The following points highlight the five main stages involved in the process of strategic planning. The stages are: 1. Objectives 2. SWOT Analysis 3. Gap Analysis 4.Strategy Alternatives 5.Strategy Implementation.
Stage # 1. Objectives:
Both Drucker and Ansoff suggest that the overall objective of the firm is not profit maximisation but long-term profitability.
Ansoff has identified a ‘hierarchy of objectives’ which includes both economic and non-economic criteria.
Under the economic objectives he has identified:
(i) ‘Proximate’ objectives which are concerned with short-term performance;
(ii) ‘Proxy’ objectives which are concerned with long-term performance; and
(iii) ‘Flexibility’ objectives which are concerned with safeguarding against risk and uncertainty.
Drucker has identified eight categories of objectives, namely:
(i) Market standing: sales levels, and market shares.
(ii) Innovation: the rate of new product development.
(iii) Productivity: the efficiency with which the inputs are transformed into outputs.
(iv) Physical and financial resources: planning the acquisition, organisation and allocation of resources.
(v) Profit: this is a short-term measure of performance, an insurance against the unexpected, and a source of funds for growth.
(vi) Worker performance: the efficiency with which the operative level workmen do the jobs.
(vii) Management development: one of the tasks of management (i.e., MBO?).
(viii) Public standing: long-term profitable survival requires acting in a socially responsible way. According to him, ‘objectives are the instrument panel with which to pilot the business enterprise’.
Stage # 2. SWOT Analysis:
This involves a systematic analysis of the internal strengths and weaknesses of the firm (financial, technological, managerial) and of the external opportunities and threats in the firm’s environment (changes in the markets, laws, technology, and the actions of competitors).
This will provide a basis for evaluating the extent to which the firm is likely to achieve its various objectives, and for identifying new products and market opportunities.
Stage # 3. Gap Analysis:
This is concerned with the likely gaps between the target performance of the firm as stated in its set of objectives and its likely performance as revealed by its SWOT analysis. This stimulates the search for strategies for closing any gaps that might be revealed.
Stage # 4. Strategy Alternatives:
Ansoff has identified four main strategies by the name of ‘Product-Market components’ that are open to a company. A diagram given below explains this concept. He suggests that ‘diversification’ should be a ‘last resort strategy’ and a company should seek this product-market components which make use of their distinctive qualities and strengths and which give an advantage over its competitors.
1. Market penetration—for increasing the efficiency and effectiveness of existing operations.
2. Product development—for developing new products for existing markets.
3. Market development—for finding new markets for existing products.
4. Diversification—for developing new products for new markets.
Stage # 5. Strategy Implementation:
The ‘hierarchy of plans’ suggests that the objectives and strategies have to be translated into detailed plans.
This implies the need for:
(i) Communication of the plans to all levels of the organisation in order to ensure commitment, cooperation or compliance;
(ii) Establishment of control procedures at all levels to monitor the effective implementation;
(iii) Creation of an organisational structure that is appropriate to the strategies selected by the organisation—here also, the management dictum ‘structure follows strategy’ finds relevance.