STRATEGIC PLANNING

Dr. V.Peleckienė,
VGTU,
2020
 Objectives
1. Definitions of strategic planning and strategy;
2. An understanding of the strategy
management process;
3. A knowledge of the impact of environmental
analysis on strategy formulation;
4. SWOT analysis;
5. Business portfolio analysis
6. What tactical planning is and how strategic
and tactical planning should be coordinated.
 Strategic planning
• Strategic planning is
• long-range planning that focuses on
the organization as a whole.
In doing strategic planning (SP)
• managers consider the organization
• as a total unit
• and ask themselves:
What must be done in the long term
to attain organizational goals?
 Long range
• is usually defined as a period of time
extending about 3 to 5 years into the
future.
• In SP managers try to determine what
their organization should to do
• be successful 3 to 5 years now.
 The most successful
managers
tend to be those who are:
• capable of encouraging
• innovative strategic thinking
• within their organization.
 Managers may have a problem
• trying to decide exactly
• how far into the future
• they schould extend
• their strategic planning.
• As a general rule, they should follow the
commitment principle,which states:
Commitment principle states:
• managers schould commit funds for
planning only if they can anticipate,
• in the foreseeable future,

• a return on planning
expenses
• as a result on long-range planning
analysis.
 Defining strategy
• Strategy is defined as
• broad and general plan devoted to reach
long-term objectives.
• Organizational strategy can focus on many
different organizational areas, such as
marketing, finance, production, research and
developement, and public relations.
• It gives broad direction to the organizations.
 Defining strategy
• Strategy is actually the end result of strategic
planning.
• Although larger organizations tend to be more
precise in developing organizational strategy
than smaller organizations are,
• every organization should have a strategy of
some sort.
 For a strategy to be worthwhile
• though, it must be consistent with
organizational objectives,
• which in turn, must be consistent with
organizational purpose.
 Components of Organization’s
Environment
GENERAL
• . ENVIRONMENT

Social OPERATING Economic

ENVIRONMENT
Labour Supplier

International ORGANIZATION
Internal Customer
Environmen
Internal
Competition
environment

Political Technology

Legal
 STRATEGY MANAGEMENT
- is the process of ensuring that
an organization possesses and benefits
from the use
of an appropriate organizational strategy.
 Strategy Management Steps
1. Environmental analysis (general,
operating, internal);
2. Establishment of an organizational
direction (mission, objectives);
3. Strategy formulation;
4. Strategy implementation;
5. Strategy control
 1 step. Environmental Analysis
• An organization can be successful only if it is
appropriately matched to its environment.
• Environmental analysis is the study of the
organizational environment to pinpoint
environmental factors that can significantly
influence organizational operations.
• In order to perform an environmental analysis
efficiently a manager must understand
• how it is structured.
 2. Environmental Analysis
• For this purposes environment of
organization is generally divided into three
distinct levels:
1. General environment;
2.Operating environment;
3.Internal environment.
 The General Environment
• is the level of an organization’s external
environment
• that contains components having broad
long-term implications
• for managing the organization:
 General Environment consists:
1.economic,
2.social,
3.political,
4. legal
5.and technological.
 The Economic Component
• is the part of the general environment that
indicates how resources are being
distributed and used within the
environment.
• This component is based on economics,
on understanding how people,
• distribute, and use
• various goods and services.
 Economic analysis
of an environment are generally:
• the wages paid to labour;
• inflation;
• the taxes paid by labour and business,
the cost of materials;
• and the prices at which produced goods
and services are sold to customers.
 The social component
• is part of the general environment that
describes the characteristics of the
society in which the organization exists.
Two important features are:
demographics
and social values.
 I. Demographics
• Demographics are the statistical characteristics
of a population.
• These characteristics include :
• changes into numbers of people
• and income distribution among various
population segments.
 An understanding of
demographics
• is also helpful for developing a strategy
• aimed at recruiting new employees
• to fill certain positions within an organization.
 Knowing that
• only a small part of people have a certain
type of educational background,
• for example,
• would tell an organization
• that it should compete
• more intensely
• to attract these people.
 To formulate a recruitment
strategy
managers need a clear understanding
of the demographics of the groups
from which
employees
eventually
will be hired.
 Social values

• are the relative degrees of worth

• that society places on the ways
• on which it exists and functions.
 Over time, social values can
change
• dramatically, causing significant changes
in how people live.
• It is important for managers to remember
that although changes in the values of a
particular society may come either slowly
or quickly, they are inevitable.
 The Political Component
• The political component is that part of the
general environment related to
government affairs.
• Examples :
• The type of government in existence;
• Governments attitude toward various
industries,
• lobbying efforts by interests groups,
progress on the passage of laws.
 The Legal Component
• is that part of the general environment that
contains passed legislation.
• This component comprises the rules or
laws that society’s members must follow.
 The Technology Component
• is that part of the general environment that
includes
• new approaches to producing goods
and services.
• These approaches can be new procedures
as well as new equipment.
• Example: the trend toward
• exploiting robots to improve productivity
• .
THE OPERATING ENVIRONMENT
• The customer component (who buy
goods and services produced).
• The competition component.
• The labour component.
• The supplier component.
• The international component.
 The Internal Environment
• The level of an organization’s
environment that exists inside the
organization
• and normally has immediate
• and specific implications
• for managing the organization is the
internal environment.
 The internal environment

• in broad terms includes:

• marketing, finance, and accounting.
• From more specific management viewpoint, it
includes:
• planning,
• organizing,
• influencing,
• and controlling within the organization.
Step 2. Establishing organizational
direction
• Through an interpretation of information
gathered during environmental analysis,
• managers can determine the direction
• in which an organization should move.
 Two important ingredients of
organizational direction are

1. organizational mission and

2. organizational objectives.
 Determining organizational
mission
• Organizational mission is the purpose
for which an organization exists.
• In general, the firms organizational
mission reflects such information as:
1. what types of products or services it
produces,
2.who its customers tend to be,
3.and what important values it holds.
Developing a mission statement
• A mission statement is a written document
developed by management,
• normally based on input by managers
• as well as non-managers,
• that describes and explain what the mission of
an organization actually is.
 The mission
• is expressed in writing to ensure that
all organization members
• will have easy access to it
• and thoroughly understand.
 Example of FedEx mission
• We will produce outstanding financial
returns by providing
• totally reliable,
• competitively superior,
• global air – ground transportation of high
priority goods and documents
• that require rapid, time certain delivery.
 Equally important,
• positive control of each package will be
maintained utilizing real-time electronic
tracking and racing systems.
• A complete record of each shipment and
delivery will be presented
• with our request for payment.
 The importance of the Organizational
Mission
1. The existence of the organizational
mission helps management focus
human effort in a common direction.
2. Organizational mission serves as a
sound rationale for allocating
resources.
3. A mission statement helps management
define broad but important job areas
within an organization and therefore
critical jobs that must be accomplished.
 The relationship between Mission and
Objectives.
• The organization‘s purpose is
expressed in its mission statement.
• As a result, useful organizational
objectives must reflect and
• flow naturally from the results of an
environmental analysis.
 Step 3. Strategy formulation tools

• Strategy formulation – is the process of

determining appropriate courses of
action
• for achieving organizational objectives
• and thereby accomplishing organizational
purpose.
•
Managers formulate strategies
• that reflect environmental analysis,
• lead to fulfilment of organizational
mission,
• and result in reaching organizational
objectives.
 Special tools they can use in
formulating strategies:

1. Critical question analysis;

2. SWOT analysis;
3. Business portfolio analysis.
4. Porter’s Model for Industry
Analysis.
 1.Critical question analysis
• A synthesis of the ideas
• of several contemporary management
writers
• suggests that formulating appropriate
organizational strategy is a process of
critical question analysis – answering
the following 4 basic questions:
 Critical question analysis
1. What are the purposes and
objectives of the organization?
2. Where is the organization presently
going?
3. In what kind of environment does the
organization now exist?
4. What can be done to better achieve
organizational objectives in the
future?
 2. SWOT Analysis
• is a strategic development tool
• that matches internal organizational
strengths and weaknesses
• with external opportunities and threats.
 SWOT is an acronym
• for a firm’s:
• Strenth and Weaknesses
• and its environmental:
• Opportunities and Threats.
 SWOT analysis is based
• on the assumption that if managers
carefully review such
• strengths, weaknesses, opportunities,
and threats,
• a useful strategy for ensuring
organizational success will be come
evident to them.
3. Business portfolio analysis
• Business portfolio analysis is an
organizational strategy formulation
technique that is based on the
philosophy that organizations should
develop strategy much as they handle
investment portfolios.
• Just as sound financial investments
should be supported and unsound – not.
Two business portfolio tools are:

