WHY SOME FIRMS NOT DO STRATEGIC PLANNING ?

         In the today’s world of global economy and competitive environment, there are still many firms still not doing strategic planning due to some known and unknown reasons. In some firms where low and middle management has been doing strategic planning but not receive any support from the top level managers. Here are some known reasons for doing poor or no strategic planning.

1. An organization has no prior experience in strategic planning.

2. An organization has poor reward structures due to this reason employees are not motivated to put sincere efforts for the organization long term success.

3. An organization going through bad patch do not get enough time for strategic planning because it has been putting all its efforts for its survival.

4. Some firms believe that planning is not a productive activity and consider it as a waste of time. The same time could be utilized for the production of new products and services.

5. A firm has an understanding that we are successful therefore no planning is required.

6. Experienced Managers belong having self-belief on their intuition will not go for the strategic planning because it may eliminate or challenge their decisions. Being overconfident or overestimating can bring demise.

7. People are not motivated and willing for the strategic planning because of their bad experience in the past. However, the reason of failure could be impractical, cumbersome, lengthy plans.

8. If there are flaws in the existing system then the people getting benefits out of it will never go for strategic planning and always consider the new way of planning as a threat rather than opportunity.

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Benefits of Strategic Management

    There are many benefits of strategic management and they include identification, and exploration of opportunities. For instance, newer products, newer markets, and newer raids into business lines are only possible if firms indulge in strategic planning. Next, strategic management allows firms to take an objective view of the activities being done by it and do a cost benefit analysis as to whether the firm is profitable.

Just to discriminate, by this, we do not mean the financial benefits alone (which would be discussed below) but also the assessment of profitability that has to do with evaluating whether the business is strategically aligned to its goals and  preferences.

The key point to be noted here is that strategic management allows a firm to orient itself to its market and consumers and ensure that it is actualizing the right strategy.

Financial Benefits :

    It has been shown in many studies that firms that engage in strategic management are more profitable and successful than those that do not have the benefit of strategic planning and strategic management.

When firms engage in forward looking planning and careful evaluation of their  preferences, they have control over the future, which is necessary in the fast changing business landscape of the 21st century.

It has been estimated that more than 100,000 businesses fail in the US every year and most of these failures are to do with a lack of strategic focus and strategic direction. Further, high performing firms tend to make more informed decisions because they have considered both the short term and long-term effect and hence, have oriented their strategies accordingly. In contrast, firms that do not engage themselves in meaningful strategic planning are often bogged down by internal problems and lack of focus that leads to failure.

Non-Financial Benefits :

    The section above discussed some of the tangible benefits of strategic management. Apart from these benefits, firms that engage in strategic management are more aware of the external threats, an improved understanding of competitor strengths and weaknesses and increased employee productivity. They also have lesser resistance to change and a clear understanding of the link between performance and rewards.

    The key aspect of strategic management is that the problem solving and problem preventing capabilities of the firms are enhanced through strategic management. Strategic management is essential as it helps firms to rationalize change and actualize change and communicate the need to change better to its employees. Finally, strategic management helps in bringing order and discipline to the activities of the firm in its both internal processes and external activities.

Closing Thoughts :

     In recent years, virtually all firms have realized the importance of strategic management. However, the key difference between those who succeed and those who fail is that the way in which strategic management is done and strategic planning is carried out makes the difference between success and failure. Of course, there are still firms that do not engage in strategic planning or where the planners do not receive the support from management. These firms ought to realize the benefits of strategic management and ensure their longer-term viability and success in the marketplace.

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The 7 Benefits of Strategic Planning

     

     If you don’t know where you are going, then any road will take you there.

For some, “Strategy” and “Strategic Planning” is something that is done once a year which results in a report. Others think it is market position, operational effectiveness or an idea or business model. 

Strategy is choosing to perform different activities that can be preserved and that will provide a sustainable competitive advantage. It is a mental exercise. It is a way of thinking about the world and approaching business. Strategic planning is a process to produce innovative and creative ideas which serve as the core framework for the company and designing its’ future. 

Strategic planning can have an immediate influence on your company and organization.


