Meaning of Strategic Planning
In every business organization, there are some pre-defined goals and objectives that need to be achieved at a particular time. These objectives may be short-term or long-term. Short-term objectives are realized through the proper implementation of various plans and procedures. However, long-term objectives require proper planning and a series of steps to fulfill them. This planning is made after taking into consideration various aspects of business, such as business risk, financial risk, cash flow, return on investment and many other aspects. A critical evaluation of all these aspects and redefining the objective of business in an enhanced way is termed strategic planning
What Is Strategic Planning?
Strategic planning is a process in which an organization’s leaders define and communicate the goals and objectives of an organization and determine a series of steps to attain an organization’s objectives. In simple words, it is the process of creating specific strategies and their implementation to achieve the organizational long-term objective. This concept involves the cooperation and coordination of various departments of a business to accomplish its strategic goals.
Strategic planning is simply done to realize long-term goals that are going to affect its growth and profitability in the long run. The main product of strategic planning is an accurate, absolute, and affirmative strategic plan. A strategic plan is a plan that is easy to understand, focused on the attainment of organizational goals, and communicated either written or verbally to the organization’s people.
Types Of Strategic Planning
Broadly speaking, strategic planning is of three types, namely business strategic planning, corporate strategic planning, and functional strategic planning.
Business strategic planning
A business strategic plan is a centric plan which focuses on creating and regulating plans related to the competitive edge of a business, such as creating competitive advantages, developing new growth opportunities, and making the product more profitable. These types of business plans involve a proper evaluation of the external environment, targeting the customers, analyzing their needs and requirements, setting goals accordingly, allocating finance and putting together the human and material resources for the achievement of these goals. This strategic planning involves setting goals according to the needs of customers and following a series of steps for their accomplishment.
Corporate strategic planning
A corporate strategic plan defines the workings of a company. These types of plans are focused on the organizational and structural needs of a company. This involves determining the business structure, policies and procedures of the business, and leadership and management rules for the accomplishment of predefined goals. The entire work of the company is based and directed according to these organizational and structural needs.
Functional strategic planning
Functional strategic planning co-exists with corporate strategic planning and provides detailed working of specific departments such as the HR department, marketing department and Finance and development department. Functional strategic planning is concerned with deciding and determining the policies and procedures related to a specific department.
Process of Strategic Planning
The process of strategic planning involves critical thinking and analysis of various elements in a business and a need to form a plan accordingly. Formulating and implementing a plan and determining steps to achieve, it requires a thorough study of all the available options and the selection of the best option among them. Management should focus or rely on a plan that yields higher income or more positive results with minimum cost. A plan made and implemented will be one that has cost-effectiveness, higher return, minimized risk, and a high volume of success.
The strategic planning took place in three steps:
It is a process in which a business takes advantage of the available knowledge to formulate a strategy for the success and achievement of its goal. It is a process which is certainly the least understood but most controversial aspect of strategic planning. In this case, the company first conducts an internal and external audit to collect information related to its business environment. This is mainly done to conduct a SWOT (strength, weakness, opportunities, and threat) analysis. It helps the company to:
- Analyze the strength and weaknesses of its human resource and management.
- Analyze the upcoming opportunities in the market and utilize them.
- Analyze the threats and develop the best possible alternative ways to deal with them.
This analysis helps a company to focus on the areas of key importance, develop ways to reallocate the resources, and take necessary actions wherever needed. The entire strategy formulation is based on a proper SWOT analysis. A small error in the SWOT analysis has a huge impact on the strategy formulation.
Business strategies are made after a lot of thinking, evaluation, and consideration as they have a long-term effect and affect the business in the long run. It is the most difficult step of strategy formulation as it involves a huge mental framework, innovative thinking, and unique competencies and approaches. A company must be wise and careful while creating and formulating a strategy.
If said in simple terms, it is the implementation of the strategy developed in the first step. It involves developing activities, arranging resources, and putting the strategy into action. The very first step in this process is to communicate the strategy to other people. Everyone must be aware of what our strategy is and what the goal should be towards which all actions and efforts should be directed. Afterwards, it involves the allocation of resources, the arrangement of actions, the assignment of roles, responsibilities, and duties, and the establishment of accountability.
