Strategic planning and its steps

Meaning of strategic planning

Strategic planning is the process by which top management decides the long-term direction of an organisation: what business it should be in, what it wants to achieve over the next several years, and how it will use its resources to gain an advantage over competitors in a changing environment. Its output is a strategy: a broad, integrated plan that matches the organisation's strengths with the opportunities in its environment. A strategy commits resources to a chosen line of action in pursuit of the firm's long-range aims, taking account of what competitors, suppliers, government and others are likely to do.

Its features are that it:

• is done mainly by top management and covers the whole organisation;
• looks several years ahead and deals with major, hard-to-reverse commitments of resources;
• is based on a study of the external environment and of the firm's own capabilities;
• is continuous, because strategies must be reviewed as conditions change;
• provides the framework within which departmental and operational plans are made.

Strategy works at different levels: corporate-level strategy decides which businesses the firm should be in (growth, diversification, stability, retrenchment); business-level strategy decides how each business should compete (cost leadership, differentiation or focus); functional strategies guide marketing, production, finance and human resources in support of these.

Steps involved in strategic planning

1. Defining the vision and mission. The organisation states what it wants to become and why it exists: its purpose, customers and values. This gives a sense of direction to all later steps.
2. Setting objectives. Broad intentions are turned into specific, measurable long-term objectives, such as market share, growth in sales, profitability or entry into new markets.
3. Analysing the external environment. Economic, social, political, technological, legal and competitive forces are scanned to identify opportunities and threats (for example through ETOP: the environmental threat and opportunity profile).
4. Developing planning premises. Suppose the production head of a two-wheeler maker sizes a new plant for the end of the decade on brisk demand, while the finance head arranges its loan on a cautious view: the two halves of the plan will not fit. So before a long-range plan is written, everyone who will work on it agrees one view of the conditions it must meet, such as likely demand, fuel prices, interest rates, government policy on electric vehicles and rivals' moves. That agreed view is the set of planning premises. They are working assumptions, needed because nobody can know these conditions for certain, and managers build them from forecasts of the years ahead and from the record of earlier years.
5. Analysing internal capabilities. The firm's resources and competencies, finance, technology, people, brands, distribution, are assessed to find its strengths and weaknesses.
6. SWOT analysis and strategic gap. Strengths and weaknesses are matched with opportunities and threats, and the gap between where the firm is and where it wants to be is identified.
7. Identifying strategic alternatives. Possible routes are listed: expanding in the present market, developing new products, entering new markets, diversifying, merging, forming alliances, or cutting back.
8. Evaluating and choosing the strategy. Each alternative is judged on its fit with objectives, risk, resources needed, likely returns and acceptability to stakeholders; the best is chosen.
9. Preparing for implementation. The strategy is translated into policies, programmes, budgets and procedures, and responsibility is assigned; structure and leadership are aligned with it.
10. Evaluation and control. Results are measured against objectives and the strategy is adjusted when performance or the environment changes.

Example. A regional dairy cooperative facing new national brands may decide its mission is to be the most trusted local brand, set a target to double sales in five years, find that its strength is its farmer network and its weakness is cold storage, choose a strategy of entering nearby districts with fresh products, and then invest in a cold chain.

Conclusion

Strategic planning is a logical sequence from purpose to action. Done well, it gives the organisation a clear direction, focuses its resources and prepares it for change.