What is the Value of Strategic Planning in Modern Business?

Many companies spend a significant amount of time on strategic planning but some executives believe that it is little more than a dog and pony show and see little benefit from the investment.

So what is current thinking on the value of strategic planning?

The practice originated in the 1960’s as an attempt to combine short term and long term planning. The process most commonly involves a core group of planners undertaking the following steps:-

  1. Establish a Mission or Vision. What does the organisation want to achieve?
  2. Set goals. What is to be achieved for the organisation to achieve its vision?
  3. Objectives. Break down goals into specific measurable objectives that can be monitored.
  4. Identify internal Strengths and Weaknesses, assess external environment for Opportunities and Threats.
  5. Evaluate and Select Strategic Options.
  6. Actions and Tasks. Identify steps that individuals and teams must take to execute strategy.
  7. Control. Establish a system to compare actual with planned performance,and to rectify under performance.

The basic aim of strategic planning is to link daily organisational decisions with a vision of where the organisation wants to be at some pointing the future, usually 3 to 5 years.

In the 1980’s many management experts were questioning whether the traditional model of strategic planning was inadequate in an environment forced to deal with what appeared to be a new paradigm of constant change as a result of two Oil Crises and the arrival of what seemed to be an unending stream of new technologies.

The revised attitude to strategic management was that:-

  • It is impossible to predict the future. Change is discontinuous and unpredictable and planning has to reflect this.
  • Planning now involves the identification of new ideas and trends as they occur and to quickly mobilise resources required to capitalise on them.
  • The role of senior managers is to support and develop the ideas of middle managers and frontline staff because only they are in a position to know what the customer wants and predict latest market trends in a rapidly changing environment.
  • As unexpected and chance events are now the norm, organisations must learn to respond promptly, exhibit flexibility, spontaneity and creativity when reacting to customer demands and changing market circumstances.

Has the rapid pace of the modern world rendered strategic planning irrelevant?

Despite claims to the contrary there is plenty of evidence demonstrating that strategic planning is still a worthwhile process. There have been a number of studies which advocate a positive effect of strategic planning on company performance. A review of twenty six researchers of small businesses found a positive relationship between strategic planning and organisational performance. Another study found evidence that supported a relationship between strategic planning and financial performance.The use of strategic planning in small business firms is claimed to be increasing over time because of the belief in the benefits of enhancing corporate performance.

Kaplan and Beinhocker (2003) undertook an in depth analysis of the strategic planning processes of thirty companies, some of whom had a long term history of success and others that had made serious strategic blunders. They concluded that the true value of strategic planning was to make sure that key decision makers have a solid understanding of the key issues, agree on important assumptions and share a common understanding of the facts surrounding the business. This serves as a solid foundation upon which good strategic decisions can be made despite a constantly changing environment.In essence, it was concluded that companies that achieve success used strategic planning not to generate strategic plans so much as a learning tool to create”prepared minds”, for success.

References: McGrath and Bates (2013) The Little Book of Big Management Theories. Pearson Press.