The success of any strategy depends upon how perfectly it is implemented and followed. A successful implementation of a strategy must involve a solid structure, a good framework, proper implementation, maximum utilization of resources, and efficient and effective marketing efforts.
Strategy evaluation is a process by which management evaluates the performance of its chosen strategy, analyzes its work and interprets its success. In simple words, strategy evaluation is the process of reviewing, measuring, and appraising the implemented strategy. Strategy evaluation involves three important aspects:
- Reviewing all the internal as well as external factors that affect the strategy and its working.
- Measuring and evaluating the performance and,
- Taking necessary steps wherever required.
All these three aspects are crucial in strategy evaluation and take place at different levels of management, i.e., upper management, middle management, and operational level. Also, strategy evaluation is seen as an important part of the entire strategy formulation process, as the success of any strategy cannot be interpreted or assumed without its evaluation.
Importance Of Strategic Planning
Strategic planning is of great importance to any organization. It helps an organization establish goals and objectives and take accurate measures to achieve them. Without proper strategic planning, it is very difficult for any organization to achieve its objectives. Apart from this, other aspects of the importance of strategic planning are:
Provide direction to the human efforts
Often it happens that due to increased workload and high mental and physical pressure, employees lose their concentration and work in a direction opposite to the objective of the organization. But, Strategic planning tries to remove such types of incidents by providing the same direction to all human efforts. It ensures that all people working in an organization should work in the same direction towards the achievement of the organization’s goal. It also helps the management and employees to reach their full potential for the achievement of a common goal.
Help in gaining a competitive advantage
A company with proper planning, implementation, and proper evaluation achieves its goals and objectives before its competitors in the market and gains a competitive advantage. A company with better strategic planning always studies the market conditions, customer needs and demands, competitors’ strategies, market trends, and new ideas for innovation. This helps them to better understand the external environment, grab all the opportunities, identify related threats and take measures for their prevention.
Strategic planning allows a business to understand the external as well as the internal environment and develop policies accordingly. The knowledge of the external environment allows a company to identify new market trends and develop innovative ideas accordingly. An innovative idea may be related to marketing strategy, product development, advertising, product manufacturing, or anything else depending on the internal and external forces. An innovative idea allows a company to establish itself and its brand as different from its competitors and survive in the long run.
Make the company proactive rather than reactive
While working in a business, there are many situations that an organization has to face. These may be related to business risk or financial risk or problems related to working capital requirements, fixed capital requirements, technology upgradation or anything else. A proper strategic planning helps a company to develop itself in a more proactive manner rather than being reactive to these kinds of future issues and problems. As long as the business runs, it faces more and more problems, and with the help of proper strategic planning, it can develop itself to be proactive.
Enhanced productivity and efficiency
With the right strategy or plan, a business can diversify its approach and become more productive. A properly formed and implemented strategy works as a roadmap for the entire organization. This enables the team to know and understand the objective and how to achieve it. The team will be ready to face any issue if it arises and develop ways to solve it. This further helps to increase the overall organization’s efficiency.
Benefits Of Strategic Planning
If you don’t know what your goal is, then all the efforts you are putting to make your business run and grow are worthless. If you know what your goal is, you will put in all your efforts to achieve it. But having a goal and putting your effort to achieve it is not worthless until and unless you assure that the objective is worthwhile and all efforts are going in the same direction. Strategic planning helps you to ensure this and allows your business to achieve great heights of success. Apart from this, the following are the benefits of strategic planning.
Helps in directing employees in the same direction
Strategic planning helps to establish the same direction for all the efforts of employees working in an organization. It makes the employees aware of what the organization is, in which direction they have to work, what their roles and responsibilities are, and to whom they are accountable. Also, it ensures coordination and a sense of belongingness among the employees working together. It further helps the organization to achieve its goal faster and fulfill its commitments to its customers, investors, shareholders and other groups.
Help businesses in making wise decisions
You won’t be able to achieve an objective unless you establish a clear, meaningful, and growth-oriented objective. You won’t be able to differentiate between a good idea and a great idea unless you have multiple options to differentiate. Strategic planning helps you to set the most appropriate and growth-oriented objectives. Also, it further enables a business to develop various ways to achieve that objective and choose the best idea among them. It helps the business to make the most appropriate decision taking into consideration various aspects of the business.
