Phases of strategic management
Yasmine Al-Haddad
SPS Marketing and Communication – Middle East, North Africa - Professional Solutions l Accomplished MBA Graduate - Al-Ahliyya Amman University
Phase 1—Foundational Financial Planning: represents the initial step in the strategic management process. During this phase, managers are prompted to undertake serious planning when they are tasked with formulating the budget for the upcoming fiscal year. Several key characteristics define this phase:
Budget Proposal Preparation: Managers in various departments and units within the organization are required to draft proposals for the upcoming year's budget. These proposals serve as a blueprint for allocating financial resources to different activities and projects.
Limited In-Depth Analysis: One defining aspect of Phase 1 is the relatively limited depth of analysis that goes into these budget proposals. In other words, managers may not conduct comprehensive studies or in-depth assessments before proposing their budget figures. Instead, they often rely on readily available internal data and historical performance metrics to inform their decisions.
Minimal External Input: During this phase, the input from external sources, such as the sales team or market research, tends to be minimal. Managers primarily draw upon internal information, including past financial records and performance data, to formulate their budget proposals.
Operational Focus: Foundational Financial Planning is more operational than strategic in nature. Managers are primarily concerned with the day-to-day financial needs of the organization, such as covering operational expenses, meeting payroll, and ensuring that essential functions continue without disruption.
One-Year Time Horizon: The time horizon for this phase is typically one year. Managers are primarily focused on budgeting for the immediate future, which is the upcoming fiscal year. This short-term perspective aligns with the operational nature of Phase 1.
Phase 2—Forecast-Driven Planning: represents a significant shift in the strategic management process as organizations realize that relying solely on annual budgets is insufficient for addressing long-term goals and challenges. In this phase:
Transition to Long-Term Planning: Managers understand the limitations of annual budgets when it comes to addressing projects that have a longer time horizon. To tackle this, they set their sights on creating five-year plans, which provide a more extended view of the organization's objectives and strategies.
Incorporation of External Data: Recognizing the need for a broader perspective, managers begin to supplement their decision-making with occasional environmental information. While internal data remains crucial, external data sources become increasingly important. They seek to understand industry trends, market dynamics, and emerging opportunities or threats. This external information helps in making informed decisions and forecasts.
Emphasis on Projection: During this phase, the emphasis shifts towards forecasting. Managers are no longer satisfied with simply reacting to immediate needs; they start projecting how the organization might evolve over the next three to five years. This forward-looking approach allows them to identify and prioritize initiatives that align with the long-term vision.
Intensive Time and Effort: Creating five-year plans is a resource-intensive process. It often takes a considerable amount of time and effort, sometimes stretching over a month or even longer. Managers dedicate themselves to ensuring that the plans are comprehensive, well-thought-out, and capable of guiding the organization toward its future objectives.
Competition for Resources: With a longer planning horizon, managers find themselves competing for a more significant share of the organization's limited funds and resources. This competition can lead to political dynamics within the organization, as various departments and teams vie for a piece of the budgetary pie.
Assessment and Justification: Numerous meetings and discussions are convened during this phase. These gatherings serve the purpose of assessing project proposals and justifying the assumptions that underlie them. Managers need to make a compelling case for why their projects are critical for the organization's long-term success.
Planning Horizon: The planning horizon in this phase typically spans three to five years. This longer timeframe allows organizations to focus on more strategic and sustainable initiatives rather than being solely concerned with short-term gains.
Phase 3—Externally Focused (Strategic) Planning: represents a pivotal shift in the approach to strategic management within an organization. This phase is characterized by several significant changes and initiatives:
Frustration with Existing Processes: The phase begins with a sense of frustration among top management regarding the limitations and political nature of the previous five-year planning approach. It has become clear that the existing methods are not effective in responding to dynamic market conditions and competition.
Introduction of a Formal Strategic Planning System: In response to this frustration, top management takes the lead in redefining the planning process. They introduce a formal strategic planning system designed to bring about a more strategic and forward-looking perspective.
