Strategic Planning and The Strategic Planning Process

Strategic planning, conversion of strategies into performance areas and conversion of performance areas into action plans are the success steps to become a magic manager. Do not be fooled by these simple concepts. You will have to understand and implement these concepts as management tactics in an integrated way.

1. Strategic Planning (The abbreviation is SWOT): Discover how to imprint strategies into the management system of your organisation. The strategic planning process, is an ongoing, never stopping process and must consciously be pursued as a compulsory leg for success. It is a problem-solving technique and must be performed by a group of people as a regular brainstorming session. One person at top management level must be delegated the responsibility to write up the “The Organisation Strategic Planning Process and Outcomes” and update it on a regular basis to be ready for the next three monthly brainstorming session. The same technique can be applied throughout the organisation at all levels, once they know how to do it. Brainstorming is where every group member gives input of his or her knowledge base and the interaction between group members stimulate each other towards creative thinking and solutions. The Chief Executive Officer merely performs the role of chairman and guide for orderly conduct. It is evident that the element of involvement is an important part of this process. During this process members must analyse the organisation and its environment and arrive at solutions in the form of best strategies, which must be pursued for the near future. The planning horizon is three to five years. This document then becomes the medication game plan throughout the organisation. It is not a confidential or secret report. It is a pre-requisite for the next step.

2. Conversion of strategies into performance areas: Discover the shortcut route to go directly from strategies to performance areas and performance indicators. Do not allow your vision, strategies and planning to disappear into the mist. This is where the strategies are converted into objectives and targets for every job position, starting at the top level. They in turn, also delegate downwards. The secret of success lies in the method that this is done in. We call this method “Identification of Performance Areas” and later extend it with “Identification of Performance Indicators”, where indicators have the same meaning as standards. The organisation members must now start to work together so that the strategies can be achieved. The prescribed medicine from the “Strategic Plan” must now be administered to make and keep the organisation healthy. The employees now become the soldiers who must make it happen. It must already become evident that this document will later on become the basis for job descriptions, performance measurement and the annual budgeting process. How many persons do you know who may be knowledgeable about performance areas and indicators? Make yourself the expert!

3. Conversion of performance areas into action plans: Discover the shortcut route to go directly from objectives to action plans. Cultivate a culture of action planning to guarantee achievement of objectives. This is where most organisations and individuals fail. We as human beings do not feel comfortable to control or be controlled. The reason being that we associate it with personal critique. Attacking the person is taboo. So, this general lack of control in organisations the world over, is due to a misconception that it is a personal thing.

You do not control the person but the work or tasks that were rolled down. It is not critique aimed at the person, it is work critique, if you will. It is not even critique, but work evaluation, in the same league as organisation analysis. It is where you analyse the actual output of work or how well the employees are administering their individual small parts of the medicine, measured against the previously defined performance indicators. The reason why controlling as a management function is a necessity, is because it gives you the chance to adapt plans to narrow down deviations from targets and catch up on backlogs, before it is too late. If you allow unchecked deviations to stretch out over a too long period, it may become impossible to rectify later on. If you control in a consultative way with your subordinates, using two-way communication, they stay involved in the organisation planning process and at the same time keep everybody up to date on how well they are performing. Keep in mind that the improved performance of your subordinates will have a bearing on your own performance with this system. So, now it also becomes evident why performance measurement will be easier and more acceptable. In fact, conflict handling will become a comfortable and natural trait throughout the organisation. Many managers make the mistake to think that control is in contrast to the concept of loose supervision versus tight supervision. With this system in place the employee becomes his or her own manager, performing self-control, to put your control over them, on autopilot. You must just give them the tools to self-control their own work.

The distinctive links and integration between the three steps and the impact, to almost automate all other important functions, now become clearer. All the elements are working together to give meaning and synergy. The embedded psychological processes within this system put goal achievement on autopilot.

