Strategic Planning and Its Importance to Businesses - Case Study Example

Insert name Instructors’ name Course Date Strategic planning and its importance to businesses Introduction The business world is becoming more competitive by day. The entry of new firms into various industries is threatening the market positions of the incumbent firms. With technology advancing and changing every day, it is obvious that organizations are coming up with different ways to gain from the same. Worth mentioning is the actuality that organizations are currently coming up with different long term plans that tend to describe their future endeavors and unique ways of achieving such long term efforts and goals (Wittmann and Matthias 46). The process of coming up with such long term direction-defining goals is referred to as strategy formulation. The strategic team of an organization will in most cases tries to come with the most effective strategy through employing various methods. Perhaps the most prominent strategies used in coming up with strategy include SWOT analysis, Porter’s five forces model, scenario planning, and benchmarking. Notably, organizations use all this techniques so as to understand the market and the prevailing situations before making primary decisions. This paper endeavors to discuss the concept of strategy planning, and why strategic plans are important to organizations. Strategic planning Strategic planning refers to the process of coming up with long term projections relating to the expected position of an organization in the market. Apparently, decisions can only be termed as strategic if such decisions relate to a period of more than twelve months. Worth mentioning at this point, is the reality that strategic planning relates to major direction-defining decisions, usually relating to such decisions as, the decisions to merge a business and so on (Henry 37). Strategic planning takes quite a long time considering that it calls for thorough and meticulous environmental scanning. Strategic planning defines the link between the status quo and the long term targets of an organization. The link between the two is a detailed plan on how to take the organization to the next level. Such a plan referred to as strategy as it describes a large part of the organizational mission. The main factors or pillars of strategic planning in an organization are: vision, mission, strategy and values. These are referred to as pillars of strategy making as they define the long term goal and come up with ways of achieving such goals. Vision The vision of an organization is the individual level equivalent of resolutions. Essentially, a vision is an ideal visualization of the state of affairs of an organization in the future. Vision varies from one organization to another. Even so, all visions have some characteristics in common. For instance, all visions are time bound. This means that the vision should have a particular time which, ceteris paribus, the organization shall have moved from the status quo to the ideal state (Haberberg and Alison 146). Noteworthy is the point that a vision is a statement reflecting the wishes and projections of the strategic team. A good example of a vision would be something like: to be the market leader by 2030, constantly meeting and exceeding customer expectations. Mission Mission refers to the means of achieving the vision of the organization. The mission is a detailed statement outlining the manner in which, according to strategic managers, the vision could best be achieved (Witcher and Vinh 24). In straightforward terms, the mission is the explication of how an organization can move from the status quo to the desired state. An organization’s mission could entail something like: providing the best working conditions for the employees, while maintaining good customer relationships in building a cohesive business community. Strategy Commonly referred to as the art of the general, the term strategy has its roots in the military and other disciplined forces. Essentially, business strategy describes the methods recommended by the top management as a way of attaining goals. The strategy is similar to the mission, but is a little different in the sense that the strategy outlines both goals and ways of getting there (Lindgren and Hans 67). For this reason, the strategy is described variously as a roadmap which guides all stakeholders towards success. The strategy is the factor at the center of strategic planning. Values Essentially, values are maxims that drive the culture of the entire organization. Such values could be in the form phrases guiding all stakeholders on the expected codes of conduct. The foundation of organizational culture could be such values as transparency, responsibility and teamwork. Values can change with changes in strategy as the stakeholders may be required to behave differently in order to achieve the goals set by the strategic team. The importance of strategic planning to organizations Strategic plans are particularly important to all organizations, large and small, international and local since an organization cannot exist in a competitive market without plans and unique ways of putting such plans into practice. In analyzing the different ways in which strategic planning can be of benefit to an organization, it is critically important to understand that the fundamental roles of strategic planning. Primarily, the roles of strategic planning revolve around setting the overall direction of the company, proper allocation of resources, establishing long term objectives and coming up with ways of achieving such goals. The importance of a strategic plan can therefore be elaborated in the following points. Resilience Resilience refers to the ability of an organization