Strategic Planning and Policies

Chapter 1 Strategic Planning and Policies Introduction: Strategic Planning and Policies Lecture # Strategic Planning and Process OT analysis to formulate Strategy: Learning Outcome:  To have and ideas of Strategic Planning and Policies  To gain the concept of Strategic Planning Process or Steps.  To identify the mission, objectives and Strategies of the organization.  To know the technique of analyzing the environment.  To identify strength, weakness, opportunity & threat.  To acquire the knowledge of assessing organizations, mission, objectives and strategies.  To know the skill of formulating strategies, implementing and evaluating strategies.  We acquire knowledge of SWOT analysis for solving complicated problems of management. Ref: 1. Koontz 2. Griffin SEU Chapter II 1 Strategic planning & policies Introduction Strategies refer to'the determination of the purpose and the basic long term objectives of an 'enterprise and the adoption of courses of action and allocation of resources essential to gain these aims & objectives. Henc.e, objectives are a part of strategy formulation. Policies refer to general statements or understandings that guide managers in the preparation of decision making. They provide an ideal outline within which decisions need to be taken. Policies normally do not require action but are intended to guide managers & executives in their commitment to the decision they ultimately prepare. The essence of policy is discretion. (Power to exercise own judgment] Reversely, strategy concerns the direction in witch human & material resources are applied with a view to increasing the chance of achieving selected objectives. Certain major policies and strategies may be essentially the same. A distinction between the two terms may be made as follows: Policies normally guide a manager's thinking in decision making while a strategy refers to the commitment of resources in a given direction. The key or principal function of strategies and policies is to unify and give direction to plans. The principal of the strategy and policy framework is, "the more strategies & policies are clearly understood and implemented in practice, the more consistent and effective will be the framework. for enterprise plans".......Koontz. 2. Strategic planning process Nine steps are observed in the strategic planning Process: a. To identify mission, objectives and strategies of the organization; b. To analyze & interpret the environment; c. To identify opportunities & threats; d. To analyze resources of the organization; e. To identify strengths & weaknesses; f. To re evaluate mission, objectives and strategies of the organization; g. To formulate strategies; h. To evaluate results; The above points are briefly described bellow: [a] To identify mission, objectives and strategies of the organization: Every organization or enterprise has a definite mission, which defines its purpose. What type of business an organization is going to undertake, for example, hotel business or exploration activity like oil extraction, etc. It encourages the management to explain intelligently & continuously the scope of its Products or services. The purpose of the hotel is to serve fresh foods to its customers so as to fulfill their demand, taste & Pleasure. The purpose of the oil company is to extract oil from a well for a given period. In each case, they are committed to create surplus and profit in order to survive. But this basic objective is accomplished by undertaking activities, going in clearly defined directions, achieving goals and accomplishing a mission. [b) To analyze & interpret the environment: An organization cannot run quite independently and without attaching importance to different forces surrounding it, i.e., each organization has a relation with its out side environment or it is influenced favorably or adversely, greatly or slightly by a number of environmental forces like general environment [e.g., economic, legal, political, social, cultural, technological] and specific environment [e.g., customers, suppliers, competitors, Government agencies, international bodies & pressure groups]. [c] To identify opportunities and threats: External environment may provide opportunities and treats to an organization. The management is required to evaluate both these aspects so that it can fruitfully exploit the situation and also protect itself against the, barriers or bottlenecks’ of the business. According to strategic management principle, successful strategists aim at capturing a company's best growth opportunities and creation defenses against external threats to its competitive position and future performance. [d&el To analyze, organization's re sources and to identify strength & weakness: From the viewpoint of a strategy making process', a company's resource strengths are significant as they can form the foundation of strategy and also the basis for creating competitive advantage. If a particular company does not have the resources & competitive capabilities around which to craft an attractive strategy, managers need to take appropriate remedial action in order to upgrade existing organizational resources and capabilities as needed. At the same time, managers need to correct competitive weaknesses that make the company valuable, hold down profitability or disqualify it from pursuing an attractive opportunity. [f] To reassess organization's mission, objectives and strategies: The management of a given company needs to reassess or reevaluate its missions and objectives occasionally or at times when situation demands for such action. This sort of activity is necessary to examine to what extent these are realistic & practical in view of changing circumstances. [g] To formulate strategies: Strategies are determined at tile following three levels: 1. Corporate level It refers to the level of a firm that consists of more than one business; 2. Business level It refers to the firm or a given business that competes directly with one another for capturing markets. 