Strategic Planning in Uncertain and Dynamic Environments - Research Paper Example

 Strategic Planning in Uncertain and Dynamic Environments Every organization aims at performing effectively and achieving high productivity. In order to ensure this is attained, there are different major decisions that organizations have to make. These decisions are meant to address some of the most important issues that the organization faces. This may lead to changes in the organizational structure or changes in the relationships of stakeholders and partners. Both internal and external forces may force an organization to make these momentous decisions. In the recent past, organizations have been faced with different major pressures that have forced them to adopt a flexible process of dealing with these decisions. This process is called strategic planning, and has been proved to result in different outcomes for different organizations, depending on the nature of the organization and the environment in which the organization operates. This essay evaluates the argument that formal strategic planning is no longer an appropriate organizational process for firms that make strategic decisions in highly uncertain and dynamic environments. Strategic planning is a systematic and documented process that is adopted for making decisions on what key decisions an organization must get right in order to ensure that the organization thrives in future. The process of strategic planning leads to a strategic plan, which is a set of statements that describe the purpose and ethical conduct of an organization together with the different strategies that have been designed in order to achieve the targets that the organization has set (Pearce II, et al 1987). To achieve best outcome, an organization should ensure that its strategic planning is effective, and is capable of sustainable strategic decisions. This is important as it might reduce the risk level for the organization, and improve the long-term performance of the organization. Different organizations have utilised the process of strategic planning differently, and have experienced varying results. Today, apart from large corporations, the smaller organizations are equally adopting the process of strategic planning. While some organizations have successfully used strategic planning and experienced positive outcome, other organizations have failed to realise a positive outcome with strategic planning. Therefore, strategic planning in this regard cannot be viewed as an ultimate or absolute effective process for organizational decision making and improved performance. The process of strategic planning is also known to present to organizations, both benefits and problems. Therefore, depending on how a company approaches and deals with the problems presented by strategic planning, it will either succeed or fail with this process. Organizations mainly adopt strategic planning because of the different benefits that this bears. Steiner (2010) explains that organizations adopt strategic planning because the process is essential for discharging top management responsibility. This is especially in cases where top managers of organizations feel that their own intuition alone is not sufficient in decision-making. This therefore, necessitates the incorporation of formal strategic planning in the managerial activities of such managers. Steiner (2010) also postulates that formal strategic planning is useful as it asks and answers questions of importance to a company. This is highly important for managers in an organization. Such questions include: What is the basic line of the business? What are the underlying philosophies and purpose? What are the long-term and short-term objectives of the company? What is the company’s future financial state? Who are our competitors? What and where are our markets? What are the existing and future opportunities and threats? Strategic planning in an organization helps to provide answers to such and other important questions, and these answers form the base for effective decisions in an organization. Changing environment is a major factor that influences the introduction of formal strategic planning in an organization. In most organizations today, the environment is highly dynamic. This therefore, poses as a threat and an opportunity for these organizations. Some of the changes in environment lie in the product area, technological threats to products, government regulations, legal liabilities for products and managerial practices, domestic and international competition, material shortages, domestic inflation, and political and economic problems (Ebner 2013). In order for companies to continue operating amid all these uncertainty, it is important that these adopt strategic planning. Strategic planning is therefore, essential in this case, in giving organizations and their managers a better understanding of the complex world in which the organizations operate. Strategic planning for an organization is also beneficial as it introduces a new set of decision-making forces and tools in a business. First, this simulates the future of the organization on paper. This encourages and allows