter of our survey respondents said that their companies had plans but no execution path. Forty-five percent reported that planning processes failed to track the execution of strategic initiatives. All this suggests that putting in place a system to measure and monitor their progress can greatly enhance the impact of the planning process.

Most companies believe that their existing control systems and performance-management processes (including budgets and operating reviews) are the sole way to monitor progress on strategy. As a result, managers attempt to translate the decisions made during the planning process into budget targets or other financial goals. Although this practice is sensible and necessary, it is not enough. We estimate that a significant portion of the strategic decisions we recommend to companies can’t be tracked solely through financial targets. A company undertaking a major strategic initiative to enhance its innovation and product-development capabilities, for example, should measure a variety of input metrics, such as the quality of available talent and the number of ideas and projects at each stage in development, in addition to pure output metrics such as revenues from new-product sales. One information technology company, for instance, carefully tracks the number and skill levels of people posted to important strategic projects.

Strategic-performance-management systems, which should assign accountability for initiatives and make their progress more transparent, can take many forms. One industrial corporation tracks major strategic initiatives that will have the greatest impact, across a portfolio of a dozen businesses, on its financial and strategic goals. Transparency is achieved through regular reviews and the use of financial as well as nonfinancial metrics. The corporate-strategy team assumes responsibility for reviews (chaired by the CEO and involving the relevant business-unit leaders) that use an array of milestones and metrics to assess the top ten initiatives. One to expand operations in China and India, for example, would entail regular reviews of interim metrics such as the quality and number of local employees recruited and the pace at which alliances are formed with channel partners or suppliers. Each business unit, in turn, is accountable for adopting the same performance-management approach for its own, lower-tier top-ten list of initiatives.

When designed well, strategic-performance-management systems can give an early warning of problems with strategic initiatives, whereas financial targets alone at best provide lagging indicators. An effective system enables management to step in and correct, redirect, or even abandon an initiative that is failing to perform as expected. The strategy of a pharmaceutical company that embarked on a major expansion of its sales force to drive revenue growth, for example, presupposed that rapid growth in the number of sales representatives would lead to a corresponding increase in revenues. The company also recognized, however, that expansion was in turn contingent on several factors, including the ability to recruit and train the right people. It therefore put in place a regular review of the key strategic metrics against its actual performance to alert managers to any emerging problems.

Integrate human-resources systems into the strategic plan

Simply monitoring the execution of strategic initiatives is not sufficient: their successful implementation also depends on how managers are evaluated and compensated. Yet only 36 percent of the executives we surveyed said that their companies’ strategic-planning processes were integrated with HR processes. One way to create a more valuable strategic-planning process would be to tie the evaluation and compensation of managers to the progress of new initiatives.

Although the development of strategy is ostensibly a long-term endeavor, companies traditionally emphasize short-term, purely financial targets—such as annual revenue growth or improved margins—as the sole metrics to gauge the performance of managers and employees. This approach is gradually changing. Deferred-compensation models for boards, CEOs, and some senior managers are now widely used. What’s more, several companies have added longer-term performance targets to complement the short-term ones. A major pharmaceutical company, for example, recently revamped its managerial-compensation structure to include a basket of short-term financial and operating targets as well as longer-term, innovation-based growth targets.

Although these changes help persuade managers to adopt both short- and long-term approaches to the development of strategy, they don’t address the need to link evaluation and compensation to specific strategic initiatives. One way of doing so is to craft a mix of performance targets that more appropriately reflect a company’s strategy. For example, one North American services business that launched strategic initiatives to improve its customer retention and increase sales also adjusted the evaluation and compensation targets for its managers. Rather than measuring senior managers only by revenue and margin targets, as it had done before, it tied 20 percent of their compensation to achieving its retention and cross-selling goals. By introducing metrics for these specific initiatives and linking their success closely to bonus packages, the company motivated managers to make the strategy succeed.