Enhancing Adaptability: The primary goal of this phase is to make the company more adaptable to the ever-changing dynamics of the market and the competitive landscape. This involves a fundamental shift in mindset, moving away from a short-term and reactive approach towards a strategic, long-term perspective.
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Shifting Planning Responsibilities: One of the key changes is the redistribution of planning responsibilities. Rather than relying on lower-level managers to devise long-term strategies, a dedicated planning staff is established. This team's specific role is to craft comprehensive corporate-level strategic plans.
Utilizing External Expertise: To ensure that these strategic plans are comprehensive and well-informed, sophisticated planning techniques are employed. These techniques often come from external consultants who bring fresh perspectives and expertise to the planning process.
Establishing Competitive Intelligence Units: Recognizing the importance of staying informed about the competitive landscape, organizations establish competitive intelligence units. These units are tasked with gathering crucial information about competitors and market trends.
Annual Senior Executive Retreat: A significant annual event in this phase is the senior executive retreat. Led by key members of the newly formed planning staff, senior executives from the company come together at a resort setting. During this retreat, they assess the current strategic plan and make revisions as needed. This serves as a critical forum for aligning top management's vision and expectations.
Emphasis on Formal Strategy Formulation: This phase emphasizes formal strategy formulation as a core activity. It involves the systematic development of strategies that are aligned with the company's long-term goals and objectives. This formal approach helps ensure that strategies are well thought out and comprehensive.
Delegation of Implementation: While top management plays a central role in strategy formulation, the responsibility for implementation is delegated to lower levels within the organization. This allows for a more agile response to changing conditions as those closest to the front lines can adjust tactics as needed.
Consultant Input and Limited Lower Management Involvement: Long-term strategic plans are primarily crafted with significant input from external consultants. Lower-level management has minimal involvement in this phase, as the focus is on higher-level, overarching strategies.
Phase 4—Strategic Management: represents a significant shift in how an organization approaches strategic planning and execution. This phase is characterized by several key features:
Collaborative Planning: In Phase 4, top management recognizes that successful strategic plans should not be created in isolation. To harness the collective expertise and commitment of lower-level managers, cross-functional planning groups are formed. These groups consist of managers and key employees from various departments and workgroups within the organization.
Leveraging Competitive Strengths: The primary focus of these collaborative planning groups is to identify and accentuate the company's genuine competitive strengths. Rather than attempting to address all potential opportunities or challenges, the emphasis is placed on aligning the organization's strengths with strategic goals.
Comprehensive Strategic Plans: Strategic plans in this phase go beyond mere strategy formulation. They encompass all aspects of strategy, including implementation, evaluation, and control. This holistic approach ensures that strategies are not only well-conceived but also effectively executed and monitored.
Scenario-Based Planning: Instead of fixating on the elusive goal of predicting the future with absolute certainty, strategic plans in Phase 4 adopt a more pragmatic approach. They focus on likely scenarios and develop contingency strategies to address a range of potential outcomes. This approach enhances the organization's adaptability and resilience in an ever-changing business environment.
Continuous Strategic Thinking: The traditional annual, highly detailed five-year strategic plan gives way to a more dynamic and ongoing process of strategic thinking. Strategic considerations are no longer confined to specific planning periods; they permeate throughout the organization, ensuring that strategy remains relevant and responsive to changing circumstances year-round.
Democratization of Strategic Information: Strategic information, which was once tightly controlled and exclusive to top management, becomes widely accessible to individuals across the organization. This democratization of information empowers employees at all levels to make informed decisions and contribute to the strategic process.
Consultative Approach: Rather than relying heavily on a centralized planning staff, internal and external planning consultants are available to facilitate group strategy discussions. These consultants bring specialized expertise and innovative perspectives to the planning process.
Flexible Strategy Origin: While top management may still initiate the strategic planning process, Phase 4 encourages strategies to emerge from any level within the organization. This inclusivity ensures that valuable insights and ideas from those closest to the operations are considered and integrated into the strategic plans.
Interactive Planning: Planning becomes an interactive and inclusive process that transcends traditional hierarchical boundaries. It is no longer strictly a top-down exercise. Managers, employees, and stakeholders from various levels actively participate in shaping the organization's strategic direction.