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Strategic Planning Process & SWOT Analysis Explained.
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  The Strategic Planning Process In the 1970's, many large firms adopted a formalized top-down strategic planning model. Under this model,strategic planning became a deliberate process in which top executives periodically would formulate the firm'sstrategy, then communicate it down the organization for implementation. The following is a flowchart model of this process: The Strategic Planning Process This process is most applicable tostrategic management at the businessunit level of the organization. For largecorporations, strategy at the corporatelevel is more concerned with managing a portfolio of businesses. For example,corporate level strategy involvesdecisions about which business units togrow, resource allocation among the business units, taking advantage of synergies among the business units, andmergers and acquisitions. In the processoutlined here, company or firm will be used to denote a single-business firmor a single business unit of a diversifiedfirm. Mission A company's mission is its reason for  being. The mission often is expressed inthe form of a mission statement, which conveys a sense of purpose to employees and projects a company imageto customers. In the strategy formulation process, the mission statement sets the mood of where the companyshould go. Objectives Objectives are concrete goals that the organization seeks to reach, for example, an earnings growth target. Theobjectives should be challenging but achievable. They also should be measurable so that the company canmonitor its progress and make corrections as needed. Situation Analysis Once the firm has specified its objectives, it begins with its current situation to devise a strategic plan to reachthose objectives. Changes in the external environment often present new opportunities and new ways to reachthe objectives. An environmental scan is performed to identify the available opportunities. The firm also mustknow its own capabilities and limitations in order to select the opportunities that it can pursue with a higher  probability of success. The situation analysis therefore involves an analysis of both the external and internalenvironment. Desh raj bhandariPage   1 Mission |V Objectives |V Situation Analysis |V Strategy Formulation |V Implementation |V Control  The external environment has two aspects: the macro-environment that affects all firms and a micro-environment that affects only the firms in a particular industry. The macro-environmental analysis includes political, economic, social, and technological factors and sometimes is referred to as aPEST analysis.An important aspect of the micro-environmental analysis is the industry in which the firm operates or isconsidering operating. Michael Porter devised a five forces framework that is useful for industry analysis.Porter's 5 forces include barriers to entry, customers, suppliers, substitute products, and rivalry amongcompeting firms.The internal analysis considers the situation within the firm itself, such as: ã Company culture ã Company image ã Organizational structure ã Key staff  ã Access to natural resources ã Position on the experience curve ã Operational efficiency ã Operational capacity ã Brand awareness ã Market share ã Financial resources ã Exclusive contracts ã Patents and trade secretsA situation analysis can generate a large amount of information, much of which is not particularly relevant tostrategy formulation. To make the information more manageable, it sometimes is useful to categorize theinternal factors of the firm as strengths and weaknesses, and the external environmental factors as opportunitiesand threats. Such an analysis often is referred to as a SWOT analysis. Strategy Formulation Once a clear picture of the firm and its environment is in hand, specific strategic alternatives can be developed.While different firms have different alternatives depending on their situation, there also exist generic strategiesthat can be applied across a wide range of firms. Michael Porter identified cost leadership, differentiation, andfocus as three generic strategies that may be considered when defining strategic alternatives. Porter advisedagainst implementing a combination of these strategies for a given product; rather, he argued that only one of the generic strategy alternatives should be pursued. Implementation The strategy likely will be expressed in high-level conceptual terms and priorities. For effectiveimplementation, it needs to be translated into more detailed policies that can be understood at the functionallevel of the organization. The expression of the strategy in terms of functional policies also serves to highlightany practical issues that might not have been visible at a higher level. The strategy should be translated intospecific policies for functional areas such as: ã Marketing ã Research and development ã Procurement ã Production ã Human resources Desh raj bhandariPage   2  ã Information systemsIn addition to developing functional policies, the implementation phase involves identifying the requiredresources and putting into place the necessary organizational changes. Control Once implemented, the results of the strategy need to be measured and evaluated, with changes made asrequired to keep the plan on track. Control systems should be developed and implemented to facilitate thismonitoring. Standards of performance are set, the actual performance measured, and appropriate action taken toensure success. Dynamic and Continuous Process The strategic management process is dynamic and continuous. A change in one component can necessitate achange in the entire strategy. As such, the process must be repeated frequently in order to adapt the strategy toenvironmental changes. Throughout the process the firm may need to cycle back to a previous stage and makeadjustments. Drawbacks of this Process The strategic planning process outlined above is only one approach to strategic management. It is best suited for stable environments. A drawback of this top-down approach is that it may not be responsive enough for rapidlychanging competitive environments. In times of change, some of the more successful strategies emergeinformally from lower levels of the organization, where managers are closer to customers on a day-to-day basis.Another drawback is that this strategic planning model assumes fairly accurate forecasting and does not takeinto account unexpected events. In an uncertain world, long-term forecasts cannot be relied upon with a highlevel of confidence. In this respect, many firms have turned toscenario planningas a tool for dealing withmultiple contingencies. SWOT Analysis SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It isapplicable to either the corporate level or the business unit level and frequently appears in marketing plans.SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. TheSWOT framework was described in the late 1960's by Edmund P. Learned, C. Roland Christiansen, KennethAndrews, and William D. Guth in  Business Policy, Text and Cases (Homewood, IL: Irwin, 1969). The GeneralElectric Growth Council used this form of analysis in the 1980's. Because it concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a very limited amount of time is availableto address a complex strategic situation.The following diagram shows how a SWOT analysis fits into a strategic situation analysis.Situation Analysis/\ Desh raj bhandariPage   3  Internal Analysis External Analysis/ \ / \Strengths Weaknesses Opportunities Threats|SWOT ProfileThe internal and external situation analysis can produce a large amount of information, much of which may not be highly relevant. The SWOT analysis can serve as an interpretative filter to reduce the information to amanageable quantity of key issues. The SWOT analysis classifies the internal aspects of the company asstrengths or weaknesses and the external situational factors as opportunities or threats. Strengths can serve as afoundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on goldenopportunities, and deter potentially devastating threats. Internal Analysis The internal analysis is a comprehensive evaluation of the internal environment's potential strengths andweaknesses. Factors should be evaluated across the organization in areas such as: ã Company culture ã Company image ã Organizational structure ã Key staff  ã Access to natural resources ã Position on the experience curve ã Operational efficiency ã Operational capacity ã Brand awareness ã Market share ã Financial resources ã Exclusive contracts ã Patents and trade secretsThe SWOT analysis summarizes the internal factors of the firm as a list of strengths and weaknesses. External Analysis An opportunity is the chance to introduce a new product or service that can generate superior returns.Opportunities can arise when changes occur in the external environment. Many of these changes can be perceived as threats to the market position of existing products and may necessitate a change in productspecifications or the development of new products in order for the firm to remain competitive. Changes in theexternal environment may be related to: ã Customers ã Competitors ã Market trends ã Suppliers ã Partners ã Social changes ã  New technology Desh raj bhandariPage    4
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