Strategic Planning - Planning tools and techniques[edit]

Introduction[edit]

This article covers the most popular and useful strategic planning tools. Strategic planning is a complex organizational process that requires many steps to be involved, such as analyzing the environment, defining the vision and setting the goals, formulating actions and processes to be taken to attain these goals, implementing of the agreed processes, controlling and monitoring the feedback. There is a wide range of strategic planning tools for every step available - in essence mental approaches and procedures to apply to develop effective strategic plans.

Keep in mind that many strategic planning tools overlap, so if you are setting up your strategic planning process, don't feel you need to use all of them, or even many of them. Use the strategic planning tools that seem to make sense to you, and, the tools you feel you really understand.

PEST Analysis[edit]

(variations: SLEPT, PESTEL, PESTLE, STEEPLE, STEEPLED, STEER) PEST Analysis is a simple, useful and widely-used tool that helps you understand the "big picture" of your Political, Economic, Socio-Cultural and Technological environment. As such, it is used by business leaders worldwide to build their vision of the future.

It is important for these reasons:

First, by making effective use of PEST Analysis, you ensure that what you are doing is aligned positively with the powerful forces of change that are affecting our world. By taking advantage of change, you are much more likely to be successful than if your activities oppose it.
Second, good use of PEST Analysis helps you avoid taking action that is doomed to failure from the outset, for reasons beyond your control.
Third, PEST is useful when you start operating in a new country or region. Use of PEST helps you break free of unconscious assumptions, and helps you quickly adapt to the realities of the new environment.

Using this tool:

PEST is a simple mnemonic standing for Political, Economic, Socio-Cultural and Technological.

To use this tool, follow this three stage process:

Brainstorm the relevant factors that apply to you.
Identify the information that applies to these factors.
Draw conclusions from this information.

Political:

Government type and stability.
Freedom of press, rule of law and levels of bureaucracy and corruption.
Regulation and de-regulation trends.
Social and employment legislation.
Tax policy, and trade and tariff controls.
Environmental and consumer-protection legislation.
Likely changes in the political environment.

Economic:

Stage of business cycle.
Current and project economic growth, inflation and interest rates.
Unemployment and labor supply.
Labor costs.
Levels of disposable income and income distribution.
Impact of globalization.
Likely impact of technological or other change on the economy.
Likely changes in the economic environment.

Socio-Cultural:

Population growth rate and age profile.
Population health, education and social mobility, and attitudes to these.
Population employment patterns, job market freedom and attitudes to work.
Press attitudes, public opinion, social attitudes and social taboos.
Lifestyle choices and attitudes to these.
Socio-cultural changes.

Technological Environment:

Impact of emerging technologies.
Impact of Internet, reduction in communications costs and increased remote working.
Research and development activity.
Impact of technology transfer.

SWOT/TOWS Matrix[edit]

TOWS Analysis is a variant of the classic business tool, SWOT Analysis. TOWS and SWOT are acronyms for different arrangements of the words Strengths, Weaknesses, Opportunities and Threats.

By analyzing the external environment (threats and opportunities), and your internal environment (weaknesses and strengths), you can use these techniques to think about the strategy of your whole organization, a department or a team. You can also use them to think about a process, a marketing campaign, or even your own skills and experience.

SWOT or TOWS analysis helps you get a better understanding of the strategic choices that you face. (Remember that "strategy" is the art of determining how you'll "win" in business and life.) It helps you ask, and answer, the following questions: How do you:

Make the most of your strengths?
Circumvent your weaknesses?
Capitalize on your opportunities? and
Manage your threats?

A next step of analysis, usually associated with the externally-focused TOWS Matrix, helps you think about the options that you could pursue. To do this you match external opportunities and threats with your internal strengths and weaknesses.

This helps you identify strategic alternatives that address the following additional questions:

Strengths and Opportunities (SO) - How can you use your strengths to take advantage of the opportunities?
Strengths and Threats (ST) - How can you take advantage of your strengths to avoid real and potential threats?
Weaknesses and Opportunities (WO) - How can you use your opportunities to overcome the weaknesses you are experiencing?
Weaknesses and Threats (WT) - How can you minimize your weaknesses and avoid threats?

Using the Tool

Step One: Print off the [[[File:Swot framework template.pdf|template]]] of SWOT Analysis and perform a TOWS/SWOT analysis, recording your findings in the space provided. This helps you understand what your strengths and weaknesses are, as well as identifying the opportunities and threats that you should be looking at.

Step Two: Print off the TOWS Worksheet [[[File:Tows framework template.pdf|template]]], and copy the key conclusions from the SWOT Worksheet into the area provided (shaded in blue).

Step Three: For each combination of internal and external environmental factors, consider how you can use them to create good strategic options:

Strengths and Opportunities (SO) - How can you use your strengths to take advantage of these opportunities?
Strengths and Threats (ST) - How can you take advantage of your strengths to avoid real and potential threats?
Weaknesses and Opportunities (WO) - How can you use your opportunities to overcome the weaknesses you are experiencing?
Weaknesses and Threats (WT) - How can you minimize your weaknesses and avoid threats?

