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StrategicPlanningProcess

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TheStrategicPlanningProcess

Inthe1970's,manylargefirmsadoptedaformalizedtopdownstrategicplanning

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model.Underthismodel,strategicplanningbecameadeliberateprocessinwhich
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topexecutivesperiodicallywouldformulatethefirm'sstrategy,thencommunicateit
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downtheorganizationforimplementation.Thefollowingisaflowchartmodelofthis
process:
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Mission
|
V
Objectives
|
V
SituationAnalysis
|
V
StrategyFormulation
|
V
Implementation
|
V
Control
Thisprocessismostapplicabletostrategicmanagementatthebusinessunitlevel
oftheorganization.Forlargecorporations,strategyatthecorporatelevelismore
concernedwithmanagingaportfolioofbusinesses.Forexample,corporatelevel
strategyinvolvesdecisionsaboutwhichbusinessunitstogrow,resourceallocation
amongthebusinessunits,takingadvantageofsynergiesamongthebusinessunits,
andmergersandacquisitions.Intheprocessoutlinedhere,"company"or"firm"will
beusedtodenoteasinglebusinessfirmorasinglebusinessunitofadiversified
firm.

Mission
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Acompany'smissionisitsreasonforbeing.Themissionoftenisexpressedinthe
formofamissionstatement,whichconveysasenseofpurposetoemployeesand
projectsacompanyimagetocustomers.Inthestrategyformulationprocess,the
missionstatementsetsthemoodofwherethecompanyshouldgo.

Objectives
Objectivesareconcretegoalsthattheorganizationseekstoreach,forexample,an
earningsgrowthtarget.Theobjectivesshouldbechallengingbutachievable.They
alsoshouldbemeasurablesothatthecompanycanmonitoritsprogressandmake
correctionsasneeded.

SituationAnalysis
Oncethefirmhasspecifieditsobjectives,itbeginswithitscurrentsituationto
deviseastrategicplantoreachthoseobjectives.Changesintheexternal
environmentoftenpresentnewopportunitiesandnewwaystoreachtheobjectives.
Anenvironmentalscanisperformedtoidentifytheavailableopportunities.Thefirm
alsomustknowitsowncapabilitiesandlimitationsinordertoselectthe
opportunitiesthatitcanpursuewithahigherprobabilityofsuccess.Thesituation
analysisthereforeinvolvesananalysisofboththeexternalandinternal
environment.
Theexternalenvironmenthastwoaspects:themacroenvironmentthataffectsall
firmsandamicroenvironmentthataffectsonlythefirmsinaparticularindustry.
Themacroenvironmentalanalysisincludespolitical,economic,social,and
technologicalfactorsandsometimesisreferredtoasaPESTanalysis.
Animportantaspectofthemicroenvironmentalanalysisistheindustryinwhichthe
firmoperatesorisconsideringoperating.MichaelPorterdevisedafiveforces
frameworkthatisusefulforindustryanalysis.Porter's5forcesincludebarriersto
entry,customers,suppliers,substituteproducts,andrivalryamongcompeting
firms.
Theinternalanalysisconsidersthesituationwithinthefirmitself,suchas:
Companyculture
Companyimage
Organizationalstructure
Keystaff
Accesstonaturalresources
Positionontheexperiencecurve
Operationalefficiency
Operationalcapacity
Brandawareness
Marketshare
Financialresources
Exclusivecontracts
Patentsandtradesecrets
Asituationanalysiscangeneratealargeamountofinformation,muchofwhichis
notparticularlyrelevanttostrategyformulation.Tomaketheinformationmore
manageable,itsometimesisusefultocategorizetheinternalfactorsofthefirmas
strengthsandweaknesses,andtheexternalenvironmentalfactorsasopportunities
andthreats.SuchananalysisoftenisreferredtoasaSWOTanalysis.

StrategyFormulation
Onceaclearpictureofthefirmanditsenvironmentisinhand,specificstrategic
alternativescanbedeveloped.Whiledifferentfirmshavedifferentalternatives
dependingontheirsituation,therealsoexistgenericstrategiesthatcanbeapplied
acrossawiderangeoffirms.MichaelPorteridentifiedcostleadership,
differentiation,andfocusasthreegenericstrategiesthatmaybeconsideredwhen
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definingstrategicalternatives.Porteradvisedagainstimplementingacombination
ofthesestrategiesforagivenproductrather,hearguedthatonlyoneofthe
genericstrategyalternativesshouldbepursued.

Implementation
Thestrategylikelywillbeexpressedinhighlevelconceptualtermsandpriorities.
Foreffectiveimplementation,itneedstobetranslatedintomoredetailedpolicies
thatcanbeunderstoodatthefunctionalleveloftheorganization.Theexpressionof
thestrategyintermsoffunctionalpoliciesalsoservestohighlightanypractical
issuesthatmightnothavebeenvisibleatahigherlevel.Thestrategyshouldbe
translatedintospecificpoliciesforfunctionalareassuchas:
Marketing
Researchanddevelopment
Procurement
Production
Humanresources
Informationsystems
Inadditiontodevelopingfunctionalpolicies,theimplementationphaseinvolves
identifyingtherequiredresourcesandputtingintoplacethenecessary
organizationalchanges.

Control
Onceimplemented,theresultsofthestrategyneedtobemeasuredandevaluated,
withchangesmadeasrequiredtokeeptheplanontrack.Controlsystemsshould
bedevelopedandimplementedtofacilitatethismonitoring.Standardsof
performanceareset,theactualperformancemeasured,andappropriateaction
takentoensuresuccess.

DynamicandContinuousProcess
Thestrategicmanagementprocessisdynamicandcontinuous.Achangeinone
componentcannecessitateachangeintheentirestrategy.Assuch,theprocess
mustberepeatedfrequentlyinordertoadaptthestrategytoenvironmental
changes.Throughouttheprocessthefirmmayneedtocyclebacktoaprevious
stageandmakeadjustments.

DrawbacksofthisProcess
Thestrategicplanningprocessoutlinedaboveisonlyoneapproachtostrategic
management.Itisbestsuitedforstableenvironments.Adrawbackofthistopdown
approachisthatitmaynotberesponsiveenoughforrapidlychangingcompetitive
environments.Intimesofchange,someofthemoresuccessfulstrategiesemerge
informallyfromlowerlevelsoftheorganization,wheremanagersarecloserto
customersonadaytodaybasis.
Anotherdrawbackisthatthisstrategicplanningmodelassumesfairlyaccurate
forecastinganddoesnottakeintoaccountunexpectedevents.Inanuncertain
world,longtermforecastscannotberelieduponwithahighlevelofconfidence.In
thisrespect,manyfirmshaveturnedtoscenarioplanningasatoolfordealingwith
multiplecontingencies.

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