Strategic Planning & Mgt.

Strategic Management & Planning

ByBennet E. Niboi

Management & Business ConsultantBENNET &BENNET CONSULTING LIMITED, TAKORADI

Telephone 020-814-3113/031-23600; E-mail [email protected]

ELEMENTS OF STRATEGIC MANAGEMENT

• Strategic management is the process of formulating strategies and managing the organization to achieve them.

• Organizations and managers who think strategically are looking ahead and defining the direction in which they want to go in the middle and longer term.

• Strategic management takes place within the context of the vision and mission of the organization

EVOLUTION OF STRATEGY

• Strategy comes from the Greek strategeia, which means the art or science of being a general (Stoner et al, 1995) .

• Effective Greek generals needed to lead an army, win and hold territory, protect cities from invasion, wipe out the enemy, and so forth.

• Each kind of objective required a different deployment of resources.

Evolution of Strategy (cont’d)

• Then, the concept of strategy had both a planning component and a decision-making or action component. Taken together, these two concepts form the basis for the “grand” strategy plan (Stoner et al, 1995).

Evolution of Strategy (cont’d)• The connection that managers today make

between business and strategy is, however, a relatively recent one.

• Only since World War II has the idea emerged that strategic planning and acting on those plans constitute a separate management process – called strategic management.

• Various writers have contributed to the evolution of strategic management.

Evolution of Strategy (cont’d)

• In 1962, business historian Alfred D. Chandler proposed that “strategy” be defined as “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the absorption of resources necessary for carrying out these goals” (ibid).

Evolution of Strategy (cont’d)

• In 1978, Dan Schendel and Charles Hofer created a composite definition of strategic management based on the principle that the overall design of an organization can be described only if the attainment of objectives is added to policy and strategy as the key factors in the strategic management process (Cited by Stoner et al, 1995).

Evolution of Strategy (cont’d)• Schendel and Hofer focused on four key

aspects of strategic management: – goal setting, – strategy formulation, – administration and – strategic control

• These give managers feedback on their progress.

Evolution of Strategy (cont’d)In broad terms two phases are involved (Johnson

& Scholes, 2002) . • Strategic planning is the sense-making activity.

– Includes both goal-setting and the strategy formulation processes that Schendel and Hofer distinguished.

• Strategic implementation is the actions based on that kind of planning. – This stage includes Schendel and Hofer’s

administration and strategic control stages

STRATEGIC MANAGEMENT PROCESS/ELEMENTS

• The strategic management process can be used to explain what firms should do to achieve strategic competitiveness and earn above-average returns.

• These explanations demonstrate why some firms consistently achieve competitive success while others fail to do so.

• As will be seen, the reality of global competition is critical part of the strategic management process.

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Strategic Management Process Challenges

• Strategic management faces a number of challenges. • The strategic actions taken to achieve and then

maintain strategic competitiveness demand the best efforts of managers, employees, and their organizations on a continuous basis.

• The emergence of global economy and rapid technological changes; provides the context of opportunities and threats within firms as they strive to meet competitive challenges

STRATEGIC PLANNING• An unplanned life is not worth living. Purposeful

thinking and planning are therefore a must for any person who desires to succeed in life.

• "Planning consists of identifying the over all purpose of a project, the activities to be performed, their sequence, and resource required to accomplish them". (Myron Rush, 2005).

• Without planning and management, an organisation has a ceiling on success.

STRATEGIC PLANNING STAGES • Unplanned Stage: Things are done on as and when

basis. • Budget planning stage: Planning at this stage is

normally short-term, say one year.• Long-term/strategic planning stage: normally spans

over a period of five (5) years or more.– “a philosophy of management based on

identifying purpose, objective and desired results; establishing realistic programmes for obtaining these results; and evaluating performance in achieving them”.

PURPOSE OF PLANNING• Create a future different from the present• Prepare to respond to critical and desirable

alternative future developments• Identify where you are going from where you are now• Know how you can get there• Improve upon efficiency in using limited resources as

personnel, time and money.• Everyone knows what the organization is trying to

achieve.• Everyone knows what is expected of him.

HOW STRATEGIC AND OPERATIONAL PLANS DIFFER

• Time Horizon: Strategic plans tend to look ahead several; a year is often the relevant time period for operational plans.

• Scope: Strategic plans affect a wide range of organisational activities; operational plans have a narrow and more limited scope.

• Degree of detail: Often strategic goals are stated in simple and generic terms; operational goals that are derived from the strategic plan are stated in relatively more detail.

THE STRATEGIC PLANNING PROCESS

PURPOSE, VISION, AND MISSION• The purpose of an organisation is the “reason for

being” of the organisation • The corporate vision is the mental picture of the

future desired. • The mission statement provides the conceptual

framework for fulfilling the vision while adhering to values. – The mission statement is used as a guide for long-

range planning and day-to-day decision making. – The purpose, vision, mission statement, and values are

tools for shaping corporate culture.& philosophy

GOALS AND OBJECTIVES• Guided by the corporate vision and

business mission, the firm’s leaders can define measurable financial and strategic goals and objectives. – Financial objectives involve measures such

as sales targets and earnings growth.– Strategic objectives are related to the firm’s

business position, and may include measures such as market share and reputation.

ENVIRONMENTAL ANALYSIS• The environmental analysis includes both

internal and external analyses of the firm. • The internal analysis can identify the firm’s

strengths and weaknesses • The external analysis reveals opportunities and

threats. • A profile of the strengths, weaknesses,

opportunities and threats is generated by means of a SWOT analysis.