1. Make your future happen don’t let it happen to you : It is the difference between being proactive or reactive. Be on the defensive or the offensive. Be a victim of circumstances or be victorious in the fight. Not every situation can be foreseen but you can make decisions and react to changing market conditions with the end in mind.

2. Establish direction : Clearly defines the purpose of the organization and establishes realistic goals and objectives consistent with the mission which can be clearly communicated to constituents. Provides a base from which progress can be measured, employees compensated and boundaries established for effective decision making.

3. Make wise business decisions : How do you distinguish between a good idea and a great idea?  Without a clear vision of what you want to achieve, and mission or purpose for doing it, everything seems like a good idea. What project do you invest in? How should you and your staff invest your time? Having clarity about what you want to do, who you need and how to get there will focus limited financial and people resources.

4. Create longevity of the business : The world market and industries are changing faster than ever and those companies who do not have a solid foundation and have relied on luck or opportunity most likely will not be around for the future. Data reflects that one out of every three companies at the top of their industry will not make be there in five years. Focus is powerful. Scientists focus light so intently that it becomes a laser which is used for surgery or able to cut through glass and metal.

5. Increased profitability and market share : Focused planning and strategic thinking will uncover the customer segments, market conditions, and product and service offerings that are in the best interest of your firm. An intentful and targeted approach to markets and opportunities which guide your sales and marketing efforts, distribution and other business decisions which ultimately mean more profit to the bottom line and a stronger market position.

6.Unique differentiation: avoid “competitive convergence” : Companies have gotten so used to looking at their competitors and their best practices and then trying to duplicate them that it becomes harder to tell the companies apart. They all start to look the same with less distinction in unique value. Strategy means having a unique differentiation that sets you apart from your competitors.

7. Increased job satisfaction – meaningful and full of purpose : Consistently one of the top reason for leaving a firm is the lack of job satisfaction. People need to have a motivation to come to work and feel like part of the team. It has been proven that employees are the greatest source for innovative ideas. If your employees were in essence bricklayers, would they say that they are building a wall with each brick they lay each day or building a cathedral? The purpose and meaning of work gives a new focus and reason to show up each day.    

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Adapting To Change

Organizational survival depends on:

– Continuous monitoring of internal and external factors

– Well-timed changes

– Effective adaptation calls for a long-run focus

– Incremental rise in degree of change

   1. Technology          3.  Merger-mania

   2.  E-commerce       4.  Demographics

          The strategic management process is based on the belief that organization should continuously monitor internal and external events and trends so that timely change can be made as needed. The rate and magnitude of changes that affect the organization are increasing dramatically. Consider for example, E-commerce, laser surgery, the war on terrorism, economic recession and the aging population etc. To survive all organizations must be capable of astutely identifying and adapting to change. The need to adapt to change leads organizations to key strategic management questions, such as "What kind of business should we become?", "Are we in right field?", "Should we reshape our business?", "Are new technologies being developed that could put us out of business?".

