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"Strategy is a pattern of activities that seeks to achieve the objectives of the organisation and adapt its scope, resources and operations to environmental changes in the long term".
[Kaplan Publishing, ACCA Paper P3 Business Analysis The Complete Text, p 4]
'Strategic planning' can also be known as 'Long-term planning' of 'corporate planning'. Strategic planning determines where an organisation is going over the next year or more, how it'll get there and how it'll be known if it got there or not.
"A strategic plan is a tool that provides guidance in fulfilling a mission with maximum efficiency and impact. If it is to be effective and useful, it should articulate specific goals and describe the action steps and resources needed to accomplish them. As a rule, most strategic plans should be reviewed and revamped every three to five years"
In short Strategic planning gives direction to the whole organisation, and integrates its activities.
Why bother to plan?
Studies show that companies that plan are more successful than those that do not.
Strategic planning can have the following potential advantages:
Forewarned: forces organisations to look ahead.
Compatibility: improves organisations fit with its environment.
Optimum utilisation of scarce resources.
Influences the future by advertising and lobbying.
Provides direction for the business.
Monitors progress (Control)
Consistency: ensures consistent goal and objectives.
Strategic planning is particularly important when there are long lead times, business needs to be turned around, there is high capital expenditure, and many stakeholders are affected.
The Johnson, Scholes and Whittington (JSW) model of strategic management consists of three elements Analysis, Choice and Implementation as explained below:
The Strategic position/analysis
Strategic Choices Strategy into action (implementation).
[Kaplan Publishing: ACCA Paper P3 Business Analysis The Complete Text, p10]
At this stage, strategic planning concentrates on collection of data and its analysis. This is more concerned with the long term direction and scope of an organisation. It includes:
Scanning the changing business environment. (Use of SWOT analysis, PESTEL and other environmental scan techniques)
Looking to use the resources and competencies of the organisation to achieve Competitive advantage. (Use of models like Porter's five forces)
Fulfilling the expectation of the stakeholders. (Stakeholder theory)
Strategic Choice/Strategic Direction
At this stage of strategic planning the course or direction of the organisation is decided. The strategic choice is influenced by the analysis of business above. It includes:
Clearly defining objectives, mission, vision and values of the organisation.
Choosing the strategy to achieve these objectives, considering the scope and availability of the resources.
Strategy into Action (Implementation)
Understanding the strategic position of an organisation and considering the strategic choices open to it are of little value unless the preferred strategies can be turned into organisational action.
Writing and communicating the plan effectively.
Financial aspects. (feasibility)
Monitoring and evaluating the progress. (Use of Performance indicators and benchmarking techniques)
Deviation from plan: Taking corrective measures.
How organisations carry out the various steps and associated activities in the strategic planning process depend on the size of the organisation than its for-profit/non-profit status. Small nonprofits and small for-profits tend to conduct somewhat similar planning activities that are different from those conducted in large organizations. However, the focus of the planning activities is different between for-profits and non-profits. Non-profits focus more on matters of board development, fundraising and volunteer management, whereas for-profits focus on activities to maximize profit.
2 Role of strategic planning and implementation in success of for-profit organisation (Case study: Merger ArcelorMittal)
ArcelorMittal is the world's largest and most global integrated steel company, with 310,000 employees in more than 60 countries. The company is the leader in all major global markets. An industrial presence in 27 European, Asian, African and American countries exposes the company to all the key steel markets, from emerging to mature, positions it will be looking to develop in the high-growth Chinese and Indian markets. Arcelor SA (World's 2nd largest steel producer) was formally created by merger of Aceralia (Spain), Usinor (France) and Arbed (Luxembourg). Mittal steel (World's 1st largest steel producer) was also the result of the series of successful Merger and acquisitions. It has made over 20 acquisitions over the last 5 years.
Arcelor SA and Mittal Steel merged on 25th June 2006 to form ArcelorMittal. The Merger created a worldwide leader in the steel industry. Mittal has adopted Merger and Acquisition as a strategy to successfully expand the business in different countries and with the view to control the cyclical variations in the steel prices by way of encouraging consolidation in the highly fragmented steel industry.
