Strategic Planning Essay

Strategic Planning Essay Introduction: Planning is the most important thing for all organization. A successful plan means a successful mission to goal of a business or organization. It doesnt matter the organization big or small. Plan will bring you to face the challenges and opportunities. This will enable to deliver more effectively to meet the needs of target people and strengthen the organization. Planning is the first step towards sustainable funding. Planning should be creative process, simple and straightforward that brings demonstrable benefits. The process of making systematic decisions about proposed future outcomes, the process includes evaluating an organization and the environment in which it operates, establishing long-term goals, and mapping a plan to achieve the goals that have been identified. Strategic planning assumes and incorporates the likelihood of a changing environment that will require adjustments in the identified goals and the process of achieving them. Strategic planning process: Environmental Scanning Developing the environmental scanning structure. The environmental scanning process. Searching for information resources Selecting information resources to scan. Identifying criteria by which to scan. Determining special actions to take on the scanning results Scanning for the institution. Evaluating the process. Key stages of strategic planning process: There are several key stages of strategic planning process: Develop Vision and Mission Business and operation analysis Develop and select strategic option Establish strategic objective Strategy execution plan. Establish resource allocation Execution summary â€Å"Strategy can be seen as an on going ‘positioning process for an organization and strategic planning can be seen as a separate activity reviewed at periodic well- defined intervals†. Strategy involves achieving a competitive advantage for an organization in meeting the needs of customers and fulfilling the expectations of stakeholders. â€Å"An organization with an ‘active strategy will have a ‘plan on which to base its decisions. This plan may be in the form of a written document, or it may be a way of approaching matters as they arise†. Example: In the case of Marks Spencer in the late 1990s, its surveys showed that customer satisfaction did fall over a period of months, but there were a combination of factors causing problems, including a general recession in High Street shops in 1998. Other possible problems for MS that were out limited TV advertising, its supply lines were relatively expensive, and it had difficulties with its product range and with the presentation of its clothes. Although the company recorded profits of over  £1 billion in 1997 and 1998, there was a 23 per cent drop in profits in November 1998. The CEO left the company in 1999 and there were further changes in senior management in the following two years. Major credit cards became accepted, product ranges were altered, product presentation was reviewed and a TV advertising campaign was undertaken under the slogan ‘Exclusively for everyone. (Tim Hannagan, Mastering @Strategic Management, 2002, Palgrave, New York, pg 60) Task 2: Involvement of stakeholders in the strategic planning process. Stakeholders are involved in the effects of strategic management because the actions and the development of the organization will result in change in their circumstances in one way or another. Stakeholders can be described as individuals and groups who are affected by the activities. It can be argued that the most important stakeholders are those who have the most to lose from the organizations actions. It is also important for an organization to be able to assess the power of these groups to influence events and the attitudes of the most powerful groups individuals. Stakeholders include a range of people involved with a company: The shareholders- who own the company and receive dividends. Financial bodies such a banks- who fund organizations in one way or another, and receive added value through interest or by other means. The employee- who receive some of the added value through their pay. The management- who receive added value through their pay and other benefits. The government- which receives part of the added value in the form of taxes. The customers- who consume the results of the value added to a commodity or service through the value chain. The mission and the objectives of an organization have to be developed taking into account the interests of the organizations stakeholders. Stakeholders Expectations Shareholders Financial return Creditors Interest, Creditworthiness, Prompt payment Suppliers Payment, long-term orders Employees Pay, stability, job satisfaction Managers Pay, benefits, power and control Customers Supply of goods and services, quality Government Taxes, employment, economic growth Strategic Management In terms of strategic management the major issue is to identify the relative power of the various stakeholders so that it is clear which of them is the most important to satisfy. On the one hand, it can be said that form any organization the customer comes first, second and third because comes without the customer the purpose of the organization will not exit, on the other hand, there may be other stakeholders who if not satisfied have the power to bring the organization to an end. For an example, Creditors have the power to close an organization if they are not paid, and employees can bring a company to its knees by withdrawing their labour. Every organization has to decide which are its most influential stakeholders and balance out their interests. Task 3: SWOT analysis of an organization: SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment. Once key strategic issues have been indentified, they feed into business objectives, particularly marketing objectives. The key distinction: Internal and External Issues. Internal Issues: Strengths and Weaknesses are internal factors. For example, an strength could be specialist marketing expertise. A weakness could be the lack of a new product. External Factors: Opportunities and Threats are external factors. For example, an opportunity could be a developing distribution channel such as the internet, or changing consumer lifestyles that potentially increase demand for a companys product. