Twenty One Aspects of Strategic Planning

INTRODUCTION

This is a review of the 21 aspects presented by Brian Tracy as relevant for strategic planning. This review is based on what was presented by Tracy in the video, references on the different aspects and the writer reflections.

1. REASONS FOR STRATEGY

1.1 ROE

Return on equity refers to the profits earned per rupee invested by shareholders or owners of a business (explained in more detail in a later section). This is the primary reason for the existence of a business. In order to increase ROE in a competitive environment, strategy is required. Peter and Certo, 1991, state that organisations with good strategic management tend to increase their levels of profit and profitability.

1.2 Repositioning

Businesses operate in a dynamic world. The markets, competition and other environments such as the political, economic, social and technological environments that affect business are all changing constantly. Thus, in order to succeed, businesses also need to change (or to reposition) in response.

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Strategic planning is essentially an activity lf aligning the organization with the environment. Thus it enables effective repositioning when required.

1.3 Maximize Strengths and Opportunities

In the previous section it was noted that strategic planning is an alignment exercise. In this exercise, a SWOT analysis is carried out. The courses of action that are selected subsequently (the strategies) are the ones that can (ideally) best exploit the opportunities in the environment utilizing the organizational strengths while minimizing treats and weaknesses.

1.4 Action : Now

In the absence of strategic planning and strategies, organizations stagnate. They habitually perform routine activities without clear purpose or rigour. Strategies compel organizations into action in order to achieve clearly defined, specific, time bound goals.

2. STRATEGIC PLANNING SIMPLIFIED

This section gives four steps to be followed in strategic planning.

2.1 Where Are We Now?

The first step in strategic planning is to identify the current position of the organization. It is difficult to plan your future courses of action without knowing one current position. This step involves a thorough investigation of the organization and its environment. This is also called a situational analysis.

2.2 History

This step is an analysis of what the organization had done in the past. It shows how the business came to its current position. This analysis reveals vital information about the success or failure of previous strategies. They formulate a good basis for developing future strategies. The historical analysis helps in part to identify what is known as the lanning gap?

In identifying the lanning gap?the organisation needs to examine the strategies it has been using in the past up to the present. Then it needs to project where the organisation would go if the past and present strategies were continued into the future. Finally this destination is compared with the destination the company wishes to reach in future. The gap between the desired destination and the likely destination is called the lanning gap? The stages 2.1 and 2.2 helps to identify the likely destination in this exercise.

2.3 Define Ideal Future

Although not a management specialist, the Cheshire Cat in Carroll Alice in Wonderland succinctly articulates the need for this step. In response to Alice question hich way should I take??the cat replies t depends on where you want to go? Before strategy formulation an organization needs to define clear specific goals as to what it wants to achieve at specific points of time in the future. Without such specific goals, it becomes impossible to later evaluate whether the chosen strategies had been successful. This step results in identifying the esired destination?in the identification of the lanning gap?

2.4 How to Get there

Having analysed the present position in a context of the environment, determined how it came to that position, and defined where it wants to go the organization is in a position to design courses of action that will propel its towards the achievement of the defined goals. This step results in the actions that are selected to bridge the lanning gap? However, many aspects should be considered when selecting these actions. These are discussed in the sections that follow.

3. WHO SHOULD GET INVOLVED?

According to the video, the CEO of the company should be involved in strategy formulation. This is logical since he CEO is the executive who is held accountable for the performance of the organisation as a whole?(Peter and Certo, 1991). In practice, the CEO dominates strategy formulation in all small firms, in most medium sized firms and in many large firms (Higgins and Vincze, 1986).

Another group that should get involved in strategy formulation are the key players in implementing the strategies. These are the senior line managers (Higgins and Vincze, 1986). These are the ones closest to the problems or opportunities and their solutions. Higgins and Vincze, 1986 further state that with the current trends of increased delegation of work and flatter organizations these line managers are increasingly engaged in making strategic decisions.

Peter and Certo, 1991 quote George Grune on the importance of the line managers in strategy formulation as llowing others to participate in the strategic management process even to the extent of lower level line managers results in more realistic goals, objectives and strategies.

