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The process by which an organization (big or small) defines its strategy is termed strategic planning. It mainly include how a company allocates various resources like human resource, capital etc. The main aim of strategy is to produce a sustainable competitive advantage that allows organisations to outmatch their competitors over time, even in the context of changing environments (Brown 2006).
Strategies must be tailored to the specific situation at hand. A strategy that is suitable for one company may not be effective for another company. Strategy is also very much dependent on various environmental factors which company has no control over. (Massie 1994).
PROCESS INVOLVED IN STRATEGIC PLANNING
An excellent strategic planning depends as much as on identifying the important questions as on attempting to answer them (Massie 1994). The following questions would guide the strategic planner in executing his job.
1. Opportunities in the market?
2. "Distinctive competences" the firm holds?
3. Various environmental constraints including technological developments, governmental regulations, cyclical economic considerations and changes in consumer life styles?
4. Society's political, ethical and cultural framework?
The process of Strategic Planning consists of the following steps.
1. Defining the Vision and the Mission
The vision is all about what an organisation intend to become. It concentrates on the future and is a source of constant inspiration. It acts as a clear decision making criteria. The mission statement talks about the fundamental purpose of the organisation.
The vision and the mission acts as the starting points for any strategic plan.
2. Analysing about the External Environment
Strategies are plans made for interacting with the competitive environment. So, it is important to understand about the external environment before planning any strategy. The environment can be analysed with the help of the following models.
a. PEST Analysis: PEST is a common acronym for Political, Economic, Social and Technological. These 4 factors largely affect the organisation as well as the industry in which the organisation exists.
b. Porter's Five Forces Model: This famous model was developed by Michael Porter, and it helps in evaluating the industry environment. The model analyses how the five forces - Buyers, Suppliers, New Entrants, Substitutes and Competitors shape a firm within an industry. This model is much more specific than the PEST analysis.
Once the forces shaping competition are found out it is easier to have an appropriate strategy in place.
3. Analysing about the Internal Environment
Not only just understanding the external environment is enough for the firms rather how to compete with external environment is also very important. Internal environment of the firm helps it understand how best to approach the competition. The analysis can be conducted with the help of any of following famous models.
a. Value Chain Analysis: It focuses on understanding how a business creates customer value by examining the contributions of various activities within the business to that value (Pearce and Robinson 2005).
b. SWOT Analysis: SWOT is short form for Strengths, Opportunities, Weaknesses and Threats. After identifying all of above, strategy can be formed to turn threats and weakness into opportunities and strengths respectively.
4. Formulation of Long-term Plan
After the firm develops a good understanding about itself and about external factors affecting it, it should go on to create a plan and achieve its vision and mission. Then it should proceed to break the long-term objectives into either short-term or tactical and operational objectives. Once the plans are executed, it must be checked whether the original purpose was achieved or not.
WHERE STRATEGIC PLANNING FALLS
Henry Mintzberg, the strategy guru, has recorded his dissatisfaction for strategic planning the way it is practised today in his seminal Harvard Business Review article The Rise and Fall of Strategic Planning. The inability of the organisation's to differentiate between strategic planning and strategic thinking is the main reason found. The managers get confused between the real vision and the manipulation of numbers and many times forget the fact that the successful strategies are visions rather than plans.
In the form that is practised nowadays strategic planning is more a strategic programming-the articulation of visions and strategies that previously existed. They should return back to process where what the manager learns through all means (experience, marketing research etc) and covert that learning to vision that business should pursue.
Strategic planning , how its different from strategic thinking
Planning is mainly about analysis ie breaking down goals into steps so that they can be implemented easily. Strategic thinking is about synthesis which in turn includes intuition and creativity. This can happen anytime anywhere so it can't be developed on schedule.
Pitfalls in planning:
Though strategic planning received a lot of top management support, it itself has discouraged the commitment of top managers. Planning mainly is all about calculating style rather than the committing style. Committing style managers engage people and make sure everyone contributes for the cause. This will result in high motivation and enthusiasm.
The main aim of people who promote conventional strategic planning is to reduce the control of management over the process of strategy making. Top managers are often not committed to the process because most of time it fails to deliver its promises. In lower levels the problems are more because mostly its used to control the lower level managers. Middle managers love to overthrow the strategic planning because they want to commit to their own business strategies.
Following are the paralogisms of strategic planning (Mintzberg 1994).
1. The Fallacy of Prediction: Most of the strategic plans are based on blind assumptions that the situation and environment is static. Since the environment changes the predictions also are very much viable to changes. So, strategic planning has to avoid the fallacy of prediction.
2. The Fallacy of Detachment: Many managers sit in comfortable cabins and makes decisions with available facts. The real planner must get his hands dirty for gathering information from the bottom. For making strategies qualitative information is as important as quantitative information. Most of the managers give more importance to softest forms of information like gossips, hearsay etc.
3. The Fallacy of Formalization: The main reason for failure of the strategic planning is that systems are not able to deliver what human brains can. Strategic Planners give much stress on formalization of different strategies. Though formalization should work well in conditions of certainty, it may not in reality. Global crisis that happened last year is the result of too much formalization. Instead of a step by step plan, Jack Welch decided to go around with a few clear and general goals in case of directing the business of GE. (Slater 2003).
The role of strategic planners needs to be redefined. Instead of planners creating strategies, they should assist managers in doing so. It's necessary for both to come together in taking decisions. Planners will be having the expertise of analysing the data where as managers will have his insights that arises from his experience and data in form of facts.
Mintzberg suggests that the title Strategic Planning should be dropped and replaced by the more appropriate Strategic Programming which involves the following three steps.
1. Codification: It means expressing and clarifying the strategies in terms which render them fully operational.
2. Elaboration: It involves the breaking up of the strategy into sub-strategies and the creation of programmes for achieving each strategy.
3. Conversion: It means understanding the impact of strategy on the operations.
Reasons for failure of strategic plan
Selected team members for implementation of strategic plan not empovered:
For successful implementation of the various strategies, the positioning of the team members is very critical. But many companies forget these facts and select team members according to convenience and preferences.
Solution: the team members should be capable of strategic thought and also suitably positioned in the organisation.
Not integrating plan with daily work:
Managers fail to integrate the plan to daily work and rather see it as an independent event that has to be finished
Solution: Making planning the integral part of business and spreading this idea whole over the organisation.
Team members understanding of the strategic plan is low
When team members are not aware about the strategic plan the overall quality of plan will be going down and can result in considerable loss of enthusiasm
Solution: Workshop focusing on strategic planning.
Whole planning process being carried out by the strategic team.
Restricting can result in loss of valuable input from across various steams of the organisation.
Solution: Participating employees from different departments so that lot of innovative ideas can come up..
Bad Timing of planning
Companies may run out of resources if planning team doesn't plan the strategic plans properly.
Solution: Strategic plan should be luking after all aspects of budget.
Not allocating enough time to complete the project.
Companies try to finish of the plan as soon as possible and get back to work. Which later can lead to un successful implementation of project.
Solution: make sure each process get enough time
Managers doing a one man show
Some managers lead the sessions and try participating in strategy discussions. In such cases both content and process will suffer.
Solution: Retain skilled strategy consultant.
Keeping the plan a secret
Some companies keep the plan a secret, but others members of organisation who help in implementing the project should also know about the strategies.
Solution: try being open in terms of communication. This will help in others know more about the plan and give suggestions. This also allows them to feel like insiders in case of the project.