to continue operating as a going concern into the foreseeable future, despite the various inconsistencies in the market. It is important to mention that many organizations cannot keep operating as going concerns due to the rugged nature of market trends (Simerson 56). Where an organization establishes a strategic plan, it can handle the changes that occur in the industry. This way, the organization can survive in times of recession since it will have established sufficient strategies to be used to maintain stability in the business transactions. Notably, strategic plans enable an organization to keep abreast with the times. Keeping abreast with the times can enable an organization embrace all necessary changes. Worth noting is the reality that strategic plans communicate a lot to the stakeholders. It creates a mindset in all stakeholders that they should be ready to embrace positive changes at all times. This reduces the changes of resistance to change. Resistance to change can make an organization succumb to extinction. Unity of direction Unity of direction is among the most important aspects of business success. Lack of such unity may bring about conflicts in both ideas and among persons. Such conflicts usually derail the effectiveness of the management as well as the efficiency of the entire workforce. It is important to mention that the long-term goals set by the strategic team bind all the employees and the members of the management alike. It is imperative to note that according to prominent business management gurus, creating long term goals and means of achieving such goals makes the employees focused and steadfast in their work (Hill and Gareth 34). Moving in one direction can as well help the organization deal with the problem of resistance to change. Communication of goals to the employees A strategic plan, being a comprehensive roadmap, sets the goals and objectives, and ensures that all employees are informed about the goals as well as the ways of achieving such goals. Communication is a critical process in the organization in the sense that it helps the management ensure that the workforce is open and receptive to change. Communication can as well reduce potential conflicts while collecting new ideas and information from all stakeholders. An organization only achieves its goals through the efforts of the employees. The employees have been described variously as the second most important stakeholders after the customers (Sadler and James 76). As such, the organization’s workforce remains the blood and life of the same. It is only a matter of common knowledge that all employees need to be informed about the overall direction, as well as the changes to be expected within the organization foreseeable future. Minimizes chances of business failure In the year 2005 US Airways was on the verge of collapsing. Today, US Airways is, arguably, the largest and most established airline globally, thanks to the comprehensive strategic plan designed in early 2000, which gave priority to such strategic decisions as mergers. In 2005, the organization went bankrupt and filed a suit in court with regard to the same. The same year, the organization indicated intensions of merging with America West Airlines. Later in the year, the decision was approved in near unanimity by the stakeholders of the American West Airlines. The merger took legal force in 2008. This case is a clear indication that strategic planning can prevent business failures. Failing to plan is equal to planning to fail. This is a common saying among people with regard to organizational and individual success. Financial priorities Strategic planning helps the organizations prioritize its endeavors. Financial matters are given priority since such matters touch on the ultimate goal of business. The profit maximization goal has long been replaced by the shareholder’s wealth maximization goal. The difference between profit maximization and wealth maximization is the reality that wealth maximization takes into consideration the time value of money. This embraces such important concepts as discounting and the use of cash flow statements. Strategic planning, being a long term concept, takes into consideration the time value of money (Russell and Linda 112). This means that all financial decisions are evaluated with regard to the value of money they will be associated with in the planned future. Prioritizing financial decisions makes it possible for the shareholders to estimate their expectations and analyze the viability of their investment. Competitive advantage Currently, GlaxoSmithKline is the largest pharmaceutical organization in the entire world. The organization has a long history of mergers and acquisitions aimed at gaining a large share of the market. Clearly, having a large share of the market needs a high competitive advantage. Such competitive advantage can be gained through such decisions as business combinations (Hitt and Robert 23). Business combinations such as mergers are strategic decisions made by organizations. Strategic management comes up with what is referred to as diligence tests. Such tests are aimed at establishing compatibility between the organizations under consideration. After such diligence tests, the organizations are brought together through legally binding processes. Such strategic plans are the primary reason behind the giant, GlaxoSmithKline. Allocation of resources and reduction of conflicts Wal-Mart Stores Inc is undoubtedly the largest retail business globally. With operating under 55 different names in more than 15 nations, the organization’s asset base is considerably wide. With 2million employees to its name, Wal-Mart Stores Inc is said to be the biggest private employer across the globe. The