A basic strategic plan is comprised of several components that build upon the previous piece of the plan, and is meant to operate much like a flow chart. For it to be effective though one must first consider the team players involved. The entire corporate hierarchy must be committed to the achievement of the strategy. Devoid of the full support of the overall head of the company it is unlikely that full member support will be gained in the planning and eventual implementation process, thereby dooming the plan before it ever takes shape. Commitment and support of the strategic-planning initiative must spread from the topmost executive all the way down through the ranks to the line worker on the factory floor.
Another important component is the involvement of a strategic-planning team composed of top-level managers who are capable of representing the interests, concerns, and opinions of all members of the organization. As well, organizational theory dictates that there should be no more than twelve members of the team. This allows group dynamics to function at their optimal level.
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The components of the strategic-planning process are unique in the sense that the process must be kept in its sequential order since each part builds upon the previous one. This is where the similarity to a flow chart is most evident.
The only exceptions to this are environmental scanning and continuous implementation, which are continuous processes throughout.
Stated simply, strategy is a road map or guide by which an organization moves from a current state of affairs to a future desired state. It is not only a template by which daily decisions are made, but also a tool with which long-range future plans and courses of action are constructed. Strategy allows a company to position itself effectively within its environment to reach its maximum potential, while constantly monitoring that environment for changes that can affect it so as to make changes in its strategic plan accordingly. In short, strategy defines where you are, where you are going, and how you are going to get there.
The initial task in strategic management is typically the compilation and dissemination of a mission statement. This document outlines, in essence, the raison d'etre of an organisation. Additionally, it specifies the scope of activities an organisation wishes to undertake coupled with the markets a firm wishes to serve.
Following the devising of a mission statement, a firm would then undertake an environmental scanning within the purview of the statement.
Strategic formation is a combination of three main processes which are as follows:
Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental.
Concurrent with this assessment, objectives are set. These objectives should be parallel to a time-line; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.
These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.
This element of strategy formulation is one of the two continuous processes. Consistently scanning its surroundings serves the distinct purpose of allowing a company to survey a variety of constituents that affect its performance, and which are necessary in order to conduct subsequent pieces of the planning process. There are several specific areas that should be considered, including the overall environment, the specific industry itself, competition, and the internal environment of the firm. The resulting consequence of regular inspection of the environment is that an organization readily notes changes and is able to adapt its strategy accordingly. This leads to the development of a real advantage in the form of accurate responses to internal and external stimuli so as to keep pace with the competition.
Figure 1 Strategic Planning Process
Strategic Planning Process
An environmental scan will highlight all pertinent aspects that affect an organisation whether external, sector/industry-based, or internal. Such an occurrence will also uncover areas to capitalise on in addition to areas in which expansion may be unwise.
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These options, once identified, have to be vetted and screened by an organisation. In addition to ascertaining the suitability, feasibility and acceptability of an option, the actual modes of progress have to be determined. These pertain to:
The basis of competition
The basis of competition relates to how an organisation will produce its product offerings, together with the basis as to how it will act within a market structure, and relative to its competitors. Some of these options encompass:
A differentiation approach, in which a multitude of market segments are served on a mass scale. An example will include the array of products produced by Unilever, or Proctor and Gamble, as both forge many of the world's noted consumer brands serving a variety of market segments.
A cost-based approach, which often concerns economy pricing. An example may be dollar stores in the United States.
A focus (or niche) approach. In this paradigm, an organisation would produce items for a niche market, as opposed to a mass market. An example is Aston Martin cars.
Direct and mode of action
Measuring the effectiveness of the organizational strategy, it's extremely important to conduct a SWOT analysis to figure out the internal strengths and weaknesses, and external opportunities and threats of the entity in business. This may require taking certain precautionary measures or even changing the entire strategy.
In corporate strategy, Johnson, Scholes and Whittington present a model in which strategic options are evaluated against three key success criteria:
Suitability (would it work?)
Feasibility (can it be made to work?)
Acceptability (will they work it?)
Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organisation's strategic position.
Does it make economic sense?
Would the organization obtain economies of scale or economies of scope?
Would it be suitable in terms of environment and capabilities?
Tools that can be used to evaluate suitability include:
Ranking strategic options
Feasibility is concerned with whether the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information.
Tools that can be used to evaluate feasibility include:
cash flow analysis and forecasting
resource deployment analysis
Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions.
Return deals with the benefits expected by the stakeholders (financial and non-financial). For example, shareholders would expect the increase of their wealth, employees would expect improvement in their careers and customers would expect better value for money.
