What is Strategic Planning and Why do It? - Feb 26, 2009

Posted by: Julie R. Delgado in Articles

  What is Strategic Planning and Why do It?

Strategic planning is "a disciplined effort to produce fundamental decisions and actions that shape and guide what an organization is, what it does, and why it does it".

All organizations are in a constant state of change and flux - even those that think of themselves as static.  People coming and going, budgets changing, owner/vendor/employee/customer needs and expectations changing.  A strategically managed organization is one that both defines where it wants to be and manages change through an action agenda to achieve that future.

• Strategic planning is a way of thinking, acting, and learning.
• It usually takes a comprehensive view by focusing on the "big picture" but also leads to specific targeted actions.
• It is often visionary and usually proactive rather than reactive.
• It is flexible and practical
• It is a guide for decision making and resource allocation

To be effective, strategic planning must be action oriented and must be linked to tactical and operational planning.  It must also be linked to a variety of functional types of planning including information technology, human resource, financing and business plans.

The future is full of opportunity, but it takes strategic thinkers and actors to make the future exciting and productive.  In today's fast changing business environment, both managers and individual contributors alike need  a broad perspective, vision and awareness of the trends and developments shaping their world.

We've accomplished our goal when our Strategic Plan:

• Reflects the values of the organization
• Inspires change and revision in products and target markets
• Clearly defines criteria for achieving success
• Assists everyone in daily decision making

Strategy means consciously choosing to be clear about your company's direction in relation to what's happening in the dynamic environment.  With this knowledge, you're in much better position to respond proactively to the changing environment.

The fine points of strategy are:

• Establishes unique value proposition compared to your competitors
• Executed through operations that provide different and tailored value to customers
• Identifies clear tradeoffs and clarifies what NOT TO DO.
• Focuses on activities that fit together and reinforce each other
• Drives continual improvement within the organization and moves it toward its vision.

Elements of a Strategic Plan

• A mission statement and vision statement

                    Where you are

                    Where you want to be

• A description of the company's long-term goals and objective
• Strategies the Company plans to use to achieve general goals and objectives

                    Identify Strategic Issues and Strategies to address them

                    How do we get there

• Action plans to implement the goals and objectives

Where we are now:

Define our market

• Commodity or Specialty

                                                                    Indicators

Specialty - (think "custom" anything)                      Commodity (think "Wal-Mart")

Unique product or packaging                                  Little differentiation

Market perceives clear superiority                        Substitutability

Sales result form having the right product             Sales result from low price

Strong Margin/profits per unit                              Weak margins/profits per unit

Most business succeeds at either end of the commodity/specialty spectrum but not in the middle.  The middle is a gray zone - a place where customer are continually chasing the dream of the best stuff for the lower price, customers who aren't satisfied with the high price of specialty products or the low quality of the commodity products.   In the middle, it's very hard to satisfy the customer and make money.

• Segmentation

There are several approaches to segmenting a business.  You need to consider several of these and use them to guide you to a unique segmentation that works for your situation. 

• Customer needs and preferences
• Commodity and specialty behavior
• Product type
• Market type
• Demographics
• Geography
• Customer type of buying channel

Good Strategic market segments are usually created by grouping customers who think the same way about your products and services.

• What are they buying?
• Who is buy?
• Why are they buying?
• How do they buy?
• How will they use what they buy?
• Where do we have the high margins/
• Where so we have the low margins?

Finding your Strengths and Weaknesses

Be certain to explore strengths and weaknesses around management, human resources and corporate culture.  These influence all aspects of the business. 

Understanding your strengths and weaknesses can give insight as to where to attack a competitor or where you should avoid competition altogether

Areas to consider when identifying strength and weakness

• Competitive advantages
• Customer satisfaction
• Marketing/sales performance
• Capital resource
• Costs/pricing
• Innovation
• Organizational design
• Internal system
• Management
• Human resources
• Corporate culture

Do it better and different - Strategic Competencies

Strategic Competencies - something of great value to your customers and no one else has it or can even copy it without great difficulty.  That's the holy grail in business to have something that's both valuable and unique, something that customers really want that makes you different from other competitors.

A strategic Competency is usually a combination of three elements

• Skills:  a skill is any manual or mental activities that arise from talent training or practice
• Processes:  a process is any manual or mental systematic series of action s that are directed toward some end. 
• Knowledge:  knowledge includes any information, data or understands of facts or principles resident in your company.

VALUE, UNIQUENESS AND SUSTAINABILTY ARE THE KEY

• Is it a combination of skills, process and knowledge?
• Does it differentiate the company form the competition?
• Does it create strong value for the customer?
• Is it difficult to copy?