An advantage of this approach is that it motivates managers to flag any problems early in the implementation of a strategic initiative (which determines the size of bonuses) so that the company can solve them. Otherwise, managers all too often sweep the debris of a failing strategy under the operating rug until the spring-cleaning ritual of next year’s annual planning process.

Some business leaders have found ways to give strategic planning a more valuable role in the formulation as well as the execution of strategy. Companies that emulate their methods might find satisfaction instead of frustration at the end of the annual process.

Renée Dye is a consultant in McKinsey’s Atlanta office, and Olivier Sibony is a director in the Paris office.

This article was first published in the Autumn 2007 issue of McKinsey on Finance . Visit McKinsey’s corporate finance site to view the full issue.

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What is strategic planning? A 5-step guide

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Strategic planning is a process through which business leaders map out their vision for their organization’s growth and how they’re going to get there. In this article, we'll guide you through the strategic planning process, including why it's important, the benefits and best practices, and five steps to get you from beginning to end.

Strategic planning is a process through which business leaders map out their vision for their organization’s growth and how they’re going to get there. The strategic planning process informs your organization’s decisions, growth, and goals.

Strategic planning helps you clearly define your company’s long-term objectives—and maps how your short-term goals and work will help you achieve them. This, in turn, gives you a clear sense of where your organization is going and allows you to ensure your teams are working on projects that make the most impact. Think of it this way—if your goals and objectives are your destination on a map, your strategic plan is your navigation system.

In this article, we walk you through the 5-step strategic planning process and show you how to get started developing your own strategic plan.

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What is strategic planning?

Strategic planning is a business process that helps you define and share the direction your company will take in the next three to five years. During the strategic planning process, stakeholders review and define the organization’s mission and goals, conduct competitive assessments, and identify company goals and objectives. The product of the planning cycle is a strategic plan, which is shared throughout the company.

What is a strategic plan?

[inline illustration] Strategic plan elements (infographic)

A strategic plan is the end result of the strategic planning process. At its most basic, it’s a tool used to define your organization’s goals and what actions you’ll take to achieve them.

Typically, your strategic plan should include: 

Your company’s mission statement

Your organizational goals, including your long-term goals and short-term, yearly objectives

Any plan of action, tactics, or approaches you plan to take to meet those goals

What are the benefits of strategic planning?

Strategic planning can help with goal setting and decision-making by allowing you to map out how your company will move toward your organization’s vision and mission statements in the next three to five years. Let’s circle back to our map metaphor. If you think of your company trajectory as a line on a map, a strategic plan can help you better quantify how you’ll get from point A (where you are now) to point B (where you want to be in a few years).

When you create and share a clear strategic plan with your team, you can:

Build a strong organizational culture by clearly defining and aligning on your organization’s mission, vision, and goals.

Align everyone around a shared purpose and ensure all departments and teams are working toward a common objective.

Proactively set objectives to help you get where you want to go and achieve desired outcomes.

Promote a long-term vision for your company rather than focusing primarily on short-term gains.

Ensure resources are allocated around the most high-impact priorities.

Define long-term goals and set shorter-term goals to support them.

Assess your current situation and identify any opportunities—or threats—allowing your organization to mitigate potential risks.

Create a proactive business culture that enables your organization to respond more swiftly to emerging market changes and opportunities.

What are the 5 steps in strategic planning?

The strategic planning process involves a structured methodology that guides the organization from vision to implementation. The strategic planning process starts with assembling a small, dedicated team of key strategic planners—typically five to 10 members—who will form the strategic planning, or management, committee. This team is responsible for gathering crucial information, guiding the development of the plan, and overseeing strategy execution.

Once you’ve established your management committee, you can get to work on the planning process. 

Step 1: Assess your current business strategy and business environment

Before you can define where you’re going, you first need to define where you are. Understanding the external environment, including market trends and competitive landscape, is crucial in the initial assessment phase of strategic planning.

