Strategic planning
- 1. HIFZA ASHRAF ROLL NO:17 MPA(previous) SUBJECT: INTRODUCTION TO BUSINESS TOPIC:STRATEGIC PLANNING Assignment By MISS AYESHA A S S IG N M E N T N O # 2 DATE:26-08-2017
- 2. Strategic Planning: Strategic planning is an organizational management activity that is used to set priorities, focus energy and resources, strengthen operations, ensure that employees and other stakeholders are working toward common goals, establish agreement around intended outcomes/results, and assess and adjust the organization's direction in response to a changing environment. It is a disciplined effort that produces fundamental decisions and actions that shape and guide what an organization is, who it serves, what it does, and why it does it, with a focus on the future. Effective strategic planning articulates not only where an organization is going and the actions needed to make progress, but also how it will know if it is successful. What is a Strategic Plan? A strategic plan is a document used to communicate with the organization the organizations goals, the actions needed to achieve those goals and all of the other critical elements developed during the planning exercise. Steps in Strategic Planning & Management: StepOne:Where Are You Now? In this step we take a look at the two major drivers of strategic planning: stuff happening now or, stuff we think is about to happen to our business. That can be good stuff, but it’s usually bad stuff. So, in step one we get clear on the problems, challenges and future dangers facing your business. Then we narrow them down to those that will create the most impact. Step Two: What’s The Vision? While problems and challenges drive the need for strategic thinking, it is vision that drives the rest of the strategy process.
- 3. Nothing happens until you have a vision. The clearer and compelling your vision, the more powerful and imaginative your strategy will be. The vision you craft in this step will act as the “North Star” to the rest of your strategic planning process. Your vision should include tangible targets like revenue goals, market share goals, etc.; as well as intangibles like values, culture and purpose Step Three: What Are The Obstacles? To have a vision is to have obstacles. They appear the minute your vision is formed. Yet, many business leaders have trouble taking a realist’s perspective and looking big obstacles squarely in the eye. Looking at, and admitting major obstacles to your vision do not make you a pessimist. The purpose of looking at obstacles is not to look for excuses and reasons not to pursue the vision. It’s to look at what our strategy must overcome, so that it can be as effective as possible. Step Four: What are our resources? Only after you know what the dangers are, what your vision for the future is, and what are standing in the way are we ready to look at our resources. We are looking for two major elements: What resources we have to help us achieve our vision, and what resources we need. Why not do this first – before vision? Won’t a vision be more realistic if we first look to resources? The truth is a resource often isn’t a resource until a vision gives it meaning and use. Step Five: What’s our strategy? Strategy exists to serve a vision. Vision and Resources answer the questions, “Where do we want to go?” and “Where are we now?” Strategy answers the question, “How do we get there?” During this step you’ll take a look at your resources, mix in some imagination, and create a path around, under, or over your obstacles to take you to your vision in the fastest way possible. Step Six: What are our tactics? Now that we know our major strategic direction, it’s time to get specific with details, time tables and accountabilities. Tactics answer the question, “Who’s going to do what by when?” Ironically, if you, or a member of your team, excel at vision and imagination, this will be the toughest step. On the other hand, if you are a realist and know all that “dreaming” won’t make anything happen, this will be your favorite step. Either way, nothing will happen until you complete this step in the strategic thinking process. It’s time to make something happen! Step Seven: What will we monitor and measure? Vision is about the future, and strategy is how to get there. Yet, no person knows the future – nor will any amount of intense data gathering fully reveal the future. Therefore we need to constantly monitor our strategy and tactics, making adjustments where necessary to keep us driving towards our vision.
- 4. A benefit of strategic planning: Strategic planning has many benefits. It forces organizations to be aware of future opportunities and challenges. It also forces organizations to understand what resources will be needed to seize upon or overcome those opportunities and challenges. Additionally, strategic planning gives individuals a sense of direction and marshals them around a common mission. It creates standards and accountability. Strategic planning also helps organizations limit or avoid time spent on crisis management, where they're reacting to unexpected changes that they failed to anticipate and/or prepare for. Role of strategic planning: Strategic planning is a powerful system, which form the structure of the various strategies (programs) and plans. They are developed at corporate level, for each unit, and also at the level of businesses or departments. The degree of detail and accuracy of their preparation increases as plans are passed to lower levels of management. Functional strategies and plans usually relate to specific issues, such as: improvement of the organizational structure of enterprises, research and development, improvement of manufacturing technology, staff development, productivity improvement, total quality management implementation. In such plans there is a connection with the projections of the diagnostic part in shaping the future of the company. If these projections are optimistic, in business practice they are referred to as a strategy or development plans. The important task of the leader is to put an effective plan into place to achieve the vision. Strategic planning is the plan that’s put into place. It’s not meant to be a static document put on the shelf or printed with a pretty, glossy cover. It’s meant to be the document that makes the vision a reality. The seven attributes of an effective strategic plan include: Principles:These are the non-negotiable values and commitments that frame the entire strategic planning activity. Think of them as reflective markers on the side of a roadway. In Germany, these little markers are found at the edge of pavement on every road outside of villages and cities. They serve to keep you on the path when visibility is low and the way ahead isn’t clear. In your strategic plan, establishing non-negotiable values and commitments serve the same purpose as the reflective markers. They keep the organization on the plan’s path when the way ahead isn’t always clear. Goals: These are the long-term outcomes towards which organizational efforts will be expended. The vision establishes the future and the goals establish the key items that have to be accomplished to make the vision a reality. Objectives:These are the near-term outcomes that contribute to the goal. Each goal will have several objectives nested with in it. This is necessary to break the goal apart into actionable elements. Key Performance Indicators:These are quantitative measures that reflect progress towards objectives. The old management saying goes “what gets measured, gets done”. It’s an old
- 5. management saying because it’s true. If you don’t maintain accountability on the performance of achieving objectives, then your organization will not accomplish the goals and you’ll fall short of achieving the vision. Targets: These are desirable levels of measurable achievement with timetables. You’ll need these to support the Key Performance Indicators as well as part of the accountability process for objective and goal achievement. Targets give everyone something to aim at. Strategies:The strategic plan is the overarching document. Strategies are the approaches taken to achieve a particular objective. Tactics:These are the specific actions, projects, or initiatives that will be executed to achieve an objective. Think of them as your “to-do” list. Functions: The function of strategic planning is to position a company for long term growth and expansion in a variety of markets by analyzing its strengths and weaknesses and examining current and potential opportunities. Based on this information, the company develops strategy for itself. That strategy then becomes the basis for supporting strategies for its various departments. This is where all too many strategic plans go astray-at implementation. The recent business management surveys show that most CEOs who have a strategic plan are concerned with the potential breakdown in the implementation of the plan. Unlike nineteen eighties and nineties corporations that blindly followed their five year plans even when they were misguided, today’s corporations tend to second guess. Advantages: 1. Facilitates communication between managers: One of the goals of strategic managers is to facilitate the collaboration of functional managers to achieve synergy between different parts of organization. Managers in finances, marketing, operations and human resources are essential for an organization but they often compete rather than collaborate. Even worse situation is with separate SBUs. Strategic planning is in place to facilitate the collaboration between these managers. 2. Identifies strategic goals and strategic intent: CEOs are usually the people who create goals and envision the future of the company. Nonetheless, they are often engaged in many other activities and have less time to search for the best strategic fit. 3. Reduces resistance to change: It is strategic planner's job to inform the whole organization of strategic changes, company's plans, current situation implications and what changes are expected to be done. Thorough explanation of this information to managers in every level reduces resistance to change as managers are less uncertain about the future. 4. Improves resource allocation: New products, services, strategies, goals or objectives require resource allocation (moving people from one team to another or moving the facilities into another country), which is done more efficiently when aligned with strategic objectives.
- 6. 5. Leads to sustainable competitive advantage: Competitive advantage is often achieved without strategic planning but if the company wants to achieve sustainable competitive advantage it has to plan strategically. Disadvantages: 1. Costly to perform for small and medium businesses: Strategic planning, the same as marketing or proper human resource management, adds a lot of expenses to an organization. Managers or strategic planners have to be hired, additional efforts are required towards analysis of external and internal environments and some tools have to be designed to properly implement strategic planning process. Although all of this is done to some extent by all organizations (who doesn't monitor firm performance or analyze competitors?), mainly the large enterprises are the ones capable to hire competent personnel to implement strategic plans. 2. The process is very complex: Strategic planning process consists of many steps that are connected to each other and must be constantly adjusted. Some unexpected factors also appear that may change the whole strategy and as a result, strategic planning process. 3. Low rate of successful implementation: Due to its complexity and heavy commitment to strategic goals, strategic planning is rarely implemented successfully. Often, the poor implementation is the reason for failure, although it is more often the case of misaligned operational and strategic goals. Features of Strategic Planning: The following are the salient features of strategic planning: 1. Process of questioning: It answers questions like where we are and where we want to go, what we are and what we want to be 2. Time horizon: It aims at long-term planning, keeping in view the environmental opportunities. It helps organizations analyze their strengths and weaknesses and adapt to the environment. Managers should be farsighted to make strategic planning meaningful. 3. Pervasive process: It is done for all organizations, at all levels; nevertheless, it involves top executives more than middle or lower-level managers since top executives envision the future through scientific techniques of forecasting. 4. Focus of attention: It focuses organization’s strengths and resources on important and high-priority activities rather than routine and day-to-day activities. It reallocates resources from non-priority to priority sectors. 5. Continuous process: Strategic planning is a continuous process that enables organizations to adapt to the changing, dynamic environment. 6. Co-ordination: It coordinates organization’s internal environment with the external environment, financial resources with non-financial resources and short-term plans with long- term plans.