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JACK WELCH AND SIX SIGMA

       Most of you probably know Jack Welch. He is one of the successful CEO in business life. This article is about Jack Welch and his famous strategy ‘six sigma’.
        First of all we define who is Jack Welch and how did start his successful business life.
      Welch, a native of Salem, Massachusetts, served as Chairman and Chief Executive Officer of General Electric (GE) from 1981-2001. During his 20 years of leadership in this position, Welch increased the value of the company from $13 billion to several hundred billion.
       Welch was born in 1935. He received his B.S. degree in chemical engineering from the University of Massachusetts in 1957 and his M.S and Ph.D degrees in chemical engineering from the University of Llinois in 1960. Welch joined GE as a chemical engineer for its Plastics division in Pittsfield, Massachusetts. After lots of success, he became the 8th Chairman and CEO in April 1981. He served in that position until he retired in September 2001.
       As CEO of GE, Welch’s management skills became almost legendary. First, he introduced a strategy that demanded each division should set out to be the number one or two in its market (fix it, sell it or close it). In the 90's six sigma became very popular, after Welch adopted it at GE.
      During his 20 year tenure as CEO of GE, Welch has been credited with changing the corporation around and inflating the company’s market value from 12$ billion in 1981 to approximately 280$ billion in 2001.
       You see how did the six sigma make the company successful. Okay but what is ‘the six sigma’ ?
First we understand what is sigma mean ?. The word is a statistical term that measures how far a given process deviates from perfection. And the central idea behind six sigma is that if you can measure how many ‘defects’ you have in a process, you can systematically figure out how to eliminate them and get as close to ‘zero defects’ as possible. To achieve six sigma quality, a process must produce no more than 3,4 defects per million opportunities. An ‘opportunity’ is defined as a chance for nonconformance, or not meeting the required specifications.This means we need to be nearly flawless in executing our key process. For example, if a company’s sigma level is 1, it means that the company has approximately 700 billion mistakes in a thousand of process. If the company’s sigma level is 2, it means that the company has approximately 300 billion mistakes. If we think that most of companies’ sigma level are between 3 and 4 it means that their mistake number is between 66.800 and 6210.
        If a company works %99 trueness this company’s sigma level is 3.8 but even %1 mistake rate is not acceptable sometimes. For example, think that an airport which has a 200 plane. If this airport has %1 rate of mistake it means that two plane crash in everyday.
       Now, we better understand how Welch increased the success rate of GE.

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Where Does Strategy Management Start?

Where Does Strategy Management Start?

The following represent the 5 most common areas of need in an organization that set it on a course toward improved execution.

1: Strategy Clarification – Many don’t do a good job of simplifying their strategy, leadership teams commonly do not agree on their strategy, and agreed strategies often are deployed with inherent conflicts that are not rationalized.

2: Deployment & Alignment – Often times employees and business units do not understand how they fit into a strategy, internal silos make cross-functional collaboration very difficult, and performance accountability is very weak.

3: Planning – Financial plans frequently do not directly support a strategy, hiring plans seem disconnected from strategic needs, and current planning processes often have a life of their own without adding real value.

4: Execution and Improvement – Organizations rarely understand which processes are most important to their strategy, process improvement efforts seem to be a big hammer chasing every nail, and the list of initiatives seems to be never-ending.

5: Performance Reviews and Decision Making – Leadership teams do not routinely or systematically talk about strategy (always tactics), meetings are exercises in PowerPoint showmanship, and facts and data are not the main drivers of decision making.

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SWOT Analysis of Strategic Management

     What makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well-placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares.

    Swot can be done by one person or a group of members that are directly responsible for the situation assessment in the company.

Basic swot analysis is done fairly easily and comprises of  only few steps: Step1. Listing the firm’s key strengths and weaknesses Step2. Identifying opportunities and threats

          Strengths and weaknesses are the factors of the firm’s internal environment. When looking for strengths, ask what do you do better or have more valuable than your competitors have? In case of the weaknesses, ask what could you improve and at least catch up with your competitors?

        

             Strengths :

           A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:

• patents
• strong brand names
• productive capacity
• technological capabilities
• good reputation among customers
• strong financial structure of the organization
• cost advantages from proprietary know-how
• exclusive access to high grade natural resources
• favorable access to distribution Networks

       Weaknesses :

           The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:

• lack of patent protection
• a weak brand name
• poor reputation among customers
• high cost structure
• untrusting service or product
• lack of access to the best natural resources
• lack of access to key distribution channels

          Opportunities and threats are the external uncontrollable factors that usually appear or arise due to the changes in the macro environment, industry or competitors’ actions. Opportunities represent the external situations that bring a competitive advantage if seized upon. Threats may damage your company so you would better avoid or defend against them.

      

     Opportunities :

           The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:

• an unfulfilled customer need
• arrival of new technologies
• changing consumer tastes
• low taxes
• loosening of regulations
• new chain of distribution
• removal of international trade barriers

        Threats :

           Changes in the external environmental also may present threats to the firm. Some examples of such threats include:

• shifts in consumer tastes away from the firm's products
• emergence of substitute products
• new regulations
• increase of taxation
• changing of goverment policies
• increased trade barriers                                                                                                                                                                                                                                             
  
                                                                                                                                                                                                    

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