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Understanding the Value of Strategic Planning

Learn the value of strategic planning and how it can help you succeed.

By Bisk
Understanding the Value of Strategic Planning

The word “strategy” was originally coined as a military term referencing a general’s plan for organizing and maneuvering forces with the objective of defeating an enemy army.

Given the business executive’s general fondness for military analogies, it’s not surprising that the term has been adopted for business and the practice of strategic planning plays a critical role in charting an organization’s path. Understanding its facets is to understand and appreciate its value and necessity to successful businesses.

Strategy revolves around knowing what you do, who you want to become, and most importantly, how you plan to get there. It defines the extent of a company’s reach and the scope of its intentions. A sound strategy, skillfully implemented, identifies the goals and direction that managers and employees at every level need in order to define their responsibilities and make their organization successful.

What Goes Into Strategy Creation

Strategy creation is a process for developing a plan of action that will guide a business’s sustainability, profitability and competitive advantage. Once devised, strategy management takes over, which includes such facets as strategic research, strategic planning, strategic advantage, strategic measurement and strategic execution.

Creating an effective strategy requires the involvement of key stakeholders working from a sound base of careful research into internal capabilities and external factors that could affect the company’s business. Senior management uses this information to zero in on the top priority issues the company must address to be successful. Action plans are then created for each item, along with a process for their implementation.

Effective strategy creation requires time, thought, and two-way communication between senior management and the organization’s functional and/or business unit leaders. Ideally, communication with customers and other key stakeholders should also be considered. This involvement is key for real-world knowledge of the business’ capabilities and its competitive environment. It also creates buy-in and alignment, which is extremely important since the strategy is implemented at the functional or business unit levels. Input from customers and other stakeholders gives management feedback, insights and a more genuine external perspective.

SWOT Analysis Reveals Inward, Outward Views

Gaining internal and external perspectives can be accomplished using a SWOT analysis. SWOT examines strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are generally internal factors, while opportunities and threats are typically external.

Strengths enable the enterprise to perform well, while weaknesses can prohibit performance and should be addressed.  As an example, the growing acceptance of organic produce might provide an opportunity for a grocer to feature organically grown vegetables that its competitor doesn’t offer. An example of a weakness would be a car dealership that is unable to get enough of the best selling or most popular models from the manufacturer.

Threats are external factors outside the organization’s control that may require contingency plans (versus being primary strategy considerations). For a Gulf Coast hotel, for example, the possibility of a major hurricane should be incorporated into the planning process. Remember that a threat to one business can be an opportunity for another. The same hurricane that is a threat to hotels can be an opportunity to home supply stores and roofing companies.

Opportunities and threats are often further examined through a PEST analysis that examines political, environmental, social and technological trends. Analyzing trends is helpful in addressing factors that could impact businesses in the future.

Three Types of Strategies

Implications of the SWOT and PEST analyses for a business will help define the direction for the type of strategy that will work best given curent and future circumstances.  The options are plentiful, but three of the most common are:

  • Low-cost strategy. This approach entails offering the same product or service at a lower price than competitors, or creating that impression in the minds of customers. Huge corporations like Walmart and Target found their path to success paved by following this strategy.
  • Differentiation strategy. The low-cost strategy falls in this category. Differentiation can be achieved in other ways, though. For example, a company could create an offer that’s different or better than what competitors offer. In the auto industry, Volvo differentiates itself based on a reputation for safety; Mercedes, for German engineering and luxury; and Toyota Prius, on fuel-saving hybrid technology.
  • Customer relationship management strategy.  This approach seeks to gain customer loyalty and preference in the minds of customers, sometimes by providing some sort of added value to offset higher prices. The Ritz-Carlton, for example, creates customer preference through the quality of the guest experience, knowing that’s the difference that allows a higher price point and still creates customer preference and loyalty. Value-added factors include exclusive perks that competitors don’t offer, highly personalized or customized service or solutions and frequent, high-quality customer contact.

A sound strategy is the hallmark of a successful company. An organization without a strategy is like a ship without sails or a rudder, never really heading in a clear direction. In a turbulent economy, companies without defined strategies can be more like ships in a storm, unable to reach the desired destination and at the mercy of forces for which they did not plan and which they cannot control.

Category: General