Learn the five steps of the strategy planning process from mission definition and business hypothesis to strategy mapping and cascading.
We often hear business professionals talking about vision, mission, strategy maps, SWOT analysis, risk management, or using strategy execution frameworks like Balanced Scorecard. All these business tools help to understand a company’s challenges better and formulate its strategy. In this article, we will discuss the 5 steps of strategic planning process. These steps are:
- Step 1. Mission Definition
- Step 2. Formulating Strategy
- Step 3. Strategy Description
- Step 4. Strategy Cascading
- Step 5. Strategy Execution
- Infographic. Strategic Planning – 5 Steps
Step 1. Define your Mission, Vision, and Values
The strategy game starts with a clearly defined mission (the purpose of the company) and vision (a picture of the perfect future of the company) statements; or at least that is what executives are told in MBA schools.
In the real business environment:
- Companies tend to use vague mission statements that literally tell that the company exists and does what it does.
- Companies often have boring vision statements, while a good vision statement needs to inspire.
In many organizations, there is no agreement about what mission, vision, values, strategic priorities are. I would recommend checking out my previous article, where I shared our approach to this question.
On the strategic planning diagram, we put Mission, Vision, and Values on the top, implying that these statements contain key ideas about the company (its DNA). In the worst case these will be some vague statements that don’t help; in the best case these statements will be inspiring employees and partners like Job’s statements did.
Mission Statement in BSC Designer
Follow these steps to specify a mission statement in BSC Designer Software:
- Open any scorecard
- Go to the KPIs tab
- Select root element
- Use the Mission field
The mission statement will be automatically shown on the top of the strategy map.
Step 2. Formulating Business Hypothesis and Strategy
As explained by authors of “Strategy Safari,”  there are at least 10 different schools of strategy that explain different approaches to the strategy and the ways to formulate it. You can be a follower of a certain strategy school, but there are some key components that exist in any good strategy.
According to Richard Rumelt (“Good Strategy. Bad Strategy” ), a good strategy includes these 3 components (called “kernel” by the author):
- A diagnosis (a hypothesis about the reason of the challenge that the company face),
- A guiding policy (a hypothesis about the solution to the challenge), and
- Coherent action (a hypothesis about what might help, e.g., a company’s response to the challenge)
Under the umbrella of “strategy formulation,” we can group various business tools that play some role in formulating an hypothesis about what might work:
- SWOT analysis for reviewing company’s options from the positions of strength, weakness, opportunities, and threats.
- PESTEL analysis for an analysis of the external environment.
- Risk Management – for formulating risk assessment and risk control plans.
- Strategy gap analysis to compare current strategy against best practices.
It is also useful to define:
- Constrains – limits applied by resources, technology, skills, etc.
- Customer needs to define later Customer Value Proposition.
Is this the full list? For sure, no. Executive’s toolkit include some more popular tools.
Strategy Commentary Document
In the next step, we will need to convert these hypotheses into the form of the strategy map with specific objectives that will be linked with each other by cause-and-effect connections. A strategy map cannot include all of the supporting ideas (unless you are using automation software), so you might want to include these ideas into supporting documentation, Strategy Commentary. This might be a 2-3 page document that explains the logic that was followed to formulate the current strategy.
If you already have a strategy map and Balanced Scorecard in your company, then have a look at “6 ways successful leaders reinvent their Balanced Scorecard”  by Jeroen De Flander.
Strategy Commentary in BSC Designer
If you prefer to keep your strategic rationale together with your scorecard, then you can use one of these tools provided by BSC Designer:
- Use the description field for the goals and KPIs to keep short comments; create a new initiative and describe the necessary details there
- Use the visibility setting for the initiative if you don’t want to see it on the strategy map
- Link additional documents to the initiative if needed
- Specify budget involved (if any)
- Specify timeline (if any)
Step 3. Strategy Description on Strategy Map
In this step one formulates business objectives on the strategy map. It’s important to catch the cause-and-effect connections between them. As it was discussed before in “Strategy Maps: A Guide for Getting Started,”  the cause-and-effect logic is not always shown as an arrow; sometimes, it is just mentioned in the strategy commentary document.
One of the most popular strategy execution frameworks is the Balanced Scorecard; this approach suggests focusing on 4 perspectives:
- Financial Perspective
- Customers Perspective
- Internal Business Processes Perspective
- Learning & Growth Perspective
It’s important that any objective on the map have:
- An owner (s) responsible for it
- Strategic initiative that provides a proper action plan to achieve the objective, and
- Metrics (often called KPIs) that tell that the company is on the right track.
Leading and Lagging Metrics
An ideal situation is when there is at least one leading and one lagging metric associated with each objective. Here, we explained the difference.
Needless to say that to use the benefits of the performance measurement, one needs to specify respective targets, thresholds, and benchmarks.
Metrics cannot be just copied from the list of popular KPIs. A good metric needs to be formulated during the discussion around the strategy; it needs to be aligned with business objectives and needs to pass validation (confirm that this metric is measurable, realistic, and aligned with business goal). Use this KPI Template to get started with your new metrics. More ideas about metrics and their validation were discussed in “KPI System.” 
A side product of the strategy description is that it is possible to give a rough estimation of the strategy budget – a cost of the future strategy execution. I’m putting it on the diagram, but I don’t want to include it as a separate step, as a strategy exercise should not be reduced to the budgeting.
Strategy Mapping in BSC Designer
BSC Designer has out-of-the-box strategy mapping functionality. The perspectives, goals, KPIs, and initiatives that users have on the KPIs tab are automatically converted into the beautiful strategy maps. Here is what a typical strategy map includes:
- Mission statement on the top
- Four perspectives (or more)
- Business goals with aligned KPIs
- Cause-and-effect connections between goals
- Lagging (gray color) and leading metrics (green color)
- Initiatives (clipboard icon) with budget and timeline
Have a look other strategy map templates created with BSC Designer Online.
Step 4. Strategy Cascading (Alignment)
In simple words, a strategy alignment (cascading) is a discussion around business goals that helps participants to understand how desired business outcomes can be achieved on a certain business level (alignment of business objectives, initiatives, and action plans), and how the success/failure can be measured (alignment of respective measures).
Strategy is not for the top management (Tier 1) only. The idea is that everyone in the company, including business units (Tier 2) and employees (Tier 3), are aware of the strategy and understand how their job is linked to the ultimate goal (achieving company’s vision).
On the diagram, Strategy Alignment is a separate section, but it should not be treated as a separate step of the strategy process.
The alignment process doesn’t need to be top to down, actually, in the best case, it is bi-directional.
This means that department managers are involved in strategy discussion in the early stages. The resultant strategy will reflect various perspectives, and will be much more realistic. One of the best realizations of this idea is the Catchball process from Hoshin Kanri method.
Cascading in BSC Designer
In BSC Designer, you can create separate scorecards for each business unit and connect them in the way you need. Using this approach, you can build not only hierarchical links, but link goals in more agile, OKR-style. Follow these steps to cascade scorecards in BSC Designer:
- Open destination scorecard
- Select Add… > New imported item
- Pick the source scorecard and the source goal/indicator
- Click OK to finish. The new indicator and its data will appear on your scorecard and strategy map.
Step 5. Strategy Execution
Once a strategy is formulated and cascaded, we can start the strategy execution. Having a well-defined and described strategy in front of your eyes will be your company’s GPS.
- Strategy map will help to focus the company’s resources on the important objectives
- Leading and lagging metrics will help managers to track the execution process
- Aligned/cascaded objectives will make strategy everyone’s job
Strategy Execution with BSC Designer
- Automate strategy maps
- Keep track of KPIs
- Facilitate reporting
- Keep the team informed via Alerts
- Analyze performance data
- Build BI dashboards
- Control access rights to the scorecards and KPIs
Does the use of strategy execution make sense? For sure, one might survive using old-school tools like MS PowerPoint or MS Excel to catch important ideas about a company’s strategy. Actually, Excel is a great tool to build a prototype of a strategy scorecard.
When the strategy discussion is done:
- Regularly and
- Involves many persons,
A professional strategy execution software will be a good investment.
Infographic: 5 Steps of Strategy Planning
How do you feel about the strategy definition and execution? Do you agree with the steps? Would you add something to the diagram? Please share your point of view.
- ^ Strategy Safari: A Guided Tour Through The Wilds of Strategic Management, Henry Mintzberg, Joseph Lampel, Bruce Ahlstrand, Free Press, 2005
- ^ Richard Rumelt “Good Strategy. Bad Strategy. The difference and Why it Matters”, 2012, Profile Books LTD
- ^ “Balanced Scorecard Guide, Jeroen De Flander, 2014, http://jeroen-de-flander.com/balanced-scorecard/
- ^ Strategy Maps: A Guide for Getting Started, Aleksey Savkin, 2014, https://bscdesigner.com/strategy-maps-guide.htm
- ^ 12 Steps System for the Most Challenging Metrics and KPIs, Aleksey Savkin, 2014, https://bscdesigner.com/kpi-system.htm