Strengths, Weakness, Opportunities and Challenges (or Threats)

In order to identify SWOT we will need to make assumptions about the business environment.

Assumptions for Market Segments

• What is going to happen to those segments?
• What will make things change?
• Needs and preferences? - anticipate how customers needs will change  over the next 5  years.  Things that are preferred now may become needs.  (Examples:  people are becoming more environmentally conscious?  Or people are becoming more electronically interconnected?)
• Growth Rate?  What are the drivers that will create opportunities and what the drive that will create threat to the whole market?
• Profit levels?    Etc?
• What might wipe out the market altogether?

Assumptions about Competition?  

• Their cost point
• Financial strength
• Proprietary position

Assumptions about the Business Environment:

• Supplier markets
• Technology
• Economy and Government Regulation

What will these areas look like in 3-5 years?

Researching external information can be a tedious task but is crucial to help define and outline the success of the company.

Internal strengths are resources or capability that help an organization accomplish its mission and create value to the customers.  (Example:  highly skilled staff, good morale, adequate resources, well-connected management team, excellent IT system, effective performance management, etc)

Internal weaknesses are deficiency in resources or capabilities that hinder an organization's ability to fulfill its mission, and create value.  (Example:  poor internal and external communications, unclear mission or values, structural misalignments, noncompetitive pay scales, low moral , inadequate resources.)

External Opportunities are outside factors or situaitons that the organization can take advantage of to better fulfill its mission, and create customer value.  (examples:  new funding source, new potential service partner, pay off debt etc)

External Challenges are outside factors or situation that can affect your organization in a negative away - making it harder for it to fulfill its mission.  (Example:  loss of funding, poor organization image or reputation, etc)

It is necessary to identify any significant organizational strengths, weaknesses, opportunities or challenges in the areas of:

Mission and Vision:

Budget:

Human Resources

IT:

Communication:

Leadership

Management

Structure

Processes

Culture

Strategic Issues

A strategic issue is a fundamental policy choice or "change challenge" affecting the organization's product or service level and mix, clients, costs, financing ,structure processes or management.

Issues fall into three main categories

• Current issues that probably require immediate action.
• Issues that are likely to require action in the near future but can be handled as part of the organizations regular planning cycle
• Issues that require no action at present but need to be continuous monitors

Difference between Strategic and Operational Issues:

When an organization realizes it is experiencing ineffective use of information technology, resulting in inefficient work flow, poor communication, poor client record keeping and unacceptable low levels of client service and satisfaction, it has identified a strategic issue.  When that organization realizes it has a lack of office connectivity and has not put enough desktop or laptop computers in the hands of the appropriate staff it has identified an operational issue.

It is important to capture operation issues for 3 reasons:

1. Many participates will think that these operational issues are the ones that have the most impact on their day to day work and will want to see something done about them
2. Finding ways to take action on these operational issues often energizes the strategic planning process
3. Addressing operational issues often simultaneously removes barriers to effectively confronting the organization strategic issues.

Examples of Strategic Issues:

• What should be our strategic focus?
• Which markets are most attractive for us to pursue?
• How are we going to achieve dominance over competitors in our market segments?
•  Which opportunities will give us the greatest return?
• How can we take advantage of our strengths and minimize our weaknesses?
• What strategic competencies will we require in the future?
• ü Do we have sufficient growth in our core business, or is there a gap in expectations?
• Do we have the ability to penetrate ________ market?
• What are the keys to achieving a more flexible operation?

Formulating Strategies to Manage the Issues

• Grand Strategy of the organization
• Strategy for each market segment (see below)
• Program, service, product or business process strategies.
• Strategies for functions such as human resources management, IT, finance and purchasing.

By Market Segment 

Look at each market segment:

1. Expand:  Use aggressive posture to grow market share.  The goal is for sales growth to significantly exceed market growth
2. Maintain:  Mount a vigorous defense of market share.  This does not mean stagnate. The goal is for sales growth to at least match market growth
3. Contract:  Use a pruning strategy.  The goal is to shrink total sales while increasing profitability.
4. Milk:  Gently coax resources out of the business segment.  The goal is to minimize investment and maximize cash flow.
5. Withdraw:  Exit over a brief time.

Each market segment needs a competitive strategy.  Just ONE competitive strategy.

Establish an Effective Organizational Vision for the Future

An organization's vision of success outlines what the organization should look like as it successfully implements its strategies and achieves its full potential.

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