STRATEGIC PLANNING
STRATEGIC PLANNING
*Shanmukha Rao. Padala **Dr. N. V.S. Suryanarayana
INTRODUCTION:
The business organizations often compete with each other to gain their customers' attention and business. While doing so, each firm tries to chalk out its unique strategy or game-plan based on its own internal strengths and weaknesses in terms of, which products or services to pursue, which investments to make, with human resource policy to implement and which organizational structure to adopt. The whole exercise is meant to find how to effectively compete, against whom, where and for what, so that the firm can generate successful performance over an extended period of time. The essence of strategy lies in striking a harmonious balance between a firms' distinctive skills and capabilities and the external environment in which it operates. When the firm is able to perform activities more effectively than its rivals, it stays ahead in the race and emerges as a leader. Strategic planning and strategic management enables a firm to formulate and implement such winning game-plans over a period of time.
STRATEGIC PLANNING:
The necessity for planning arises because of the fact that business organization has to operate, survive and progress in a highly dynamic environment where change is the rule, not the exception. The change may be sudden and extensive, or it may be slow and almost imperceptible.
The rapid advantages in technology, global competition, changing preferences of customers, changing policies of government, have multiplied the problems of managers all over the globe. Most of these changes are thrust on managers and they are forced to adjust their activities (customer service, teamwork, speed, product/service quality, productivity improvement have become the new corporate mantras!) in order to take full advantage of favourable developments or to minimize the adverse effects of unfavourable ones. Successful managers try to visualize the problems before they turn into emergencies. Successful managers' deals with foreseen problems and unsuccessful managers struggle with unforeseen problems. The difference lies in planning (Terry). Managers charged with the responsibility of achieving definite targets do not wait for the future. They make the future (Drucker). They introduce original initiative by removing present difficulties; anticipating future problems; changing the goals to meet international and external challenges; experimenting with creative ideas; attempting to share the future and creating a more desirable environment.
Planning is the process of deciding in advance what should be accomplished and how it should be realized. It involves selecting objectives and how to achieve them. Strategic planning is a type of planning. But unlike short-term planning, strategic planning involves an extended time-frame, the development of a large percentage of the resources of an organization, a wide spectrum of activities and a major eventual impact.
By merging the two models of planning, long-range planning and environmental scanning to form an interrelated model- the Strategic Planning Model was formed. The Strategic Planning Model is a tool that helps an organization in setting up goals or objectives; the analysis of the environment and the resources of the organization; the generation of strategic options and their evaluation; and the planning, design and implementation of control systems or monitoring mechanisms.
This model consists of six identifiable stages that fulfil the requirements of the management thinkers:
Environmental scanning.
Evaluation of issues
Forecasting
Goal setting.
Implementation.
Monitoring.
The merged model allows information from the external environment in the form of emerging developments to enter traditionally focused planning system, thereby enhancing the overall effectiveness of an organisation's planning. More specifically, it allows the identification of issues and trends that must be used to modify the internal issues derived during monitoring. The combining two models become apparent when the future that happens to the organization and the future that happens for the organization are contrasted.
EVOLUATION OF STRATEGIC PLANNING:
It had been witnessed significant changes in business activity the first three decades of the twentieth century. Firms focused their energies on increasing production of standardized goods to derive the economies of scale. They were more comfortable working with day-to-day operational plans. Wherever came into the market, got readily absorbed. Large volumes, standardized products, ever-increasing demand characterized this era.
Organizations witnessed increased environmental turbulence after 1930s. Competition became intense with the emergence of new players; technological changes were swift and government policies restricted the economic freedom of the firms in most countries. Consumer tastes and preferences changed radically. New products with novel features made headlines and to sustain demand, firms had to promote products heavily and spend significant amounts on market segmentation. They had commit their resources carefully, assessing various alternatives offered by the external environment from time to time. The reactive, adhoc responses rarely yield results, forcing firms to change their orientation (from short-term to long-term) and look beyond the four walls of the organization more closely.
The 1950s saw dramatic changes in technology; new products emerged rapidly; competition became cut-throat; multinational corporations began to dominate global markets and governmental policies encouraged free market forces. These environmental complexities literally compelled the firms to come out with proactive steps by pinning their hopes on roadmaps provided by strategic plans. They had to be and flexible so that they could remain solvent and move fast. They had to almost undo existing styles, systems and standards, looking at internal as well as external environment from a strategic perspective.
BENEFITS OF STRATEGIC PLANNING:
An enterprise practicing corporate planning can reap several benefits. Corporate planning enables a company to anticipate technological changes and achieve strategic objectives and goals successfully. It ensures a rational allocation of resources and improves coordination between various units or divisions. A more formal approach to planning forces the managers to think forward and anticipate problems before they occur. A habit of forward thinking is encouraged. The main benefit from planning arises from a continuing dialogue about the future of the organization, between top management and middle management, between line and staff, between division and head office, and between management and unions.
