Strategic Planning Relevant to all Organizations?
Strategy Strategy is a broad-based formula for how business is going to compete, what its goals should be, and what policies will be needed to carry out these goals. The essence of formulating a competitive strategy is relating a company to its environment.
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Porter (1980), Competitive Strategy The definitions of strategy change from scholar to scholar. There is no agreed way to define strategy as the interpretations of each writer are based on methodological preference (Robson, 1997). The above definition is an example of Porters stance on what a strategy is.
Strategic planning Strategic management is concerned with deciding on strategy and planning on how that strategy is to be put in to effect via:
- Strategic Analysis
- Strategic Choice
- Strategic execution
The above definition of strategic management is by Johnson and Scholes(1993) and essentially outlines that strategies are formulated and concern all organizations, large or small.
Strategic planning is a continual process within an organization, the people responsible for the success of strategic planning outline the desired future, then devise a strategy for making it happen. Strategic planning by its very nature is adaptive and the devisor is always developing it to be relevant for the future. Key environmental factors are predicted and their influence on the organization looked at and then optimum measures are taken so the organization can benefit from these environmental factors.
Business planning and strategic planning are two different things. Business plans are usually for an outside audience where the strategic plans are developed for internal purposes. Also, strategic plans look at the ‘bigger picture’ where business planning looks at certain elements of an organization.
The Composition of a Strategic Plan Strategic plans are generally made up of one or more interconnected elements; Vision, mission, Values, assessment, goals/objectives, strategy and outcomes.
They also incorporate strategic management principles and models. A possible example of a strategic plan follows: The Vision shows the dreams of the organization and broadly captures future services, markets and structures but does not go into great detail. The Mission outlines customers, competitors and markets. It shows “the desired position in a predicted future world” and a “bulls-eye or target of the strategy”(Yavitz & Newman, 1982). “A mission should not commit a firm to what it must do in order to survive but what it chooses to do in order to thrive” (Ackoff, 1986).
Values are what the company believes to be true; values offer guides for staff on how to act within the company and ethical standards for all the stakeholders. Values set the company apart from its competitors and show the integrity of the organization. Assessments of the organization are the outside and inside forces, which will affect the company in making its mission and vision successful.
These can be carried out in an environmental scan, which includes the following components:
- Internal analysis of the firm •Analysis of the firm’s industry (task environment)
- External macro environment (PEST analysis) A SWOT (Strengths/Weaknesses/ Opportunities/Threats) task can also capture the overviews of a business. Outside factors can range from economic conditions to changing technology and competition and are shown as threats and weaknesses.
Inside factors can be anything from assets to liabilities and are usually shown as threats and weaknesses. Then the transition to the future is assessed with regard to industry and competitive environment, general and organization-specific environment. PEST stands for political, economic, environmental and technological. The PEST analysis and shows the components of a macro environment within the organization and these can also be translated to fit in with a SWOT analysis.
Goals are defined next; these are broad aims that the organization is always working towards. They are qualitative and directional where objectives are quantitative and specific. Objectives are subtle aims to complete within certain time scales. Next strategy is defined; a strategy is “the framework which guides those choices that determine the nature and direction of an organization”(Tregoe & Zimmerman, 1980).
The strategy looks at long-term direction and guides short term plans. It is understood at the top and middle levels of the organization (Yavitz & Newman, 1982). A strategy is very clear and is in no way subtle. Finally, outcomes are defined; this is involved with the translation of strategies into realities of the organizational structure, operations, policies and products. This in essence closes the gap between the companies’ current position and where it would like to be. Finally, critical issues are identified and prioritized. Outcomes are positive statements of the changes the company needs to make to itself and the results that it must carry out in its environment to fulfil strategic necessities. Outcomes are the steps for an organization towards strategic closure.
Strategies for Management of Organizations Between the late seventies and early nineties strategic planning for IS was introduced into organizations. This came about because executives within an organization were looking at linking business objectives with systems (Somogyi and Galliers, 1999).
