“Business strategy is less a function of grandiose predictions than it is a result of being able to respond rapidly to real changes as they occur. That’s why strategy has to be dynamic and anticipatory.”
Strategy is the means used to achieve the ends (objectives). But what is strategic planning? Strategic planning has been defined as:
“That set of decisions and actions which leads to the development of an effective strategy.”
Strategic planning allows an organization to plan a course of action that is dynamic and able to respond to the current situation of the organization and the market in which it operates. For example firms that operate within the airline industry could never have predicted the events of September 11th last year and so their strategy would have immediately changed i.e. form generating profit to survival. This forms the starting point for the benefits of strategic planning.
It could be argued that strategic planning can benefit an organization by allowing it to be able to respond to seen, or unseen, changes within their environment. Such a change may be a new competitor that has entered the same market an unpredictable change such as a natural disaster. The nature of today’s business climate is that it is no longer enough to depend upon predictions or forecasts when planning the long-term future of an organization as circumstances may change over a relatively short period of time, making an inflexible long-term business plan unworkable and unproductive. Strategic planning enables an organization to determine it’s long-term goals and also identify the best approach for realizing those goals.
Strategic planning can benefit organizations at all different times in their life cycle. For example, at the beginning of an organization’s lifecycle, when it is still at the start-up stage, a detailed strategic plan may help it to gain investment. This is because if the firm were to show that it has planned, firstly where it wants to go i.e. target markets, and then also how it plans to get there, it may prove to be more appealing to a prospective investor. Similarly if the company is at the mid-point of its life cycle, in that it is up and running and progressing, then strategic planning can allow an organization to inform stakeholders, especially employees, exactly where it is planning to go and how it intends to get there. Most people perform better (in quality and quantity) if they know what is expected and where the organization is going. It can provide a strong incentive for the employees to achieve company objectives. Such ‘goal’ theories have been used to explain the motivators of workers.
Strategic planning can provide a basis for measuring performance. This enables an organization to monitor where it is going and how well it performs along the way. This can prove to be essential when forming future strategic plans in that it provides a basis upon which to set future objectives. Strategic planning reveals and clarifies future opportunities and threats. This is a benefit of strategic planning to an organization.
It could be argued that organizations that use strategic planning are more effective than those that do not. This is because unless an organization has a system upon which to base its decisions, then decisions are not much different from gambling decisions. Business involves great risk taking as it is, so strategic planning can be seen as a way to systemize these decisions and provide data so that reasonable and informed ‘gambles’ can be made when necessary. For example between 1946 and 1965 Igor Ansoff looked at 93 companies which had made important strategic decisions about mergers and acquisitions. He wanted to see if those companies that had planned the mergers in a strategic sense were more successful than those companies that did not. His study found that those companies using strategic planning outperformed the others on all financial measures such as earnings growth, sales growth and earnings – per-share growth. Also, besides performing better he found that companies using strategic planning were able to predict the out comes of their planning much better than the non - planners. This demonstrates a benefit of strategic planning to an organization. But this is not to say that strategic planning serves only as a benefit to an organization, it also has its limitations.
Organizations may encounter a number of problems and limitations as they go forward with their strategic planning process. As has already been identified strategic planning is an involved, intricate, and complex process that takes an organization into unseen territory. It does not provide a prescription for success; instead, it takes the organization through a journey and helps develop a framework within which the answers will emerge.
It could be argued that a major limitation of strategic planning is ensuring the commitment of those at the top of the organizations hierarchy. This is because in some ways, strategic planning reduces executive decision-making power. It encourages involvement throughout the organization, and "empowers" workers to make decisions within the aforementioned framework that has been defined by the strategic planning process. It is possible that this can prove to be demoralizing to some senior executives or managers. It is essential that the strategic planning of an organization have the full commitment of everyone, from those at the top of the organization hierarchy to those at the bottom. If there is a downturn in the level of commitment, then this can possibly lead to a breakdown in the communication that is needed to ensure that the strategic plan is implemented successfully. For example a senior manager may no longer view the ideas and expressions of his sub-ordinates as being important if they feel as if they have lost some elements of their ‘power’. This demonstrates a limitation of the strategic planning process to an organization.
Another limitation of strategic planning can be seen not as a limitation of the process itself, but as a limitation of the organization itself. Strategic planning involves strategic thinking, and strategic thinking involves intuition and creativity. It could be argued that if an organization lacks depth in ‘creative thinkers’, in terms of human resources, then the organization will be limiting itself in regards to the formation of strategic plans. Basically without strategic thinkers an organization can not really create effective strategic plans. This idea can be applied empirically i.e. to the real world in that nowadays many businesses make sure that it is a part of their management development programs. The American Assembly of Collegiate Schools of Business strongly suggests that accredited schools of business teach strategic planning, through the encouragement of strategic thinking. Although this concept seems practical, it could be argued that creative thinking is innate and can not be taught. For example, it is said that artists are ‘creative thinkers’ whilst it is also said that an artist’s ability is also innate i.e. they are born with it. If it is difficult to teach a person to be a creative thinker in terms of art, then it could also be argued that it would be difficult to teach a person to be a creative thinker in terms of the formation of strategies. This can prove to be a limitation for an organization if they do not include naturally creative thinkers among their workforce, especially those in management positions. There are also limitations to an organization with the actual strategic plan itself.
The future in life is always uncertain and no one can predict what will happen in the future. Therefore an organizations strategic plans may differ substantially from expectations on which parts of the plan may be built. For example, as mentioned earlier unpredictable events such as terrorists attack like that of the World Trade Center is totally unpredictable, as are other events such as natural disasters. Although all unpredictable events may not be as serious as these, or on such a scale, they can still have an effect upon an organizations plans. This can sometimes have a dual effect upon another of its limitations in that planning is expensive - in time and money. No organization if it is to be successful in its objectives can afford to waste in any form. Therefore a limitation of strategic planning can be seen in the allocation of resources that are needed to construct and implement such plans, especially in the light of changes as a result of uncontrollable events.
Bibliography
Strategy, By and
Jack: Straight from the Gut (written with Business Week’s John A. Byrne, Warner Business Books, 2001)
Business Policy – Strategy Formation & Management Action, Glueck
Ansoff, H. Igor: Corporate Strategy, New York: McGraw Hill, 1965
http://www.entarga.com/stratplan/pitfalls.htm
http://www.agsm.unsw.edu.au
The New Strategy and Why It Is New By , , and
Conclusion Point:
- Businesses which develop formal strategic planning systems will be more effective in achieving their objectives than those which do not
Jack: Straight from the Gut (written with Business Week’s John A. Byrne, Warner Business Books, 2001)
Business Policy – Strategy Formation & Management Action, Glueck
Ansoff, H. Igor: Corporate Strategy, New York: McGraw Hill, 1965
Glueck, F. William, Business Policy – Strategy Formation & Management Action, McGraw Hill
