Module II

Strategic Planning

Objectives
To understand the nature of strategic planning and its evolution with its benefits and limitations. To know the techniques for analyzing and deciding on proposed new programs. To describe techniques that are useful in analyzing ongoing programs. To study the several steps in the procedure of strategic planning.

Nature of Strategic Planning

Strategic planning is the process of deciding on the programs that the organization will undertake and on the approximate amount of resources that will be allocated to each program over the next several years. While, the strategy formulation is the process of deciding new strategies. In the strategy formulation process, management arrives at the goals of the organization and creates the main strategies to achieve those goals. While, the strategic planning process then takes the goals and strategies as given and develops programs that will carry out the strategies and achieve the goals efficiently and effectively. Strategic planning is systematic and on particular timely basis with prescribed procedures and time tables while, strategic formulation is unsystematic as it is on requirement basis.

Evolution of Strategic Planning

The strategic planning process was very unsystematic sixty years ago and not in a coordinated way as well. In late 1950s some firms have started the systematic strategic planning but failed to implement because of lack of experience, lack of data and lack of skilled staff. As the time went on, management learned the lessons on the basis of their experiences and started preparing themselves.

Benefits and Limitations of Strategic Planning:

A formal strategic planning can give the organization benefits like; i) Framework for Developing the Budget An operating budget calls for resource commitments over the coming year. It is essential for management to have clear idea on proper resource commitment and allocation. Thus, an important benefit of preparing a strategic plan is that it facilitates the formulation of an effecting operating budget. Another benefit is it facilitate optimal resource allocation as well.

Contd.
ii) Management Development Tool Formal strategic planning is an excellent management education and training tool that provides managers with a process for thinking about strategies and their implementation. iii) Mechanism to force management to think long term iv) Means of aligning managers with corporate strategies The debates, discussions, and negotiations that take place during the planning process clarify corporate objectives and strategies, unify and align managers with such strategies, and reveal the implications of corporate strategies for individual managers.

Limitations
There is always a danger that planning can end up becoming a form filling, bureaucratic activity, devoid of strategic thinking. An organization may cerate a large strategic planning department and delegate the preparation of plan to that staff department and may forfeit the input of line management. Finally, strategic planning is time consuming and expensive.

Analyzing proposed new programs

Ideas of new programs can originate from any department in the organization. The R&D is expected to generate ideas for novel products or processes, the marketing organization for marketing innovations, and the production engineering organization for better equipment and manufacturing methods. Proposals for programs are essentially either reactive or proactive they arise either as a reaction to a perceived threat from the competitor or as an initiative to capitalize on an opportunity. Capital Investment analysis: risk, return, rules, avoiding manipulations, use of different models like sensitivity analysis, scenario planning, decision tree analysis etc. Organization for analysis: strengths, weakness, expert analysis, competitive advantage through core competencies

Analyzing ongoing programs

In addition to developing new programs, there are several ways and techniques to analyze the ongoing programs. The methods of value chain analysis and activity based costing are useful to do such analysis. The value chain for any firm is the linked set of value creating activities of which it is a part, from acquiring the basic raw materials for component suppliers to making the ultimate end-use product and delivering it to the final consumers. from the strategic planning perspective, the value chain, concept highlights three potentially useful areas: - linkage with suppliers - Linkage with customers - Process linkages within the value chain of the firm. Activity based costing

Strategic Planning Process

1. 2. 3. 4. 5. 6. Reviewing and updating the strategic plan Deciding on assumptions and guidelines First iteration of the strategic plan Analysis Second iteration of the strategic plan Final review and approval