CMTC's Shifting Gears

We succeed because you do.

Season 4 Episode 3 - The Importance of Strategic Planning & Budgeting For Businesses of All Sizes

Posted by Rachel Miller

Episode Show Notes

Episode 3 features Business Strategy & Family Business Advisor/Sales & Marketing expert Larry Kirsch as well as two professors from the David Nazarian College of Business and Economics at California State University, Northridge – Dr. Lois M. Shelton and Dr. Daniel Degravel. Larry, Lois, and Daniel discuss what strategic planning is, the advantages of having a strategic plan, and how strategic planning ties into budgeting. The group closes with concrete steps to begin the strategic planning process and how to measure progress after implementation.

Lawrence Kirsch (Larry) is a Business Strategy & Family Business Advisor/Sales & Marketing expert and has consulted with hundreds of companies in a wide range of industries such as Aerospace and Defense, Medical Devices, Construction, Water Systems & Filtration, Irrigation, Solar, Food, Industrial, and Consumer Goods. He has facilitated strategic planning, product innovation, and development programs, including go-to-market strategies and business function synergies. He also creates and delivers customized training courses in marketing, management, business development, problem-solving, and sales. Larry has an MBA in International Marketing from Emory University in Atlanta, Georgia, and a certificate in International Marketing from the University of Linz, Austria.

Dr. Lois M. Shelton is a professor at the David Nazarian College of Business and Economics at California State University, Northridge. She earned MBA and Ph.D. in Business Economics degrees from Harvard University. Her teaching experience spans the undergraduate, MBA, doctoral, and executive education levels, and includes courses in entrepreneurship, strategy, and international business. Her primary research interests include women’s, minority and immigrant entrepreneurship and firm growth. She has published in leading journals such as Entrepreneurship: Theory and Practice, Journal of Small Business Management, Small Business Economics, and the Strategic Management Journal. Her work has won Best Paper Awards from the Academy of Management (Entrepreneurship Division), the Diana International Research Conference, and the United States Association for Small Business and Entrepreneurship (USASBE), and has garnered over 1000 Google Scholar citations. A former business executive with nearly ten years of experience, Professor Shelton is active in the business and academic communities. She has been named a Justin G. Longenecker Fellow by USASBE. She was instrumental in the launch of the entrepreneurship program at the Nazarian College, and is a Co-Editor of the International Journal of Entrepreneurial Behavior & Research and a member of the Review Board for the Journal of Business Venturing. In addition to being interviewed by CBSN Los Angeles and the LA Times, she has served as a panelist and moderator for the Diversity and Inclusion Summit sponsored by Los Angeles Business Journal, and a guest speaker in Women’s Empowerment Speaker Series sponsored by Green Hasson & Janks. 

Dr. Daniel Degravel is a professor at the David Nazarian College of Business and Economics at California State University, Northridge. He has broad experience in both the private and public sectors in France and in North America, thus he brings an international/comparative perspective and professional experience to his teaching fields of interests: strategic and organizational change management and human resources management. Previously, Dr. Degravel taught at the University of Paris Dauphine (France's #1 School of Business Management). He has also been a consultant and project manager for Electricity de France (EDF) Paris, a leader in Europe's public electricity sector. Dr. Degravel teaches Strategic Management & Public Human Resources for the MPA program. He received his Ph.D. (with high honors) in Business Management from the University of Grenoble II, France.


00:00:00 - Introductions

00:02:45 - Definition of strategic plan and what it includes

00:06:23 - Purpose of strategic plan

00:09:22 - Advantage of having strategic plan

00:14:48 - Process to follow

00:20:41 - How the plan and planning process tie into the company's annual budgeting exercise

00:23:58 - How the plan ties into annual operational plans

00:29:25 - What span of time a strategic plan should address

00:33:46 - Elements and tools to use in a plan

00:38:57 - Stories of how the process or a given tool had that light bulb moment for a client

00:40:35 - Concrete steps to begin process

00:45:42 - How to implement a strategic plan for the first time

00:49:47 - What and how to measure progress


Gregg Profozich [00:00:02] In the world of manufacturing change is the only constant. How are small and medium-sized manufacturers, SMMs, to keep up with new technologies, regulations, and other important shifts let alone leverage them to become leaders in their industries? Shifting Gears, a podcast from CMTC, highlights leaders from the modern world of manufacturing, from SMMs to consultants to industry experts. Each quarter we go deep into topics pertinent to both operating a manufacturing firm and the industry as a whole. Join us to hear about manufacturing sectors' latest trends, groundbreaking technologies, and expert insights to help SMMs in California set themselves apart in this exciting modern world of innovation and change. I'm Gregg Profozich, Director of Advanced Manufacturing Technologies at CMTC. I'd like to welcome you. In this episode I’m joined by Business Strategy & Family Business Advisor/Sales & Marketing expert, Larry Kirsch. I’m also joined by two professors from the David Nazarian College of Business and Economics at California State University, Northridge – Dr. Lois Shelton and Dr Daniel Degravel. Larry, Lois, and Daniel discuss what strategic planning is, the advantages of having a strategic plan, and how strategic planning ties into budgeting. The group closes with the concrete steps to begin a strategic planning process and the ways to measure progress after implementation. 

Welcome, Lois. It's great to have you here today.

Lois Shelton [00:01:24] Well, thank you, Gregg. It's wonderful to be participating in this podcast. My name is Lois Shelton. I'm a professor of Management and Strategy at Cal State University, Northridge. I had 8 to 10 years of business experience in various fields of management consulting, real estate development, advertising, and a position in state government before I came into academia. Since I've been in academia I've really enjoyed focusing my research on strategy, finance, and entrepreneurship. I welcome the opportunity to participate and share some insights today.

Gregg Profozich [00:02:04] Thank you. Looking forward to the conversation. Welcome, Daniel. I appreciate your being here today, as well.

