The paper at hand is going to provide a critical analysis of formal strategic planning to prove that this approach is presently ineffective for dynamic and highly uncertain business environment. It must be admitted, however, that during several decades, the leaders of both small and large enterprises successfully implemented this strategy to overcome periods of economic instability. This implies that formal strategic planning still features certain advantages since otherwise it would have never become one of the most widely used frameworks. Nevertheless, in rapidly changing and unstable business context of today, this approach is more harmful than helpful for business owners.
This is particularly applicable to multinational corporations (MNCs), the structure of which is so complex that they can’t rely on linear strategies for successful operation. Since they have to do their best to stay afloat in the present-day market, they must look for other ways to organise and assess their performance.
Thus, the major goal of the paper at hand is to prove that formal strategic planning (despite having unquestionable benefits in certain aspects) cannot be applied in the context of the present-day environment since it is not comprehensive enough to cope with this task. However, at the same time, it is admitted that the approach can still contribute a lot to the formation of an efficient, quick, and comprehensive decision-making system.
Nature of Strategic Planning Approach
Strategic planning or management is a business framework based on identifying goals and objectives of an organisation and outlining the sequence of steps to achieve them. The major emphasis is made on winning a competitive edge over other market players. The idea is that all competitors are interdependent, which implies that any of their actions cannot help produce a certain impact on others. That is why strategic advantages are viewed as a key success factor (Wolf & Floyd 2017). In this context, business is regarded as a game of planning rather than a game of chance or skill. The major purpose of any organisation is to bring all unpredictable events to minimum.
The process of strategic planning can be divided into two key phases:
- development of the organisation strategy;
- implementation of the plan.
During the first stage, it is necessary to identify what mission the company is going to follow as well as vision it finds the most appropriate for its practices. As soon as these points are clarified, leaders outline a number of steps to achieve the indicated goals. The following strategic model is typically applied to visualise the process (Channon & Jalland 2016):
- Mission: Why do we exist as a company and what do we want to contribute to the market?
- Vision: Where do we want to be in the nearest and distant future?
- Assessment: What are our strengths and weaknesses? What external threats and opportunities are presented by the environment, in which we operate?
- Goals and objectives: What are some measurable outcomes that we want to obtain?
- Strategy formulation: What are we planning to do align our practices with the indicated mission and vision?
At the second stage, the company must translate its plan into practice to achieve its desired results. The developed plan must be introduced and followed at all levels of the organisation. It must be noted that if the plan is elaborated correctly, it will produce no negative effect even in the case of its total failure. The phase includes two stages (Channon & Jalland 2016):
- Implementation of the suggested strategy.
- Measurement of the outcome of the modifications introduced.
This model of strategic planning is the most simplistic one. In practice, companies typically include other aspects in their planning. For instance (Haines 2016):
- Key competencies: What are our strengths and best business capabilities?
- Distinctive competencies: What makes us stand out and cannot be replicated by our competitors?
- Core values: What is important for us and what major views do we share?
- Critical success factors: What are the steps for us to achieve success?
- Leadership: What our leaders must do to ensure that we are heading in the right direction?
Formal Strategic Planning Evaluation and Criticism
It is not enough to state that formal strategic approach to corporate planning is inapplicable in the context of a highly complex and diversified business environment. First, it is necessary to make it clear how and why the approach emerged. Furthermore, an objective assessment requires discussing both potential advantages and disadvantages of the planning process. This will help one decide why it is impossible to implement in the indicated context.
In the 1950s, the problem of planning, structuring, and controlling long-term development of any big organisation was rather a complicated process as CEOs did not have any guidelines to assess their actions or to introduce improvements. To solve this problem of chaotic management, a highly formalized framework of strategic planning and assessment was proposed. This rational approach allowed companies to guide their process of strategy building and evaluate their achievements. Moreover, they learnt to make business forecasts to identify their success factors, key competitors, obstacles, expenses, and customer issues that are likely to arise in future (Albrechts, Balducci & Hillier 2016). It must be admitted that never before was the approach to business so highly structured, analytical, and evidence-based. This accounts for the fact that it enjoyed immense popularity for several decades.
Formal strategic planning identifies three major steps in strategy-building (Haines 2016):
- The first one involves analysing both intrinsic and extrinsic factors that may affect the performance of the company.
- The second one is devoted to seeking the most appropriate strategy that would take into account all the peculiarities of the organisation and predict its future direction of development.
- Finally, the selected strategy must be translated into practice and assessed as per its effectiveness in solving all the indicated problems.
Thus, it would be fair to claim that this approach is rational, sequential, well-structured, and grounded as it is deeply rooted in formal logic. Another advantage it has is that all the steps and processes it suggests are not only clearly formulated but also implemented following a logical order of steps (Haines 2016). Moreover, despite the fact that all the details of a plan are typically elaborated by top-level managers of the company, they are made clear for those who will be responsible for practical application.