1. BCG growth-share matrix;

2. GE Multifactor Portfolio matrix.
 BCG growth-share matrix;

• The Boston Consulting Group (BCG), a

leading manufacturing consulting firm,
• developed and popularized
• a portfolio analysis tool that helps
managers develop organizational
strategy
• based on market share of businesses
• and the growth of markets in which
business exist
 BCG growth-share matrix;

• The first step in using BCG matrix is

identifying the organization’s strategic
business units (SBUs).
 A strategic business unit
• is a significant organization segment
• that is analysed to develop organizational
strategy
• aimed at generating future business or
revenue.
 In larger organizations,
• an SBU could be a company division,
• a single product,
• or a complete product line.
• In smaller – it might be the entire
company.
• .
 BCG growth-share matrix;
• Although SBUs vary drastically in form,
each has the following four
characteristics:
1. It is a single business or collection of
related businesses;
2. It has his own competitors;
3. It has a manager who is accountable for
its operation;
4. It is an area that can be independently
planned for within the organization.
 BCG Growth-Share Matrix
High Stars Question marks

Market
???
growth
rate
Cash cows Dogs

Low
High Relative market share Low
 STARS
• “Stars” have a high share of a high-
growth market
• and typically need large amounts of cash
to support their rapid and significant
growth.
• Stars also generate large amounts of
cash for the organization
• and are segments in which management
can make additional investments
• and earn attractive returns.
 CASH COWS
• Cash cows have a large share of market
that is growing only slightly,
• and provide with large amounts of cash.

• But as their market is not growing

significantly, the cash is used for financial
demands in other areas (expansion of
star);
 QUESTION MARKS
• Have a small share of a high growth
market. They are dubbed “question marks”
because it is uncertain if management will
invest in it or no.
• Management will invest if believes it can
turn question mark into star,
• if no – not investments will be.
 DOGS
• “Dogs” have a relatively
• small share of low-growth market.
• They may barely support themselves;
• In some cases they actually
• drain off cash resources
• generated by other.
 The GE Multifactor Portfolio
Matrix
• With the help of McKinsey and Co, a
leading consulting firm, the General
Electric Company (GE) has developed
another popular portfolio analysis tool.
• This tool helps managers to develop
strategy that is based on:
1. market attractiveness;
2. and business strengths.
 GE’s Multifactor Portfolio Matrix
• BUSINESS STRENGTH
» High Medium Low
High
Industry attracctiveness

H
Medium

I
H

S
Low

I –Invest/grow;
S- Selective investment
H - Harvest
Porter’s Model for Industry Analysis
• Porter’s Model outlines the primary forces
that determine competitiveness within
industry and illustrates how those forces
are related.
 Porter’s model of factors
» Threat of new entrance

New entrants
Bargaining
Bargaining power of buyers
power of
suppliers
Industry
competitors Buyers
Suppliers

Threat of
substitutes

Substitutes
Step 4. Strategy implementation
The successful implementation of strategy requires 4 basic
skills:

1. Interacting skill – the ability to manage people

during implementation;

2. Allocating skill – to provide resources

necessary to implementation.

3. Monitoring skill – ability to use information to

determine whether a problem has arisen that is
blocking implementation.

4. Organizing skill.
Step 5. STRATEGIC CONTROL
• Last step consists of monitoring
• and evaluating the strategy management
process as a whole
• to ensure that it is operating properly.
 Strategic control
• It focuses on:
1. environmental analysis,
2. organizational direction,
3. strategy formulation,
4.strategy implementation
5.strategy control itself.
 TACTICAL PLANNING
• Tactical planning is short-range planning
that emphasizes the current operations
• of various parts of the organization.
• Short range is defined as:
• a period of time extending
• about one year or less into the future.
 Tactical plans
• are usually developed in the areas of:
1. production,
2.marketing,
3.personnel,
4.finance,
5.and plant facilities.
 Comparing and coordinating
strategic and tactical planning
• Managers must remember several
• basic differences between
• strategic and tactical planning:
1. Strategic plans are usually developed by
upper-level management and tactical
plans by lower-level management.
 1. Strategic plans are usually
• developed by upper-level management
and tactical plans by lower-level
management.
 Facts to base
2. Because strategic planning emphasizes
analyzing the future and
tactical planning emphasizes analyzing
the everyday functioning of the
organization,
facts on which to base strategic plans are
usually more difficult to gather than a
facts on which to base tactical plans.
 3. Because strategic plans are
based

