traditional strategic planning process
You probably have seen some variation of a typical organization chart – the Board of Directors or Trustees at the top, leading to a Chief Executive Officer (CEO), who oversees the key functional areas like Marketing, Finance, Operations, Human Resources, and Strategy, among others. The functions may vary depending on the type of business or industry (for instance, a major function of pharmaceutical and life science companies is Research & Development). We are interested in the last one – Strategic Planning
The purpose of Strategic Planning is to prepare a corporation for the future, that is 5 or 10 or more years from now. In doing this, it takes into account what the company is capable of doing (through its resources and competencies), the wants and needs of the customers it wishes to serve (its markets), the other entities that are fighting for the same customers (its competitors), and the general environment in which this all takes place.
Businesses that practice Strategic Planning expect to realize certain benefits …
- Better serve their customers – present and prospective.
- Anticipate trends and future conditions.
- Respond to new, often unanticipated events.
- Realize a future vision for the organization.
- Pursue short-term goals (sales, profits, market share)
- Achieve long-term objectives (new markets, dramatic growth, strategic partnerships)
- Gain an advantage on their competitors – called a “competitive advantage”.
Whether those benefits are fully obtained depends on how competently the planning is carried out.
Steps in the traditional strategic planning process
The strategic planning process that has been implemented, studied, refined, and evolved over several decades follows easily understood steps in a natural sequence. The steps do not have to be carried out in exactly that order but they point to the issues that must be covered in preparing a strategic plan.
This is the established process, framed in terms of questions and actions
- What is the business capable of accomplishing?
An organization’s Resources & Competencies determine what it can accomplish. These are defined by its internal assets, which can be seen in large volumes and varieties of corporate data often kept in different departmental silos. It is not always easy to track the data down and combine them. The best strategies leverage the resources and competencies. - Who is the business trying to serve?
This refers to an organization’s Customers, typically as constituents of a Market. But they cannot be viewed as a single homogenous mass; their unique characteristics require organizing them into “segments”. The organization needs to pay attention to its current customers and also to customers that it would like to acquire in the future. Strategies often are devised to go after new customers. The organization should be able to collect comprehensive data about those it is currently serving. Market research and other data sources will have to be consulted for prospective customers. - What is it competing against?
There usually are other organizations pursuing the same customers. This is a zero-sum game – every customer won by a competitor is lost to your business. Knowledge of competitors’ plans and decisions is needed to prepare responsive strategic plans. Competitive intelligence is a vital component of the planning process. - What is the outside world like in which the business operates?
The external environment is the arena where a business’s strategies are played out. It is composed of factors like population demographics, economic conditions, legal developments, new technologies, political events (both national and foreign), and sociocultural trends. They have the power to encourage certain strategies and discourage others. These factors can be read through a wide variety, and large volume, of data, most of them readily available. - Define a future direction for the business.
On the basis of its Resources & Competencies, considering its Customers’ wants and needs, being wary of threats from Competitors, and taking into account its surrounding Environment, the organization plots a future direction for its operations. This is reflected in a Vision statement that describes a desirable, ideal state for the organization. It then dedicates itself to implementing strategies intended to create that future. Despite trying to make this a rational decision, subjectivity frequently enters the calculation. - Set strategic objectives that will move the business in that direction.
The next step is to set a handful (5-7) of broad strategic objectives designed to move the organization toward its chosen future. They are not narrow enough to implement on their own. An example might be to enter foreign markets for the first time or commit to an accelerated growth rate in revenues. The objectives can only be put into action through individual strategies. - Formulate and implement specific strategies.
The organization decides on specific actionable strategies with measurable goals and time deadlines with the intention of achieving the previously determined objectives. These strategies then can be translated into action plans. Like other elements of the overall strategic plan, the individual strategies must reflect internal Resources & Competencies, external Customers & Markets, Competitors & Industries, and various Environmental factors. - Monitor the progress and success of the strategies.
The final stage in a competent planning process is an ongoing program that monitors how well the strategies are being implemented and the extent to which they achieve their objectives. Without this stage, all the planning that has gone before will be wasted. It requires gathering regular data on the strategies’ performance and following them closely and persistently. This stage is often neglected by organizations.
