13 Strategic Planning

Niti Goyal

1. Meaning and definition

Strategic planning refers to the process of defining the strategy for the organisation and allocating its resources for the perusal of the strategy. Strategic plan is a statement of how the organisation is going to achieve its mission and objectives. A strategic plan takes into consideration the entire organizational resources and helps diverts them towards the most productive uses in the most efficient manner. Strategic planning is the process of determining a company’s long-term goals and then identifying the strategy for achieving those goals. It may also extend to control mechanisms for guiding the implementation of the strategy.

2. Features of strategic planning

A strategic plan guides the activities of the organisation. It is a course of action defined for a particular period of time. Strategic planning is of utmost importance in today‘s fast changing environment. The features of strategic planning can be stated as below:

 

• Strategic planning is an important aspect of strategic management

 

• Strategic planning provides direction to the enterprise.

 

• Formulated by top management.

 

• The plan is aimed to achieve specific goals and objectives.

 

• Ensures efficient allocation of organizational resources.

 

• The plan allocates resources for achievement of organizational goals within specified time.

 

• It guides the organisation towards its mission.

 

• The plan is based on the organization‘s internal & external environment.

 

• Strategic Plans are formulated for a period of three to five  years

 

• The purpose of the plan is to enable the organization capitalize on its strengths while minimizing its weaknesses, and to take advantage of opportunities and defend against threats.

 

3. Difference between Strategic Plans and Long Range Planning

Strategic Plans and Long Range Planning both serve important role in the continued success of an organisation There is however a marked contrast between the two. The boundaries of the strategic plan are defined by the contents of the business plan. Strategic planning aims at defining the companies‘ mission, vision and strategy. Strategic planning is done by senior executives. Strategic planning is an ongoing process, where management continuously re-appropriate resources to initiatives that need to be prioritized. Long term planning sets the process by which the strategic plan will be achieved. It coordinates departments to achieve the organizations‘ goals.

4. Strategic Planning Process

Strategic Planning is about allocating resources to achieve the mission. Strategic planning is an important tool to guide the work of any organisation. It will help maintain a focused, long term vision of the organization‘s mission and purpose, and aid decisions about the allocation of human and financial resources. Strategic planning involves an orderly sequence of activities and involves the following steps:

4.1. SWOT Analysis: As a first step, a SWOT analysis of the firm is made. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and Weaknesses are internal factors to an organisation and are firm specific. i.e. these differ from firm to firm.
Opportunities and threats are the external factors. These factors are uncontrollable and are not firm specific. These affect all the firms.

First of all the internal analysis of the firm is made by studying its strength & weaknesses. After that the threats and opportunities are evaluated. SWOT analysis tells where the organisation stands relative to the changing environment. SWOT analysis enables a firm to:

 

a. Utilize its strengths to tap the opportunities.

b. Overcome organization‘s threats.

c. Improve upon its weaknesses.

d. Identify core competencies.

e. Helps in formulating the mission, vision, goals and objectives.

SWOT analysis plays an important part in the process of strategic planning. It provides information that helps in synchronizing the firm‘s resources and capabilities with the competitive environment in which the firm operates. It provides an all-round view of the current and forward-looking situation of a business. It provides businesses a clear view of the advantages they have over competitors and their possible vulnerabilities. It is mainly used by businesses to create effective business plans/strategies and helps an organisation to know where it stands in comparison with its competitors.

Strengths are the potential capabilities of the business. These are distinct features that enable a firm to have advantage over others. This may be efficient management, financial resources, products line, services, brand loyalty etc. Strengths enable a firm to accomplish its mission. These are the basis on which continued success can be made.

Weaknesses are the limitations or drawbacks of the firm. Weaknesses restrict the organizational success and growth. Weaknesses may be in form of poor research and development activities, narrow product range, poor management, high employee turnover etc. Strengths and Weaknesses are controllable. Strength must be used to develop the core competencies and weaknesses must be minimized and eliminated.

Opportunities and threats are the external factors. These factors are uncontrollable and are not firm specific. These affect all the firms. It involves the study of demographic, political & legal, socio-cultural economic factors.

Opportunities arise when external environment turns favourable for the firm. An organization should recognize the opportunities and grasp them whenever they arise. Opportunities may arise from market, competition, industry/government and technology. Threats arise when the external environment changes adverse. Threats are uncontrollable. When a threat arises the stability and survival of a firm can be at stake. They can make an organisation vulnerable when they relate to the weaknesses. Threats may arise because of changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.

