The strategic plan of an organisation sets out the goals a business hopes to achieve within a specified period of time. It also helps the organisation understand the environment within which they operate and the market forces that affect them.
An analysis of the current strategic plan enables you to understand the goals of your organisation. However, in order to analyse the strategic plan you first need to understand the structure and purpose of a strategic plan. This topic describes the elements that make up a strategic plan.
What is Strategy?
Strategy can be defined as:
"A plan of action resulting from strategy or intended to accomplish a specific goal".
In a business context we define strategy as having some sort of goal for the future.
What is Strategic Planning?
Strategic planning then can be defined as:
"Determining long-term objectives by analysing the strengths and weaknesses of an organisation, studying opportunities and threats in the business environment, predicting future trends and projecting the need for new products and services."
Source: Schwalbe (2002, p544).
"Strategic planning is the process of identifying long term organisational goals, strategies and resources. Strategic planning looks beyond day-to-day activities and focuses on a horizon that is 3, 5, 10, or 20 years into the future."
Source: Shelly and Cashman, et al. (2001, p2.2).
"Strategic planning is the use of strategies to develop a plan of action."
Source: Viljoen and Dann (2000, p618).
Strategic planning is a task that all organisations perform. For smaller businesses this may be a very informal process. The manager or owner of the business may decide the goals and objectives of the business.
- The owner of a business may decide that the business needs to update its computer hardware over the next 10 months.
- The manager may decide that their organisation needs to have a presence on the internet, either in the form of:
A brochure site http://www.ait.org/
An e-commerce site http://www.ebay.com/
The strategic plan will set out how these objectives will be achieved.
Larger organisations however, approach strategic planning more formally. Strategic planning will usually be performed by management and / or the board of directors in an organisation.
Strategic planning is not something that the organisation completes once
a year, or once every three years. It is an ongoing and evolving process that
does not finish once the strategic plan is written. An organisation should
constantly be scanning its environment to gather information about new trends,
competitors and its industry surroundings.
Strategies are Unique
It is very important that the circumstances of the organisation be fully understood, when developing a successful strategic plan. It is not enough to simply 'borrow' strategies from other organisations.
Take a few minutes to think about real life examples of where businesses have successfully borrowed strategies from each other.
- Many organisations have decided to have their own presence on the internet because that is what their competitor has done. If the organisation is simply copying their competitor without understanding their environment and the needs of their customers, then they are wasting valuable resources.
- PepsiMax differentiated itself from other sugar-free soft drinks by not portraying itself as a diet drink. The success of the PepsiMax approach has resulted in attempts by competitors to reposition sugar-free drinks to a younger, more active market through the use of almost identical promotional strategies.
- There has been a rapid spread of drive through facilities at fast food outlets. Drive through has also moved to other types of businesses including liquor stores and smoke marts.
The strategic plan helps the organisation to produce desirable outcomes. It does not call for wide business diversification or acquisition of other businesses. It focuses on greater efficiency in manufacturing, better provision of service, or greater effectiveness in marketing and management. It calls for maximising returns from current technologies and markets and extending the competitive advantage that the organisation has over competitors.
Strategic planning means preparing the best way to respond to the circumstances of the organisation's environment and whether or not its circumstances are known in advance.
- Non-profit organisations must often respond to dynamic and even hostile environments
- Often businesses must respond quickly to changes in their environment, i.e. broken down equipment, new legislation, competition (both new and old), interest rates, the value of the Australian dollar, staffing problems, etc.
Being strategic means:
- Being clear about the organisation's objectives.
- Being aware of the organisation's resources.
- Incorporating both into being responsive to a dynamic environment.
In the strategic planning process, an organisation's purpose, vision
and values shape its mission statement, which leads to goals, objectives,
business operations and results that affect the stakeholders of the organisation.
Source: Shelley and Cashman, et al., (2003: p49)
Pitfalls in Strategic Planning
Strategic planning is a very important process for every organisation, but there are many pitfalls that should be avoided.
Problems with Strategic Planning
The following problems are encountered in organisations where strategic planning is not regarded as an important activity, or not enough time has been put into the process:
Inability to activate new strategy
Implementing a new strategy usually requires the organisation to change its management systems, culture, skills, resources or structure. If all of these had to be changed at the same time, many managers might be unable to cope with the complexity of the situation. This may lead to them not implementing the strategy.
Inability to develop a strategic response
In some cases, even if the organisation is aware of the trend, it may not be able to respond appropriately. This may be due to an inability or an unwillingness to change the managerial approach of the organisation. It may also be the result of structural or organisational inflexibility.
Allowing corporate politics to dictate priorities
Individuals in the organisation may be aware of future trends, but the information may not be placed on the agenda because:
- Managers may be too busy with operational issues to give time to significant trends.
- Managers may decide not to give the information to the organisation as a whole, because they perceive the power of their knowledge over others. This internal politics can reduce the ability of the organisation to respond to environmental change.
