Strategic plans a key to long term direction

Strategic planning focuses on an organisation's transformation and development. It is a tool to take an organisation from its current position to a chosen future position. The process helps managers to establish an organisation's long-term direction, set specific performance objectives, develop strategies to achieve these objectives, and execute a chosen action plan. But it is different from business planning which focuses on a particular activity, opportunity or business division.

Planning can set an organisation in any particular direction. However, successfully reaching a desired future position depends on the quality of the analysis in strategy selection and the quality of personnel, operations and procedures responsible for strategy implementation.

Strategic planning is still one of the most commonly-used management tools in the US. Managers use it to help companies benefit from market opportunities, avert threats posed from the business environment and ensure profitable business activity.

Management behaviour affects profit performance and strategic planning has been demonstrated to have a positive impact on profit patterns. Too many businesses fail to properly assess their position and direction on a regular basis. These companies tend to coast, show declining profitability and reduced cashflow, followed by a significant attempt at remedial action which can prove to be costly, disruptive and not always successful.

Excellent business practice involves regular assessment of the marketplace and analysis of a company's position and, together with considered responses to the issues arising, addresses the structural, operational, human and financial implications. This requires senior management to take time out from their daily operational responsibilities and pro-actively chart a future direction.

Once management is aware of the procedures involved in a formalised planning process, strategic planning is used to implement organisational transformation.

Despite the successes of the Tiger economy, the relevance of and necessity for strategic planning is increasing rather than diminishing. As we enter the 21st century, the general business environment is creating as many generic business hurdles as have been experienced at any time in the past.

Issues currently before management include the introduction of the euro, the development of e-commerce, developments in process technology and labour shortages and wage demands.

These issues demand a strategic response to ensure businesses survive and prosper in a changing environment. Management needs to identify suitable strategic alternatives and to implement a strategy to survive and prosper. Successful strategic planning and effective decision-making should be based on a clear understanding of the type of business carried out by the enterprise. Generally a business is established with an idea or concept that forms the basis of the business philosophy, defining the markets, products and strategy of the company.

This business concept will define the features of an enterprise and will crystallise views in relation to quality, marketing approach, and technological development.

It may seem incomprehensible that management would not know the exact type of business they run, but it is sometimes forgotten when making business decisions, resulting in poor utilisation of resources.

Apparently similar companies, for example motor manufacturers, can have fundamentally different business concepts, which means that particular strategic alternative would not apply equally to all of them. Similarly, a thorough understanding of your business contributes greatly to the assessment of options and decision-making.

Business enterprises do not operate in isolation. Every business is carried out within the context of its own external operating environment. Successful planning is based on understanding the corporate operating environment and appreciating that to succeed a business must be able to change in response to its operating environment.

A company's sales strategy, for example, may be influenced by the number of competitors it has, whilst its human resource policies are influenced by the availability of staff and employment legislation. The key to appropriate growth strategies is to be aware of the factors in the external environment and ensure the business can respond to changes.

While the external market is of critical importance, recognition should be given to an organisation's strengths. These strengths should form the basis of future development. In the pursuance of growth strategies, many executives lose sight of the factors that have been successful and often focus on strategies which may not be consistent with the company's capabilities. The most successful businesses are those whose strengths are consistent with opportunities identified in the marketplace.

The strategic development of any organisation may have implications for the manner in which the existing business is structured, managed and financed - together with any number of possible effects on the personnel engaged in the present business. Effective planning processes should take recognition of these factors.

Planning processes are generally carried out by planning teams. Planners should continually be aware of issues likely to arise while implementing their plans. Effective planning requires implementation, which in turn necessitates organisational ownership. Without consideration of the implementation aspects of the plan, strategic planning becomes a closed event that is disconnected from the realities.

Strategic planning by its nature deals with uncertainties. A good planning process involves an assessment of various alternatives and the identification of an appropriately-based strategy.

However, the future may not be as envisaged. Therefore, the planning process should allow for this eventuality by identifying contingency plans. The decision to amend the plan can be based on either internal or external vulnerabilities/opportunities.

Rapid change in society has direct implications for all organisations. But the application of systemised approaches to planning provides opportunities to shape the future direction and to realise stated objectives while committing employees or other members to the organisation.

Enda Gunnell is Partner-Elect of the Business Advancement Unit of accountants Chapman Flood Mazars.