THE BUSINESS ENVIRONMENTAL SOURCE: Wheelen, T. L. & Hunger, J. D. (2004, p11)

SWOT ANALYSIS

PEST ANALYSIS• Political factors: government regulations and legal

issues and define rules under which the firm operates• Economic factors affect the purchasing power of

potential customers and firm’s cost of capital, e.g. interest rates, and inflation rates.

• Social factors: the demographic and cultural aspects of the external macro-environment, e.g. population growth and health issues

• Technological changes can affect production levels e.g. R & D activities .

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PEST Analysis (cont’d)• A variation of the PEST analysis is the PESTEL

– Political– Economic– Social– Technological– Ecological and – Legal.

• The PESTEL factors can be classified as opportunities and threats in a SWOT analysis.

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STRATEGY FORMULATION AND ACTION PLAN

• Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats.

• To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals.

• A competitive advantage can be based on cost or differentiation resulting in any of or a combination of the following strategies: cost leadership, differentiation, or focus

Strategy at the Business level• The following are the key strategies (Porter,

1985;1987)– Cost leadership– Differentiation strategies– Integrated Cost leadership/Differentiation

strategies• Competitor analysis and response

– Likelihood of attack: First mover, Organisational size

– Likelihood of response: Actor’s reputation; Dependence on the market

Strategy at the Corporate level Growth and Levels of diversification• Vertical• Horizontal • Related • Unrelated• Conglomerate• Organic growth• Inorganic growth: Mergers, Acquisitions,

Takeovers

Strategic Alliance • A strategic alliance is a cooperative strategy in

which firms combine some of their resources and capabilities to create a competitive advantage.

• Involve firms with some degree of exchange and sharing of resources and capabilities to co-develop or distribute goods or services.

• Strategic alliance let firms leverage their existing resources and capabilities as the foundation for new competitive advantages.

Entering International Markets • Firms have six modes to use when entering

foreign markets (Hills, 2002): – Exporting – Turnkey projects – Licensing – Franchising,– Joint ventures – Wholly owned subsidiary in the host country.

• Each entry mode has advantages and disadvantages..

STRATEGY IMPLEMENTATION

• The selected strategy is implemented by means of programmes, projects, budgets, and procedures.

• Implementation involves organisation of the firm’s resources and motivation of the staff to achieve objectives.

MONITORING, CONTROL AND EVALUATION

• Monitoring begins as soon as the strategy implementation begins; – involves selecting performance indicators,

collecting data on the indicators, analysing the data and reporting periodically, using the result (output) to improve the work.

• Control means ensuring that activities are in line with plans. Items to be controlled include:– income and expenditure, stock, maintenance,

personnel, results, changes, quality of work etc.

Monitoring, Control And Evaluation

• Evaluation, unlike control and monitoring is conducted in greater detail. It implies comparing results against what it costs to obtain those results. Three levels involved: – on-going (forms part of the monitoring exercise), – terminal (done at the end of the planning period)

and – ex-post (may be done many years after the

planning period).

Other Issues in Strategy Implementation

• Corporate governance: the manner and the system by which power over and the power of, a corporation is exercised with the primary objective of increasing shareholder value

• Organisational structure: for separating and coordinating various functions

• Leadership: influencing process; management of meaning; articulation of corporate vision; motivating employees, using the most effective communication channels, and resolving conflicts.

ELEMENTS OF STRATEGIC MANAGEMENT/ PLANNING

• Purpose: Why do you exist?

• Vision:What do you want to become?

What are your dreams and aspirations? Where do you want to go?

DIMENSIONS OF STRATEGIC MANAGEMENT/ PLANNING

• Mission:The way to fulfill the vision.

What do you do to fulfill your vision and purpose? What is the framework for achieving the vision?

• Core-Competencies: What are you good at?

How can you leverage your competencies into products and services for the markets served?

Dimensions of Strategic Management/ Planning (Cont’d)

• Values: What do we prize?

What drives your business? What are your criteria for making organisational,

leadership and ethical decisions?

• Goals: What key results do you want to achieve?

When do we want them to happen?

Dimensions of Strategic Management/ Planning (Cont’d)

• Markets:What market should you be in?What market do we need to create?

What should your basic customer orientation in these markets be?

• Major Products/Services:What are the major categories of products/services you shall provide?

Dimensions of Strategic Management/ Planning (Cont’d)

• Business environment:What threats and opportunities do you face from environment (competition, the economy, etc.)

How should you track key environmental activities and trends?

• Stakeholders:What groups/individuals are affected by the way you do business?

How do you establish win-win relationships with your stakeholders?

Dimensions of Strategic Management/ Planning (Cont’d)

• Critical Resources:What are the strategic resources (people, raw materials, technology, and brain power and so forth) that you are going to assure a steady supply of?

.REFERENCES: Hitt, M. A. et al (2005), Strategic Management: Competitiveness and

Globalization, Thompson CorporationHitt, M. A. et al (2007), Management of Strategy: Concepts and Cases,

Thompson CorporationJohnson, G. & Scholes, K (2002), Exploring Corporate Strategy: Text and

Cases, Pearson Education Limited, 2002Pearce II, J. A. & Robinson, Jr, R. B. (2003), Strategic Management,

Formulation, Implementation and Control, McGraw-Hill/IrwinPitts, R. A. W. & Lei, D. (2000), Strategic management: Building and

Sustaining Competitive Advantage, South-Western College PublishingThompson, A. A. & Strickland, A. J. (1995), Strategic Management:

Concept and Cases, Richard D. Irwin, IncStoner, J. A. F. et al (1995), Management, Prentice Hall IncWheelen, Thomas L. & Hunger, J. D. (2004), Strategic Management and

Business Policy, Pearson Education Ltd.