4.6: Strategic Planning Processes

Question 1

Explain the purpose of the strategic planning process

Answer 1

( how )
- the strategic planning process guides managers when they are making decisions regarding the allocation of resources
- involves stepping back from your day-to-day operations and asking where your business is headed and what its priorities should be
( why )
- the purpose could be to analyse the external and internal environments, to develop a mission statement, identify goals and objectives and to come up with strategies.

Question 2

Identify the 5 key features of a strategic plan

Answer 2

• mission & objectives
• environmental scan
• strategic formulation
• strategic implemention
• evaluation & control

Question 3

Explain the mission and objectives as features of a strategic plan

Answer 3

( how )
- a mission statement tends to be a simple declaration underlying the purpose of an organization’s existence and its core values
- what it wants to achieve and how it is different to its competitors
- whereas, objectives provide the basis for measuring and controlling the performance of the business.
( why )
- the mission statement should serve to unify all people and corporate cultures within the workforce in their attempt to achieve the organization’s vision
- objectives help to measure and control, they set boundaries for business activity and without having clear objectives, organisations have no sense of direction and purpose.

Question 4

Explain an environmental scan as a feature of a strategic plan

Answer 4

( how )
- an environmental scan is a tool to research and analyse a firm’s environment to identify and anticipate internal and external factors which will affect long-term growth and success
- a PEST analysis, SWOT analysis and Porter’s Five Forces are all considered in an environmental scan
- in conducting an environmental scan, you must consider the positioning view and the resources view
( why )
- it seeks for opportunities and threats within the industry and helps determine the future direction of the organisation

Question 5

Explain the purpose of a PEST analysis

( usually in extended response and applied to the case study )

Answer 5

( how )
- these factors are defined as a framework of external factors which are used in environmentally scanning strategic management and a firm’s external business environment
- includes the analysing of political, economic, social and technological factors
( why )
- helps businesses and their leadership determine the feasibility and viability of existing or new products
- identifies and helps firms insulate against threats and limitations that impact business growth
- identifies and helps to capitalise upon USPs, new opportunities or gain a competitive advantage

Question 6

Explain the purpose of a SWOT analysis

( usually in extended response and applied to the case study )

Answer 6

( how )
- A method of analysing a firm’s competitive situation through analysing four relevant internal and external factors (Strengths, Weaknesses, Opportunities, Threats)
( why )
- developing a SWOT analysis can help you look at your business in a new way and from different directions
- it can also help you to create or fine tune your business strategy

Question 7

Explain the purpose of using Porter’s five forces model

Answer 7

( how )
- a framework to analyse the competitiveness within an industry and assess the profitable opportunities a market has in developing its business strategy
- five forces are: threat of new entrants to an industry, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, extent of rivalry among existing competitors
( why )
- helps determine an industry’s weakness and strengths
- used to identify an industry’s structure to influence a firm’s strategy

Question 8

Explain Porter’s force “Threat of new entrants to an industry”

Answer 8

( cause )
- profitable markets attract new entrants
- for a business already existing in that market, it can weaken their position within it
( effect )
- unless the business has strong and durable barriers to entry and a strong competitive advantage, then profitability will decline to a competitive rate

Question 9

Explain Porter’s force “Threat of substitutes”

Answer 9

( cause )
- in markets where close substitute products exist, it increases the likelihood of customers switching to alternatives in response to resulting price increases
( effect )
- this reduces both the power of suppliers and the attractiveness of the market
- firms that produce goods and services that target a niche, or lack competitors/close substitution can increase their power

Question 10

Explain Porter’s force “Bargaining power of suppliers”

Answer 10

( cause )
- an assessment of how easy it is for suppliers to drive up prices.
- driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another
( effect )
- more suppliers in industry = suppliers have less power = reduced cost of inputs = opportunity to improve profits for firms
- less suppliers in industry = suppliers have more power = increased cost of inputs = negatively impacts firms’ profit margins

Question 11

Explain Porter’s force “Bargaining power of buyers”

Answer 11

( cause )
- an assessment of how easy it is for buyers to drive prices down
- driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another
( effect )
- amount of buyers are low = higher consumer power = better prices / offerings for consumers = decreased profitability
- amount of buyers are high / minimal competition = lower power = worse pricing for consumers = better profitability for firms
- if a business has just a few powerful buyers, they are often able to dictate terms

Question 12

Explain Porter’s force “Extent of rivalry among existing competitors”

Answer 12

( cause )
- the importance of this force is the number and strength of competitors and their ability to threaten a company
( effect )
- less competition = firms have more power = higher prices, greater profits
- more competition = firms have less power = reduced prices, aggressive marketing

Question 13

Explain strategic formulation as a feature of a strategic plan

Answer 13

( how )
- the process by which firms choose the most appropriate course of action to achieve its mission and objectives is known as strategic formulation
- information gained from environmental scans help formalise the course of action (includes PEST, SWOT as well as Porter’s 5 Forces)
- articulation and communication of the strategy must be done to all stakeholders
- all levels must cooperate in order for effective coordination of the strategy
( why )
- a business’ formulation is aimed at improving competitive advantage(s) and profitability
- by having an effective strategic formulation, a business can achieve its mission and objectives quicker and more efficiently

Question 14

Explain strategic implementation as a feature of a strategic plan

Answer 14

( how )
- strategic implementation refers to the decisions that enact or apply a certain business strategy
- it involves breaking down the plan into specific objectives, allocating resources and responsibilities across departments and developing detailed action plans
- misunderstandings that arise from the action plan(s) can risk the success of a strategy or may alienate employees
( why )
- effective strategic implementation, regular monitoring and effective communication are necessary in order for a business to achieve its strategic plan

Question 15

Explain evaluation and control as features of a strategic plan

Answer 15

( how )
- process of controlling and evaluating the operations/implementation of the actions developed from the strategic plan
- evaluation is the process of evaluating the performance and feeding back information into decision-making for the next strategic planning cycle by utilising KPIs
- control is the process of making adjustments and taking corrective action to further improve the processes based on evaluation results
( why )
- builds on strategic formulation or broadly strategic planning, as it allows performance monitoring and adjustments so plans can be executed to meet goals
- ensures that the business can adapt to unforseen circumstances and optimise its efforts
- creates a continuous loop where performance is assessed, feedback is gathered and adjustments are made