By Dada Adefolami
Strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategic planning became prominent in corporations during the 1960s and remains an important aspect of strategic management.
There is general agreement among strategic planning researchers that the strategic planning process consists of three major components:
1. formulation including setting objectives and assessing the external and internal environments
2. evaluation and the selection of strategic alternatives
3. implementation and control.
These three processes are thoroughly explored in Business Analysis. The aims are to develop skills and judgment in assessing an organization’s strategic position, in developing strategic choices, and in the implementation of selected strategies in practice through strategic action. This explores how these processes are conducted as part of strategic planning, and the benefits and costs associated with strategic planning.
Strategic planning is important to an organization because it provides a sense of direction and outlines measurable goals. Strategic planning is a tool that is useful for guiding day-to-day decisions and also for evaluating progress and changing approaches when moving forward.
Organizations face different internal and external contexts. Not does this imply the development of unique strategies as the outcome of the strategic planning process, it also results in a variation in the ways in which organizations carry out the planning process. This examines how the strategic planning process is modified to become consistent with the organization’s external and internal environment.
STRATEGIC PLANNING PROCESS
How to guide an Organization Strategic Plan
1. Contemplate your organization’s vision.
2. Write a mission statement
3. Evaluate your organization’s current standing.
4. List factors necessary to success.
5. Develop a strategy for accomplishing each success factor.
Strategic planning is a commonly used management process, employed by organizations in both the private and public sector to determine the allocation of resources in order to develop their financial and strategic performance. Over the past years, the survey of the management techniques used by US and European companies finds that about 80% of the companies surveyed use strategic planning, and that the overall level of satisfaction with the technique averages four on a five-point scale. This is a higher rating than that achieved by many other techniques.
The development of strategic intelligence relating to the organization’s environment and the resources that are available. Ideally this process should be ongoing throughout the year, developing from the range of information and experience available to the organization and its managers. The process can be aided by specific activities such as situation analysis to explore key uncertainties, and also by use of techniques such as SWOT, PESTEL and competitor analysis. Such information enables the managers of business units to question existing strategies, identify further developments for those strategies, and define new strategic choices. Also, in the light of this developing body of intelligence, the CEO, strategic planning staff and senior managers will be able to revise the strategic and financial targets set for the organization and its essential businesses.
Establishing objectives for a business area is usually best undertaken in a collaborative manner between central and business level managers. Not only will this result in greater acceptance of the objectives but it can also, on occasion, result in objectives being raised beyond the initial expectations of central management, as business level managers have a more intimate hold of what might be achieved.
The result is often referred to as ‘corporate guidance’ – a set of objectives, challenges facing the business, and constraints such as agreed views concerning market conditions and the availability of finance that form the context for strategy review and development.
The typical concerns is the ways in which the managers heading the various business areas respond to the revised objectives. Existing strategies and their effectiveness are formally reviewed and, if appropriate, modified or new strategic choices developed. Again, much of the intelligence work for this phase may have occurred during the preceding year. The Phase ends with the CEO and the Board approving a revised set of strategies for the organization.
Strategic choice is not strategic action, the implementation of those strategic choices through the development of business level action plans, cross-business coordinating actions if necessary, and budgets. To improve the effectiveness of the implementation process, plans should be sub-divided into operational plans, derived from the higher-level strategy. At the operational level, the departmental plans can be broken down into a series of projects with clear stages which will impact on various business processes. At this level, the proper coordination and alignment of IT platforms and systems to deliver and support the implementation process is essential.
Sustaining effective implementation of strategic plans is a properly coordinated budgeting programme, ensuring that plans are appropriately resourced and adequately funded. Finally, strategy implementation depends heavily on effective direction and leadership at senior and lower levels within the organization to ensure that individuals and teams are properly motivated and committed to the successful implementation and delivery of strategy into action.
The time phased indicators for monitoring planned financial performance including such measures as turnover, margin and return on investment and the implementation of strategy. Measures of strategic achievement – strategic milestones – may be linked to outcomes such as improving brand awareness and market share. Strategic milestones can be sequenced. For instance, in the case of a retailer establishing a business overseas the series of strategic milestones may include the following: finding a suitable partner for market entry; identifying specific locations that have the required revenue potential; resource and market development; business opening and revenue development. Such measurable or ‘SMART’ objectives, enable the organization to maintain its focus upon the fundamental purpose of strategic planning, that of achieving financial and strategic development.
The evaluation of outcomes is of little value unless it is linked to control actions. Deviation from intended outcomes triggers a control loop, that may initially involve a review of strategy implementation, possibly re-examination of strategic choice or, even more fundamentally, a review of the objectives established.
How to Do Strategic Planning for an organization:
1. Call a meeting of top team leaders and managers.
2. Analyze your strengths and opportunities.
3. Assess your weaknesses and threats.
4. Set goals for your business.
5. Create a strategy and short-term tactics
Strategic planning is important to an organization because it provides a sense of direction and outlines measurable goals. Strategic planning is a tool that is useful for guiding day-to-day decisions and also for evaluating progress and changing approaches when moving forward.
The planning sequence is depicted as a flow model with activities progressing from one to another. Such a linear concept of strategic planning implies that one phase is fully completed before another commences. In reality, the improved understanding developed during the Phases often requires a review of an earlier phase in the planning process before planning can be said to be completed.
BENEFITS AND COSTS OF PLANNING
Strategic planning is a process for resource allocation and, as such, it provides a foundation for budget decisions. However, the planning process can serve additional organizational roles which will vary in their relative importance depending on the organization.
Planning provides a basis for controlling business and corporate performance. The planning process controls not only performance but, more fundamentally, the development of strategies by the company’s business units. In a multi-business organization there is often a need to limit the degree to which strategies are allowed to be emergent. The strategic planning process enables corporate management to encourage and shape the emergent process of strategy development that should be occurring at business level.
The planning process acts as a prompt for managers to develop intelligence and question their assumptions concerning the environment in which their businesses operate.
In some organizations there is a need to achieve coordination between business strategies to develop the interdependencies that can lead to the synergies which can underpin the organization’s capabilities. There may also be a need for centralized coordination to manage the way in which the organization, as an entity rather than as separate businesses, is perceived by groups such as customers and regulators.
Organization use Strategic Planning for the following reason:
1. Change the direction and performance of a business.
2. Encourage fact-based discussions of politically sensitive issues.
3. Create a common framework for decision making in the organization.
4. Set a proper context for budget decisions and performance evaluations
The need to plan is largely based upon the nature of the assets and systems of a business, and the limited flexibility of these implies that new circumstances cannot be fully accommodated as they arise. The act of planning attempts to anticipate future uncertainties. It also attempts to devise strategies that will help as far as possible, to protect core assets from those anticipated uncertainties.
Formal strategic planning has its costs, the process requires the extensive involvement of the organization’s knowledgeable/experience senior management. There may also be the expense of employing staff to specifically lead the planning process. Senior managers must be committed to achieving the plan and, if necessary, part of their remuneration should be based upon achieving planned performance. Owing to the need to be committed to plans, it has often been argued that formal plans reduce the flexibility of an organization and its ability to respond to events as they arise. In addition, the planning process will fail to be effective unless it is pervaded with a high quality of strategic thinking. This, in turn, often requires a substantial investment in management development.
Is formal strategic planning worthwhile? A study by Brews and Hunt (1999) of over 600 US firms provides an interesting set of answers. Rather than representing alternative approaches to strategy development, formal strategic planning and emergent strategy processes such as incrementalism forming strategy through trial and error complement each other, especially if the business environment is unstable. This is achieved by formal plans being ‘fine-tuned’ during their implementation, modified to take account of changing circumstances. The study also concludes that organizations need to learn how to make strategic planning effective for their organization and its context. As a consequence, it typically takes four years of planning experience before formal planning results in improved organizational performance.
STRATEGIC PLANNING TO BE ORGANISED
Strategic planning is a process of decisions made by an organization to set goals and to outline a course of action to achieve those goals, to grow the business and to help the business be profitable.
Strategic planning cannot guarantee strategic and financial success; how to plan and must keep modifying the planning process as circumstances change. There are numerous theoretical studies of the strategic planning process that can provide guidelines on how to organize the planning process.
Difference between strategic and financial planning is that financial planning is about planning for the finances or use of cash flows over a period of time while strategic planning is about planning the road-map of the organization. Financial planning is done in order to achieve the set financial objectives.
Strategic planning has been characterized by Henry Mintzberg as a centralized process remote from the managers who are involved in the operations of the organization. In certain situations, the planning process will follow a centralized approach. An initially centralized approach to planning not only reflected their prevailing corporate management style and past experience of planning but was also consistent with the company’s need for centralized initiatives, and the ‘top-down’ setting of goals to initiate diversification into new business areas. A centralized approach to planning was also consistent with the organization initially having a narrow range of businesses.
Composed, customers, competitors, supply markets including the supply of labour and finance, legal and regulatory factors represent a complex and changing environment to which an organization needs to adapt while seeking profitable opportunities. In more complex environments, planning systems have been found to be more flexible, with plans reviewed more frequently and with shorter time horizons.
It has often been argued that strategic planning is becoming less relevant because plans lose their relevance more rapidly when the pace of environmental change increases, because of, for example, changing consumer tastes and technologies and shorter product life cycles. Paradoxically, the Brews and Hunt study of US companies concludes that the less stable the organization’s environment, the greater the need for the organization to have a high degree of planning capability.
An activity consistent with it facing a more demanding planning environment. Such a less stable environment also requires greater delegation of the planning process to the business unit managers, possibly to gain greater insight into the detail of environmental factors, achieve less formality in the planning process and realize shorter time horizons for the resulting plans.
Organizations as well as environments vary in their complexity. For a complex organization comprised of many diverse but interdependent business unit’s greater emphasis will be placed upon the co-coordinative role of planning, with the planning system having greater scope and formality in order to manage that coordination. When the role of planning is to help protect inflexible core assets from future uncertainties by anticipating developments in the business environment and developing contingencies, the planning process attracts more effort and is more sophisticated.
Strategic marketing planning is the process that the operational and managerial staff of a company goes through to create and implement effective marketing strategies. Strategic marketing planning takes several aspects of company marketing and promotion into consideration.
Finally,
Central management’s perception of the type of performance improvement that is needed – for instance, strategic performance improvement versus more immediate financial performance improvement also affects the characteristics of the planning system. The planning system needs to achieve a balance between facilitating adaptation to the outside environment of the organization by devolution and the promotion of business level creativity, the control and coordination of resources through centralization.
For a particular organization the two approaches need not be mutually exclusive and a balanced approach has been associated with greater long-term financial success. Volatility in performance has been associated with increased effort being given to formal strategic planning, possibly as a symbolic activity designed to give the impression to the organization’s stakeholders that senior management is able to control the situation. Strategic management is important because it allows an organization to initiate activities, influence activities and be proactive rather than reactive in its strategy so that it has full control over its own destiny. Strategic management benefits all business ventures.
Strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy, strategic business plan is a written document that pairs the objectives of a company with the needs of the market place.
• Dada Suraju Adefolami, FIMC, CMC. Professor of Finance, School of Business Administration, UNEM University Costa Rica, is a Finance / Management Consultant and Certified Forensic Accountant. You can reach him via: surajudada@yahoo.com; 08052043855