The term "strategic planning" is generally used in the narrow sense, namely the application of management tools to address areas such as, profitability, efficiency, growth and competitive advantage. Ultimately, to address concerns of stakeholders for increase shareholder value and long-term competitiveness.
Business development is at the heart of strategic thinking and needs imagination and innovation. It should be proactive and anticipatory. It involves the creation of a unique configuration of the company's key features, which will match the challenges of its environment and provides strategic advantage. There are two distinct phases:
The option generation phase, where creativity must be allowed to flourish and diverse ideas emerge.
The option selection phase, where the options are narrowed down through a systematic filtering process.
The process is often iterative with multiple cycles occurring through the two phases.
In the first phase the strategic management team works with the company's management team, engaging in the spirit of divergent thought and experimenting with ideas. Strategic management considers external environmental factors (Political, Economic, Social and Technological - PEST) to generate new ideas as a foundation for exploration at this stage. (Aguilar, F. (1967))
In the second phase, strategic management systematically examines the options generated and compares them against information gathered about external environment. Projected figures are produced and risk assessment is performed.
Strategic management uses SWOT (Strengths, Weakness, Opportunities and Threats) analysis (matrix) as broad framework, which will act as a foundation for creative thinking. (Corson, W. (Ed.), (1990).)
When appropriate strategic management adopts target costing over traditional costing methods. Target costing is a Japanese response, gaining acceptance in the west, to the challenge of rapidly changing competitive environments.
Product life cycles are becoming shorter, process methods are increasingly automated and designed to offer a flexible approach to product definition. It has also been argued that as much as 80% of a product's cost is determined before manufacture begins. Consequently the ability to generate reductions in product cost once a product is launched is severely curtailed. In a highly competitive global marketplace, the traditional western approach to product cost definition is seen as inadequate. Target casting throws conventional logic on its head. Instead it asks first "what is a competitive market price?" then, a process of subtraction defines the target cost:
To reduce the risk of deterioration of the strategic process strategic options are screened against a range of criteria which includes:
Strategic planning and business development are intrinsically linked; the latter cannot be successfully accomplished without regard to the former.
A strategic plan should not be confused with a business plan. The former is likely to be a very short document whereas the latter is likely to be much more substantial and detailed. The former provides the foundation and framework for the latter. (Fahey, L., & Narayanan, V.K. (1986).)
If one does not know where the business is going, any road will get you there. Small business owners are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a business review or preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a business is much more likely to fail. A sound strategic plan should:
Serve as a framework for decisions or for securing support/approval,
Explain the business to others in order to inform, motivate and involve,
Assist benchmarking and performance monitoring,
Stimulate change and become building block for next plan.
A strategic plan should be visionary, conceptual and directional in contrast to an operational plan, which is likely to be shorter term, tactical, tightly focused, implement able and measurable. A strategic plan must be realistic and attainable.
Essential points to observe during review and planning process critical review of past performance by the owners and management of a business and the preparation of a plan beyond normal budgetary horizons require a certain attitude of mind and pre-disposition. Some essential points which should to be observed during the review and planning process include the following:
Relate to the medium term i.e. 2/4 years,
Be undertaken by owners/directors,
Focus on matters of strategic importance,
Be separated from day-to-day work,
Be realistic, detached and critical,
Distinguish between cause and effect,
Be reviewed periodically,
Be written down.
Precursor to Developing a Strategic Plan
It is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture. Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived Strengths, Weaknesses, Threats and Opportunities (SWOT). This then leads to strategy development covering the following issues discussed in more detail below:
The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more year's time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see (or sense)?" Consider its future products, markets, customers, processes, location, staffing etc.
The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas." A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not the Royal Mint!).
The third key element is too explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long-term. Aside from indicating a necessity to achieve regular profits, objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business. These objectives could cover growth, profitability, technology, offerings and markets.
Values governing the operation of the business and its conduct or relationships with society at large, customers, suppliers, employees, local community and other stakeholders.
Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example:
The company's internal cash flow will fund all future growth,
New products will progressively replace existing ones over the next 3 years,
All assembly work will be contracted out to lower the company's break-even point.
Next are Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of £3m in three years time. Goals should be quantifiable, consistent, realistic and achievable. They can relate to factors like market (sizes and shares), products, finances, profitability, utilization, and efficiency.
The final elements are the Programs which set out the implementation plans for the key strategies. These should cover resources, objectives, time-scales, deadlines, budgets and performance targets.
It goes without saying that the mission, objectives, values, strategies and goals must be inter-linked and consistent with each other. This is much easier said than done because many businesses, which are set up with the clear objective of making their owners wealthy often, lack strategies, realistic goals or concise missions.
Statements on vision, mission, objectives, values, strategies and goals are not just elements of future planning. They also provide benchmarks for a historic review. Most managers will find it exceedingly difficult to develop a future strategy for a business without knowing its current strategies and measuring their success to date.
The starting point must be to determine a company's existing (implicit or explicit) vision, mission, objectives and strategies. These are then judged against actual performance along the following lines:
Is the current vision being realized?
How has the company's mission and objectives changed over the past say, three years? Why have the changes occurred or why have no changes occurred? Identify primary reasons and categories as either internal or external,
Description of the actual strategies followed over the past few years,
Critical examination of each strategy statement by reference to activities and actions in key functional areas covering such matters as:
How has the company been managed?
How has the company been funded?
How has the company sought to increase sales and market share?
How have productivity/costs moved?
Each element is quantified by reference to actual performance. One has to ask why not"? "why only"?, or "why so"? And locate the reasons for differences between the actual and…