Technology Tips

Tuesday, February 21, 2012

Advantages and Limitations of Formal Corporate Strategic Planning

Corporate strategic planning is essential if an organisation is to survive, let alone expand. No organisation can remain on a plateau; if it is not going up then it is going down, since all other organisations in the same sector will always be trying to increase their own market share to the detriment of its competitors.

Successful strategic planning involves looking ahead and making decisions based upon future likely conditions. In some cases this will lead to decisions to diversify into other markets, and where these, or other, decisions fail then the organisation can be left in real trouble.

Such an example of a failure to diversify was seen a few years ago when many finance suppliers, such as building societies, decided to enter the estate agency sector at a time when house selling was buoyant and then had to withdraw, losing a lot of money, when the market was flooded with competition.

There are limits to what corporate strategic planning can achieve, since pressures can be brought by groups of stakeholders, i.e. shareholders, management, workforce, suppliers, etc., who feel threatened by such decisions. A recent example of a large company having to bow to such pressure is provided by Marks and Spencer. A decision to close its European stores, in an attempt to reduce company losses, met with great opposition from employees likely to be affected by such a decision.

Those employed in Paris were especially vocal in their opposition, together with the unions representing Marks and Spencer's employees, and the management has been forced to back down and to review its position. Many of the models of how strategies are developed in organisations are based on the notion that strategies can and should be systematically and formally planned following a set of relatively rigid steps and procedures. Johnson and Scholes refer to this notion of strategy development as a "design" view of strategy. Conventionally most textbooks and courses on strategic management and planning have promoted and adopted this design view of strategy and, as a result, many companies have formalised strategic planning systems often carried out by a formal corporate planning department. 

There are a number of suggested advantages of having formalised strategic planning systems, some of the main ones being as follows:

Advantages of Formalised Planning Systems

(a) Formalised strategic planning provides what many would term a logical but certainly a    structured means of analysis and thinking about complex issues and problems. There   is no doubt that strategy development is complex, and formal planning systems attempt  to help resolve and deal with this complexity by suggesting a series of distinct steps and stages which the manager can follow in the development of strategic plans.
(b) It is argued that formal and structured planning systems force managers to take a    longer-term view of strategic options and directions than they would otherwise. So, for   example, the stages of environmental and competitor analysis which form a key part of  most formalised corporate planning systems encompass planning horizons of three years at the minimum, and in some cases up to 20 years.
(c) Formalised and structured planning systems, it is suggested, enable effective control    and evaluation. So, for example, because objectives in formal planning systems are   usually precisely specified, and because strategic direction is determined in advance,  the measurement of strategic performance is facilitated.
d) Co-ordination between different functions and managers throughout the organisation   can be increased with highly formalised and structured planning systems. This is  because very often a formal planning system will require the different functions/managers to work together towards the achievement of corporate objectives in a manner specified in the corporate plan. Furthermore, formalised strategic plans will normally specify and communicate to managers what they are required to do in the context of the strategic plan.
(e) Related to co-ordination, formalised strategic planning also helps ensure that the required resources to implement strategic plans are understood and made available.
(f) Finally, formalised planning systems can sometimes help to motivate individuals    towards the achievement of strategic objectives, particularly where they are involved in   the planning process and feel, therefore, that they have some degree of ownership of  and commitment to the process.

Disadvantages of Formal Planning Systems

(a) Highly formalised strategic planning systems may not always adequately reflect the    people and cultural elements of the organisation.
(b) Individual managers may feel absolved from any strategic planning responsibilities,    these being left to the specialist strategic planners. As a result, line managers may not   feel they own strategic plans.
(c) Highly formalised strategic plans can be restrictive, particularly where the environment    is changing rapidly. This may result in lost opportunities and a gradual loss of strategic   fit.
(d) Highly formalised strategic planning can become very cumbersome and over-detailed    requiring large amounts of analysis and information, often resulting in information   overload.
(e) Strategic planning can become a substitute for action, i.e. it can become an activity in    its own right divorced from the actual activities and plans of the organisation.