Corporate Planning

Updated on March 21, 2024
Article byAnkush Jain
Edited byAnkush Jain
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Corporate Planning?

Corporate planning is setting long-term objectives and goals within the organization’s scope to enable an environment conducive to growth in terms of revenue and profit margins. It includes defining strategies, decision-making, and allocating resources. The corporate planning strategy aids the whole team to work in one direction- the organization’s goals.

Corporate Planning

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A corporate planning cycle is a dynamic and continuous process throughout the organization’s life. Through planning on a corporate level, hurdles that might hinder the growth towards the pre-determined goals come to light, and the management can provide solutions to solve them. Moreover, it allows the company to manage its resources more efficiently.

Key Takeaways

  • Corporate planning is the process through which companies draw a map of their plan of action that enables their growth in quantifiable terms.
  • It is typically carried out through the top-level management of the company. It is a medium-term goal that acts as the basis for macro-level planning, called strategic planning.
  • To create a foolproof corporate plan, the organization must collect sufficient data about their company and gain insights into their competitor’s business model.
  • It is a continuous process that helps the organization grow continuously through constant technological developments.

Corporate Planning Process Explained

Corporate planning is the process through which the organizations’ goals are set with a clearly defined plan to achieve them. Then, it allows them to find opportunities and methods that facilitate the efficiency of the whole process.

The planning process’s effectiveness depends on the data of the company’s strategies, the strengths, weaknesses, and tactics of competitors, and the industry’s growth forecast. However, a wiser way to begin the planning process is by identifying customer needs and finding a solution to meet those needs.

Once the solutions for customer needs are drawn, the company can set quantitative targets such as a certain amount of increase in revenue, gross margin percentages, and productivity. Setting goals that can be quantified is vital; otherwise, growth cannot be calculated in an absolute manner.

Since the area of development and means to measure the improvement are drawn at this point, the company has to design action plans to reach the determined goals. This part of the process is particular and guides the team with the workflow that will help the company achieve its goals and objectives.

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Elements

As a corporate planning manager, it is essential to look at the developmental aspects of the company from an outsider.- say, a competitor or customer. This helps in drawing a plan that considers a lot more data points. A successful corporate plan has the six elements mentioned below:

#1 – Information

The first step towards creating a foolproof corporate plan is collecting information, regardless of whether the data paints a good or bad picture of the company’s current status. Moreover, similar information about competitors gives an even better view of the areas that can be improved to gain a more significant market share.

#2 – Objectives & Strategies

Objectives refer to the overall outcome of the plan. On the other hand, strategies are specific steps taken to reach organizational goals. For example, objectives could be an increase in sales by 25% or responding to customer support issues within 2 hours. Making a product the market leader by the end of the financial year through influencer and social media marketing could be an example of a strategy.

#3 – Devising a Plan of Action

Once the objectives and goals are devised, the company must articulate a step-by-step plan that helps its employees gain significant insights into the plan’s intricacies. This part of the process could be fulfilled by employee training, a new approach to production, or a change in marketing strategy.

#4 – Implementation

The action is taken toward the objectives and goals of the pillars of the organization’s growth story. Irrespective of how well-planned a strategy is, it will deliver average results unless implemented or executed to perfection. The implementation comes in different forms depending on the specifics of the plan.

#5 – Monitoring

Once the implementation process is underway, the corporate planning manager monitors the progress or decline in following the procedure. Since the plan is not a one-time action, it must be supervised and monitored regularly.

#6 – Evaluation

After a certain period, the manager can check for differences after implementing the corporate planning strategy. The check will provide the management insights into the progress, decline, or stagnancy toward organizational goals.

Types

Since each organization is bound to have different plans based on its organizational framework, management style, and product, naturally, they might want to implement a plan that fits their work style better rather than opting for a generic method. Therefore, let us discuss different types of corporate planning through the points below:

#1 – Tactical Planning

A tactical plan is usually implemented after a strategic plan has been set in motion. A tactical plan is a short-term goal to address immediate goals, which over time, contribute to the bigger plan. Typically, a short-term goal helps tackle hindrances that prevent the company from achieving its medium or long-term goals.

#2 – Contingency Planning

A contingency plan is when a company develops strategies that help them tackle an event from stopping its operations. This strategy is carried out in an adverse scenario, such as a natural calamity or pandemic. However, a contingency plan can also be initiated for positive events, such as a high inflow of unexpected client funds.

#3 – Operational Planning

Operational planning is a form of action where the daily tasks of each employee and manager are specified and monitored. It is usually planned for a period beyond one year. However, to reach short-term objectives that aid the enormous growth of the business, operation planning is a wise choice as it optimally allocates financial, physical, and human resources.

Examples

Let us understand the concept with the help of the examples below:

Example #1

Audacity Corporation manufactures microphones and is one of the market leaders in the domain. They have produced studio and live performance microphones for over half a decade. Their CEO Brendon wanted to ensure that their range of microphones for streamers and gamers were market leaders by the end of the financial year.

