What is 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.
What is a Strategic Plan?
A strategic plan is a document used to communicate with the organization the organizations
goals, the actions needed to achieve those goals and all of the other critical elements developed
during the planning exercise.
THE PURPOSE OF STRATEGIC PLANNING
The purpose of strategic planning is to set your overall goals for your business and to develop a
plan to achieve them. It involves stepping back from your day-to-day operations and asking
where your business is headed and what its priorities should be.

Why strategic planning matters more to growing businesses

Taking the decision actively to grow a business means embracing the risks that come with
growth. Spending time on identifying exactly where you want to take your business - and how
you will get there - should help you reduce and manage those risks.

As your business becomes larger and more complex, so strategy formulation will need to become
more sophisticated, both to sustain growth and to help you muster the leadership and resources
you need to keep your business developing.

To do this, you will also need to start collecting and analyzing a wider range of information
about your business - both about how it operates internally and about how conditions are
developing in your current and potential markets.

The difference between strategic planning and writing a business plan

The process of strategic planning is about determining the direction in which you want to take
your business. It involves setting out your overall goals for your business. By contrast, the
purpose of the business plan is to provide the detailed roadmap that will take you in your desired
direction.

Your strategic planning and your business planning should be complementary, but effective
strategy development requires you to shift your focus from the day-to-day concerns of your
business and to consider your broader and longer-term options.
THE THREE KEY ELEMENTS OF STRATEGIC PLANNING
Developing a strategy for business growth requires you to deepen your understanding of the way
your business works and its position relative to other businesses in your markets. As a starting
point, you need to ask yourself the following three questions:

Where is your business now? This involves understanding as much about your business as
possible, including how it operates internally, what drives its profitability, and how it compares
with competitors. Keep your review separate from day-to-day work and be realistic, detached
and critical in distinguishing between the cause and effect of how your business operates. You
should also write it down and review it periodically.
Where do you want to take it? Here you need to set out your top-level objectives. Work out
your vision, mission, objectives, values, techniques and goals. Where do you see your business
in five or ten years? What do you want to be the focus of your business and your source of
competitive advantage over your rivals in the marketplace? This step should be the foundation
for the final plan and motivate change.
What do you need to do to get there? What changes will you need to make in order to deliver
on your strategic objectives? What is the best way of implementing those changes - what
changes to the structure and financing of your business will be required and what goals and
deadlines will you need to set for yourself and others in the business? Think about the business
as a whole, for example consider diversification, existing growth, acquisition plans, as well as
functional matters in key areas.

BUILD YOUR PLAN ON SOLID STRATEGIC ANALYSIS

Strategic planning is about positioning your business as effectively as possible in the
marketplace. So you need to make sure that you conduct as thorough as possible an analysis of
both your business and your market.

There is a range of strategic models that you can use to help you structure your analysis here.
These models provide a simplified and abstract picture of the business environment. SWOT
(strengths, weaknesses, opportunities and threats) analysis is probably the best-known model and
is used by both smaller and bigger businesses in the for-profit and not-for-profit sectors alike.
STEEPLE (social, technological, economic, environmental, political, legal, ethical) and Five
Forces analysis are two other widely used models.

SWOT

A SWOT analysis involves identifying an objective of a business or project and then identifying
the internal and external factors that are favourable and unfavourable to achieving that goal.

These factors are considered using four elements:

Strengths - attributes of the business that can help in achieving the objective
Weaknesses - attributes of the business that could be obstacles to achieving the objective
Opportunities - external factors that could be helpful to achieving the objective
Threats - external factors that could be obstacles to achieving the objective
STEEPLE

There are other models you can use to assess your strategic position. STEEPLE analysis, for
example breaks the business environment down into the following components:

Social –e.g. demographic trends or changing lifestyle patterns

Technological – e.g. the emergence of competing technologies, or productivity-improving
equipment for your business
Economic – e.g. interest rates, inflation and changes in consumer demand
Environmental – e.g. changing expectations of customers, regulators and employees on
sustainable development
Political – e.g. changes to taxation, trading relationships or grant support for businesses
Legal – e.g. changes to employment law, or to the way your sector is regulated
Ethical – e.g. ethical and moral standards governing policies and practices

STEEPLE analysis is often used alongside SWOT analysis to help identify opportunities and
threats.

