Strategic planning

Strategic planning is a concept that businesses use to define their missions, visions, values, and long-term objectives. By precisely characterizing each of these concepts, business owners and directors can allocate resources and form actionable plans for achieving their ambitions. Management-level stakeholders in the business can then track progress toward defined goals. As progress is made, or as unexpected circumstances alter the business’s initial strategic direction, decision-makers can reconfigure or alter their strategic plans to address new challenges or pursue new opportunities.

Entrepreneurs and business management professionals use many strategic planning models to chart their forward courses. These frameworks display variable characteristics, but most ground their projections and forecasting across a common set of basic phases. These begin with an initial assessment or analysis of both internal and external conditions, then proceed into a general organizational plan. The organizational plan is then executed, which equips stakeholders with specific insights for conducting performance evaluations and making necessary adjustments.

Brief History

Historical analyses of strategic planning’s origins often root the concept in the ancient world and note its initial applications in military campaigns. Etymologically, the word “strategy” comes from the Greek term strategos, meaning “army commander” or “the commands of a general.” Contemporary sources frequently note that modern strategic planning overlaps with multiple concepts described in the military strategy handbook The Art of War, written around 500 BCE by the Chinese general and philosopher Sunzi (also known as Sun Tzu, ca. 544 BCE–ca. 496 BCE). Sunzi is credited with originating the idea that “the best way to win a war is without fighting.” Many modern companies have applied this concept to the business world, achieving success without sinking resources into costly direct battles with competitors. For example, the Gap clothing company became successful after choosing to establish its own retail chain rather than trying to outmaneuver competitors for limited shelf space in department stores.

Another historical work with ties to strategic planning for enterprises is The Prince, written in the early 1510s by Niccolò Machiavelli (1469–1527) and published in 1532, after Machiavelli’s death. While The Prince is primarily considered a work of political science and focuses mainly on strategies for succeeding in government leadership, its sections on expansion and conquest hold lessons with business applications. The term “Machiavellian” has since entered the English lexicon, referring to amoral, manipulative, or deceitful acts that enhance or expand an individual or organization’s grip on power.

Strategic planning’s military and political origins align the business-oriented iterations of the concept with the broad, general results of commercial activities. In this sense, strategic planning originally tended to focus more on identifying desirable yet realistic outcomes than on defining the discrete inputs needed to achieve those outcomes. This viewpoint informed the development of the Harvard Policy Model, commonly referred to as the “Harvard model,” which emerged in the 1920s at the Harvard Business School. The Harvard model is widely cited as the first strategic planning paradigm to find widespread applications in private industry. Its core principle revolves around identifying and developing a set of internal policies and practices that define a business in relation to its industry environment and the other enterprises operating within it. The Harvard model originated the concept of the “SWOT analysis,” in which a company’s leaders perform a systematic assessment of their organization’s strengths, weaknesses, opportunities, and threats. SWOT analysis continues to occupy a high-profile place in contemporary approaches to strategic planning.

While the Harvard model ultimately proved highly influential, experts also note that it has some shortcomings. One example is the paradigm’s lack of insight into strategic development. The model does relatively little to explain how to create and refine specific strategies for achieving desired outcomes. Instead, it heavily emphasizes that businesses should strive to maximize their strengths, minimize their weaknesses, act on opportunities, and mitigate threats. Because of the model’s narrow scope, academics and business leaders continued to develop alternatives. The “portfolio model” of the 1950s marked the next major advancement.

The portfolio model departed from the Harvard model’s preoccupation with internal planning, policy, organizational structure, and governance. Instead, it adopted a focus on risk management, growth and expansion, and increasing an organization’s market share. As the portfolio model permeated the business world, companies moved toward conglomerate structures as they attempted to control ever-larger proportions of their consumer markets. This trend forced another reimagining of strategic planning, which yielded a novel paradigm known as the “industrial economics model.”

According to the industrial economics model, enterprises should base their strategic planning and decision-making on the careful analysis of business intelligence gained by assessing competitive power structures. The industrial economics model endeavors to track and quantify the influence of suppliers and customers on a company's operations. It then compares the results against threats including direct competitors, novel products, substitute services, and emerging businesses. The industrial economics model encourages organizations to base their competitive strategies on positioning, with adherent companies defining themselves in relation to established rivals and new competitors.