2.1 Strategic Analysis
After the study of External Environmental Variables affecting the strategic choice of merger SWOT analysis tool was used to list out the capabilities and shortfalls within the organisation which is equally important for the success of any strategic decision. The detail of this analysis is detailed as follows:
Arcelor was the perfect fit for Mittal with very minimal or no product or geographical overlap even though both the companies operated in the same industry. By acquiring Arcelor, Mittal had the opportunity to expand in size and gain access to new markets. The merger would create an organisation more than three times larger than its nearest rival Nippon Steel of Japan and hence reducing the competition and gaining leadership of the steel industry. The merger would make them more competent in the rapidly growing Asian market.
[ArcelorMittal activity report 2006]
The companies in the steel industry were constantly faced the risks of high volatility in the steel prices. There was a need for large global organisations in the steel industry to control the global steel prices. The merged company was set to create industry giant accounting for the 10% of the world's total steel output and to encourage the consolidation in the steel industry.
Being born from many smaller entities, both Arcelor and Mittal Steel were very familiar with and adept at combining businesses. It was almost as if mergers were in their DNA. Because of the constant additions, managers of both companies were well equipped to handle diversities and, more importantly, change.
[domain-b.com: ArcelorMittal: Two years after the mega mergerÂ 23 May 2008]
The analysis show that the weakness of the steel industry in terms of steel price volatility was to be overcome by the merger decision and make the resultant organisation more sustainable to this volatility in prices. The decision would give them opportunities to further expand their business in different emerging world markets.
Expectations and Aspirations of the Stakeholders and the culture of the organisations
"A stakeholder can be defined as someone who has an interest in the well-being of the organisation"
[ACCA course notes from Kaplan financial for Paper P3 Business Analysis]
In this context, the stakeholders can be identified as the shareholders, managers, employees and suppliers of Arcelor and Mittal and the customers, government, locality and society at large. Success in the strategic decisions cannot be achieved without regard to the stakeholders.
Merging with Mittal would enable Arcelor to accelerate on its long term strategy and growth plans, enabling the Shareholders to benefit immediately from exposure to low-cost, fast growing developing markets. Shareholders of the unified companies are more likely to benefit from the billions of dollars of synergy the deal was about to create. There is no doubt that the shareholders of both the organisation would benefit from the deal.
The information gathered showed that the proposed merger may not lead to closure of any plants or job cuts among the unified company's 320,000-strong workforce. Thus the deal did not seem to disturb the interests of any managers and employees. However, the contrasting business cultures of the two organisations could be a potential threat to the interests of its employees. Again as both the companies have been through the series of consolidation in the past it can certainly be argued that this was a minor threat that can be reduced as both the organisations are adept to change.
2.2 Strategic Choice
This section of the analysis explains why merger was the best option for Mittal to expand in the steel industry. Porter's five forces model was used as an analysis tool to answer the question as it helps in accessing the structure of the industry in which the organisations operates. The details of the analysis are as follows;
Competitive Rivalry: As discussed earlier the merger was about to create the leader of the steel industry more than three times larger than its nearest rival Nippon Steel of Japan, hence reducing the competition. The unified organisation was forecast to produce almost 10% of the world's steel output. The merger would further strengthen the European Steel industry to compete with the rapidly flourishing Chinese Steel Industry. Again, Arcelor was Mittal's main rival not only in the market but also when bidding or making deals for acquiring other competitors.
Barriers to entry: Steel industry is a capital intensive business. It takes approximately Euro 50million worth of capital investment to setup 1 mtpa capacity steel plant. The other drawback of the steel industry is the high volatility in the steel prices as discussed earlier. Consolidation of the steel industry is required to acquire greater economies of scale and to control the high volatility in the steel prices. In light of the present scenario merger and acquisition is the inevitable tool of growth and globalisation in the steel industry.
Threat of substitute products: There is an increasing demand of steel and steel products in the highly modernising and rapidly developing markets. Arcelor produced steel for industries such as Auto Steel who demand higher quality products. Although the usage of aluminium in place of steel in the automotive industry is rising it still does not pose any significant threat to steel as the latter cannot be replaced completely and the cost differential is also very high.
