Module II

Strategic Planning
 Objectives
To understand the nature of strategic planning and its evolution with
its benefits and limitations.
To know the techniques for analyzing and deciding on proposed
new programs.
To describe techniques that are useful in analyzing ongoing
programs.
To study the several steps in the procedure of strategic planning.
 Nature of Strategic Planning
Strategic planning is the process of deciding on the programs that
the organization will undertake and on the approximate amount of
resources that will be allocated to each program over the next
several years.
While, the strategy formulation is the process of deciding new
strategies.
In the strategy formulation process, management arrives at the
goals of the organization and creates the main strategies to achieve
those goals.
While, the strategic planning process then takes the goals and
strategies as given and develops programs that will carry out the
strategies and achieve the goals efficiently and effectively.
Strategic planning is systematic and on particular timely basis with
prescribed procedures and time tables while, strategic formulation is
unsystematic as it is on requirement basis.
 Evolution of Strategic Planning
The strategic planning process was very unsystematic sixty years ago and not
in a coordinated way as well.
In late 1950s some firms have started the systematic strategic planning but
failed to implement because of lack of experience, lack of data and lack of
skilled staff.
As the time went on, management learned the lessons on the basis of their
experiences and started preparing themselves.

Benefits and Limitations of Strategic Planning:

A formal strategic planning can give the organization benefits like;
i) Framework for Developing the Budget
An operating budget calls for resource commitments over the coming year.
It is essential for management to have clear idea on proper resource
commitment and allocation.
Thus, an important benefit of preparing a strategic plan is that it facilitates the
formulation of an effecting operating budget.
Another benefit is it facilitate optimal resource allocation as well.
 Contd.

ii) Management Development Tool

Formal strategic planning is an excellent management education
and training tool that provides managers with a process for thinking
about strategies and their implementation.
iii) Mechanism to force management to think long term
iv) Means of aligning managers with corporate strategies
The debates, discussions, and negotiations that take place during
the planning process clarify corporate objectives and strategies,
unify and align managers with such strategies, and reveal the
implications of corporate strategies for individual managers.
 Limitations
There is always a danger that planning can end up becoming a
form filling, bureaucratic activity, devoid of strategic thinking.
An organization may cerate a large strategic planning department
and delegate the preparation of plan to that staff department and
may forfeit the input of line management.
Finally, strategic planning is time consuming and expensive.
 Analyzing proposed new programs
Ideas of new programs can originate from any department in the
organization.
The R&D is expected to generate ideas for novel products or
processes, the marketing organization for marketing innovations,
and the production engineering organization for better
equipment and manufacturing methods.
Proposals for programs are essentially either reactive or
proactive they arise either as a reaction to a perceived threat
from the competitor or as an initiative to capitalize on an
opportunity.
Capital Investment analysis: risk, return, rules, avoiding
manipulations, use of different models like sensitivity analysis,
scenario planning, decision tree analysis etc.
Organization for analysis: strengths, weakness, expert
analysis, competitive advantage through core competencies
 Analyzing ongoing programs
In addition to developing new programs, there are several ways and
techniques to analyze the ongoing programs. The methods of value
chain analysis and activity based costing are useful to do such
analysis.
The value chain for any firm is the linked set of value creating
activities of which it is a part, from acquiring the basic raw materials
for component suppliers to making the ultimate end-use product and
delivering it to the final consumers.
from the strategic planning perspective, the value chain, concept
highlights three potentially useful areas:
- linkage with suppliers
- Linkage with customers
- Process linkages within the value chain of the firm.
Activity based costing
 Strategic Planning Process
1. Reviewing and updating the strategic plan
2. Deciding on assumptions and guidelines
3. First iteration of the strategic plan
4. Analysis
5. Second iteration of the strategic plan
6. Final review and approval