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete. (S)trengths: Diversifying away from areas of major threat to more promising opportunities. Focusing on modifying weaknesses in spots of significant opportunities. Taking defensive measures in areas of threat where you are weak. (W)eaknesses: Make mind up which weaknesses need to be addressed as a priority. Other weaknesses have got to be accepted and respected until time and resources let find a solution. Some weaknesses can be developed into strengths or opportunities. For instance, it might be feasible to turn a shortage of production capacity into increased value for your product. (T)hreats: Build successful relationships with suppliers and customer. Cultivate good employee relations. Ensure clear and reasonable contracts with suppliers, customers and employees. Procure insurance against evident debacles. Make realistic contingency plans to deal with potential. Establish the right types of service contracts for key personnel. Invest in legal protection for intellectual property. Task 4: The differences between balance scorecard, scenario planning, cost benefit analysis and sensitivity analysis. Balance scorecard: The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. Kaplan and Norton describe the innovation of the balanced scorecard as follows: The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation. Examples: Department Areas Finance Return on Investment Cash Flow Return on Capital Employed Financial Results (Quarterly/Yearly) Internal Business Processes Number of activities per function Duplicate activities across functions Process alignment (is the right process in the right department) Process bottlenecks Process automation Learning and Growth Is there the correct expertise for the job Employee turnover Job satisfaction Training opportunities Customer Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rat Scenario Planning: Scenario planning where choices can be screened by matching them to possible scenarios. This is a ‘what if? approach based on possible changes in the organizations environment. This leads to the formation of contingency plans in order to meet the requirements of each of these possible scenarios. For this approach to be useful, the strategic manager has to recognize the onset of the elements of a particular scenario so that the appropriate contingency plan can be introduced. Tim Hannagan, Mastering Strategic Management, 2002, Palgrave, New York, pg 60 Scenario planning or scenario thinking is a strategic planning tool used to make flexible long-term plans. It is a method for learning about the future by understanding the nature and impact of the most uncertain and important driving forces affecting our world. â€Å"Change has considerable psychological impact of the human mind. To the fearful, change is threatening because it means that things may get worse to the hopeful, change is encouraging because things may get better. To confident, change is inspiring because the challenge exists to make thing better â€Å"King Whitney, Jr.† Cost benefits analysis: A cost benefit analysis finds, quantifies, and adds all the positive factors. These are the benefits. Then it identifies, quantifies, and subtracts all the negatives, the costs. The difference between the two indicates whether the planned action is advisable. The real trick to doing a cost benefit analysis well is making sure you include all the costs and all the benefits and property quantify them. Example of a Cost Benefit As the Production Manager, proposing the purchase of a $ 1 million stamping machine to increase output. Before present the proposal to the Vice President, know the need some facts to support suggestion, decide to run the numbers and do a cost benefit analysis. Itemize the benefits. With the new machine, it can be produced 100 more units per hour. The three workers currently doing the stamping by hand can be replaced. The units will be higher quality because they will be more uniform and be convinced these outweigh the costs. There is a cost to purchase the machine and it will consume some electricity. Any other costs would be insignificant. Calculate the selling price of the 100 additional units per hour multiplied by the number of production hours per month. Add to that two percent for the units that arent rejected because of the quality of the machine output. Also add the monthly salaries of the three workers. Thats a pretty good total benefit. Then calculate the monthly cost of the machine, by dividing the purchase price by 12 months per year and divide that by the 10 years the machine should last. The manufacturers specs tell what the power consumption of the machine is and get power cost numbers from accounting then figure the cost of electricity to run the machine and add the purchase cost to get a total cost figure. Now subtract total cost figure from total benefit value and analysis shows a healthy profit. Sensitivity analysis: Sensitivity analysis is a method for testing the degree of sensitivity of a system or models variables by applying incremental changes. The system can be physical or notional and represent the whole project or major element the analysis determines which variables are the most significant having the most impact on results and so helps the selection of the optimal settings or best solution. A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bonds price. Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key prediction(s). Example: An analyst might create a financial model that will value a companys equity (the dependent variable) given the amount of earnings per share (an independent variable) the company reports at the end of the year and the companys price-to-earnings multiple (another independent variable) at that time. The analyst can create a table of predicted price-to-earnings multiples and a corresponding value of the companys equity based on different values for each of the independent variables. Conclusion: Strategy can be seen as an on going positioning process for an organization and strategic planning can be seen as a separate activity reviewed at periodic well defined intervals. References: http://www.yourdictionary.com/business/strategic-planning horizon.unc.edu/projects/seminars/futuresresearch/stages.html http://ezinearticles.com/?7-Steps-Effective-Strategic-Planning-Processid=588763 Tim Hannagan, Mastering @Strategic Management, 2002, Palgrave, New York, pg 60 Tim Hannagan, Mastering @Strategic Management, 2002, Palgrave, New York, pg 50, 51 Kaplan and Norton http://www.businessballs.com/balanced_scorecard.htm Tim Hannagan, Mastering @Strategic Management, 2002, Palgrave, New York, pg 60) http://www.jiscinfonet.ac.uk/tools/scenario-planning King Whitney, Jr. http://management.about.com/cs/money/a/CostBenefit.htm http://www.maxwideman.com/issacons1/iac1112b/tsld002.htm http://www.investopedia.com/terms/s/sensitivityanalysis.asp