You might be trying to do too much with your strategic planning process. Are you smooshing operational and strategic planning into one undifferentiated, overwhelming, let’s-do-a-bunch-of-good-stuff-to-get-better plan? If so, you might be shortchanging both processes.
What’s the Difference Between Operational and Strategic Planning?
Operational planning is about improving the organization’s current health; strategic planning is about futureproofing it.
The Purpose of Operational Planning
The operational planning process should help you identify the highest-value opportunities to make your organization run more effectively. It’s an exercise in optimizing the status quo. As a result, you’re finding ways to become more effective in your current model.
As such, operational planning should consider continuous improvement opportunities for your talent, supply chain, manufacturing, or go-to-market. Can you find efficiencies or more effective ways of doing things? How can you enhance the business’s capability, capacity, resilience, or agility? Those are great operational planning questions.
Operational planning, which optimizes your current organization, is one of the most critical management activities.
The Purpose of Strategic Planning
Strategic planning should lift your eyes to the horizon and identify the highest-value opportunities to transform the organization to succeed as the external environment changes. It’s an exercise in transforming your organization. You’re identifying ways to stay competitive—and sometimes to stay in business.
Your strategic planning process should start with big questions about why your organization exists and what trends in the outside world might affect your ability to serve that purpose. From there, you’re looking for insights about how you might need to change your trajectory to be successful. Does your product need to evolve (or even change drastically)? Do you have the right business model? Is your distribution path aligned with your market? Strategic planning is not about tweaking the status quo; it’s about asking whether you need to upend it.
Strategic planning, which future-proofs your organization, is a critical leadership activity.
Setting Strategic Versus Operational Goals
One of the most obvious ways to see a strategic planning process slipping into operational realms is when the participants start discussing the goals. There’s a noticeable difference between strategic and operational goals.
Operational goals are the targets for what you need to achieve today to have a well-functioning organization. Strategic goals put a pin in the destination you need to arrive at in the future.
How about a quiz? Which of these goals sounds like a measure of the organization’s current health (operational), and which sounds like a measure of futureproofing (strategic)?
- Improve gross margins to 35%
- Reach a net promoter score (NPS) score of 70 or greater
- Transition product mix from 10% to 40% subscription revenue
- Launch IPO by the end of 2025
- Grow revenue by 35%, compounding
What did you say?
While no hard and fast rules govern what’s an operational versus a strategic goal, the key is differentiating between what is important today versus tomorrow.
- Gross margins are an essential measure of organizational health. If you don’t get sufficient margin, you’re not going to be profitable; if you’re not, you’re going to burn through cash pretty fast. I’m putting gross margins in the organizational health category.
- Customer satisfaction is similar to gross margin; it matters in the short- to mid-term. You might be able to compete on price for a while, but a healthy organization prioritizes the customer experience. I’m saying that NPS is an organizational health goal.
- Product mix might be an operational goal, but for many organizations, it’s the measure of a fundamental shift in what they take to market. One good indication that it’s a strategic goal is that shifting your product mix might sap your resources for a while (making it a drain on current organizational health), but without the shift, you might not be around for much longer. So it’s operationally painful and strategically important.
One typical example of shifting mix as a critical measure of the futureproofing of the business is where digital services are disrupting physical products or services. Harvard Business Review is full of case studies of companies that either made or missed that transition.
- Securing access to capital to fuel growth is definitely strategic. Reaching the necessary valuation and locking down the internal processes that make you eligible for an IPO and an influx of capital is an excellent example of a strategic goal.
- I thought I’d throw in an “it depends” example for the last one. Revenue growth used to be an obvious example of a measure of organizational health. Suppose that’s where it sits for your organization; great. But in the past decade, many companies showed us they could get away with growing subscribers or users without having to make any money. In those cases, revenue growth is less significant to the organization’s current health and more critical to future-proofing (as they demonstrate whether they can transition unprofitable users into profitable paid customers).
Alternatively, reaching a certain size might be necessary to achieve a scale or market share, preventing you from being swallowed up in industry consolidation. You decide where revenue growth fits in your goals.
What Happens When You Confuse Strategic and Operational Planning?
The primary issue in blurring strategic and operational planning is that you don’t do a complete job of either. As soon as those gross margin and NPS goals go on the board, you’re into a conversation about tweaking your support function or changing pricing. It’s nearly impossible not to get into the weeds, and once you’re there, you’re not asking anything about how the world is about to disrupt you. It’s the proverbial rearranging of the deck chairs on the Titanic example.
But it’s just as problematic if you think your strategic planning process will get you the data, detail, or diligence you need to take your operations to the next level. Much of the heavy lifting of operational planning should happen within functions and departments. Unfortunately (fortunately), most executives are too far removed from the operations to do more than commission the work.
A Final Thought
Above, I differentiated between operational planning as an important management responsibility and strategic planning as a key to leadership. Then, at some point, someone decided that “manager” was a derogatory, condescending term and started calling everyone a “leader.” Like many euphemistic changes, this one muddied the waters. Perhaps that was when we began confusing operational and strategic planning. So, let’s return to separating them and doing a better job of both.