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Strategic planning

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenues through which it can pursue a particular course of action. While strategic planning may be used to effectively plot a company's longer-term direction, one cannot use it to reliably forecast how the market will evolve and what issues will surface in the immediate future. Therefore, strategic innovation and tinkering with the "strategic plan" have to be a cornerstone strategy for an organization to survive the turbulent business climate.

Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions[1]:

  1. "What do we do?"
  2. "For whom do we do it?"
  3. "How do we excel?"

In business strategic planning, some authors phrase the third question as "How can we beat or avoid competition?"[2] . But this approach is more about defeating competitors than about excelling.

In many organizations, this is viewed as a process for determining where an organization is going over the next year or—more typically—3 to 5 years (long term), although some extend their vision to 20 years.

Conceptualization

The key concepts within the framework of 'strategic planning' includes an understanding of the firm's vision, mission, values and strategies.

Vision: Defines the way an organization or enterprise will look in the future. The vision is a long-term view, sometimes describing the organization's picture of an "ideal world". For example, a charity working with the poor might have a vision statement which reads "A World without Poverty."

Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its vision.

The mission statement provides details of the organization's operation and says what is does. For example, the charity might provide "job training for the homeless and unemployed". The statement may also set out a picture of the organization in the future.

Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities and provide a framework in which decisions are made. For example, "Knowledge and skills are the keys to success" or "give a man bread and feed him for a day, but teach him to farm and feed him for life". These example values may set the priorities of self sufficiency over shelter.

Strategy: Strategy, narrowly defined, means "the art of the general" (from Greek stratigos). A combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy is sometimes called a roadmap which is the path chosen to plow towards the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction which is towards the end vision.

Organizations sometimes summarize goals and objectives into a mission statement and/or a vision statement. Others begin with a vision and mission and use them to formulate goals and objectives.

While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here.

  • A Mission statement tells you the fundamental purpose of the organization. It defines the customer and the critical processes. It informs you of the desired level of performance.
  • A Vision statement outlines what the organization wants to be, or how it wants the world in which it operates to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria.

An advantage of having a statement is that it creates value for those who get exposed to the statement, and those prospects are managers, employees and sometimes even customers. Statements create a sense of direction and opportunity. They both are an essential part of the strategy-making process.

Many people mistake the vision statement for the mission statement, and sometimes one is simply used as a longer term version of the other. The Vision should describe why it is important to achieve the Mission. A Vision statement defines the purpose or broader goal for being in existence or in the business and can remain the same for decades if crafted well. A Mission statement is more specific to what the enterprise can achieve itself. Vision should describe what will be achieved in the wider sphere if the organization and others are successful in achieving their individual missions.

A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The mission statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided it can be elucidated in SMART (Specific, Measurable, Achievable, Relevant and Time-bound) terms. A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottom line and success of the organization.

Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to reengineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan. Either way, you need to know your fundamental purpose - the mission, your current situation in terms of internal resources and capabilities (strengths and/or weaknesses) and external conditions (opportunities and/or threats), and where you want to go - the vision for the future. It's important that you keep the end or desired result in sight from the start.

Features of an effective vision statement include:

  • Clarity and lack of ambiguity
  • Vivid and clear picture
  • Description of a bright future
  • Memorable and engaging wording
  • Realistic aspirations
  • Alignment with organizational values and culture

To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision. In addition, mission statements need to be subjected to an internal assessment and an external assessment. The internal assessment should focus on how members inside the organization interpret their mission statement. The external assessment — which includes all of the businesses stakeholders — is valuable since it offers a different perspective. These discrepancies between these two assessments can give insight on the organization's mission statement effectiveness.

Another approach to defining Vision and Mission is to pose two questions. Firstly, "What aspirations does the organization have for the world in which it operates and has some influence over?", and following on from this, "What can (and/or does) the organization do or contribute to fulfill those aspirations?". The succinct answer to the first question provides the basis of the Vision Statement. The answer to the second question determines the Mission Statement.

[edit] Strategic planning outline

The preparatory phase of a business plan relies on planning. The first chapters of a business plan include Analysis of the Current Situation and Marketing Plan Strategy and Objectives.

Analysis of the current situation - past year

  • Business trends analysis
  • Market analysis
  • Competitive analysis
  • Market segmentation
  • Marketing-mix
  • SWOT analysis
  • Positioning - analyzing perceptions
  • Sources of information

Marketing plan strategy & objectives - next year

  • Marketing strategy
  • Desired market segmentation
  • Desired marketing-mix
  • TOWS-based objectives as a result of the SWOT
  • Position & perceptual gaps
  • Yearly sales forecast

According to Arieu, "there is strategic consistency when the actions of an organisation are consistent with the expectations of management, and these in turn are with the market and the context" (S.K. Sharman in Human Resource Management: A Strategic Approach to Employment)

[edit] Strategic planning process

There are many approaches to strategic planning but typically a three-step process may be used:

  • Situation - evaluate the current situation and how it came about.
  • Target - define goals and/or objectives (sometimes called ideal state)
  • Path / Proposal - map a possible route to the goals/objectives

One alternative approach is called Draw-See-Think

  • Draw - what is the ideal image or the desired end state?
  • See - what is today's situation? What is the gap from ideal and why?
  • Think - what specific actions must be taken to close the gap between today's situation and the ideal state?
  • Plan - what resources are required to execute the activities?

