Defining Strategic Planning - Coursework Example

Strategic planning (Name) (Institution) (Course) (Instructor’s Name) Date of submission Abstract Strategic planning is best understood in business as developing a path to meet goals and objectives. However, there exist other insightful definitions for this term in the business world. One of the favoured definitions is that strategic planning is setting up of long term goals in a sequential manner. Small businesses often fail to plan adequately. And when they do, they make some common mistakes. The failure to develop a strategic plan or poor execution of these plans leads to poor performance by small companies as compared to larger companies. This is supported by research from a number of authors who show that small firms tend to prefer informal plans. Additionally, firms that have succeeded attribute their success to quality planning. The advantages of a strategic plan also allow small firms to understand their position and capabilities, potential and weakness and threats in the industry. However, when developing strategic plans there common pitfalls that firms should consider. Among them is lack of ownership of the strategic plan. Defining strategic planning There is no standard definition of strategic planning though it is a common phrase in business management. Various authors and management experts have developed varying definitions. Rogers, Finley and Galloway (2001) say that “strategic panning is an iterative activity focused on discussion and consensus building that clarifies and builds commitment to the organization’s future direction and priorities, within a changing environment” (p. 4.). They add that this activity results into a final document called a strategic plan. Mintzberg (1994) on the other hand understands strategic planning as form of organisational self-analysis which is all “about breaking down a goal or set of intentions into steps, formalizing those steps so that they can be implemented almost automatically and articulating the anticipated consequences or results of each step” (p. 108). Wang, Walker and Redmond (2007) say that “strategic planning is concerned with the setting of long-term organisational goals, the development and implementation of plans to achieve these goals, and the allocation or diversion of resources necessary for realising these goals” (p. 3). From these definitions, it emerges strategic planning has to do with mapping a way forward for the organisation and keeping to it. Another way to understand strategic planning is to examine the two words independently. Strategic is derived from the word strategy while planning is derived from the word plan. According to Kraus (2009), “strategy creates an alignment between the enterprise’s internal strengths and weaknesses on one hand and its opportunities and threats (SWOT) in its external environment on the other (p. 39). Planning on the other hand is viewed as programming thoughts, ideas and ideas into steps. Through a plan, activation of decisions made is arranged in sequence to suit the management and management decisions (Wang, Walker and Redmond (2007). In this sense therefore, strategic planning is aligning the strengths, weaknesses, opportunities and threats with step by step activities of an organisation. However, Kraus (2009) warns that an organisation working on such an understanding of strategic planning is based on formality and is predisposed to failure due to the dynamism of the business environment. He argues that strategy encompasses experimenting with different ideas, intuition and learning. This makes the concept of organisational knowledge a fundamental issue in strategic planning and strategic management. Internal and external business environments play an important role in the development of strategy in an organisation and are the main motivators for strategic planning. Kraus (2009) slightly differs with Wang, Walker and Redmond (2007) on the development of strategy in SMEs. While Wang, Walker and Redmond (2007) believe that the source of motivation in business is external and shapes strategy, Kraus (2009), in one of the many schools of thoughts that he proposes argues that strategy is motivated by politics and power (internal). Issues such as power distance national culture among others influence the decision making process and the strategy adopted. Mintzberg (1994) addresses the congruence of strategy and planning by noting that organisations should have planners who use strategic thinking to decide on the best way of programming activities contained in the strategy. He says that planners should be different from managers. Nonetheless, the planners should play an advisory role to the strategy development team, which is the management in order to enhance the overall organisational performance. In short, a formal analysis by planners or supplying hard data is vital in helping the management come up with feasible strategies. Strategic planning in SMEs Small and medium-size enterprises have continually reported relatively low performance as compared to large enterprises. This rouses the question on the management and planning used by SMEs as compared to large organisations. Wang, Walker and Redmond (2007) in the paper “Explaining the lack of strategic planning in SMEs: the importance of owner motivation” express their views that SMEs fail or perform under par due to poor strategic planning. Their thought is developed from past literature that indicates that strategic planning leads to increased organisational performance. They say that poor performance in SMEs is most common in family business or owner operated enterprises. This is because the management of such ventures is usually motivated by other factors other than performance. Wang, Walker and Redmond (2007) cite a number of authors who give a host of varied reasons as to why SMEs are poor in planning. Among them are internal implementation barriers, business uncertainty and business lifecycle issues. Majority of SMEs use informal plans to enforce their strategic decisions. This hampers