2.15 Cycles of Corp orate Strategic Planning (Onwuchekwa 2002 pg 174)
From the discussion above on strategic planning process in multi-divisional organizations we can identify three cycles of strategic planning process. In the first cycle which takes place at top management level to corporate executives, divisional heads and planning staff meet to formulate the overall corporate goals. Sometimes lower level managers can make informal input on invitation.
During the second cycle of strategic planning process, the divisional managers of the various divisions formulate their objectives, decide the accumulated resources required and they relate their divisional objectives to the entire corporate objectives and targets.
During this second cycle, lower level department managers formulate their objectives and program actions in consideration of the constraints of divisional strategic plan.
The third cycle of strategic planning process involves allocation of resources of the entire organization for the purpose of achieving the objectives of the strategic plan. Both the divisions and the functional departments are allocated financial resources and they are expected or required to draw up their own respective b udgets to utilize the allocated resources. Both divisional and departmental managers may use persuasion and political means to secure more financial resources for their various division and departments.
Organizations and Strategy Requirements (Ansoff 1965)
Strategy requirements may differ among organizations. The three types of firms and their differences in strategy requirement are:
A. A fully integrated functional operating firms B. A holding company
C. An investment company.
A. A Fully Integrating Firm
According to Ansoff, a fully integrated firm needs the most comprehensive strategy. This is because its product -market decision have long lead times, so it need guidance for research and development, and it must be able to anticipate change. Much of its investment irreversible, since it goes into Research and Development which cannot be recovered, and physical assets, which are difficult to sell, it must therefore minimize the chances of making bad decisions.
B. A Holding Company and Strategy Requirement
A holding company is decentralized diversified firm. According to Ansoff, a holding company has its stringent strategy requirements. It does not seek energy among its subsidiaries, nor does it use internal research and development as a primary source for diversification. Each subsidiary operates independently and the common-thread among them is primarily financial. The holding company does not need objectives with threshold -goals type of provisions for partial ignorance. Its strategy would have no synergy component or growth vector component. It would include a component of competitive advantage, since it naturally, prefers good, rather than average acquisitions. Such a firm may or may not have a well defined product market scope to help focus search and develop local expert knowledge of some industries. If present, the scope will reduce the chance of making bad acquisitions.
However some holding firms prefer to take the chance in favour of fully flexible choice. Although, potentially costly, investment form undesirable subsidiaries is feasible and widely practiced
C. An Investment Co mpany and Strategy Requirement
An investment company is a company which primarily buys and sells. This may be investment trust, a pension fund, or real estate syndicate.
According to Ansoff, the position of an investment company differs from that of a h olding company in that the portfolio of holding is widely diversified and is highly negotiable, and the transfer costs are relatively low (Sales tax, commission fees etc).
Because portfolios are widely diversified, such firms seldom have the dept of knowledge of individual industries to enable them to seek a specific competitive advantage. Their strategy formulation requirements are usually confined to objectives which are established on the basis of generally available industry data. For example investment funds choose between the role of a “growth fund†and that of “a current†earnings fund. The strategy formulation requirements of the above types of organizations discussed by Ansoff has been summarized in table below:
2.16 Strategic Planning in Small Business Organization
Strategic planning is more formalized in large business organization than in small business organization. Many small business organizations may not have a formalized planning department with responsibility for strategic planning. Top management of some small business organizations may be an entrepreneur who will be highly judgemental in his strategy formulation.
Stonner (1982) has identified some differences between small and large business organizations which may hinder formularization of strategic planning in small business organizations. These differences are :
1. That Small business organizations create rela tively few products or services.
2. Their resources and capabilities are comparatively limited.
3. They generally do not have formal procedures to monitor the environment, forecast or evaluate and control strategies in progress. As a result, information necessary for implementation of revision o f strategic plans is unavailable or unreliable.
4. Most management and staff personnel have been trained on the job. They tend to rely on experience as a guide rather than on systematic specialized procedures.
5. Management positions and large blocks of shares a re often held by relatives of the founders.
Because of the above characteristics of small business organizations, it may be difficult to formalize strategic planning as an aspect of organizational behavior. However it must be mentioned that small business organizations require strategic planning irrespective of the fact that its formal procedures may not be formally implanted in a small business organization. A small business organization requires direction, guided action and self containment in responding to changes in the business environment.
According to Gilmore (1970), strategy should be formulated by top management team at conference table in small business organizations. Judgment, experience, intuition, and well -guided discussion are key to success, n ot staff work and mathematical model.
Strategic planning is a learning process. Overtime, the organizations members will learn progressively more about the organizations capabilities and limitations, about the threat and opportunities, its environment, and about the process of strategic planning itself. As skills in strategic planning developed, the process and the resulting plans can become more formal and more sophisticated.
Steiner (1976) has noted that one of the biggest obstacles to strategic planning in smaller organizations is often the top managers doubt that it is useful at all. These doubt may well arise in path from lack of understanding of the points that small business organizations should formulate strategies and acquire the skills of strategic planning through practice and learning.