To do this, your management committee should collect a variety of information from additional stakeholders, like employees and customers. In particular, plan to gather:

Relevant industry and market data to inform any market opportunities, as well as any potential upcoming threats in the near future.

Customer insights to understand what your customers want from your company—like product improvements or additional services.

Employee feedback that needs to be addressed—whether about the product, business practices, or the day-to-day company culture.

Consider different types of strategic planning tools and analytical techniques to gather this information, such as:

A balanced scorecard to help you evaluate four major elements of a business: learning and growth, business processes, customer satisfaction, and financial performance.

A SWOT analysis to help you assess both current and future potential for the business (you’ll return to this analysis periodically during the strategic planning process). 

To fill out each letter in the SWOT acronym, your management committee will answer a series of questions:

What does your organization currently do well?

What separates you from your competitors?

What are your most valuable internal resources?

What tangible assets do you have?

What is your biggest strength? 

Weaknesses:

What does your organization do poorly?

What do you currently lack (whether that’s a product, resource, or process)?

What do your competitors do better than you?

What, if any, limitations are holding your organization back?

What processes or products need improvement? 

Opportunities:

What opportunities does your organization have?

How can you leverage your unique company strengths?

Are there any trends that you can take advantage of?

How can you capitalize on marketing or press opportunities?

Is there an emerging need for your product or service? 

What emerging competitors should you keep an eye on?

Are there any weaknesses that expose your organization to risk?

Have you or could you experience negative press that could reduce market share?

Is there a chance of changing customer attitudes towards your company? 

Step 2: Identify your company’s goals and objectives

To begin strategy development, take into account your current position, which is where you are now. Then, draw inspiration from your vision, mission, and current position to identify and define your goals—these are your final destination. 

To develop your strategy, you’re essentially pulling out your compass and asking, “Where are we going next?” “What’s the ideal future state of this company?” This can help you figure out which path you need to take to get there.

During this phase of the planning process, take inspiration from important company documents, such as:

Your mission statement, to understand how you can continue moving towards your organization’s core purpose.

Your vision statement, to clarify how your strategic plan fits into your long-term vision.

Your company values, to guide you towards what matters most towards your company.

Your competitive advantages, to understand what unique benefit you offer to the market.

Your long-term goals, to track where you want to be in five or 10 years.

Your financial forecast and projection, to understand where you expect your financials to be in the next three years, what your expected cash flow is, and what new opportunities you will likely be able to invest in.

Step 3: Develop your strategic plan and determine performance metrics

Now that you understand where you are and where you want to go, it’s time to put pen to paper. Take your current business position and strategy into account, as well as your organization’s goals and objectives, and build out a strategic plan for the next three to five years. Keep in mind that even though you’re creating a long-term plan, parts of your plan should be created or revisited as the quarters and years go on.

As you build your strategic plan, you should define:

Company priorities for the next three to five years, based on your SWOT analysis and strategy.

Yearly objectives for the first year. You don’t need to define your objectives for every year of the strategic plan. As the years go on, create new yearly objectives that connect back to your overall strategic goals . 

Related key results and KPIs. Some of these should be set by the management committee, and some should be set by specific teams that are closer to the work. Make sure your key results and KPIs are measurable and actionable. These KPIs will help you track progress and ensure you’re moving in the right direction.

Budget for the next year or few years. This should be based on your financial forecast as well as your direction. Do you need to spend aggressively to develop your product? Build your team? Make a dent with marketing? Clarify your most important initiatives and how you’ll budget for those.

A high-level project roadmap . A project roadmap is a tool in project management that helps you visualize the timeline of a complex initiative, but you can also create a very high-level project roadmap for your strategic plan. Outline what you expect to be working on in certain quarters or years to make the plan more actionable and understandable.

Step 4: Implement and share your plan

Now it’s time to put your plan into action. Strategy implementation involves clear communication across your entire organization to make sure everyone knows their responsibilities and how to measure the plan’s success. 