Bargaining power of customers: Unlike the FMCG or retail sector the buyers in the steel industry have very low bargaining power. The steel producers sell their products directly to the user industries through their own distribution channels. The merger would increase the competitiveness and the firm would achieve higher economy of scale and hence the customers will get the immediate benefit in the form of competitive prices. As argued earlier consolidation in the steel industry may result in the comparatively stable prices. Hence the merger is unlikely to pose any threat in the form of bargaining power of customers.
Bargaining power of suppliers: The bargaining power of suppliers is low for the highly integrated steel industry as most of the firms have their own minesof key raw materials like iron ore, coal etc.,
2.3 Strategy into Action (Implementation)
The merger cannot be successfully implemented unless adequately planned. This is the phase were the strategy has to be converted into action. The merger of the two steel giants was named the merger of equals. The implementation of merger has been analysed using three critical success factors namely Resource Planning, Organising/Structuring and Managing Change. The details of the analysis are shown as follows:
Resource Planning: Resource planning covers finance and human resource management. Mittal's bid for Arcelor shareholders was priced in such a manner that it remained not only lucrative but difficult to counter bid. The positioning and history of both the companies made the right experience and skill available to effectively carry out the plan.
Organising/Structuring: Mr Lakshmi N Mittal (of Mittal Steel) was to be appointed as the President and the Chief Executive Officer of the combined company Arcelor Mittal and Mr Joseph Kinsch (of Arcelor SA) was to be appointed the chairman of the group. Mr Mittal had to reduce his stake in the new firm to 40% far less than the controlling stake he originally wanted, he was still by far the largest single stakeholder in the combined entity. Significantly too, the new firm had to be named ArcelorMittal. The head quarters of the new company were to be based in Luxembourg.
[ArcelorMittal Activity Report 2006]
Managing Change: Managing change in particular employees' fears and resistance was crucial. The point of argument was that the contrasting business cultures of the two companies could make it hard for the deal to succeed. However, with the constant string of merger and acquisitions by both the companies in the past the managers of the organisations were experienced to deal with the change and hence there appeared to be relative low threat integrating the operations of the two organisations.
Thus strategic planning and implementation ensure that the organisation stay focus on its goal and objectives for the profit making organisations. Arcelor Mittal today is the leader of the steel industry since almost two years of their successful merger to form world's largest steel firm with excellent wealth maximisation for its shareholders.
3 Role of strategic planning and implementation in success of non-profit organisation (Case study: Cancer Research UK)
There has been an increase in the workload for non-profit organisations while resources have grown scarcer. Non-profit organisations no longer assume their funds will arrive automatically from generous donors, nor can they assume, that they will have dozens of capable volunteers available to work. Funding organisations and even individual donors want to see evidence that their donations will be used wisely. Thus the one piece of evidence they often demand is a strategic plan.
To understand the role of strategic planning in the success of not for profit organisations I put the case of 'Cancer Research UK' the well known non-profit organisation under review.
Cancer Research UK is the world's leading independent organisation dedicated to cancer research, which support research into all aspects of cancer through the work of more than 4,500 scientists, doctors and nurses.
3.1 Mission, vision & purpose:
The mission, vision and purpose of CRUK define the ultimate goal and objective of the organisation which is to fight cancer. This element of the strategic plan seeks to ensure that the organisations do not deviate from their very reason of existence.
Mission - 'to reduce the number of deaths from cancer'
It is its reason for being, its purpose. A Mission Statement reminds the people of the organisation the reason of its very existence. The clearly defined mission has helped Cancer Research UK in achieving the success it is today. Cancer Research UK has funded a substantial programme of activities covering research, information and influenced public policy towards cancer awareness.
Vision - 'together we will beat cancer'
This statement gives the description of the organisation's desired future state to beat cancer. An organisational vision statement is internally focused: It projects the future in terms of the program, budget or staff size, answering the question "Where does CRUK want to be?"
â€¢ To carry out world-class research to improve the understanding of cancer and find out how to prevent, diagnose and treat different kinds of cancer.
â€¢ To ensure that their findings are used to improve the lives of all cancer patients.
â€¢ To help people to understand cancer, the progress they are making and the choices each person can make.