Therefore, it is quite evident that the indicated process cannot be called a failure from the very beginning. When it was introduced, the contemporary business environment was in need of setting certain parameters and benchmarks to make it possible for companies to assess their performance against their competitors and realize the significance of long-term planning for achieving their goals. Formal strategic planning was also a good way to make business owners look into the future even if their enterprises showed perfect performance indicators (Booth 2015). They finally realised that it is crucial to anticipate and prevent undesirable changes and take advantage of opportunities even before they were presented.
Multinational corporations, which were always vulnerable to any external or internal alterations, learnt to avoid or minimize threats presented by the growing market and preserve their competitive edge regardless of circumstances. Despite evident improvements in general performance and analytical capability of big firms, formal strategic planning taught them to understand their place in the suggested circumstances, which is quite essential for formulating achievable goals and ensuring motivation and commitment of employees (Booth 2015).
However, at the same time, this approach has always had a number of weaknesses. First and foremost, it is based on calculation. This might be an advantage when actual needs of people working for companies are not ignored either. The idea is that any strategy, however effective and well-balanced it might seem, is created to serve real people (managers, employees, customers, etc.) rather than abstract processes (Booth 2015). Striving for objectiveness and elimination of chaos, strategic planners forgot their initial purpose of facilitating business processes instead of overcomplicating them with intricate and vague organisational patterns. Those researchers who are focused on analysing benefits and drawbacks of various business strategies and methods typically indicate that formal strategic planning has 3 major flaws that cannot be eliminated: 1) formalisation of processes and ideas; 2) detachment of decision making; 3) and prediction or predetermination of outcomes (Mintzberg1994).
The first problem is connected with the fact that the majority of large enterprises tend to adopt a mechanic approach to both analysis and implementation. Coupled with the strong hierarchical system, this formalized algorithm negative affects creativity and therefore hinders innovation (leaving alone the fact that employees are unsatisfied with their inability to express opinions or offer new ideas) (Mintzberg1994). In this context learning, understanding, and generating new strategies becomes practically impossible.
The second problem is even more detrimental for successful business operations. It concerns the gap between decisions and their practical implementation and strategies from their target objects. In other words, it is typical of many MNCs to separate formulated missions, objectives, and principles from their real daily activities. In the majority of cases, it is explained by the fact that implementation of indicated strategies or policies is too costly and time-consuming to be materialized (Mintzberg1994).
Finally, prediction fallacy refers to the impossibility to forecast all possible problems. The traditional strategic approach relies upon the assumption that business leaders can apply a set of powerful tool that will make it possible for them to forecast the future of their company and choose the best possible direction for its future development (Courtney, Kirkland & Viguerie 1997).
The Role of Uncertain and Dynamic Environment
Despite the disadvantages outlined in the previous section, it is hard to understand the reason for the strategic planning failure taken out of the context. The approach would have survived if it had not been for drastic changes that occurred to the business environment in the 21st century.
The economic recession of 2008 had a profound impact on both political and economic spheres of life. Since a lot of small businesses went bankrupt at that time, a lot of leaders heading large enterprises (which survived mainly due to their size and accumulated resources) lost confidence in their ability to make predictions and take risks. They realised that even the most elaborate plans cannot guarantee that this experience would never repeat (Booth 2015). It was high time big corporation had learnt to make effective decisions under uncertainty.
The challenge is that this kind of environment does not allow corporations to cope with problems relying on thorough analysis only. Profound uncertainty necessitates the ability to make decisions at the right time, when it becomes clear that it is crucial to change the course (Grant 2003). This is much easier for small proprietorships since they do not typically develop long-term plans of operation and rely on the situational indicators in their actions. MNCs, on the contrary, tend to concentrate on several activities or departments as their success factors, largely neglecting the others (Cummings & Worley 2014). That is why they often find themselves at lost in the direction of the demand changes all of a sudden.
Although strategic planning features a number of benefits (which were particularly valuable when the approach emerged), its dependence on forecasting brings about such limitations that make it impossible for businesses to operate today. The major reason for this is the unstable and diversified environment that requires quick decision-making and flexibility (Cummings & Worley 2014).
Uncertain environments make it impossible to build business around corporate culture and ‘star’ departments. In the majority of MNCs, precedence is given to one or two business activities while others are regarded as additional and less importance (Cummings & Worley 2014). This imbalance can play a bad trick on them when they are placed in the dynamic business context. While the brightest managers are focused on the priority activities and departments, the market might change its patterns, shifting the focus to previously unpopular domains (Vecchiato 2015).
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