STRATEGIC PLANNING

CHAPTER 8

ZUNI BAROKAH, PH.D.

MAGISTER MANAJEMEN
FAKULTAS EKONOMIKA DAN BISNIS UGM
2015

NATURE OF STRATEGIC PLANNING

Strategic planning

The first activity in management control process, sequentially

The process of deciding on the programs that the organization

will undertake and on the approximate amount of resources that
will be allocated to each program over the next several years

Long-range planning or programming

Output: Strategic plan (a formal statement of specific plans

about how to get to the companys future direction)

NATURE OF STRATEGIC PLANNING:

Relation to Strategy Formulation

Strategy Formulation
a.

The process of deciding on new strategies

b.

Makes goals and creates the main

strategies to achieve those goals

Strategic Planning

a.

The process of deciding how to

implement the strategies

b.

Develops programs that will carry out

the main strategies and achieve the
goals efficiently and effectively

NATURE OF STRATEGIC PLANNING:

Relation to Strategy Formulation

Strategy Formulation
c.

A creative, innovative way of thinking is

strongly encourage in its process

d.

Unsystematic

Strategic Planning

c.

Institutionalized

d.

Systematic

NATURE OF STRATEGIC PLANNING:

Evolution of Strategic Planning
Fifty years ago: Strategic planning in most companies was

unsystematic
In the late 1950s, there were initial formalizing efforts, but

failed

The data were too detailed

It was more about filling the forms instead of deep thinking
Done by staff rather than line management

Management learned that it is about program, informal

discussion, and decision making among difficult alternatives

NATURE OF STRATEGIC PLANNING:

Benefits of Strategic Planning
A framework for developing the annual budget

Facilitates the formulation of an effective operating budget

Facilitates optimal resource allocation decisions in support of key
strategic options

See Exhibit 8.1 and 8.2

A management development tool

A mechanism for forcing management to think long term
A means of aligning managers with corporate strategies

NATURE OF STRATEGIC PLANNING:

Limitations (Potential Pitfalls) of Strategic Planning
It can end up becoming a form-filling, bureaucratic

exercise, devoid of strategic thinking

The planning is delegated to the staffs of a large

strategic planning department made by the company

Forfeiting input from line management and the educational

benefits

Time consuming and expensive

NATURE OF STRATEGIC PLANNING

Characteristics of organizations that may need a

formal strategic planning

Top management is sure that it is important

The organization is relatively large and complex

Considerable amount of uncertainty exists, but the

organization has the flexibility to adjust

NATURE OF STRATEGIC PLANNING:

Program Structure and Content

Programs could differ in industrial organizations and

in service organizations
Strategic plan typically covers a five future years

period, some covers only three years

Relatively long time horizon makes it feasible only

for rough estimates

NATURE OF STRATEGIC PLANNING:

Organizational Relationships

Senior management, business units managers and

their staffs are involved in strategic planning process

In some, it involves the controller organization, in th

other, a separate planning staff

NATURE OF STRATEGIC PLANNING:

Organizational Relationships

HQs staff members facilitate, but should not

intervene too strong.

Functioned as a catalyst

The way strategic planning is conducted varies,

depends on the style of the CEO

The system designer should take this style issue into account

ANALYZING PROPOSED NEW PROGRAMS

Ideas can come from anywhere within the

organization

Some units are more likely to generate more ideas

A program proposal could be

Reactive : a reaction to a perceived threat

Proactive : an initiative to capitalize on an opportunity

ANALYZING PROPOSED NEW PROGRAMS

The atmosphere should be conducive to generate

ideas

A highly structured, formal system is a no

It should be receptive and flexible enough

The adoption of a new program is a series of

decisions, not a single all-or-nothing decision.

ANALYZING PROPOSED NEW PROGRAMS:

Capital Investment Analysis

Analyzing capital investment proposal techniques:

Net Present Value (NPV)

Present Value of estimated cash inflows investment amount

required

Internal Rate of Return (IRR)

These techniques are not used for proposals that:

Are so obviously attractive

The estimations involved are so uncertain
The objective is not increased profitability
There is no other feasible alternative

ANALYZING PROPOSED NEW PROGRAMS:

Capital Investment Analysis

Considerations in implementing capital expenditure

evaluation systems

Rules

Rules and procedures for the approval of proposals

Guidelines for preparing proposals and general criteria for
approving proposals

Avoiding manipulation
Model

Organization for analysis

A proposal may need a long process before it is finally decided

to fully implement it

ANALYZING ONGOING PROGRAMS:

Value Chain Analysis

Value chain: the linked set of value-creating

activities (see chapter 2)

Value chain concept highlight these potentially

useful areas

Linkages with suppliers

Linkages with customers
Process linkages within the value chain of the firm

ANALYZING ONGOING PROGRAMS:

Value Chain Analysis

A better understanding of cost drivers and value of

each activities could improve the efficiency of

The inward portion (the portion that precedes production)

The production portion
The outward portion (after production)

These efficiencies usually involve trade-offs

ANALYZING ONGOING PROGRAMS:

Activity Based Costing

Activity instead of cost center, cost driver instead of

basis of allocation => activity based cost system

(ABC)
Cost driver reflects the cause of cost incurrence

ANALYZING ONGOING PROGRAMS:

Use of ABC Information

ABC may provide some useful insights

Ex 1: complex products design and productioncosts > simpler

one
Ex 2: low volume products unit costs > high volume one
Ex 3: many-setups-products unit cost > the other product
Ex 4: short-life-cycle products unit cost > long-life-cycle
product
Ex 5: a realized significant cost savings as a result of reducing
complexity

Etc.

STRATEGIC PLANNING PROCESS

Reviewing and updating the strategic plan

1.

During the year, decisions that change the strategic plan may
be taken

2. Deciding on assumptions and guidelines

Broad assumptions are used and reexamined and changed to

incorporate the latest information

Ex: GDP, labor rates, interest rates, etc.

Many companies hold an annual management meeting to

discuss about this

STRATEGIC PLANNING PROCESS

3. First iteration of the new strategic plan

The first cut of the strategy, made by business units

The complete plan consists of

Income statement
Inventory, account receivable, and other key balance sheet items
Number of employees
Quantitative information about sales and production
Expenditure for plant and other capital acquisition
Any unusual cash flow
A narrative explanation and justification

STRATEGIC PLANNING PROCESS

4. Analysis

Aggregating business unit plans

Analyzing plan in depth

Examine the consistency

Reveal a planning gap

5. Second iteration of the new strategic plan

To anticipate changes incurred or made during analysis process

6. Final review and approval

A meeting of senior corporate officials

A meeting of BoD