Lecture 14: Strategic Planning Systems

LECTURE 14: STRATEGIC PLANNING SYSTEMS

Selecting Strategic Options

Ø  The best strategic decisions are not always arrived at through consensus - when everyone agrees on one alternative.

Ø  Process may involve heated disagreements and even conflict.

Ø  Strategic managers use “programmed conflict” to raise different opinions regardless of the personal feelings of the people involved.

Three techniques are used to avoid the consensus trap:

1. Devil’s Advocate Method: The devil’s advocate, is assigned to identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation.

2. Dialectical Inquiry: This philosophy involves combining two conflicting views – the thesis and the antithesis – into a synthesis.

The dialectical method is discourse between two or more people holding different points of view about a subject, who wish to establish the truth of the matter guided by reasoned arguments.[1]

·  When applied to strategic decision making, it requires that 2 proposals using different assumptions be generated for each alternative strategy under consideration.

·  After advocates of each position present and debate the merits of their arguments before key decision makers, either one of the alternatives or a new compromise alternative is selected as the strategy to be implemented.

·  The debate improves the quality of decisions by allowing for constructive conflict and by encouraging critical thinking / evaluation

3. Strategy Shadow Committee

Ø  Another approach used to generating a series of diverse and creative strategic alternatives.

Ø  Top management sets up committee of employees at least 2 to 3 levels below the executive-level strategy committee.

Ø  Members serve for 2 years during which they see all materials and attend all meetings of the executive strategy committee.

Ø  Then the group is taken off site and asked to evaluate management and propose what the company should be doing differently.

Ø  The group’s report is then given to the Board of Directors.

Evaluation Criteria

Regardless of the process used, each resulting alternative must evaluated against 4 criteria:

1.  Mutual Exclusivity: Doing any one would preclude doing any other.

2.  Success: It must be doable and have a good probability of success.

3.  Completeness: It must take into account all the key strategic issues.

4.  Internal Consistency: It must make sense on its own as a strategic decision for the entire firm and not contradict key goals, policies, and strategies currently being pursued by the firm or its units.

2.0 The Process of Strategic Choice: Selection of the Best Strategy

Ø  Once the available strategic options have been identified and evaluated, it is time to choose one or more of them for implementation.

Determining the best strategy:

Relevance to SWOT analysis factors. It must deal with the specific strategic factors identified earlier in the SWOT analysis.

Ø  If the strategy doesn’t take advantage of environmental opportunities and corporate strengths/competencies, and lead away from environmental threats and corporate weaknesses, it will most probably fail.

Satisfaction of Objectives. It must satisfy agreed-upon objectives with the least resources and the fewest negative side effects.

Ø  It is important to develop a tentative implementation plan so that the difficulties that management is likely to face are addressed.

Ø  This should take into account societal trends, the industry, and the company’s situation based on the construction of scenarios.

Corporate scenarios are pro forma balance sheets and income statements that forecast the effect each alternative strategy and its various programs will likely have on division and corporate return on investment.

2.2 Development of Policies

Once the strategic alternative has been selected, the Organization must now develop policies.

Policies define the broad guidelines for strategic implementation throughout the organization

Ø  They tend to be long lived and can even outlast the particular strategy that created them.

Ø  They can even become, in time, part of the corporation’s culture.

Ø  They can make the implementation of strategies easier.

Ø  They can also restrict management’s future strategic options.

Thus a change in strategy should be followed quickly by a change in policies.

PRESCRIPTIVE STRATEGIC PLANNING

What is prescriptive strategic planning?

Ø  A formal planning system for the development and Implementation of the strategies related to the mission and objectives of the organisation.

Ø  Strategic planning is no substitute for strategic thinking; it merely formalises the strategy process

Ø  The plan will integrate the activities of the organisation and specify the timetable for the completion of each stage – Action Plans

Ø  Strategic planning should be an on-going activity that responds simultaneously to the pressure of events and the dictates of the calendar.

Medium-term plan: - Developed for two or three years, where the environment is sufficiently stable.