Five Forces

The Five Forces model aims to help businesses understand the drivers of competition in their
markets. It identifies five key determinants of how operating in a given market is likely to be for
a business:

Customers' bargaining power - the higher it is (perhaps because there is a small number of
major buyers for your product or service) the more downward pressure on prices and thus
revenue they will be able to exert
Suppliers' bargaining power - the ability of suppliers to push prices up (for instance if you rely
on a single firm) can impact significantly on costs and profitability
The threat of new competitors entering your market or industry - more businesses
competing makes it more difficult to retain market share and maintain price levels
The threat of customers switching to substitute products and services - an example would be
the threat to fax machine manufacturers posed by the wide availability of email
The level of competition between businesses in the market - this depends on a wide range of
factors, including the number and relative strength of the businesses and the cost to customers of
switching between them.

IMPLEMENTING A STRATEGIC PLAN

 The plan needs to be implemented and this implementation process requires planning.
 The key to implementation of the objectives identified in the strategic plan is to assign
goals and responsibilities with budgets and deadlines to responsible owners - key
employees or department heads, for example.
 Monitoring the progress of the implementation plan and reviewing the strategic plan
against implementation will be an ongoing process. The fit between implementation and
strategy may not be perfect from the outset and the implications of implementing the
strategy may make it necessary to tweak the strategic plan.
  Monitoring implementation is the key. Using key performance indicators (KPIs) and
setting targets and deadlines is a good way of controlling the process of introducing
strategic change.
 Your business plan is another important tool in the implementation process. The business
plan is typically a short-term and more concrete document than the strategic plan and it
tends to focus more closely on operational considerations such as sales and cash flow
trends. If you can ensure that your strategic plan informs your business plan, you'll go a
long way to ensuring its implementation.
 Remember that strategic planning can involve making both organisational and cultural
changes to the way your business operates.

STRATEGIC MANAGEMENT PROCESS:

1. ENVIRONMENTAL SCANNING - INTERNAL & EXTERNAL ANALYSIS OF
ENVIRONMENT:

Environmental scanning refers to possession and utilization of information about

occasions, patterns, trends, and relationships within an organization’s internal and
external environment. It helps the managers to decide the future path of the
organization. Scanning must identify the threats and opportunities existing in the
environment. While strategy formulation, an organization must take advantage of the
opportunities and minimize the threats. A threat for one organization may be an
opportunity for another.

Internal analysis of the environment is the first step of environment scanning.

Organizations should observe the internal organizational environment. This includes
employee interaction with other employees, employee interaction with management,
manager interaction with other managers, and management interaction with shareholders,
access to natural resources, brand awareness, organizational structure, main staff,
operational potential, etc. Also, discussions, interviews, and surveys can be used to assess
the internal environment. Analysis of internal environment helps in identifying strengths
and weaknesses of an organization.

2. Strategy formulation:

Refers to the process of choosing the most appropriate course of action for the realization
of organizational goals and objectives and thereby achieving the organizational
vision. The process of strategy formulation basically involves six main steps. Though
these steps do not follow a rigid chronological order, however they are very rational and
can be easily followed in this order.

a) Evaluating the Organizational Environment - The next step is to evaluate the

general economic and industrial environment in which the organization operates.
This includes a review of the organizations competitive position. It is essential to
conduct a qualitative and quantitative review of an organizations existing product
line. The purpose of such a review is to make sure that the factors important for
 competitive success in the market can be discovered so that the management can
identify their own strengths and weaknesses as well as their competitors’
strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats to its
market or supply sources.

b) Setting Quantitative Targets - In this step, an organization must practically fix

the quantitative target values for some of the organizational objectives. The idea
behind this is to compare with long term customers, so as to evaluate the
contribution that might be made by various product zones or operating
departments.
c) Aiming in context with the divisional plans - In this step, the contributions
made by each department or division or product category within the organization
is identified and accordingly strategic planning is done for each sub-unit. This
requires a careful analysis of macroeconomic trends.
d) Performance Analysis - Performance analysis includes discovering and
analyzing the gap between the planned or desired performance. A critical
evaluation of the organizations past performance, present condition and the
desired future conditions must be done by the organization. This critical
evaluation identifies the degree of gap that persists between the actual reality and
the long-term aspirations of the organization. An attempt is made by the
organization to estimate its probable future condition if the current trends persist.
e) Choice of Strategy - This is the ultimate step in Strategy Formulation. The best
course of action is actually chosen after considering organizational goals,
organizational strengths, potential and limitations as well as the external
opportunities.

