Planning: Foundation of Strategy

Source: Ybanez, Antonio Errol Jr.B. Applied Strategic Management and Business Policy. Makati
City: Katha Publishing Co., Inc. 2014.

Elements of the Planning Stage

1. Scanning- this allows decision makers to have an overview of the organization and its
relationship to its immediate environment. The significant data may be gathered to enable the
organization to arrive at holistic strategies in this stage.
Environmental scanning is the evaluation of the general economic and industrial environment
in which organization operates. This includes a review of the organization’s competitive situation
which covers the events and trends that pose either as opportunities or threats, or present either
strengths or weaknesses of the organization.
a. Internal Environment Scanning – All businesses, from start-up to the established companies,
have one thing in common: they need cross-functional information before making decisions.
Assessment on internal environment in terms of strengths includes: high competency level,
availability of company’s resources, efficient system and procedure, effective management
style, and high level of professionalism in the workplace. in so far as weaknesses are
concerned, some of these include office politics, low benefits, personal problems, working
condition, insufficient number of staff, and use of capital and weak cash position.
b. External Environment Scanning – An organization pursuing strategy that isnot
environmentally anchored is bound to miss its mission. This scanning should be conducted on
a continuous basis to stay attuned with the times. Good analysis should be able to draw the
potentials before these become visible. Kepner(1995-2001) said that “Truly strategic
managers have the ability to capture essential messages that are constantly being delivered by
the extremely important, yet largely uncontrollable external forces in the market and using
this information as the basis for altering the important controllable internal forces of the
business strategically and effectively position the firm for future success.” The factors are the
following:
Economic Forces – determine the competitiveness of the environment in which the firm
operates. These includes: GDP trends, unemployment level, inflation rates, money supply,
fiscal policies, wage/price controls, devaluation/evaluation, market maturity, and government
economic policies.
These determine the enterprise’s demand for its product and affect its marketing
strategies and activities. The economic three main steps; Production, distribution of the
produced goods and discusses the consumption of the same.
 Socio-cultural-demographic forces – socio-cultural-demographic business
environment encompass customs, traditions, value, beliefs, poverty, career
expectations, consume activism, rate of family formation, age distribution of
population, life expectancies, birth rates literacy, etc. Changing consumer taste and
preferences are considerably foremost socio-cultural factors that greatly influence the
business landscape and its decisions. Changes in demographics are likewise, an
important factor in business world. For example aging population: demands for
wellness products would increase while demands for latest fashion and trends will
 diminish. These socio-cultural-demographic factors influence businesses and
business decisions vis-a-vis impact on products, services, markets, and customers
given the following developments:
 More educated consumers
 Growing numbers of Christians/Muslims, ethnic or racial
 World population
 Escalating between rich and poor
 Increasing percentage of working parents
 Decimation and degradation of natural environment
Political-legal forces – pertain to political principles, beliefs, opinions, views, and legal
framework that either support or dissuade the performance of the firm. These forces cover
the antitrust legislation, tax laws, special incentives, environmental protection laws, foreign
trade regulations, attitude toward foreign companies, laws on hiring and promotion, and
stability of the government.
Technological forces – factors that influence on the technological aspects of business such as
government and total industry, focus on technological efforts patent protection, new
products, new developments in technology transfer from laboratory to marketplace, and
productivity improvements through automation. Innovation takes the forefront in addressing
the objective to keep systems updated, to ensure ease of access to data, and to and manipulate
data in order to make data useful and relevant over time. Continual innovation is essential for
sustainable growth and economic development. Thus, without innovation, an economy
would die.

Competitive Environmental Scanning – competitor analysis is an essential component of

corporate strategy. Several business leaders today are scared of competition. The same leaders are
contented with the current business standing and often find excuses or simply lying to themselves
so they can justify their actions of not competing, e.g. “We’re too small and we don’t have money.
And since they have the money, they hired the brightest and best”, and, “Our competitors have
been in the business for quite some time plu they have the right connections.”

