What is Strategic Planning ?
Strategic planning is not the same as corporate planning though it is a part of it Strategic planning is systematic process of finding out what goals the organisation can achieve in the future. It is a managerial process by which the organisation develops and measures its competencies so that they can implicitly fit the organization's objectives, skills and resources and also the varying opportunities. The ultimate purpose of strategic planning is to design the organization's products, services and communication in such a manner that the organisation is able achieve its targeted profit and growth.
A successful strategic planning process involves sharing the vision. of the organisation with the employees so that it creates a strong and vibrant organizational culture. The strategies are framed only after the goals and objectives of the organisation have been decided. The basis of the strategic plan is the philosophy and culture of the organisation. They are designed in such manner that all the resources are optimized and the maximum output can be derived from it. The formulation of goals and strategies involves breaking down of shared organisation vision into tasks and activities and aligning individuals the responsibility of executing them successfully.
Strategic planning is an absolute necessity for an organisation in order to develop a sustainable competitive advantage. The top management of the company realizes the importance of strategic planning by developing the focus and maintaining the competitive advantage in the marketplace. Strategic planning decides the direction that the organisation will take and also how it will allocate its scarce resources to various activities. It covers all areas of the organisation. It provides individual SBUs and functional department a common direction which helps to integrate the various differing perspectives.
Definition of Strategic Planning
According to William Glueck :
"Strategic planning is a stream of decisions and actions, which lead to the deployment of an effective strategy or strategies to help achieve corporate objectives decisions and actions, which determine whether an enterprise Excels, survives or dies".
According to Hayes and Wheelwright :
"Strategic planning is planning that is long-term, wide ranging and critical to organizational success, in terms of the costs of the resources it affects and the outcomes it envisions".
Components of Strategic Planning
In the prevailing competitive business environment, the survival and growth of the organisation is very difficult. It is not just based on the budget oriented or on the forecast based methods. For this, planning or the organisation must have a well-defined strategic plan to identify the potential opportunities. The strategic plan defines the objectives, assesses the business environment to formulate strategy, implements the strategy and evaluates the strategy for taking necessary corrective measures. Strategic plan comprises of the following components :
1) Mission and Objectives :
The Company's mission is defined by the mission statement. which also consists of pre-defined values, purpose of the firm and its goals and objectives which guide the whole organisation. The top management frames the financial and strategic objectives of the firm based on the vision. Financial objectives include sales targets, profit targets and growth targets. The strategic objectives pertain to the firm's market position including the market share, company's goodwill.
2) Environmental Scanning :
The main elements of environmental scanning are :
- Internal analysis of the company
- Analysis of firm's industry
- Analysis of external environment (PEST analysis)
SWOT analysis is, a technique which is used to identify the strengths, weaknesses, opportunities and threats. The internal analysis is done to assess the firm's strengths and weaknesses whereas external analysis identifies the opportunities and threats to the firm. The industry analysis uses Porter's' five forces framework. This framework examines the following features of the industry, entry barriers. bargaining power of suppliers and customers, threat of substitute products, and industry rivalry.
3) Strategy Formulation :
After environmental scanning process, the organisation requires to match its internal strengths with the potential opportunities existing in the external environment. At the same time, it also requires to reduce its weaknesses and threats present in the external environment. In order to earn profit, the firm should develop competitive advantage against its rivals which can be based on cost or differentiation. Michel Porter has also given three generic strategies for the firm to formulate the strategy.
4) Strategy Implementation :
Once the firm decides upon a strategy it has to implement the same. The strategy implementation comprises of programs. budgets and procedures. For implementing the strategy, the organisation needs to utilize its resources effectively and also motivate its employees to achieve the targeted goals. Often, the implementation is what can make the strategy a failure or success. Thus, effective a communication between employees is very important so that there is goal congruence in the organisation. As any misunderstanding may lead to the failure of strategy implementation process.
5) Evaluation and Control :
The implementation of the strategy has to be monitored at regular intervals along with the necessary adjustments required. The evaluation and control involves the following steps :
- Define parameters to be measured.
- Define target values for those parameters.
- Perform measurements.
- Compare measured results with the pre defined standard.
- Make necessary changes.
Features of Strategic Planning
The following are the 13 characteristics of strategic planning :
1) Accountability :
Accountability is the assigned responsibility related to the completion of tasks.
