University of Chicago
Type of paper: Thesis/Dissertation Chapter
“Strategic Planning is inextricably interwoven into the entire fabric of management; it is not something separate and distinct from the process of management” (Steiner, 1979:7). In simpler terms, Steiner goes on further to explain how Strategic Planning is an organizational management activity. This activity is used in order to set priorities, focus energy, strengthen operations, ensure common goals are met, establish agreement around intended outcomes/results, and assesses/adjust the organization’s direction in response to a changing environment. Mintzberg, (2000) denotes that when strategic planning arrived on the scene, in the mid 1960’s, corporate leaders embraced it as “the one best way” to devise and implement strategies that would enhance the competitiveness of each business unit. Throughout this essay, empirical evidence along with sound academic theories will be used in order to critically analyse the topic of Strategic Planning.
Furthermore, alternative technique’s adopted by other business’ will then also be identified and analysed, before concluding this essay by discussing ‘the best’ technique for Business to apply, and why. According to work by Dettmer, (2003) Mintzberg et al originally identified 10 schools of strategic thought, with each individual school differing in its assumptions, characteristics and areas of emphasis. Dettmer elaborates on Mintzberg’s theory and explains how the first 3 schools are quite different to the remaining 7, these schools are the design, planning and positioning schools of thought. These specific schools are said to be prescriptive, deliberate and largely objective. With this is mind, it is clear to see that Strategic planning falls into mintzberg’s ‘Planning’ school of thought as it is described as a formal process, by which, “A rigorous set of steps are taken, from the analysis situation to the execution of the strategy” (Pettigrew and Thomas et al, 2002:423)
With over 275 companies operating in over 60 countries throughout the world, (Jnj.com, 2014), ‘Johnson & Johnson Family of Companies’ have established themselves as a highly successful Multi National Enterprise that operates using a strategic planning process. According to the financial website affiliated with Johnson & Johnson (investor.jnj, 2014); Executive management alongside the Board of Directors are the people responsible for setting the fundamental strategic direction of the Company to remain a broadly-based human health care company for the consumer. Johnson & Johnson’s Strategic planning is guided by ethical principles tailored towards unifying consumers worldwide whilst maintaining a set of common values and providing a constant reminder of the Company’s responsibilities to all of its constituents. J & J’s strategic planning process sees them hold Board and Committee meetings on an on-going basis throughout the year in order to discuss the strategic direction and major developments of the Company’s various businesses.
J&J shows how strategic planning is still used as a very useful tool for a company to use in order to maintain clear direction and long term focus. In this particular case, strategic planning seems to have been very successful for Johnson and Johnson as their 2013 Full-Year Sales saw them hit “$71.3 Billion” (J&J,2014:12), an increase of 6.1% from the previous year. Yet another multinational enterprise that chooses to maintain its use strategic planning in order to develop its organisational strategy is Shell. Shell opt for the ‘scenario planning’ approach. According to their website; Shell, (2014) this approach entails Shell to continuously develop specific scenarios and they have been doing so, in order to explore the future since the early 1970s. Scenario planning sees scenarios put in place to consider a range of plausible futures and how these could emerge from the realities of today. Shell maintains their strategic planning process aswell as documenting it through their annual release of a document by the name of ‘New Lens Scenarios’. According to the CEO of Shell, Mr Peter Voyer, the New Lens Scenarios are part of an ongoing process used in shell for the last 40 years, they are used in order to challenge executives’ perspectives on the future business environment and are based on plausible assumptions and quantification, designed to stretch management to consider even events that may be only remotely possible, Voyer, (2014).
Voyer goes on to explain how one example of a New Lens scenario currently being discussed at Shell is the demand increase for essentials such as water and energy by the year 2030. By 2030, Shell expects demand for critical resources like water, energy, and food to have risen by 40%-50%. In order to meet these needs without significant environmental detriment, Shell believe that they need to safely and sufficiently put in plan, procedures that will eventually see them totally transform the energy system. This is a further example of how a multinational enterprise uses strategic planning in its day to day development of its overall business strategy. With strategic planning come its strengths.
Armstrong, (2003) denotes that the use of a well-drawn strategic plan does well for at least five to seven years, with continuous monitoring required to see that no deviations creep. Strategic planning is important in many companies for many reasons: First of all it helps organisations to establish goals. Strategic plans let managers know the direction in which they are proceeding; it then helps identify future patters therefore aiding management set goals and targets for the company. Houben, et al (1999) denote that Strategic planning in the form of Environmental Scans (PEST/PESTEL/SWOT analysis) are able to take stock of its internal and external environment. It acquaints itself with its competencies, weaknesses, prospects and perils. It then takes the appropriate steps to leverage on its competencies and prospects and allay its weaknesses and perils. Furthermore strategic planning also aids businesses in sufficient allocation of its resources. It is able to contrast the availability of the resources with the actual requirements for the resources. It then transfers them from places where they are available in abundance to areas where they are needed immediately.
Finally, Houben summarises by explaining how strategic planning helps companies to Budget. Budgeting means that the organization is able to plan and budget for the future. When the organization knows in advance what it aims to achieve in the next two years, is able to take pertinent measures for it.
