Harvard Business Review Assessment Task: Strategic Planning

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Assessment task: strategic planning

Over the past decades, the strategic plan has become an important human resource management tool. Several researchers have written and published a lot in this field of strategy, and subsequently, on the subject of strategic planning. In the year 1970-80, planning was the core activities of modern firms because the management believed it would enable them achieve a competitive merit. Many of the studies during this time reveal the thoughts of managers towards strategic plans. Into the bargain, research from the past two decades has managed to identify the "pitfalls" of strategic planning. For example, the link between strategic planning and organizational performance has not produced conclusive findings, which has further made a synthesized stream of research difficult to achieve (Grant 2003).

From a planning point-of-view, strategic planning primary objective should achieve long-term survival. In a company's endeavors to achieve a competitive advantage, challenges such as financial performance, diversification and organizational change have substantial influence. In addition, strategic plans reflect the outcomes from a bargaining process among functional areas, whereby each of the functional area, may compete in the scope of constraints of competition to realize a favorable position in the future. However, this does not apply for companies with informal planning processes and those with formal procedures. Therefore, the planning process consists of a combination of evaluation and power-behavioral models. Some companies struggle and fail at strategic planning initiatives revealing that planning is significant to every firm.

Virtually, every company, large or small around the globe has a guide on some kind of planning system. Some studies suggest that every manager should have some understanding of strategic planning because it has connections to, and linked with the management process of an organization determining its success. However, the level of understanding among managers is at the minimal level (Grant 2003). Depending on the perception that one takes, strategic planning qualifies as "strategic backbone" in strategic management. In line with this thought, planning is a function, which embraces managers in all levels of organizations.

The concept of strategic planning is a subject to different degrees of attention. The interest in strategy as a study of management originates from large companies in 1950s and 1960s. In addition, the subject experienced varying levels of interest from scholars as well as professionals. However, the reasons for the rise and fall of strategic planning are many and historical events may help in identifying others; however, other reasons are unidentifiable. On history, strategic planning emerged in the 1960s, peaked in the 1980s and quieted in the late 1990s. During this time in history, the change arose because the objective changed from how to carry out strategic planning to formulate the strategy to criticize its efficiency and influence on organizational performance (Grant 2003).

Planning as a Process

Strategists or planners found in an established company know what their strategic plan entails. Some may claim that the planning process is more important compared to the document plan. Researchers through their studies have an agreement that strategic planning is a process, which decides when, who is going to plan, and the way implementation will happen. However, the same researchers and scholars are not in agreement with the exact components and structure of the strategic planning process. This process links three primary plans: master strategies, medium range programs and short-range budgets (Nauheimer 2007). Therefore, this process begins with the coming up with an organizations objectives, establishing strategies and refining the strategies with comprehensive action plans. Companies should recognize that planning is a continuous process and they need regular amendments in order to respond to the changes in the environment.

Strategic Planning Today

Having evaluated the origin and growth of strategic planning it becomes evident that there are two wide areas of empirical research: the impact of strategic planning on firm performance, with the focus on how performance varies in various sectors and environments. The second area examines the organizational process involved in formation of strategies. However, at its center lies a question on whether the strategic planning process results from a planned formal process, or whether it is an emergent process characterized by learning over time. The two questions are because of inadequate empirical research on the area (Nauheimer 2007). In addition, the questions reveal that the features of planning systems must have broad differences.

It is an expectation that the strategic planning process must have great differences across companies depending on the belief a company chooses to adopt. However, the process has a limitation in that; it involves different parties characterized by limited knowledge. Therefore, this calls for extensive researches on strategic planning to explore the role of the corporate centre. In the prior studies, it is also evident that the inadequate framework makes it complicated to locate the real phenomena of strategic planning (Nauheimer 2007). This suggests that there is a need of broad theoretical frameworks that will help disclose relevant characteristics of strategic planning.

With the existing inadequacies, this paper calls for identification of threads in strategic management studies that will assist in developing a comprehensive framework. The framework will help in establishing testable data to show how companies conduct strategic planning today. In addition, the framework will assist in determining which organizational actors that have substantial influence in the strategic planning process. When research is over, the empirical data will serve to provide reliable proof of the validity of the developed framework. In addition, in reference to the existing literature on strategic planning, it has become evident that there lacks a theoretical framework that serves to offer detailed information on the phenomenon (Nauheimer 2007).

Finding the Right Strategy

The oil industry is among the industries that hold relatively few surprises for planners and strategists. For instance, strategists know that as new resources emerge and political forces fall out, global supplies will fall and rise. In addition, they know that demand will increase and decrease with incomes, GDPs and weather conditions among many others. Since such factors are external, the planners may stand no chance in the industry. Therefore, a company should keenly organize its unique capabilities and resources in order to uphold its competitive advantage. In the internet application industry, an oil industry planner may not offer any help (Reeves, Love and Tillmann 2012). It is important to not that, the strategies that work in the oil industry cannot work in the unpredictable internet application industry.