- 7. Importance of Strategic Planning: Strategic planning offers the following benefits: 1. Financial benefits: Firms that make strategic plans have good sales, low costs, high EPS (earnings per share) and high profits. Firms have financial benefits if they make strategic plans. Companies like Reliance, Infosys, Tata, Wipro, Deloitte, etc. are the giants who report good financial results as a result of sound strategic planning. 2. Guide to organizational activities: Strategic planning guides members towards organizational goals. It unifies organizational activities and efforts towards the long-term goals. It guides members to become what they want to become and do what they want to do. It focuses on specific goals making it clear for members to know the direction towards which they have to move. Earning profits is less meaningful than earning a growth rate of 10% per year. Paying high dividends is less meaningful than paying dividends at the rate of 40%. Meeting society’s needs is less meaningful than providing free education to school children of a specific community. Allocation of resources and attempts to meet the goals is facilitated through clear specifications in strategic planning. It makes the objectives operational and provides right direction to organizational activities. 3. Competitive advantage: In the world of globalization, firms which have competitive advantage (capacity to deal with competitive forces) have better sales and financial performance. This is possible if they foresee the future. Future can be predicted through strategic planning. It enables managers to anticipate problems before they arise and solve them before they become worse. 4. Minimize risk: Strategic planning provides information to assess risk and frame strategies to minimize risk and invest in safe business opportunities. Chances of making mistakes and choosing wrong objectives and strategies, thus, get reduced. Risk is inherent in every business and failure to anticipate risk through strategic planning is almost sure to lead the business to failure unless otherwise proved by chance. Lack of strategy, framing wrong strategies or ineffective implementation of strategy cannot be afforded by business enterprises operating in the dynamic, changing and risky environment. 5. Beneficial for companies with long gestation gap: The time gap between investment decisions and income generation from those investments is called gestation period. During this period, changes in technological or political forces can affect implementation of decisions and plans may, therefore, fail. Strategic planning discounts future and enables managers to face the threats and opportunities. Huge capital investments in projects are followed by expected financial returns. 6. Promotes motivation and innovation: Strategic planning involves managers at top levels. They are not only committed to objectives and strategies but also think of new ideas for implementation of strategies. This promotes motivation and
- 8. innovation. It also provides motivation to people at lower levels when they know their efforts are contributing towards organizational goals. Satisfied workforce is the strength of the organization. It saves huge costs on reducing absenteeism, labor turnover, role conflicts etc. It promotes discipline in the organization and enhances human resource effectiveness and also organizational effectiveness. 7. Optimum utilization of resources: Strategic planning makes best use of resources to achieve maximum output. Resources are scarce and strategic planning helps in their use in the areas where they are required most. General Robert E. Wood remarks, “Business is like war in one respect. If its grand strategy is correct, any number of tactical errors can be made and yet the enterprise proves successful.” Effective allocation of resources, scientific thinking, effective organization structure, coordination and integration of functional activities and effective systemof control, all contribute to successful strategic planning. Limitations of Strategic Planning: 1. Lack of knowledge: Strategic planning requires lot of knowledge, training and experience. Managers should have high conceptual skills and abilities to make strategic plans. If they do not have the knowledge and skill to prepare strategic plans, the desired results will not be achieved. It will also result in huge financial losses for the organization. This limitation can be overcome by training managers to make strategic plans. 2. Interdependence of units: If business units at different levels (corporate level, business level and functional level) are not coordinated, it can create problems for effective implementation of strategic plans. 3. Managerial perception: In order to avoid developing risky objectives and strategies which they will not be able to achieve, managers may land up framing sub-optimal goals and plans. Sometimes, short-term commitments also defer making long-term strategies. 4. Financial considerations: Strategic planning requires huge amount of time, money and energy. Managers may be constrained by these considerations in making effective strategic plans. These limitations are by and large, conceptual and can be overcome through rational, systematic and scientific planning. Researchers have proved that companies which make strategic plans outperform those which do not do so. Strategic Planning process: If you want to grow, refine or even define your business, a strategic plan is a must. It determines the purpose of your business sets a vision for the future and determines specific steps to get there.