By the 1960s, practically every major company had embraced strategic planning as a critical organizational management tool. Strategic planning continued to operate within the exclusive domain of the private sector until the 1980s, when it found new applications in government and the public sector. As public organizations endeavored to improve their efficiency, concepts of enterprise strategic planning made increasing inroads in government policy. Key examples include state-level initiatives in Oregon and Texas. In Oregon, the Oregon Benchmarks system identified and iterated clear, long-term strategic goals for public policy in the state. Examples included such objectives as reducing teen pregnancy rates and developing the country’s most highly educated workforce by the turn of the twenty-first century. In Texas, lawmakers passed a piece of legislation in 1991 known as House Bill 2009, which compelled all agencies of the state government to submit strategic planning documents biennially, in correspondence with its two-year budgeting cycles.

The US federal government formally incorporated strategic planning into its own operations in 1993 with the passage of the Government Performance and Results Act. This law requires all federal agencies to develop strategic plans that include mission or objective statements, outcome-oriented goals, and methods for achieving those goals. Plans must also address resource allocation, specifying how resources will be used to make progress toward identified outcomes while simultaneously describing mechanisms for evaluating program performance. In these regards, government agencies subject to the 1993 law came to mimic the structures used by private companies.

Also in the 1990s, business leaders once again evolved their approach to strategic planning, coming to view it as a dynamic concept in a constant state of flux that reflects changes in wider business conditions. Experiential insights and creativity came to occupy more prominent roles in strategic planning during the decade, viewing them as essential to charting synthesized forward paths unique to a particular company and wholly differentiated from those used by competitors.

In the twenty-first century, strategic planning has been increasingly impacted by trends related to globalism. Analysts note that the inherent advantages enjoyed by companies based in prosperous developed countries with advanced economies are increasingly eroding, with the rise of the internet and online commerce disrupting legacy approaches to business strategy. Some management experts have responded by encouraging businesses to return to strategic planning’s historical roots in a bid to find new applications for time-honored, proven concepts.

Overview

The field of strategic planning encompasses a multitude of concepts and paradigms, with many of them following a similar structure. Planning usually begins with a strategic statement, which identifies the organization’s long-term objectives, specifies its core values, and establishes its internal policies. Some models subdivide the strategic statement into four parts, beginning with an expression of strategic intent defining the organization’s founding purpose. The second aspect is a mission statement, which identifies how the organization or company intends to engage its stakeholders and customers. Commentators sometimes describe the mission statement as a declaration of why the organization exists and the purpose it seeks to achieve. More detailed treatments note that an ideal mission statement displays seven distinct characteristics: it should be realistic, clear, compelling, precise, unique, credible, and analytically oriented in implying or stating a forward direction. The strategic statement’s third component covers the organization’s vision, which communicates the future place it plans to occupy in its industry. Like the mission statement, the vision statement should be unambiguous and directly aligned with the organization’s established values and culture. The fourth and final element of the strategic statement covers short- and long-term goals and objectives, often attaching timelines to each while maintaining enough flexibility to respond to unexpected changes in the organization’s operational or competitive landscape.

After finalizing its strategic statement, an organization can then define its strategic management process for applying its values to achieve its purpose and goals. Most models describe this process as consisting of four steps: environmental scanning, strategy formulation, strategy implementation, and strategy evaluation. Environmental scanning includes a comprehensive assessment of the various internal and external factors impacting the organization’s plans, which forms the basis of an evolving, long-term view of strategic operations. The strategy formulation step specifies the actions that the organization will take over the short, medium, and long terms as it pursues its objectives and vision. These steps are operationalized during the strategy implementation stage, while its results are analyzed during the strategy evaluation stage. If the organization’s performance outcomes do not align with its objectives, managers can return to the environmental scanning stage to identify alternative perspectives and insights.

Other common strategic planning paradigms use different approaches to achieve similar ends, with leading examples including the SWOT analysis popularized in the Harvard model, the BCG matrix developed by the Boston Consulting Group, and the “five forces model” developed by Harvard Business School professor Michael Porter (1947– ). A SWOT analysis involves a systematic analysis of an organization’s internal and external aspects. Advocates of the SWOT analysis paradigm note that the internal “strengths” (S) and “weaknesses” (W) analytical aspects are under some degree of organizational control, while the external “opportunities” (O) and “threats” (T) aspects are usually beyond the organization’s functional control. The method seeks to optimize the internal, controllable elements while crafting responses to the full range of possible opportunities and threats that function as external elements outside the organization’s direct influence. It identifies “strengths” as organizational qualities that support progress toward its vision and objectives, and “weaknesses” as qualities that impede that progress. “Opportunities” function as a source of competitive advantages and usually arise from changing market forces, shifts in government policy, industry growth, or technological advancement. “Threats” are the opposite of opportunities, arising from a comparable set of influences and acting as a source of competitive disadvantage.