Daniel Degravel [00:02:06] Yeah. It's a pleasure to be here. As Lois, I'm also a professor of Strategy Consulting Management at California State University, Northridge. I've had experience as a consultant, but also, I've worked for a very big company in the industry for 20 plus years before becoming a professor at CSUN. It's my pleasure to be here, and I hope that we'll have a great conversation about this strategy planning topic.

Gregg Profozich [00:02:35] Oh, I think we definitely will. Welcome, Larry. It's great to have you here, also.

Larry Kirsch [00:02:39] Thanks for having me. Very, very excited to be here with my two distinguished colleagues, and looking forward to the conversation.

Gregg Profozich [00:02:45] Thank you all. I'm looking forward to hearing your perspectives and your insights. Let's get started. We're here to talk today about strategic planning and budgeting. Across my career I've worked in both large and small companies. The large ones tend to have people dedicated to strategic planning, sometimes even whole departments to do that role; the smaller ones, not so much. Today I'd like to explore strategic planning with you all and budgeting and understand how having a strategic plan and a budget is a benefit regardless of the size of the company. To set some context, what is a strategic plan, and what does it include? Lois, I'll let you start off, and then Daniel and Larry can add to that.

Lois Shelton [00:03:20] Well, great. A strategic plan is basically a road map or a game plan for the future. It incorporates your company's big picture thinking, and it gives a company and its leadership the road to go to look ahead. One of the important things about the strategic plan is the process of doing it and the learning that comes from going through the exercise. It's important, because it gives all the members of the company and all the different stakeholders points and goals to rally around. It also enables a company and its key stakeholders to establish a clear direction and allocate its resources much more effectively.

Gregg Profozich [00:04:07] The plan is important, but the learning and alignment that comes from doing the whole process is also incredibly valuable. Is that what I hear you saying?

Lois Shelton [00:04:14] Yes, most definitely. I've had some experience at a leading management consulting firm before I went into academia, and we worked at some of the largest companies in the Midwest. It was always about the process of helping the client learn and understand their business and providing guidance to allow them to look at areas that perhaps they had not considered or areas that perhaps they were not aware of and allow them to incorporate that into their internal processes and their external vision that was so critical.

Gregg Profozich [00:04:52] Got it. Daniel, anything to add to that?

Daniel Degravel [00:04:55] I would say first that the strategic planning term is a little antiquated. I mean by this that more recent approach of strategy consider a strategic process, which is called strategic management, which is a little larger than the strategy planning which corresponds to an old conception of strategy. But everything that Lois said is absolutely correct. The processes are interesting. Fundamentally, strategy or strategic management has the goal of connecting the environment and the future of the organization. In other words, it's based on two fundamental elements. First, the description of a vision for the organization, and then this vision is based on analysis. The second big element is the road to get from the situation of the organization now and the situation that is desired in the future. To be very simple, strategy is the sum of two things: a vision plus the road to get to this vision. The process is extremely important. The soft components of strategy are extremely critical: the culture, the leadership, the soft element related to you—the human side of the equation—are extremely important, as well.

Gregg Profozich [00:06:16] It's connecting that vision to a road map. It's actually where are we going, and how are we going to get there?

Daniel Degravel [00:06:22] Absolutely. Yes.

Gregg Profozich [00:06:23] We've talked about what a strategic plan is and what it's used for. What's the purpose of it? Why do we do it? What does it address?

Larry Kirsch [00:06:30] Often there's a confusion between a business plan and a strategic plan. A strategic plan tends to be for an organization that's currently in business, been in business for a little bit, and they're trying to chart a pathway going forward. We set their compass a bit, identify some new strategic initiatives, key performance indicators, things like that. A business plan is really designed for a start-up company. They're trying to raise money, typically, and chart the initial implementation of their business model. There is a distinction between the two. If we focus on strategic planning, really it's all about, again, charting a pathway for a going concern.

Gregg Profozich [00:07:07] Okay. Daniel, anything to add to that?

Daniel Degravel [00:07:08] For companies that are running, they have cycle or a process where they do analysis of the environment; they do analysis of their internal state of variables; they understand what is the situation, and they try to project themselves in the future to see what trends exist in the environment in terms of customers' tastes, the needs of customers, regulatory pressures, technological innovation, whatever variable may have an impact. Then from this they deduct or they construct, and they design the vision of the future for the organization. Of course, based, also, on their own desires. Strategy or strategic planning is not just a science; it's also an art. It's also based on the desired expectations, fears of people, and preferences of the top management team and the decision-makers.

Gregg Profozich [00:08:05] Got it. Lois?

Lois Shelton [00:08:06] I would also like to add that a strategic plan... In some sense, the word plan is a bit of a misnomer, because it should be very iterative. It should not be a document that's stuck away in a drawer and then just looked at again in the next five years, or the next three years, or whenever. It should be a guiding, living document that people refer to and people develop and create, and change, and manage as the business grows, and changes, and manages there so that the learning involved stays alive, for example. It's a great opportunity too, of course, as Larry was saying, to have a going business concern achieve direction, but it's also a perfect opportunity to seize new opportunities, new growth opportunities, to also recalibrate when the organization perhaps is not meeting its goals, and also a means for thinking ahead into the future which reflects the iterative process between current thinking and future and existing trends.

Gregg Profozich [00:09:22] Okay. If I think about what the three of you just said, I'm hearing you talk about a strategic plan helps to establish direction; it helps to identify areas of competitive advantage. Where can we compete, where can't we compete based on our abilities, our preferences, as Daniel was referring to. It's a good road map, but it's the basis, as Lois was saying, for pivoting as change happens. No plan survives the first contact intact, the old Murphy's Law of Combat and that whole idea that having a plan is not valuable; the act of planning is because we know ourselves well enough to know what we can and can't do. When an opportunity comes and we have to pivot, we're ready. We know if we should or shouldn't. Small to mid-sized manufacturers may not have a function and a department dedicated to it. If I'm a small to mid-sized manufacturer, make the case. Why should I go through the process? What does having a strategic plan do for me that my current way of managing maybe doesn't quite give me as much value?

