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Free Business Articles - THE IMPORTANCE OF STRATEGIC PLANNING

Supplier: Jigsaw Technology
09 September, 2009

THE IMPORTANCE OF STRATEGIC PLANNING - During Difficult Times

An increasing number of businesses expect sales, profits, employment and capital investment to weaken in the June 2009 quarter, according to the latest Dun & Bradstreet (D&B) Business Expectations Survey

Findings show 53% of firms anticipate declining sales with 60% having similar profit expectations. The same downward trend is forecast for employment and capital investment, while 24% of businesses expect staff cut backs with 10% anticipating a need to decrease capital investment. 

Despite these doom and gloom figures, fresh research reveals that relatively few directors and business managers truly understand or, more importantly, practice long-term strategic planning. Consequently, they also lack the tactical agility so often necessary for an organisation to flourish and survive in today’s fickle markets.

What many business leaders think of as strategic planning is often little more than forecasting and budgeting. Alas, anyone can jot down figures which, all too often, have no bearing on a company’s real problems and opportunities. 

Simply playing around with company finances tends merely to propel the current business model unchanged into the future thereby creating a form of corporate “tunnel vision”. This can sound the death knell in today’s swiftly changing, sometimes ‘panicky’, markets.

Of far greater importance is an ability to swiftly revise tactics to meet changing requirements of constantly moving, oft times shrinking, consumer demand. Businesses that ignore this challenge do so at their peril.

In a recent US study, 93% of industrial goods manufacturers did not, by their own admission, produce anything approximating an integrated, coordinated and internally consistent plan for their marketing activities.

The study also revealed that companies which were profitable without an effective planning system invariably operated in buoyant or high-growth markets. When markets turned sour, however, they were far less successful than comparable businesses which planned for the future.

When rationalising to improve efficiency, managers often find they are too late to do anything about previously overlooked opportunities. Missed chances most frequently cited are, in order:

  1. lost profit situations
  2. meaningless numbers in long range plans
  3. unrealistic objectives
  4. lack of actionable market information
  5. inter-departmental strife
  6. management frustration
  7. proliferation of products and markets
  8. wasted promotional expenditure
  9. pricing confusion
  10. growing vulnerability to environmental change
  11. loss of control over the business

Recent Australian research clearly demonstrates that inadequacies in the objective-setting process are usually at the heart of corporate problems. Since a company’s very survival depends entirely on finding and maintaining profitable markets, establishing clearly defined targets is the key function for any successful organisation.

Contrary to this sell-evident fact, businesses often assume that to be commercially successful, management need only set profit targets, decentralise the organisation into groups of similar activities, then make departmental heads accountable for achieving those profits. Middle management will somehow make everything come right!

Such ‘loose’ delegated procedures may be adequate in the good times. But what about when markets and opportunities are in a constant state of flux and contraction as they are right now? Organisations, big and small, are in strife simply because these decentralised units are invariably geared only toward maximizing current profit and loss accounts. Let the future take care of itself.

Compounding the problem is the fact that few businesses correctly identify what it is that they do better than their competitors – their Unique Selling Proposition (USP). Or how a “distinctive competence” must meet the true needs of their particular target audience.

Financial objectives, while essential measures of company performance, are of little practical help on their own since they say nothing about how the outcomes are to be achieved. The same applies to sales forecasts and budgets - which encompass neither marketing strategies nor tactics.

Ironically, it is because managers are evaluated and rewarded on the basis of short-term profitability they find difficulty in concerning themselves with the long-term corporate future. It is safer - and usually more rewarding - to simply concentrate an existing product range aimed at an already established customer base in order to achieve budget.

Budgets and sales forecasts, while necessary, rarely include the most important element of all ... precisely what must be done to achieve them.