How traditional strategic planning is typically implemented
Just as there is a standard framework for the strategic planning process, a customary procedure for its implementation has emerged over the years. It looks something like this.
- At some point, top management makes a commitment to institute a strategic planning function.
- Its first step may be the creation of a strategic planning office or at least designating a person primarily responsible for strategic planning.
- Top management agrees to follow a loosely formal strategic planning procedure that takes placer each year.
- It begins with one or more staff being assigned to gather data in the 4 key domains – Resources & Competencies, Customers & Markets, Competitors & Industries, and Environmental Factors.
- Staff also may be asked carry out analysis of the data and reach some preliminary conclusions.
- An official gathering is scheduled, frequently treated as a “strategic planning retreat”, at a slow business time of the year. The month of August is popular. The date is typically two or three days over a weekend; the location is offsite at a resort.
- Several things happen during the retreat. The attendees review the data that has been gathered and any conclusions that have been reached. They discuss the implications for the organization’s vision, its existing strategies, and the opportunities for new strategies.
- Through whatever decision-making processes are preferred, the group makes choices about cancelling, expanding, or shrinking existing strategies, initiating new strategies, reallocating resources, and reexamining the vision and strategic objectives.
- Although it sometimes is a formality, the planning group will reassess the organization’s strategic vision. Only rarely will it modify that vision.
- The planning activities and decisions are documented, bound into a report, and distributed to employees responsible for implementing the strategies.
- The strategic plans will include criteria for measuring their implementation progress and success.
- A program will be put into place to monitor these criteria and make appropriate adjustments.
- This procedure is repeated annually.
Each organization takes its own unique approach to this process – interpreting the steps differently, carrying them out in a different sequence, or skipping some entirely. For instance, the laborious gathering of internal and external data is sometimes replaced with a more succinct SWOT Analysis (strengths, weaknesses, opportunities, threats).
The history of the strategic planning function
The origins of strategic thinking and planning can be found in ancient military history. The term “strategy” comes from the Greek word “strategos” which is translated as “the general of the army”.
In military parlance, there are three levels of activity – tactical, operational, and strategic. The strategic emphasizes high level, long-term operations, and the ultimate outcomes they achieve.. Conflicts, both military and corporate, are usually won or lost at this level. The operational level is concerned with the activities of departments and programs within the larger organization that contribute to its strategic objectives. Tactical actions are performed by work teams and individuals in support of the programs.
The first move toward recognition of a formal strategic planning function may have been the announcement of the Harvard Policy Model by the Harvard Business School in the 1920s. The main purpose of the Harvard model was to help a firm develop the best fit between itself and its environment, that is, to develop the best strategy for the firm. If the appropriate strategy is identified and implemented, the organization will be more effective. Central to this model is attention to the internal strengths and weaknesses of the company and the values of senior management, to the external threats and opportunities, and to the social obligations of the firm. The systematic assessment of strengths, weaknesses, opportunities, and threats – or SWOT analysis – is the primary strength of the Harvard model.
Through the 1950s, strategic planning shifted from organizational policy and structure to the management of market share, industry growth, and risk. Because this approach often led to the development strategic business units (SBUs) and the emergence of industrial conglomerates, it was referred to as the Portfolio Model.
The next step in the evolution of strategic planning was the Industrial Economic Model which bases strategic decisions on analyses of competitive power relationships – the relative power of customers and suppliers, and threats posed by substitute products and services, new industry entrants and market rivals dictate competitive strategies.
Through the late 1950’s strategic planning’s focus shifted away from organizational policy and structure toward the management of risk, industry growth, and market share. Business calls this approach to strategic planning the “portfolio model.” Predictably, it led to the emergence of industrial conglomerates.
The next evolutionary steps led to the industrial economics model, where strategic decisions derive from analyses of competitive power relationships. In this model, the relative power of customers and suppliers, and threats posed by substitute products and services, new industry entrants and market rivals dictate competitive strategies.
Through the 1960s, strategic planning became a standard management tool in virtually every Fortune 500 corporation, and many smaller companies as well.
In the decades since then, several other planning methodologies have been promoted … Stakeholder Management, Competitive Analysis (Michael Porter), and Strategic Issue Management, among others.
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