STRATEGIC BUSINESS PLANNING

CHAPTER 3: STRATEGIC BUSINESS PLANNING_

Outcome 3 : Identify key elements in business planning and performance

measurement.

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Strategic Business Planning

An approach to decision-making about issues which are fundamental and of crucial importance to its continuing long term effectiveness. According to Scott

Long range strategy is designed to provide information about an organization’s vision, mission, purpose, direction. and objectives

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Strategic Plan_

Strategic plan provides a means to deal explicitly and systematically with matters of fundamental importance.

Strategic plan is, “the process of selecting an organization’s goals, determining the policies and strategic programmes necessary to achieve specific objectives enroute to the goals and establishing the methods necessary to assure that the policies and strategic programmes are achieved.”.

Business planning is derived from strategic planning and strategy.

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Rao, P. Subba. Strategic Management, Global Media, 2009. ProQuest Ebook Central,

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Exhibit 3.1: Differences Between Operational Planning and

Strategic Planning

Operational Planning Strategic Planning
Focus Operational Problems Long term, survival and Developmental
Objectives Present Profit Future profit
Constraints Present Resources, Environment Future Resources, Environment.
Rewards Efficiency, Stability Development of future potential
Information Present Business Future opportunities
Organization Bureaucratic / stable Entrepreneurial/Flexible
Leadership Conservative Inspires Radical changes
Problem-solving Relies on pas experiences Anticipates, finds new approaches
Low Risk High Risk
4

Source: Jeyarathmm, M.. Strategic Management, Global Media, 2007. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/momp/detail.action?docID=3011305.

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Rao, P. Subba. Strategic Management, Global Media, 2009. ProQuest Ebook Central,

http://ebookcentral.proquest.com/lib/momp/detail.action?docID=3011189.

Created from momp on 2018-12-26 23:43:18.

Strategic Planning Process

The Steps Involved in Strategic Planning Process:

1. Establishing verifiable goals or set of goals to be achieved: The business plan is based on the enterprise objectives.

2. Establishing planning premises: Planning premises include certain assumptions about the future on the basis of which the plan will be ultimately formulated. Planning premises include:

Internal and external premises

Tangible and intangible premises

Controllable and non-controllable premises.

Source: Jeyarathmm, M.. Strategic Management, Global Media, 2007. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/momp/detail.action?docID=3011305.

Created from momp on 2019-04-21 03:02:42

Rao, P. Subba. Strategic Management, Global Media, 2009. ProQuest Ebook Central,

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Planning Premises

Internal premises

sales forecasts, policies and programmes of\the organization, capital investment, managerial competency, human resource skills, other organizational resources.

The gap-filling analysis: The firms should achieve high performance in order to fill the gap.

Tangible and Intangible Premises

The premises which can be quantifiable are called tangible premises. The tangible premises include population growth, product demand, past sales, capital invested etc

The intangible premises are those which cannot be measured quantitatively. These premises include political factors, social factors, technological factors, natural factors etc.

Controllable and Uncontrollable Premises

Business plans are to be modified and sometimes reformulated due to the presence of and interaction of uncontrollable premises.

Uncontrollable premises include strikes, lockouts, wars natural calamities, emergency situations etc.

Controllable premises include company’s labour policy, investment policy, advertising policy, level of technology competency of managerial personnel, quality of human resources, availability of financial resources etc.,

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Fig. 3.1 Broader Aspects of Business Planning

3. Deciding the Planning Period: The plan of the period should be based on the nature of the business, the vision and mission of the company.

4. Finding Alternative Courses of Action: After formulating the business plans, the top-level management should find out the alternative courses of actions available in order to accomplish the company’s mission.

5. Evaluating the Alternative Plans and Selecting a Course of Action: The management has to evaluate the available courses of action through SWOT analysis and rank the alternatives.

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6. Developing Derivative Plans: The management after selecting the· best business plan, it should formulate the other policies and plans which are the sub-plans to the main plan.

7. Implementation of the Business Plans: After the development and selection of the plans and derivative plans, management has to take initiative to implement the business plan.

8. Measuring and Controlling: After the business plan is put into action, the management has to measure the progress of the plan and compare it with the standards, observe the deviations, if any and correct the deviations.

