Business Planning – Strategic Planning

Strategic planning is an Organisation’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. Strategic planning became prominent in corporations during the 1960s and remains an important aspect of strategic management.

Strategy has many definitions, but generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions. A strategy describes how the ends (goals) will be achieved by the means (resources). The senior leadership of an organisation is generally tasked with determining strategy. Strategy can be planned (intended) or can be observed as a pattern of activity (emergent) as the organisation adapts to its environment or competes.

Strategy includes processes of formulation and implementation; strategic planning helps coordinate both. However, strategic planning is analytical in nature (i.e., it involves “finding the dots”); strategy formation itself involves synthesis (i.e., “connecting the dots”) via strategic thinking. As such, strategic planning occurs around the strategy formation activity.

Process

Overview

Strategic planning is a process and thus has inputs, activities, and outputs. It may be formal or informal and is typically iterative, with feedback loops throughout the process. Some elements of the process may be continuous and others may be executed as discrete projects with a definitive start and end during a period. Strategic planning provides inputs for strategic thinking, which guides the actual strategy formation. The end result is the organisation’s strategy, including a diagnosis of the environment and competitive situation, a guiding policy on what the organisation intends to accomplish, and key initiatives or action plans for achieving the guiding policy.

Michael Porter wrote in 1980 that formulation of competitive strategy includes consideration of four key elements:

• Company strengths and weaknesses;
• Personal values of the key implementers (i.e., management and the board);
• Industry opportunities and threats; and
• Broader societal expectations

 Inputs

Data is gathered from a variety of sources, such as interviews with key executives, review of publicly available documents on the competition or market, primary research (e.g., visiting or observing competitor places of business or comparing prices), industry studies, etc. This may be part of a competitive intelligence program. Inputs are gathered to help support an understanding of the competitive environment and its opportunities and risks. Other inputs include an understanding of the values of key stakeholders, such as the board, shareholders, and senior management. These values may be captured in an organisation’s vision and mission statements.

Activities

Strategic planning activities include meetings and other communication among the organisation’s leaders and personnel to develop a common understanding regarding the competitive environment and what the organisation’s response to that environment (its strategy) should be. A variety of strategic planning tools (described in the section below) may be completed as part of strategic planning activities.

The organisation’s leaders may have a series of questions they want answered in formulating the strategy and gathering inputs, such as:

•  What is the organisation’s business or interest?
• What is considered “value” to the customer or constituency?
• Which products and services should be included or excluded from the portfolio of offerings?
• What is the geographic scope of the organisation?
• What differentiates the organisation from its competitors in the eyes of customers and other stakeholders?
• Which skills and resources should be developed within the organisation?

Outputs

The output of strategic planning includes documentation and communication describing the organisation’s strategy and how it should be implemented, sometimes referred to as the strategic plan. The strategy may include a diagnosis of the competitive situation, a guiding policy for achieving the organisation’s goals, and specific action plans to be implemented.[2] A strategic plan may cover multiple years and be updated periodically.

The organisation may use a variety of methods of measuring and monitoring progress towards the objectives and measures established, such as a balanced scorecard or strategy map. Companies may also plan their financial statements (i.e., balance sheets, income statements, and cash flows) for several years when developing their strategic plan, as part of the goal setting activity. The term budget is often used to describe the expected financial performance of an organisation for the upcoming year.

Tools and approaches

A variety of analytical tools and techniques are used in strategic planning. These were developed by companies and management consulting firms to help provide a framework for strategic planning. Such tools include:

PEST analysis, which covers the remote external environment elements such as political, economic, social and technological (PESTLE adds legal/regulatory and ecological/environmental);

Scenario planning, which was originally used in the military and recently used by large corporations to analyse future scenarios;

Porter five forces analysis, which addresses industry attractiveness and rivalry through the bargaining power of buyers and suppliers and the threat of substitute products and new market entrants;

SWOT analysis, which addresses internal strengths and weaknesses relative to the external opportunities and threats;

Growth-share matrix, which involves portfolio decisions about which businesses to retain or divest; and

Balanced Scorecards and strategy maps, which creates a systematic framework for measuring and controlling strategy.

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