Types of Planning

Strategic management includes several types of planning, including both strategic planning and long-range planning. Although these two terms are similar, it is important to distinguish them. Strategic planning involves the selection of strategies and development of detailed plans for implementing those strategies. Strategic planning may be long-range (planning for events beyond the current quarter or year) or short-range. Long-range planning, on the other hand, may not necessarily be strategic. For example, long-range operating plans may not be strategic.

Organizations typically undertake both strategic and operational levels of planning. Strategic planning addresses issues significantly affected by elements in the external environment and includes decisions that can significantly change the character or direction of the firm. Tactical planning concerns the implementation and support of the strategic plans. Operational planning allocates tasks to specific existing facilities in each planning period in order to achieve particular objectives. The most specific form of planning—scheduling and dispatching—involves the assignment and sequencing of specific existing resources within the operating plan.

Strategic planning is different in purpose and time horizon from tactical planning, operational planning, and scheduling and dispatching. Many formal planning systems utilized by companies deal more with actions required to implement strategies than they do with formulating those strategies. However, firms use various approaches (systems) in formulating strategies. Such systems should be of a contingent nature designed to fit the specific organization's policies and issues.

Issues and Contingencies in Planning

A policy commonly refers to the organization's ways of doing business—the guidelines, rules, and practices it operates within. As an example, a firm may have a policy of not diversifying into unrelated businesses or of promotion from within. Thus, policies affect the organization as a whole—what it does as well as how it does it. They affect strategic and operational aspects of the organization.

An issue is a condition that may have a significant effect on the organization or its future interests. Often such issues are of a social, political, or legal nature. By analyzing and monitoring emerging issues, a firm can be in a better position to prepare for, respond, or react to the issue if and when it materializes.

Contingency plans are alternative plans that can be put into place if events do not occur as expected. Plans based upon "most likely" events could be quite inappropriate if the set of events does not materialize. Contingency plans are prepared in advance to account for significant happenings that could occur but were not included in the basic strategic plan. Contingency planning forces managers to think in terms of possible outcomes, and leaves the firm ready to act if other than "most likely" events materialize.

Planning Systems

Planning systems seem to be evolutionary, progressing to strategic management through several different types of planning including basic financial, forecast-based, and externally-oriented planning. One planning system may not work for all organizations, and many different considerations must be made in deciding what planning system is best for a particular firm.

The first consideration would be to determine at what stage of planning the company is presently involved. This determination will show the sophistication of the present planning system and how it is meeting the needs of the organization. Assessment of further planning system needs would include determining organizational needs in the areas of financial performance, strategic considerations, competition evaluation, environmental changes, and future resource considerations.

The next step would be to fit the planning system to the company by considering the internal and external environments—the organizational structure, the industry involved, the size of the organization, the competition, the needs of the stakeholders, and the arena in which it does business.

After the above factors are considered, a planning system can be custom-designed, implemented, and updated as needed. In general, the best planning system for an organization is the simplest and most flexible system that meets the organization's planning needs.

The strategic management process implies that the organization has built in a strategic planning process that occurs at continuing intervals and is not an "ad hoc" proposition. A corporate planning function is present with cycled timelines for the development of corporate strategies. Implementation in this case simply means putting a planning process into effect, which assures that the planning process takes place and that strategic plans are developed at appropriate intervals.

When an overall strategy is developed and that strategy is translated into operational objectives, it is the general responsibility of the operational structure to execute the steps necessary to implement the strategy. In the implementation phase, the focus is on what a firm must do to make a given strategy successful. Bower defines implementation as a problem-solving process that results in the choice of organizational structure, as well as the development of information and measurement systems and reward and punishment systems.

Relatively simple, less formal strategic decision and planning systems can work well in many firms, particularly in the less complex, smaller company. Systems should be no more complex than required, yet larger firms many times require more formal planning systems because of the organization's complexity, not because more sophisticated systems are better.