What Is the Difference Between Strategic Planning, Long-Range Planning, Business Planning, and Operational Planning?

Although many people use these terms interchangeably, strategic planning and long-range planning differ in their emphasis on the assumed environment. Long-range planning is generally considered to assume that current knowledge about future conditions is sufficiently reliable to ensure the plan’s reliability over the duration of its implementation. In the 1950s and 1960s, for example, the U.S. economy was relatively stable and somewhat predictable; therefore, long-range planning was both fashionable and useful. It was not uncommon for U.S. corporations to have large planning staffs developing long-range plans with highly detailed goals, strategies, and operational objectives identified over a 20-year time period or even longer. Strategic planning, however, assumes that an organization must respond to an environment that is dynamic and hard to predict. Strategic planning stresses the importance of making decisions that position an organization to successfully respond to changes in the environment, including changes by competitors and collaborators. The emphasis is on overall direction rather than predicting specific, year-by-year, concrete objectives. The focus of strategic planning is on strategic management (i.e., the application of strategic thinking to the job of leading an organization to achieving its purpose). As a result, although some organizations may develop visions that stretch many years into the future, most strategic plans discuss priority goals no further than five years out, with operational objectives identified for only the first year. Strategic planning and operational planning involve two different types of thinking. Strategic decisions are fundamental, directional, and overarching. Operational decisions primarily affect the day-to-day implementation of strategic decisions. Whereas strategic decisions usually have longer-term implications, operational decisions usually have immediate (less than one year) implications. Business planning typically attends to not only strategies and goals, but also detailed (at least three years’ worth) projections for revenues and expenses. The audience for a traditional business plan includes potential investors and lenders; a business owner uses the plan to convince investors and lenders that the business activity will generate enough money to pay a return or to pay back a loan. Thus, a business plan relies on decisions made in a strategic plan but is likely to be much more focused on the implementation and financial elements of a plan. Increasingly, nonprofits are developing business plans not only for investors and lenders but to help make explicit the relationship between money and mission in their enterprise. These various levels of planning often overlap. Strategic plans should outline core strategies (the primary focus of the organization’s resources to best achieve its mission) and usually contain a description of longerterm program and administrative priorities (long-term goals and objectives). Both long-term and operational (short-term) goals and objectives are needed to support core strategies. All of these goals are important and need to be done well. However, it is important not to confuse the four concepts: strategic planning, long-term planning, operational planning, and business planning. These concepts can be summarized as follows. Long-Range Planning

Views future as predictable—assumes current trends will continue

Focuses on setting long-range objectives

Assumes a most likely future and emphasizes working backward to map out a year-by-year sequence of events

Asks the question: “What should we be doing each year for the next three to five years? Strategic Planning

Views future as unpredictable

Views planning as a continuous process

Considers a range of possible futures and emphasizes strategy development based on assessment of the organization’s internal (strength and weaknesses) and external (opportunities and threats) environment

Asks the questions: “Based on our current understanding of the environment, are we doing the right thing? How can we best use our resources to achieve our mission?”

Operational Planning

Focuses on setting short-term (less than one year) objectives

Assumes much more detailed planning regarding by whom and how activities will be accomplished

Asks the question: “What do we need to be doing for the upcoming year and/or immediately to best accomplish our mission?” Business Planning

Is typically expected to include not only strategies and goals but also detailed (at least three years’ worth) projections for revenues and expenses

Is used by a business owner to convince existing and potential investors and lenders (the audience for a traditional business plan) that the business activity will generate enough money to pay a return or to pay back a loan.