3. Strategy implementation is the translation of chosen strategy into organizational

action so as to achieve strategic goals and objectives. Strategy implementation is also
defined as the manner in which an organization should develop, utilize, and amalgamate
organizational structure, control systems, and culture to follow strategies that lead to
competitive advantage and a better performance. Organizational structure allocates
special value developing tasks and roles to the employees and states how these tasks and
roles can be correlated so as maximize efficiency, quality, and customer satisfaction-the
pillars of competitive advantage. But, organizational structure is not sufficient in itself to
motivate the employees.

Following are the main steps in implementing a strategy:

a) Developing an organization having potential of carrying out strategy successfully.

b) Disbursement of abundant resources to strategy-essential activities.

 c) Creating strategy-encouraging policies.

d) Employing best policies and programs for constant improvement.

e) Linking reward structure to accomplishment of results.

f) Making use of strategic leadership.

4. Strategy Evaluation is as significant as strategy formulation because it throws light on the

efficiency and effectiveness of the comprehensive plans in achieving the desired results.
The managers can also assess the appropriateness of the current strategy in todays
dynamic world with socio-economic, political and technological innovations.

The process of Strategy Evaluation consists of following steps-

a) Fixing benchmark of performance - While fixing the benchmark, strategists

encounter questions such as - what benchmarks to set, how to set them and how to
express them. In order to determine the benchmark performance to be set, it is
essential to discover the special requirements for performing the main task. The
performance indicator that best identify and express the special requirements might
then be determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of performance.
Quantitative criteria includes determination of net profit, ROI, earning per share, cost
of production, rate of employee turnover etc. Among the Qualitative factors are
subjective evaluation of factors such as - skills and competencies, risk taking
potential, flexibility etc.
b) Measurement of performance - The standard performance is a bench mark with
which the actual performance is to be compared. The reporting and communication
system help in measuring the performance. If appropriate means are available for
measuring the performance and if the standards are set in the right manner, strategy
evaluation becomes easier. But various factors such as managers contribution are
difficult to measure. Similarly divisional performance is sometimes difficult to
measure as compared to individual performance. Thus, variable objectives must be
created against which measurement of performance can be done. The measurement
must be done at right time else evaluation will not meet its purpose. For measuring
the performance, financial statements like - balance sheet, profit and loss account
must be prepared on an annual basis.
c) Analyzing Variance - While measuring the actual performance and comparing it
with standard performance there may be variances which must be analyzed. The
strategists must mention the degree of tolerance limits between which the variance
between actual and standard performance may be accepted. The positive deviation
indicates a better performance but it is quite unusual exceeding the target always. The
negative deviation is an issue of concern because it indicates a shortfall in
 performance. Thus in this case the strategists must discover the causes of deviation
and must take corrective action to overcome it.
d) Taking Corrective Action - Once the deviation in performance is identified, it is
essential to plan for a corrective action. If the performance is consistently less than
the desired performance, the strategists must carry a detailed analysis of the factors
responsible for such performance. If the strategists discover that the organizational
potential does not match with the performance requirements, then the standards must
be lowered. Another rare and drastic corrective action is reformulating the strategy
which requires going back to the process of strategic management, reframing of plans
according to new resource allocation trend and consequent means going to the
beginning point of strategic management process.

NEW VENTURE TYPICSL LIFE CYCLE:

THE NEW VENTURE creation process:

• The environment is the most comprehensive component in the venture creation process.

• It includes all the factors that affect the decision to start a business, for example,
government regulation, competitiveness, and life cycle stage.

• Within specific industries and in specific geographic regions, environmental variables

and the degree of their impact will differ.

• The new venture process begins with an idea for a product, service, or business.
Key Issues about the Venture Cycle:

• There are static and dynamic forces which need a special attention of the entrepreneur

• Entrepreneur needs to manage for changes and not changes

• The growth stage of the venture is more sophisticated with competition and dilemmas

• At a certain stage, you need to decide whether to do more innovation or allow decline

LIFE CYCLE OF AN ENTREPRENEURIAL VENTURE:

 Life cycle of entrepreneurial firms

– Birth stage

– Breakthrough stage

– Maturity stage

 Each stage poses different managerial challenges and requires different managerial
competencies.