4. WHO ELSE SHOULD GET INVOLVED?

Apart from the strategists and implementers (Higgins and Vincze, 1986) a third group of facilitators should get involved in strategy formulation. Particularly in large organizations, when the activities involved in strategic planning get too extensive, many of them are delegated to a group of planners. The size of this group may vary from just two people to an entire department consisting of more than 50 people. Their tasks include gathering and analysing data, make them available to the CEO, generate and evaluate alternatives, make recommendations regarding strategy and integrate various plans submitted by different divisions. As is can be seen, the planners?position is generally advisory in nature (Peter and Certo, 1991). he planners role in most firms is not so much that of a planner but rather that of a planning coordinator and information provider?(Higgins and Vincze, 1986).

An emerging role of planners is that of a rofessional futurist?(Higgins and Vincze, 1986). In an increasingly volatile environment, the planners who have the knowledge of strategic tools such as asking hat if?questions, computer simulations, and scenario planning can make a greater contribution to strategy formulation than before.

5. MISSION

Tracy says that the mission of a company is the starting point of strategy. This is because a good mission statement seeks to answer the question hat business are we in or do we want to be in?? Further, t identifies how one business intends to achieve profit as opposed to how another similar firm might do so?(Higgins and Vincze, 1986). A mission statement generally exhibits the type of products/service produced by the firm, customers, important values and the company self concept (Peter and Certo, 1991). A good mission statement is important because it focuses human effort in a common direction, helps to ensure that the organisation will not pursue conflicting purposes, gives a basis for the development of organisational objectives and provides a general rationale for fesource allocation (Peter and Certo, 1991)

As Tracy points out a good mission statement should be qualitative and should inspire and uplift people of the firm.

6. VALUES

If the mission statement inspires the employees of the organisation, the mechanism that propels them into acting on that inspiration is based on the core values of the company. Organisational culture is generally accepted as the basis of behaviour of employees in an organisation (Schein, 1992). Further elaborating on culture, Schein (1992) states that the visible manifestations of culture including behaviour patterns are governed by the values of an organisation and the underlying assumptions that provide the foundation for the values.

Tracy says that the top managers should ask themselves, what the company ideal customer view of itself is and how the top management would want the employees to describe the firm in order to identify the core values. However, this alone would not suffice. Often there is a big difference between the guiding values held by the top management and the norms held by those at lower levels (Oeilly, 1989). Thus the top management needs to identify the actual organisational values that are now shaping employee behaviour and modify or change them if they are not the values that it wishes to uphold.

7. DRIVING FORCE

As the seventh aspect that needs to be considered in strategy formulation, Tracy states that companies need to identify with some driving force as the central focus of its strategies. He gives a list of nine possible driving forces including product/service, market needs, technology, production capability etc. This in fact should be part of the mission statement. This is because identification with a market or technology or product/service is one dimension of defining one business. Identification with a driving force does not mean however, that the firm should rigidly focus on it ignoring all environmental changes. Levitt (1960) has demonstrated how businesses that narrowly and rigidly identified themselves with products failed in the face of environmental changes (e.g. railroads and Hollywood movies). However he also demonstrated that there are successful companies that identified with a driving force in a more broad, open-minded manner. E.g. e are experts in glass technology. We intend to improve and expand that expertise with the object of creating products that will attract customers.?(Technology based) e want to help people (primarily women) enhance their beauty and sense of youthfulness?(Market needs based). This second company has diversified from cosmetics into proprietary drugs and vitamin supplements in line with their driving force (Levitt, 1960).

8. CONCENTRATION OF POWER

This principle states that a company strategy should revolve around what you can do best. ( I.e. The 20% of what the company does that accounts for 80% of the business). According to Tracy power should be concentrated on utilizing key strengths to compensate for weaknesses of the company. In strategic management terminology such key strengths are known as core competencies.

Strategic management is an exercise of beating the competition. In order to do that, companies need to have competitive advantages that give them an edge over the competitors. istinctive competencies are paramount in achieving and maintaining competitive advantage.?(Selznick (1957) as quoted by Dess and Miller, 1996) Dess and Miller further state that core competencies are the most significant value creating skills within the organisations and this bundle of competencies should be difficult for competition to imitate.

