Formal Strategic Planning - Essay Example

FORMAL STRATEGIC PLANNING IS NO LONGER AN APPROPRIATE ORGANIZATIONAL PROCESS FOR FIRMS TAKING STRATEGIC DECISIONS IN UNCERTAIN AND DYNAMIC ENVIRONMENTS. Name: Course: Date: Formal strategic planning (FSP) came about the mid-1960s. Business conglomerates embraced and adopted it as one of the best way to plan and execute strategies that would enhance corporate business competitiveness. It was borrowed from the military way of organizing the missions. The military strategy’s spotlight of the future was based on historical experience whereby, heavy investment was on gathering data, the directive issuance was from top leadership, and the rest execute the orders (O’Donovan and Flower, 2013). This formal approach convincingly deemed fit for business in 50s and 60s. The planning approach was expected to generate step-by-step procedures to be followed by owners and managers of businesses (Mintzberg, 1994, p. 3). The good will for strategic planning started to fell from early 1970s, and resentment and counter-arguments has endowed it gradual use decline. Suggested reason for decline of formal strategic planning is either was ineffective or did not constantly better performance as anticipated at its inception (Campbell, Edgar and Stonehouse, 2011). FSP system is characterized by concepts such as analytical, formalized, and detached planning among other terms, which in effect has led to the questioning of the effectiveness of this approach. The technological era from nineties and globalization has changed business operation, and the scenario is so unique compared to early 1950s. The future is practically unpredictable based on the past or current trends—in fact, it is unimaginable and astonishingly different. Globalization has opened up the world towards much uncertain and dynamic environment. New powerful innovations and startups are thrown into air-waves every now and again. Such trends have only organizational heads mute, because the trusted formal strategic plan grounded on assumptions does no longer hold (O’Donovan and Flower, 2013). Such evidence cements further that formal strategic planning is no longer an appropriate organizational process for firms that make strategic decisions in highly uncertain and dynamic environments. Evaluation of Formal Strategic Planning. The formal strategic planning, according to several researchers embodies three main components: Formulation (which comprising mission development, objectivity, environmental assessment and selecting new strategies), implementation and control of UDE. (Glaister & Falshaw, 1999). FSP focuses on planning of the mission and the objectives which include corporate performance, strategy execution, and control to ensure objectives are met. Another role of FSP is to improve managerial effectiveness throughout the organization. These efforts will in turn lead to indirect performance improvements while its efficiency may sometimes vanish in the intricacy of variables with the potential to influence performance. However, selfishly, managers often perceive that it contributes to efficacy, giving them a feeling of confidence and power. According to research by Glaister and Falshaw, the formal strategic planning is prevalent even today and is used by most companies (Glaister & Falshaw, 1999). The FSP strategies employed are more premeditated rather than emergent and the consequent strategy formulation roots from a deliberate process. Unlike early adoption, most recent FSP strategy plans address a time prospect of less than five years. Simple spreadsheets are tools used in the FSP planning process. The sheets of “what if” analyses, critical success factors analysis, financial-competitor analysis and SWOT analysis (McNamara, Vaaler and Devers, 2003). These are simply unsophisticated procedures. FSP planning accentuates closely related markets over entirely contemporary markets. FSP as its functions are clearly illustrated is a standard practice that outlays a vision of the future happenings precise enough to be pictured in traditional discounted-cash-flow analysis. The managerial team can chat about alternative circumstances and test the reality of their prediction to changes in main variables. However, the goal of such analytical approach is often to find the most probable outcome and create a strategy out it. This counter-productive approach only serves well relatively companies stable or established economic environments (Falshaw, et al., 2006). However, on instance of mammoth future uncertainty, formal strategic planning it can at best marginally helpful and at worst blatantly risky. The traditional FSP approach limits managers and executives to viewing the uncertainty that comes with modern technological world in a twofold way. FSP presumes that the business world is either certain, thus permitting series of precise forecasts regarding future or uncertainty thus deemed completely unpredictable. How then do managers evade this critical scene? Managers are then compulsorily engaged in capital budgeting preparations that necessitate point forecasts, that way barring fundamental uncertainties in their cash-flows. Managers complying with the formal strategic planning are averse with this prevalent criterion (Courtney, Kirkland and Viguerie, 1997). In the contemporary business, such system pushes executives to underestimate the need to be aware of uncertainties in order to make a persuasive case for their inherent strategy. Prolonged compliance with the formal strategic planning approach in devoid of current globalization can greatly attribute to underestimation of the degree of risks at the forefront. This leads to an outcry among corporate when they realize that they lack modern industrial stamina, assets, or enthusiasm for the risk necessary to enable their strategic plans work. FSP compliant Executives are on such instances held into dilemma of whether to hedge bets or just wait. More reluctant managers resort to hedging their bets in the form of small limited businesses in pursuit of growing prospects in the upcoming market (Freeman, 2010). Such efforts include forging marketing and distributions alliances and partnerships whose actual practicability is obviously limited. In fact trying to address uncertainty, may further uncertainty levels. Alternatively others may resort to flexible investments such as online marketing; social media, etc., to allow their businesses quickly acclimatize as markets evolve (Courtney, Kirkland and Viguerie, 1997). This means that to support flexibility, and the company ought to make reliance on more vanguard entrepreneurs who are proximal the business beat and can feel the flow of modernization (Chakravarthy, 1997).This predicament faces FSP compliant business for a simple reason of underestimating uncertainty. On the contrary, the presumption that the formal strategic planning is a completely misleading notion could be disastrous. To some extent, though limited, FSP can act as a proof against rapid managerial decisions that can cost the business some fortune. The formal strategic planning approach, therefore, is a role to play in the current generation. Presuming that the contemporary business world is completely unpredictable can lead to executives abandoning analytical firmness of their traditional strategic planning processes altogether and pedestal their strategic conclusion primarily on gut instinct. The “just do