Strategic Planning - Introduction

1 What is Strategy?

Strategy is:

A course of action to achieve an objective by considering the available resources.
A plan of action designed by the organization to achieve its objective by considering its scope, resources and environmental changes.

1.1 Importance of strategic planning

Without a strategy it is highly unlikely that an organization can achieve its goals. This is true not only in business point of view but also in any aspect of life.

1.2 Advantages of strategic planning:

Clearly define the purpose of the organization i.e. What is the overall purpose of the organization and how designed strategy will achieve that purpose.
Develop a sense of ownership of the plan and provides direction for business.
Ensure that the most effective use is made for organization’s resources.
Provide a base from which progress can be measured.
Brings everyone together i.e. bridges staff and board of directors and create synergy between all individuals of the organization.
Improves the organization’s fit with its environment.

1.3 Disadvantages of strategic Planning

It is time consuming.
If external consultants are used then it may be costly.
May not take all aspects of firm or organization into account.
May not be implemented in crises.
May not be implemented because of a lack of resources.

2 When strategic planning should be performed by organization?

It depends on the nature and needs of the organization and its external environment. E.g. an organization that is operating in a rapidly changing environment may be needed to perform strategic planning on frequently basis. On the other hand, if the organization is operating for many years in a stable marketplace, then planning might be carried out once a year.

Consider the following guidelines to understand when strategic planning should be performed:

Strategic planning should be done when firm’s objective is changed or amended.
Strategic planning should be done when an organization is just getting started.
Strategic planning should also be done in preparation for a new major venture, for example, developing a new department, division, major new product or line of products, etc.
Strategic planning should also be conducted at least once a year in order to be ready for the coming fiscal year.

3 Methods or approaches for strategic Planning

There are two approaches for strategic planning

Top down or Rational approach
Emergent Approach

3.1 Top down or rational approach

It is a formal planning process performed by the top level management usually directors of the company or senior managers of the organization.
It follows a set of procedures for the formulation of strategy.
In this approach objectives are clearly defined and agreed by all stakeholders.
A long term process as compared to emergent strategy.

Advantages:

Provide clear direction to the organization i.e. what organization wants in future and how it can achieve its objective.
It account for possible future threats and opportunities during strategy formulation.
Leads to proactive behavior for senior managements.

Disadvantages:

It may de-motivate lower level management within the organization because they may be unable to put their views in strategic planning process.
This approach may be useless in economic crises or in dynamic environment (An environment having high frequency of change).

3.2 Emergent Approach (Emergent strategies)

It is a short term planning process as compared to Top down approach.
It focuses on the matter to identify and grab opportunities available to organization in short term.
It looks at the present and immediate future.
In this strategy organization actually reacting to situations.
It is an informal planning process as compared to top down approach, it has no set procedures to follow for the formation of strategy.