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Corporate Level Strategies

After analyzing the environment & assessing the internal environment, the next step in the strategic planning process is to develop strategic alternatives to help the organization in achieving its objectives.

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Kinds of Grand Strategies

Stability Strategies Growth Strategies Retrenchment Strategies Restructuring Strategies
• Maintenance of Status Quo Internal Growth Concentration strategies Turnaround Captive Company Transformation Divestment Liquidation Portfolio Restructuring
• Sustainable Growth Mergers Takeover/ Acquisition Horizontal Integration Conglomerate Diversification Vertical Integration Joint Ventures
Fig.3.2 Different Kinds of Grand Strategy Alternatives

Stability Strategies_

Firms attempt to maintain their size, level of production and sales, serving almost the same customer groups, performing the same customer functions, produces with same technologies and operate the current lines of business.

These firms do not attempt to grow either through increased sales or through the development of new products or markets.

This strategy can be of two types viz., maintenance of status quo and sustainable growth.

Maintenance of Status Quo

Firms adopting this strategy maintain the same level of operations.

Small business firms desire satisfactory level of operations rather than growth.

Sustainable Growth:

Slow growth is more desired rather than maintenance of status quo.

In fact, it is very difficult to maintain status quo.

Therefore, a sustainable growth strategy is more optimistic than the zero growth.

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Reasons for Adopting Stability Strategies:

Satisfactory level of profits rather than increased profits.

Maintenance of status quo involves less risk than a more growth strategy.

Change of any form may disrupt the current working relationships and the consequences may be detrimental to the organization.

Change may upset the smooth operations and result in poor performance especially, for successful firm with the present level of operations.

Changing operations to pursue a more aggressive growth strategy usually requires an increased investment and managerial support.

Some executives maintain with the stability strategy due to inertia for change.

In some cases, firms are forced to adopt stability strategy, if they operate in a low-growth or no-growth industry.

Sometimes, firms may find that the cost of growth is more than the benefits of the same.

Firms that dominate its industry through their superior size and competitive advantage may pursue stability to reduce their chances of being prosecuted for engaging in monopolistic practices, and

Smaller firms that concentrate on specialised products or services may choose stability because of their concern that growth will result in reduced quality and customer service.

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Growth Strategies

Organizations may select a growth strategy:

To increase their profits, sales and/or market share.

To reduce cost of production per unit

Expansion Strategies

Some firms prefer this strategy to the strategy of external growth as internal growth preserves their efficiency, quality and image unlike in external growth.

Merger Strategy

When the firms of similar objectives and similar strategies combine into one firm, such combinations are called mergers.

“A merger is a combination of two or more businesses in which one acquires the assets and liabilities of the other in exchange for stock or cash or both

Horizontal Integration

Many companies expand by creating other firms in their same line of business. Horizontal integration strategy aims at related diversification.

In other words, diversification occurs, when the existing firm creates- another business unit in the same industry.

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The reasons for engaging in this process of horizontal integration are:

To increase the market share

To reduce the cost of operations per unit of business through the large scale economies

To get greater leverage to deal with the customers and suppliers

To’ promote the products and services more efficiently to a larger audience

To have greater access to channels of distribution

To enjoy increased operational flexibility

Finally, to take the advantage of the benefits of synergy.

Conglomerate Diversification

Firms may also expand through unrelated or conglomerate diversification.

In other words, firms create new business units that are unrelated to its original business. For example, ABC Gas Ltd., created another business unit i.e., ABC Finance Company Ltd.

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Vertical Integration

Another growth strategy is vertical integration, in which new products and/ or services, which are complementary to the existing product and/or service lines, are added. Vertical integration is characterised by the extension of the company’s business definition in three possible directions from the existing business:

backward integration

forward integration

both backward and forward integrations

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Backward vertical integration occurs when the firms acquire or create the company that supply the firm the raw materials or components and other inputs.

Forward vertical integration occurs when the firms acquire or create the company that purchases its products and/or services.

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Figure 3.3 Shows Both Backward and Forward Linkages.

Fig. 3.3: Backward and Forward Linkages of Petroleum Refining Company