Make sure your team (especially senior leadership) has access to the strategic plan, so they can understand how their work contributes to company priorities and the overall strategy map. We recommend sharing your plan in the same tool you use to manage and track work, so you can more easily connect high-level objectives to daily work. If you don’t already, consider using a work management platform .  

A few tips to make sure your plan will be executed without a hitch: 

Communicate clearly to your entire organization throughout the implementation process, to ensure all team members understand the strategic plan and how to implement it effectively. 

Define what “success” looks like by mapping your strategic plan to key performance indicators.

Ensure that the actions outlined in the strategic plan are integrated into the daily operations of the organization, so that every team member's daily activities are aligned with the broader strategic objectives.

Utilize tools and software—like a work management platform—that can aid in implementing and tracking the progress of your plan.

Regularly monitor and share the progress of the strategic plan with the entire organization, to keep everyone informed and reinforce the importance of the plan.

Establish regular check-ins to monitor the progress of your strategic plan and make adjustments as needed. 

Step 5: Revise and restructure as needed

Once you’ve created and implemented your new strategic framework, the final step of the planning process is to monitor and manage your plan.

Remember, your strategic plan isn’t set in stone. You’ll need to revisit and update the plan if your company changes directions or makes new investments. As new market opportunities and threats come up, you’ll likely want to tweak your strategic plan. Make sure to review your plan regularly—meaning quarterly and annually—to ensure it’s still aligned with your organization’s vision and goals.

Keep in mind that your plan won’t last forever, even if you do update it frequently. A successful strategic plan evolves with your company’s long-term goals. When you’ve achieved most of your strategic goals, or if your strategy has evolved significantly since you first made your plan, it might be time to create a new one.

Build a smarter strategic plan with a work management platform

To turn your company strategy into a plan—and ultimately, impact—make sure you’re proactively connecting company objectives to daily work. When you can clarify this connection, you’re giving your team members the context they need to get their best work done. 

A work management platform plays a pivotal role in this process. It acts as a central hub for your strategic plan, ensuring that every task and project is directly tied to your broader company goals. This alignment is crucial for visibility and coordination, allowing team members to see how their individual efforts contribute to the company’s success. 

By leveraging such a platform, you not only streamline workflow and enhance team productivity but also align every action with your strategic objectives—allowing teams to drive greater impact and helping your company move toward goals more effectively. 

Strategic planning FAQs

Still have questions about strategic planning? We have answers.

Why do I need a strategic plan?

A strategic plan is one of many tools you can use to plan and hit your goals. It helps map out strategic objectives and growth metrics that will help your company be successful.

When should I create a strategic plan?

You should aim to create a strategic plan every three to five years, depending on your organization’s growth speed.

Since the point of a strategic plan is to map out your long-term goals and how you’ll get there, you should create a strategic plan when you’ve met most or all of them. You should also create a strategic plan any time you’re going to make a large pivot in your organization’s mission or enter new markets. 

What is a strategic planning template?

A strategic planning template is a tool organizations can use to map out their strategic plan and track progress. Typically, a strategic planning template houses all the components needed to build out a strategic plan, including your company’s vision and mission statements, information from any competitive analyses or SWOT assessments, and relevant KPIs.

What’s the difference between a strategic plan vs. business plan?

A business plan can help you document your strategy as you’re getting started so every team member is on the same page about your core business priorities and goals. This tool can help you document and share your strategy with key investors or stakeholders as you get your business up and running.

You should create a business plan when you’re: 

Just starting your business

Significantly restructuring your business

If your business is already established, you should create a strategic plan instead of a business plan. Even if you’re working at a relatively young company, your strategic plan can build on your business plan to help you move in the right direction. During the strategic planning process, you’ll draw from a lot of the fundamental business elements you built early on to establish your strategy for the next three to five years.