On the other hand, strategic planning can also been seen as a negative thing for companies to undertake. Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. Camillus, (1986) explains how, in an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. Therefore strategic planning can often become inflexible and focused too mu8ch on the future, as opposed to the company’s current situation. (Grungig and Kuhn et al, 2005) go on to further discuss potential pitfalls, with such as the ideas that, future predictions (no matter how in depth and rational) can still be wrong, therefore costing the company in the long term.
They go on to explain how strategic processes can often become very resource intensive, often requiring large amounts of time, data and money. A final pitfall/weakness of using strategic planning could be that of bounded rationality. (Simon 1997) explains how decision makers (irrespective of their level of intelligence) still only possess limited capacity to evaluate and process the information that is available to them. Also, with only a limited amount of time available to make a decision, individuals who intend to make rational choices are bound to make satisficing choices in complex situations.
As before mentioned, Strategic planning falls into Mintzberg’s ‘Planning’ school of thought, however it is important to note that other theories, in separate schools of thought also exist. For instance we also have Emergent strategy. Emergent strategy is summarised by Hill, C., W., L. and Jones, G., R., (2008) as the unplanned responses to unforeseen circumstances. Emergent strategy is the process of identifying unexpected outcomes from the execution of corporate strategy and then learning to integrate those unexpected outcomes into future corporate plans. An example of a company that uses emergent strategy is IKEA. According to (Hill, C., W., L. and Jones, G., R., (2008), IKEA’S first goal over time was to provide stylish functional designs with minimalist lines that could be cost-efficiently manufactured under contract by suppliers and priced low enough to allow most of people to afford buy their products. However over time, and due to reasons such as product damages (1950’s), and cost customization, IKEA emerged with new strategies such as self-service pick up, change in manufacturers, and most notably, self-assembly flat pack products.
Bremm and Voigt (2008) explain how emergent strategies can be beneficial to a company as it often plays a critical part in the advancement of the technology being offered in the marketplace. When companies refine and develop their products, they look for new features to offer that allow their products to stand out from the competition. Furthermore, in adopting an emergent strategy, it could be result in discovering something before competitors, leading to a competitive advantage. However on the other hand, Gamble and Thompson, (2009) suggest that the disadvantage to emergent strategy is the inability of some companies to plan properly for it and the damage it can do to the organizational structure A further approach adopted by companies is known as the core competency theory. Prahalad, C.K. and Hamel, G. (1990) describe how core competencies are particular strengths relative to other organizations in the industry, which provide the fundamental basis for the provision of added value An example of success by core competency is that of Canon.
Cannon grew very rapidly to beat Xerox with a range of core products including image scanners, laser printers, copiers, and cameras, based on core competencies in precision mechanics, fine optics, and microelectronics. Galon et al., (1999) identifies key strengths of the Core competency theory, said strengths include; Core Competencies being bundles of skills and technologies that are very difficult or impossible to match, therefore they are very organisation specific. Such competencies are very much unique to the particular organization and to the particular industry, in which the organization operates. Therefore, Galon later goes on to explain how, when applied through corporate operational processes to create products and services, core competencies make a critical contribution to corporate competitiveness Collins, J. (2001) on the other hand, discusses possible weaknesses of this theory, such as the fact that Core competency needs intense human effort over the years and significant investment in R&D and infrastructure.
The core competency will simply rot away if it is not constantly maintained. As well as the fact that the core competencies not only have to configure the existing value chains of the company but also to explore new value chains to seek new customers in same business line, this can often mean that organisations lose track of external environment as it is a very inward looking theory. Taking into account all of the above theories that have been discussed, there is also room for a blended approach, and Organisations often pursue what Mintzberg describes as ‘umbrella’ strategies (Mintzberg, 1994, pp. 24-26). This is where the broad outline of the planning phase are deliberate, while the details are allowed to emerge within them. Mintzberg later on in the chapter goes on to explain how, good, effective strategies mix characteristics in ways that reflect the conditions at hand, notably the ability to predict as well as the need to react to certain events. Similarly, contrary to Porter’s view of all companies should adopt a 1 strategy approach and ‘nail’ it (Porter, 1980:220). James Quinn is an advocate of the Dual Approach theory; this theory sees companies adopt more than one theory of planning.
A company that is currently adopting this strategy is Singapore Airlines. According to the Harvard Business review (Heracleous and Witz, 2010) Singapore airlines operate with a dual approach of cost leadership, and high quality. This has seen Singapore airlines excel in areas such as profitability, customer satisfaction, cost per km and so on. This is an example of how sometimes it is not necessary to operate using only one approach. To conclude, throughout this piece of work a range of different theories have been discussed, analysing both their strengths and pitfalls. One thing that has become abundantly clear however is the point that, the strategy used by a company, is largely dependant on which industry they operate within, and what works for one company, may not necessarily work for another. What has become very apparent from the research is that no matter which strategy a company adopts, they must always consciously continue to listen to their target consumers and not lose sight of what they want.
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