the balance in management decisions. Karami (2007) notes a number of authors who hold the view that size, business cycle and nature of business activity limit SME’s from following formal plans in enforcing their strategic decisions. Such claims are supported by a research conducted by Karami (2007) in one of the chapters of his book. In the research finding indicate that majority of CEOs especially from high tech SMEs believed in formal planning. Out of the interviewed CEO’s, 74% thought that a strategic approach in running their firms improved performance. Nonetheless, the stage of the business in the business lifecycle had a heavy influence on strategic planning. With time, SMEs move from informal strategic plans to formal plans as they experiment and gain knowledge about the whole process. SMEs are likely to be involved in other forms of planning rather than business planning. Karami (2007) writes that SMEs, especially owner-operator businesses, the management is more concerned about short term goals and succession issues rather than management decisions. He writes that such firms tend to assume that market conditions will remain the same in the foreseeable future hence no need to be speculative and plan ahead. Towers and Burnes (2008) note this common trend of short term plans by SMEs. In analysing supply chain management planning by SMEs, the authors note that enterprise planning activity for manufacturing SMEs is driven by customer’s demand schedule which is then translated into a realistic plan in the manufacturing plan. This is the accepted process in manufacturing firms only that most SMEs make the mistake of deriving their strategic master-plan from such short term plans. This implies that the effectiveness of the organisation as a whole is essentially supported by the relationship between the firm and its customers. The authors argue that such as relationship is narrow and offers very little opportunities for growth for the SME. Strategic planning and organisational performance in small companies The failure to or inadequate strategic planning is the greatest hindrance to the growth of majority of SMEs. Mintzberg (1994) argues that small firms do very little planning while Karami (2007) argues that SMEs use plan on the short term. Either way, the authors note that these are the greatest shortcomings in SMEs; failure to have long term and feasible strategic plans. Smit (2000) argues that understanding the business environment best such as the threats of new entrants and substitutes allows an organisation to plan ahead. Failure to recognise such simple dynamics of business management result in small companies failing to have to have strategic plans. The author claims that by understanding the business environment well helps a firm to envision various responses to changes in the business environment which should be incorporated in the organisations strategy. The author adds that intense competition in the industry from substitutes is not caused by bad timing but luck but by poor planning. To him, good strategic planning equates success in the market and enhanced organisational performance. Strategic planning allows firms to see the bigger picture and understand their place in the industry. Therefore, failure to plan by SMEs leads to blind decisions that do not last long. Lack of a strategic plan denies the firm the opportunity to recognise the activities of competitors, and other market forces that impact on their business. In the long run, this leads to poor performance by SME’s. Rogers, Finley and Galloway (2001) put into perspective by saying that 47% of all SME’s in the US fall after five years in business. They attribute this to poor planning or lack of working strategic plans. This means that strategic planning is an integrals part of business performance especially for SMEs that compete with larger organisations. Common pitfalls in strategic planning Developing a strategic plan for a business is not a guarantee to enhanced business performance. Most firms may develop flawed strategic plans. Common pitfalls in strategic planning include: i. Lack of ownership of the plan- employees must be made to feel part and parcel of the strategic plan. They should be well informed about the strategic plan and understand their role. ii. Failure to integrate planning at all levels iii. Failure to separate planning from daily routine activities iv. Poorly developed organisational values, vision and mission statement. v. Poor and ineffective implementation process vi. Failure to consult widely with employees vii. Failure to develop benchmarks or scoreboard viii. Failure to separate planning process with management ix. Poor or lack of follow up on plan x. Ambiguous or confusing terminology (Godet 2000; Wang, Walker, & Redmond 2007). Planners and the management should thus be aware of making the listed mistakes if they wish to enhance organisational performance. References Godet, M. (2000). “The Art of Scenarios and Strategic Planning: Tools and Pitfalls.” Technological forecasting and social change. 65(1), 3-22 Karami, A. (2007). Strategy formulation in entrepreneurial firms. London: Ashgate Publishing, Ltd Kraus, S. (2009). “Strategic management and entrepreneurship: Friends or foes?” International journal of business science and applied management, 4(1); 37-50 Mintzberg, H. (1994). “The fall and rise of strategic planning” Harvard Business Review, 72(1); 107-114 Rogers, G., Finley, D. & Galloway, J. (2001). Strategic planning in social service organizations: a practical guide. Vancouver: Canadian Scholars' Press Smit, P. (2000). Strategic Planning: Readings. London: Juta & Co. Towers, N & Burnes, B. (2008). “A composite framework of supply chain management and enterprise planning for small and medium-sized manufacturing enterprises” Supply Chain Management: An International Journal 13(5); 349–355 Wang, C., Walker, E. & Redmond, J. (2007) “Explaining the lack of strategic planning in SMEs the importance of owner motivation” International Journal of Organisational Behaviour, 12 (1); 1-16 Read More