Strategies, policies and planning premises
Planning is done in an environment of uncertainty. No one can know for sure what the internal and external environments will be for even next week, let alone the years to come. Consequently, we must make assumptions or forecasts about the foreseeable conditions. Some of these forecasts will serve as assumptions for other plans.
NATURE AND PURPOSE OF STRATEGIES AND POLICIES
Strategy and Policy:
The term "strategy" (derived from the Greek word strategos, which means "general") has many uses. It is the determination of the purpose or mission and the long-term basic objectives of a company, as well as the adoption of courses of action and the allocation of resources necessary to fulfill them. Therefore, the objectives are part of the formulation of the strategy.
Policies are general statements or interpretations that guide managers' thinking in decision making. Its purpose is to ensure that decisions do not exceed certain limits.
The essence of policies is discretion. For their part, the strategies refer to the direction in which human and material resources will be channeled in order to increase the possibility of meeting the chosen objectives.
Orientation: Creation of the structure of the plans
The principle of strategies and policies is that the clearer the understanding of strategies and policies and their implementation in practice, the more consistent and effective the structure of a company's plans will be.
Need for operational planning: Tactics
To be effective, strategies and policies must be put into practice through plans, as detailed in their details as the consideration of even the most elementary components of operations requires. Tactics are action plans for executing strategies. These must be supported by effective tactics.
STRATEGIC PLANNING PROCESS
Organizational inputs:
The various organizational inputs (people, capital, administrative skills, technical skills, etc.), including the Meta inputs, are necessary to start the process.
Industry analysis:
Formulating a strategy involves evaluating the attractiveness of an industry by analyzing external conditions. Attention should focus on the type of competition within an industry, the possibility of new companies entering the market, the availability of substitute products or services and the position of agreement between suppliers and buyers / clients.
Company profile:
The business profile is usually the starting point for determining where a company is located and where it should go.
Purpose, main objectives and strategic intention
The main purpose and objectives are the end points towards which the activities of a company are directed. The strategic intention is the determination to succeed in a competitive environment.
Present and future external environment:
Likewise, it is necessary to audit and evaluate the internal environment of the company regarding its resources and its strengths and weaknesses in research and development, production, operations, acquisitions, marketing, and products and services. Others are the human and financial resources, as well as the image of the company, the structure and climate of the
organization, the planning and control system and customer relations.
Development of alternative strategies:
The strategic alternatives are developed based on an analysis of the external and internal environments. An organization can follow many different types of strategies:
- Of specialization or concentration; Diversify: expanding your operations to new markets; Internationalization: the extension of operations to other countries; The joint venture; liquidation and / or entrenchment.
Evaluation and choice of strategies:
The various strategies must be carefully evaluated before making a choice. Strategic decisions must be considered according to the risks involved. Sometimes it is necessary to pass profitable high-risk opportunities that could result in the bankruptcy of the company. Another essential element in choosing strategies is opportunity.
Medium and short term planning, instrumentation through reengineering of the organizational structure, leadership and control:
Although not part of the strategic planning process, short and medium term planning and implementation of the plans should also be taken into account in all phases of the process.
The implementation of the strategy usually involves reengineering the organization, integrating personnel into the organizational structure and management. Likewise, controls must be instituted to monitor performance in reference to the plans.
The importance of feedback is indicated with the model by the entanglements.
Consistency testing and contingency planning:
Congruence testing is essential in all phases of the strategic planning process. The need to develop continence plans follows from the impossibility of foreseeing the future with a high degree of certainty.
THE TOWS MATRIX: MODERN TOOL FOR SITUATION ANALYSIS
Identifying the strengths and weaknesses of the companies, as well as the opportunities and threats present in external conditions, is considered as a common activity of the companies. What is often ignored is that the combination of these factors may require different strategic decisions. This matrix is known in Spanish as the SWOT Matrix, an acronym formed with the initials of: strengths, opportunities, weaknesses and threats.
Temporal Dimension and TOWS Matrix:
The exposed factors of the Tows Matrix concern the analysis of a particular time point. But internal and external conditions are dynamic: some factors change over time, while others undergo minimal modifications.
THE PORTFOLIO MATRIX:
INSTRUMENT FOR THE ALLOCATION OF RESOURCES
The business portfolio matrix was developed by the Boston Consulting Group (BCG). The links between the growth rate of the industry and the relative competitive position of the company, identified through market share, are indicated.
The portfolio matrix was developed for large corporations with various divisions often organized around strategic business units. Although it was widely used in the 1970s, portfolio analysis has come under fire for its so-called excessive simplicity. The growth rate criterion has been said to be insufficient for evaluating the attractiveness of an industry. Market share, in turn, may be inappropriate as a benchmark for estimating the competitive position.
