How to Implement the strategic planning

Strategic planning is a formal system for supporting strategic decision making. Strategic decisions* are

decisions that are integrative, competitively consequential, involve considerable resource commitment, and are hard

to reverse. Such decisions have the potential to critically affect organizational health and survival. Examples of

strategic decisions are: restructuring, new product introduction, organizational change, joint venture and strategic

alliance, acquisitions, divestments, new process technologies, new marketing venues, geographic expansion,

diversification to other industries, capacity expansion, creating new facilities, fundamental revision of human

resource policies, and engaging in quality initiatives.

Planning is a “formalized procedure to produce articulated result, in the form of an integrated

system of decisions”. It clearly consists of future thinking and often is motivated by attempts to control what comes

next. It means trying to design a desired future and identifying ways to bring it about. It involves resource allocation,

priorities, and actions needed to reach strategic goals. Strategic plans are converted into action through

organizational policies, procedures, and rules. Policies provide general guidelines for decision making and actions.

Procedures provide customary ways for sets of activities. Rules are specific courses of actions.

Strategic planning is “an explicit process for determining the firm’s long-range objectives, procedures for

generating and evaluating alternative strategies, and a system for monitoring the results of the plan when

implemented,”. It is based on a profile of the decisions and the predispositions of those who control the firm with

respect to its environment, context, and structure. The process of strategic planning consists of determining the

firm’s mission, major objectives, strategies, and policies that govern the acquisition and allocation of resources to

achieve the firm’s goals. This process is formal in that it “involves explicit systematic procedures used to gain the

involvement and commitment of those principal stakeholders affected by the plan”. Planning is formal in as much as

it involves a preordained flow and processing of information. This preordained flow has to be regular and scheduled.

According to Mintzberg strategic planning “must be seen, not as decision making, not as strategy making,

and certainly not as management, or as the preferred way of doing any of these things, but simply as the effort to

formalize parts of them—through decomposition, articulation, and rationalization.” Strategic planning supports, but

it is not a substitute for, strategic thinking. Strategic planning supports strategic decision making both before and

after such decisions are made. As input, strategic planning provides data and analysis. As output, it elaborates and

operationalized strategic decisions.

 Other definitions of strategic planning include the following: Kallman and Shapiro maintain that it is a

process of analyzing and understanding a system, formulating goals and objectives, assessing capabilities, designing

alternative courses of action, evaluating effectiveness, choosing, initiating actions for implementation, and engaging

in continuous surveillance. Kudla holds that it is a systematic process for determining goals and objectives for a

number of years into the future and developing strategies to govern resource acquisition and use. Liedtka sees it as a

“mechanism for setting and reviewing objectives, focusing on choices of long-term significance, identifying options,

allocating resources, and achieving coordination,

monitoring, and control.” And Hax and Majluf define it as a disciplined and well-defined effort aimed at

establishing objectives and assigning responsibilities for execution.

CHARACTERISTICS OF STRATEGIC PLANNING SYSTEMS

Strategic planning systems vary between firms and industries. Boyd and Reuning-Elliott note that there is

remarkably little consistency in the operationalization of strategic planning. Based on an extensive literature review,

they identify and test seven internally consistent indicators of strategic planning. These are the extents to which each

of the following are emphasized: mission statement, environmental trend analysis, competitor analysis, long-term

goals, annual goals, short-term action plans, and ongoing evaluation.

The role and realm of decisions are different across the hierarchical levels in the firm. At the corporate

level, strategic decisions and, hence, planning efforts are directed at integrating the variety of businesses the

corporation operates and managing the trade-offs necessary to maximize the benefits to the whole organization. At

the business level, efforts are made to achieve long-term competitive advantage over specific competitors and within

a specific industry context, congruent with the general corporate direction and with the resources allocated to the

particular business unit. Finally, functional strategic planning deals with the specific functional parts of each

business (such as manufacturing, R&D, sales, marketing, logistics, and service) where the unique competencies of

the business are developed and leveraged. Because

functional strategies are both so heavily dependent on business and corporate decisions and very

specific, they are rarely studied by strategic planning researchers.

At the business level, the sequence of strategic planning commonly progresses in four steps:

(1) developing of firm’s vision, mission, and goals

(2) performing external and internal analyses

(3) creating, evaluating, and choosing strategies

(4) implementation, control, and feedback

In large, multidivisional corporations the typical annual corporate-level strategic planning cycle involves more steps.