THE FIVE STAGES OF A BUSINESS’S LIFE CYCLE:

There are five key stages (just typical)

(i) New Venture Development

(ii) Start-up Activities

(iii) Growth of the Venture

(iv) Stabilization

(v) Innovation or Decline

(i) New Venture Development

a) Creativity and assessment
b) Resource base analysis
c) Networking including vertical marketing
d) Vision, Mission, Objectives, Strategies & Tactics
(ii) Start-up Stage
a) Formal Business plan
b) Searching for capital (Analyze the risks)
c) Marketing research
d) Developing a working team
 e) Identifying any core competencies for Competitive Advantage
(iii) Growth Stage
a) Any modification on he operating strategy
b) Positioning and re-positioning
c) Knowing more details about he competitors (Survival of the fittest)
(iv) Stabilization Stage
a) Increased competition
b) High bargaining power of customers
c) Saturation of the market
d) The entrepreneur needs to think where will the business be in the near future
e) It is a stage preceding a great dilemma: to innovate or exit the business

(V) Innovation or Decline

a) Without innovation the clear option is ‘death’

b) Possibility of acquiring or being acquired

c) Might design new products for new markets (Diversification)

A VENTURE’S TYPICAL LIFE CYCLE:

LIMITATIONS OF LIFE CYCLE MODELS:

• Growth is rarely as smooth as the curve of the graph suggests. It is more likely to
represent spikes of growth and contraction rather than rounded peaks. For example many
small businesses have relatively few customers, so that the addition of one new
significant client will lead to a sudden growth spurt. Conversely, the loss of one large
client can significantly shrink the size of the business.

• The transition from one stage to another does not necessarily take place in the order
predicted by the model. Economic or trade cycles outside the control of the firm may
contribute substantially to the growth or decline of an enterprise at any time irrespective
of the stage of development. The economic downturn of 2008/9 forced a large number of
businesses to decline in size, whatever stage in their development they had reached.

• The contention that the transition from one stage to the next is triggered by a particular
kind of crisis has not been tested through empirical research. The development of an
enterprise is likely to be subject to many different internal and external variables so that
isolating one primary cause for the evolution of a firm from one stage to another is an
over simplification of a very complex process.

• Many enterprises reach a stable size and never make the transition out of this phase. Once
they have developed a business to a stage of survival, life-style entrepreneurs will have
little motivation to grow it further. Some take deliberate steps to avoid growth which they
see as threatening the very independence they sought when they created the enterprise.

KEY FACTORS DURING THE GROWTH STAGE:

Command and Control

As every business venture grows, problems in command and control arise. Since there are four of
them at the top administration level, it is essential that they frequently ensure the existing control
system is reliable and trustable. Moreover, it is also of importance that the resource allocation
system be assessed frequently.

Responsibility

‘As the company grows, the distinction between authority and responsibility becomes more
apparent’ (Kuratko & Hodgetts, 2008). It is easy to delegate authority downwards, especially
when a firm has fewer people during early stages. But as soon as the venture reaches growth
stage, expands and starts hiring more people, management needs to as well develop its sense of
responsibility through improving flexibility, innovativeness and a supportive and adaptable
environment.

Change

“Change management is the process of continually renewing an organization’s direction,

structure, and capabilities to serve the ever-changing needs of external and internal
customers.” (Moran & Brightman, 2000). Change occurs nearly constantly. With the capacity
and vision of the business expanding, frequency and complexity of change will as well escalate,
which eventually will affect the business in terms of resources, structure and personnel. The idea
is that the firm should be able to maintain the mentality and flexibility when it comes to change.

Tolerance of Failure

As well as there should be appropriate punishments for failures, there is expected to still be a
certain degree of tolerance towards them, even when the business venture has successfully gone
through the difficult initial start-up stage. The typical types of failure include, but are in no way
limited to, moral failure, personal failure and uncontrollable failure (Kuratko & Hodgetts, 2008).
Moral failure often signifies failures in internal trust, while personal failure is determined by lack
of sufficient skills and applications, and uncontrollable failure that is caused by unexpected and
unpredictable external factors, which is also the most difficult type to deal with.

Decision Making

Decision making protocol, structures and tools change as business ventures grow in terms of
capacity. (Hang & Wang, 2012). During early stages, the business venture must have had very
little capacity and few resources and therefore, these factors can be handled in an organic, case
by case basis.