Competition should not be seen as a problem but rather as a gift or privilege to be a better
organization that will benefit customers. It is a challenge and an opportunity that drives
improvement by way of assessing the current resources and be able to match or exceed the
requirements of the industry or business. It is only through competition that brings out the best in
every organization and individual. Zabloski (1996) wrote, “Competitors are a river to be crossed,
not a city to be crushed.” According to Ralph Waldo Emerson, “The way to conquer the foreign
artisan is not to kill him, but to beat his work.” Hence an organization should be equipped and
armed with the right attitude and information towards change coupled with speed, flexibility and
forward thinking. Firms need to cautiously understand and examine the past, current, and the
future strategies and the policies of the competitors, whether direct or indirect. This information
is useful to the firm in formulating an appropriate strategy.

Strategic management is an assessment of the strength and weaknesses of current and potential
competitors. This analysis provides both a offensive and defensive strategic context to identify
opportunities and threats.
Industry Scanning Analysis – According to Aaker(1995), industry analysis means uncovering
major market trends, key success factors, and the identification of opportunities and threats
through the analysis of competitive and change forces (e.g. regulatory/political factors, economic,
etc.). Often, a strategic group’s analysis reveals how different environmental trends are affecting
industry competitors. Strategic group analysis is useful understanding the industry’s competitive
structure and the profit possibilities within those structures. Porter’s model recognizes the five
forces that assert influence on competitiveness, profitability, and attractiveness.

1. Threats of potential entrants. This force determines the influence of newcomers to the
industry. A market is said to be open and attractive if there are no or less barriers in entering
the market. The factors to assess the attractiveness of the industry are economies of scale,
resource requirements, access to distribution channels, brand and customer loyalty, and cost
disadvantages. Example of an exploration business. If you are already in this kind of business,
the chances to increase number of entrants is weak. In order to create one, the investment or
capital requirement is huge. It would be difficult to establish a great number of distribution
channels. On the contrary, the lechon manok business would entice more new players
because of less resource requirement.
2. Buyers’ Bargaining Power. This force establishes the extent of power of the buyer to a certain
industry. Such industry is dominated by the buyers that have control or influence on the
products to be produced and offered to the market in connection with the price, volume, and
quality. Suppliers can even dictate the terms while firms compete for availability of supplies.
A monopsony is a market where there are many suppliers and one buyer while oligopsony is
market where there are many sellers but meet only a few buyers. To mitigate the power of
buyers, sellers can seek to select buyers with less power to negotiates with suppliers, or
develop superior offers that strong buyers cannot refuse. For example, a law firm that
specializes in corporate litigation, taxation and annulment cases which can perform with high
level of professionalism and competence has the opportunity to dictate the price of its clients.
3. Supplier’s bargaining power. This force ascertains he extent of power of suppliers in a certain
industry. Such industry is dominated by suppliers that have control or influence on the
products to be produced or offered to the market in connection with the price, volume, and
quality. This type of industry is usually operating under monopoly or oligopoly market
structure where there is/ are one or few seller supplier. Customers have no or little choice to
switch brands in case a company is on the buyer side, a better way to lessen the power of
suppliers is to make the latter a business partner for a win-win approach.

4. Threat of substitute products. This factor influences the intensity of competition through
having substitute or alternative products in the market. If the market has numerous substitute
products over the other existing products, then competition will be intensified and market
attractiveness may seem not good. Substitute products create competition.

5. Intensity of rivalry among competitors. This factor reasons out that competitors are the ones
creating the battlefield which intensify competition within the industry. Competitors actions
 to gain market share are apparently to heighten the competition that could eventuallyaffect
the intensity of the competition and market attractiveness.