it” strategy tendency can cause decision-making executive to place hoodwink bets on up-and-coming products or markets that result in documentation write-offs (Wirtz, Mathieu Schilke, 2007). On deciding on whether to abolish formal strategic planning to a new approach, I think the managerial team ought to strike a balance between the two or reconcile them for better growth of business Alternative approach and its contribution. Since its inception in early 70s, Strategic planning has not embraced or deeply envisaged on turbulent business environment. Almost all existing frameworks in strategic planning and management absolutely assume a benevolent environment. This is of the void that, current advances in business technology and supporting climate free markets are not only business very competitive, but also causing turbulence to non-responsive industries. The opening of the global market and allowance of inflow of varied products vividly signifies the need for a strategy system that can well adapt to this environment. For competing corporate, the managerial trend and number of competitive forces such a firm faces, is and will continue to expand, and innovations in technology will further accelerate the tempo of transformation. Coping with such turbulences hurly-burly calls for a new competitive strategy approach. The best proposition in the contemporary world is to transform formal strategic planning to strategic thinking or make efforts to reconcile the two (Wilson, 1998). Both terms “strategic planning” and “strategic thinking” have drawn controversy among researchers. However, the difference exists on how each is structured and the planning and implementation. The strategic planning process is defined as an analytical, planning oriented, formalized, deliberate, convergent planning. Conversely, strategic thinking is a transition from planning concept and is regarded to be of intuition, incremental, emergent, divergent, and informal system of business planning (Mintzberg, 1994, p. 4). What brings the contention between the two strategy policies: the incremental perception and the planning perception are the definitions and specific strategy formulation. The formal takes hold that strategies should deliberately premeditate and executed whiles the incremental perception observe strategy formulation more as a course of experimentation, innovation, and organizational growth (Moutinho, 2011). Strategic thinking, unlike FSP, is about synthesis that involves innovation and intuition. The result of the implementation of the strategic thinking is an incorporated viewpoint of the enterprise. The strategy is not specifically well-articulated vision of the direction as Formal strategic planning. A good example, how effective strategic thinking can be implemented, is the Jim Clack of Silicon Graphics’ approach (Mintzberg, 1994, p. 4). In his approach, he observed that the best way to make computer use easy is through three-dimensional visual computing. Such is a spontaneous strategy that cannot be developed on schedule or planning and spotlessly imagined, rather is an emergent innovation that results from the challenge at hand. Such strategies are needed in any time within the company and to realize them, an informal learning process involving people at various ranks and who are deeply involved it specific matter at hand will be helpful. Everybody must be given chance to find a solution. Formal strategic planning (FSP), with its analytical spirit, has been reliant on the safeguarding and rearrangement of the established categories. The groupings include varied levels of strategy – business, functional, and corporate; strategic business units which are the reputable types of products. Such are the building-blocks of the FSP. However, strategic thinking perspective transformation requires not just rearranging the established categories, but innovating latest ones too. An examination on all those FSP strategic planning illustration shows that, all those dependable plans that allegedly give you strategies are nowhere and no single one gives details of the creative act of synthesizing ideas into a new strategy (Mintzberg, 1994, P. 5). A proper strategy needs to function further than the boxes, to spearhead the informal learning that generates new perception and new recipe for current global market. The FSP planning’s failure to transcend the categories shows why it has disheartened serious organizational transformation. The malfunction formal planning is the precursor of the several endorsed strategies that are often extrapolated from the history or clichéd from others. FSP planning has not only never quantified to strategic thinking but also often impeding it (Mintzberg, 1994). Managerial team and executives need to comprehend this, and consequently be in a better angle to avoid other dear misadventure realized on application FSP technique. The proposition for strategic thinking as an alternative planning strategy is valid. This is because business managers and executive today do not need to perform routine duties but rather put their efforts on the company’s future. They should at all times acknowledge and embrace the current markets with proactive strategies such as setting long-term goals, talent recruitment and management, resolve existing challenges, and seek innovative ways to use their strengths in maximizing opportunities obtainable in the competitive world. Such proactive, innovative, and intuitive strategic thinking can invoke positive development in a corporate in addressing challenges that come with globalization (Hitt, Ireland & Hoskisson, 2010). Such approach creates a comparative value at lower cost and gives value for money (Grant, 2013). The paybacks that come with deployment of strategic thinking are vast, but the target is to take the business into the prospect by using the resources efficiently, paying special attention to environmental uncertainty factors, and evolving market demand. The informal approach unlike the formal strategic planning, it embraces and takes cognizant of today’s uncertainty business environment (McNamara, Vaaler and Devers, 2003). It undoubtedly describes the purpose of the organization establishment and generates realistic targets and objectives in synchronization with the mission within the organization’s ability for triumph. Conclusively, it is clearly that the controversy or debate around planning strategy is due to changing business environment and uncertainties accompanying such evolvement. However, both the formal strategic planning and the proposed strategic thinking have a role to play in the business world. For instance, the formal could still find it use in organizations that are in more stable environment and companies that involve natural resources. On the other hand, the informal- “thinking” planning is all round and could meet all expectations of businesses. It is proactive and responsive to change. With it planning, future prospects, innovations, and organizational goals are easily met. Finally, considering the persistent arguments it could be appropriate if the two strategic planning concepts could be reconciled harmoniously to avert the confusion created by their existence. Bibliography Campbell, D., Edgar D., & Stonehouse, G., 2011. Business Strategy 3rd Edition. Palgrave. 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Strategy in High-Velocity Markets. Long Range Planning 40 (3), 295-313 Read More