Key strategic planning practices and how they relate.
Updated: Aug 4
Strategic planning is described as a formal, flexible process which determines where a company is, and where it wants to go. One of the most important parts of strategic planning practices are having a clear vision and clear objectives. Johnson, Langley, Melin and Whittington’s (2007) first statement in their book highlights their position that strategy is something that ‘people do’, as opposed to what researchers historically portrayed strategy is something that ‘organisations have’. Johnson et al. (2007) highlight that strategy as practice is not just the overarching strategic idea, but also the activities that develop and enhance strategies on a day to day basis. These two perspectives consider the overall strategic direction that the company has chosen, as well as the daily strategies that are developed and implemented in order to achieve the vision.
Strategic planning focuses on defining a firm’s mid-term objectives and development, as well as the implementation of plans that allow a firm to meet these objectives (Vargo& Seville, 2011). According to Dincer, Tatoglu, and Glaister(2006) strategic planning in most aspects of business often do not extend beyond four years. Long term strategic planning may be inappropriate due to the volatility of businesses today, however, it can be helpful to have a high level strategic vision so that action can be taken if a firm begins to drift too far from the planned objectives (Vargo & Seville, 2011). Strategic planning practices can be broken into the following approaches: a planning approach, a competitive position approach, an emergent or learning approach, a core competence approach, and the learning and knowledge-based strategy (Campbell, Stonehouse, & Houston, 2002). Within each of these practices it would then be beneficial to measure the businesses performance.
Domain of business performance
Venkatraman and Ramanujam(1986 as cited in McGee, Thomas, & Wilson, 2010) present a conceptual tool for explaining business performance. The middle ring looks at the business practices considering internal factors that may impact the firm’s performance. These internal factors include market position indicators, the rate of new product creation (innovation), efficiency, product quality, and financial measures, such as return on investment, equity or earnings per share. These factors fall into different business practices such as marketing, finances, operations and innovation, which are in line with the strategic planning framework, therefore reinforcing the interdependent linkages between different business practices. Based on this, a holistic view of these different performance areas need to be taken into account in order for a firm to be considered to be performing optimally(McGee et al., 2010).
The balanced scorecard
McGee et al. (2010) refers to the balanced scorecard, linking it to corporate strategy through four lenses (Figure 4). These lenses question how a business is perceived by shareholders (financial aspect), how customers perceive the business (market share, brand image and customer satisfaction), what the business must be good at (quality and processes), and how the firm can continue to improve (innovation). Doyle (2000 as cited in McGee et al., 2010) presented a more detailed list of metrics for each of the lenses (Appendix I). Although these measures form a great basis to start from, it is important that they are aligned with a company’s objectives and strategies. As it can be seen in Figure 4, each of these lenses connects and feed into one another. If any one of the scorecards is out of balance, or not aligned, the whole system will likely be out of balance and will not perform optimally.
Strategic planning and measurement framework
Eriksen(2008 as cited in Neneh & van Zyl, 2012)and Al-Shammari and Hussein (2007) established that strategic planning practices can have a positive impact on company performance. Additionally, quick strategic decision making in consistently evolving environments is essential to maintain high performance and the competitive edge (Johnson et al., 2007). Wickham (1998 as cited by Neneh & van Zyl, 2012) points out the benefits of strategic planning for SME performance, in that it encourages managers to think about business questions and seek solutions on a continual basis. It has been reasoned by Robinson and Pearce(1984 as cited by Neneh & van Zyl, 2012) that strategic planning is not always undertaken by SMEs, as they do not always have the time and resources available despite the fact that research has shown it to be of some benefit. In addition, research on the impact of strategic planning on SMEs has not been conclusive, as numerous SMEs did not appear to plan strategically. Robinson and Pearce (1984 as cited in Neneh & van Zyl, 2012) do however concede that many of the researchers may have been too stringent in their criteria for strategic planning, thus excluding evidence of planning in SMEs. A more recent investigation by Dincer, Tatoglu and Glaister(2006) revealed that many firms are turning their attention and time to strategic planning practices.
On a promising note, Wang, Walker and Redmond(2007) found that the better performing SMEs generally implemented strategic planning practices. SMEs generally do not practice strategic planning despite the research showing its efficacy (Wang et al., 2007). Operational planning was found to be more commonly used and beneficial for SMEs than strategic planning, although there were some positive outcomes related to strategic planning in SMEs which were found to be present during times of economic need or when change was required (French, Kelly, & Harrison, 2004). As such, it is evident that all SMEs should at least consider trying to implement some sort of strategic planning, as required, to improve their performance.
‘Strategic planning’, ‘domain of business performance’ and ‘balanced scorecard' frameworks all intertwine(Harvard business review, 1996; McGee et al., 2010; Neely et al., 2001). Table 1 below shows the overlap between the three frameworks and shows how each of the components fit together in the rows. One can therefore speculate that strategy forms both an overarching vantage point for a company’s direction and vision as well as a pivotal tool for planning and performance measurement in each of a business’s domains. These domains intertwine with the business practices identified in Figure one, and will be used to assess the performance in each of these practices.