Once the process of corporate planning gets established and accepted, it becomes a part of the corporate approach to management. Due emphasis therefore is likely to be given to manpower development, new product development and long term investments that are considered essential to the survival and growth of the company. With corporate planning, management gains a new sense of direction. There is a greater awareness of the business environment, and a sense of making a systematic and critical review of the business is developed.
Corporate planning can lead to significant improvement in performance. Studies in the USA indicate that companies using corporate planning outperformed companies that used informal planning methods. Companies with corporate planning performed around 30-40 per cent better in terms of earnings per share, earnings on common equity and earnings on total capital employed. The performance of the companies improved after they introduced corporate planning. The improvements were impressive: sale grew by 38 per cent, earning per share grew by 64 per cent and the share prices increased by 56 per cent.
A formal planning system can help the management in responding to a dynamic environment and in managing a strategically complex organization with limited resources. Armstrong analysed relevant behavioural science experiments and concluded that formal planning systems are more useful when large changes are occurring either in the environment or in the organization. It is also helpful when uncertainty is high or when complex tasks are involved.
PLANNING MODELS:
Strategies, operations and tactics are used for achieving the objectives of organization. Theoretically they may be distinguished. But practically they go hand in hand. Three dimensional structure of organization requires strategic planning, operational planning and tactical planning at respective levels.
Strategic Planning: Strategic planning is generally made by top-level management, keeping in view of long-term objectives. This is a judgemental and rational approach and sometimes conditional also. Strategic meant to give directions to middle level managers. It will be successful based on better delegation of authority. Strategic planning is the process of deciding on objectives of the organsiation. Examples:
(i) Planning for profit maximization.
(ii) Planning for capacity utilization.
(iii) Planning for diversification.
(iv) Functional areas planning like production, operations, finance, marketing etc.
Operational Planning: Operational planning s made by middle-level managers keeping in view of strategies of the organsiation. It is the process of deciding the most effective use of the resources already allocated and to develop a control mechanism to assure effective implementation of the actions so that organizational objectives are achieved. Operational planning focuses on internal organizational environment. It is concerned with short-term programmes. It also focuses on the ways and means by which each of the individual functionas may be programmed.
Tactical Planning: Tactics is meant by which previously determined plans are executed. The goal of tactical planning will be successful in a given situation. Tactical planning is always based on pre-determined objectives. It is implemented at and relates to lower levels of management. It requires immediate action. However the risk and uncertainty are very less at this level.
In the future that happens to the firm (the typical planning' future), new developments are not anticipated before they forced their way to the top of the agenda, demanding crisis management and the latest fire-fighting techniques. In this future, issues are usually defined by others whose interest does not necessarily include those of the firm or its purpose. Not only are threats from the external environment not anticipated as early as possible, key opportunities will be missed or diminished in value.
In the future that happen for the organization, in contrast (the strategic' future), management leadership is focused more on fire prevention and less on fire fighting. Hence, it is able to exercise more careful judgment in the orderly and efficient allocation of resources. Certainly, management will still have to deal with unforeseen developments, but they will probably be fewer and less traumatic. Thus, organizations are able to pursue their mission with greater confidence and consistency because they will be interrupted by fewer and smaller fire fighting exercises.
The word strategic planning', provide the key elements that underlie its meaning. The process is strategic because it involves preparing the best way to the circumstances of the organisation's environment. It is strategic, because it is clear about the organisation's objectives and resources. It involves anticipating the future environment, of decisions that made in the present. The process is about planning because it involves developing an approach to achieving this future. The plan is a set of decisions about what to do, why to do it, and how to do it.
Strategic planning and management are joined together in a single process. This process links strategic planning and operational decision making. Strategic planning provides management a tool to dynamically align strategies. It is a disciplined effort to produce decisions and actions that shape and guide what an organization is, what it does, and why it does it, with a focus on the future. It helps the organsiaon to focus its energy; to work toward its goals, to assess and adjust the direction of the oragnisation of the more efficiently in responses to a changing environment.
LEVELS OF STRATEGIC PLANNING:
Many organizations develop strategies at three different levels; corporate, business and functional.
Corporate-level Strategic Planning: it is the process of defining the overall character and purpose of the organization, the business it will enter and leave and how resources will be distributed among those businesses. Strategy at this level typically developed by top management (The Board of Directors, CEO etc.). the decisions are broad-based, carry greater risk and affect most parts of the organization (e.g. the type of business that the organization should enter, changes required in growth strategy, acquisition and diversification decisions etc.).
