Strategic Planning: A Comprehensive Guide for Businesses
Strategic Planning
Develop Assumptions
Setting logical planning assumptions is crucial for establishing policies applicable to forecasts and existing company plans. These assumptions concern the environment in which the plan will be developed. It’s vital that all managers involved in planning agree on these factual premises. The most important principle: the more understood and agreed upon the assumptions are, the better the coordination and consistency of planning across the company.
Determine Alternative Courses
The fourth step involves seeking and considering alternative courses of action, especially those that are not immediately obvious. Rarely is there only one viable plan, and often a less obvious alternative proves to be the best.
Evaluating Alternative Courses
After identifying alternatives, examine their strengths and weaknesses in light of the established assumptions and goals. Many alternatives exist in most situations, each with its own variables and constraints.
Select a Course
This is the point of decision-making, where a specific plan is adopted.
Formulate Derivative Plans
Planning decisions are rarely comprehensive. This step involves creating derivative plans necessary to support the main plan.
Quantify Budget Plans
The overall budget represents the sum of revenue, expenses, and profits (or surplus). It includes items from the balance sheet, such as cash and capital expenditures.
Verify
At the end of the period, assess whether or not the plan was successful.
The Nature of Objectives
Objectives define the desired outcomes. Overall objectives must be supported by sub-objectives, forming a hierarchical structure.
Hierarchy of Objectives
- Socio-economic Purpose
- Mission
- Long-term Strategic Objectives
- More Specific Objectives/Key Result Areas
- Divisional Objectives
- Departmental and Unit Goals
- Individual Objectives (Performance and Personal Development)
Key Result Areas (Peter F. Drucker)
Key result areas include market position, innovation, productivity, physical resources, financial resources, profitability, manager development, worker performance and attitude, and public responsibility.
Top-Down vs. Bottom-Up Approaches
Top-Down
Proponents suggest that organizations need direction provided through corporate objectives.
Bottom-Up
Advocates argue that top managers need information from lower levels in the form of objectives.
Multiplicity of Objectives (Example)
- Attract high-quality students
- Provide basic training in liberal arts, sciences, and professional fields
- Grant postgraduate degrees
- Discover and develop new knowledge through research
- Operate as a private school relying on tuition and donations
Management by Objectives (MBO)
MBO is a comprehensive system that integrates key managerial activities to achieve organizational and individual objectives effectively and efficiently.
Benefits of MBO
- Improved administration through results-oriented planning
- Clearer roles, structures, and delegation of authority
- Increased commitment to organizational goals
- Development of effective performance controls and corrective actions
Failures of MBO
Most MBO failures are due to poor implementation and a lack of understanding of the MBO philosophy. Managers should explain MBO to their subordinates, including how it works, its role in performance evaluation, and its potential benefits.
Planning
Planning involves selecting projects, objectives, and actions to achieve them. It requires decision-making, which means choosing a future course of action from among alternatives. Planning and control are closely related but will be discussed separately.