STRATEGIC PLANNING AS A TOOL FOR CORPORATE SURVIVAL

CHAPTER TWO

LITERATURE REVIEW

1. NATURE OF STRATEGIC PLANNING

Strategic Planning is the process of selecting an organization’s long-term goals, determining the policies and programs necessary to achieve specific objective on route to the goals, and establishing the methods necessary to ensure that the policies and strategic programs are implemented (Thompson and Strickland) (1987)

Drucker (1974) defined strategic planning as “the continuous process of making present entrepreneurial (risk taking) decisions systematically and with the greatest knowledge of their futurity, organizing systematically the efforts needed to carryout these decisions and measuring the results of these decisions against expectation through organized systematic feedback”.

Ansoff (1984) added that in the process of effective strategic planning an organization should be able to provide answers to the following questions:

1. What is our business?
2. What should our business be?
3. What kinds of business should we seek to enter?
4. What will our business have to be in future?
5. How should we go about achieving them?
6. Should we seek diversification? If so in what areas? How vigorously?
7. Should we develop and exploit our present product-market position?
8. What feed back mechanism should be developed for ascertaining how well we are performing?
9. What corrective actions/adjustments, if any, should be taken?

The task of charting on overall strategy for the organization rests mainly with top management.

1. CORPORATE PLANNING APPROACHES

When corporate planning is being carried out, different approaches can be used namely:

1. Intuitive Anticipatory Planning: This is based on the intuition of the decision maker. If the decision maker has a strong feeling that a particular alternative strategy is the right one in a particular circumstance, he will use it. This approach is not good for long range planning because it is highly subjective.
2. Opportunistic Planning: this relies on the opportunity that presents itself. Entrepreneurs use it. The decision maker that adopts it will be constantly searching for new business ventures, new markets and new products to exploit. It is disadvantageous in that there is the tendency to turn the organization into passive water for opportunities rather than active searcher.
3. Formal-Structured Planning: This is a bureaucratic approach. The decision maker follows a system and laid down procedures. It is disadvantageous in that it is time wasting in dynamic business environment because it depends on set pattern of decision making from bottom to top where decisions and suggestions have to be refined at each level before final decision is taken.
4. Incrementing Planning: This is based on negotiation i.e. the decision maker negotiates (obtains some agreement) among all the parties concerned with the decision to be taken. It is compromise or satisfying approach, because it assumes that there is no right decision.
5. Adaptive Planning: This approach involves changing and adapting strategies and tactics according to the decision maker’s perception of existing socio-economic circumstances. It is advantageous because it fully utilizes the principle of environmental scanning to make sure that the decision-making is taken under the right circumstance. (Steiner and Miner (1977)).

Irrespective of the planning approach by an organization effective corporate planning according to Onuoha (1979) depends on the total commitment by management at all levels; the depth of knowledge of the planner himself/herself; the analytical ability of the planning staff to manipulate human variables and get people to think planning and act on plans.

Mace (1977) “effective corporate planning is not possible without the personal involvement and leadership of the Chief Executive”.

1. HOW TO DEVELOP STRATEGIC PLAN

A strategic plan should consist of the followings:

a. A definition of the monopolistic or competitive advantage of the company

b. A statement of purpose, goals and objectives of the company and the measures or methods used to evaluate the performance.

c. A definition of desired future scope of the company

d. A statement of how resources that are needed to implement or execute the strategies will be located.

2.4 STRATEGIC PLANNING PROCESS

Osaze (1991) identified the following strategic process:

1. Establishing goals and objectives: Planning involves establishing corporate objectives and using strengths, weaknesses, opportunities and threats (SWOT)to pursue those objectives. To establish goals/objectives effectively, management should have a clear idea of what it expects in its operations, how it can achieve them, whether it has the will and tenacity of purpose to keep at it until the purpose is attained. Also, when establishing objective and organization must ensure that the statement of objective is clear and understandable.
2. Appraising Resources Capabilities: This involves evaluating the resources at the disposal of the organization for capitalizing on the opportunities and avoiding threats. An organization must see what they are capable of doing before making their policy.
3. Environmental Scanning: This is another step in planning, before an organization can establish feasible goals and objectives, it must first of all search its environment for opportunities available for exploitation and the resources it will need to tap to exploit the opportunities and the threats it has to avoid.
4. Setting Strategies:Chandler (1962) stated “strategy is the determination of the basic long term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carry out those goals”. Here, the manager has to develop strategies and tactics that are cost and objective effective. Strategy should be flexible, clearly defined, in terms of their costs-benefits implications.
5. Establish Performance Evaluation: An organization must measure their performance periodically to see how well they have performed.

