1) It provides the roadmap for the firm; it shows the way for achieving targets
2) It helps the firm utilize its resources in the best possible manner. It allows more effective allocation of time and resources for identifying opportunities.
3) The firm can respond to environmental changes in a better way – by exploiting opportunities to its advantage and avoiding costly mistakes in investment decisions.
4) It minimizes the chances of mistake unpleasant surprises. It seeks to prepare the firm to confront future challenges through certain proactive steps and even shape the future to its advantage. As rightly pointed out by F R David strategic planning allows an organization to initiate and influence (rather than just respond to) activities and thus exert control over its own destiny.
5) It creates a framework for internal communication among personnel. It helps to integrate the behavior of individuals into a total effect. It provides a basis for the clarification of individual responsibilities. It gives encouragement to forward thinking. It encourages a favorable attitude towards change. It provides a cooperative integrated and enthusiastic approach for tackling problems and realizing opportunities.
What strategic planning is not?
Peter F Drucker has provided an interesting account of what strategic planning is not:
1) It is a box of tricks, a bundle of techniques. It is analytical thinking commitment of resources to action.
2) Strategic planning is not forecasting. Forecasting merely points to a range of probabilities whereas strategic planning helps in tracking down fruitful opportunities and developing appropriate strategies to achieve them.
3) Strategic planning does not deal with future decision. The question as to what the organization should do tomorrow is not as important as to what it has to do toady to be ready for an uncertain tomorrow.
4) Strategic planning is not an attempt to minimize risk; it only helps in choosing rationally among risk taking courses of action rather than plunging into uncertainty on the basis of hunch or experience no matter how meticulously quantified.
Levels of strategic planning
Many organizations develop strategies at three different levels: corporate business and functional.
Corporate level Strategies planning: It is the process of defining the overall character and purpose of the organization, the business it will enter and leave and how resources will be distributed among those businesses. Strategy at this level is typically developed by top management (The Board of directors, CEI etc) .The decisions at broad based carry greater risk and affect most parts of the organization (e.g. The type of business that the organization should enter, changes required in growth strategy acquisitions and diversification decisions.
Business level Strategic planning
It is the planning process concerned primarily with how to manage the interests and operations of a particular unit within the organization commonly known as a strategic business unit (SBU). A strategic business unit is a distinct business with its own set of competitors that can be managed reasonably independently of other business within the organization. Generally, the heads of the respective business units develop business strategies with the approval of top management. Strategies at this level are aimed at deciding the competitive advantage to build determining responses to changing market situations, allocating resources within the business unit and coordinating function level strategies developed by functional managers.
Functional level Strategic Planning
It is the process of determining policies and procedures or (relatively narrow levels of activity) different functions of an enterprise like marketing, finance, personnel etc. These are developed by functional managers and are typically reviewed by business unit heads.
Coordinating strategies across the three levels is crucial in maximizing strategic impact. The strength of the business level strategies supports its basic rust. Similarly the corporate level is likely to have greater impact when business level strategies support one another in bolstering the corporate level strategy.