Michael Earl Michael Earl’s stance on IS methodology is not on internal but external or outward-looking so business objectives can be met fully. Earl pioneered multiple methodologies with three approaches for corporate strategy, top-down, bottom-up and inside out. Top-down considers the organization from a structural perspective aligning IS with the business strategy of the organization through looking at Critical Success Factors (CSF). CSF’s are identified through existing policies, interviews and debates.
A bottom-up approach considers the current system, then analyses it for potential gaps, which can be done using a SWOT analysis, which will be considered later. This approach shows the current state of the company and what it wants to achieve in the future. An inside-out approach analyses different ways to do business and research into new technologies is carried out by looking at the organization to gain a competitive advantage.
Michael Porter Porter’s five forces model looks at the forces that play upon an organization and shows how IS can build barriers and give a competitive edge. The forces are depicted in the diagram below: (Robson, 1997) Porter defines the rivalry of the organization in relation to the industry where high rivalry leads to low profits. The threats from new entrants are the heights of the barriers in place to stop them and define the profitability of the industry.
Threats from substitutes are the threat by others to copy the product so the margin for guaranteed profit goes low and customers are more prone to change. The bargaining power of buyers depends on the price of the product and the leverage the customer possesses. Similarly, the power of the suppliers is determined by how much the buyer needs the product and how much they are willing to pay.
Porter’s Generic strategies To create a competitive advantage for an organization Porter identified three strategies, Cost Leadership, Differentiation and Focus or Niche. The proper generic strategy will position the firm to leverage its strengths and defend against the adverse effects of the five forces.
Cost Leadership involves having low-profit margins and selling lots of units of a product this way, essentially undercutting the competition. Supermarkets do this on certain brand labels so customers will come into their store and potentially buy other higher-priced goods, this can be known as a loss leader.
Differentiation is when organizations make products or services different from everyone else, an example of this was the door-to-door selling by Avon in the past. This was not the ordinary way to provide products for housewives but was different and seemed to work. The focus or niche strategy was to target a gap in the market where an exclusive product or service would fit in and succeed. An example is Brabus, a German company specializing in the customizing of Mercedes Benz Motor cars.
They essentially customize the car down to the exact specification of the engine to the shade of leather and the way the car drives to the customer’s exact specifications. The cars are handcrafted and meticulous detail is added at every stage of reproduction. This makes the product unique and therefore creates a niche for high class, big-spending customers.
Analysis of Strategic Management Approaches There is a disagreement between the theories in which corporate strategy is developed. This is apparent within the strategic planning process, as it is a diverse and complicated subject. This has meant that there have become two approaches to strategic planning; prescriptive and emergent approach. They both have similar elements but have dissimilar models within the strategic planning process.
The prescriptive approach views the analysis, strategy development and implementation within the planning process as rational and linear. This fundamentally means that prescriptive strategy is one whose objective has been defined in advance and whose main elements have been developed before the strategy begins (Lynch, 1997).
In relation to this, an emergent strategy is fuzzier and it has been stated by theorists that the strategy evolves or emerges to adapt to human needs. Over the last ten years, developments in strategic planning and management have not emphasized heavily on planning and have concentrated more on adaptability and learning, an example of this is systems thinking (Senge, 1990) and chaos theory (Stacey, 1993).
Schools of Thought: Design School There are differing schools of thought related to strategic management. Firstly the design school assumes that the strategic process is logical, rational and capable of giving true insight into the company. It makes the assumption that the users can learn to anticipate and respond to complexity in a controlled manner (Robson, 1997), using a range of models based upon principles. An example of this is Porter (1985), other examples include the Boston matrix and portfolio analysis. The disadvantage with this school has been that they assume predictability in an environment and do not take into account the interdependence of activities within an organization.
More importantly, they do not take into account the politics, culture, and leadership of an organization and are too simple. Mintzberg (1990) identifies a number of major difficulties with the prescriptive strategic process, processes are invalidated when there are major changes in competitors and government. He also concludes the following:
- It may not be possible to determine the long-term good and, even if it were, those involved may not be willing to make the sacrifice, such as jobs or investment. This is particularly relevant within local government, which is dictated at local levels by the public.
- The strategies proposed are logical and capable of being managed in the way proposed. Due to the political realities of many organizations, there may be many difficulties in practice.