(1) planning guidelines

(2) draft business plan

(3) discussion with corporate headquarters

(4) revision of the business plan

(5) annual capital and operating budgets

(6) aggregate corporate plan

(7) board approval

(8) performance targets and

(9) performance appraisal.

BUSINESS-LEVEL TOOLS AND TECHNIQUES Of Strategic Planning

SWOT Analysis

The goal of SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is to develop strategies
that exploit internal strengths and environmental opportunities while neutralizing external threats and avoiding
internal weaknesses. By now, SWOT analysis appears in virtually all textbooks in strategic management. SWOT
analysis is one of the early methods to enhance a firm’s fit with its environment. Mintzberg notes that, in particular,
strengths and weaknesses must be assessed only in the firm’s specific context by a learning process that tests
whether a certain resource a firm has is indeed an asset or a liability.

Five-Forces Analysis

Porter five-forces model aims to determine the profit potential of an industry a firm might be in or one it is
considering entering. The five forces determining the attractivity of an industry are: rivalry, new entry, buyers,
suppliers, and substitutes. The weaker each of these forces is, the higher the profit potential of the industry. Having
fewer and less fierce rivals and a lower risk of entry by new firms would allow incumbents to spend fewer resources
on defending themselves. Strong buyers can demand that the industry accept lower prices or that it provides them
products that are more expensive to produce. Strong suppliers demand higher prices for the inputs needed by the
industry. Attractive substitutes limit the price the industry can charge before buyers switch to these substitutes. The
model derives from industrial organization economics, incorporating concepts such as entry or exit barriers,
economies of scale, switching costs, product differentiation, capital intensity, asset specialization, access to
distribution channels, and ability of buyers and suppliers to integrate into the industry. The five-forces model is
useful for forecasting trends in the industry (manifested as changes in the five forces), positioning to mitigate
inherently negative forces, and choosing businesses to avoid unattractive industries.
Stakeholder Analysis

Stakeholder analysis examines both the competitive and cooperative relationships a firm has with various
elements in its environment (Freeman, 1984). A stakeholder is any group that affects and is affected by the firm.
Such analysis looks at both external stakeholders (such as rivals, customers, governments, local communities, and
the media) and internal ones (such as shareholders, employees, and managers). According to stakeholder theory, a
firm that obtains greater contributions from its internal and external stakeholders will be more successful than other
firms. Attaining this level of contribution requires giving stakeholders appropriate incentives. The firm needs to
provide a different type of incentive to each stakeholder group and in turn expects to obtain a different type of
contribution from each group.

Value-Chain Analysis

Value-chain analysis was proposed by Porter. A firm’s functions constitute a chain of activities that
transform inputs into outputs that customers value. This transformation process is composed of primary activities
(like R&D, production, marketing and sales, and service) and support activities (such as infrastructure, information
systems, material management, and human resources). Each activity has to be evaluated for its costs in comparison
to the income it generates. Firms in an industry can compare the profit margin of its primary and support activities to
those of their major competitors to detect signs of comparative strength or weakness. Moreover, not all activities
must be done in-house. Some can be contracted to outside vendors. This examination of the rent-generating potential
of each link in the value chain allows the firm to consider its investments in various links and to consider
outsourcing or expansion of particular activities.

McKinsey’s Seven-S Framework

The seven-S framework was developed by McKinsey and Company’s Peters and Waterman. It draws
attention to the integration and fit of strategy with six other important aspects of the firm: structure, systems, style,
staffing, skill, and shared values. Structure is the extent to which an organization has a coherent form of dividing
labor, allocating responsibilities, coordinating tasks, and ensuring accountability. Systems relate to how processes
work and tasks are accomplished in critical areas within the firm. Style is the degree to which time, attention, and
behavior of management and employees are aligned with the firm’s real strategic needs. Staffing deals with the
matching of management and employee skills with the tasks that have to be carried out, the extent to which the
personalities in place are capable of working together, and the degree to which there is sufficient diversity among
staff to allow opposing and dissenting voices to be heard. Skills relates to the extent to which the firm as a whole, as
opposed to its employees, has the capabilities in place to compete and generate growth. Last, shared values are
associated with the extent to which there is unity of purpose behind a common vision and culture in the firm.