What is Strategic Planning?
Strategy refers to a plan of action devised to achieve certain long-term goals. Strategic planning involves setting strategies for a firm after analysing the internal and external business environments so that the long-term goals of the firm become attainable.
Firms adopt strategic planning for defining their strategies clearly, determining the direction to reach goals and developing plans for resource allocation to pursue the strategy.
Table of Content
Meaning, Definition and Characteristics of Strategic Planning
As mentioned earlier, strategic planning refers to the planning made to achieve the long-term goals of a firm. Stein-Hudson defines strategic planning as the management process which is used to develop strategic thinking and to foster strategic decision-making by leaders, and, in turn, by line managers and departments responsible for turning agency goals into results. In strategic planning, the present and future business environment factors are considered and their potential impact on the overall objectives of the firm is evaluated.
Strategic planning basically deals with the following types of questions:
- What do we do?
- What goals do we want to achieve?
- Are we able to achieve those goals? What areas of business require improvement?
Strategic planning helps firms in:
- Adapting the firm to the changes in the business environment.
- Establishing priorities on what is to be achieved in the future.
- Making choices between what is to be done and what is not to be done.
- Arranging all the factors of the business towards the accomplishment of the long-term goals.
- Identifying the areas where the resources are to be allocated.
Successful strategic planning has the following characteristics:
- It is focused on the future. It constantly evaluates different alternative future courses of action that can be adopted by the firm to achieve its long-term goals.
- It facilitates dynamic and forward-looking thinking.
- It sets a clear and simple plan that is easily communicable to different stakeholders.
- It must be practical and focus on the execution part of the plan.
- It is process-centric, i.e., it aims at building simplified processes.
Strategic Intent
Strategic intent plays a very important part in the success of a firm. No firm, be it small or large, can succeed solely on the basis of innovative ideas. In addition to innovative ideas, a firm needs to have clearly defined long-term goals and objectives that may provide it with a future road map.
Further, these long-term goals and objectives should be divided into short-term goals and objectives, and the firm should also define the means to achieve them. These goals, objectives, future direction and core principles of a firm together constitute the ‘strategic intent’ of the firm.
In simpler words, the strategic intent of a firm is a written document that defines what the firm wants to achieve in the long term, and the means the firm can take to achieve the same. Strategic intent includes vision, mission, goals and objectives of a firm. It lays down the framework for a firm and helps in providing a direction to achieve the goals of the firm.
For example, the strategic intent of Coca-Cola is to reach each and every individual on the planet. The huge success of Coca-Cola can be attributed to its strategic intent. The term strategic intent was defined and popularised by professors Hamel and Prahalad.
According to them strategic intent is an ambitious and compelling dream that provides emotional and intellectual energy for the journey to the future.
There are three basic features of strategic intent, which are shown in
These features are also called the 3Ds of strategic intent and are explained as follows:
- Direction: It determines the future course of a firm by providing a roadmap. In other words, direction shows the way a firm can reach its intended goal in a given period of time.
- Discovery: It strives to find new avenues, ideas and creativity to explore for an appropriate future course of action for the firm.
- Destiny: It implies that strategic intent provides a destination where a firm wants to reach in a given period. If a firm knows what it wants in the future, it can build strategies in the present. Thus, a firm should make its strategies with the end goal in mind. For example, the strategic intent of NASA (Put a man on the moon by the end of the decade) sets the destiny clear to the firm.
Typically, strategic intent helps in:
- Creating the long-term vision for a firm. Communicating the vision of the firm to its different stakeholders.
- Developing a mission statement, which includes the means of achieving the vision of the firm.
- Defining the business dimensions of the firm. Setting the firm’s goals and objectives.
Components of Strategic Planning
Engaging commitment
It refers to engaging the right people at the right time. For running a firm efficiently, it is required to have various professionals with varied skills. Hence initially, these people are to be appointed to accomplish the desired tasks. Commitment can be increased by involving people who have interest in the tasks to be executed. Therefore, putting the right people in the team is a prerequisite to increase commitment.
Setting long-term strategic objectives
For an overall improved performance of a firm, it should set clear long-term goals. Long-term goals refer to the goals that a firm intend to achieve over a period longer than a year. Setting long-term goals needs a thorough understanding of the market trends and the probable opportunities and threats in the market in the future.
Generating strategic options
During the generation of strategic options, i.e., alternate strategies, evaluation of the strengths, weaknesses, opportunities and threats of the firm is done. Generation of strategic options is required because if the first plan does not work, an alternative plan can be used. For example, a firm may have different strategic options for diversification, such as acquisition, strategic alliance, joint venture, etc. This also increases the adaptability of the firm.