Short-term plans: - Annual plans and budgets consistent with the medium term are then developed.

The Basic Strategic Planning Process

LECTURE 15: STRATEGY IMPLEMENTATION

Ø  This is the sum total of the activities and choices required for the execution of a strategic plan.

Ø  It is the process by which strategies and policies are put into action through the development of Programmes, Budgets, and Procedures.

Ø  The main aim is to deliver the mission and objectives of the organization.

Ø  Strategy formulation and strategy implementation should be considered as two sides of the same coin.

Poor implementation has been blamed for a number of strategic failures.

·  Studies show that 50% of all acquisitions fail and 25% of international ventures do not succeed.

Strategy makers must consider these questions:

·  Who are the people who will carry out the strategic plan?

·  What must be done to align the company’s operations in the new intended direction?

·  How is everyone going to work together to do what is needed?

These questions must be addressed again before appropriate implementation plans can be made.

Failure to answer these questions can lead to failure or mediocre results

A survey of 93 Fortune 500 U.S. firms revealed that more than 50% of them experienced the following 10 problems when they attempted to implement a strategic change.

These problems are listed in order of frequency.

1.  Implementation took more time than planned.

2.  Unanticipated major problems arose.

3.  Activities were not effectively coordinated.

4.  Competing activities and crises took attention away from implementation.

5.  The involved employees had insufficient capabilities to perform their jobs.

6.  Lower-level employees were inadequately trained.

7.  Uncontrollable external environmental factors created problems.

8.  Departmental managers provided inadequate leadership and direction.

9.  Key tasks and activities were poorly defined.

10.  There was inadequate monitoring of activities.

BASIC ELEMENTS OF THE STRATEGY IMPLEMENTATION PROCESS

Fig: Main Elements of the Strategy Implementation Process

1.1 Basic Elements of the Implementation Process

Essentially, these implementation issues need to address the following questions:

·  What activities need to be undertaken in order to achieve the agreed objectives?

·  What is the timescale for the implementation of these plans?

·  How will progress be monitored and controlled?

To turn general strategies into specific implementation plans involves four basic elements:

1.  Identification of general strategic objectives - specifying the general results expected from the strategy initiatives.

2.  Formulation of specific plans – taking the general objectives and turning them into specific tasks and deadlines (often cross-functional).

3.  Resource allocation and budgeting – indicating how the plans are to be paid for (this quantifies the plans and permits integration across functions).

4.  Monitoring and control procedures – ensuring that the objectives are being met, that only the agreed resources are spent and that budgets are adhered to.

Monitoring takes place against the projections on which the strategies are based: Economic change and competitive activity.

The relationship between these activities is shown below:

The Basic Strategy Implementation Process

1.2 Types of Basic Implementation Programs

Implementation programs will vary according to the nature of strategic problems facing the organization.

1. Comprehensive Implementation Programme: - Deals with fundamental changes in strategic direction.

Ø  The organization has made a clear-cut, major change in strategic direction.

Ø  Emergence of new competitive or technological opportunities

Ø  Implementation will be done regardless of environmental changes or negative effects on those affected.

Ø  Close coordination is essential for success.

2. Incremental Implementation Programme: Characterized by small changes and short time spans within the general direction implied by the strategy.

Ø  Used where conditions of great uncertainty such as turbulent markets exists

Ø  Timetables, tasks, objectives are all subject to change depending on developments

Ø  Essentially a flexible strategic approach is used to counter the uncertainty.

Both these approaches have their difficulties, so a compromise may be chosen in practice; giving rise to the selective implementation programme.

3. Selective implementation programmes: Used where neither of the above represents the optimal way forward.

Ø  Major programmes developed in selective areas only.

The above two extremes are related to the prescriptive and emergent strategic approaches.

Determining the Type of Implementation Program

Three choice criteria:

1.  Are clear and substantial advantages to be delivered in a specific area??

ü  e.g. investment in a new drug that will provide competitive advantage

2.  Are there large increments that cannot be subdivided??

ü  e.g. a new factory with long lead times for construction?