- 9. Characteristics: Successful strategic plans must-have 1: Senior management collectively owns the strategic plan: In most organizations each senior manager has a silo or line responsibility under his or her purview. In strategic planning, however, the entire senior management team must come together to recognize their collective ownership of the overall vision and strategic direction of the entire organization. To make this work, it’s advisable to have each senior manager’s compensation or bonus structure be tied to the organization’s execution of the plan as a whole, not just that of an individual department or area. 2: The strategic plan is inclusive: We often see strategic plans developed by CEOs or senior management teams and then cascaded down their respective organizations. This approach rarely works because the people on the ground— those ultimately responsible for executing the nuts and bolts of the plan—hasn’t had input along the way. The best plans make space for employees to be heard and to contribute to the plan as management begins to design tactics that will deliver on the vision. People respond better and feel ownership when they feel respected and included. What’s more, input from people on the front lines is invaluable because it grounds the strategic plan in the practical realities of the workplace and culture. 3: The strategic planincorporates operational realities: Many organizations struggle to acknowledge their challenges and weaknesses. Without a candid assessment of the organization’s landscape, a strategic plan will not be effective. With strategic planning, there’s an entire marathon between the starting blocks and the finish line. An organization’s operational realities will dictate the best way to run that marathon. If you don’t know your weaknesses, you will hit the wall before you even get to the five-mile marker. 4: The strategic plan includes specific andtangible actions assigned toindividuals:
- 10. We typically see an organization’s senior management team go off-site and create grandiose strategic plans that sound great in principle. However, when those same mangers get back to their desks, the operational realities of their jobs take precedence. Day-to-day tasks sideline many of their inspired plans and ideas. The best strategic plans are extremely detailed. They drill down to the specificity of who will do what by when—and then not only hold those individuals accountable for delivery, but also provide them with the resources to do so. 5: The strategic planincorporates specific measurestoevaluate progress: How will you know that your strategic plan is a success? It’s amazing how many organizations don’t ask themselves that question. In the majority of cases, organizations have to spend a few years just laying a strong foundation—they may have to build or refine a team, put in place systems, develop partnerships or more. This often means that monetary results don’t come quickly. So, how do you know you’re on track? How do you appease a board of directors that might be looking at the bottom line as an indicator of success? The best strategic plans build in regular quantitative and qualitative measurements and milestones. In addition, those milestones must take into account not just whether an action was completed, but that it was done well. 6: The strategic plan is linked tothe organization’s profit andloss statement: To be effective, strategic plans must be grounded in economic realities: planning takes considerable time and resources, embracing dramatic change can be expensive, and plans need to be funded and marketed to be successful. All these factors have associated costs that affect the profit and loss of the organization over both the short and long term. It’s essential that organizations understand these costs when devising and approving goals and actions. Real Life Example of Strategic Planning Success: The technology powerhouse, Google Inc., is known for its innovation and successful strategic thinking. It has stayed in the forefront of business by hiring and keeping top talent. Many top companies boast high salaries and generous vacation policies. Google, however, uses a lifestyle strategy to sell potential employees on the idea that they can work and have fun. With slides leading downstairs to the cafeteria, free all-you-can-eat buffets, dog-friendly offices and quirky seating including boats, massage chairs, bean bags and ski gondolas, Google knows how to attract positive attention. However, their strategy does not stop there. They provide their engineers with time to work on side projects. The innovative and creative ideas resulting from this 20 percent of the engineers' time has yielded half of Google's new offerings annually. Conclusion: Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategy has many definitions, but generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to
- 11. execute the actions. A strategy describes how the ends (goals) will be achieved by the means (resources). The senior leadership of an organization is generally tasked with determining strategy. Strategy can be planned (intended) or can be observed as a pattern of activity (emergent) as the organization adapts to its environment or competes. “Vision without action is merely a dream. Action without vision just passes the time. Vision with Action can change the world.” Joel A. Barker THE END.