Daniel Degravel [00:10:17] Well, it's a situation where you don't see what you don't have, and you don't see the benefits of what you don't have until you have it. Strategy or strategic management—I prefer this term, which is better to talk about it—is an exercise that enables decision-makers—the owners or a little committee of the top management—to understand the situation extremely well, to be able to project in the future and to see what are the trends or events that could be threats or opportunities for the organization to adapt to them in advance, and also to use these strategic findings as a tool for communication inside and externally to the organization to motivate people inside, as well, to constitute a beacon, a reference point where people know where they are. The small size doesn't keep decision-makers or owners to do that. There are ways—maybe we'll have a discussion about this later—to do this even for small companies. Even if they don't have the resources of very large companies or dedicated departments, they can do this on their own using some tools or using some help. But they have to do it. It's really critical that they do it. The performance of an organization is really impacted by the fact that it has or doesn't have a strategic process of reflection.

Gregg Profozich [00:11:48] It occurs to me as we're talking about this, the owner or the founder of a company probably does all this already, just doesn't commit it to paper. You can't go into business without having an understanding of a market. You can't go into business without having an understanding of what the financial model might look like and that you can actually make a profit, you're not going to go into business or last very long if you don't have a way to operationalize your competitive advantage and get to market with it. All those things have to exist in any going concern. The value of this, from hearing you guys, is probably more where in the fact that you communicate it. I think Lois mentioned earlier it's a document that everybody aligns around. Is that the value to the small manufacturer?

Lois Shelton [00:12:27] I think that's definitely one of the values. I think another important value is that, of course, once you start a business, you have to have certain things operationalized. But the strategic planning process provides you with a disciplined and organized way to consider all the factors that may impact your business, and may provide opportunities, or may present themselves as threats. By having an organized way to go through it, that minimizes the likelihood that you will skip something; it enables people to move outside of any personal bias, and it increases objectivity. It also provides a structure to make sure everything that's important in the business externally, internally—human resource, technology—is covered. As humans, we tend to have biases, and tend to have strengths, and tend to have preferences. By having a disciplined process you make sure that you don't leave some critical things out, or you're less likely to have your blind spots covered. That's an important advantage, in my mind, of the strategic planning process.

Gregg Profozich [00:13:45] It's the process and the discipline to it, and the fact that you have to check all the boxes when you walk through the process that helps you make sure and be comfortable you haven't missed anything, right?

Lois Shelton [00:13:52] Right.

Gregg Profozich [00:13:54] Because I often say—and I don't mean this as any kind of negative statement—most small manufacturers that I've ever worked with, especially the very small ones, are so busy working in the business they don't have a lot of time to work on the business. Sarah called off sick today, and so the president's not sitting behind his or her desk; they're out there on the floor working a machine, working a press break, packaging stuff up to ship because you got to make shipping to make payroll. That's the reality. I planned to work on it this afternoon, but I didn't get a chance. It slides, and it slides, and it slides. Then, oops, an opportunity comes past me I totally missed. That discipline that you're talking about, Lois, is one of the values.

Lois Shelton [00:14:27] Right. Like you point out, as a small manufacturer you have to balance. You have to go on the floor and run the machine if someone is sick, but it's also important to know that there will be a time where I can take a couple hours or a little bit of time to start to think about this. It's always about getting that balance.

Gregg Profozich [00:14:48] Larry, talk about that. If I'm a small manufacturer and I dedicate the time, is there a process I should follow?

Larry Kirsch [00:14:56] Absolutely. Well, I'd like to just back up for a moment. Part of the challenge that I see with small manufacturing companies is that typically you have a CEO/Founder of the company that has certain entrepreneurial skills and capabilities. What can often happen is the company will outgrow their skills and capabilities. They end up hitting this glass ceiling in terms of revenue. Whenever I'm involved with a company, I'll ask them about their past three, five years of revenue. If it's static, then it indicates that they have a management issue in terms of not being perhaps skilled or educated sufficiently to really manage the organization going forward for growth. That's one structural area that we have to deal with. But when we're talking to a CEO or an owner of a company and we're trying to talk about strategic planning, one of the first things that I do in terms of explaining to them is I'll talk about perhaps planning for a vacation. I'll try to put it in terms that they'll understand. For example, I'll tell them, "If you're going to plan a vacation, let's say, with a group of friends or a couple of different families, and you're going to take a road trip, what's one of the first things you decide? Where are we going, and then how we're going to get there, specifically. What route are we going to take, and what are we going to take with us?" Notice you have to marshal the troops in a direction so that you will achieve your objective. That's really what strategic planning is all about for them. It's helping them to identify a direction, a goal, or goals, and then marshal their troops, their various functional areas, so that they can all together achieve that goal. Part of the process with them is to understand that it starts with the top. It has to start with the top. They have to be behind it 110%, and then it's got to circulate throughout the whole organization. They might have 20 employees with maybe 5 key managers. Those five key managers have to be a part of the process. Then we take them through that whole process so that it flows down to all the functional areas. That's how we achieve success. It can't just reside in the top; got to be communicated throughout the organization ongoing. That's how I approach it.

Lois Shelton [00:17:04] I would just like to add on to what Larry said. Particularly in a manufacturing company, not only does it have to flow from the top down to all levels, but in particular the plan has to be bought into, and embedded, and examined at the level of the shop floor, or the level of the production process, the level of the supply chain management, because that's the heart of a manufacturing company as a manufacturer producing some goods and services. If the plan does not work at that basic level, then, like Larry was saying, we're not going to have a plan that's workable. By having input from the shop floor, the factory floor, the supply chain managers, that ensures success and also can open up some new opportunities to gain efficiencies, improve sales, and improve quality.

Larry Kirsch [00:17:59] That's an excellent point. I might like to add one additional thing. What I find as a challenge is integrating what's happening with the marketing department with what's happening with operations because the companies typically want to see growth. Marketing really is the promise to their customers and prospects that we will do certain things for you. Operations is the delivery of that promise. So, it's got to be there. Operations has got to be prepared. That's part of what we do in strategic planning is to make sure that we're all on the same playing field, heading in the same direction, heading for the same goalpost, and that when marketing makes a promise, operations can fulfill that promise.

