Strategic planning is the necessary link that bridges the gap between broadly stated company missions and objectives and the more specific types of planning such as policies, procedures, rules, and budgets. Mission statements declare an organization’s purpose. Objectives are the goals of the entire company. Such declarations, however, are intentionally broad to give the organization enough room to maneuver in response to changing environments.
As such, mission statements and objectives are in themselves unable to address issues relating to the management of the workers in the plant, the frontline personnel in service institutions, or the amount of money to be spent on advertising. On the other hand, policies, procedures, rules, and budgets relate to specific actions. There is, therefore, a need to formulate guides that puts all the action-specific plans on track to the attainment of company missions and objectives. These guides are called strategic plans.
Koontz, O’Donnel, and Weihrich (1980) stated that strategies “denote a general program of action and an implied deployment of emphasis and resources to attain comprehensive objectives” (p. 163). Thus, strategic planning relates to the general plan of actions, often long-term, that allocates the company’s resources towards the attainment of its goals. In order to properly understand the concept of strategic planning, it is helpful to consider it within the context of the different types of planning.
Plans are generally classified into purposes or missions, objectives, strategies, policies, procedures, rules, and budgets (Koontz et al. ). While other writers offer variations to this classification it is, nonetheless, a reasonable division. Mission statements define the business of an organization and its aspirations. It specifies the customers the company seeks to serve, delimits the area within which it intends to operate, and states its differential advantage over its competitors. This statement serves as the focus towards which more specific goals are directed.
IBM’s mission statement is a fine example. “At IBM, we strive to lead in the invention, development and manufacture of the industry’s most advanced information technologies, including computer systems, software, storage systems and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions, services and consulting businesses worldwide. ” All organizational activities that address internal or external changes, whether planned or unplanned, must fall within the ambit of the mission statement.
Planned changes are easier to handle because they are proactive and whatever disruptions that may follow are anticipated. On the other hand, responses to unplanned changes, which are reactive, are particularly difficult to manage since such changes often result to disorganized and unfocused reactions. Unplanned changes, such as the sudden introduction of an extremely fast and powerful computer by IBM’s top competitor, has a potential disrupt company strategies. Research and development might be pressured to speed up their work, which could cause them to overlook a few flaws of their product.
However, by adhering to their mission to strive to “lead in the invention and development of information technologies” it should not unduly react to unplanned changes in its environment. Objectives are the end goals of a company’s activities. It translates the mission into more specific performances. Such performances should be verifiable, either quantitatively or qualitatively. Going back to IBM’s mission statement, one possible objective that could proceed from it is the establishment of offices or branches in every major European capital within the next five years.
This supports IBM’s mission to reach a global market. Further, it is quantifiable. As can be seen, though, objectives still tend to be general statements. Policies are statements that serve as guides to thinking and decision-making. They tend to limit the parameters of decision-making and this ensures that decisions throughout the different management levels remain consistent with the mission. Using the IBM example further, if expansion into European markets is an objective, it may conceivably adopt a policy of supporting marketing research projects in untapped markets.
This allows managers in Europe to be in a continuous search for potential markets without continually referring to the head office. In contrast to policies, procedures and rules are guides to the performance of specific actions. They outline specific steps that have to be undertaken in order to accomplish certain activities. To illustrate, while IBM may have a policy of attracting the top graduates of the best engineering and technological universities in the country, procedures will have to be established on the company’s preferred way of approaching them.
Such approach could be a direct approach to the individual students, a general recruitment speech to the graduating class, or through the posting of announcements in the university bulletin boards. Budgets are also considered plans insofar as they regulate the allocation of the resources of the company. These resources may be readily available or are expected to be available at some point in the future, and their distribution to existing and anticipated needs of the company will have to be planned for. This is also called financial planning.
Budgets also need to reflect the mission and objectives of the company. At IBM, with the avowed mission of leading “in the invention and development of information technologies”, it would be most surprising if their allocation for research and development constituted a miniscule portion of their budget. It can be seen from the foregoing that missions and objectives tend to be general statements, while policies, procedures, rules, and budgets, sometimes called operational plans, are quite specific to particular actions.
