Strategic Management: Formulation and Implementation

Position Systems

In this section, I compare the different systems, starting with long range planning.

Long range planning and strategic planning

One basic difference between long range planning (sometimes called corporate planning) and strategic planning is their respective views of the future.

"In long range planning the future is expected to be predictable through extrapolation of the historical growth."

Management typically assumes that future performance can and should be better than in the past. The process typically produces optimistic goals which are not fully met in reality. The jagged, called the "hockey stick effect," illustrates the typical goal-setting process that occurs in long range planning.

"In strategic planning the future is not necessarily expected to be an improvement over the past, nor is it assumed to be extrapolable."

There are the following steps of the analysis in strategic planning:

* An analysis of the firm's prospects is made which identifies trends, threats, opportunities and singular "breakthrough" events, which may change the historical trends. The results of prospects analysis are shown in the lower half of Figure 2-12. Determination of prospects closes the surveillance gap between extrapolation and the performance the firm is likely to attain if it follows its historical strategies.

* The second step, is a competitive analysis which identifies the improvement in the firm's performance which can be obtained from improvements in the competitive strategies in the respective business areas of the firm.

* The third step is a process which is called strategic portfolio analysis: the firm's prospects in the different business areas are compared, priorities are established, and future strategic resources are allocated among the business areas. The results of competitive analysis and of the portfolio balance is shown as the present potential line. This closes the competitive gap.

* The next step is a diversification analysis which diagnoses the deficiencies in the present portfolio and identifies new business areas, into which the firm will seek to move. When the performance expected from the new business areas is added to the present potential line, the results are the overall goals and objectives of the firm shown in figure. These are determined by two factors: the ambitions and drive of the top management and by the strategic resources which will be available for diversification.

There are differences in the process between long range planning (LRP) and strategic planning.

In strategic long planning the goals are elaborated into action programs, budgets and profit plans for each of the key units of the firm. The programs and budgets are next implemented by these units.

Strategic planning replaces extrapolation by an elaborate strategy analysis, which balances the prospects against objectives to produce a strategy.

The next step is to establish two sets of goals: for the near term-performance goals and strategic goals. Operating programs/budgets guide the operating units of the firm in their continuing profit-making activity, and strategic programs/budgets generate the firm's future profit potential.

Strategic implementation requires a separate and different control system (strategic control).

This means that LPR will effectively respond to environmental challenges on turbulence levels 2.5 to 3.5. Strategic planning becomes necessary on level 4 when future challenges become discontinuous.

Strategic Posture Management

The first significant difference between strategic planning and strategic posture management is the addition of capability planning to strategy planning. General management capability is determined by five supporting components: qualifications and mentality of the key managers, social climate (culture) within the firm, power structure, systems and organization structure, capacity of general management to do managerial work.

The second difference between strategic planning and strategic posture management is the addition of systematic management of the resistance to change during implementation of the strategy and capability plans.