- Chief executives have the knowledge and power to choose between options. They do not need to persuade or compromise on their decisions. This may be naive in many organizations where the culture and leadership seek discussion as a matter of normal practice.
- After careful analysis, strategy decisions can be clearly specified, summarised, and presented; they do not require further development, nor do they need to be altered because circumstances outside the organization have changed. This point may have some validity but is not always valid.
(Mintzberg, 1990) Schools of Thought: Evolutionary School Within these schools commentators such as Pettigrew (1985) and Mintzberg (1990) talk about a strategy that incorporates everything that rarely exists. They say strategies are borne about a compromise between power groups and involve a process of trial-and-error to determine the best strategy.
However, there is the danger that recent history will be used to justify or rationalize decisions and mistakes (Robson, 1997).
Mintzberg (1990) makes an important point here about both approaches – the design school and the evolutionary school. He concludes that both have a contribution to make and are not mutually exclusive. He also reiterates that while the three elements of strategic management interact and that strategic planning is not linear, it is still valuable to have some model of the planning process.
Criticisms of Michael Porter There have been suggestions by many scholars that strategy emerges (Rouleau & Sequin, 1995) and these scholars critique Porter’s methods. Most of the strategic literature shows the ideology that ‘what is good for the higher management is good for everyone’. Most of this literature shows there should or is no conflict with this (Harfield, 1997) or the industry, organization and market.
Granovetter (1985) suggests the social and cultural aspects of all human endeavours. The five forces model of Porter (1980) is criticized by Shrivastava (1986) as not taking into account stakeholders’ well-being. He contests that it only attempts to maximize profits of the firm and is narrow in formulating success factors for senior managers.
The view of Knights (1992) is that strategy is a form of imperialism located within a discourse, which cloaks the power of managers as a class in culturally acceptable clothing of science and objectivity. His interpretation is that Porter’s generic strategies are difficult to implement but remain the most popular choice for senior managers within the financial sector. He says that the conditions needed to carry out the generic strategies is the ‘reality’ by the management to forget, neglect or deny subjectivity. The inherent problem with Porter’s strategy seems to be that if all businesses adopted his strategy then there would be no competitive advantage.
However, the whole world still uses the method to this day simply because it promises ‘unequal power’ brought about from ‘specialist knowledge’ to the senior management. Knight contests that management find Porter attractive as this expert knowledge provides an illusion of control, legitimacy and security amidst all the uncertainty. These ideas appear to support the view that ‘strategic management’ could be considered a myth as suggested by Beeby (1992) Strategic planning for information systems The exploitation of IT for strategic advantage began in the early 1970s largely as a response to changing global economic and social conditions and rapid advances in technology.
Likewise, IS and IT became the key enablers of truly global trading systems (Drucker, 1993). Strategic planning has been defined as ‘the process of identifying a portfolio of computer-based applications that will assist an organization executing its business plans and realizing its business goals’ (Lederer and Gardiner, 1992). It is the means of identifying application systems that support and enhance organization strategy.
It also provides a framework for the effective implementation of these systems (fiddler and Rogerson, 1996). It has been claimed that strategic IS planning can help an organization visualize the potential contribution of IS (Lederer & Gardiner, 1992).
Gaining Advantage Through Applying Information Systems American Airlines – SABRE One of the most commonly used examples of gaining strategic advantage through the application of IS has to be the SABRE reservation system by American Airlines (AA). It was the first electronic reservation system in the US that was highly successful. It came about to counter the threat of travel agents who were developing their own booking system and its sophistication was a major breakthrough. The competitive value SABRE provided is being felt thirty years later.
In 1988 American Airlines was making more money from SABRE than from flying planes, this proves the impact of IS on a real company and the success. It has been said that the information provided by SABRE has been beneficial to the success as it is used in a variety of ways.
Merrill Lynch A different example of strategic success, which proves that competitive advantage can be short-lived, is the diversification of Merrill Lynch in the mid-seventies. A strategic option was created to integrate cash management for customers who were tired of getting a different account to get credit from different places. The Cash Management Account (CMA) combined separate banking services into one all-encompassing statement.