â€¢ To work in partnership with others to achieve the greatest impact in the global fight against cancer.
[Annual review Cancer Research UK 2008/09]
3.2 Goals and Objectives
While the terms are often used interchangeably, goals are generally more comprehensive or far-reaching than objectives. Progress toward achieving goals and objectives should be measurable. When framed clearly, they answer the question "What does the organisation want to accomplish?"
Cancer Research UK has developed ten goals to measure the success over the coming years in beating cancer.
People will know how to reduce their risk of cancer - Three-quarters of the UK public will be aware of the main lifestyle choices they can make to reduce their risk of getting cancer.
The number of smokers will fall dramatically - Four million fewer adults will be smokers, preventing thousands of new cases of cancer every year.
People under 75 will be less likely to get cancer - The chances of a person developing cancer up to the age of 75 will fall from more than one in four to one in five.
Cancer will be diagnosed earlier - Two-thirds of all cancer cases will be diagnosed at a stage when the cancer can be successfully treated.
We will understand how cancer starts and develops - We will have a detailed understanding of the causes and changes in the body in two-thirds of all cases of cancer.
There will be better treatments with fewer side effects - Treatments that accurately target the cancer and have few serious side effects will be available for at least half of all patients.
More people will survive cancer - Survival rates for all common cancers will increase, with more than two-thirds of newly-diagnosed patients living for at least five years.
Tackle cancer in low income communities - The differences in the risk of dying from cancer between the most affluent and the least affluent will be reduced by half.
People with cancer will get the information they need - At least nine out of ten patients will be able to access the information they need at the time of diagnosis and during treatment.
We will continue to fight cancer beyond 2020 - Sufficient scientists, doctors, nurses and infrastructure will be in place to ensure continued rapid progress in the fight against cancer beyond 2020.
3.3 Strategies and Tactics:
They answer the question "How will we actually accomplish our work?" These consist of approaches or sets of activities needed to achieve the goals and objectives.
What do CRUK do to achieve its objectives?
Research - Cancer Research UK supports scientists, doctors and nurses across the UK, who are working together to investigate all aspects of cancer.
Provide cancer information - millions of people have benefited from information provided by Cancer Research UK. They produce information for audiences including cancer patients and their families, the general public and health professionals.
Working with Government - with the help of the public, Cancer Research UK works to make sure that cancer stays at the top of the health agenda.
How does CRUK raise funds?
Research is expensive and requires long-term funding. People give regular donations of £2 or more a month. Currently CRUK has more than a million donors regularly giving over £5million pounds each month.
Around a third of CRUK's work is funded by Legacies. Legacies are important to finding future cures for cancer, and help plan vital research far into the future.
Regional and national activities
Many different regional and national activities are organised by CRUK.
Over 549,000 women took part in national Race for Life series in 2005, when they raised over £33.5million for the life saving research. Relay for Life is one of a unique event that gives communities the chance to celebrate the lives of people touched by cancer. Relay events that took place in 2006 raised over £1 million.
Cancer Research UK joined for the GiveGet campaign along with TK Maxx making it one of the UK's biggest charity clothes collections. Over £3.2 million worth of donated stock for research into childhood cancers was raised with this activity.
Over 600 charity shops sell both donated goods and new items.
Volunteers work across Cancer Research UK departments generating income and new support for the charity through their volunteering placements
3.4 Monitoring & evaluating
CRUK fund only the best science. All of the research it funds is subject to a rigorous peer review process which ensures that every penny of cancer research activity £355 million last year goes toward research of the highest quality aimed at beating cancer.
CRUK is a registered charities and regulated by the Charity Commission, which acts as regulator and registrar for charities in England and Wales. Cancer Research UK abides by the codes set by the Institute of fundraising and it is also the member of the Fundraising Standards Board. It is committed to the highest standards in fundraising practice.
The success of Cancer Research UK in raising millions of pounds of funds and efficient utilisation of this fund to develop the knowledge and awareness for cancer is the reflection of its specific mission and integration of its activities to achieve this mission by way of an effective strategic plan. I proves the theory that the well established and implemented strategic plan is the key to success of the organisation.