Risk deals with the probability and consequences of failure of a strategy (financial and non-financial).
Stakeholder reactions deal with anticipating the likely reaction of stakeholders. Shareholders could oppose the issuing of new shares, employees and unions could oppose outsourcing for fear of losing their jobs, customers could have concerns over a merger with regards to quality and support.
Tools that can be used to evaluate acceptability include:
The idea behind this continual process is that each step of the planning process requires some degree of implementation before the next stage can begin. This naturally dictates that all implementation cannot be postponed until completion of the plan, but must be initiated along the way. Implementation procedures specific to each phase of planning must be completed during that phase in order for the next stage to be started.
All business decisions are fundamentally based on some set of values, whether they are personal or organizational values. The implication here is that since the strategic plan is to be used as a guide for daily decision making, the plan itself should be aligned with those personal and organizational values. To delve even further, a values assessment should include an in-depth analysis of several elements: personal values, organizational values, operating philosophy, organization culture, and stakeholders. This allows the planning team to take a macro look at the organization and how it functions as a whole.
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Strategic planning that does not integrate a values assessment into the process is sure to encounter severe implementation and functionality problems if not outright failure. Briefly put, form follows function; the form of the strategic plan must follow the functionality of the organization, which is a direct result of organizational values and culture. If any party feels that his or her values have been neglected, he or she will not adopt the plan into daily work procedures and the benefits will not be obtained.
Vision and Mission Formulation
This step of the planning process is critical in that is serves as the foundation upon which the remainder of the plan is built. A vision is a statement that identifies where an organization wants to be at some point in the future. It functions to provide a company with directionality, stress management, justification and quantification of resources, enhancement of professional growth, motivation, standards, and succession planning. Porrus and Collins (1996) point out that a well-conceived vision consists of two major components: a core ideology and the envisioned future.
A core ideology is the enduring character of an organization; it provides the glue that holds an organization together. It itself is composed of core values and a core purpose. The core purpose is the organization's entire reason for being. The envisioned future involves a conception of the organization at a specified future date inclusive of its aspirations and ambitions. It includes the BHAG (big, hairy, audacious goal), which a company typically reaches only 50 to 70 percent of the time. This envisioned future gives vividly describes specific goals for the organization to reach.
The strategic results of a well formulated vision include the survival of the organization, the focus on productive effort, vitality through the alignment of the individual employees and the organization as a whole, and, finally, success. Once an agreed-upon vision is implemented, it is time to move on to the creation of a mission statement.
An explicit mission statement ensures the unanimity of purpose, provides the basis for resource allocation, guides organizational climate and culture, establishes organizational boundaries, facilitates accountability, and facilitates control of cost, time, and performance. When formulating a mission statement, it is vital that it specifies six specific elements, including the basic product or service, employee orientation, primary market(s), customer orientation, principle technologies, and standards of quality. With all of these elements incorporated, a mission statement should still remain short and memorable. For example, the mission statement of the American Red Cross, reads:
"The mission of the American Red Cross is to improve the quality of human life; to enhance self-reliance and concern for others; and to help people avoid, prepare for, and cope with emergencies."
Other functions of a mission statement include setting the bounds for development of company philosophy, values, aspirations, and priorities (policy); establishing a positive public image; justifying business operations; and providing a corporate identity for internal and external stakeholders.
Other factors and variables in choosing strategic planning models
Some of the considerations in selecting and assessing strategic planning models include-
stage of development of the organization
structure of the organization
attitudes to 'planfulness'
These factors also help to determine to what extent the company can afford to be innovative with their corporate planning strategies.
The degree of stability or turbulence of the environment may influence the duration and sequence of elements in the strategic planning process. A very stable environment may permit or encourage a more considered, or 'leisurely' approach, with a great deal of time for data analysis, and widespread consultation. A rapidly changing or very turbulent environment may require a more rapid fire approach.
The kind of influence exerted over the governance of the organisation and what is, and who is, included in any strategic planning process may influence the model of strategic planning employed. For example, a government business enterprise (GBE) or public service agency may be required by legislation to follow a particular approach to strategic planning, or as it is still sometimes called in the public sector ââ‚¬Ëœcorporate planningââ‚¬â„¢.