1. The Strategic Planning Process:

1.1 Guidelines for the strategic planning process:

Ø Strategic planning is a management decision-making tool or problem-solving technique.
Ø Best results are obtained if a whole group takes part in the process.
Ø An facilitative approach by the Chairman will encourage individual contributions and creativity. Think of your team as members of a symphony orchestra or a jazz band. All the instruments must play together in a cohesive way, each one in support of all the others. You can only get musical magic if all instruments interact harmoniously together. The same goes for team or organisation success. The same sense of direction, co-
operation, support, tolerance and encouragement must be present, if you want to turn out some magic results.
Ø This process is not only relevant for organisations, but can also be just as helpful for departments, sections and personal development, to solve problems.
Ø Practise makes perfect.
Ø The rest of this chapter is just a framework to get you started. You can make changes to get a better fit for your particular organisation.

1.2 Present Situation:

The evaluation of a business can be compared to a relationship between a doctor and patient. Firstly, the present condition of the patient must be established by analysing the situation. Secondly, establish what the condition should be like. Thirdly administer proper medicine to get the patient to the required condition.

The purpose of this module is to supply you with knowledge so that you can:
Ø do an internal analysis;
Ø do an external analysis;
Ø summarise the strengths, weaknesses, opportunities and threats;
Ø develop broad strategies;
Ø select the best alternatives to follow; and
Ø carry out the chosen strategies.

You have to establish the following with the group to enable all to get a snapshot picture of the present situation, for further analysis later on:
Type of business, geographic location, period in business, strengths and weaknesses of products or services in the past, past competitive advantage, traditional products or services and target markets or clients, growth history, a few financial figures.
This must be written up on a blackboard and notes thereof recorded by the responsible person for later inclusion in the “Strategic Planning Process and Outcomes Report”.

1.3 Internal Analysis:

The factors we provide for consideration can be added on. It is just to stimulate you and your group. For instance, if Research and Development is important for the type of business you are in, you must include it for consideration. The circumstances and needs will vary from business to business.

Analyse the income statements of the past three to five years to establish the following trends in terms of monetary value and proportion of sales:
Turnover, cost of sales, fixed cost, variable cost, cost elements, gross profit margin, nett profit margin before tax and interest and total cost.

Turnover is the product of the mix between pricing and sales increase or decrease.

Grouping cost elements into fixed and variable costs allows you to calculate lowest market penetration pricing and break even turnover. Variable costs are those that vary with variation in volume of production or sales.

Market penetration pricing assumes that spare capacity is available and that fixed costs have been recovered by previous sales volume. Minimum price can be somewhere between present price and present price less variable cost per unit to still allow you to recover profit.

Break even volume of sales is the level of operation where all fixed costs are recovered without any profit. It can be calculated in units or total sales value.

Calculate marginal contribution rate as follows: Marginal contribution divide by sales.

Break even turnover value then becomes: Fixed cost divide by marginal contribution rate.

Break even volume in units equals fixed costs divide by marginal contribution per unit.

More sophistication can be built into the break even formula to calculate the preferred turnover volume for a preferred profit value after provision for tax :

Sales value equals [Fixed costs plus (target profit value after tax divide by one minus tax rate)] divide by (marginal contribution rate).

For calculation of sales volume the contribution per unit must be substituted for contribution rate. It is important to remember that sales value can be increased by pricing, volume or both.

Remember ratio's must be used to establish tendencies and be compared to industry norms.

Marketing has elements of an internal nature as well as elements of an external nature. Marketing can also fit in under external analysis. It does not matter where you handle it, as long as you do handle it.

What is the total market in the focus area for the products and the relative market share?

What is the total market potential in all the areas the business can make an impact on?

Who represents competition in the focus area and what is the relative advantages in relation to this business?

What other products or services can synergistically be combined in complementary ways with present products?

What promotional schemes are employed to promote products to target markets? Are they effective? (Non-efficient allocation of resources).

How effective is the mode and channels of distribution in terms of cost and speed?

What other significant advantages do competitors have or may they acquire in future (Labour, process, advertising, distribution, raw materials, cost structure and ratio's, research and development, etc.).

The throughput volume has a direct influence on cost and competitive pricing. If volume can be increased, fixed cost is spread over more units. In other words, the cost per unit will decrease and allow you to decrease the price or increase profit or both.

What is the potential realisable sales volume in units per product if no capacity limitation exists?