Business-level Strategic Planning: it is the planning concerned primarily with how to manage the interests and operations of a particular unit within the organization, commonly known as a strategic business unit. A strategic business unit is a distinct business with its own set of competitors, which can be managed reasonably independently of other business within the organization. Generally, the heads of the respective business units develop business strategies, with the approval of management. Strategies at this level are aimed at deciding the competitive advantage to build, determining responses to changing market situations, allocating resources within the business unit and coordinating functional-level strategic developed by functional managers.
Functional-level Strategic Planning: It is the process of determining policies and procedures for (relatively narrow levels of activity) different functions of an enterprise like marketing, finance, personnel etc. These are developed by functional managers and are typically reviewed by business unit heads.
Coordinating strategies across the three levels is crucial in maximizing strategic impact. The strength of the business-level strategy is enhanced when functional level strategies support its basic thrust. Similarly, the corporate-level is likely to have greater impact when business-level strategies support one another in bolstering the corporate-level strategy.
WHY STRATEGIC PLANNING?
No business firm can afford to get ahead without a clear map of where it wants to go and why. Strategic planning provides the roadmap for the firm. It serves as a comprehensive guide; it provides the big picture for all employees of an organization. By defining the mission of the organization in specific terms, it helps managers provide direction and purpose to organizational efforts. The organization is able to function better as a result and becomes more respective to a dynamic environment. It helpsw in identifying opportunities early and exploit the same vigorously. It helps decide where and when to use the available resources in an optimal way. Additionally, it provides a complete and broad base for judging each executive's contributions. Targets are clarified and the means to follow are outlined. As the future unfolds, adequate controls can be established to see whether the right course of action is adopted or not and where the results are satisfactory or not. Strategic planning also minimizes the chances of mistakes and unpleasant surprises, because goals, strategies are subjected to careful examination. There are less chances for committing mistakes and decisions arrived at can ultimately stand the test of time.
THE STRATEGIC PLANNING PROCESS:
Strategic planning process is a formal exercise, with planners drawing up objectives, budgets, programs, and operating plans. This was done with the process broken up into distinct steps, defined by checklists, and supported by techniques. As the process is formal, the commitment is relevant for all phases. The specifications of objectives should be done before the generation of strategies which, in turn, should be completed before the evaluation. The monitoring step is last. The dotted line indicates that, to some extent, the process is iterative. For example, the evaluation may call for going back to the generation of new strategies, or monitoring may require a new evaluation of strategies.
The Planning School from which strategic evolved in the 1970s, called fort an explicit written process determining the firm's long-range objectives, the generation of alternative strategies for achieving these objectives, the evaluation of these strategies, and a systematic procedure for monitoring results. Each of these steps of the planning process was accompanied by an explicit procedure for gaining commitment. This gave bitrth to Corporate Planning Departments which were setup in order to implement Strategic Planning. The planning was carried out by corporate planners, who were the think of the organization.
Organizations find strategic planning useful because it is a highly systemized from of planning and therefore it is easy to grasp the methods, procedures and rituals programmed to execute the strategies. In addition, its other advantages are:
It provides a structure means of analysis and thinking complex strategic problem, requiring management to question and challenge what they take for granted.
It can be used to involve people in strategy development.
It is also a way to communicate the intent of management to members of the organization.
It can be used as a means of control by regularly reviewing performance and progress against agreed objectives.
STRATEGIC PLANNING AND SYSTEMS APPROACH:
The systems approach can be great help in planning in a large enterprise. The system thinking implies that the repercussions of decisions with respect to any one of the systems (e.g. a division or a business sector) on the total system or company as a whole be examined. The need for such an approach is self-evident when the organization is running a physical network such as railway or gas distribution system, or when a company has several located at different places. While formulating a plan for the organization as a whole, it is desirable to take a corporate view and consider the implications of the developments in any part of the company on the overall performance.
Computer models can be used as an adjunct of the systems approach. You will recall that a model is a simplified representation of reality and embodies the significant factors in an adequate measure to give a satisfactory answer to a problem in hand. Models are particularly useful in handling planning problems of large integrated enterprises with a number of inter-related plants, especially for financial for financial evaluation purposes. A typical model represents cost and capacity at various manufacturing plants, and prices and sales volume in the market served y such plants. The model can be used to estimate revenue, costs and profits year by year for different combinations of new and existing plants on various assumptions about market potential. Further, in a large organization, planning models may be constructed at several different levels of the organization, for example, at corporate level, divisional and plant levels, or for different products or groups of products. The higher the organizational level and greater the area of activity covered, the less is the amount of details required on an individual plant or product.
However, constructing models for a large enterprise with multiple divisions or units located at different places is fraught with some serious managerial problems. Further, for using the computer models effectively, the data must be regularly updated. The use of models should neither create any tensions in the organization nor should it hinder the objective analysis of the strategic problems under consideration.
STRATEGIC PLANNING
By: P.S.Rao., NVS.Suryanarayana
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