3. Functional level Like marketing, purchasing, research & development, building information systern, building human resource management or building organizational capabilities. The management of all organization is required to develop and evaluate alternative strategies and choose an alternative that is appropriate to each level and enable the organization to maximize the utilization of its resources and the opportunities available. [h] Implementing and evaluating strategies: Although implementation does not form a part of the strategic planning process, it is essential to consider it during all pha!ses of the planning process beginning from setting goals to identding threats, opportunities, forecasting future environment, developing alternative strategies. The middle-level & lower or subordinate level management is required to follow the directions of the top management/top leaders to attain the predetermined target or goat of the enterprise. The management is required to compare continuously the actual performance with the laid down plans and make necessary adjustments promptly so as to disallow problems or deviations to increase further at the end of the year. Using SWOT Analysis to formulate strategy: 1. The starting point in formulating strategy is usually SWOT analysis. The term stands for strengths, weaknesses, opportunities, and threats, SWOT analysis is a careful evaluation of an organization's internal strengths and weaknesses as well as its environmental opportunities and threats. * Through SWOT analysis, the management attempts to utilize the best strategy by exploiting the opportunities and strengths of an organization while neutralizing threats & weaknesses of the organization. * Organizational strengths are skills and capabilities that enable an organization to conceive of and implement its strategies. 2. SWOT analysis divides organizational strengths into two categories: common strengths and distinctive competencies: a) A common strength is an organizational capability possessed by numerous competing firms. For example, all the major Hollywood film studios posses common strengths in lighting, sound recording, set and costume design, and makeup. A film company that exploits only its common strengths in choosing and implementing strategies is not likely to go beyond average performance. b) A distinctive competency is a strength possessed by only a small number of competing firms. Distinctive competencies are rare among a set of competitors. Organizations that exploit their distinctive competencies often obtain a competitive advantage and attain above normal economic performance. The main purpose of SWOT analysis is to discover an organization's distinctive competencies so that the organization can choose and implement strategies that exploit its unique organizational strengths. 3. Organizational weaknesses are skills and capabilities that do not enable an organization'to choose and implement strategies that support its mission. * Organizations that fail either to recognize or overcome their weaknesses are likely to suffer from competitive disadvantages. An organization has a competitive disadvantage when it is not implementing valuable strategies that are being implemented by competing organizations. Organizations with a compefitive disadvantage can expect to attain below average levels of performance. 4. Organizational opportunities are areas that may generate higher performance. Organizational threats are areas that increase the difficulty of an organization performing at a high level. Porter's five forces model of the competitive environment, can be used to characterize the extent of opportunity and threat in an organization's environment. * When all these forces are observed in a higher degree, an industry has relatively few opportunities & numerous threats. * Firms in these types of industries usually have the potential to achieve only normal economic performance. These industries hold the potential for above normal performance for member organizations. * Reversely, where these five forces are all low, industry will possess numerous opportunities & relatively few threats. An example of SWOT Analysis may be given in the following case: A. Objective questions: 1 What is meant by Strategy? 2. What is meant by Policy? 3. Name the steps involved in the strategic planning process. 4. What is understood by SWOT? 5. What may be the strengths and weaknesses of an organization? 6. What are opportunities and threat of an organization? B. Broad questions: 7. Give a clean conception of strategic planning and policies. 8. Explain how a manager will use the concept of Strategic Planning technique for running a modern business organization. 9. Explain how SWOT analysis may become a careful evaluation of an organizations strengths and weaknesses and environmental opportunities and threats.