Are there any bottle-necks or under utilization in the operational process? If so, list them?

Give careful consideration to possible solutions to bottle-necks. Be on the alert for latent or hidden capacities, contracting out, work and time wasted on faulty parts, downtime, idle time due to upstream and downstream downtime and late deliveries, upgrading of capacity, incorrect capacity reporting.

Often people are the bottle-necks and not the machines, because people tend to develop a psychological lock-on to what can be expected of machines. Machines are usually over-designed and the best information can be obtained from original manufacturers.

What is the system like? What is the level of rework and wastage? How satisfied are customers?

Are production standards in use? Are production planning and scheduling being done according to level of sales demand? Are planning and control for purchases and inventory of raw materials linked to planned production levels? Are deliveries of final products on time? How satisfied are customers?

Technological advanced level of machinery in comparison to what is available and what the competition use.

Ø Are there strategic planning sessions by top management? If so, is it transformed into departmental objective setting?
Ø Is forecasting of sales being done and if so how frequently? Is it transformed into departmental forecasting of activities?
Ø Have key result areas and associated key result indicators concerning quality and quantity or period been identified for each department and all supervisory levels within each department?
Ø Are actual results on key result indicators being measured against a planned or target result? If so, at what organisation level and how frequently?
Ø Is there a reporting system whereby each level is being controlled by the higher level over a longer period than the lower level? Is the principle of short interval control being applied?
Ø Are planned results amended according to shifts in demand and backlog? Do deviations from plan trigger re-planning, to get actual results back on track?
Ø Are control meetings being held for each level? How effective are they in terms of generation of action plans and time utilization? Is the control part of the meeting isolated from problem solving and, brain-storming?
Ø Is there a cost budgeting system in use? Is it according to planned activities? If no, it can exist as a reference point in time only and can fade in significance with ageing.
Ø Is a performance appraisal system in use? If so, is it linked to objective setting and result indicators?
Ø Are cash flow projections being made and how frequently updated?

People make things happen. They supply creativity, originality and efforts that increase productivity and profit. The work force is therefore the most valuable asset to any organisation. It can be viewed as an invisible entry in the balance sheet of the organisation. The value will be either high or low depending on what management makes of it.

Usually this area can only be appraised with the help of questionnaires being completed by various levels in an organisation.

· Is the essential basic human dignity of the individual being recognised by supervisors, middle management and top management?
· Has top management succeeded in giving purpose to the organisation? Is a policy of management by objectives in use?
· Is there two-way and open communication? How are policies and plans communicated throughout the organisation?
· What is the morale status at different levels?
· What is the existing climate like? How are the various levels perceived concerning autocratic or democratic leadership styles? Is there suspicion among the work force towards management? Is there pride and joy in job achievements?
· Do the various management levels appear to fulfil personal or organisational goals?
· Is participative management only a slogan or really practised?
· Is management perceived to be sensitive to human behaviour and relations?
· Are workers individually committed to organisation goals?
· Are the employees qualified and well trained for their positions?

1.3.7 List the internal strengths and weaknesses and external opportunities and threats identified so far (Summary of SWOT analysis outcomes):

1.4 External analysis (The abbreviation is PEST):

This part entails scanning the environment outside the organisation to identify the outside forces that may have an influence on the future profitability of the organisation. It is an effort to get a picture of the future. By establishing what trends and forces may be present, that can influence the demand for existing products or services, one can identify opportunities for new products or services. It should be a continuous process to enable the organisation to adapt timeously to external environmental forces. The main elements to be considered under the external analysis can be summarised as follows:

The general condition of the economic environment can affect your markets and cost of capital. The table underneath represents an example of how to evaluate this environment:

New inventories, breakthroughs and creative changes can affect the economy, the industry and your organisation. Scanning the external environment to pick up signals of future technological changes, is a continuous process and specific responsibility of top management. Technological changes can originate at various places namely the supply side of the industry, the markets of the industry and in the industry itself (including your organisation). Furthermore, external demands from pressure groups can force the industry to search for alternatives.

