The word ‘strategic planning’, process refers to the step by which management converts a firm’s mission, objectives and goals into a workable strategy. The process is strategic because, it involves the preparation of ways and means to the circumstances, of the organisations environment.
The decisions will be taken by anticipating the future environment. Future needs proper information. The information process involves collecting and analyzing different data about the external and internal environments. External factors are taken into account to find out major opportunities and threats in the organisations.
Strategic planning originates from its mission. The mission is an expression of the corporate objectives. The mission would carry the grand design of the firm and communicate what is wants to be. It also represents the corporation’s guiding principles. The mission is shaped by the capabilities and vision of the corporation’s leaders.
The strategic management process can be broken down into five different components.
(i) Defining of corporate mission and major corporate goals.
(ii) Analysis of the organisations external competitive environment to identify opportunities and threats.
(iii) Analysis of the organisations internal operating environment to identify the organisation’s strengths and weaknesses.
(iv) Selection of strategies that build on the organisation’s strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats.
(v) Strategy implementation which involves designing appropriate organizational structure and control systems to put the organisation’s chosen strategy into action.
The Strategic Process:
Stage # 1. Mission and Objectives:
The first step of strategic process is defining the mission and major goals of the organization. Mission of a picture of the organization and a clear description of what the organization wants to become in the year ahead. A mission specifies what an organization is? Why it exists? And what it should be doing.
Major goals specify, what the organization hopes to fulfill in the medium term to the long term. Most profit seeking organisations operate with a hierarchy of goals in which maximization of shareholders wealth is placed on the top. Secondary goals are necessary by the company if it maximizes stock holder’s wealth.
Once the firm has classified its mission, it is ready to set its corporate objectives. The main task is to decide the extent of the growth, the firm wants to achieve. Add also to examine its present level of performance, its levels of performance over the planning period and its aspirations level of performance.
In addition to growth objective, there are other key elements of corporate success which apply to all firms, i.e., profitability, productivity, technology, competitive position, human resources, social responsibility and corporate image. Wise organisations set objectives in all these areas because they case for corporate growth and they all know about multi-dimensional character of firms.
Stage # 2. External Analysis:
The second step in strategic planning process is the analysis of the organisation’s external operating environment. The objective is to identify strategic opportunities and threats, in the organisations operating environment.
Survey of the environment is central to strategic planning which helps in the formulation of strategies in line with the opportunities emerging in the environment.
The external environment of the organization is a challenging and complex one. It involves an assessment of the competitive structure of the organisation’s industry, including the competitive positions of the organization and its major rivals.
The organiastion has to identify the interrelated environments i.e., industry environment national environment and competitive environment.
(a) Analyzing the industry environment involves the assessment of the factor affecting the industrial growth. It means the assessing that impact of the globalization upon competition within the industry.
(b) Analyzing national environment requires an assessment of whether the national context within which a company operates facilitates the attainment of a competitive advantage in the global market.
(c) The competitive environment involves the examining of major rival’s future objectives, current strategies, assumptions and capabilities.
In external analysis, the firm gathers all relevant information relating to the environment and analyses than in detail. It examines the nature of the competitions and the emerging of alternative technology and their relative cost effectiveness.
Stage # 3. Internal Analysis:
The third step in the strategic process is to pinpoint the strengths and weaknesses of the organization. In order to exploit the external opportunities, the firm must have internal resources and capabilities.
To find out the requisite capabilities for tapping the selected opportunities and the required defense against possible threats, the firm has to evaluate its major strengths and weaknesses and the trends affecting the organisations i.e., strength of sales, reputation of the organization, expertise of employees, facilities, and intellectual rights, good will etc. The firm has to access its capabilities carefully in the various areas such as finance, marketing, human resources, operations, R&D etc.
The firm has to build and maintain a competitive advantage to achieve superior efficiency, quality, innovation and customer responsiveness.
Stage # 4. Strategic Choice:
The next component involves generating a series of strategic alternatives, given the company’s internal strengths and its external opportunities and threats. The firm integrates its growth ambitions with the findings of environmental scanning, and internal scanning. The search for opportunities in the environment gives a list of possibilities indicating the company’s basic value.
The organization has to evaluate the alternatives generated by SWOT analysis against each other with respect to their ability to achieve major goals. The process of strategic choice requires the organization to identify the set of functional – level, business – level, corporate – level and global strategies that would best enable it to survive and prosper in the fast changing and globally competitive environment which characterizes most modern industries.
For the better strategic choice, the company has to identify appropriate evaluation criteria, by considering the factors like corporate purpose, interval options, external, sustainability risk, returns, feasibility etc.
At each stage of assessment the options are screened and possibly eliminated. Equally, the choice is based on the relative merits of the each option. The environment is such a dominant force that organisations are unable to influence the operating changes in that environment.