primarily on a prediction of the future

and tactical plans on known
circumstances that exist within the
organization, strategic plans are
generally
less detailed than tactical plans.
 4. Because strategic planning
focuses on the long term
and tactical planning on the short term,
strategic plans cover relatively long
period of time
whereas tactical plans cover
a relatively short period of time.
 Planning and levels of
management
• Upper-level managers usually spend
• more time planning
• than lower-level managers do.
• Lower-level managers are highly involved
in the everyday operations of the
organization and therefore normally have
less time to contribute to planning than top
managers do.
 2. Planning and levels of
management
• Middle-level managers usually spend
more time planning than lower-level,
• but less than upper-level management.
• The type of planning done also changes
as a manager moves up in the
organization.
 Typically,
• lower-level managers plan for the short
term ,
• middle-level managers – for longer,
• and upper-level managers for the even
longer term.
 3. Planning and levels of
management
• The expertise of lower-level managers in
everyday operations
• makes them the best planners for what
can be done in the short term
• to reach organizational objectives
• – in other words, they are best equipped
to do tactical planning.
 Upper-level managers
• usually have the best understanding of
the whole organizational situation
• and are therefore better equipped to
plan for the long term – or to develop
strategic plans.
 .
• Thank you for attention
1. Strategic planning is long-range planning that focuses on
the organization as a whole (T, F);
2. Strategy:
a) is a specific, narrow plan designed to achieve tactical
planning ;
b) is designed to be the end result of tactical planning;
c) Is a plan designed to reach long-range objectives;
d) timeless, so the same strategy can meet organizational
needs anytime;
e) is independent of organizational objectives and therefore
need not to be consistent with them.
2. Which of the following is not one
of the strategy management:
a) strategy formulation;
b) strategy implementation;
c) strategy control;
d) environmental analysis;
e) all of the above are steps.

The steps of the strategy management process

are sequential but usually not continuing (T, F)
 III. A knowledge of the impact of
environmental analysis on strategy
formulation:
1. Environmental analysis is the strategy to change
an organization”s environment to satisfy the
needs of the organization (T,F);
2. All of the following are factors to be considered
in environmental analysis except:
a) suppliers;
b) economic issues;
c) demographics;
d) social values;
e)none of the above.
IV. Insights about how to use critical question analysis and SWOT
analysis to formulate strategy:
1. The following is not one of the four basic
questions used in critical question analysis:
a) Where has the organization been?
b) Where is the organization presently going?
c) What are the purposes and objectives of the
organization?
d) In what kind of environment does the
organization now exist?
e) What can be done to better achieve
organizational objectives in the future?
2. SWOT is an acronym of “Strenth and
Weaknesses, Objectives and Tactics”. (T, F)
 V. An understanding of how to use business portfolio analysis
and industry analysis to formulate strategy:

• 1. Using BCG Matrix requires considering

the following factors:
• a) types of risk associated with product
development;
• b) threats that economic conditions can
create in the future;
• c) social factors;
• d) market shares and growth of markets in
which products are selling;
• e) political pressures.
 BCG
• 2. To users of the BCG Matrix, products
that capture a high share of a rapidly
growing market are known as:
• a) cash cows;
• b) milk products;
• c) sweepstakes products;
• d) stars;
• e) dog products.
 VI. Insights into what tactical planning is an how
strategic and tactical planning should be coordinated:
1. Tactical plans are generally developed for one year or
less and usually contain fewer details than strategic
plans (T, F).
2. The following best describes strategic planning:
a) facts are difficult to gather, and plans cover short periods
of time;
b) facts are difficult to gather, and plans cover long periods
of time;
c) facts are difficult to gather, and plans are developed
mainly by lower-level managers;
d) facts are easy to gather, and plans are developed mainly
by upper-level managers;
e) facts are easy to gather, and plans are developed
mainly by lower-level managers.