Every company, big or small, should have a strategic vision or strategic plan. One of the primary goals of that strategic plan should be to: Improve, maintain, and/or accelerate the market leadership, proﬁtability, and growth trajectory of a company, thereby leading to enhanced shareholder value.
A strategic plan goes beyond geographic expansion plans and new product ideas. It also goes beyond the ﬁnancial projections for the company. Rather, a company’s strategic plan is a roadmap addressing a fundamental question: What type of company does it aspire to be and how does the company expect to achieve that goal in the next ﬁve to ten years.
A strategic plan must balance the desires to grow shareholder value, and thereby appeal to equity investors, with a complementary ﬁnancing strategy that appeals to debt investors as well. A strategic transaction is any action that helps implement a company’s strategic plan. That action can be on a small scale (such as the sale of one manufacturing plant) or a large scale (such as a corporate merger with another company). In addition to building, buying and/or selling assets, a strategic action can be related to ﬁnancing, such as the decision to implement an aggressive stock buyback program or recapitalization. The value of a strategic transaction is measured by many metrics, the most important of which is a company’s stock price.
The product of any strategic planning exercise is usually a “base case” ﬁnancial forecast for the next ﬁve to ten years. The base case forecast should incorporate the most likely operating and ﬁnancial strategy. Alternative scenarios as well as upside and downside cases are usually prepared as sensitivities to the base case. The strategic plan is usually updated once a year after a company wide effort to capture the most likely operating and ﬁnancial scenario. Throughout the year, the base case strategic plan and ﬁnancial forecast are used as planning tools.