There are many components of the process which are spread throughout strategic planning stages. Most often, the strategic planning process has 4 common phases: strategic analysis, strategy formulation, implementation and monitoring (David[5], Johnson, Scholes & Whittington[6], Rothaermel[1], Thompson and Martin[2]). For clearer understanding, this article represents 5 stages of strategic planning process:
- Initial Assessment
- Situation Analysis
- Strategy Formulation
- Strategy Implementation
- Strategy Monitoring
Initial Assessment
| Components: Vision & Mission Tools used: Creating Vision and Mission statements |
The starting point of the process is initial assessment of the firm. At this phase managers must clearly identify the company’s vision and mission.
Vision answers the question: What does an organization want to become? Without visualizing the company’s future, managers wouldn’t know where they want to go and what they have to achieve. Vision is the ultimate goal for the firm and the direction for its employees.
In addition, mission describes company’s business. It informs organization’s stakeholders about the products, customers, markets, values, concern for public image and employees of the organization (David, p. 93)[5]. Thorough mission statement acts as guidance for managers in making appropriate (Rothaermel, p. 34)[1] daily decisions.
Situation Analysis
| Components: Internal environment analysis, External environment analysis and Competitor analysis Tools used: PEST, SWOT, Core Competencies, Critical Success Factors, Unique Selling Proposition,Porter's 5 Forces, Competitor Profile Matrix, External Factor Evaluation Matrix, Internal Factor Evaluation Matrix, Benchmarking, Financial Ratios, Scenarios Forecasting, Market Segmentation,Value Chain Analysis, VRIO Framework. |
When the company identifies its vision and mission it must assess its current situation in the market. This includes evaluating an organization’s external and internal environments and analyzing its competitors.
During external environment analysis managers look into the key external forces: macro & micro environments and competition. PEST or PESTEL frameworks represent all the macro environment factors that influence the organization in the global environment. Micro environment affects the company in its industry. It is analyzed using Porter’s 5 Forces Framework.
Competition is another uncontrollable external force that influences the company. A good example of this was when Apple released its IPod and shook the mp3 players industry, including its leading performer Sony. Firms assess their competitors using competitors profile matrix and benchmarking to evaluate their strengths, weaknesses and level of performance.
Internal analysis includes the assessment of the company’s resources, core competencies and activities. An organization holds both tangible resources: capital, land, equipment, and intangible resources: culture, brand equity, knowledge, patents, copyrights and trademarks (Rothaermel, p. 90)[1]. A firm’s core competencies may be superior skills in customer relationship or efficient supply chain management. When analyzing the company’s activities managers look into the value chain and the whole production process.
As a result, situation analysis identifies strengths, weaknesses, opportunities and threats for the organization and reveals a clear picture of company’s situation in the market.
Strategy Formulation
| Components: Objectives, Business level, Corporate level and Global Strategy Selection Tools used: Scenario Planning, SPACE Matrix, Boston Consulting Group Matrix, GE-McKinsey Matrix, Porter’s Generic Strategies, Bowman’s Strategy Clock, Porter’s Diamond, Game Theory, QSP Matrix. |
Successful situation analysis is followed by creation of long-term objectives. Long-term objectivesindicate goals that could improve the company’s competitive position in the long run. They act as directions for specific strategy selection. In an organization, strategies are chosen at 3 different levels:
- Business level strategy. This type of strategy is used when strategic business units (SBU), divisions or small and medium enterprises select strategies for only one product that is sold in only one market. The example of business level strategy is well illustrated by Royal Enfield firms. They sell their Bullet motorcycle (one product) in United Kingdom and India (different markets) but focus on different market segments and sell at very different prices (different strategies). Firms may select between Porter’s 3 generic strategies: cost leadership, differentiation and focus strategies. Alternatively strategies from Bowman’s strategy clock may be chosen (Johnson, Scholes, & Whittington, p. 224[6]).
- Corporate level strategy. At this level, executives at top parent companies choose which products to sell, which market to enter and whether to acquire a competitor or merge with it. They select between integration, intensive, diversification and defensive strategies.
- Global/International strategy. The main questions to answer: Which new markets to develop and how to enter them? How far to diversify? (Thompson and Martin, p. 557[2], Johnson, Scholes, & Whittington, p. 294[6])
Managers may choose between many strategic alternatives. That depends on a company’s objectives, results of situation analysis and the level for which the strategy is selected.
Strategy Implementation
| Components: Annual Objectives, Policies, Resource Allocation, Change Management, Organizational chart, Linking Performance and Reward Tools used: Policies, Motivation, Resistance management, Leadership, Stakeholder Impact Analysis, Changing organizational structure, Performance management |
(If you use more tools in strategy implementation, please tell us about them in comments)
Even the best strategic plans must be implemented and only well executed strategies createcompetitive advantage for a company.
At this stage managerial skills are more important than using analysis. Communication in strategy implementation is essential as new strategies must get support all over organization for effective implementation. The example of the strategy implementation that is used here is taken from David’s book, chapter 7 on implementation[5]. It consists of following 6 steps:
- Setting annual objectives;
- Revising policies to meet the objectives;
- Allocating resources to strategically important areas;
- Changing organizational structure to meet new strategy;
- Managing resistance to change;
- Introducing new reward system for performance results if needed.
The first point in strategy implementation is setting annual objectives for the company’s functional areas. These smaller objectives are specifically designed to achieve financial, marketing, operations, human resources and other functional goals. To meet these goals managers revise existing policies and introduce new ones which act as the directions for successful objectives implementation.
The other very important part of strategy implementation is changing an organizational chart. For example, a product diversification strategy may require new SBU to be incorporated into the existing organizational chart. Or market development strategy may require an additional division to be added to the company. Every new strategy changes the organizational structure and requires reallocation of resources. It also redistributes responsibilities and powers between managers. Managers may be moved from one functional area to another or asked to manage a new team. This creates resistance to change, which has to be managed in an appropriate way or it could ruin excellent strategy implementation.
Strategy Monitoring
| Components: Internal and External Factors Review, Measuring Company’s Performance Tools used: Strategy Evaluation Framework, Balanced Scorecard, Benchmarking |
Implementation must be monitored to be successful. Due to constantly changing external and internal conditions managers must continuously review both environments as new strengths, weaknesses, opportunities and threats may arise. If new circumstances affect the company, managers must take corrective actions as soon as possible.
Usually, tactics rather than strategies are changed to meet the new conditions, unless firms are faced with such severe external changes as the 2007 credit crunch.
Measuring performance is another important activity in strategy monitoring. Performance has to be measurable and comparable. Managers have to compare their actual results with estimated results and see if they are successful in achieving their objectives. If objectives are not met managers should:
- Change the reward system.
- Introduce new or revise existing policies.
The key element in strategy monitoring is to get the relevant and timely information on changing environment and the company’s performance and if necessary take corrective actions.
Different models of the process
There is no universal model of the strategic management process. The one, which was described in this article, is just one more version of so many models that are established by other authors. In this section we will illustrate and comment on 3 more well-known frameworks presented by recognized scholars in the strategic management field. More about these models can be found in the authors’ books.
Figure 1. David’s Model of the Strategic Management’s Process
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