Assessing and deciding strategies
Assessment of strategies involves finding out whether the strategy adopted will achieve the intended objectives or not. A strategy needs to be evaluated vis-à-vis the objectives of the firm. For example, a firm intending to penetrate a new market needs to evaluate whether its strategies will actually help it in Monitoring: This refers to keeping track of the actual results of the strategies and evaluating whether the intended objectives are being achieved or not. Monitoring should take place at regular intervals to oversee whether the desired objectives are achieved.
Process of Strategic Planning
Strategic planning is not a single event. It is a process having the following steps:
Setting the mission statement of firm
Setting the mission statement sets the direction for a firm, i.e., where the firm intends to be in a given period. It projects a firm’s intended image to customers. The mission statement is created to communicate a sense of purpose to the firm and customers both.
Setting objectives to be achieved
Setting of objectives refers to the target that the firm seeks to hit; for example, if a firm is looking forward to achieving a predefined sales level, say `Rs100 crores in the next three years, it can be seen as setting objectives of the firm.
Undertaking situational analysis
In this step, a strategic plan is devised to achieve the objectives decided upon. To achieve these desired objectives, the firm must also analyse its own capabilities and limitations. In situational analysis, both the external and internal environments are to be evaluated.
An internal environment analysis within a firm considers the following factors:
- Company culture
- Image of firm
- Key staff
- Access to natural resources
- Operational efficiency
- Brand awareness
- Patents and trade secrets
In an external environment, macro and micro factors are involved. While in macro environment, all those factors are included that influence the whole industry, in microenvironment, only those factors are involved that influence a particular firm.
Porter’s 5 Forces Model
Microenvironment analysis is generally carried out through Porter’s 5 Forces Model, which includes the evaluation of:
- Entry barriers
- Customers
- Suppliers
- Competition from substitute goods
- Competition within the industry
Formulating strategy
Once a clear picture of the firm and its environment is known, the next step is developing specific strategies and different alternatives. According to Michael Porter, cost leadership, differentiation and focus are the generic strategies that must be considered while developing strategic alternatives.
Implementing strategy
For effective implementation of the formulated strategies, these need to be broken down into more detailed policies so that the strategies can be understood at the functional level of the firm. The strategies should be translated into specific policies for the functional areas, which include:
- Marketing
- R&D
- Production
- Procurement
- HR
- Information systems
Controlling
Once the strategies are implemented, their results need to be measured and evaluated with respect to the deviations so that the plan can be controlled. For achieving better control, the actual performance should be measured with the planned performance and then, in case of any deviations, corrective action can be taken.
Benefits of Strategic Planning
The benefits of strategic planning can be listed as follows:
Accomplishing tasks
It helps in the accomplishment of tasks. A firm cannot predict every future business situation. Deciding in advance as to what to do and how to do it can help in achieving the main goals of the firm effectively.
Establishing direction
It clearly defines the purpose of the firm and establishes realistic goals and objectives in line with the mission and vision of the firm. It also provides the base according to which the prog- ress of the firm should be measured.
Assisting in making wise business decisions
By strategic planning, wise business decisions can be made. Strategic planning provides a clear picture of what is to be done, what kind of efforts should be put in by employees and what kind of compensation should be made to them.
Enabling longevity of business
The sustainability of business can be achieved only if the foundation of the company is strong, which can be achieved only when a proper planning for the future is undertaken. This can happen only through the means of strategic planning.
A focused planning helps in increasing the profitability and market share of the firm, because by proper planning, the decision upon the market share, market opportunities, new products, etc., can be undertaken. New opportunities lead to increased sales, which in turn leads to an improved profitability.
Increasing job satisfaction of employees
By proper strategic planning, the right job is assigned to the right person. Therefore, employees perform with more confidence and thus are able to provide stability to the firm.
Mistakes of Strategic Planning
The common mistakes in strategic planning are as follows:
- Development of impractical plans that are difficult to implement.
- Failure to communicate the plan of action to all stakeholders. Non-incorporation of strategic plans in day-to-day operations. Failure to implement the plans properly at all levels of the firm. Non-synchronisation with the values of the firm.
- Inability to implement feasibility in short-term activities.
Constraints of Strategic Planning
Some of the constraints of strategic planning are as follows:
- Lack of adequate planning may hamper effective strategic planning. Generally, incompetency, lack of technical knowledge, etc., result in inadequate planning.
- Lack of commitment at the top level may hamper the implementation of strategic planning.
- Lack of adequate knowledge and technical skills may impact the strategic planning process.
- Lack of resources may not allow achievement of goals of strategic planning.