Daniel Degravel [00:18:40] Can I add something about what we just talked before about the organizer effect of strategic management, which is that it offers a guide. That, I think, is very important considering the immensity in the scope of the variables that can be involved in such a process. Like Lois said, it enables to avoid forgetting some variables or not knowing which variables are important. Which one should I take into consideration and so on and so forth? There is also another aspect beyond this organizer effect is the support effect. What I call support effect is that a decision-maker may need some support to do it. It's a risky endeavor. It's risky in the sense that he does a lot of stakes. The stakes are very high when you do a strategic plan, because it's a future of your organization. This person can have support, even emotional support, like a sounding board or someone who can help in the design of the strategic plan—of course, its implementation. Last thing I wanted to add is—Larry said something that made me think about it—we are seeing at the university, we are supervising a lot of consulting project, student-based consulting projects. I have seen a lot of instances where organizations are growing, and at certain thresholds, there is a qualitative leap in the way that the companies should be managed. The strategic management should be done in a more professionalized way. There is this threshold which varies with the industry in terms of number of employee or sales. But beyond this you need to do things differently. Running an organization like a mom-and-pop store doesn't work anymore. You have to go to the next stage. Strategic management will really help you to do that, because it has, of course, a projection aspect but also an implementation aspect on the resources and the organizational structure that you have now.

Gregg Profozich [00:20:41] I think those are all great points. Daniel, Lois, Larry, thank you so much. I want to tie into something that Daniel said just a little bit on the resource side of it. My next question for all three of you is: how does the strategic plan and that strategic planning process tie into the company's annual budgeting exercise?

Larry Kirsch [00:20:59] It's a big thing in terms of tying in with the budgetary process. From my perspective, everything flows from the strategic plan. Once you have a strategic plan developed, you've identified your various initiatives that you're going to be instituting either from a functional area or throughout the whole organization. Once you have that identified, then you begin to build out your budget accordingly. Actually, during the strategic planning process, you are keeping in mind your resources so that you can actually implement the plan that you're attempting to develop. That's important so that when you arrive at your strategic plan, you have something that you can actually implement. Then when we get down to the nitty-gritty with the numbers, then we can see what challenges we might be facing from a budgetary standpoint. For example, a company may decide to move into a new market or submarket which might require some new equipment purchases. That might be half a million dollars in cost, and they may not have those resources, or they may have to really stretch in order to acquire those assets. That will impact the entire budget of the organization.

Lois Shelton [00:22:06] I just want to add on to what Larry said about the importance of the budgeting. Like he said, you may find that a certain initiative may cost more than what you had in mind initially budgeted. As he said, you can make some adjustments in terms of timing of that. That also can be an opportunity for the organization to look for additional resources—for example, different sorts of grants, different sorts of training. Oftentimes there's monies available at the state level, at the federal level for training for ISO certification. Once an organization has identified that, then they can start to think, "Well, let's try to partner with some organizations, some agencies that can help us get some of these grants for R&D, for ISO certifications, and other types of training that would help us achieve those goals."

Gregg Profozich [00:23:02] Great points.

Daniel Degravel [00:23:04] I think Larry and Lois said it very well. I would add just budget and strategy are connected. Budget should be subordinated to strategy, ideally, if a strategic plan is well done and it integrates completely the money aspect of it, the funding. Reciprocally, when you do strategy, you take into consideration the financial constraints, of course, which exist. One risk, though, is that the money side becomes so powerful that it drives strategy. I'm not saying that we can do anything at any cost without any consideration. But I've seen, generally, large organizations where the money is the king, and everything else is subordinated to it. That's not the best way to go. I believe that strategy should be the first, should be dominant.

Gregg Profozich [00:23:58] We talked a little bit about budgeting. Let's talk about operational planning. How does the strategic plan or strategic management, as you mentioned, Daniel, tie into annual operational plans?

Daniel Degravel [00:24:08] We have classically three levels in strategy: the corporate level strategy, which deals with the portfolio of businesses in the organization; the business level, which is what is the strategy for each of the business—a business being a combination of a product and a market. A company may have one business or several businesses—and the functional strategy, which is the translation of some of the function of the organization, including manufacturing, into a strategy. You have an IT functional level; you have a HR functional level; you have a legal functional level; and so on and so on. Manufacturing is here extremely important, of course, because the core of the production is manufacturing for these companies. I looked at the literature to see what are the connection between the manufacturing strategy and the business strategy. I realized that all the literature, in fact, is looking at that, because it's very important. Which one comes first? Is it the business strategy and the competitive advantage which is done through the corporate strategy process, or is it the variables of manufacturing like the size of the plants, the quality, the speed of delivery, the quality of delivery, the concentration of resources, and so on and so forth, all these variables that are connected to the manufacturing strategy? I have a document on this that will be accessible, where I show the order where these should be done. Basically, the competitive strategy, the business strategy should be done in a way that is dominant to the manufacturing strategy. Manufacturing should be following this business-level strategy based on the analysis of the competitive environment. That's the big picture. Of course, there are more detail available.

Gregg Profozich [00:25:58] To put that in practical terms if I understand it, we've had a business; we've been selling the same product for 20 years. We've invested in it regularly over those 20 years. The competitive environment's changing. The market isn't so big anymore. We probably shouldn't invest; we should think about where else to invest, that balancing. Our corporate strategy says we're going to go into a new market; our manufacturing strategy says support the current product, but let's look at our investments very carefully. Because the outside environment's changing, we have to adapt type of thing. I think that's what I hear you saying.

Daniel Degravel [00:26:26] Yes. Everything is connected. The competitive strategy, your business strategy, which is the same thing, which is how do you compete in a certain business, and the manufacturing strategy, the translation in operational terms related to manufacturing, they are connected. They are done together.

Gregg Profozich [00:26:45] Right. Okay.

