Today, the role of strategic planning has noticeably increased, the purpose of which is to develop strategic decisions and create a concrete plan aimed at the long-term development of the company.
Few companies currently have an effective strategic planning system in place. Despite this, most executives understand the importance of strategic planning for effective business management. Strategic planning is one of the most important parts of management functions today.
Strategic planning has replaced long-term planning and ranks first in the organization’s planning activities. In the comparison between long-term and strategic planning, the concept of business activities has become more extensive, including external factors: actions of competitors, customer needs, social factors, preferences, etc. The most significant difference between strategic planning and long-term conceptual planning is the development of alternative versions of future business development.
Strategic planning allows a company to most accurately assess its potential, develop production programs, coordinate the activities of all departments, set its goals for each service and create a set of specific actions for the long term.
What is Strategic Planning?
From an economic point of view, planning is a mechanism that can influence prices and the market in an organizational system. In market conditions, the prizes are the main coordinator of the actions of its participants. Price determines the methods and quantities of commodity production that are most convenient for buyers and sellers.
The organization is a participant in the market system, operates under the terms of the law of supply and demand and is subject to the price mechanism, not being able to perceive their effects. Despite this, the price mechanism in the internal environment of any economic entity can be replaced by rational actions and effective decisions of the heads of organizations. Thus, from the inside, the activities of the organization are based on a system of planned decisions. The effective operation of companies is mainly determined by how well the goals and means to achieve them are defined and thought through. Planning is particularly important for choosing the optimal solutions, since it involves a systematic activity. Without planning and making the right management decisions, their effectiveness under market conditions is not possible. That is why planning is one of the most important functions of management. Planning is a set of specific activities such as research, analysis, etc. conducted to establish a set of actions to achieve the organization’s goals.
Strategic planning uses an unconventional, past-to-future approach that is fundamentally different from other types of planning. This fact causes difficulties, the concept of planning “from the bottom up” is widespread and understood by many, and creating a plan for your current actions based on ideas about the future is a more complex process that is not familiar to everyone.
Types of Planning
The plan is structured differently depending on the task at hand, when it was solved and the size of the company. Therefore, planning is divided into three types:
- Short-term planning (current) – designed for a period of less than one year. The main task of short-term planning is to develop a plan for selling products and linking the volume of production to the available resources.
- Medium-term planning – designed for a period of one to five years. The medium-term plan is more accurate and detailed compared to the long-term one and contains many quantitative indicators. Medium-term planning usually includes capital investments, the company’s production capacities, funding requirements, and R&D.
- Long-term planning – designed for a period of 5 to 15 years, is the development of long-term goals of the organization with the aim of using resources as efficiently as possible based on a long-term forecast.
Strategic planning only makes sense if it is achieved. Each strategy includes specific goals. These goals have to be realized somehow. There are a number of specific methods for doing this. In fact, the strategy itself is a method to achieve the goal.
The methodology of strategic planning as a whole makes it possible to determine the goals of developing an object of strategic planning, approaches to solving strategic planning problems, a system of indicators that ensures the optimization of strategic plans. The method of strategic planning is a specific way of solving a planning problem. To date, there are six methods in strategic planning:
- Expert method. This method is based on the use of indirect and incomplete information, the experience of specialists and experts.
- The method of analyzing socio-economic factors implies a comprehensive study of socio-economic realities and internal relationships in order to determine progressive vectors of development.
- Direct calculation method, this method is used to determine the market needs, the nature of the product and the fluctuations in its production.
- The balance method is used to ensure coordination of related indicators.
- Economic and mathematical methods and models make it possible to create an optimal program for the manufacture of products using the available material and labor resources.
- The method of systems analysis, this method consists in breaking phenomena into fragments and, on the basis of this, identifying the main problems in the development of the organization.
Strategic Planning Approaches
Strategic planning approaches are implemented thanks to a set of specialized indicators. Strategically, programs and plans are developed through a system of indicators. This system should have a number of properties, it should be adaptable, flexible and able to reflect any changes in the state of the design object.
Competent strategic planning of an enterprise, as a rule, helps to increase the efficiency of its activities, allows the enterprise to be more stable and flexible, despite the current economic situation.