Taking a latest example of the nestle product ‘MAGGIE’. Maggie was one of the hot selling products till it was found unsuitable for eating due to very high lead content than the permissible level. The sales sky rocketed until this discovery but after that entire stocks of Maggie all over India were destroyed. Thus a change in one external factor posed a threat to Maggie at the same time, this opened up opportunities for other such manufactures. This is how change in external environment affects a business.

SWOT Analysis is an essential tool for evaluating the internal potential and limitations and the likely opportunities and threats from the external environment. It views all positive and negative factors inside and outside the firm that could affect it. The data from external and internal reviews should be drawn together to identify the key issues that the organisation needs to address to increase its overall effectiveness. Based on this strategies are formulated which will enable a firm to best align an its resources and capabilities to the requirements of the environment in which the firm operates.

4.2. Development of a mission & vision statement: SWOT analysis tells where the organisation stands relative to the changing environment. SWOT analysis provides a direction to the managers to develop the mission and the vision statement. Mission and vision are the summary of the organizations‘ goals and objectives. Mission is the ultimate objective why the organisation exists. Every organisation has a unique mission which differentiates an organisation from others. Mission statement explains the broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. Mission statements always exist at top level of an organization. For e.g. Google’s mission statement is “to organize the world’s information and make it universally accessible and useful.”

Mission must be clear and achievable. It should be inspiring for the management, staff and society at large.

Vision answers the question ―where we want to be‖ in future or what will the future look like as we fulfill our mission. Mission is about today but vision is about future. The more clear and compelling your vision, the more powerful and imaginative the strategy will be. e.g. Google‘s vision statement is ―to provide access to the world’s information in one click.‖ The company‘s nature of business is a direct manifestation of this vision statement. A vision statement is for the organization and it‘s members, and the mission statement which is for the customers/clients.

Vision contributes in effective decision making as well as effective business planning. It describes that on achieving the mission, how the organizational future would appear to be. An effective vision statement must be unambiguous & realistic. It must harmonize with organization‘s culture and values. The success of a firm is directly connected to the efforts of the company to fulfill its vision.

4.3. Setting Goals and Objectives: As already mentioned, Mission and vision statements are the summary of the organizations‘ goals and objectives These are the foundation of planning. This step may be the most important of all of the strategic planning steps because it establishes the framework and basis for the development of the other key elements of the plan. Goals and Objectives, both terms imply the target to be achieved. Goals are defined as the general purpose toward which an endeavour is directed Objectives are specific targets within the general goal to be achieved within a specific time frame. Objectives are more specific in nature and are supportive of the goal. They bring into even greater focus the goals of the organization.

Policies are developed for the achievement of objectives. Formulation of objectives is the task of top level management. Objectives must be flexible enough so that necessary changes could be incorporated to respond to the changes in environment.

4.4. Development of strategies: Strategy is an plan of action formulated to attain the organizational objectives. Strategies define how the goals and objectives will be achieved. It involves decisions about the efficient utilization and allocation of the organizational resources so as to meet the organizational objectives. Strategy is a well defined roadmap of an organization. Strategy bridges the gap between ―”where we are‖ and ―where we want to be”.
Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or new products, new methods of productions, or new markets to be developed in future.

4.5. Implementing the strategic plan: Implementation shifts the organizational focus from developing the strategic plan to acting upon it. This occurs not only at the upper leadership and management levels of the organization, but also within each unit of the organization. The progress of the strategic plan is regularly monitored. The day-to-day activities are carried according to the plans. Implementation may require greater specificity in the objectives, a detailed description of the steps that must be taken in each unit in order to reach the organization’s long-term goals.

Implementing your strategic plan is as important, or even more important, than developing strategy. Most of the times, entire efforts are utilized on developing the strategy and implementation is not bothered much. Even the best developed strategy cannot work if not implemented properly. Both planning and implementation are equally important. The strategic plan answers the which and why of activities, but implementation addresses the who, where, when, and how. A properly implemented strategy helps in attaining competitive advantage. A poorly implemented strategy makes the entire planning exercise unfruitful. Some of the most common reasons of faulty implementation of strategic plans are:

  • Lack of participation in planning: One of the most important reasons for faulty implementation is the implementation by those who were not a part of planning. Strategic formulation should involve all employees in some way or the other, this will encourage them in implementation as well.
  • Lack of communication: implementation fails due to lack of communication. There should be proper communication of plans to the employees. They should be made to understand the plans along with proper feedback.
  • Work overload: Owners and managers remain occupied in daily operating problems and long term goals get ignored.
  • Massive plans: Sometimes too many goals are established and less important plans are implemented in the beginning. It hinders the achievement of goals. The goals and actions to be achieved should be prioritized so that the employees get to know where to begin from.
  • A meaningless plan: Unrealistic and exaggerated plans can never be achieved. As already discussed, it is essential that the mission, vision, strategies should be realistic and attainable.
  • No progress report: After implementation sometimes, progress is not monitored which hinders the achievement of objectives. Progress of the plan should be kept under constant watch. If they are not working well, necessary changes must be incorporated as per the changes in environment demands.
  • No accountability: Employees do not bother about the progress of plans if they are not held answerable. So, accountability for implementation and progress should always be established.
  • Lack of authority: An employee cannot perform if he is not having proper authority. Accountability, Authority & Responsibility should go hand in hand to ensure proper implementation.

4.6. Evaluating Progress and Revising Plans: After implementation, strategy should be regularly monitored, evaluated and revised according to the changing needs. If continuous evaluation and revision is made, major changes need not be required to be made following implementation. Additionally, the environment is not static during the development & implementation of a strategic plan. Revisions may be necessitated if the events donot happen as anticipated. As a process and as a method of management, therefore, strategic planning requires flexibility—the ability to adapt and revise as conditions change.

5. Benefits of Strategic Planning

From the above discussion, we can summarize the benefits of strategic planning as follows:

1. Improves the decision-making : Strategic Planning makes the management of an organization easier by providing a framework for decision-making and action. It helps to identify and address the key issues.

2. Uniform vision & clarity of objectives: Strategic Planning establishes a uniform vision and thus directs all the efforts in the same direction. The employees clearly get to know what is required to be done, it creates clarity of objectives and thus create an increased level of commitment to the organization and its goals. It also serve as a motivating factor for the employees.

3. Judicious use of resources: Strategic Planning enables the optimum utilization of the organizations‘ resources. It helps firm to utilize its strengths to tap the opportunities and thus perform to the best of its capabilities. It sets the priorities and directs the resources towards their efficient utilization.

4. Reduces uncertainty: Strategic Planning reduces uncertainty by analysing the environment and thus increases the ability to deal with risks posed by the external environment.

6. Limitations of Strategic Planning

Although there are many advantages to strategic management, such as reducing the resistance to change and promoting collaboration, there are also disadvantages. The strategic management suffers from the following limitations:

  • Complex Process: Strategic management is a complex process since it involves continuous monitoring of the external and internal environments . Based on the changing environmental conditions the objectives and plans need to be revised. All components are interrelated, so a change in one component may affect others areas. For example, due to fall in demand of a particular product produced by the company because of some incident compels the revision its production plan.

  • Too much paperwork, not enough clear thinking : Another limitation in planning is that too much emphasis is given to paper work rather than the thought process. Much of the time gets wastes in complying with such formalities.

  • No commitment from the top level: Success of plans depends on the commitment of the top level. If the top management does not take much interest in planning and implementation, plans could never become a success.

  • Time Consuming: Strategic planning is time consuming process. A lot of time of managers gets consumed in preparing, researching and communicating the strategic plans which may hinder the day-to-day operations and negatively impact the business.

  • Difficulty in Implementation: Implementation of strategic plans is a challenging task. It requires full attention, active participation, and accountability of all members of the organization. A small loophole in its implementation may make it ineffectiven.

  •  Insufficient emphasis on identifying key issues, opportunities and threats: The base of strategic planning is identifying the key issues that need to be stressed upon. If key issues could not be identified the whole activity remains unfruitful.

 

7. Uncertain future: Strategic Plans are formulated to achieve some objectives in the future. Anticipating future is difficult process. SWOT analysis provides the base for formulating plans. But future is uncertain. A simple happening could change the entire scenario.

 

 

7. Summary

Strategic Planning is about allocating resources to achieve the mission. Strategic planning set priorities, focus energy and resources and strengthen the operations. It provides direction to the enterprise. For strategic planning, SWOT analysis is done. The analysis of the internal and the external environment provides a base for the development of the mission and vision statements. After that Goals and objectives are defined clearly and the plan of action is formulated. This plan of action is then implemented and continuously monitored and reviewed. Effective planning requires commitment from the top level. The greater the interest and commitment of the top management, the more fruitful planning becomes.

 

References
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