TABLE OF CONTENTS
Introduction
2.1 Planning 2.2 Strategy
2.3 Strategic Planning
2.3.1 Need for Strategic Planning 2.3.2 Strategic Plan
2.3.3 Strategic Planning Process 2.3.4 Strategic Planning Tools 2.4 Forming Strategies
References Glossary
Feedback on the Activities on the Self-tests
C C h h a a p p t t e e r r 2 2
X Strategic Planning
CHAPTER LEARNING OUTCOMES
When you have completed this chapter you will be able to:
• Discuss the concept of strategic planning
• Discuss the benefits of strategic planning
• Discuss the components of strategic planning
• Discuss the strategic planning process
• Discuss the strategic planning tools available, such as Boston Consulting Group and Porter's Competitive Strategy framework
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X INTRODUCTION
We learned in previous chapter that there are 4 processes involved in management process which are planning, organizing, directing and controlling. In general, an organization needs a strategic planning to direct itself in the development of procedures and operations to achieve the corporate goals and objectives.
Through a strategic planning process, the values, current status, and environment of the organization are examined and these factors are related to the organizationÊs desired future state.
PLANNING
• To organize, in a disciplined way, the major tasks that an enterprise has to address to maintain an operational efficiency in its existing business and to guide the organization into a better future.
• An analytical process which involves an assessment of the future, the determination of desired goals and objectives in the context of that future, the development of alternative courses of action to achieve such objectives and the selection of a course(s) of action among those alternatives (Camillus 1986).
• A response to the pessimistic belief that unless something is done a desired future state will not occur, and to the optimistic belief that we can do things to improve our chances of achieving the desired state (Richardson and Richardson 1989).
A plan is the outcome of successful planning. It is a description of a consciously intended course of action. It may, however, be formally documented or remain informally in the plannerÊs mind.
STRATEGY
• Presented as the policies whereby the organization elaborates its goals and objectives.
• Helps shape the organization while it moves towards its goals and objectives.
2.2 2.1
„Charts the course for an organization, and steers the organization from where it is to where it wants to be.‰
Figure 2.1: Planning (Source: www.planonline.org)
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• Concerned with the choice of the particular market segments to be served by the organization and the methods of achieving success in the particular segments.
• May define areas for product development, techniques for responding to competition, means of financing, size of the organization, and the image the enterprise should project.
Often the terms ÂstrategyÊ and ÂpolicyÊ are confused with each other. What is the difference between strategy and policy?
STRATEGY POLICY
• Concerned with meeting the threats and opportunities presented by the environment external to the organization. Important decisive moves that have an element of irreversibility in them.
• Is necessary if an organization is to use its capital and human resources effectively and efficiently.
• A set of guidelines (behaviour standards) stated generally in the form: ÂIf X, then YÊ.
• An elaboration of strategy so as to apply effectively internal resources and thereby achieve strategic objectives and goals.
Whereas a policy is a guide to action, the strategy is the action itself.
Strategy is the outcome of the allocation of resources to areas that seem most beneficial. Often, divisions within an organization may compete with on another for capital resources. Each division presents legitimate proposals, but often there simply is not enough capital to meet all the competing internal demands. Strategy narrows the large number of possibilities available to the enterprise to a few, by choosing areas that appear to offer the greatest opportunities with limited resources.
Finally, strategy opens the door for the application of both managerial and production scale economies. That is, with a correct strategy, an organization can direct and use its human and capital resources effectively and efficiently in the market segments that appear most promising.
Strategies may be formulated at various levels in an organization. Like goal setting, many organizations have three levels of strategy: corporate, business and functional.
• Corporate strategy is concerned with what businesses a corporation does, and does not, wish to enter. It defines the businesses in which a company will compete, preferably in a way that focuses resources to convert distinctive competence into competitive advantage (Andrews 1980).
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• Business strategy is concerned with achieving the goals of a particular business within a corporation. It is the determination of how a company will compete in a given business, and position itself among its competitors (Andrews 1980).
Strategic alternatives available for a business include the following.
– Strong growth strategy may include sales growth, market share growth or growth in overall size. The basic approach in this strategy is to pump resources into the business for activities such as advertising and setting up new plants in an effort to spur new growth.
– Slow growth is most appropriate for large businesses when rapid growth is impossible, and for small businesses in order to avoid too much strain on their operation.
– Retrenchment strategy refers to cutting back some operations, and is appropriate when costs are out of control or when the market for a businessÊs products is stagnant.
– Finally, in the transformation strategy a business changes its mission to a vision and thereby its whole approach to business.
• Functional strategies deal with major aspects of the businessÊs functional operations: marketing, production, finance, human resources and research and development (R&D).