Process of Strategic Planning: 3 Levels | Strategic Management

The following points highlight the three levels of strategic planning process. The levels are:- 1. Business Unit Level Planning 2. Product Level Planning 3. Corporate Level Planning.

Level # 1. Business Unit Level Planning:

When a company produces one product or a set of products so closely related that they belong to the same industry, we can think of strategic planning at the business unit level or Strategic Business Units (SBUs).

When identified, SBUs generally have the following characteristics:

i. They have distinct businesses.

ii. They have a distinct mission.

iii. They have their own set of competitors which can be and should be managed in a manner reasonably independent of other businesses within a company.

iv. They are a single business or collection of related businesses.

Thus, depending on the type of organisation, an SBU could be a single product, product line, a department of business, or even the State’s mental health agency. The factors like volume of business administration, future plans, market characteristics, etc. influence the nature of an SBU.

For a multi-business firm, an SBU is an operating division which serves a distinct product-market segment or a well-defined set of customers or a geographic area. The SBU is given authority to make its own strategic decisions within the corporate guidelines as long as it meets corporate objectives (i.e., goal congruence).

In the case examples the companies ABC Ltd. and DEF Ltd. are descriptions of strategy at the SBU level. At SBU level the strategic planning focuses on orienting the firm to take advantage of external environmental opportunities efficiently and effectively.

Concern is focused on establishing or modifying the product, R&D, production, finance, marketing, personnel and accounting policies in such a way that each is consistent with the others and the company’s overall objectives are likely to be met.

Another important aspect is that an SBU of a large multi-industry corporation may itself be an industrial giant with large number of relatively large subsidiaries. 

The strategies generally applied at this SBU level are usually designed to answer basic questions like:

1. Should the SBU diversify its product line?

2. Is it producing appropriate products or providing appropriate services?

3. What pricing and promotions are appropriate?

4. Should it make or buy? How should this effort be financed (e.g., reducing dividends, selling off some marketable securities, seeking term loans etc.)?

5. Should it merge with a competitor in order to survive or in order to maximise growth opportunities?

6. Can it best run the business by automating or totally reorganising?

The answers to such questions are mostly contingent upon a wide range of criteria like SBU goals, personal values and goals of decision makers, resources available within, and the threats and opportunities in the environment.

Level # 2. Product Level Planning:

Strategic product planning is a critical element in overall strategic planning of a multi- business firm. Strategic product planning is concerned with asking certain basic questions about the current set of products and potential new ones. For example, one firm which made the range of cosmetics of the industry was offered the opportunity to purchase the ‘beauty’ soaps’ product line.

The company opted for the opportunity since it allowed them to serve their current customers even better without appreciable modifications in the existing plant and with little retraining of the same sales force.

Moreover, the company knew that no other firm in this industry would be able to match the breadth of their augmented product line and that they themselves would require years to develop a comparable set of products.

Product level strategic planning also occurs when a company decides to introduce new products in future years. Speciality producers, for example, spend considerable time analysing the competitors’ product line-up and expected additions so that they can determine where the niches are for new product designs.

For example, many firms make ‘belt buckles’; however, one small firm designs speciality ‘belt buckles’ with corporate logos for companies.

Product life cycle (PLC) is another concept which is of value for taking strategic actions. Strategic actions, when appropriately taken and pursued, may accidently or deliberately extend the ‘maturity’ stage of PLC.

Levitt gives an example of various stages in the life cycle of oil:

(a) Crude oil for medicine,

(b) Paraffin for lighting,

(c) Paraffin for space heating,

(d) Petrol for internal combustion engines,

(e) Oil for central heating, and

(f) Petro-chemical industry.

So, one aspect of strategic planning is to plan and implement such actions that might alter the shape of PLC. For example, introduction of successful ethical pharmaceutical product as an ‘over-the-counter’ product supported by promotion may change the shape of PLC.

To take another example—in the 1960s the British furniture industry had a joint industry-wide promotion ‘old furniture must go’, designed to persuade people to replace their furniture more frequently and thus increase demand. This type of strategic action has the effect of lengthening each phase of the PLC by changing the rate at which things happen.

To cite another example—Oval-tine (in U.K.) is a product which has traditionally been associated with bedtime drinking. In 1970, the company made a deliberate attempt, through the cool-Ova campaign, to create Oval-tine, drunk in cold instead of warm milk, as an ‘any­time’ beverage. Similarly, the introduction of ‘junior Horlicks’ in addition to age-old Horlicks (a popular beverage) is a case in point.

This action taken at an earlier point of the PLC curve could help postpone the day of maturity. This exemplifies that PLC can be extended by introducing existing products to new markets and that such action is strategically vital as the product moves into maturity (the top point of the curve) associated with low growth or actual decline in both sales and profits.

Level # 3. Corporate Level Planning:

Corporate Planning (CP) is essentially an ‘assessment of the future and making provisions to meet the future—exploiting the opportunities the future might bring and combating the threats it may hold’. It is a systematic planning to reason how a company will get where it wants to go.

The focus of C P is on the longer range future usually limited to five, six or seven years. It is based on projective analysis and so plans are modified as required. Certain key factors such as ROI, sales per person and other trends are observed constantly for internal studies.

External developments relating to general economic conditions, technological advances, consumer habits, competition and many other factors are closely studied since they may require revisions in planning at any time.

C.P. may be for shorter, medium and longer term. For example, C P in capital- intensive industries (such as electricity generation, iron and steel resources) is long-range planning and the companies have to strategically determine whether their products will have relevance over the whole period of commitment of resources.

In contrast, a company in fashion industry producing women’s dresses has to concentrate on strategic issues for one year or so, as the business activities are to be adjusted in the light of consumer tastes and preferences.

The strategic planning phase of C P process governs the acquisition, use, and disposition of resources to achieve corporate goals. C P is reflected in a structure of plans covering three to four years maximum. Involving strategies, plans must be correlated and integrated which cover each functional areas of business, viz., finance, products, R&D (technology), markets, manpower.

Plans in one area are to be modified’ to meet the constraints imposed by another parts of the business. At this stage of planning, alternative courses of action are evaluated and present-day tactics modified to achieve broader strategic objectives. This stage which incorporates the strategic and tactical planning characteristics is called medium-range C P.

[Tactical planning is the deployment of resources for current operations to achieve long-term strategic plans. It is usually done from a functional point of view. It is the senior executive who tries to avoid operational problems of tactical planning and who views the future in terms of longer time horizon].

Following the ‘growth-vector matrix’ of Ansoff, a company while pursuing growth strategy as a part of its corporate planning may adopt any of two approaches: expansion and diversification. Chang and others have added two more approaches: acquisition and merger, and international operation.

The strategic approaches for corporate level planning may be as shown below: