Importance of Planning in Business & How to Succeed at It

This article is an excerpt from the Shortform book guide to "The Road Less Stupid" by Keith Cunningham. Shortform has the world's best summaries and analyses of books you should be reading.

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What is the importance of planning in business? How can you create a detailed plan that will help execute your goals?

A solid plan is essential for any growing business. Keith Cunningham’s book The Road Less Stupid says that having a goal for your business isn’t good enough. You need a clear plan for how to reach that goal and track your progress.

Keep reading to learn why a business plan is important and how to develop one.

Confusing Goals With Plans

According to Cunnigham, a bad mistake that frequently tempts executives is to establish a goal or vision for improving the company but fail to establish a detailed plan for achieving it. Just thinking about a desired end state doesn’t help you get there, no matter how much you want to. To reach it, you need to identify what obstacles stand between you and your goal (you’d already be there if nothing was holding you back) and figure out exactly what you need to do to overcome those obstacles.

The importance of planning in business is that it’s actionable (unlike a goal), and it gives you a standard against which to track your progress so you’ll know when you begin to deviate from it, as you inevitably will at some point. Deviations aren’t always a bad thing—sometimes you may discover opportunities along the way that are better than your original goal. But it’s important to know when you start to deviate so you can reassess the situation and update your plans as needed.

(Shortform note: In The 33 Strategies of War, Robert Greene elaborates on the relationship between detailed, actionable plans and the ability to adapt to changing circumstances. He says successful generals would often compose detailed battle plans for a variety of possible scenarios and contingencies so that they could quickly change course if the situation warranted it. This kind of branching plan can also be useful in business, enabling you to adapt quickly to changing circumstances.)

How to Develop Your Plan

In Execution, Larry Bossidy and Ram Charan elaborate on the process of turning your strategic goals into actionable plans. While they acknowledge that every situation is different, and thus will require a unique plan, they recommend using the following standard workflow for creating your plan:

Step #1: Identify which departments or teams in your organization need to be involved in the plan. Determine what each team’s role in the plan needs to be, and ask team leaders to draft the portions of the plan that their teams will be responsible for.

Step #2: Hold a meeting with the team leaders to discuss assumptions they made in drafting their portions of the plan, and make sure everyone is on the same page.

Step #3: Assemble a complete plan from the individual portions that the team leaders submitted. Work out any differences, discrepancies, or conflicts between them.

Step #4: Identify contingency plans that can accommodate shifting circumstances.

Step #5: Wrap up discussion and secure commitments from everyone to ensure alignment with the plan.

Step #6: After the meeting, send a memo or otherwise follow up with the team leaders, summarizing each person’s commitments and short-term benchmarks.

Step #7: Assess progress toward those benchmarks at quarterly review meetings. Presumably, this is where you’ll also analyze any deviations from the plan and assess whether any parts of the plan need to be changed.

Using the Wrong Metrics

As you track your progress to plans, Cunningham stresses the importance of using the right metrics. People tend to focus more on tasks that get measured and reported because the results will reflect on them more strongly, and people want to look like they’re doing well at their jobs. Thus to set up your plan for successful execution, you need to select metrics that will focus people’s attention on the right things.

For example, suppose you’re running a telemarketing business. If you track how many calls your marketers make as a measure of how well they’re doing, that will incentivize them to make as many calls as possible—potentially forfeiting some sales if they cut their calls short to get in as many as possible instead of taking time to address customers’ questions and concerns. But if you track the number of sales instead, then they’ll focus on making sales, instead of just on making calls.

It’s also important to select metrics that enable you to make corrections to your plan early enough to avoid problems, instead of merely alerting you to problems that have already come up. Cunningham notes that standard business KPIs (key performance indicators) like monthly profit and loss usually measure results, and thus only alert you to problems after the fact. He advises you to find the causes of these results and a way to measure the causes, giving you leading indicators that you can use to steer your company toward the results that you want.

Measuring What Matters

In Measure What Matters, venture capitalist John Doerr describes a method for tracking progress on plans as Cunningham suggests. He calls it the OKR system, for “Objectives and Key Results.” This approach allows you (and everyone else) to easily see how the plan is progressing and where things may be deviating or falling behind. As its name implies, the OKR system involves tracking the objectives and key results of each team and individual worker in the company.

Doerr describes objectives as high-level goals, but he also says they must be tangible and action-oriented, so these could be milestones or other interim achievements stipulated by the plan that you’re executing. Doerr insists that each entity, whether individual worker, team, or department, should only have three to five objectives at once so that their focus doesn’t get spread too thin.

Key results are actions or sub-goals that support each goal and have specific deadlines. For example, if the objective is to increase the size of the workforce in support of a certain project, one of its key results might be to interview at least five people for a certain position and hire one of them by the end of the month. In the context of Cunningham’s discussion of tracking both cause and effect, you can view key results as causes and objectives as effects.

Again, to maintain focus, Doerr says there should be no more than three to five key results for each goal. He also recommends that each worker and team set most of their own key results, although it’s OK for their superiors to set their objectives. This gives superiors the tools they need to focus their staff on the right metrics associated with the objective, while also ensuring that employees have buy-in and understand what they’ll do to achieve their objectives.

Importance of Planning in Business & How to Succeed at It