Lois Shelton [00:26:46] I just wanted to build on what Daniel was saying and offer an example. There was a textile manufacturer who provided fabric for public seating. They found themselves in a position where they were impacted by changes in trade relations—in particular, the reduction of tariffs with certain countries. Since they were facing a reduction in sales, they started the strategic planning process. Through this process, they found a new niche. They wanted to expand it to new markets. They found a niche in the military market where they had an advantage because all the manufacturers there needed to be from the United States. It was through their process of examining the external environment, by looking at their internal resources that they were able to locate this particular market in which they would have an advantage in the midst of some negative impacts externally. They subsequently examined their resources, their internal resources, and they said, "Okay, in order to get this new tier of customer, we need to get new certifications." They were able to get those new certifications, which opened up additional markets in, let's say, body armor, ballistic vests, and manufacturing. As a result of this strategic planning process, recognizing they needed to get new certifications, improve their resources to go into these new markets, their sales increased about $2.2 million. They realized cost savings of $200,000. They hired 14 new employees, and they retained 15 employees. They invested over a half-million dollars in new products and processes. That just shows how, I guess as Daniel was saying, as Larry referred to, you start at the broad level, the corporate, the business strategy, and then you follow that on through looking at external environment, internal environment using some of these different tools. Then you see those opportunities. Then that enables you to figure out which resources to marshal, what resources you need, which impacts your budgeting process. Then you can implement it. That allows you to achieve success. This particular company was a good example of that.

Gregg Profozich [00:29:11] There's some impressive results they've achieved, all because they went and they took a look at the changing external environment and had the wherewithal and the foresight to adapt.

Lois Shelton [00:29:19] Right. A lot of that came from just following the strategic management process. 

Gregg Profozich [00:29:25] Okay. What timeline should a strategic plan address? Should I have a 2-year plan, a 5-year plan, a 20-year plan?

Daniel Degravel [00:29:31] I believe it varies with the industry. We have to distinguish two things: the cycle, the duration of the cycle, and the elementary events inside this cycle. This cycle depends on the industry. In some industries, you will have a longer cycle, because the assets last longer because the environment is changing very slowly. Infrastructure, chemical industries, energy industries—these are industries where change is relatively slow. On the opposite side of the spectrum you have retail, you have computer software, you have entertainment, where the change is extremely fast. The cycle depends on the industry. Classically, it's between three and five years where the strategy plan has this origin of time. Now, the elementary events are each year. There is a review of the strategy point which depends on the situation. Every five years or three years, for example, there is the big work of redoing it completely. That's a method which is used that allows to have a continuity in the implementation of the plan. Otherwise, if you redo it completely every year, you don't have time to implement. You're already at the next one. It depends on the industry. The litmus test would be to know which cycle duration would be the best. Say, "How long does it take for the environment in my industry to change sufficiently that it changes the fundamentals of my business model and of my business?" If the answer is five years, then it's five years; if it's three years, it's three years; if it's seven years, it's seven years. That's a practical way to try to evaluate. But companies can also look at other companies because in the same industry it's very likely that they have the same strategic cycle duration.

Lois Shelton [00:31:32] Absolutely. You have to look at the industry, just as Daniel was saying. Another indicator that companies might want to look at is how well you're meeting your performance goals and how well you are performing. If you see significant deviations in your performance, particularly on the downside or, like Daniel was saying, if you look at your competitors, and for one reason or another you are not gaining share, you're losing share, then I think that should also spark a review of the strategic plan. That's why the whole idea of the vision, and the mission, and the objectives of the plan are important because then that gives you another trigger as to whether or not you need to...when you need to and how often you need to begin or reevaluate your strategic plan and your process.

Larry Kirsch [00:32:26] I'd like to add one additional thing, too, regarding this entire process. A lot of small manufacturers, often they don't even understand what a KPI is, a key performance indicator. Doing a strategic plan, if you do it correctly, you assign certain KPIs throughout the organization. You'll have them in operations; you'll have them in marketing and sales. You'll even have them in customer service and even in HR, human resource. Just by going through that process can be very illuminating for an owner or management team, because now they can actually measure what they're trying to do, what they're trying to achieve, where in the past they didn't really have any way of doing that, or they didn't really think in those terms.

Lois Shelton [00:33:11] I think it's important for a company just to try, just to start. No company is too small to start to think about these issues. By starting, even if you do end up getting guidance, later on, that additional understanding and that additional insight you've gained from simply starting will enable you to be even a better partner with any individual or firm you decide to work with. There's no company that's too small for strategic planning, and there's no company that's too large.

Gregg Profozich [00:33:46] I think excellent points all around. Thank you all for that. We're talking a little about strategic planning here and the reasons why to do one. Let's go through the elements of what is in a strategic plan. What are the different elements? What are the aspects my plan should have? What tools should I use that I include in there? Daniel, why don't you start us off with that.

Daniel Degravel [00:34:03] Yes. There are classically different components that are in your business plan. I offer a document with these different components. In fact, they touch all the different functions that exist in the company, very classic functions like marketing, like sales, like finance, like management, and organization, and structure. There are templates that exist out there that are available. They try to understand dimensions in each of these functions describing how the company is doing it, how the company is good at it. For example, understanding what is the history of the company, what are the foundations of the company, what are the service, the product, what are the components of this product, the features, the benefits, the competition, the rivals. Extremely important to understand rivals. What is the competitive advantage of the company? This is extremely important. Most people cannot specify or explain what is the competitive advantage of the organization. That's extremely critical. Market analysis. Who are the customers? What are their needs? The size? What are the trends? Very classic. A tool that is extremely famous is the SWOT—strengths, weaknesses, opportunities, and threats. I believe everyone knows this tool. On the more managerial and organizational side, there is a description of the organization, and there are different dimensions to assess a structure, an organizational structure. What is the leadership? What are the board members? What is the corporate governance system that run the organization? Everything connected to finance—the cash flow, balance sheet. This business plan is, like Larry said at the beginning, more for company which are start-ups. There is something similar—Lois has provided a document about it—which is a business template. It covers similar things, but the strategy process has generally the following steps: the vision, and the mission—always talked about it—the analysis, internal, external. The choice of a strategy if we have only one business, which is most of the case of small manufacturing company, they are three fundamental strategies that can be used. They're based on Michael Porter's typology. One is low-cost strategy. You offer a package to your customer which is based on the value of a low cost. They have a product which is good but at a lower price and lower cost than your rivals. The second one is called differentiation. Differentiation means that you offer a product which is unique, generally at a higher price than your competitors. There is a strategy which is called integrated low-cost differentiation, which is trying to do both. Some people believe it's possible; some people believe it's not. Personally, I think it is possible, but it's risky. These are the three generic strategies. These three generic strategies can be used on the entire market or on a niche. The niche strategy is called focus strategy. I described the component and the content of the strategy that creates a competitive advantage for an organization.