Failure to see a strategic challenge
Many organisations do not scrutinize their external environment and are therefore unaware of significant trends that will impact on future operations. This can be caused by introverted thinking from top management, by focusing inwards too much to solve technical or organisational problems. Such managers neglect to examine external environmental factors, for example, the potential of new competitors.
Failure to understand the challenge
Although the organisation may identify the major trends in their environment, they may not understand the magnitude of the issue or how to respond to it effectively.
Which Strategic Planning Model is Best?
Many books and articles describe how best to do strategic planning.
In this resource we will be following a model that has four basic steps:
Identifying involves looking at the organisation's current mission and vision (if they have one!), in order to understand their core business.
Mission and Vision
A mission statement is like an introductory paragraph. It must communicate the essence of the organisation to the reader. An organisation's ability to articulate its mission indicates its focus and purpose.
A mission statement typically describes an organisation in terms of its:
- Purpose - why the organisation exists and what it seeks to accomplish.
- Business - the main method or activity through which the organisation tries to fulfil this purpose.
- Values - the principles or beliefs that guide an organisation's members as they pursue the organisation's purpose.
A mission statement summarises the what, how and why of an organisation's work. A vision statement presents an image of what success will look like, i.e. how the organisation will effectively carry out its operations.
Vision is a type of aim that is less specific. Vision is usually defined as a desirable future state where details have not yet been determined. The vision statement presents a description of how the organisation will or should operate at some point in the future and how the customers or clients will benefit from the organisation's products or services.
For further reading on Mission and Vision Statements check the summary page.
Assessing the Situation
Once an organisation has committed to why it exists and what it does, it must take a look at its current situation. Part of strategic planning is an awareness of the resources available to the organisation and an idea of future trends that may occur. This will enable the organisation to respond to changes in its environment.
Situation assessment means obtaining current information about the organisation's strengths, weaknesses and performance (opportunities and threats). This information will highlight the critical issues that the organisation faces and that its strategic plan must address.
These could include a variety of primary concerns, such as funding issues, new program opportunities, changing regulations or changing needs in the client population, changes in technology, problems with information systems, changing needs of customers and so on.
The point is to choose the most important issues to address. The strategic plan should focus on no more than five to ten critical issues.
Environmental analysis is the method used to perform situation assessment. The purpose of environmental analysis is to identify significant characteristics that exist within the industry environment. By identifying these characteristics the organisation can make decisions regarding which of these areas will be critical to their future success.
Environmental analysis consists of two major components.
1. The External Environment
An examination of the external environment will determine outside forces that influence the organisation.
2. The Internal Environment
Investigation of the internal environment will establish internal factors that influence organisation strategy and sources of competitive advantage the organisation has.
One of the major tools of environmental analysis is the SWOT analysis.
What is SWOT Analysis
A SWOT analysis helps to answer key questions and create a better organisational strategy by answering the following types of question:
- Does the organisation have the internal strengths on which to build an attractive strategy?
- Which weaknesses does strategy need to correct?
- Do the organisation's weaknesses disqualify it from pursuing certain opportunities?
- Which opportunities does the organisation have resources to pursue with a chance of success?
- What threats should the organisation worry most about?
The Internal Environment
(What is happening within the organisation and what are the effects?)
Through an analysis of the internal environment an organisation can determine what it can do, or the actions that it can undertake based on the resources, core competencies and capabilities available.
Resources are inputs from the organisations production process. Examples of resources include:
- Capital equipment
- Skills of individual employees
- Talented managers.
Generally an organisation has both tangible and intangible resources.
Tangible resources are assets that can be seen and quantified, including assets like production equipment, manufacturing plants and formal reporting structures.
Intangible resources include assets that are rooted deeply in the history of the organisation and that have accumulated over time, including knowledge, trust between managers and employees, ideas, the capacity for innovation, managerial capabilities and reputation. Intangible resources are difficult for competitors to understand and copy.
Capabilities are the knowledge and skills of employees. This is seen as one of the most relevant sources of competitive advantage for any organisation. They must find ways to share this knowledge and skills with the rest of the organisation. Only when a capability is valuable, rare, costly to imitate and unable to be substituted, is it a core competency and a source of competitive advantage.
An effective internal environment analysis includes identifying both what are and what are not the organisations core competencies. Core competencies refer to activities of the organisation which create unique value. These activities are not necessarily ones on which the organisation spends the most time, but those that have the potential to create sustained competitive advantage.
Competitive advantage is the ability of the organisation to outperform its competitors in key performance areas. Competitive advantages may arise through the external environment, for example, changes in customer demand, fluctuations in prices and the impact of advances in technology. Competitive advantages may also arise as a result of internal activities, for example, restructuring of the organisation.
Analysis of the Internal Environment helps to understand the Strengths and Weaknesses that face the organisation.