The state of organisational health may influence the strategic planning approach. An organization some kind of trouble may be advised not to do strategic planning at all, and a small thriving organisation may be able to manage strategic thinking informally. When a company is going bust, the focus should be on immediate rescue or winding up processes, not long range performance improvement through strategic planning. Any organization run by an autocrat would be wasting everyone's time by engaging on elaborate participative processes. When a brief major upheaval is in prospect, then the quality of attention needed for strategic planning may be in short supply, and should be deferred.
Stage of development of the organization
The lack of strategic business planning is a major drawback in the implementation of business process initiatives such as total quality management. In addition, it is evident that strategic planning firms achieve better performance than other firms. However, strategic planning often fails due to problems or barriers encountered at the implementation stage.
Where an organizational is in its life cycle may be important in the choice of strategic planning. The small and very entrepreneurial start-up organisation may be so driven by an almost missionary zeal, by the focus on a particular market, application of a new invention, or similar passion that no special formal effort at strategic planning is required.
As an organisation grows it reaches a threshold where it needs to introduce more professional management practices, and one of these probably should be formal strategic planning. However the model of strategic planning appropriate for the first formal introduction of the process might be a good deal simpler than that required a complex group structure of a multinational business.
Structure of the organization
The structure of managerial accountability, the geographic scope, multiplicity of lines of business, may all require adjustments to the sequencing of tasks, and issues around who should be involved in various decision processes, as well as the sophistication of necessary data gathering for the decision-making.
The strategic planning approach used may also be influenced by whether or not an organisation is a for-profit business or a non-profit organisation. Strategic planning models for nonprofits can become especially complex because of the usual insistence on having multiple objectives, and including scope for a multiplicity of stakeholders or interest groups.
Attitudes to 'planfulness'
Some organizations by tradition or by management style, or the kind of people employed in them have different attitudes to being involved in formal planning processes. Academic institutions have issues over status of the persons involved in planning and decision making that may not correspond to the managerial accountability hierarchy in the administrative area of the organization, and this may set up a need for separate lines of data analysis and decision making, as well a structuring clear opportunities for different groups to be involved in debating the issues to be addressed. Some creative organisations in the arts area for example may reject anything that seems excessively formal, rationalistic, or bureaucratic in nature. Selecting you strategic planning framework needs to take these things into account.
Strategists are individuals who are most responsible for the success or failure of an organization. Strategists are individuals who form strategies. Strategists have various job titles, such as chief executive officer, president, and owner, chair of the board, executive director, chancellor, dean, or entrepreneur.
Strategists help an organization gather, analyze, and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, evaluate corporate and divisional performance, spot emerging market opportunities, identify business threats, and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision making in the firm. The CEO is the most visible and critical strategic manager. Any manager who has responsibility for a unit or division, responsibility for profit and loss outcomes, or direct authority over a major piece of the business is a strategic manager (strategist).
Strategists differ as much as organizations themselves and these differences must be considered in the formulation, implementation, and evaluation of strategies. Some strategists will not consider some types of strategies because of their personal philosophies. Strategists differ in their attitudes, values, ethics, willingness to take risks, concern for social responsibility, concern for profitability, concern for short-run versus long-run aims and management style.
Potential Pitfalls in Strategic Planning
Strategic planning is an involved, intricate, and complex process that takes an organization into non-chartered territory. It does not provide a ready-to-use prescription for success; instead, it takes the organization through a journey and offers a framework for addressing questions and solving problems. Being aware of potential pitfalls and prepared to address them is essential to success.
Some pitfalls to watch for and avoid in strategic planning are provided below:
1. Using strategic planning to gain control over decisions and resources
2. Doing strategic planning only to satisfy accreditation or regulatory requirements
3. Too hastily moving from mission development to strategy formulation
4. Failing to communicate the plan to employees, who continue working in the dark
5. Top managers making many intuitive decisions that conflict with the formal plan
6. Top managers not actively supporting the strategic-planning process
7. Failing to use plans as a standard for measuring performance
8. Delegating planning to a "planner" rather than involving all managers
9. Failing to involve key employees in all phases of planning
10. Failing to create a collaborative climate supportive of change
11. Viewing planning to be unnecessary or unimportant
12. Becoming so engrossed in current problems that insufficient or no planning is done
13. Being so formal in planning that flexibility and creativity are stifled.
This article will now focus on the discussion of each component of the formulation process: environmental scanning, continuous implementation, values assessment, vision and mission formulation, strategy design, performance audit analysis, gap analysis, action-plan development, contingency planning, and final implementation. After that, this article will discuss a Japanese variation to Strategy Formulation, Hoshin Planning, which has become very popular.