Chapter 7

STRATEGIC
PLANNING

Nature of Strategic Planning

Strategic Plan: a formal statement of plans.

Strategic Planning: the process of preparing &
revising the statement.
Strategic Planning is the process of deciding on the
programs that the organization will undertake and on the
approximate amount of resources that will be allocated to
each programs over the next several years.

Relation to Strategy
Formulation

Strategy formulation vs Strategic planning?

Strategy formulation: the process of deciding
new strategies.
Strategic planning: the process of deciding
how to implement the strategies.

Benefits of Strategic Planning

Can give the organization:
1. A framework for developing the annual
budget.
2. A management development tool.
3. A mechanism to force managers to think
long term.
4. A means of aligning managers with the longterm strategies of the company.

Exhibit 8.1 A Company without Strategic Planning Process

Exhibit 8.2 A Company with Strategic Planning Process
Strategic Option A
Strategic Option B
Strategic Option C

Budgeting
Budgeting

Strategic Option D

Strategic
Option A

Strategic Option A
Strategic Option B
Strategic Option C
Strategic Option D

Budgeting
Budgeting

Strategic
Option C

Budgeting
Budgeting

Limitations of Strategic Planning

1.

2.

3.

A danger that planning can end up

becoming a form-filling, bureaucratic
exercise, devoid of strategic thinking.
An organization may create a large
strategic planning department & delegate
the preparation of strategic plan to that
staff department.
Strategic planning is time consuming &
expensive.

Continued
A formal strategic planning process
is not needed in a small, relatively
stable organization.
It is not worthwhile in organization
that can not make reliable
estimation about the future.

Analyzing Proposed New

Programs
Ideas for new programs can originate
anywhere in the organization.
Proposal for programs are essentially either
reactive or proactive.
Capital Investment Analysis

Net present value of the project

Internal Rate of Return

Only if
applicable

Analyzing Ongoing
Programs
Several analytical
techniques can aid in this
process.
Value Chain Analysis

Activity Based Costing (ABC)

Value Chain Analysis

The value chain for any firm is the linked set of

value creating activities of which it is a part, from
acquiring basic raw materials for component
suppliers to making the ultimate end-use
products & delivering it to final consumers.
Three potentially useful areas:
1.
2.
3.

Linkages with suppliers.

Linkages with customers.
Process linkages within the value chain of the firm.

Process Linkages with the Value Chain

of the Firm

Value chain analysis explicitly recognizes the fact

that the individual value activities within the firm
are not independent but rather are
interdependent.
Improving efficiency throughout the process
linkages within the value chain.

Move materials from vendors, through production, & to

the customer at the lowest cost, in the shortest time, &
of acceptable quality.
Reducing the number of separate parts & increasing
their ease of manufacture.

Continue

Improving efficiency of every activity within the

chain.

Efficiency of the inward portion

Ex: reducing the number of vendors, having a computer
system place orders automatically.

Efficiency of the production portion

Ex: increased automation, better production control
system.

Efficiency of the outward portion

Ex: having customer place order electronically, changing
the location of warehouse & channel of distribution

Activity-Based Costing

The cost center is activity.

The basis of allocation is cost driver.
ABC when use as the strategic planning process,
may provide useful insight:
Ex:

It may show that complex products with many separate

parts have higher design & production costs than simpler
products.
Products with low volume have higher unit cost than high
volume products.

Those information may lead changes in strategies.

Strategic Planning Process

1.
2.
3.
4.
5.
6.

Reviewing & updating the strategic plan

from last year.
Deciding on assumptions & guidelines.
First iteration of the new strategic plan.
Analysis
Second iteration of the new strategic
plan.
Review & approval.