2) Balance :
Strategic Planning is not just concerned with financial decision-making but also with operational and human resources activities.
3) Flexibility :
Strategic planning is flexible in nature, i.e., it can be changed and modified.
4) Manageability :
Strategic planning involves framing of performance measures against the set objectives. It also notifies the level of objectives achieved and addresses the performance issues and manages the resources required.
5) Prioritization :
When there are multiple action plans then the organisation highlights the priority areas.
6) Practicality :
Strategic planning defines the plans which the organisation can implement and some plans which the organisation would like to implement are discussed rationally.
7) Specificity :
The desired results and the milestones are specified in the strategic plan. This is also accompanied with a detailed action plan.
8) Sustainability :
The organisation sets a pre determined time duration attain the to performance gaps and to take remedial measures for the same.
9) Effective Usage :
The strategic plan aims to bring about the optimum utilization of the firm's resources and capabilities among the various options available in the firm's product and market options.
10) Futuristic Planning :
Planning prepares the company to face future scenario and also makes the company able to define its future plans.
11) Forming Hedge Uncertainties :
The organisation can use strategic planning process to hedge against the uncertainties of the external environment.
12) Proactive Decision Making :
The organisation. helps to understand the trends in advance and take appropriate action and decision related to it.
13) Provides Growth Objectives and Strategies :
It defines growth objectives for the organisation and is also responsible to arrange suitable strategies to achieve them.
Importance of Strategic Planning
Strategic planning is beneficial for an organisation in the following ways :
1) Road map for Developing the Operating Budget :
The operating budget of an organisation allocates the resources for fulfilling the objectives of subsequent year. These objectives are determined by the strategic plan of the organisation. The strategic plan lays a road map of where the organisation will proceed in the next year. This idea gives a lot of clarity in the formulation of operational budget regarding allocation of resources.
2) Technique for Management Expertise :
The process of devising a strategic plan serves as a very good platform for managers to exhibit their management expertise. It allows them to think about the various strategies that the organisation can deploy and how they can be implemented properly in the given time frame. Therefore, it acts as a technique for developing management expertise.
3) Mechanism to Force Managers to Think Long Term:
Managers often get stuck in dealing with day to day problems and issues. The strategic plan allows these mangers to come out of these challenges and helps them to think about the long-term objectives.
4) Helps in Aligning Managers as per Organizational Goals :
The strategic planning activity involves lot of detailed discussions and negotiations between various strategic units in an organisation. This helps the managers to gain a perspective about the corporate strategies and helps them to align their thought process as per the organizational goals.
5) Framework for Short-Run Actions :
The strategic plan serves as a framework for short run actions as well. The short-run program decisions are made on a piece meal basis and one-by-one. The strategic plan brings all these on one page and makes it a part of the bigger organizational picture. The strategic plan may also show the inadequacy in some of these short term actions that the organisation takes.
Limitations of Strategic Planning
Though strategic planning has lots of benefits for the organisation, but it still has some limitations as well :
1) Practice of Bureaucracy :
If not done properly then strategic planning can be a victim of bureaucracy. It can become an endless activity of form filling, meetings and activities with no purpose in mind. This can be prevented if the management conducts periodic reviews of the strategic planning process and monitors if the desired benefits are accruing to the organisation or not.
2) Consumes Time and Money :
The strategic planning exercise can also be a time-consuming affair. It takes a lot of time of the managers in various departments and this comes at the cost of their productive time. It can also be an expensive activity. It can also run into roadblocks due to the lack of concern of top management. It can also be hampered where the organisation exists in a volatile environment and where planning becomes an ineffective exercise.
3) Cannot Predict Future :
Strategic planning should not be seen as a practice of future prediction only. It is very difficult to predict the future. Strategic planning can only provide an overall road map.
4) Cannot Guarantee about Future :
Strategic planning is not a guarantee for the future. The external environment of an organisation is subject to rapid change in terms of customer tastes, demographics, technological change, political events, etc. The strategic planning process has to be dynamic or else it runs the risk of being outdated.
5) Cannot Resolve Critical Situations :
Strategic planning is not a panacea for all the challenges that interrupt the organizational processes. Strategic planning does not rescue the organisation from the criticalities. Stability in the organisation is essential for strategic planning to succeed.