A recent survey conducted by BCG, which surveyed 120 companies in the globe in 10 major industries show that managers recognize the need to link their strategy making processes to the particular demands of their competitive environments. In addition, the survey found that many industries employ strategies suited to predictable and stable environments although their environments do not reflect. In order for an organization to find the right strategy, the company should evaluate its industry (Reeves, Love and Tillmann 2012). Although there are several factors that influence the strategies to formulate; therefore, the managers can narrow down options by considering two elements: predictability, (how far into the future and how accurate the planners can confidentially predict demand, corporate performance, competition, and market expectations ) and malleability: (To what extents do the company's competitors impact the factors?) (Reeves, love and Tillmann 2012).

In addition, the strategists should put the two variables into a matrix and include four wide strategic styles, which they will label classical, adaptive, shaping and visionary. However, often, planners and strategists conflate the two variables (malleability and predictability) thinking that or assuming that any shapeable environment is unpredictable. By so doing, it leads to a division in the world of strategic possibilities into two parts (predictable and immutable or unpredictable and mutable), whereas they need to consider the four variables (Reeves, Love and Tillmann 2012). Therefore, it is not a surprise to find organizations linking their strategic styles to their environment, hence perform well.

Classical Strategic Style

Classical style works well for organizations operating in an environment, which is predictable but hard for the organization to change; this style will create a chance of success. In addition, classical style is the style familiar to many managers. The five forces, blue ocean and growth matrix evaluates are some of its manifestations. An organization sets an objective that targets a favorable market position it can achieve by capitalizing on its capabilities, resources and builds, and fortifies the position through orderly, successive rounds of planning. This should use quantitative forecasting techniques that may enable it to develop in the future (Reeves, Love and Tillmann 2012). In addition, after setting such plans, they tend to stay in place for a long time.

In addition, the classical style works well as a standalone function as it requires keen analytic and quantitative proficiency allowing the passage of information in departments. Many strategists found in oil companies similar to those in many other mature industries; efficiently use the classical strategic planning. For example, renowned major oil companies including ExxonMobil, Shell, have highly trained analysts in the corporate strategic planning office spending their days establishing elaborative perspectives on the future economic factors that relate to demand and factors relating to supply (Reeves, Love and Tillmann 2012).

In addition, the analyses allow the planners to create oil-extraction plans that may live many years into the future and down-stream generation plans up to five years out. Classical strategic plan is significant because it will help an oil company to find and exploit new oil sources, to build production plants, and keep the plants running at maximum capacity. In addition, this style will help the company predict finances, which are significant when determining annual targets. The classical model works well with oil companies because their planners or strategists work in an environment whereby most attractive positions and the most rewarded capabilities today, is likely to remain the same in the future.

Classical Strategic Theory

This strategic theory is the earliest theory about strategic management, which emerged in the early 1960s. This theory suggests that developing a strategy will need a company to adapt to the external environment and it meets the needs of the market. In addition, the organization structure will have to conform to the environment and change as the strategy change. Evaluating a company's strengths and weaknesses, opportunities and threats formed the basis of strategy planning. This strategic theory relies on an organizations internal conditions and external environment (Song). The theory evaluates SWOT in order to establish how a company formulates their strategies. In addition, this theory offers a full set of basic ideas for the development of a company's strategy, especially the use of SWOT analysis technique, which fully reflects the significance of internal and external relationships when formulating strategies.

Limitations of Classical Theory

It is important to appreciate that the theory lead to a diversified establishment in the year 1960-70, however, the theory has limitations. First, the theory emphasizes on evaluation and reasoning. This assumes that managers can make reliable predications on the future market, formulate rational strategy and implement the strategy. However, this works only to the stable business environments (Song). In addition, when using the theory, it becomes hard to make strategic decisions according to the timely changes of the environment. The SWOT analysis method did not give the specific techniques of analysis.

Porter's Five Forces Model

Michael Porter's Five Forces Model evaluates a company's competition environment, hence making a substantial influence globally on the strategic decisions. Michael Porter claimed that the main elements of competition in an environment are the five forces: suppliers bargaining power, buyers bargaining power, threats of potential new entrants, threats of substitute products, and rivalry among competing sellers. Porter's model tells us that the competition of an organization is afar the range of the existing participants (Grundy, 2006). Consumers, suppliers, substitutes and potential entrants may change and become competitors, and will show its significance in different time, and varying situations. The emerging competition is "generalized competition" and "expanded competition."

Threat of New Entrants

When there are new entrants to an industry, they bring a new capacity, a desire to have market share and at times gain substantial resources. However, the seriousness of the entrant's entry depends on the present challenges and the reactions from competitors expected by the entrants. The barriers or challenges include economies of scale, brand and extensive capital requirements, which may recover over a long period. Switching costs, distribution channels and government policies also challenge new entrants (Grundy, 2006). Some of the key issues relating to the threat of new entrants influencing oil industries include extensive capitals, high cost on exports, customer loyalty, quality of oil and pricing strategies.

Rivalry within the Industry

Industries refer to firms offering similar products or services those perceived as substitutable by consumers. Rivalry among existing firms focuses on competing for positions in market share and making profits. If the product lacks switching cost, this may affect rivalry because this locks consumers to a particular competitor form attacks on its consumers by another firm. The oil industry continues to experience intense rivalry because of the lack of differentiation in the products and a low market growth rate.

Threat of substitute products

Threat of substitutes depends on aspects such as price performance of substitutes and buyer propensity to purchase the products. The energy sector depends on petroleum products, solar power, biogas, wind and electricity. Research reveals that oil products meet a greater percentage of the needs; therefore, substitutes in the oil industry do not offer substantial threat.

Supplier power

Suppliers can impose bargaining power on consumers by raising prices or decreasing quality of goods and services. In addition, established suppliers can cut out profitability out of an industry, which has no capability to recover cost increases in its own pricing. In the oil industry, the major suppliers may peg prices from OPEC and buy oil products from the buying arms. By so doing, this will offer little flexibility in affecting supplier prices and power. Although there is a chance to purchase and direct importations, the independent oil companies get supplies from the major suppliers.

Buyer power

Consumers also have significant influence and can force prices down. In addition, they can demand improved quality or more service, and cause competitors to go against each other at the expense of their profit making (Grundy, 2006). A buyer power has significant power if the concentrated or purchases in large volumes and the heavy fixed prices characterize the industry. In the oil industry, the only players with significant influence in pricing are the commercial high volume players. The independent oil companies fit this group because they purchase from the major suppliers. However, the retailers do not have substantial influence or rather bargaining power and they have to buy oil products at the marked pump prices.

Empirical Findings

Asea Brown Boveri (ABB)

Asea Brown Boveri (ABB) is a global engineering group. The group has its headquarters in Zurich, Switzerland. In addition, the group deals in various business ventures such as power, automation technology, robotics and petrochemicals. Dating back to the 1990s, ABB has undergone extensive restructuring activities for it to focus on power and automation as its core fields. In the year 2005, a survey conducted, revealed that ABB operated in 100 countries and had about 103, 000 as a workforce (Nauheimer 2007).

History

ABB is because of merging of Asea, a Swedish electric company and Brown, Bovery & Cie, a Swiss company, which was the earliest to transport high AC power. Asea played an important role in carrying out electrification tasks in Swedish homes, railways and industries. The establishment of the railway network in Sweden saw the company become a significant supplier of locomotives and power accessories. In addition, the company built nine of the 12 Sweden's nuclear power plants, further advancing to become the top ten power companies in the globe. On the other hand, Brown, Brovery & Cie (BBC) has its origin in Baden, Switzerland and founded in 1891. This company manufactured electrical machines, motors and steam turbines. Similar to Asea, the company added locomotives into their portfolio and because of the advancements in automotive technology, the company started manufacturing control systems for motor way tunnels (Nauheimer 2007).

Recent developments

ABB has taken many measures to reinvent the company this is because of negative factors including debts, bankruptcy and an over-diversified portfolio. Units such as wind energy, capital and metering equipment have streamlined their business into two categories: power and automation technology. Part of the reinvention process aimed to create a new and innovative strategic planning system (Nauheimer 2007).

Strategic Planning System

The strategic planning department for ABB reported directly to the management board. However, currently the department employs eight people who work solely on the strategic issues affecting the company. In addition, the total number of people involved in the strategic planning process is fifty. They include strategic division heads, economic researchers and the business intelligence. The planning system reflects the organization's strategic setting as it focus on strategic activities, geographical spread of the organization and expected to deliver an effective strategy (Nauheimer 2007). The department has a responsibility in exercising control over the business branches and their strategic planning operations. In addition, it advices and maintains a communication channel between the company's executives and business departments.

Value Chain Analysis

A firm suits the description of a value chain, whereby the total revenues minus total costs of all the operations undertaken to develop and market a product's value. In addition, all companies have similar value chains that include operations such as obtaining raw materials, designing products, building manufacturing plants, establishing cooperative treaties or agreements and offering consumers customer care. It is important to note that companies will remain profitable as long the revenues generated exceed the costs incurred. Therefore, companies should comprehend their own value chain including their competitor's, suppliers, and distributor's value chains. Value chain analysis is a process in which a company determines the costs linked with operations from purchasing raw materials to manufacturing goods to marketing the products. VCA is significant because it can enable a company to identify its strengths and weaknesses.