It is at this point that strategic planning comes in. The goal of strategic planning is the formulation of general plans of actions for the whole organization that are geared towards the attainment of its mission and objectives. These are usually long-range plans extending for a period of five years or more. For this reason, they have to incorporate a certain degree of flexibility. They focus on the allocation of the company’s human, financial, technological, and fixed asset resources to activities that foster the attainment of its goals.
This makes strategic plans more concrete than missions, yet less specific than the operational plans which are said to be based on the said strategic plans. Strategic planning is built on internal analysis and environmental scanning. In order to meet company objectives it is necessary to conduct a SWOT (strengths, weaknesses, opportunities, and threats) analysis. Other tools are also mentioned, such as PEST (political, economic, social, and technological) and STEER (socio-cultural, technological, economic, ecological, and regulatory factors) analyses.
A SWOT analysis should be conducted thoroughly and objectively. One that accurately reflects reality enables managers to formulate a realistic strategy that matches the company’s strengths with its opportunities, which would certainly help in the realization of company goals. A strong marketing arm, for instance, when matched with a new and untapped market would certainly be very beneficial to the company. If the weaknesses and threats to the organization are properly identified, the managers are halfway to their solutions.
With the right strategies, weaknesses can even be transformed into strengths. A company with a struggling manufacturing section can chose to shut it down. It can focus instead on research and development, design, and marketing and have other manufacturers produce their designs. In this manner, it can eliminate costs of manufacturing equipment, product inventory, and plant overhead expenses, thus replacing a weakness with a strength. When these weaknesses and threats, however, become unavoidable, plans can be drawn to mitigate their negative impact on the company.
The findings of SWOT analyses determine the direction of the strategic plans. The data from them are the starting points of planning. This is because plans can only be effective if they reflect the true status of the company and its environment. A company that erroneously believes that its market share is decreasing may adopt a strategy that focuses on investments in advertising and promotions. Such investments could be more productive when utilized elsewhere. The impact of SWOT analyses are important enough that they may even warrant organizational changes in a company.
Fundamental changes in the environment may necessitate fundamental changes in the organization. Globalization and demographic diversification, for instance, have forced companies to re-engineer their organizational structures. Another good example is the current financial crisis which is constraining companies to implement drastic changes. Implementing organizational changes, however, requires a deep understanding of the current status of the organization as well as the outside and internal changes that appear to be forcing an organizational restructuring.
Outside influences may include major changes in the economy, new regulatory requirements, a potentially huge market, or a great leap in technology. Internal influences may be top management’s decision to change the company’s mission, a new product or service, or a transition to a new chief executive whose management style if very different from that of his predecessor. Organizational changes could come in the form of a re-allocation of resources, major revamp of operational plans, realignment of hierarchical structure resulting from mergers or collaborations with other companies, layoffs due to “rightsizing”, or territorial relocations.
It is often difficult to implement organizational changes because human beings are naturally apprehensive about the unknown. When people feel comfortable where they are, they resist change. The re-allocation of resources from one department to another could result to rivalries and even resentment among them. Things get even more difficult when contemplated changes entail outright dislocation of employees, as in the example given above about the non-performing manufacturing section.
Communication often facilitates difficult transitions. All employees, even those not directly involved in the change, should be informed of the proposed organizational changes and what they expect to accomplish. Often, even the most resistant people will relent once they understand the reason for the change. This information dissemination is necessary because any transition must be supported by the entire organization, from the top executive to the lowest ranked.
Employees who will be most affected should be consulted even at the planning stage of the contemplated changes. Their inputs on how to mitigate the adverse effects of such changes will have to be taken into account. Constant monitoring will also be necessary to manage the change and to see to it that it is proceeding according to the plans. This is because organizational changes often lead to unchartered waters. The foregoing defines the position of strategic planning in relation to the other forms of planning.
It is readily seen that strategies consolidate the various operational plans of the different departments or sections of an organization, which may sometimes be in apparent contradiction with each other, into one single mass that supports company missions and objectives. The importance of strategic planning can, therefore, hardly be overrated. It may only be a part of the over-all planning process but without it an organization may end up to be a mere conglomeration of different parts, all going their own merry ways. Strategic planning is the glue that transforms this conglomeration into a whole that is greater than its parts.