Gregg Profozich [00:37:34] Larry, Lois, anything to add there?

Lois Shelton [00:37:35] I would just simply say that I did provide a simplified way to look at it. This is a place to start. Basically, in this handout I provided you look at your external environment. You have the PESTEL analysis which enables you to look at the society at large—political, legal, technological. Then you have a Five Forces analysis which enables you to look at your industry—your buyers, your suppliers, your competitors. That enables you to understand just a basic understanding of what's going on outside my company. Then you can take a look inside with your resources and your capabilities. What could my company do? What does my company have? How are those positioned to give me a unique advantage? Then, of course, which is very important, your value chain in which you look at how each of your activities contributes to a customer's willingness to pay. Those can be combined into, of course, the SWOT analysis and scenario planning. Those are just basic things. Then from there, you can move on to decide which one of the generic strategies or the competitive positioning makes sense. This is a good place to start. Begin that process. I like to think it helps demystify strategic planning but gives you an entry point.

Gregg Profozich [00:38:57] Lois, thank you for that. Larry, I know you know a lot of these tools, and you've used them with various clients. Any particular stories of how the process or a given tool shed some light or had that light bulb moment for a client you were working with?

Larry Kirsch [00:39:10] Yeah, absolutely. One of the biggest benefits is to get the management team to look beyond their company, try to not do their planning in a vacuum. They very often do that. We look at it through a wide variety of different lenses. We try to look specifically at the organization, specifically at the markets in which they're currently active as well as their competition, and then work through the analysis to identify these strategic initiatives. Companies reveal new opportunities in current markets, which is always exciting. That may come about through introducing new products or new services through their analysis. Once again, the big benefit is getting them to look outside of their organization, to look into the environment, which they often do not do. I've had clients identify entirely new markets, which tends to be a little bit more risky because it takes a bit more money and resource to go into new markets. But with careful analysis, they can determine the best road of entry and go-to-market strategy for those new markets. All kinds of different things can really pop up. They might even decide that when they do a SWOT... What I tend to do is we do a SWOT for the whole organization, and then we do many SWOTs within each functional area. They might identify certain weaknesses in their manufacturing capabilities. If they can shore those up, they'll see some tremendous efficiencies and improvements in their profitability.

Gregg Profozich [00:40:35] Excellent, excellent. Thank you for that, Larry. We're talking a little bit about some of the tools. It brings us naturally to the next question: if I'm a small to mid-sized manufacturer and I have not done this process before, where do I start? What are two or three concrete steps I can take? Where should I begin? Where do we go with that? Larry, I'll let you kick that off.

Larry Kirsch [00:40:54] Well, they can certainly do it internally on their own, but the president or CEO of the company has to be committed to the entire process, and he has to communicate that commitment throughout the organization. There's two elements to this overall process. The first element is obviously developing the strategic plan in and of itself. I always recommend perhaps doing the SWOT analysis with their team and then doing many SWOTs throughout the organization. That adds to the overall information they have about the organization as well as opportunities throughout the organization and outside your organization. The second major element is the implementation phase. Lois actually said this early on. We're going to have a document that's going to be created. We don't want to stick that on the shelf. It's got to be a living, working, active document. You should be using it on a daily basis and referring to it. The big part of this is implementation of the strategic plan. A lot of companies simply don't know how to do that. They don't know how to implement their plan. They don't know how to communicate. They don't know how to bring the team together. They don't know how to set goals for individuals and to hold people accountable. That's a big part of this whole process. I tell clients. I say, "Listen, we're going to go through two steps. We're going to develop the strategic plan, and then, step two, we're going to implement it. If you're not prepared to implement, don't bother with the strategic plan, because you're just wasting your time." You have to be committed to the entire process.

Gregg Profozich [00:42:23] Lois, any thoughts on the three things that a small to mid-sized manufacturer can do to get this process started?

Lois Shelton [00:42:29] Yes. First, establish where you want the company to go. In many cases smaller manufacturers or, let's say family-owned, you may feel you already know. That's fantastic, but I strongly encourage people to go ahead and write it down. Just write it down somewhere. The advantage of having it written is that it's easier to get agreement, it's easier to stick to it because so often success includes not only what you say yes to but what you say no to. It's very easy to communicate. It doesn't have to be hugely complex, but begin to just write down what the company is about, who your customers are you're serving, what your products are, and why people come to you instead of somewhere else. Then your next thought is to how can we enhance that? What factors, what trends are going on externally in the world locally, globally? What forces are involved that are encouraging us to do this, and what forces can be inhibited? Then you can start to think about how do we counteract that. This is just building off the SWOT analysis that Larry was talking about. Okay, what do we have? What resources do we have, and then what capabilities and what things can we do to maximize our opportunities and to minimize the threats? That quite often leads to one of the generic strategies that Daniel mentioned. Setting those goals, looking at the external environment, then looking internally, and then reevaluating those choices.

Gregg Profozich [00:44:15] Okay. Daniel, any thoughts?

