In this article we will discuss about strategic planning, alternatives and implementation in an organization.
Strategic Planning:
Strategic planning is an organizational management activity that is used to set priorities, focus energy and resources, strengthen operations, ensure that employees and other stakeholders are working toward common goals, establish agreement around intended outcomes/results, and assess and adjust the organization’s direction in response to a changing environment.
It is a disciplined effort that produces fundamental decisions and actions that shape and guide what an organization is, who it serves, what it does, and why it does it, with a focus on the future. Effective strategic planning articulates not only where an organization is going and the actions needed to make progress, but also how it will know if it is successful.
It consists of making risk taking decisions and entrepreneurial decisions for the future with the best possible knowledge of their probable outcome and effect. Thus strategic planning concerns itself with the formulation of strategic alternatives and it in operational terms.
Strategic planning is a forward looking exercise which determines the future prospects of the enterprise selecting one of the alternatives and explaining. It is more comprehensive for strategy at corporate level being concerned mainly with the long term aspects of business.
It is a process through which, an examination of external and internal factors for an organization, results in a set of mission, purpose, objectives, policies, plans and programmes for implementation.
Meaning of Strategic Planning:
Strategic planning is a systematic and disciplined exercise to formulate business strategies and relates to the enterprise as a whole or to particular business units which are identified as strategic business units of a divisionalised organization.
Elements of Strategic Planning:
Strategic planning consists of the following elements:
(a) Environmental appraisal to identify opportunities and threats for the firm.
(b) An appraisal of company strengths and weaknesses. In that strengths may consist of strong financial position, modern technology etc., whereas weaknesses may be an ineffective reporting system etc.
(c) Identifying and selecting strategic alternatives for the company. Strategic alternatives can be identified by matching the company strengths and weaknesses with environment. Strategic alternatives can be selected on the basis of personal values of top management and the social responsibility of the firm.
Strategic planning also involves the determinations of strategies and polices that are to govern the acquisition, use, and disposition of corporate resources.
Nature of Strategic Planning:
Strategic planning is the determination of basic long term goals and objectives in an organization and adoption of courses of action and allocation of resources necessary for carrying out three goals.
In the nature of things, strategy formulation requires identification of opportunities and threats in the company’s environment along with the estimate of risks attaching to the selected alternatives. This also involves, appraisal of the company’s strengths and weaknesses to take advantage of perceived market needs.
Personal values, aspirations, and ideals do influence the choice of strategy, thus, along with the intellectual process of ascertaining what a company might be able to do in terms of environmental opportunity and of deciding what it can do in terms of preferred values has also a bearing of strategic decisions. Formulation of strategy also includes consideration of the corporate obligation to segments of society, stockholders in the community.
Strategic Alternatives:
Strategic alternatives refer to different courses of action which as organization may pursue at a point. In time these alternatives are crucial to the success of an organization. They are influenced by external factors and over which the organization has limited control.
Generating Strategic Alternatives:
Every organization has to identify, alternative course of action for its survival and growth. The procedure may differ from one organization to other organisations depending upon its size.
All decision is made by the owner himself or by the chief executive.
In organisations of medium to large size, the following mechanisms may be employed for identifying strategic alternatives:
1. Brain Storming Sessions:
In most organisations strategic alternatives are identified during the brain storming sessions. Participants are encouraged to come out with any course of action which they feel is possible. At this stage no importance is attached to relative merits and demerits of the alternatives.
Each alternative is reviewed and analyzed for final selection of one or more alternatives. The chief executive to selects the most appropriate alternative based on the current resources acting as criteria for selecting the alternative.
2. Special Meetings:
Large organisations hold special meetings for generating strategic alternatives. The participants present alternative scenarios along with their recommended courses of action. Depending upon the values and future trends, alternative courses of action are often recommended. An attempt is made through the discussions to arrive at a consensus.
3. Outside Consultants:
This procedure is based on the premise that an outsider can observe the alternatives in an objective manner. The executives who have been actively associated with a particular project are often so involved with it that they tend to be subjective and overlook its shortcoming.
Under such conditions, engaging an outside consultant may be a more effective way to generate strategic alternatives on an objective basis. The outside viewpoint is expected to be new and fresh and can show up many new opportunities the organization.
4. Joint Meeting:
Another desired way of generating alternatives is to line the services of a consultant but also associated some internal members in the process. The main aim of this method is able to combine the advantages of the new ideas contributed by outside member blended with workable solutions rendered by inside members within the organization.
Classification of Strategic Alternatives:
From the point of view of an organization, strategic alternatives may be classified on the basis of degree of risk involved.
They are:
(i) Niche Strategy:
Niche means concentrating around a product and market. It is a strategy involving very low degree of risk and represents the typical behavior of the small companies.
Such organisations are scared of growing big as it could entail them into legal, labour and management problems.
(ii) Vertical Integration:
This can assume two forms; backward and forward. Backward integration means to acquire suppliers labeled for critical inputs for the business. In the case of forward integration, the companies try to reach customer through their own distributional network. Organisation follows forward integration to take advantages of the closer contact with the customers.
(iii) Horizontal Expansion:
Horizontal expansion results when a firm adds new products or enters into new markets. Most pharmaceutical companies follow this strategy.
(iv) Diversification:
In diversification, an enterprise has new products or business which may be related or unrelated to its existing business. It involves high degree of risk as it amounts to manufacturing new product or entering into new markets unfamiliar to the organization.
Strategy Selection and Implementations:
Selection of a Strategy:
Once the analysis of current and projected performance of the company based on existing strategies and the assessment of desire performance is done, the strategic gap is identified and then, the process of narrowing down a large number of possible strategic alternatives starts with the consideration of strategic gap.
Strategic gap is the perceived difference between the targeted performance and projected performance following the present strategies. A gap could be very narrow or quite large.
It the perceived gap is narrow, one would expect that the present strategy would be followed. A larger gap could be caused by increase in targeted level of performance or the adverse changes in the environment which would lead to poor performance in future from the present strategies. A large positive gap is likely to occur due to environmental opportunities and large negative gap due to environmental threats.
In small and medium size organization, only one of the strategies must be followed. In large, complex, multi-product organization a combination of strategies is most likely. In India, large domestic private sector companies tend to prefer growth strategies.
Strategy Implementations:
Strategic management can be implemented when the action required with new visions and missions, and also with new and existing opportunities. Implementation is the process of translation of strategies and policies into action through the development of programmes, budgets and procedures.
It is typically conducted by the middle and low level management but is reviewed by the top management. However programmes and procedures are simply more detailed plans for the eventual implementation of strategy.