What’s the difference between a strategic plan vs. mission and vision statements?

Your strategic plan, mission statement, and vision statements are all closely connected. In fact, during the strategic planning process, you will take inspiration from your mission and vision statements in order to build out your strategic plan.

Simply put: 

A mission statement summarizes your company’s purpose.

A vision statement broadly explains how you’ll reach your company’s purpose.

A strategic plan pulls in inspiration from your mission and vision statements and outlines what actions you’re going to take to move in the right direction. 

For example, if your company produces pet safety equipment, here’s how your mission statement, vision statement, and strategic plan might shake out:

Mission statement: “To ensure the safety of the world’s animals.” 

Vision statement: “To create pet safety and tracking products that are effortless to use.” 

Your strategic plan would outline the steps you’re going to take in the next few years to bring your company closer to your mission and vision. For example, you develop a new pet tracking smart collar or improve the microchipping experience for pet owners. 

What’s the difference between a strategic plan vs. company objectives?

Company objectives are broad goals. You should set these on a yearly or quarterly basis (if your organization moves quickly). These objectives give your team a clear sense of what you intend to accomplish for a set period of time. 

Your strategic plan is more forward-thinking than your company goals, and it should cover more than one year of work. Think of it this way: your company objectives will move the needle towards your overall strategy—but your strategic plan should be bigger than company objectives because it spans multiple years.

What’s the difference between a strategic plan vs. a business case?

A business case is a document to help you pitch a significant investment or initiative for your company. When you create a business case, you’re outlining why this investment is a good idea, and how this large-scale project will positively impact the business. 

You might end up building business cases for things on your strategic plan’s roadmap—but your strategic plan should be bigger than that. This tool should encompass multiple years of your roadmap, across your entire company—not just one initiative.

What’s the difference between a strategic plan vs. a project plan?

A strategic plan is a company-wide, multi-year plan of what you want to accomplish in the next three to five years and how you plan to accomplish that. A project plan, on the other hand, outlines how you’re going to accomplish a specific project. This project could be one of many initiatives that contribute to a specific company objective which, in turn, is one of many objectives that contribute to your strategic plan. 

What’s the difference between strategic management vs. strategic planning?

A strategic plan is a tool to define where your organization wants to go and what actions you need to take to achieve those goals. Strategic planning is the process of creating a plan in order to hit your strategic objectives.

Strategic management includes the strategic planning process, but also goes beyond it. In addition to planning how you will achieve your big-picture goals, strategic management also helps you organize your resources and figure out the best action plans for success. 

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  • What is the Strategic Business Unit (SBU)?

What is the Strategic Business Unit (SBU)? The complete guide

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SBU seems to be a strange term, but if you are about to grow your business in terms of size and product categories, it is necessary to understand the basics of a strategic business unit.

Knowing its importance to any business owner, we would like to introduce this post, which will cover the definition and the complete guide to set up a strategic business unit.

Let’s dive in!

What is a strategic business unit (SBU)?

A strategic business unit (also known as SBU) is a business term used to present an independently managed entity or unit of a large company. Those strategic business units often have their own visions, missions, objectives, and course. Moreover, their planning is done separately from other businesses, and their goals are different from the parent enterprise and elemental to the long-term performance of the business.

In other words, a strategic business unit is an array of a huge corporation that is responsible for its shared planning treatment. They can be business divisions, product lines of the division, or a particular product/service. No matter what SBUs are, they all target a specific group of customers or a geographical area.

Despite working independently, the strategic business unit still has to report directly to the parent organization’s head office when it comes to the status of their working process and performance. Normally, the strategic business unit looks at a specific market or industry.

What is a strategic business unit (SBU)?

Being an array of the main company doesn’t mean SBUs are at the small business size. On the other hand, they are large and have their own support functions. They can obviously control Human Resource Management (HRM), training & development, and marketing works. Having strategic business units is extremely important because they provide many benefits to businesses. Especially when the main companies have multiple product structures, they should know and set up SBUs structure. Having one or many SBUs, a business can have them respond quickly to shifts in product markets.