We must try to establish the possible social and demographic changes that are taking place, which may affect us in the future.
Behavioural and demographic forces have an effect on consumer behaviour, employees and managers.

Changes in government attitudes can have future influences on political and legislative changes that may effect your organisation.

List the strengths, weaknesses, opportunities and threats identified by the external analysis.

1.5 Finalising opportunities, threats, weaknesses and strengths:

Summarize the strengths, weaknesses, opportunities and threats that have been identified by the internal as well as external analysis, in such a way as to rule out any duplication.

1.6 Strategy development and forecasting:

The previous analysis stages can be regarded as the diagnostic phase. We now come to the phase where we build up to a solution or recommendation.
Some of the strengths, weaknesses, opportunities and threats listed previously, may only be apparent symptoms. Now is the time to reconsider each again to establish whether it is the true underlying problem or fact, in order to discover the core underneath the symptom. We would like to administer the correct medicine that will affect the patient best towards a healthier condition.
Strategies must be identified to improve or lessen weaknesses, to utilize opportunities better and stave off threats better. Strengths in turn must be used against threats and to seize opportunities.
It is a question of balancing the internal resources profile with the external profile.

The particular business is a facility along one of the highways, offering fuel, rest rooms and restaurant facilities to both directions of vehicle movement. The owners expect a break even point after two years' of operation. The business has now been operational for one year. Every month a gross profit with a nett loss is made. That is because of the low sales volume which cannot recover fixed costs fully.

The above summary of the internal and external analysis, makes it evident that strategies should be employed that will entice new business to boost sales. It is not necessary to sit back and wait for normal growth. A strong marketing effort is necessary.

This is also a brain-storming session where more detailed strategies are being developed. The idea is to get as many suggestions as possible. If there is more than one cure we list them as alternatives two, three and so on. The idea is to get alternative ways of carrying out the broad strategies.

Then the next step is to evaluate the alternatives based on probability of success (high, medium or low) and financial impact on profit. Any strategy will obviously involve costs and gains. The financial impact will be the nett gain and must be established by means of quick calculations and or cash flow projections.

If the above categorisation still leaves doubt as to choices, probability factors can be assigned namely 0,80 for high, 0,50 for medium and 0,20 for low. If you multiply the nett gain by the factor, a final value can be reached.

It is also possible to combine alternatives or choose more than one. But because of scarce resources (money) we must prioritise alternatives to achieve the most with the least. First put effort into the important ten and pay attention to the others later on.

You must now do a bit of forecasting into the future. The forecasted figures will then also be used throughout the organisation for planning and budgeting. The impact of strategies must be reflected in the predicted figures. Therefore it will be necessary to include forecasting for production, sales, cash flow, profit and other figures in a separate forecasting schedule for three to five years. It must reflect the realistic figures the organisation is targeting to achieve, so that employees can realise what will be expected from them.

For each chosen strategy, consideration must be given to desired requirements and actions of each department, to support the strategy. This is a process of combining strategies with broad departmental actions.

This is a process of considering what structure and work force are required to execute departmental actions in support of the chosen strategy.

1.7 Roll down of strategies:

The strategic planning process and final strategies must now be summarised and published in a document “Strategic Planning Process and Outcomes”. This document must then be distributed through the organisation for study and discussion by all group levels, so they can realise what is coming and what may possibly be expected of them.

Clarify a date with your group to start the next development step of: “Conversion of Strategies into Performance Areas”.

Read more about the integrated performance management system and how to make the strategic plan come alive on all hierarchical levels here.

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The strategic planning process outline in table format:
Sequential considerations	Phase	Explanation of each phase
Guidelines	Knowledge gathering phase	Use of best practises knowledge base.
Present Situation	Diagnostic Phase	Where are we now? What is the condition of the patient?
Internal Analysis
External Analysis
Finalising SWOT Analysis
Strategy Formulation	Remedial Phase	What treatments must be applied to make the patient healthy again?
Forecasting Volumes and Values
Changing the Organisation Structure	Implementation Phase	What application methods and monitoring methods are we going to follow to ensure quick recovery and continuous sustainable health?
Roll down of Departmental Objectives
Monitoring Progress