a manager to see, evaluate, and accept or discard different alternative courses of action that they might otherwise put into consideration. This also allows managers to experiment without utilizing resources, and overall, makes managers better planners and decision makers. Additionally, since strategic planning utilises the systems approach, this provides a mechanism for the interrelated parts of an organization to be coordinated, hence avoiding the suboptimization of parts at the expense of the whole (Pearce II, et al 1987). This way, managers are able to focus on the major issues that are relevant to the survival of the whole organization. On the other hand, an organization may experience success without utilising formal strategic planning. This is the case where the top managers are intuitive geniuses. However, in the long run, organizations that utilize strategic planning should perform better than those that do not use this (Steiner 2010). One of the limitations of strategic planning is that the environment may prove different from the expected. For instance, unexpected government actions such as contract cancellation are some of the uncertainties that challenge planning. Another limitation is internal resistance, whereby employees of an organization may resist the implementation of strategic planning in the organization. In such organizations, employees might be used to old ways of doing things, hence find change uncomfortable. This therefore, hinders effective planning. Strategic planning also presents the problem stemming from high cost of planning. A company may incur high costs for special studies and information in the course of planning (Morley 2013). Similar to this is the aspect of the high difficulty level of planning. Strategic planning will therefore, require managers to work hard, utilise high level of imagination, analytical capacity, and commitment. Lack of these mental processes in the management will not result in positive outcome when strategic planning is utilised. In addition, strategic planning does not effectively address the current crises in an organization (Mankins & Steele 2006). This is because the process only leads to long-term outcomes. Therefore, amid many present crises, an organization may spend time on finding short-term solutions, rather than engage in strategic planning. Finally, strategic planning limits choice. This is because it requires a commitment to a specific course of action, thus leaving other alternatives. This however, is not a major problem of the process. Organizations operate in varying environments. While few organizations experience a stable and predictable environment, many operate in highly uncertain and dynamic environments (Harrington, Lawton & Rajwani 2005). In the past three decades, several factors have contributed to the increase in turbulence in the competitive environments of different industries. According to Caldart & Ricart (n.d, p.9), “turbulence is a consequence of the difficulty many industries are facing to achieve a congruent vision of the external conflict they are dealing with as its building blocks, actors, landscapes and rules of behaviour are suffering strong transformations.” The turbulent environment experienced today is more likely to persist in future even as The environmental turbulence is attributed to the increasing rate of change. One of these changes includes changes in technology and the resultant fall in the barriers to entry of industries related with communications and information (McNamara, Vaaler & Devers 2003). Additionally, the increasing access and availability of information and the need for effective management of information also contributes to environmental turbulence. Furthermore, the increasing global profile of competitors equally contributes to environmental turbulence (Bitar 2003). Finally, the existence of new global public sector trends, characterised by downsizing of governments in different countries, after its retreat in its roles of shareholder in different economic sectors, result in a turbulent environment for the economy (Caldart & Ricart n.d). These changes make it difficult to identify causes or predict the outcome of competitive initiatives with reasonable certainty. In such environments, there are high levels of unpredictability, complexity, and dynamism (non-linear positive outcomes) (Caldart & Ricart n.d). Whether or not formal strategic planning is an appropriate process for firms operating in highly turbulent environments remains debatable. Basing on different factors, strategic planning may be considered both as appropriate and inappropriate to organizations experiencing a highly turbulent environment. According to Chakravarthy (1997) and Courtney, Kirkland & Viguerie (1997), most frameworks for strategic management assume that the environment is stable and simple, yet technological and global changes have resulted in dynamic and complex environments in which organizations must operate. If this argument was anything to go by, then strategic planning comes out as inappropriate. Chakravarthy (1997) however, concludes that the best strategy for an organization in a turbulent environment is “going with the flow.” Chakravarthy (1997) argues that the rigid top-down strategies are counterproductive for organizations in highly turbulent environments, and advises that organizations should instead invest in growing distinctive competencies for the future. There are other views that point out that strategic planning is limited in its application to organizations in turbulent environments. According to Bitar (2003), it is challenging to develop a uniform strategy for such organizations, as change happens on different levels and with different impacts. Bitar (2003) therefore, proposes that such organizations need a system of at least an equal variety, but should create an equivalent or additional variation by constant innovation. Therefore, instead of a rigid strategic plan, organizations in turbulent environments require a high level of increased internally created innovation. According to Grant, (2003), the management of such organizations should also possess the ability to continuously innovate and rapidly identify new developments in the environments in order to adapt them to their strategy. Overall, rigid formal strategic planning nor reacting is neither effective for organizations in turbulent environments (Bitar 2003). Some findings stress the importance of strategic planning in an increasingly turbulent and competitive environment. O’Regan, Sims & Gallear (n.d) argue that environmental dynamism drives the degree of emphasis on strategic planning. For instance, when an organization is faced with a threat, it tends to search more for information by scanning the external environment. These also argue that strategic planning remains important mainly to smaller organization whether or not they operate in turbulent environments, as this highly influences their survival. Selsky et al (2007) and Wulf, Meinbner & Stubner (2010) on the other hand propose different new contemporary approaches to strategy planning. In conclusion, strategic planning remains an important process in all organizations, irrespective of the environments in which they operate. Various literature has shown that organizations that employ strategic planning are often more successful than those that do not apply it. Although strategic planning is adopted by most organizations, it does not guarantee them success, as this depends on how effectively the process is adopted. Apart from the benefits that strategic planning bears, it also presents various problems to organizations. Nonetheless, evidence gathered in this essay show that strategic planning is important for organizations in turbulent environments. However, the process should be highly flexible in order to accommodate the many changes that take place in the organizations’ environments. Strategic planning provides direction, and without this, an organization will lack a vision of its future. Works Cited Bitar, J 2003, “Strategy in Turbulent Environment Continuous Innovation and Generic Dynamic Capabilities,” < http://neumann.hec.ca/chairemsi/cahiers/StrategyinTurbJad.pdf> Caldart, A. & Ricart, J n.d, “Understanding Environmental Turbulence. A dynamic model,” < http://ecsocman.hse.ru/data/152/657/1219/env_turb.pdf> Chakravarthy B 1997, “A New Strategy Framework for Coping with Turbulence,” Sloan Management Review, 38(2): 69-82. Courtney, H, Kirkland, J., Viguerie, P 1997, “Strategy under Uncertainty,” Harvard Business Review. Ebner, D 2013, “Formal and Informal Strategic Planning: The Interdependency between Organization, Performance and Strategic Planning,” Springer Science & Business Media, New York. Grant, R 2003, “Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors,” Strategic Management Journal, 24(6):491-517. Harrington, D. G., Lawton T. C., & Rajwani T 2005, ‘Embracing and Exploiting Industry Turbulence: The Strategic Transformation of Aer Lingus’ European Management Journal, 23(4):450–457. Mankins, M. & Steele, R 2006, “Stop Making Plans; Start Making Decisions,” Harvard Business Review < http://hbr.org/2006/01/stop-making-plans-start-making- decisions/ar/1> McNamara, G., Vaaler, P. and Devers, C., 2003. Same as ever it was: The search for evidence of increasing hypercompetition. Strategic Management Journal, 24 (3), 261-278. Morley, S 2013, “Why the traditional approaches to Strategic Planning don’t work and what to do about it,” < http://morleyca.com/wp-content/uploads/2013/04/Strategies_that_Work_Jan_2007.pdf> O’Regan, N., Sims, M., & Gallear, D n.d, “The Strategic Planning-Environment-Performance Relationship Revisited in HTSFs,” < http://proceedings.utwente.nl/124/1/O'Regan,N._c.s._paper.pdf> Pearce II, J et al 1987, “The Tenuous Link Between Formal Strategic Planning and Financial Performance,” Academy of Management Review, 12(4):658-675; Selsky et al 2007, ‘Contrasting Perspectives on Strategy Making in Hyper Environments’, Organization Studies, 28(1): 71-94. Steiner, G 2010, “Strategic Planning,” Simon and Schuster, New York. Wulf, T., Meinbner, P. & Stubner, S 2010, “A Scenario-based Approach to Strategic Planning – Integrating Planning and Process Perspective of Strategy,” < http://www.hhl.de/fileadmin/texte/publikationen/arbeitspapiere/hhlap0098.pdf> Read More