major problem that faced the organization during the late 1990s, when it was opening most of its branches is resource allocation. Considering that all stores are not of equal size, allocating the resources was considerably hectic for the management and the financial teams. This called for strategic planning. Presently, the organization has a strategic plan that outlines the manner in which resources should be allocated among its branches. The pro-rata basis adopted by the organization has helped it manage and allocate resources effectively. Strategic planning techniques There are many approaches to strategic planning. These approaches have a thing in common. The primary approaches all focus on environmental scanning. As such, provide the strategic team with proper information about the market and the industry as a whole. This ensures that the decisions made are accurate and in line with the conditions of the market. The techniques as well focus on the internal circumstances of the organization. The main strategic planning techniques are: SWOT analysis, Porter’s five forces model analysis, bench marking and scenario planning. SWOT Analysis This method concerns itself with the Strengths, Weaknesses, Opportunities and Threats (SWOT) relating to an organization. The technique fundamentally focuses on the internal and external environments. Scanning the internal environment reveals an organization’s strengths and weaknesses (Böhm 67). Strengths are those factors that make the organization have some form of competitive advantage over other organizations. For instance, having the capacity to produce at the lowest costs can be said to be a strength as it gives the organization an advantage over other competing firms. Similarly, having a powerful marketing department can as well be identified as strength. The weaknesses are those things and factors that tend to derail the development of an organization. Weaknesses make the organization’s fight for success fail. Weaknesses usually come in the form of loopholes that can be mended if the organization capitalizes on the strength as a way of overcoming the failures. Talking of internal environment in terms of strengths and weaknesses, the aim of the organization should be to ensure that the strengths are more than the weaknesses. Similarly, the organization should invest more in bettering the strengths and sealing the weaknesses. This will help the organization make an edge above competitors. Weaknesses could be such things as poor communication systems and lack of structures. Apparently, these are things that can be rectified if proper internal analysis is effectively carried out. Correcting the strengths and the weaknesses could be a way of developing long term plans for the organization. It is important to mention that SWOT analysis helps the organization come up with long term plans on how to establish strong structures within the organization (Pahl and Richter 75). Opportunities and threats are offered and posed by the external environment respectively. Opportunities are chances that need to be exploited but have not been exploited yet. For instance, an organization could identify a region in which the products they offer is on high demand but the suppliers are either few or not present. Such an opportunity such is exploited. This makes the basis for planning. The organization will find a way of approaching the issues. Environmental scanning could make the organization keep abreast with the current changes, thereby prepare an action roadmap for the appropriate things to be done (Jeffs 36). Threats are factors that are likely to scare the organization out of business. Perhaps the most common threat is competition from well established competitors. Porter’s five forces model The model is a depiction of the five fundamental forces that describe the market or industry. The five forces represent the market conditions and provide a guide for strategic decision making by providing the organization’s management with facts that can help determine the suitability of the market (Coers et al 117). The model was invented by Michael E. Porter of the Harvard Business School in 1979 as a way of remedying the shortcomings of SWOT analysis. According to porter, the SWOT analysis approach was quite vague and did not provide a strict framework that could guide the strategic planners. The five forces can be divided into two categories. The first category is the horizontal competitive category and the second class is the vertical competitive category. In the first category are three forces, which are: threat of substitute products, threat of rivals that are well established in the industry and the threat of new entrants. The vertical competitive forces are: the bargaining power of suppliers and the bargaining power of the customers. Threat of substitute products From market economics, substitutes cause elasticity in the price in relation to demand. This means that where a product has competitors, a small change in price causes a more than proportionate change in the demand for the product (May 134). This makes it difficult for an organization to introduce any changes in price or products. A situation arises where the sellers are buyers are many and homogeneous. This calls for high degree of differentiation. Operating in such a market is not economically advisable following the volatility. It could be preferable to operate in a market with little competition. Threat from rivals that have established in the industry Apparently, challenging a firm that already has a name in the industry is considerably difficult. Where the rivals are established, an organization should always endeavor to emerge with the most effective methods of establishing good will (Ahlstrom and Garry 