What is Strategic Planning?
Strategic planning is the art of creating specific business strategies, implementing them, and evaluating the results of executing the plan, in regard to a company’s overall long-term goals or desires. It is a concept that focuses on integrating various departments (such as accounting and finance, marketing, and human resources) within a company to accomplish its strategic goals. The term strategic planning is essentially synonymous with strategic management.
The concept of strategic planning originally became popular in the 1950s and 1960s, and enjoyed favor in the corporate world up until the 1980s, when it somewhat fell out of favor. However, enthusiasm for strategic business planning was revived in the 1990s and strategic planning remains relevant in modern business.
Strategic Planning Process
The strategic planning process requires considerable thought and planning on the part of a company’s upper-level management. Before settling on a plan of action and then determining how to strategically implement it, executives may consider many possible options. In the end, a company’s management will, hopefully, settle on a strategy that is most likely to produce positive results (usually defined as improving the company’s bottom line) and that can be executed in a cost-efficient manner with a high likelihood of success, while avoiding undue financial risk.
The development and execution of strategic planning are typically viewed as consisting of being performed in three critical steps:
1. Strategy Formulation
In the process of formulating a strategy, a company will first assess its current situation by performing an internal and external audit. The purpose of this is to help identify the organization’s strengths and weaknesses, as well as opportunities and threats (SWOT Analysis). As a result of the analysis, managers decide on which plans or markets they should focus on or abandon, how to best allocate the company’s resources, and whether to take actions such as expanding operations through a joint venture or merger.
Business strategies have long-term effects on organizational success. Only upper management executives are usually authorized to assign the resources necessary for their implementation.
2. Strategy Implementation
After a strategy is formulated, the company needs to establish specific targets or goals related to putting the strategy into action, and allocate resources for the strategy’s execution. The success of the implementation stage is often determined by how good a job upper management does in regard to clearly communicating the chosen strategy throughout the company and getting all of its employees to “buy into” the desire to put the strategy into action.
Effective strategy implementation involves developing a solid structure, or framework, for implementing the strategy, maximizing the utilization of relevant resources, and redirecting marketing efforts in line with the strategy’s goals and objectives.
3. Strategy Evaluation
Any savvy business person knows that success today does not guarantee success tomorrow. As such, it is important for managers to evaluate the performance of a chosen strategy after the implementation phase.
Strategy evaluation involves three crucial activities: reviewing the internal and external factors affecting the implementation of the strategy, measuring performance, and taking corrective steps to make the strategy more effective. For example, after implementing a strategy to improve customer service, a company may discover that it needs to adopt a new customer relationship management (CRM) software program in order to attain the desired improvements in customer relations.
All three steps in strategic planning occur within three hierarchical levels: upper management, middle management, and operational levels. Thus, it is imperative to foster communication and interaction among employees and managers at all levels, so as to help the firm to operate as a more functional and effective team.
Benefits of Strategic Planning
The volatility of the business environment causes many firms to adopt reactive strategies rather than proactive ones. However, reactive strategies are typically only viable for the short-term, even though they may require spending a significant amount of resources and time to execute. Strategic planning helps firms prepare proactively and address issues with a more long-term view. They enable a company to initiate influence instead of just responding to situations.
Among the primary benefits derived from strategic planning are the following:
1. Helps formulate better strategies using a logical, systematic approach
This is often the most important benefit. Some studies show that the strategic planning process itself makes a significant contribution to improving a company’s overall performance, regardless of the success of a specific strategy.
2. Enhanced communication between employers and employees
Communication is crucial to the success of the strategic planning process. It is initiated through participation and dialogue among the managers and employees, which shows their commitment to achieving organizational goals.
Strategic planning also helps managers and employees show commitment to the organization’s goals. This is because they know what the company is doing and the reasons behind it. Strategic planning makes organizational goals and objectives real, and employees can more readily understand the relationship between their performance, the company’s success, and compensation. As a result, both employees and managers tend to become more innovative and creative, which fosters further growth of the company.
3. Empowers individuals working in the organization
The increased dialogue and communication across all stages of the process strengthens employees’ sense of effectiveness and importance in the company’s overall success. For this reason, it is important for companies to decentralize the strategic planning process by involving lower-level managers and employees throughout the organization. A good example is that of the Walt Disney Co., which dissolved its separate strategic planning department, in favor of assigning the planning roles to individual Disney business divisions.
An increasing number of companies use strategic planning to formulate and implement effective decisions. While planning requires a significant amount of time, effort, and money, a well-thought-out strategic plan efficiently fosters company growth, goal achievement, and employee satisfaction.
Thank you for reading CFI’s guide to Strategic Planning. To keep learning and advancing your career, the additional CFI resources below will be useful: