Any Corporate Planning Exercise Should Take Into Essay
Igor Ansoff, known as father of strategic management, once wrote “No business can consider itself immune to the threats of product obsolescence and saturation of demand … In some industries, surveillance of the environment for threats and opportunities needs to be a continuous process. ”[i] Organizations across the world today have introduced the corporate planning exercise – a comprehensive framework to coordinate decisions about individual strategic issues into a consistent set of strategies for the entire company. Consequently, strategies achieve long-term competition advantage with undeviating effects.
The corporate planning process involves several steps – assessing the situation, defining the critical issues, specifying and implementing the decisions, and finally monitoring the decisions and making adjustments as events unfold. The assessment stage involves severe consideration of current strategies, capabilities and environment to identify the relevant opportunities and threats, including internal and external consistencies, which shall be elaborated further in the essay. Strategic Portfolio Analysis[ii] is also applied in different divisions.
The Gap analysis[iii] is used during the final monitoring process where alternative strategies help to bridge the predicted gap between current strategies and projected performance. Indubitably, there exist many guidelines for the implementation of strategies to produce ideal results of high return with low risk. It is definitely crucial that the strategies have to be both internally and externally consistent. The two factors underlying internal consistencies are organizational objectives and available resources. The effectiveness of corporate strategies largely depends on its suitability to the company’s particular set of resources.
Types of resources include tangible assets like land and machinery, intangible assets such as technology know-how and patents as well as capabilities like managerial judgment. Also, the value of resources is determined by the interplay with market forces. For example, brand names were once very important in the personal computer industry, but it no longer is. IBM, despite owning a relatively sturdy brand name, suffered the greatest loss of $5 billion in 1993 due to unsuitable vertical integrated strategy with rising market demand.
Moreover, the main objective in most organizations is profit maximization. Sometimes, there are trade-offs between two objectives such as increasing market share and increasing revenue but decisions ought to be made eventually based on prioritization of objectives for the company as a whole. Besides internal consistencies, firms should maximize effectiveness of strategies based on external consistencies. External consistency comprises of the aspects of the broad macro-environment which is analyzed using three interrelated tools – PESTEL, key drivers and scenarios.
The PESTEL framework stands for Political Economic, Social, Technological, Environmental and Legal. [iv] Politics highlights the role of governments; Economics refers to factors such as exchange rates; Social influences include changing demographics, like ageing populations in Europe; Technological influences refer to innovations like the Internet; Environmental stands specifically for “green” issues such as pollution; and finally Legal embraces legislative constraints, such as health and safety restriction.
In the practical world, many of these factors are linked together – technology developments simultaneously change economic and environmental factors the way new R&D revelations help to create new jobs while reducing pollution. In addition, it is necessary to identify the key drivers for change – high-impact factors. For example in a clothing retail industry, firms are primarily concerned with social changes influencing customer tastes such as forces encouraging out-of-town shopping.
While in the public sector industry, political changes such as government funding are more relevant to strategic criteria. The PESTEL factors have to be prioritized accordingly in each firm in order to maximize effectiveness. Furthermore, scenario planning can be argued to be the most powerful technique. Scenarios are perspectives on potential events and their consequences. In the oil industry, it might be assumed the key drivers like oil reserves and technological change are relatively certain while economic growth and political stability are not.
The two factors of high political instability and low economic growth are knitted together and the relevant plausible scenario proposed. As Philip Watts, chairman of Royal Dutch said, “Scenarios are a tool for focusing on critical uncertainties … which could transform our business environment. ”[v] The concept enables organizations to walk the battlefield before battle commences so they well prepared. Thus, managers are more flexible as they take greater control when market conditions shift unexpectedly.
Astra, a Swedish pharmaceuticals company, strived to export their products into the United States but adjusted their strategies due to unyielding stem-cell research protestations and switched to Japan where the consumer market had simpler regulations[vi]. Besides flexibility, firms should be synergetic in their strategies. The different types of synergy are Investment, Operating, Sales and Management. IKEA, world’s largest furniture retailer, utilizes sales synergy by customizing their furniture store to market foodstuff within the same outlet with common advertisements.
In spite of everything, both internal and external factors can be contemplated concurrently using the resource-based view (RBV)[vii]. The RBV combines the internal analysis of phenomena within companies with the external analysis of the competitive environment. Companies are collections of resources – no two companies are alike because no two companies have the same set of experiences, acquired the same assets or built the same cultures. These are factors determining if the company owns a competitive advantage in performing its functional activities.
Competitive advantage is attributed to the ownership of valuable resources that enables the company to perform activities more efficiently or cheaply than competitors. For example, Marks & Spencer possesses valuable resources in functions like R&D and brand identity. These assets yield it a competitive advantage in British retailing[viii]. Superior performance is thus based on exploiting a competitive set of resources and deploying them in a well-conceived strategy. Generally, the strategic analysis output may be formulated with the SWOT analysis.