3.  Is it important to protect some future step that may be required but cannot be fully justified on the basis of current evidence??

ü  e.g. an investment in a new distribution facility that will be needed if development programmes proceed according to plan?

For many organizations, it is useful to draw a basic distinction between:

·  Ongoing, existing activities with higher certainty and more predictable strategic change, barring a major cataclysm;

·  New activities with higher uncertainty and possibly major strategic change.

1.3 Implementation in Small and Medium-sized Businesses

The basic elements of the implementation process are applicable to small businesses viz;

·  The identification of general strategic objectives

·  The formulation of specific plans

·  Resource allocation and budgeting

·  Monitoring and control procedures

Moreover, choosing the correct type of implementation programme is also important to SME’s

·  Comprehensive,

·  Incremental or

·  Selective

Indeed SME’s will be required to submit essential information for any loans from financial markets.

Banks and other lending institutions no longer rely on vague promises and good intentions.

1.0 LIMITATIONS OF IMPLEMENTATION: BOUNDED RATIONALITY AND MINIMUM INTERVENTION

Ø  Hrebiniak and Joyce suggest that the implementation process is not always optimal but is limited by two principles:

ü  Bounded Rationality and;

ü  Minimum intervention.

1.  Bounded Rationality.

·  Managers in practice have difficulty in considering every conceivable option.

·  Logical choices are therefore reduced to a more limited, ‘bounded’ choice – with managers Satisficing rather than optimizing.

·  Managers do the best they can within the limits of their circumstances, knowledge and experience.

·  Implementation is also likely to be limited with managers acting in a rational way and reducing the overall task to a series of small steps in order to make it more manageable.

·  Thus strategic goals and implementation are split into a series of smaller tasks that can be more easily handled - But may not be optimal.

·  In addition, individuals may make rational decisions and but will infuse their personal goals which are not necessarily the same as those of the organization itself. Implementation needs to ensure that there is consistency between personal and organizational goals.

2.  Minimum intervention.

·  In implementing strategy, managers should change only what is necessary and sufficient to produce an enduring solution to the strategic problem being addressed.

·  If it ain’t broke, don’t fix it’.

Ø  Implementation may be constrained by the need to consider the impact on the strategy itself.

2.0 RESOURCE ALLOCATION

Most strategies need resources to be allocated to them if they are to be implemented successfully.

This section explores the basic processes and examines some special circumstances that may affect the allocations of resources.

The Resource Allocation Process

There are three criteria which can be used when allocating resources.

1.  The contribution towards the fulfilment of the organization’s mission and objectives.

·  At the centre of the organization, the resource allocation task is to steer resources away from areas that are poor at delivering the organization’s objectives and towards those that are good.

2.  Its support of key strategies.

·  Requests for funds usually exceed the funds that are normally available.

·  Further selection mechanism is required beyond the delivery of the organisation’s mission and objectives.

This criteria relates to two aspects of resource analysis:

i.  Support of core competencies, where possible, in order to develop and enhance CA;

ii.  Enhancement of the value chain, where possible, in order to assist activities that also support competitive advantage.

Both of the above can be usefully be treated as additional criteria when resources are allocated.

3.  The level of risk associated with a specific proposal.

·  The higher the risk, the lower the likelihood that the strategy will succeed .

·  The criterion needs to be considered in relation to the risk acceptance level of the organization.

Special Circumstances Surrounding the Allocation of Resources

Special circumstances may cause an organization to amend the criteria for the allocation of resources.

Still on the basis of the common principle of bargaining for the centre’s funds some organizations will consider the following:

·  When major strategic changes are unlikely.

In this situation, resources may be allocated on the basis of a formula, for example, marketing funds might be allocated as a percentage of sales based on past history and experience.

The major difficulty with such an approach is its arbitrary nature but it may, however, be a useful shortcut.

·  When major strategic changes are predicted.

In this situation, additional resources may be required either to drive the strategic process or to respond to an expected competitive initiative.