Incorporating a Business Planning Approach into Your Strategic Plan
Traditionally, few nonprofits have been able to borrow money to fund operations—largely because their operations did not generate new revenue. Nonprofits did not spend money they did not have; rather, they raised money from grants and contributions and spent it. However, as more nonprofits have begun to manage revenue-generating activities, often called social enterprises, the use of business plans has increased. When a museum runs a store, or a community development corporation collects rent from apartments they developed, these activities generate revenue as opposed to being funded with grants or other contributed revenue. More recently, nonprofits are coming to value the discipline of business planning even for activities that are not generating revenue in the aforementioned sense. The business strategy of an organization with 100 percent government funding is to be fully grant funded. If the outlook for continued government funding dims, then the desirability of this business strategy decreases. Most nonprofits are unable to provide the kind of detail anticipated in business plans because of unpredictability of revenue flows (e.g., it is difficult to forecast what grant funding will be received three years hence). Still, business planning is becoming an increasingly useful concept (i.e., to think of operations in business terms), and such thinking should be incorporated into a strategic plan. Do we have a sustainable business strategy? What are the assumptions on which our strategy is based? Do the current and future political, economic, social, technological, and demographic trends support the sustainability of our current business strategy? A business planning approach informs the model of this book in that we attend to where money and other resources come from and how resources are used.

Should Strategic Plans Always Have a Longer-Term Focus?
Typically, yes: a strategic plan articulates both core future strategies and specif ic longer-term goals and objectives. A strategic plan may also—or sometimes only—be current focused and articulate shorter-term goals and objectives.

Strategic Decisions Operational Decisions
Fundamental, directional Focused on current operations Longer-term impact Shorter-term impact

Is Strategic Planning Capacity Building?
Yes. In fact, strategic planning is one of the most frequent activities nonprofits undertake among various types of capacity building. In the last decade,we have seen an enormous growth in attention to capacity building for nonprofit organizations. Paul Light, noted researcher and author, identifies strategic planning as one of a handful of capacity-building activities that are most frequently undertaken.3 Others include strengthening internal management (e.g., through new information technology), reorganization, team building, leadership development, and hiring consultants in a variety of roles. Moreover, recent studies show that nonprofits use these various capacity-building activities nearly as often as private-sector companies. According to Light, a 2002 study by the Bain management consulting firm found that 89 percent of their private clients had conducted strategic planning within the previous year or two. Light’s own research suggests that 69 percent of nonprofits conducted strategic planning in a similar time frame.

How Is Strategic Planning with Nonprofit Organizations Different from Planning in For-Profit Businesses or Government Entities?
Strategic planning is interdisciplinary and incorporates concepts from competitive strategy, history, business practices, and organizational theory. It came to prominence as a distinct discipline in the 1950s and 1960s because of its popularity among many corporations headquartered in the United States. Still, the essential concepts are applicable to any organizational setting. What is similar about strategic planning in nonprof its, for-profit businesses, and government entities is the essence of strategic planning—in an organizational setting, deciding what to accomplish and how to go about it in response to a dynamic operating environment.What is different is the nature of the internal and external forces that bear on the essential task. The governance of organizations in the three sectors is quite different and has signif icant implications for strategic planning. A board of directors governs both nonprof its and for-profit businesses, whereas government organizations are governed by a wide variety of publicly elected bodies. The boards of for-prof it businesses represent—or are—the literal owners of the business. Nonprofit boards represent the public interest. For-prof it businesses, especially in the past 20 years, have emphasized customer satisfaction to a greater degree than either nonprof its or government. For-prof it businesses have invested heavily in market research and in attempts to improve quality as they compete for customer business. Because the direct consumers of the products and services of nonprof its and government organizations typically pay only a small portion of the cost, the funders—whether foundations or taxpayers—have had a much greater influence than customer satisfaction on the strategies of organizations in these two not-for-prof it sectors. This situation is beginning to change, however; witness the popularity of Reinventing Government,5 a book that emphasizes increased responsiveness of the government to the public and increased focus on accountability in the nonprof it sector. Finally, values and orientation to a mission have typically been the hallmark of nonprof its and less inf luential in for-prof it business and government.This attitude is also changing. In the past decade,much of the for-prof it business sector literature, starting with In Search of Excellence,6 has emphasized the importance of values and mission statements in well-run companies. Similarly, it is not uncommon now to find government off ices with mission statements that articulate the unique contribution the off ice aspires to make to the public welfare. Despite these differences, with minor translation to different contexts,much of the conceptual framework in this book is equally applicable to organizational settings in either the for-prof it business or government sectors.

Click Here to Purchase this Book

Joan Lloyd & Associates, Inc.

414-476-8853
10701 W. North Avenue, Suite 203
Milwaukee, WI
http://www.JoanLloyd.com