Strategic Planning: Formulation and Implementation | Principle of Management

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Strategic Planning: Formulation and Implementation | Principle of Management

Strategic Planning: Formulation and Implementation

Strategic Planning:

(Only wisdom and instinct will not always work to predict the changing environment).

Strategic Planning is a process of determining how to pursue the organization’s long term goals with the resources expected to be available.

It is a deliberate process that involves the review of market conditions, customer needs, competitive strengths and weakness and the availability of resources that lead to specific opportunities or thereat facing the organization.

A strategic planning consists of clearly stated organizational mission, organizational goals and organizational strategies.

The main features of strategic planning are:

  1. Master Planning: It is main corporate plan formulated in head office with the involvement of (Board of Directors and Chief executive officers) top level management .The plan includes the details of future course of action in changing environment situations.
  2. Top-down Approach: This plan is formulated by Top-level (especially Plan department) and disseminate to the other levels for implementation after its ratification.
  3. Highly Prescribed: Strategic planning contains details of roles and responsibilities for branches, divisions and sub divisions accordingly.
  4. Detailed Control: A centrally controlled mechanism is developed to monitor the activities in different parts of the organization in-order to implement the strategic planning.

Environmental Scanning:

Environmental scanning is an important function of strategic management. It is the method or technique of acquiring information and systematically analyzing the emerging trends in the environment.

According to Wheeler and Hunger; Environment scanning is “monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation”

The essence of environmental scanning is the identifying relevant environmental changes, monitoring them to determine their nature and direction, forecasting their rates of change and their likely impact, and strategically responding to them

Steps in Scanning Process:

Steps in Scanning Process

Methods of environmental scanning:

There are several methods which are used for comprehensive analysis of environmental forces. Some of them are as follows;

  1. Extrapolation method: Under this method past data were analyzed to explore the future. Several statistical tools such as trend analysis, regression analysis are used for analysis.
  2. Intuitive reasoning: Under this method, the scanner used his/her rational intuition to scan the environmental forces.
  3. Scenario Building: Under this method, a situation that could possibly happen is assumed with logical causes and effect relationship to one another. This relation is use in anticipating the effect of environmental forces.
  4. Cross-Impact matrix: When two different trends in the environment point to two conflicting futures, the trends are studied to see their potential impact on each other.
  5. Delphi Technique: Under this method, experts opinion is taken individually through several solicitation and feedback .The opinion are used to forecast the changing environment forces.

SWOT Analysis:

SWOT (Strengths, Weakness, Opportunities, and Threats) analysis is very important tool in formulating a strategy. It is used at corporate level or business units and frequently appears in marketing plans. It provides a clear picture of an organization’s position in the market.

  • S- Strength: Strength is resources, skills or other advantages relative to competitors. Market Leadership, Public Image, Experience, Financial and Human Resources, Organizational network, etc are strengths of an organization.
  • W-Weakness: Weakness are the limitations which seriously affect the organization’s performance .Lack of infrastructure, weak marketing skill, low capital etc are the weaknesses of an organization.
  • O-Opportunities: It is a situation which is in favor of an organization; New Market, Higher economic growth, reduction in competition, etc. are the examples of opportunities.
  • T-Threats: A threat is a situation which does not favour an organization. The Entry of new competitor, change in technology, increase of bargaining power of suppliers and customers etc. are the examples of threats.

SWOT analysis provides a useful framework for making the best strategic choice. The best strategy can be seen as an optimal match between the external opportunities and threats and the organizational strength and weakness. A SWOT matrix shows the framework of matching.

SWOT Matrix:

Internal Factors/ External Factors

Internal Strengths(S) e.g. strengths in management, operations, finance, marketing, R&D, engineering etc.

Internal Weaknesses(W) e.g.weaknesses in finance, the operation, R&D, engineering, etc.

External Opportunities (O) e.g. current and future economic conditions, political and social changes, new products , services, technology etc.

SO Strategy: Potentially the most successful  strategy, utilizing the organization’s strength to take advantage of opportunities.

WO Strategy: Developmental strategy to overcome weaknesses in order to take advantages of opportunities.

External Threats (T) e.g. lack of energy, competition , technology, services etc.

ST Strategy: Use of strengths to cope with threat or to avoid threats.

WT Strategy: Retrenchment, liquidation, or joint venture to minimize both weakness and threats.

  • SO Strategy (Maxi-Maxi): At this stage the organization has high strength and has several environmental opportunities. Organization adopts aggressive strategy to capitalize the opportunities.
  • ST Strategy (Maxi-Mini): At this stage organization’s key strength face environmental threats. Organization formulates long term programmes; diversify business by utilizing to minimize the threats in this situation.
  • WO Strategy (Mini-Max): In this stage, organization faces impressive market opportunities but is limited by several internal weaknesses. This organization should eliminate its weakness to exploit the market opportunities.
  • WT Strategy (Mini-Mini): Under this stage, both weakness and threats are in the organization’s environment. Organization should call for defensive strategy to minimize weakness and neutralize the threat.

Formulation of Strategic Plans:

Strategic plans formulation is a process of decision making in order to define a firm’s future direction. It includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue.

Process of formulating strategic plans:

  1. Evaluate current performance results: Firm’s current performance is to evaluate to identify its position in the market. Profit and loss situation, return on investment, market share etc are examined with respect to its mission, objective, strategies adopted by the firm.
  2. Review of corporate governance: it includes the careful evaluation of performance of top level management. A good governance of firm depends on the top management skill to develop vision and mission of a firm so, it should be analyzed properly.
  3. External Environment analysis: External environment poses both opportunities and threats. Firm should scan and assess properly to capitalize the opportunities and neutralize the threats.
  4. Internal Environment analysis: How an organization can take advantages from external environment greatly depends on its core competencies (i.e. Skill, abilities, resources etc.) Through internal environment analysis, organization evaluates strength and weakness so that it can enhance strength and overcome weakness.
  5. Analyze strategic factors: Strategic factors are external and internal elements determining the future of a firm. At this stage organization pinpoint the problematic areas and issues relating to get competitive advantages. Organization identifies different strategic alternatives which fit internal competencies with external opportunities.
  6. Evaluate and select the best strategic option: At this stage, organization evaluates and selects the best strategic option which enhances overall organization’s performance. SWOT matrix helps to select the best strategic option in this stage.

Implementation of Strategic Plan:

Strategy implementation refers to “working of plan” in action. Strategic plan will be simply a worthless exercise if it is not implemented properly. Thus, strategy implementation is a vital function after the strategic planning in an organization.

Implementing strategic plan affects everything from top to bottom level in an organization. If affects all the functional and divisional area of a business.

The McKinsey 7-S framework is useful to describe how strategic plan needs an integrated framework in the process of its implementation.

McKinsey 7-S Framework:

McKinsey 7-S Framework

According to figure the process of strategic plan implementation requires the following:

  1. Strategy: It is a set of decisions and actions aimed at gaining a sustainable competitive advantage from the market.
  2. Structure: To implement strategic plan, organization structure with clear defined roles, responsibility and accountability is required.
  3. System: It includes transforming inputs in to outputs.
  4. Style: It refers to the working attitudes and behavior of managers.
  5. Staff: Employees are the main agents to implement strategic plan. Performance evaluation, reward and employee satisfaction will help to retain staff in the organization.
  6. Shared values: To implement strategy all managers and employees should work together with collective values to achieve the goal of plans.( Organizational Culture)
  7. Skills: Skills represent an organization’s dominant capabilities and competencies. Time to time training and management development enhance employees’ capability to implement strategic plans.

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