23). The primary difference between an organization that has been in operation for a while and one that is not well established is the fact that the one that has been around long enough has had the chance of creating good will and customer loyalty. Threat of new entrants The one thing undesirable about new entrants is the actuality that ease of entry is associated with perfect competition (Roy 126). Perfect competition is a situation where the market is characterized by many buyers, many sellers, and identical products. In such a market, prices go down due to competitions. Noteworthy is the fact that new entrants can be prevented by such things as copy rights and patents. Bargaining power of suppliers Suppliers have a high bargaining power where the material or whichever resources it is they are supplying is in short supply. During such a time, the people supplying the products are in near full control of the price fluctuations. Perhaps the only way to tame supplier bargaining power is through establishing such concepts as supplier partnerships. Bargaining power of customers Typically, high income is associated with high purchasing power. When the customers have high bargaining power, they are in a position of determining the prices. Substitutes and buyer information availability enhance customers’ bargaining power. Benchmarking Benchmarking is a novel business concept concerned with continuous improvement. Continuous improvement comes when an organization is ready and willing to adopt new practices. Benchmarking efforts are concerned with a firm seeking best practices from an organization deemed as a market leader (Wireman 87). When the organization identifies an organization performing better in real terms, they should organize through communicating with the organization’s management. Upon visiting the organization, people should endeavor to learn these best practices. Application of such practices can take an organization to a higher level. In the early 2000s, many retailers in Australia benchmarked on Coles. Coles had emerged as the market leader then, an all main retailers wanted to lead in the market. Scenario planning Scenario planning is a business planning concept that borrows heavily from military intelligence. Military intelligence has to do a lot of work in the pre-battle period. This is the time when the armies get strategized and the people familiarize with all barriers that may cause failure in the war. Similarly, business scenario planning entails researchers scanning the industry before major decisions are made (Lindgren and Bandhold 89). Notably, scenario planning seeks to answer three questions: how will the future like? What are the consequences of such future changes? How will the organization respond or benefit from such changes. Essentially then, scenario planning entails predictions and forecasting, with the aim of establishing what is likely to take place and how such occurrence influences the business community (Abraham 112). The strategic team then comes up with recommendations on how the organization should respond to the entire situation. Findings There are many notable findings from the above discussion. In brief, the findings are: Strategic planning is an aspect of long term planning Strategic planning entails detailed analysis of the environment, both internal and external The major strategic planning techniques are SWOT analysis, porter’s 5 force model, scenario planning and benchmarking Strategic planning is an effective way of upholding resilience and gaining competitive advantage as evidenced by examples of big companies. Conclusion From the foregoing, it is clear that strategic planning is a central idea in business practice. Worth noting as well is the fact that business strategic meeting determines the long term direction of the organization, as well as the success or otherwise. Strategic planning is important in the sense that it upholds resilience, coordination, communication with work force, unity of direction, financial priorities and competitive advantage. The primary techniques used are SWOT, Porters 5 factor model, scenario planning and benchmarking. Clearly, a strategic plan is a road map that should guide the workforce in making key decisions. These techniques primarily concern the scanning of the environment with the critical aim of determining whether or not it is viable to venture into the market as it is in prevailing conditions. It is imperative to mention that the key differences between all major organizations are defined by strategic managers. The strategic team may not be so much concerned with the day to day running of the organization, but will keep abreast with all changes that occur in the industry. Apparently, from the above discussion, the strategic team is, in most cases, concerned with the industry and competitors such that it brings into business all novel developments. As much as they are not in contact with the day to day running of the organization, they determine the long term achievements of the organization. Summarily, strategic planning is concerned with the designation and pursuit of the vision, mission, values and corporate strategy. Works Cited Abraham, Stanley C. Strategic Planning: A Practical Guide for Competitive Success. Bingley: Emerald Group Pub Ltd, 2012. Print. Ahlstrom, David, and Garry D. Bruton. International Management: Strategy and Culture in the Emerging World. Australia: South-Western Cengage Learning, 2010. Print. Böhm, Anja. The Swot Analysis. München: GRIN Verlag, 2009. 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Wittmann, Robert G, and Matthias P. Reuter. Strategic Planning: How to Deliver Maximum Value Through Effective Business Strategy. Philadelphia: Kogan Page Ltd, 2008. Print. Read More