MAIN TYPES OF STRATEGIES AND POLICIES
The main strategies and policies for the general orientation of operations probably correspond to the areas of growth, finance, organization, personnel, public relations, products or services, and marketing.
Products or Services:
The reason of existence of a company is to provide products or services. Above any other factor, new products or services determine what a company is or will be.
These are the basic questions in this area:
- What is our company? Who are our clients? What do customers buy from us and at what prices? Are we interested in being product leaders? What is our competitive advantage? Are we interested in developing new own products? What profits can we expect? What should be the basic form of our strategy?
Marketing:
Marketing strategies are designed to guide managers in supplying products or services to customers and in persuading customers to buy.
Peter Drucker says that the two basic business functions are innovation and marketing.
These are the basic questions for establishing a marketing strategy:
- Where are our customers located and why do they buy what we offer them? What is the purchasing pattern of our clients? What is best for us to sell? Do we have something to offer that our competitors don't? Are we interested in taking legal measures to discourage our competition? Do we need and can we offer support services? How can we better serve our customers?
HIERARCHY OF BUSINESS STRATEGIES
At the top of the pyramid is corporate strategy, where executives outline the overall strategy of a diversified company. Decisions are made regarding the industries in which the company wishes to compete. Generally, a business portfolio is selected for the purpose of obtaining synergies between the various business units.
Business strategy, usually in charge of the general manager of a business unit. The purpose of the business strategy is to obtain a competitive advantage in a particular area of the production line.
Functional strategies are developed at the third hierarchical level.
In this case, strategies are generated by departments or other organizational units. The objective is to support business and corporate strategies.
INDUSTRY ANALYSIS AND GENERIC COMPETITIVE STRATEGIES ACCORDING TO PORTER
Industry analysis:
Porter identified five forces in the Industry analysis:
1. Competition between companies, 2. Possibility of market access for new companies, 3. Possibility of using substitute products or services, 4. Bargaining power of suppliers, and
5. Bargaining power of buyers or clients.
General Leadership Strategy:
This strategic approach pursues cost reduction, largely based on experience. Thus, emphasis is placed on closely monitoring costs in areas such as research and development, sales and service. The goal is for a company to have a low cost structure compared to that of its competitors.
Differentiation Strategy:
A company that follows a differentiation strategy aims to offer something unique in the industry in terms of products or services.
Focus Strategy (low cost or differentiation):
A company that adopts a focus strategy limits its attention to special groups of customers, a particular product line, a specific geographic region or other aspects that become the focal point of the company's efforts. Instead of covering the entire market with its products or services, a company can focus on a specific segment of the market.
EFFECTIVE INSTRUMENTATION OF STRATEGIES
Shortcomings of strategic planning and additional recommendations:
Plans are the basis of control. Without them, this is impossible. It is common for budgets to be based on the previous year's, not on the strategic plan. Likewise, they are usually prepared without a specific action plan for the implementation of the strategy. Strategic plans are also often hampered by compensation systems that reward short-term results at the expense of the organization's long-term strength.
From this argument it is clear that strategic planning must be integrated into the total administrative process: the organizational structure, the evaluation system, awards and motivations, and the controls used to measure performance based on the
objectives. This confirms that effective administration requires a systems approach that highlights the interdependence of administrative activities.
Successful implementation of strategies:
For strategic planning to be successful, it is necessary to follow certain steps in its implementation:
1. Communicate strategies to all key decision makers
2. Develop and communicate planning assumptions
3. Check that the action plans contribute to and reflect the main objectives and strategies
4. Regularly review strategies
5. Develop contingency strategies and programs
6. Adapt the organizational structure to planning needs
7. Permanently insist on planning and implementing strategies
8. Create a business climate that induces planning
DEVELOPMENT OF PREMISES AND FORECASTS
The planning premises are the anticipated conditions under which the plans will operate. They include assumptions or forecasts about known future conditions that will affect the operation of the plans.
At the same time, the plans themselves and forecasts of their future effects often serve as premises for other plans.
FORECAST OF ENVIRONMENT
If it were possible to forecast the future accurately, planning would be relatively simple. But as this is not possible; In practice, forecasting is much more complex.
Values and Forecast Areas:
Forecasts have a value that goes beyond their strict use. First, forecasting and review by managers impose the need for forecasting, future analysis and preparation for it. Second, forecasting can reveal areas that need control. Third, the generation of forecasts contributes to the standardization and coordination of plans, especially when members of the entire organization participate in it. By virtue of their focus on the future, forecasts are useful in shaping unity of purpose in planning.
The most frequently chosen conditions areas for forecasting are: 1) economic, 2) social, 3) political / legal and 4) technological conditions.
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