Strategy and Planning

TLDR: a strategy and a plan are two fundamentally different things. But when implemented according to their respective qualities and relation to each other they form a powerful system of focus.

I suggest you read my blogpost about strategy first. You can find it here.

Compared to the foggy use of the term strategy, the concept of a plan seems familiar and straightforward. Everybody knows what a plan is, right? And at first sight, a plan and a strategy have some things in common. Both look into the future. Both guide a company towards goals.

But here the commonalities end. A strategy and a plan are fundamentally different from each other in what they are concerned with and what type of problem they address (a) and how they affect the organization and interact with each other (b).

(a) Object of attention & type of problem

A strategy asks the question: why will our customers choose us? It looks at the customer and it is concerned about the future revenues of the company. A plan asks: what will we do? It looks at the company and it is mostly concerned about particular goals and where to allocate resources and investment.

Accordingly, a strategy deals with complexity while a plan (only) needs to manage complicatedness.

Something is complicated if it has many variables / moving parts but with predictable interactions. A complex problem may be hard to solve but it can be solved in a stable way with rules, systems, or processes. The actions and interactions of variables in a complex situation on the other hand cannot be predicted or controlled. Think of it this way: the combustion engine of a car is complicated, traffic is complex. You can plan how the various moving parts of a combustion engine interact, but an action plan for getting from A to B in a car in traffic will see you crashing into another car (whose actions you had not properly planned for). The only way through complexity is to observe, apply, learn, and adapt.

The planning of investments and the setting of goals for a reasonable period is within your control. This is the hometurf for a plan. You want actionable goals, not a theory of success that the organization will need to translate into action under huge risk of misinterpretation and undue discretionary range (both of which create friction, which as set out in this piece is bad).

On the other hand, customer behavior and customer choices are unpredictable and uncontrollable. They are by nature complex. You cannot plan them. What you need to do is observe learn and adapt and the only way to do that efficiently is by following a strategy.

And so distinguishing between what is a plan and what is a strategy makes a lot of sense. Both are very good tools for their respective jobs and terrible tools for the job of the other.

(b) Effect & Relationship to each other

Both strategy and planning have different goals and ways of affecting the company. And thats actually a good thing because they compliment each other.

The strategy’s purpose is to focus the whole company. Accordingly, it addresses the whole company coherently. And there can only be one strategy because the question “Why will our customers choose us” can not be answered more than once across the company or else there will be no focus.

But there can be more than one plan. Because the question “What will we do” will have different answers for different areas of the company: The marketing department plans to run x campaigns. The sales department plans to conclude y transactions. The HR department plans to hire z people. These plans are not for the whole company and they are not coherent to each other. Their purpose is to set tangible, achievable goals for specific areas of the company which can be achieved in a relatively short timeframe. And they can (and should!) be owned by these specific areas. This makes plans much more relatable. But they need to be aligned with each other following the business strategy.

And so while a strategy sets the direction, allowing the organization to understand where it is headed, plans provide the organization with a (measurable) sense of progress. In this, the plan is a derivative of the strategy. This means that the plan is the first point of reference for the company. But it also means that the strategy always prevails over the plan.

This way a strategy and a plan form a system of guidance for the company.

PS: What about the financial plan though? A company usually only has one of these and it addresses the whole company and it also includes goals on revenue - maybe even in great detail. But the financial plan is still a plan. It deals with what the company will do: spend that much money on marketing and that much on salaries and that much on other stuff. And it does that incoherently. It mostly lists the different cost positions but it does not connect them. And while it does contain revenue as an item it does not answer the question of why this revenue will occur. It assumes that (based on the strategy) customers will be interested in the company’s offering. It may extrapolate current trends, apply learnings/patterns from the past, or even predict future developments - but of the market or the general consumer sentiment, or the seasonality or some world-shattering event. It does not try to understand how well the company’s offerings match the customer demand. And last but not least: the financial plan does not guide the various departments of the company to act in alignment - it only tells each of them how much they can spend.