Fundamentally, there are four different approaches to do formal strategic planning. The approaches are:- 1. Top-Down Approach 2. Bottom-Up Approach 3. Mixture of the Top-Down and Bottom-Up Approaches 4. Team Approach.
1. Top-Down Approach:
In a centralised company, such planning is done at the top of the corporation and the departments and outlying activities are advised straightway what to do.
In a decentralised company, the CEO or the President may give the divisions guidelines and ask for plans. The plans after review at the head office are sent back to the divisions for modifications or with a note of acceptance.
2. Bottom-Up Approach:
The top management gives the divisions no guidelines but asks them to submit plans.
Such plans may contain information on:
(i) Major opportunities and threats;
(ii) Major objectives;
(iii) Strategies to achieve the objectives;
(iv) Specific data on sales/profits/market share sought;
(v) Capital requirements, etc.
These plans are then reviewed at top management levels and the same process, as in the top-down approach, is then followed.
3. Mixture of the Top-Down and Bottom-Up Approaches:
This is practised in most large decentralised companies. In this approach, the guidelines given by the top management to the divisions are broad enough to permit the divisions a good amount of flexibility in developing their own plans. Sometimes, the top management may decide basic objectives by dialogue with divisional managers in respect of sales and return on investments especially when divisional performance is measured upon those criteria.
4. Team Approach:
The chief executive, in a small centralised company, often use his line managers to develop formal plans. The same approach is used even by the president of a large company. In many other companies, the president meets and interacts with his group of executives on a regular basis to deal with all the problems facing the company so that the group can develop written strategic plans.
Within each of these approaches, there are many alternatives as follows:
(i) Complete SWOT analysis or not:
In some companies, the divisions supply the top management with perceived opportunities and threats and with the strategies to exploit opportunities and avoid threats.
(ii) Depth of analysis:
Some companies, at the initial stage, do not make in-depth analysis of all aspects of planning. They increase the intensity of analytical exercise gradually as experience is gained.
(iii) Degree of formality:
Divergent practices are in vogue as regards formality. For some large companies having centralised organisation structures, and comparatively stable environment and homogeneous product lines, planning is less formal than large diversified companies with decentralised and semi-autonomous product division structures.
High technology companies usually have more formal systems; yet, they recognise informality in decision making and managerial activities associated with planning.
(iv) Reliance on staff:
It is up-to the managers to decide the extent of delegation.
(v) Corporate planner or not:
Large corporations employ corporate planners to help in the planning process. Smaller companies cannot afford to this luxury.
(vi) Linkage with plans.
(vii) Getting the process started:
Strategic planning may begin with an effort to solve a particular problem. It may begin with a SWOT analysis or simply with a review of current strategy.
(viii) Degree of documentation:
A balance has to be struck between too little and too much paper work.
(ix) Role of CEO:
The chief executive officer’s role is critical depending on the degree of complexity of organisations.