What is Strategic Planning?
Strategic planning is a comprehensive master plan stating how the organization will achieve its mission and objectives. It is dynamic and long-range planning which focuses on the organization as a whole.
Strategic planning is the process of determining how to achieve long-term goals, minimum of five years, with the use of available resources in a dynamic environment. Top-level management consisting of the board of directors and chief executives formulate a strategic plan.
Ivancevich, Donnelly, and Gibson – Strategic planning is a process that involves the review of market conditions, customer’s need, competitive strength and weakness, socio-political, legal, and economic conditions, technological developments, and the availability of resources that lead to the specific opportunities or threats facing the organization.
Griffin – Strategic plan is a general plan outlining decision of resource allocation, priorities, and action steps necessary to reach strategic goals.
Strategic plans drive the organization’s efforts to achieve its goals in an uncertain environment. It focuses on environmental scanning to analyze opportunities and threats that may arise due to changing environment.
Strategic Planning Process
In a strategic plan, formulation managers need to focus on organizational mission and long-term goals to be achieved. In addition, it is necessary to scan environmental trends to analyze opportunities and threats that may arise in the course of functioning. Necessary steps for the strategic planning process are:
Step #1 Identifying Organization’s Current Mission, Goals, and Strategies
The identification of an organization’s current mission, goals, and strategies is the initial step in the strategic planning process.
The mission is the reason for the existence of an organization. It tells who we are and what we do as well as what we would like to become. The mission is developed by top-level management, which defines the fundamental unique purpose that sets an organization apart from other organizations of similar type.
Goals are the planned results to be achieved. Goals specify what is to be accomplished by whom and should be shown in quantitative terms, if possible. They should be consistent with the mission of the organization.
The strategy is the comprehensive master plan about how an organization achieves its goals and mission. It determines the basic long-term objectives of an organization and the adoption of a course of action and the allocation of resources necessary to achieve the goals. It maximizes competitive advantages and minimizes competitive disadvantages.
Step #2 Analyze The External Environment
The analysis of the external environment is the second step in the strategic planning process. It refers to the forces and institutions outside the organization that can potentially affect the organization’s performance. These forces are not controllable by the management.
The external environment is made up of two components the specific or task environment and the general environment. The task environment is consists of customers, suppliers, competitors, government, pressure groups, financial institutions, and strategic allies. Similarly, the general environment consists of politics, economy, society, culture, and technology.
Step #3 Identifying Opportunities and Threats
After analyzing the external environment, managers need to identify opportunities that can be capitalized on and threats that an organization may face. Opportunities are the positive trends and scope in the external environmental factors and threats are the negative trend and that challenges the organization.
Step #4 Analyze Internal Environment
All conditions and forces within the organization affecting business operation are the internal environments.
Managers need to analyze the internal environment to know about the position of resources. The components of the internal environment can be controlled by management. These components consist of owners or shareholders, the board of directors, resources and organizational structure, and organizational culture.
Step #5 Identifying Strengths and Weaknesses
Analysis of the internal environment facilitates in identifying the weaknesses and strengths of an organization.
Strengths are the activities that the organization does well or the unique resources that it has. Weaknesses are the activities that the organization does not well or resources it needs but not possess. Therefore, in the formulation of a strategic plan, it is necessary to identify the strengths to capitalize on and weaknesses to overcome them.
Note: From step 2 to step 5 is the SWOT Analysis.
Step #6 Formulating A Strategic Plan
Formulation of a strategic plan is the last step in the strategic planning process. On the basis of the identification of the organization’s mission and environmental analysis, strategies are developed for corporate, business, and functional levels. For this, managers need to develop and evaluate strategic alternatives and then choose a strategy that gives their organization the most favorable competitive advantages.