It was automated and technically complex. This radically new service was very different from traditional banking giving Merrill Lynch ninety percent of the market for five years. Even though it was a success the company did not update and enhance the system so competitive advantage eventually slipped away. This proved that to integrate IS for the strategic advantage it has to be continually reviewed and updated.
Difficulties in Planning for Information Systems Technology officers have the opinion that Information system planning fails because the technology in question matures and evolves too quickly. They believe that users will have no way of knowing what they need in the future.
Greg Jackson, Associate provost for Information Technology at the University of Chicago concludes that “it is critical to remember that a plan is a statement about priorities and their implementation, given our best knowledge at planning time, and that all kinds of events will cause the unfolding of history to differ from the plan”.
This is obviously true as plans within organizations rarely come to fruition, but are fought with problems and issues outside our control. IT managers can take some of the blame for the IS strategies failing, this is particularly the case when they reduce complex social, political and cultural problems to simper technical specifications.
This satisfies the IT managers, as they are following classical methodologies but do not reflect the newer complex organizations. Classical strategic information systems planning is based on the rational, economic man (Whittington, 1993) making decisions based on analyzing the situation scientifically not socially.
As advantageous as it seems from the studies and theories about IS planning models, there is no track record for their success. Commentators have argued that IS planning may not even give a competitive advantage at all (Galliers, 1993). There is obvious advantages to IS planning such as a defined way rather than just improvising, but there are also losses using strategic IS planning. IS planning can be duplicated with relative ease by rivals who then gain the same competitive advantage the organization once had exclusively.
Another issue is that IS environments mature very quickly so any advantage gained is lost relatively quickly which was proved previously with Merrill Lynch. Galliers, (1993) makes the point that sustainable competitive advantage is possible only if additional features, desired by customers or created by new IS possibilities, can arise continuously. So an organization has to continually update there IS strategy in line with customer requirements for success.
Inkpen and Choudhury (1995) conclude that in some organizations a business strategy is hard to define or even non-existent and this shades the usefulness of strategic IS planning approaches, which most assume that there is an existing business strategy. Observations made by Pruijm (1990) have shown that where competitive advantage has been enabled by IS, the success has been due to incremental evolution of an existing application.
This view is reflected in traditional evolving business strategies by Mintzberg (1989) and Quinn and Paquette (1990) They suggest that the strategic application of IS is more the result of a process of the continuous evolution of IS in organizations (Senn, 1997). Evolution can therefore be said to evolve as organizations change. Lee and Bai (2003) conclude that traditional IS planning theories fail to take into account ‘dynamic environmental requirements’. ` Incremental Approaches for Information Systems Strategy Due to the adverse, rapid condition of technology advances traditional IS approaches are not so suitable, so incremental evolutionary approaches are being introduced.
These approaches rely on specific staff and key mangers to do the required analysis. This allows flexibility rather than the traditional rigidity of older methods. It has to be noted though that Salmela and Spil (2002) have stressed not to rely completely on an informal incremental process as the solutions to e business can be very complex. Four cycles has been introduced by Salmela and Spil (2002) to take in to account e business strategy and enables important IS planning issues to be addressed.
The method is evolutionary and is open to management change. This allows the method to be formal yet flexible. IS organizations evolve over time and therefore change paths, this method takes in to account the changes. It has to be also noted that emphasis has to be placed on group interaction, knowledge, change and organizational management (Lee and Bai, 2003). Even the early strategies of Earl (1990) take in to account group interaction so it has to have important relevance in IS management also.
Conclusion It is been concluded that traditional strategic planning is a good foundation for organizations but commentators argue that the older strategies lack flexibility for IS planning and do not take in to account enough external factors, in essence they say the older methods are for perfect organizations that never have any economic, political or ethical problems. Theorists have concluded that IS strategies do not work for all organizations, as some don’t have business plans, which are the requirements of most business strategies.
IS in relation to this is hard to strategise for in current organizations due to the frequency of change in markets and external issues beyond the control of organizations. New, more evolutionary approaches are being developed which are iterative and flexible and these allow users, inherently IT managers to continually change perspectives along the planning lifecycle continuously adapting to changes.
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