Daniel Degravel [00:44:17] Yeah. I make the assumption that owners are not convinced that strategy brings benefits for the organization. I have three steps. The two first are about preparation for the mindset of these people, to make sure that they are willing to do it, and they see the benefits. My first thing would be to reflect on what the company is doing well and what are the issues that are keeping the owners up at night. What are the beliefs about strategy? Do you believe that strategy can help you—yes or no? If you think it's not, then think again, because, again, we are sure of that. The second step would be just inquire and communicate. Try to discuss the strategic situation with someone you trust. Just add exchange about how well things are going. What could I gain from having a strategy process done in my organization? Talk with an expert, someone who knows what strategy is. There are different types of support that exists there. Then the third thing is really digging into the process itself like my two colleagues did, asking questions that are related to strategy. But I would ask the people to be ready first, to think about it, to inquire and communicate, and then go through the actual process.

Gregg Profozich [00:45:42] Let's talk a little about implementation. How would a small to mid-sized manufacturer go about implementing a strategic plan, maybe for the first time? Larry, let's start with you.

Larry Kirsch [00:45:51] Whenever I'm working with a client, I will put in place a process depending on how quickly they want to implement the strategic plan, because we have to be realistic whether they can do it very quickly or whether it will take a little bit longer depending on the number of people they have and the resources they have. If they're going to be doing it quickly, then we may schedule a team meeting every week. What that means is the key managers of every department will meet on a weekly basis. We'll pull together a spreadsheet identifying what the strategic initiatives are. We'll have each manager who's assigned to that particular strategic initiative, they will be held accountable to detail the steps. We tried to break down those initiatives so that people can actually bite off, and chew it up, and actually get things done.

Lois Shelton [00:46:38] Yes. One of the key things is to make sure you have a process that includes everyone. I know strategic plans start from the top down, but there also needs to be a bottom-up element, as well. The first thing might be to have a meeting of everybody, saying, "We are in the process of going forward with developing some new strategic initiatives for our business. We want everyone involved. We would like everyone's input." Then start to break off into smaller groups in terms of getting input, not only from your outside stakeholders but your inside stakeholders—your employees, your managers, or your supervisors. One process I've seen done is that they actually start with a strategic intake questionnaire, mainly first among top managers, and then they establish some broad initiatives. Then the next part of the process was almost like committee retreat types of things in which they had persons in smaller groups at various levels start to look at these initiatives, add on what they thought, give them a safe space to make comments in terms of how they felt these initiatives should be implemented, what possible roadblocks there might be in terms of the implementation, and, again, have an iterative process where those comments go back to top management, they're considered, and then they flow again back to managers and employees at all levels. Another key part I think is important in the implementation is to actually tie rewards, and compensation, and promotion to the accomplishment of various parts of the strategic plan that a particular team member or particular employee has control over. That, I think, is very important. In addition to continually communicating the process, I think it's important to have the process widely communicated, widely participatory, and give people incentives to continue to move forward with it.

Daniel Degravel [00:48:52] I would add that in terms of content, implementation means, at the end of the day, a breakdown of a large project or a large strategy change into smaller parts until they're doable - until they are at the size which is feasible. For each of these elementary tasks, you have a combination of action, deadline, resources, and the responsible group or person who is responsible to the achievement. Create incentives for the people to participate, to distribute it so it becomes the DNA of the organization. After a while, a couple of years, people know by heart the strategic plan, even employees, because they have been exposed to it over and over again. Commitment and buy-in is so important. It's really, really critical for the acceptance and approval of the plan in moving forward.

Gregg Profozich [00:49:47] Let's talk about how we measure progress. Daniel, I think you mentioned this a little bit with the action plans layout that you were talking about. How do you measure progress, and what levels do you measure progress of a strategic plan in your strategic management process?

Daniel Degravel [00:49:59] Well, normally within a good strategy plan you have indicators of progress or achievement of goals that are embedded into the process. They can be very numerous—a lot of them—or few of them. The pros and cons of each solution—convenience, relevance—versus the number of measures. You have a trade-off between these two elements. These KPI, key performance indicators, are measures, metrics, indicators that decision-makers are establishing as measure assessment of the progress they are making on their strategy point. You may have a KPI that are specific to a strategic action and KPI in general that are for running the organization as a company in general. These indicators also help you to measure the gap between what you want, and what is real, and the actual value. It's a tool for filling the gap that gives you impetus for a new momentum, for a new action of correction, if necessary. You may have, for example, sales, HR, manufacturing; of course, productivity, innovation, efficiency, waste. All these things can be measured. Just choose those who are relevant for what you are looking for.

Gregg Profozich [00:51:29] Got it. Good advice. Lois, anything to add?

Lois Shelton [00:51:31] The only thing I would add is the importance of revisiting your goals periodically. Again, it's not like you set the goal, and then one year later you look at it. It's just throughout the year, throughout several months, throughout the quarter revisit the goals, and get an assessment at all the different levels, from the chairman down to the lowest level intern. How are you progressing towards your contribution towards the organization achieving the goals? Also, that gives you a feel for is there a roadblock to achieving the goal? Is the roadblock within our control? Is it outside of our control? Is it something big happened in the industry like a COVID-19 pandemic, or is it something we need to reorganize our factory floor? By being iterative and looking at the goals throughout the strategic planning period, you prevent a situation where you get to the end of the period where there's a big failure. Instead, you have an opportunity to readjust, pivot, reiterate throughout the period, which increases the likelihood of success and also increases the buy-in that individuals at all levels of the company will have with the strategic process.

Gregg Profozich [00:52:54] Got it. Okay. Larry, anything? I'll let you wrap this one up as our last question.

Larry Kirsch [00:52:55] Yeah. I agree with what Daniel and Lois both said. Key point with regard to constantly reviewing, and updating, and adjusting. That takes place typically when they have a good process of implementation, where they're meeting on a weekly or biweekly basis. That's typically what should happen. KPIs—they have to have a system of looking at that information. They have to have a dashboard of some sort, or some process, or some delivery vehicle, where they can actually on a daily or weekly basis look at these numbers to see how they're doing. Now, a lot of companies do not have ERP systems, enterprise systems, for tracking how operations is going or how those things are taking place. They end up having to do old-school. That's fine, but they really do need to keep track of the numbers and the metrics and have a way to get that information on a routine basis so they can actually see how they're doing. That's critical, as well.