The BCG matrix paradigm is mainly used in the analysis of corporate portfolios. It uses a four-celled, two-by-two matrix structure to visualize the various holdings in a corporate portfolio and evaluate them based on such factors as their growth rate, future growth potential, and market share. BCG matrices help large organizations determine where and how to allocate their efforts and resources to achieve optimal financial and competitive outcomes.

Porter’s five forces model offers a systematized description of the forces that shape market competition, allowing organizations to evaluate their current industry positioning and develop plans for advancing their goals. According to the paradigm, five interacting forces combine to define and establish a business’s competitive landscape. They include rivalries between existing competitors, the potentially disruptive threat of newcomers to the industry, the potentially disruptive threat posed by new substitutes for the business’s products or services, the influence of buyers and customers, and the influence of suppliers. With respect to buyers, customers, and suppliers, influence is described as a “bargaining power” relationship that forces a business to respond to changing demands that arise as the competitive landscape shifts. While influential in describing market competition as it affects strategic planning, Porter’s five forces model wholly overlooks a concept known as “complementaries.” This concept describes situations in which separate businesses both earn competitive advantages because their products or services work well together. It also views market competition as static rather than dynamic, and therefore does not account for the major roles played by disruption and innovation within an established industry.

The five forces model is a well-known example of competitive analysis, another essential strategic planning concept. A core principle of competitive analysis posits that companies cannot form viable plans in a vacuum. Instead, they must take the business strategies used by their competitors into account when formulating their own. Some organizations elect to copy the successful strategies of established market leaders; businesses that use this approach may accept that they will never achieve a position of industry dominance and instead focus on increasing the size of their minority market share. Others attempt to exploit weaknesses in competitor strategies to erode the competitor’s market share and industry position. Regardless of the model or paradigm used to conduct a competitive analysis, the process has a common set of end objectives: to obtain a detailed understanding of the industry or market; forecast demand for the company’s products or services; craft a strategy for gaining and increasing market share; plan for organizational growth; and predict future industry or market trends that could impact operations.

Business ethics also factor into strategic planning. In the social media age, ethics have emerged as a highly impactful aspect of branding as consumers have new, far-reaching, and instantaneous tools for sharing their experiences and insights about a company. Increasingly, businesses are expected to respect employees’ rights, create positive and inclusive working environments, adhere to sustainable safety and environmental standards, prioritize product safety, and issue truthful and transparent marketing and advertising campaigns. Approaches to strategic planning informed by high ethical standards also discourage organizations from forming relationships that create conflicts of interest or undermine established values and ethical principles. This has proven particularly difficult in the age of complex globalized supply chains, which can make it difficult for consumers and other external observers to develop an accurate, complete, and transparent understanding of the full scope of a company’s operations. Unethical companies can exploit this to their advantage by deliberately obscuring their questionable practices.

In large organizations, corporate governance also directly impacts strategic planning. The concept of corporate governance refers to how accurately a company honors its stated values and the desires of its stakeholders in carrying out executive-level operations. Corporate governance can be seen as a balance between the organization’s internal goals and the wider values of the society in which it operates. Environmental, social, and governance (ESG) scoring is a novel and increasingly influential concept in corporate governance, which analyzes and quantifies a company’s relative level of social responsibility and reports it to stakeholders and financial institutions.

In the mid-2020s, business managers incorporated strategic planning to accommodate emerging trends. Many such developments included the advent of artificial intelligence (AI), which stood to disrupt and revolutionize how many processes had historically been accomplished. A potential outcome, nonetheless, was that AI could not live up to its much-hyped expectations. Managers were thus having to hedge their bets and strategically plan for AI capabilities that were being depended upon, but that did not fully materialize. Another trend for strategic planning was the contentious nature of the political process in countries throughout the world. This was perhaps most notable in the United States. These tensions threatened to spill over into workspaces, thus forcing managers to plan for the development of employee conflict resolution strategies. An additional high-level trend was provisions for climate change and how they impacted workforces, as well as goods and services sold to customers. A final example was the premiums put on demonstrable skills in job candidates rather than on academic credentials such as graduating from top-flight universities.

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