To ensure their product was top-selling in the market, they studied their competitors in the domain and found that most of them produced these microphones in-house, and their cost of raw materials was high.

Audacity tied up with companies in China and Taiwan to procure raw materials at lower prices and trained their employees to assemble these products more efficiently.

That year, their streaming and gaming microphones sold 20% more than any competitor.

Example #2

ExxonMobil is one of the largest oil and gas companies internationally. In their announcement about their corporate plans in 2022, they declared that they plan on increasing their investments in emission reduction solutions.

By 2027, they plan to increase investments by $17 billion in this domain to gain a competitive advantage over other layers in the market and tackle climate change and carbon emissions.

Advantages And Disadvantages

The extensive planning for the future allows businesses to tackle quite a few situations better. However, they have their set of disadvantages too. Let us discuss the advantages and disadvantages of corporate planning through the points below:

Advantages

  • Reduces Uncertainty: Running a business is filled with constant uncertainties and risks. However, an excellent corporate plan helps the company by forecasting risk value in the future, thereby reducing the risk of uncertainty.
  • Unity: A well-defined plan helps the employees to understand their roles in a better manner. In addition, since all employees are clear on their roles, there is less conflict and higher levels of unity within the organization.
  • Aids Growth: With cooperation from employees and constant development of the processes within the company’s scope, objectives, and strategies and easier to implement, a higher success rate can be expected.

Disadvantages

  • Rigidity: Following a set of rules as a part of the plan can become an inflexible environment. As a result, it can lower the morale of employees.
  • Time: From collecting data, devising a plan, implementing, monitoring, and evaluating, it can take quite some time before the company begins to see results.
  • Ambiguity: Since most of the planning is based on the prediction of the future, it cannot be foolproof as situations opposite to the plan can occur, and businesses can be caught off-guard.

Difference Between Corporate Planning And Strategic Planning

Let us understand the difference between corporate planning and strategic planning through the table below:

BasisCorporate PlanningStrategic planning
TimeShort to medium-term plans.Long-term plans.
ObjectiveA corporate plan sets limits or actions within the organization.Strategic planning devices a plan for the overall direction of the company.
Responding FactorA corporate plan responds to the market segment in which the organization is placed.Strategic planning selects the market segment it wants to deal with.
InterconnectionA corporate plan is adopted to achieve the strategic objectives of the organization.A corporate plan is drafted, keeping the intentions of the strategic objectives in mind.
Scope of WorkInternal aspects of the companyInternal and external factors of the organization

Difference Between Corporate Planning And Functional Planning

Let us understand the difference between  corporate and functional planning through the points below:

Corporate Planning

  • A corporate plan devises a plan for the whole organization to achieve overall growth in revenue, profits, or a higher customer base.
  • It is typically a top-level management that curates a corporate plan.
  • It is a continuous process that is monitored and evaluated regularly.
  • A corporate plan is to cater to the short to medium-term goals of the organization.
  • This plan formulates objectives within the organization’s scope to derive better results outside the organization through factors beyond the control of the organization and its managers.

Functional Planning

  • Functional planning aims to ensure the standardization of management protocols at every level of the organization.
  • Quantifiable goals are set to measure growth, decline, or stagnancy after a given period.
  • Managers of different departments are expected to look for gaps or inefficiencies in processes and provide insights into developing them.
  • An operational plan is usually for a period slightly above a year.
  • While supervising the processes, managers must be able to explain the utilization of resources in specific areas. In addition, the top management level is usually keen on ensuring cost efficiency is kept in mind during the whole process.

Frequently Asked Questions (FAQs)

1. What is derived from corporate planning?

A corporate plan is a process that maps out a path through which companies grow in terms of profits, brand identity, and revenue. It is a tool that organizations use to ensure an upper hand over their competitors. Moreover, a corporate plan is a foundation on which a macro-level strategy is built. This macro plan is called strategic planning.

2. What is the importance of corporate planning?

It helps the organization face uncertainties in the future in a better manner as they have planned for contingencies well in advance. Moreover, a clear plan and an objective for each employee give them a sense of belonging and unity.

3. How does corporate planning relate to budgeting?

Since a corporate plan involves the organization’s overall growth, it is vital to ensure that the resources are being used efficiently and there is minimal to no wastage in the process.

4. What are the principles of corporate planning?

The very nature of planning is to ensure the whole process is forward-looking. Moreover, it is a continuous process and a big goal consisting of smaller goals for the short-term that helps the employees and their managers to quantify the growth effectively.

This has been a guide to what is Corporate Planning & its meaning. We explain its process, elements, examples, and advantages and comparison with strategic and functional planning. You can learn more about finance from the following articles –

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Comments

  1. balbir singh says

    good artcle,no confuion, adds to confidence after reading, thanks.

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