Gregg Profozich [00:53:50] Part of keeping the plan not on the shelf and keeping it a living document is reviewing it and looking at the KPIs, and reviewing them, and taking action on them as they change. Okay. I'm going to try to do a quick summary here, and then we can wrap up from there. We've been talking about strategic planning and budgeting. A strategic plan really is not a document so much as it's a road map. It's a function and a process that you go through to put together a road map for your business of where you're going in the next three, five, seven years, whatever the relevant timeframe is. The process of developing that plan is important, but the learning and the alignment are also very valuable, the learning and alignment that happens across the organization in that process. 

We talked a little bit about strategic planning tools from your mission, and vision statements, and goals, and objectives. We mentioned SWOT analysis, and product and service descriptions, and differentiation, and market analysis, management and organizational structure, and the finance elements of it, many different aspects of it. If you look on the internet and search for strategic planning tools, you can find lots of them and processes to follow. 

We spoke, also, a little bit about a strategic management process, and to really think about this as a business leader, as a senior executive in a company, the idea of the next generation of strategy is strategic management. The goal of how you connect your business on an ongoing basis with the environment that you serve. Providing you a vision and a road map to get to that vision. 

We talked about the fact that it's an opportunity to do a reality check. It's easy to get the tunnel vision on of making payroll every week, and things are going the way they are, but if you're not paying attention to the external and doing those external analyses on a periodic basis, the world can change around you. It's important to look outside and to look inside to verify that your organization is really aligned to both of those realities and that you've got your resources allocated appropriately. 

We talked about the fact that it should be a living document. It's not something that you publish and put on the shelf. It's something that's open on your desktop every day or every week as you're looking at it, and reviewing it, and thinking about is this still relevant, is this still true. Has the world pivoted around me, and I'm going to miss it? Is the world changing and pivoting? Everything flows for a company from the strategic plan. The budget is one of those things. So, that rationalization and that balancing of budget and allocated funding against the things that are strategic. Five years from now we want to be here, or we want to be there. How do we get there? What are the steps we have to take? Can we fund those steps this year? If we can't fund them this year, then we're not going to be there in five years unless we can do something different next year. Those kinds of trade-offs are the strategic conversation that the organization is having through this process. Short-term goals, long-term goals, and then short-term realities of resources—financial, staff, capacity, skill levels, et cetera. All those things come into play through this process. 

We talked a little bit about the three levels of a strategy—a corporate level, a business unit level, and a functional level. There's a strategy for the overall company, and then there's a strategy for each of the business units within. There may only be one, so those two may be the same thing. Then the functional. Department by department, what are the strategies there, and how do they align? How are individual contributors in every part of the organization going to be part of this? 

We talked about that whole involvement thing, getting everybody involved in the process. It doesn't mean all work stops in the organization. It means that a couple representatives from each department have a voice and speak for that department, and make sure the information that is known there is known into the strategic planning process. We talked about where to start and the importance of commitment to the process. It is a process. It's not a one-and-done. It's a process, and it's an ongoing process. Different elements in it using the different tools. The planning itself and publishing the document, drafting the document, working through all the trade-offs to get to the point where you say, "Okay, we've got it identified. We've made all the decisions. We've made all the trade-offs. Here's the plan." Then step two is the implementation. Now, how do you roll it out across the organization, and how do you get the organizational buy-in? 

We talked about that implementation being about process. Put a process in place; communicate broadly; involve everybody in the formulation of that document, and then involve them in the implementation of that document. Set up a meeting cadence with key contributors. Give assignments between those meetings. Maybe one of those assignments is to communicate what's going on to the rest of the department. If one person from production comes, then that person's job is to communicate to everybody when they get back as one of their assignments. Include everybody, and tie rewards to accomplishments where possible. If a given objective that's part of a strategic plan at the corporate level or down at the functional level is achieved, there should be some kind of reward for that that celebrates that success and builds that participation, commitment, and organizational acceptance. 

Then we talked a little bit, lastly, about really measuring progress and setting the appropriate KPIs, the key performance indicators, that would allow us to look at the process, to review current status, and to take action when appropriate. That process of reviewing those KPIs periodically is also important. Those are the things I captured. With that, Daniel, Larry, and Lois, it was great to have you here today. Thank you so much for joining me and for sharing your perspectives, your insights, and your expertise with me and with our listeners.

Daniel Degravel [00:59:06] It was a pleasure. Thank you so much for inviting us.

Lois Shelton [00:59:09] Thank you for having me. I really, really appreciated it and enjoyed it.

Larry Kirsch [00:59:12] Likewise. Thank you. Thank you, Gregg.

Gregg Profozich [00:59:13] To our listeners, thank you for joining me for this conversation with Dr. Daniel Degravel, Larry Kirsch, and Dr. Lois Shelton in discussing strategic planning and budgeting. Thank you so much for your time. Have a great day. Stay safe and healthy. Thank you for listening to Shifting Gears, a podcast from CMTC. If you enjoyed this episode, please share it with others and post it on your social media platforms. You can subscribe to our podcasts on Apple Podcasts, Spotify, or your preferred podcast directory. For more information on our topic, please visit

CMTC is a private nonprofit organization that provides technical assistance, workforce development, and consulting services to small- and medium-sized manufacturers throughout the state of California. CMTC's mission is to serve as a trusted advisor, providing solutions that increase the productivity and competitiveness of California's manufacturers. CMTC operates under a cooperative agreement for the state of California with the Hollings Manufacturing Extension Partnership Program (MEP) at the National Institutes of Standards and Technology within the Department of Commerce. For more information about CMTC please visit For more information about the MEP National Network, or to find your local MEP center visit


Guide to Strategic Planning for SMMs

Topics: Business Growth Strategy & Strategic Planning

Tell Us What You Think