One typical example of SBU structure is famous brands like LG. They provide a long list of consumer products such as fridges, televisions, air conditions, and more. Each of them is made by different strategic business divisions. They are responsible for manufacturing and delivering products but have to take into account making decisions, investments, and budgets. In this way, LG’s main business can spend more time and attention on tracking costs, income, and profits.

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Examples of a strategic business unit

Being responsible for its own strategy and bottom line, a strategic business unit can be a division, a team, or a completely separate business. Also, they can be a marketing team that helps the whole company in operational functions. Now, we will show you some simple examples and different types of strategic business units.

A large company can split up into small ones based on the product categories it provides. This type is the most common one when it comes to SBU. For example, a snowboard manufacturer decides to set up two strategic business units because it owns two product divisions, which are fashion and equipment.

The fashion division and the equipment division have the same brand name and administrative functions, such as best HR software and information systems.

Similar to products, companies also build up the strategic business unit according to their services. For instance, a telecom company can set up a data center division. This division will help the parent company in providing different services like a colocation data center .

The location category or Region category is when a business targets customers from different nations or areas. A European fashion brand launches a Japanese distribution and promotion capabilities and takes it as a strategic business unit to help the company sell more products to Japanese consumers.

Customer Segment

When it comes to the customer segment, a business can have a separate division to service high net world individuals. One industry that is familiar with setting up SBUs based on the customer segment is Banking.

The innovation category is used, especially when it comes to innovative products or devices. For example, a huge information technology business can be split up into strategic business units to launch its new innovative products. The unit is applied as a growth investment and avoids spending too much after launch.

The structure of a strategic business unit

The structure of a company setting up SBUs consist of Operational units . Those units work as autonomous businesses. Within the SBUs structure, the highest corporate officials tend to assign the responsibilities of the company to the division owners in terms of regular operations and business unit strategy. Easily put, the parent officer has the responsibility of developing and executing the comprehensive strategy and managing the SBU via strategic and financial controls (also known as financial checks ).

The structure of a strategic business unit

That means the senior executive has the right to make decisions for each unit since the SBU structure connects related divisions of business and the strategic business unit. What’s more, those senior executives have to follow the rules and are supervised by the head executive officer.

When it comes to levels of a strategic business unit, there are three which includes:

  • The corporate headquarters stay at the top.
  • Strategic business units’ are in the middle.
  • Divisions that are assembled based on the similarity within each strategic business unit remain at the bottom.

You should keep in mind that each SBU will be considered an independent business when it comes to the strategic viewpoint. That means the SBU groups are independent of each other, and the SBU divisions are connected.

In the SBU system, a single strategic business unit is regarded as a profit center and is led by corporate officers. The parent supervisors focus on strategic planning instead of checks or operational control. If there are little or no checking and interactions between the strategic business units and the head company, the SBU’s separate divisions can respond extremely quickly to changing business environments.

Characteristics of a strategic business unit

In general, a strategic business unit has the following characteristics:

  • SBU is a separate business or a group of similar businesses that are in charge of scope for autonomous planning.
  • Strategic business units do not have the same set of rival companies as the others
  • The head of a strategic business unit will be responsible for the profitability, performance, and strategic planning of the specific unit.
  • SBUs work in different markets and target different groups of customers.
  • SUBs have different expertise in production or management that do not exist in the parent business.

The advantages and disadvantages of strategic business units

Although strategic business units are important to any business, it still holds some drawbacks. Before deciding whether to set up a strategic business unit or not, let’s review its pros and cons:

The advantages of strategic business units

  • Strategic business units simplify the Strategic Management process.
  • Strategic business units help the association between different company departments.
  • Strategic business units make it easier for the bookkeeping process of high-volume organizations.
  • Setting up strategic business units is simple and easy when it comes to monitoring and checking.