An alternative to the Draw-See-Think approach is called See-Think-Draw

  • See - what is today's situation?
  • Think - define goals/objectives
  • Draw - map a route to achieving the goals/objectives

[edit] Strategic planning tools and approaches

Among most useful tools for strategic planning is SWOT analysis. The main objective of this tool is to analyze internal strategic factors, strengths and weaknesses attributed to the organization, and external factors beyond control of the organization such as opportunities and threats. Besides SWOT analysis, portfolio analyses such as the GE/McKinsey matrix [7] or COPE analysis.[8] can be performed to determine the strategic focus.

Other tools include Balanced Scorecards, which creates a systematic framework for strategic planning, and scenario planning, which was originally used in the military and recently used by large corporations to analyze future scenarios.

[edit] Situational analysis

When developing strategies, analysis of the organization and its environment as it is at the moment and how it may develop in the future, is important. The analysis has to be executed at an internal level as well as an external level to identify all opportunities and threats of the external environment as well as the strengths and weaknesses of the organizations.

There are several factors to assess in the external situation analysis:

  1. Markets (customers)
  2. Competition
  3. Technology
  4. Supplier markets
  5. Labor markets
  6. The economy
  7. The regulatory environment

It is rare to find all seven of these factors having critical importance. It is also uncommon to find that the first two - markets and competition - are not of critical importance. (Bradford "External Situation - What to Consider")

Analysis of the external environment normally focuses on the customer. Management should be visionary in formulating customer strategy, and should do so by thinking about market environment shifts, how these could impact customer sets, and whether those customer sets are the ones the company wishes to serve.

Analysis of the competitive environment is also performed, many times based on the framework suggested by Michael Porter.

[edit] Goals, objectives and targets

Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve them.

One of the core goals when drafting a strategic plan is to develop it in a way that is easily translatable into action plans. Most strategic plans address high level initiatives and over-arching goals, but don't get articulated (translated) into day-to-day projects and tasks that will be required to achieve the plan. Terminology or word choice, as well as the level a plan is written, are both examples of easy ways to fail at translating your strategic plan in a way that makes sense and is executable to others. Often, plans are filled with conceptual terms which don't tie into day-to-day realities for the staff expected to carry out the plan.

The following terms have been used in strategic planning: desired end states, plans, policies, goals, objectives, strategies, tactics and actions. Definitions vary, overlap and fail to achieve clarity. The most common of these concepts are specific, time bound statements of intended future results and general and continuing statements of intended future results, which most models refer to as either goals or objectives (sometimes interchangeably).

One model of organizing objectives uses hierarchies. The items listed above may be organized in a hierarchy of means and ends and numbered as follows: Top Rank Objective (TRO), Second Rank Objective, Third Rank Objective, etc. From any rank, the objective in a lower rank answers to the question "How?" and the objective in a higher rank answers to the question "Why?" The exception is the Top Rank Objective (TRO): there is no answer to the "Why?" question. That is how the TRO is defined.

People typically have several goals at the same time. "Goal congruency" refers to how well the goals combine with each other. Does goal A appear compatible with goal B? Do they fit together to form a unified strategy? "Goal hierarchy" consists of the nesting of one or more goals within other goal(s).

One approach recommends having short-term goals, medium-term goals, and long-term goals. In this model, one can expect to attain short-term goals fairly easily: they stand just slightly above one's reach. At the other extreme, long-term goals appear very difficult, almost impossible to attain. Strategic management jargon sometimes refers to "Big Hairy Audacious Goals" (BHAGs) in this context. Using one goal as a stepping-stone to the next involves goal sequencing. A person or group starts by attaining the easy short-term goals, then steps up to the medium-term, then to the long-term goals. Goal sequencing can create a "goal stairway". In an organizational setting, the organization may co-ordinate goals so that they do not conflict with each other. The goals of one part of the organization should mesh compatibly with those of other parts of the organization.

[edit] Business analysis techniques

Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ), GE/McKinsey portfolio analysis,[7] COPE analysis,[8] PEST analysis (Political, Economic, Social, and Technological), STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors), and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal).

[edit] References

1.       ^ J. Scott Armstrong (1986). "The Value of Formal Planning for Strategic Decisions: A Reply". pp. 183–185.

2.       ^ Bradford, R.W. & Tarcy, B. (2000). Simplified Strategic Planning. Chandler House.

3.       ^ στρατηγικός, Henry George Liddell, Robert Scott, A Greek-English Lexicon, on Perseus Digital Library

4.       ^ στρατηγός, Henry George Liddell, Robert Scott, A Greek-English Lexicon, on Perseus Digital Library

5.       ^ ἀγός, Henry George Liddell, Robert Scott, A Greek-English Lexicon, on Perseus Digital Library

6.       ^ ἄγω, Henry George Liddell, Robert Scott, A Greek-English Lexicon, on Perseus Digital Library

7.       ^ a b [1]

8.       ^ a b COPE analysis explained

 



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