2. Monitoring. The company is tasked to monitor how significantly each event or factor is. Will
they have a significant impact in the organization and the industry? How drastic changes will
have to be to bring about the desired output? What appropriate changes will have to be adopted as
a result of timely strategies to affect the organization? From this, the market behavior can be
established and may be utilized in forecasting. Monitoring allows the decision makers to keep
track of the process of their organization in relation to the goals set to ensure that the current
strategies are still aligned to the development. This will allow necessary adjustments even at the
early stage. Consistent monitoring will present drastic changes from happening late into the
evaluation stage. Corrective and preventive measures can be considered in this stage so that
resources will not be wasted when in the formulation stage.
3. Forecasting. It is more than just an intelligent guess. This makes use of data that would have been
tested or observed over a period of time. It is in forecasting that all those data is combined and
placed against a timeframe to see if a problem will recur or if there may be new setbacks upon the
implementation of a strategy. Trend analysis is a good tool to determine where the company is
headed to. However, a precaution at this stage is to avoid generalizations. The different forces
combined in the past spawned solutions based on specific combination. Although all factors
considered in a particular scenario may come together in a different time, the formulated
strategies in the past may not be applicable at present because of other environmental factors that
may have progressed.
4. Assessing. It is best to determine how the current performance of the organization compares to
the desired targets it had previously set out such as sales, profits, customer satisfaction, system
and procedures. Performance analysis can be done following chronological or historical basis
approach, time series, or longitudinal analysis. Another way of doing is benchmarking by using
the industry standards or performance of competitors who have the same line of business.
Benchmarking using the industry standards of performance of competitors having same line of
business may also be done.

There is a need to determine what other assets a firm has. It includes its human resources and
the value of its brand. These resources represent all inputs into a firm’s production process such
as capital equipment, skills of employees, brand names, finances, and talented mangers. These
can be tangible and intangible. Tangible resources refer to properties that can be touched
(machine, money, human and organizational resources). While intangible resources pertain to
resources that cannot be touched (technological, innovation, reputation, goodwill, copyright,
patent, and others).

Capabilities represent the firm’s capacity or ability to integrate individual firm resources to
achieve a desired objective. These capabilities are significant when they are uniquely combined
which create core competencies which have strategic value and can lead to competitive advantage.
Core competency is a distinct knowledge, skills, behaviours, attributes, and values of an
organization’s workforce that support superior’s firm performance. For strategic capability to be
a core competency, a firm should possess the following characteristics: valuable, rare, costly to
imitate, and non substantiality (VRaCoN).
 Valuable is the capabilities that help a firm neutralize threat or exploit opportunities.
Rate refers to unique capabilities that are not possessed by others.
Costly to imitate are capabilities that other firms cannot develop easily.
Non-substantiality pertains to capabilities that do not have strategic replacements or
equivalents.