The disadvantages of strategic business units

  • It is hard to communicate with upper management.
  • Strategic business units can result in internal tension, which is directly made by access to sources of funding.

Despite its disadvantages, many businesses still use this structure

How to set up a strategic business unit

Setting up a strategic business unit (SBU) is beneficial because organizations creating SBUs can develop and gain success to new products, markets, or technologies, whereas they can avoid the drawbacks of working in huge businesses. The strategic business units will have their own managing team, brand name, reputation, objectives, and physical locations. In this way, those companies can work more effectively in a smaller organization and are not bound by the limited availability of resources. Also, they can grow and gain more sales thanks to the advantages of a larger company.

For example, strategic business units can save time and effort spent on building an established brand and broad base of customers that already exist in the parent organization of the SBUs. At the same time, they can prevent themselves from common challenges of the larger company such as excessive bureaucracy.

After knowing the importance of setting up an SBU, you should consider some requirements below. They look at organizational structure, recruitment & selection, corporate culture, and the remuneration system, which you should concern about before building a strategic business unit for your company.

Organizational structure

The first requirement is adapting the organizational structure. That means the organizational structure will be soon changed when you decide to switch to a different strategic business structure. If your company adapt the organizational structure, you are free and independent in experiencing, making the experiment, and significant changes. Separating business units from each other allows you to prevent creativity that is suppressed by process and branding problems. However, large bureaucratic companies are often not flexible and agile.

Recruitment and selection process

The managing team working in the strategic business unit is not those working in the parent company. Therefore, when setting up an SBU, you should change the recruitment and selection process. It is about building up a new company within a different market rather than leading a developed one. The staff that excel in the head company will have many challenges if they have to apply what they know into running a new unit. Similarly, a strategic business unit can’t develop well if its managing team knows little or nothing about the SBUs.

Change the recruitment and selection process

So, if you are about to open an interview to recruit people working for your SBU, focus on asking about the organizational objectives instead of the general knowledge about the parent brand. This recruitment process can help build an internal relationship and keep the team motivated. Remember to hire people who want to build a new business from the ground up as well as learning experiences from an uncertain but experimental environment like SBUs.

The remuneration system

When a business grows up and the company gains more and more in reputation and fortune, business owners tend to provide shares, money, gifts, or other important financial incentives to encourage and motivate their employees. However, it does not mean those high-volume companies always have to offer incentives for them.

On the other hand, according to Frederick Herzberg’s two-factor theory, “financial incentives only partially influence employee motivation”. In fact, they are more motivated by their own careers, which means recognizing them for their hard-working within the business and letting them grow along with it.

The corporate culture

The last requirement when it comes to setting up a strategic business unit is adjusting the corporate culture. Besides financial incentives, business owners need to concern about giving them other benefits to keep them motivated. What you need to do is make your employees feel like they are listened to and appreciated for their contributions to the success of the company. Or else, they will easily get fed up with and unsatisfied about the toxic working environment and working conditions.

Give your employees other benefits to keep them motivated

Listen to them, ask them about their wishes and demands, and try to fulfill them as much as possible. For example, an employee wants to work at night because he finds he works better at night, change the corporate culture, and allow him this night-shift option.

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A strategic business unit (SBU) is an ideal tool to help a business target its group of customers more effectively. Some expertise said that larger organizations should not split up into strategic business units since it holds some existing disadvantages. Nonetheless, setting up a strategic business division is challenging but rewarding as long as you make it correctly.

Hopefully, this post can give you something essential for your success in eCommerce business work. Give the strategic business unit a try if you haven’t applied for it before or you want to grow your business to a higher level. If you find this post interesting, remember to share it with your friends.

Do we miss anything? Do you want to add any tips or knowledge? Please be free to leave a comment in the section below and we will reply to you soon.

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