STRATEGIC PLANNING

CHAPTER 7
A. Nature of Strategic Planning
1. Relation to Strategy Formulation
2. Evaluation of Strategy Planning
3. Benefits and Limitation of Strategic planning
4. Program Structure and Content
5. Organization Relationships

B. Analyzing Proposed New Programs

1. Capital Investment Analysis

2. Organization for Analysis
C. Analyzing Ongoing Programs
1. Value Chain Analysis

D. Strategic Planning Process

1. Reviewing and Updating the Strategic Plan
2. Deciding on Assumptions and Guidelines
3. First Iteration of The Strategic Plan
4. Analysis
5. Second Iteration of The Strategic Plan
5. Final Review and Approval.
 STRATEGIC PLANNING

A. Nature of Strategic Planning

Strategic planning is the process of deciding on the programs
that the organization will undertake and on the approximate
amount of resources that will be allocated to each program
over the next several years .

1.Relation to Strategy Formulation

Strategy formulation is the process of deciding on new
strategies, whereas strategic planning is process of deciding
how to implement the strategies.
2. Evaluation of Strategy Planning
3. Benefits and Limitation of Strategic planning

A formal strategic planning process can give to the

organization :
1. A frame work for developing the annual budget
2. A management development tool
3. A mechanism to force managers to think long term
4. A means of aligning managers with the long term
strategies of the company
3.1. Framework for Developing the Budget
An important benefit of preparing a strategic plan is that it
facilitates the formulation of an effective operation budget. An
important benefit of strategic planning is to facilitate optimal
resource allocation decisions in support of key strategic options
3.2. Management Development Tools

Formal strategic planning is an excellent management

education and training tool that provides managers with a
process for thinking about strategies and their implementation

3.3 Mechanism for Forcing Management to Think Long

Term

Formal strategic planning forces managers to make time for

thinking through important long term issues.
3.4. Means of Aligning Managers with Corporate
Strategies

The debates discussions, and negotiations that take place

during the planning process clarify corporate strategies,
unify and align managers with such strategies, and reveal the
implementation of corporate strategies for individual
managers.

3.5. Limitations

There several potential pitfalls or limitations to formal

strategic planning.
First, there is always danger that planning can end up
becoming a ‘form filling”bureaucratic exercise, devoid of
strategic thinking.
Second danger is that an organization may create a large
strategic planning department and delegate the preparation of
the strategic plan to that staff department.

A formal strategic plan is desirable in organizations that have

the following characteristics :
1. Top management is convinced that strategic
planning is important
2. The organizations is relatively large and complex

3. Considerable uncertainty about the future exists,

but the organization has the flexibility to adjust
to changed circumstances.

4. Program Structure and Content

4.1 Top Management Style

5. Organization Relationships
B. Analyzing Proposed New Programs
1. Capital Investment Analysis
Techniques for analyzing capital investment proposal
attempt to find either:
a. The not present value of the project-the excess of the
present value of the estimated cash inflows over the
amount of investment required
b. The internal rate of return implicit in the relationship
between inflows and outflows.
Four reasons for not using present value techniques in
analyzing all proposals.
1. The proposal may be so obviously attractive that a
calculation of its net present value in necessary.
2. The estimates involved in the proposal are so
uncertain the making present value calculations
3. The rationale for the proposal is something other than
increased profitability
4. There is no feasible alternative to adoption.

1.1 Rules
1.2. Avoiding Manipulation
1.3. Models

2.Organization for Analysis

C. Analyzing Ongoing Programs
1.Value Chain Analysis
The value for any firm is the linked set of value
creating activities of which it is a part, from acquiring
the basic raw materials for component suppliers to
making the ultimate end use product and delivering it
to the final consumers .
Three potentially useful areas :
1. Linkages with suppliers
2. Linkages with customers
3. Process linkages within the value chain of the
firm.
Activity Based costing
In these newer systems, the word activity is often used
instead of cost center, and cost driver used instead of basis
of allocation; and the cost system is called an activity based
cost system (ABC).

Use of ABC Information

D. Strategic Planning Process

The process involves the following steps:
1. Reviewing and updating the strategic plan
from last year
2. Deciding on assumptions and guidelines
2.1 Management Meetings
3. First iteration of the new strategic plan
4. Analysis

Three ways to close a planning gap :

1. Find opportunities for improvement in the
business unit plans
2. Make acquisitions
3. Review the corporate objectives

5. Second iteration of the new strategic plan

6. Review and approval
Profit improvement opportunities through linkages with
customers

Customer’s
Firm Customers
customers
 Profit improvement opportunities through
linkages with suppliers

Supplier’s
Supplier’s Firm
supplier
A Company without a Strategic Planning Process

Strategic option A

Strategic option B
Budgeting
Strategic option C

Strategic option D
 A Company with a strategic planning process

Strategic A Strategic
option A
Strategic B
Strategic
Planning Budgeting
Strategic C Strategic
option C

Strategic D