Periodic review of results against objectives, policies and strategies allows managers to detect deviations from plans and directs. If need be, any corrective action that have to be taken to put the organization back on course.

2.5 CHARACTERISTICS OF STRATEGY

1. Strategies is the means used to achieve the ends (objective)

2. Strategies are means of operationalizing a policy

3. Strategies are causes of streams of decision

4. It determines the direction and action focus of an organization.

5. Strategies are plans ahead of time

6. A strategy is a unifying plan that ties all the parts of the enterprises together.

2.6 CRITERIA FOR EFFECTIVE STRATEGY

Mintzberg and Quinn (1991) stated that for a strategy to be effective, it has to contain three essential elements, namely:

1. the goals to be achieved
2. the policies guiding or limiting action
3. the action sequences.

Aluko et al (1998) added that some initial criteria for evaluating strategies include its clarity, internal consistency, compatibility with the environment degree of risk and workability.

It was also stated that effective strategy should at a minimum encompass other critical factors and structural elements, which include:

1. Concentration: The strategy should be in such a way the organization resources are maximally initialized.
2. Flexibility: The strategy should be flexible so as to give room for maneuverability.
3. Surprise: The strategy should be combined with correct timing to contribute to the success of the strategy.
4. Clear, decisive objectives: All the strategic goals to be attained by organization must be clear and understood by the people in the organization.

1. TYPES OF STRATEGIES

According to David (1991) strategies can be grouped into four (4) categories namely:

1. Integration strategies
2. Diversification strategies
3. Intensive strategies
4. Other strategies

1. Integration strategies: This enables organization to gain control over competitions, suppliers and distributors. It is made up of:

a. Forward integration: this is gaining ownership or increased control over distributors or retailers. This is used by organization that has both the capital and human resources needed to manage the new business of distributing its own products.

b. Backward integration: This is used when a firm current supplier are unreliable, too costly or cannot meet its needs.

c. Horizontal integration: This includes mergers, acquisitions and takes over.

2. Intensive Strategies: This is made up of market penetration market development and product development strategies:

a. Market penetration: This strategy is used at the maturity stage of a product or services or when the market shares of major competitors are declining.

b. Marketing development: This is used when the channels of distribution available are reliable, inexpensive and of good quality.

c. Product development: Organization uses this strategy to increase sales by improving or modifying present products or services.

3. Diversification Strategies: These strategies aim at diversifying so as not to depend on any single industry.

a. Concentric diversification: This deals with adding new, but related products or services. This is used when an organization competes in a no-growth or a slow-growth industry.

b. Horizontal diversification: Adding new unrelated products or services for present customers.

c. Conglomerate diversification: Adding new unrelated products or services. This is used in industry that is experiencing declining annual sales and profits.

4. Other Strategies: These are:

a. Joint Ventures: This is used when distinctive competencies of two or more firms complement each other. It arises when two or more company forms a temporary partnership.

b. Retrenchment: it is also referring to as re-organization strategy. Theorganizations use this strategy by regrouping through cost and asset reduction to reverse declining sales and profits.

c. Divestiture: This involves selling business that are unprofitable or dot fit well with the firm’s other activities so as to raise capital for further strategic actions

d. Liquidation: It involves selling all of a company’s asset, in parts for their tangible worth.

e. Combination: Combining two or more strategies simultaneously.

1. STRATEGIC MANAGEMENT

This is the term currently used to describe the decision process. It can also be called strategic planning. Strategic management is that set of direction and actions which leads to the development of an effective strategy to help achieve corporate objectives.

Strategic management is undertaken by:

1. Top Managers who are the main strategists. They are responsible for the survival of the organization.
2. Board of Directors: they review the results of the strategists.
3. Corporate planning staff who assist top managers in helping to plan and implement the strategies.
4. Consultants who may be hired to supplement corporate planners or do the corporate planning work if there is no corporate planning staff.

Strategic management is based on the belief that an organization should monitor internal and external events and trends so that timely changes can be made as needed.

Strategic management can e dysfunctional if conducted haphazardly, but if it is properly carried out, it will allow a business to be more proactive than reactive in shaping its own future.