It is obvious that a business that achieves its objective at a fast speed can survive in the competitive world as compared to a business that fails to meet its commitments on time. Strategic planning allows a business to set objectives according to the needs of a changing environment and competitive world and develop ways to achieve them faster. This allows a business to survive in the long run. Also, it empowers a business to stand firm against its competitors.
Helps in increasing profitability
A business that continuously sets objectives and achieves them at a faster speed can make huge profits from time to time. Strategic planning helps a business to meet its commitments to customers and fulfill their needs and demands more effectively. This further increases the sales and marketing of the business, thereby increasing the profit at a fast speed.
Limitations of Strategic Planning
Despite its importance and benefits, strategic planning has some limitations that make it a matter of concern.
Lack of sufficient knowledge
Strategic planning is one of the most demanding fields that requires a lot of knowledge before putting it into effect. Not only does it require knowledge, but it also requires in-depth skills, training, and sufficient experience. A manager must possess all this before making any strategic planning. If he fails to possess knowledge about strategic planning, he fails to successfully implement it as well. As a result, the organization has to bear the consequences.
Different departments working separately
In a business, there are various departments such as sales and marketing, finance, public relations, operations, human resources, purchasing, and many other departments that work separately from each other. The skills, jobs, functions, roles, and responsibilities of each department are different from those of another. It often becomes difficult to coordinate the functions and work of all departments, which creates problems and differences within the organization.
Strategic planning is a costly process. It takes a lot of money to properly analyze the external environment and set a lofty goal to achieve. It further requires a huge amount of time in forming a plan, implementing it, observing and analyzing it, finding deviations if any, and taking necessary and corrective measures. Thus, the overall financial outlay from choosing an objective to accomplishing it becomes very costly.
Strategic planning is a very time-consuming process as it requires a lot of time to establish an objective, analyze whether it is profitable or not, and analyze its success rate. Further, it also takes a lot of time to decide which actions and steps to be taken, analyze the suitability of a plan, and, after its implementation, find deviations and hindrances and make further plans to remove them.
Elements Of Strategic Planning
Elements of a strategic plan can be defined as essentials of strategic planning without which a strategic plan is incomplete. There are seven important elements of strategic planning that make it successful and complete.
It is a statement that represents the way you envision your entire business. In a more descriptive way, it is a statement that should represent and communicate your dream to your employees and other groups in an inspirational and effective way. It should clearly state your vision, aspirations, and expectations.
A mission statement is one which describes your current work and the mission on which you are working or have to work. It is a way or path to achieve your vision in an enhanced and descriptive manner. A mission statement broadly contains your actions and goals to convert your vision into reality.
Core values are simply the beliefs and behaviors around which you and your organization work. Core values define your work, your behavior towards each other, and the beliefs and values that you follow and admire. Also, it is the value you follow while completing your mission to achieve your vision.
SWOT stands for “strengths, weaknesses, opportunities, and threats.” This is the most important element of strategic planning, and the entire planning process is based on this analysis. It helps an organization analyze its strengths and weaknesses and work on them properly. At the same time, it allows an organization to identify the opportunities and threats in the external environment and take action accordingly.
Long term goals
Long-term goals are the commitments that a company makes to make its vision a wonderful reality. These are a set of goals and objectives that are stated clearly in the memorandum of the company. These are a level below the vision of the company, or we can say that the vision of a company is a wider concept than long-term goals.
As the name reflects yearly, it is the objective that is set for a period of one year. These are also called short-term goals that need to be fulfilled within a period of one year. These objectives are SMART in approach. SMART stands for specific, measurable, achievable, realistic and time-based.
Action plans are plans that are developed to achieve objectives. Every objective has an action plan, and every action plan is made for a particular objective. These plans depend upon the durability, details, flexibility, approach, and success rate of an objective.
Strategic plans are of great importance to any organization as they tell us what objectives have to be achieved and what the steps and plans are to achieve these objectives. A strategic plan helps a company to put all its actions in the same direction, attain objectives faster, make decisions, and make the firm grow and earn profit. Although it suffers from some limitations as well, such as being very time-consuming, costly, and requiring a lot of knowledge and experience. It depends on the organization whether it includes strategic planning in its organizational structure or not.