9. ZERO BASED THINKING

Tracy introduces zero based thinking (ZBT) as asking oneself the following question regarding every strategy that the company is using. f we were not in what we are doing now, would we start it knowing what we now know??He says that if the answer is no, the company should abandon those strategies. Another way of describing ZBT is that it is the practice of suspending ritical judgment just long enough to seriously entertain some unlikely, unpopular, unusual, but not impossible alternatives? (Morland, 2000). In other words, problems and opportunities should be addressed as if they are being addressed for the first time. Morland admits that to approach every problem with a ental clean slate would be to ignore the benefits of education and experience. However, he argues ow many of the acts?that you deal with each day are unalterably true?? He states that ZBT is a good solution to hose obstinate problems that seem to resist such conventional attacks of reason?

10. INVESTMENT STRATEGY

An organisation has limited resources for investment. Comerford and Callaghan, 1985 state that inancial concerns are both directive and supportive in a strategic context?because they either enhance or constrain the contribution of all operations of the organisation to its overall performance. Thus an important strategic decision is how to employ those resources for best results. Divestment strategy is an important pat of the investment strategy. Divestment may be necessary because of poor performance of a particular investment or because better alternatives are available to utilise those resource. According to Peter and Certo, 1991 divestments are seldom strategically managed because t is often seen as symbolising failure? Tracy warns against this tendency and investing in pet projects that are not the best alternatives, saying that management should not invest in anagerial Ego?

11. CRISIS ANTICIPATION

This is anticipating the worst possible outcome and determining how to cope with it. The strategic tool that can be used to do this is known as cenario planning? This exercise is necessary because the complex environments that firms are operating in threaten to overwhelm their strategies (Dess and Miller, 1996). cenarios are stories about what the future environment might hold and how a firm might respond. They are attempts to identify a set of very diverse alternative futures as a means of preparing managers for unavoidable uncertainties.?(Dess and Miller, 1996)

12. THE GROWTH SHARE MATRIX

This is also known as the BCG matrix. It is based on the assumption that two factors determine whether a business is a cash producer or a cash user; namely, growth rate of the market in which a firm operates and its share of the market (Dess and Miller, 1996). Following are the general guidelines of action on the basis of this analysis (Dess and Miller, 1996). If a particular business in which the firm is engaged is a:

Cash cow: It produces more cash that it can usefully employ in house and thus can be milked to finance other businesses upon which the future of the organization may depend.

Dog: It could be a great user of cash for which there is little likely return. arvest?them by not investing in them shifting cash flows to more promising businesses.

Question Mark: It represents a potential opportunity; if its market share can be increase. Either invest large sums to turn them into stars or not invest and possibly miss out on a growth market.

Star: It the hope of the future. Cash flow may be minimal or negative. Nurture them, maintaining their health and waiting for market growth to slow so that cash flows will increase.

13. SBU (Strategic Business Units)

This is a way of organising a company various businesses. nce enough product lines in a specific industry or major target area become sufficiently large the organisation will normally proceed to some type of SBU structure?(Higgins and Vincze, 1986). Once such a structure is adopted, the SBUs act as independent profit centres formulating and implementing their own business strategies. The corporate level decisions involve how to mobilise resources among and across SBUs. This is where tools such as the BCG matrix and the GE matrix are useful (Higgins and Vincze, 1986).

14. COMPETITORS

It was stated earlier that strategic management is an exercise of beating the competition. Hence strategy formulation will not be successful without a thorough analysis of the competitors. Tracy states that having identified who or what one competitor is, the competitor should be analysed in terms of price, market share, quality etc. Further, one strengths and weaknesses should be analysed in relation to the competitors. William E. Rothschild quoted by Higgins and Vincze, 1986, gives more comprehensive guidelines to analyse competitors in the following questions:

?nbsp; Who is the competition now and who will be in the future?

?nbsp; What are the key competitors?strategies and goals?

?nbsp; How important is a specific market to the competitors and are they committed enough to continue to invest?

?nbsp; What unique strengths do competitors have?

?nbsp; Do they have any weaknesses that make them vulnerable?

?nbsp; What changes are likely in the competitors?future strategies?

?nbsp; What are the implications of competitors?strategies on the market, industry and one own company?

15. STRATEGIC VARIABLES

These are the variables that determine the operational boundaries of a given strategy. Firstly, the company needs to look at the market and the suitability of the strategy. In the final analysis, the success of a strategy depends on how well works in terms of its customers. In addition to analysing the most important variable of customers, other market aspects that affect the success of a strategy in a given market can be analysed by using the five-force model of competitiveness by Porter. Apart from the market conditions, the other variables that affect strategy implementation are financial requirements, human resource requirements (i.e. skills, numbers etc.), technology requirements and production capability requirements (this might involve a decision of producing in house vs. sub-contracting). Only after considering all these variables should a strategy be selected.