Strategic management is advantageous to organization because it helps them to make better strategies through the use of a more systematic, logical and rational approach to business decision. (Aluko et al, 1998).

1. FORMULATION OF STRATEGY

Strategy formulation cab bee defined as the process of establishing a company’s mission, conducting research to determine the internal strength and weaknesses and external opportunities and threats.

Drucker (1979) further added that when an organization is developing its corporate strategies four major issues must guide it, namely:

1. Determination of Scope and Structure: The organization has to determine the extent of its scope and structures before it can develop effective action strategies.

b. Decide on Time and Money issues: The organization has to makes the make-buy decisions. It has to decide on whether to buy its own inputs or make them.

c. Identification of Opportunities and Risks:Before an organization formulates its strategies, it has to identify the opportunities it is willing and able to take.

Drucker (1979) there are four different types of opportunities namely:

1. Additive opportunities: it involves little risks and is safe for exploit, and it has small returns.
2. Break through opportunities: this is the most difficult type of opportunity to exploit because it involves a change in the basic characteristics and economic capability of the organization.
3. Complementary opportunities: this type of opportunity carried appreciates level of risk. It involves changes in the basic characteristics of the business and its redefinition.

Drucker (1979) stated the risks associated with the opportunities that could be exploited.

1. Acceptable risk: Take the risk that you can accept and for which there is no elimination options.
2. Affordable risk: This is the risk an organization can afford to bear.
3. Must take risk:This is a risk an organization cannot afford not to take because if they do not take it, it will be missing out on a potentially highly rewarding opportunity.
4. Avoidable risk: This is a risk an organization must not take no matter how high/much the reward is because it might endanger its basic existence.

1. OBJECTIVES AND GOALS

Kazim (1999) defined Objectives as open-ended attributes that denote the future states or outcome. While he defined goals as close-ended attributes, which are precise and expressed in specific terms.

Role of objective/goals in Strategic Management

1. Definition of the organization’s relationship with its environment: Objective enables an organization to commit itself to what it has to achieve for its employees, customers and the society at large.
2. Provision of the standards for performance appraisal: Objective gives an organization clear and definite basis for evaluating its performance.
3. Facilities in the pursuance of organization mission and purpose: Objective assist an organization in the pursuance of its mission and purpose by defining the long-term position that an organization wishes to attain and the short-term targets its wants to realize.
4. Provision of the basis for strategic decision-making: Objective achieves this by directing the attention of strategists to those areas where strategies decision needs to be taken.

Characteristics of Objective/Goals

1. Understandability: Objectives have to be understandable to those who have to achieve them.
2. Connected to a time frame: Objectives have to be related to time frame, this is to enhance the specificity of the objective and to enable managers to know the direction within which the objectives have to be achieved.
3. Challenging: Objectives have to be challenging.
4. Concrete and specific: It has to be concrete and specific i.e. unambiguous.
5. Correlation between objectives: To avoid inter-departmental conflict the different objective set in the various areas in the organization should correlate with each other.

REFERENCES

Aluko M. O. Odugesan, G Gbadamosi, L. Osuagwu (1998), Business Policy and strategy, Lagos IkejaPuncmark Nigeria Ltd, pp. 1-5

Ansoff, 1. (1984) Corporate Strategy, New York: McGraw- Hill Book company.

Chadler, A.D (1962), Jr, Strategy and Structure, Cambridge, MA: MIT Press.

David, F. R. (1991); Strategic Management, New York Macmillan Publishing Co.

Drucker, P (1974), Managing For Results, London: Heinemann.

Kazim A (1999), Business Policy, New Delhi: Tata Mccraw-Hill Publishing Co. Ltd., 80-89

Mintzberg. H and Quinn J. B (1991), The strategy Process: Concepts Contexts and Cases, 2nd ed. New jersey Prentice-Hall Inc.

Onuoha, IC (1979) “Constraint and Problems of introducing Corporate Strategic Planning in Nigeria” Management in Nigeria, May. p 31

Osaze, E. B (1991), Nigerian Corporate Policy and Strategic Management text and cases, Ikeja, Lagos. Center For Management Dev.., pp21-23

Steiner, G. A. and J. B Miner (1977), Management Policy and Strategy, Texts, Readings and Cases, New York Macmillan Publishing Co. Inc.

Thompson A. Junior/Strickland A.S 111 Strategic Management (Concept and Cases) Business Publication Inc. (Third ed.) TexasUSA, 1984