Tools in Planning

1. SWOT Identification. Strengths, Weakness, Opportunities and Threats

This analysis is a potent tool to identify the firm’s business environment. The SWOT analysis
provides information helpful in matching the company’s resources and capabilities to the
competitive environment in which it operates. It is instrumental in strategy formulation and
selection. This is credited to Albert Humprey whose body of work culminated at the Stanford
Research International in the 1960s and1970s. A strategy is the art and science of determining
how to win in business and in competition.
2. Top-down/Bottom-up Planning
Morato (2006) encourages the use together of the top-down and the bottom-up approaches. He
said that the top-down approach is employed to set high aspirations and to dream of challenging
possibilities. In contrast, the bottom-up approach is used to anchor the organization on the
realities of the marketplace and the existing capabilities and constrains of the company.
3. Basic Planning. It is a strategic planning tool usually used by firms that are yet familiar to the
planning process. This tool answers the three basic questions: Where is the firm now (current
situation)? Where is the firm going (desired situation)? And how does the firm get there (strategic
initiatives)? In this model, top-level management usually carries out the planning. Smaller firms
that have little exposure in doing strategic planning often use this tool. The basic strategic
planning process includes:
a. Identify the firm’s purpose
b. Create general goals to accomplish the mission
c. Identify specific action plans to implement each strategy
d. Evaluate and update the plan overtime
4. Vision-based Strategic Planning
It is a strategic planning tool that is centered on the set vision and mission of the firm. The shared
vision and mission are statements of aspirations of the owners. These statements shall be the
authentic source of inspiration and direction in establishing the goal and in formulating strategy
as well as the plan of action. The important question is, “Are the proposed goals and strategy
aligned with the direction of the owners’ desire (vision)?” this tool requires the following:
a. Establish vision-mission
b. Establish goals in line with vision and mission
c. Craft strategies
d. Develop action plans for each strategy
e. Develop roadmap showing mission, vision, goals, strategies, and action plans
f. Monitor and evaluate implementation
5. Issue-based (Goal-based) Planning
A strategic planning tool that starts with the current major issues besetting the organization and
then works toward the future. Planners identify the strategic issues and explore appropriate
solutions through the brainstorming process and other various thinking techniques. Next, there is
a need to create an out line of the identified issues together with the appropriate solution/s as the
roadmap. In most cases, this tool is used for issues covering a short period, for example for one
year.
Steps in Issue-based planning:
a. Identify major issues confronting an organization
 b. Develop appropriate solution
c. Develop summary of issues with matching solution/s
d. Monitor implementation and review the roadmap
6. Scenario Planning
A strategic planning tool that is based on “what if” scenarios about the future. The typical
scenarios are optimistic and pessimistic from which managers are asked using the set criteria to
determine the probability to craft specific strategies to address each scenario. Then the identified
strategies will be assessed using the set criteria to determine the probability of the outcome. This
encourages the managers to think the unthinkable and be sensitive with regards to the dynamic of
business environment. Likewise, there is a need to determine the viability and workability of each
strategic hedge option once pursued under different circumstances. Establishing synopsis to keep
track of the success of the strategy is needed, in the event that the chosen strategy will be futile
based on the signposts, the alternative course of action can be used.
Therefore anyone who has the ability to anticipate the best and worst case scenarios and be able
to come up with the right and alternative approaches is considered half victorious battle for
market share and profitability.
The steps in the scenario planning:
1. Identify possible future scenarios brought by external forces which might influence the
organization, e.g., change in regulation, demographic changes, etc. Newspaper is the good
source of information.
2. Develop hedge plans to address each change in a force. Hedge plans cover three different
future organizational scenarios (best case, worst case, and reasonable case), which might arise
with the organization as a result of each change. Reviewing the worst case scenario often
urges strong motivation to change the organization.
3. Choose and implement the best course of action taken into consideration the three scenarios
to respond to each change.
4. Employ alternative strategy if the likelihood of chosen strategy is futile based on the
signposts or indicators.
7. Organic (Self-organizing) Planning
This planning is a strategic planning tool that focuses on determining the best practice, processes,
and methods to achieve the tasks. It encourages the planners to concentrate on what is doable and
what the firm does best, instead of the constraints and figment of model to set up. In other words,
the emphasis is on the practical applications in the workplace. It is said to be organic because it is
viewed similar to the development of an organism. This tool can be used adherence to the
conformity with the common values and organizational culture by way of an ongoing dialoguing
and continued shared reflection of the current systems and processes. The on-going bass can be
once every quarter, semester, or as the need arises. The planner should focus on the learning and
less on method. The group must reflect from the point of view of the management on how the
strategic plans will be developed to the benefit of the stakeholders.
General steps:
1. Clarify and articulate the organization’s culture and values through dialoguing and
storyboarding techniques.
2. Discuss the objectives of the group for the firm through dialoguing and storyboarding
techniques.
3. Determine, on an ongoing basis, the weakness in the current processes and recommend
improvements about process.
4. Reflect on how the organization will portray its strategic plan to stakeholders.