16. STRATEGY / OPERATIONS MATRIX

This matrix draws one attention to the fact that a company should have both clear strategies and effective operations to implement them in order for them to be successful. Tracy shows that while clear strategies/effective operations spell success and unclear strategies/ineffective operations spell failure, clear strategies/ineffective operations and vice versa spell a doubtful future. This latter is not a good formula for a firm to operate on. Thus, senior management must make sure not only that the company has clear strategies but also that there is an effective system in place to implement them.

17. KEY QUESTIONS

According to Tracy, four key questions need to be asked in strategy formulation. These are: What is our business? ; What will it be? ; What could it be? (Possibilities) ; What should it be? (Ideal). These questions essentially lead to a review of the mission of the company. Such a review is necessary because, while mission statements should be relatively permanent, they need adaptation from time to due to changes in the internal and external environments of the business. For example, the appearance of new opportunities and threats and change in top management often lead to changes in the mission (Higgins and Vincze, 1986). Thus, these questions help strategy formulators to avoid stagnation of the company.

18. FINANCIAL OBJECTIVES

The ultimate goal of any business is profit. For a business to achieve profit or any other goal it must first survive. The first indicators of the company chances of survival are the financial objectives. Hence, special importance should be paid to determine the financial success of strategies. Following are some of the key indicators of financial success: Return on Equity (ROE) is the ratio between the net income and stockholders?equity. Return on Investment (ROI) is generally computed as the ratio between the earnings before interest and taxes to total assets. I.e. the profitability of all capital employed. Return on Sales is the ratio between the profits and sales. This can be computed using a number of different formulae. The final victory post of this analysis is the Net profit.

19. PROFITABILITY

If the ultimate aim of a business is profit, any strategy adopted should be profitable. I.e. the management should be able to control expenses and to earn a return on committed funds (Comerford and Callaghan, 1985). Many attractive looking strategies could be unprofitable. For example, pursuit of very high growth could result in the cost of operating outstripping the growth in profits that the additional business might provide (Dess and Miller, 1996). According to Tracy, the key to profitability is quality of product/service and quality of associated services. Quality standards should of course be determined by customers, competitor standards and standards of alternatives available in the market.

20. QUALITY

If quality is the key to profitability, it is an issue that should be addressed in a systematic manner. Within the firm the meaning of quality and the standards should be clearly defined and properly communicated so that employees at all levels recognize it. Only if all employees are committed to quality can this concept work for the company. The video film aradigm Pioneers?by Joel Barker demonstrates how Sony has managed to stay ahead of competition through its Kaizen principles. This underlines the potency of quality as a strategy.

21. SEGMENTATION, DIFFERENTIATION AND SPECIALISATION

These three concepts present three tools that help a company to concentrate its power in order to achieve its goals. First, segmentation results in dividing the market into homogeneous segments and selecting one or more that the company can best serve. Then differentiation is the adoption of strategies that differentiates it from the competitors within that segment. Finally, specialization refers to concentrating its efforts on excelling in the activities that differentiates it from competition so that ultimately the company excels in something that the competition finds hard to imitate. Thus these concepts capture the essence of most of what has been discussed in the earlier sections.

REFERENCES

1. Miller, Alex & Dess, Gregory G, Strategic Management, 1996, McGraw-Hill (New York)

2. Higgins, James M. & Vincze Julian W, strategic Management and Organizational Policy, ed. 3, 1986, Dryden (Chicago)

3. Comerford, Robert A. & Callaghan W., Strategic Management: Text, Tools and Cases for Business Policy, 1985, Kent (Boston)

4. Peter, J. Paul & Certo, Samuel C., Strategic Management Concepts and Applications, ed. 2, 1991, McGraw-Hill (New York)

5. Schein, E.H., oming to a New Awareness of Organisational Culture? (1992), in Salaman, G. (ed.), Human Resource Strategies, Sage

6. Oeilly, C., orporations, Culture and Commitment: motivation and social control in organizations? California Management Review, 31:4

7. Morland, D. Verne, ow to Apply "Zero-Based Thinking" to Decision-making? 2000, [on line],