The following table lists some of the questions to ask to determine the Strengths
and Weaknesses of the organisation.
|What are our advantages?
||What could be improved?|
|What do we do well?||What is done badly?|
|What are our major strengths and how can we utilise them in the future?||What are our main weaknesses and how can we overcome them?|
|What must we do to strengthen our IT function, including our people and technology infrastructure?||How should we address weaknesses in IT resources and capability?|
|A distinctive competence?||No clear strategic direction?|
|Adequate financial resources?||A deteriorating competitive position?|
|Good contacts/relations with clients?||Low profitability because...?|
|Good competitive skills?||Lack of managerial depth and talent?|
|Special expertise? Proven management?||Missing any key skills or competencies?|
|An acknowledged market leader?||Poor track record in implementing strategy?|
|Well-conceived functional area strategies?||Plagued with internal operating problems?|
|Innovative programs/services?||Vulnerable to competitive pressures?|
|Good overall reputation?||What should be avoided?|
|Access to economies of scale?||Weak market image?|
|Insulated from competitive pressures?||Competitive disadvantages?|
|Cost advantages?||Below-average marketing skills?|
|Competitive advantages?||Unable to finance changes in strategy?|
The External Environment
(How do external factors like customers / competitors affect the organisation?)
An understanding of the external environment helps organisations to understand their current situation and predict future trends.
An industry is a group of companies producing products that are close substitutes.
The Web Design Industry is made up of individual web design and development companies, including ISPs.
The industry environment has a more direct effect on strategic competitiveness.
Competitor analysis enables an organisation to focus on each rival company and gather information about them.
When doing competitor analysis, companies seek to understand:
- What drives the competitor, as shown by future objectives
- What the competitor is doing and can do, as shown by its current strategy
- What the competitor believes about itself and the industry
- What the competitors capabilities are
Analysis of the External Environment helps to understand the Opportunities and Threats that face the organisation.
The following table lists some of the questions to ask to determine the Opportunities and Threats of the organisation.
|What are our major opportunities and how can we take full advantage of them?||What major threats do we face and what can we do about them?|
|What IT plans do we have to support business opportunities?||What can we do to deal with potential threats to IT success?|
|What are the interesting trends?||What obstacles do we face?|
|Changes in technology and markets?||What is our competition doing?|
|Expand service line to meet broader range of client needs?||Are the required specifications for our job, products or services changing?|
|Are there changes in social patterns, population profiles, lifestyle changes?||Is changing technology threatening our position?|
|Will local events provide opportunities?||Do we have bad debt or cash-flow problems?|
|Serve additional customer groups?||Likely entry of new competitors?|
|Enter new markets or segments?||Slow market growth?|
|Changes in government policy?||Adverse government policies?|
|Diversify into related services?||Growing competitive pressures?|
|Complacency among rival organisation s?||Vulnerability to recession and business cycle?|
|Fast market growth?||Growing bargaining power of clients?|
|Weak competitors?||Changing client needs and tastes?|
|Lack of dominant competitor?||Adverse demographic changes?|
The outcome of the SWOT analysis is a series of lists, one each for strengths, weaknesses, opportunities and threats.
For further reading on SWOT Analysis check the summary page.
It is important to first review the environmental analysis you conducted on the organisation, in particular you will need to review the opportunities and threats (from the external environment) and the strengths and weaknesses (from the internal environment).
With the elements of the SWOT analysis (ie, strengths, weaknesses, opportunities, threats), you are trying to find relationships between them. These related elements will be grouped together.
Relationships between SWOT elements may have two forms
- You can group together several Strengths (or Weaknesses, or Opportunities, or Threats), that are about the same issue, to form a single organisational Strength.
- When the elements relate to the same issue you can match:
- Strength to Opportunity
- Weakness to Opportunity
- Strength to Threat
- Weakness to Threat
Linking one of these elements may reduce the effect of the other. For example, by enhancing weaknesses in the organisation we may be able to reduce threats.
Each of these groupings forms a critical issue that the organisation faces.
The strategic plan will have up to ten critical issues that are being addressed. The strategic objectives are created for each of these critical issues.
"Strategic objectives are those objectives that refer to and affect,
the entire organisation and deal with the relationship between the organisation
and its environment."
Source: Viljoen and Dann (2000, pg 618)
Strategic objectives, like all objectives should be SMART objectives, that is, the objectives should be:
In creating each strategic objective you must come to a conclusion or response about what the organisation will do as a result of the major issues facing them. This will be written in the form of a goal, or what the business is hoping to achieve.
When setting performance targets, take each strategic objective in turn and specify the requirements which enable the strategic objective to be achieved.
The performance targets are written in the form of tasks that need to be achieved.
Action planning is carefully laying out how the strategic goals will be accomplished. You will be specifying activities and listing the expected results which enable the strategy to be implemented. Action planning also includes stipulating responsibilities (who needs to do what) and timelines (when). You should also include how you will monitor and evaluate the objective using performance indicators.
Strategic planning is an ongoing process, which allows an organisation to
plan for future development and the direction in which the organisation wishes
By analysing the strategic plan of an organisation we can understand the goals a business hopes to achieve within a specified period of time. It also helps us to understand the environment within which the organisation operates and the market forces that affect them.
Complete Activity 1: SWOT analysis