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PLANNING AND STRATEGIC MANAGEMENT
Planning is a particular kind of decision-making that addresses the specific future that managers desire for their organizations. We listed planning as the first of the four major activities in the management process – planning, organizing, leading, and controlling. We might think of planning as the locomotive that drives a train of organizing, leading, and controlling activities. Or we can envision planning as the taproot of a magnificent oak tree, from which grow the branches of organizing, leading, and controlling. Planning is that crucial for managers.
The Hierarchy of Organization Plans
Organizations are typically managed according to two types of plans. Strategic plans are designed by high-ranking managers and define the broad goals for the organization. Operational plans contain details for carrying out, or implementing, those strategic plans in day-to-day activities. For instance, at Federal Express a strategic
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plan might address how products and services will be positioned against UPS and anticipated new competitors, whereas operational plans would deal with aircraft maintenance schedules and modernizing package-handling equipment. Note that both strategic and operational plans deal with the key relationships in which organizational goals are pursued. Strategic plans deal with relationships between people at an organization and people acting at other organizations. Operational plans deal with people within one organization.
Both strategic and operational plans are devised and carried out in a hierarchical manner. At the top is the mission statement, a broad goal based on managers’ assumptions about the organization’s purpose, competencies, and place in the world. A mission statement is a relatively permanent part of an organization’s identity and can do much to unify and motivate members of the organization.
How Strategic and Operational Plans Differ
Strategic and operational plans differ in three major ways:
Time Horizons. Strategic plans tend to look ahead several years or even decades. For operational plans, a year is often the relevant time period.
Scope. Strategic plans affect a wide range of organizational activities, whereas operational plans have a narrow and more limited scope. The
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number of relationships involved is the key difference.
Degree of Detail. Often strategic goals are stated in terms that look simplistic and generic.
But this breadth is necessary to direct people at organizations to think of the whole of their organization’s operations. On the other hand, operational plans, as derivatives of strategic plans, are stated in relatively finer detail.
The Evolution of the Concept of Strategy
A strategic plan embodies and revolves around the statement of a strategy for an organization. Strategic planning is a process for producing this strategy and updating it as necessary.
Only since World War II has the idea emerged that strategic planning and acting on those plans constitute a separate management process — the process we call strategic management. This comprehensive approach to developing strategy did not appear overnight. It evolved over time. In 1962, business historian Alfred D. Chandler proposed that “strategy” be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
Chandler stressed three key elements: (a) courses of action for attaining objectives; (b) the process of seeking key ideas (rather than routinely implementing existing policy); and (c) how strategy is formulated, not just what that strategy turns out to be. Chandler abandoned the conventional notion that the relationship between a business and its environment was more or less stable and predictable. He developed his ideas using historical methods and by analyzing the growth and development of such companies as DuPont, General Motors, Standard Oil, and Sears, Roebuck.
In 1978, Dan Schendel and Charles Hofer created a composite definition of strategic management. This was based on the principle that the overall design of an organization can be described only if the attainment of objectives is added to policy and strategy as key factors in the strategic management process.
In their synthesis, Hofer and Schendel focused on four key aspects of strategic management. The first is goal setting. The next step is strategy formulation based on those goals. Then, to implement the strategy, there is a shift from analysis to administration – the task of achieving predetermined goals. Key factors at this stage are the
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organization’s internal “political” processes and individual reactions, which can force the revision of strategy. The final task, strategic control, gives managers feedback on their progress. Negative feedback, of course, can touch off a new cycle of strategic planning.
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