Strategic planning is an organisation-wide activity led by management aimed at deciding which general direction a firm should take. The complexity of the process may depend on the size of the firm. Nevertheless, because of its importance to an organisation’s success, it should be handled conscientiously at all times if it is to be effective.
According to Phaal et al. “the essence of business strategy and planning is concerned with aligning the activities and resources of the firm in such a way as to generate a sustainable competitive position in the market place.” In the simplest of terms, we might say that the process is about answering four basic questions:
- Where are we now?
- Where do we want to go?
- How do we get there?
- How do we know we’re getting there?
Through a series of posts, we will elaborate on each of these four questions. For this part we will concern ourselves with question #1.
Disclaimer: There are many ways to conduct a strategic planning process (from the simple to the very complex). What we’re about to encounter here is just one example.
Question #1: Where are we now?
In this step, the firm assesses both the external and internal environment. There are a plethora of tools available for understanding either environment type. In the external environment we look at developments outside the firm that are beyond its direct control. We then try to categorise each development as either a threat or an opportunity. To help us in our assessment of the external environment, we might choose tools such as the PEST model which is an acronym for Political, Economic, Socio-cultural, and Technological. Using the PEST model, we try to identify the threats and opportunities in each of the four areas. Aside from PEST, another tool that we can use for further understanding the external environment is Porter’s 5 Forces Model which helps us gauge the degree of competitiveness within an industry.
When assessing the internal environment, our aim is to understand the firm’s strengths and weaknesses – those things that can be directly controlled by the organisation. In identifying these strengths and weaknesses, we need to use a model of the firm so that our assessment is systematic rather than arbitrary. There are many models available to a strategist and one of them is Porter’s value chain. Using Porter’s model, we go through each activity (both primary and support) and try to identify the firm’s strength and weakness in that area.
Using the above assessments, we then try to measure a firm’s ability to respond to its external environment. There are many ways to go about this. One way is to take our findings on the external threats and opportunities and feed them into a tool called the External Factor Evaluation (EFE) Matrix. Another thing that we will need to determine is the firm’s overall strength. Just as everything else thus far, there are also many ways to go about measuring a firm’s overall strength. One way is to take our findings of the firm’s strengths and weaknesses and plug them into a tool called the Internal Factor Evaluation (IFE) Matrix. We’ll be covering both IFE and EFE in a future post.
In part 2 we will see how to answer the question “where do we want to go?”
- My post titled “I.T. and the Value Chain“
- Additional information on Porter’s Five Forces from quickmba.com
Phaal R., C. J. P. Farruk, and D. R. Robert (year unknown). Fast-Start Technology Roadmapping. Department of Engineering, University of Cambridge.