The options you identify are your strategic alternatives, and these can be listed in the appropriate quadrant of the TOWS worksheet.

Step Four: Evaluate the options you've generated, and identify the ones that give the greatest benefit, and that best achieve the mission and vision of your organization. Add these to the other strategic options that you're considering.

The Boston Matrix[edit]

(aka B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, portfolio diagram) The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. It has 2 dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product's market grows the better it is for the company.

Placing products in the BCG matrix results in 4 categories in a portfolio of a company. The Boston Matrix categorizes opportunities into four groups, shown on axes of Market Growth and Market Share:

Stars (=high growth, high market share) - use large amounts of cash and are leaders in the business so they should also generate large amounts of cash. Frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept.
Cash Cows (=low growth, high market share) - profits and cash generation should be high, and because of the low growth, investments needed should be low. Keep profits high. Foundation of a company.
Dogs (=low growth, low market share) - avoid and minimize the number of dogs in a company. Beware of expensive turn around plans. Deliver cash, otherwise liquidate.
Question Marks (= high growth, low market share) - have the worst cash characteristics of all, because high demands and low returns due to low market share. If nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog. Either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash

Using this tool:

Step One: Plot your opportunities in terms of their relative market presence, and market growth on the blank matrix provided on the [[[File:Boston framework template.pdf|template]]].

Step Two: Classify them into one of the four categories. If a product seems to fall right on one of the lines, take a real hard look at the situation and rely on past performance to help you decide which side you will place it.

Step Three: Determine what you will do with each product/product line. There are typically four different strategies to apply:

Build Market Share: Make further investments (for example, to maintain Star status, or turn a Question Mark into a Star)
Hold: Maintain the status quo (do nothing)
Harvest: Reduce the investment (enjoy positive cash flow and maximize profits from a Star or Cash Cow)
Divest: For example, get rid of the Dogs, and use the capital to invest in Stars and some Question Marks.

Example:

The BCG Matrix method can help understand a frequently made strategy mistake: having a one-size-fits-all-approach to strategy, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation. In such a scenario:

A. Cash Cows Business Units will beat their profit target easily; their management have an easy job and are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their businesses which are mature and not growing anymore.

B. Dogs Business Units fight an impossible battle and, even worse, investments are made now and then in hopeless attempts to 'turn the business around'.

C. As a result (all) Question Marks and Stars Business Units get mediocre size investment funds. In this way they are unable to ever become cash cows. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become a cash cow (or star), or otherwise companies are advised to disinvest and try to get whatever possible cash out of the question marks that were not selected.

Disadvantages:

High market share is not the only success factor
Market growth is not the only indicator for attractiveness of a market
Sometimes Dogs can earn even more cash as Cash Cows

The Balanced Scorecard[edit]

Balanced Business Scorecard is a tool for improving the performance of a whole organization, a large department or a small team. The Balanced Scorecard or Weighted Scorecard helps you measure and improve performance in an integrated way.

The Balance Scorecard helps you set goals that give appropriate weight to financial and non-financial measures. It does this by starting with the vision and strategy that drives the business. From this, it identifies the drivers of success for that vision, and then develops targets that measure progress towards that success.

And because well-motivated, well-managed people will work to achieve these targets, this means that, by focusing on these targets, your team will adjust its efforts to focus on the successful delivery of your vision.

Now, it's easy to get bogged down in performance measurement using this approach. This is where the Balanced Scorecard approach limits measurement to the four critical areas of financial performance, customer service improvement, internal business processes streamlining and innovation and learning.

By identifying the key factors that contribute to organizational success - known as Critical Success Factors - the Balanced Scorecard limits measurement to the things that really matter.

And what really matters is that your company, department or team remains competitive. Both financial and non-financial measures are needed to achieve this, even if these non-financial activities have a less direct effect on the bottom line.

Using this tool:

The Balanced Scorecard works from the top down. The entire framework hinges on aligning performance with strategy, and strategy comes from the top: It comes from you, as the leader of the company, department or team.

The steps that follow are addressed to you as leader of your organizational unit, the one who sets the strategy and vision. From there, the Balanced Scorecard can be implemented as follows:

Step One: Lead the implementation

Start with your strategy for your organization. Take the time needed to make sure that it is as well-thought-through, researched and tested as it can be (this will often take a lot of analysis and careful consideration). Everything else rests on this strategy being sound and well-considered.

Step Two: Prepare for Change

Once you've decided to use the Balanced Scorecard approach, you'll need to set a plan in place to prepare the team and communicate the process for implementing the Balanced Scorecard - this will take a lot of work from managers at all levels.

More than this, you'll need a measurement "machinery" to be in place, if you're going to successfully measure people's performance. This needs to be implemented as well, with all of the issues associated with this.

Step Three: Develop Performance Measurements

Using your overall strategy as your guide, determine the critical success factors in each performance area, set related goals and then identify ways to measure results. The Performance Areas are described in the [[[File:Scorecard framework template.pdf|template]]]. Print it off.

Step Four: Make Sure Measures Are Transmitted Throughout Your Organization

Achievement of your vision needs different actions from different groups of people and individuals. This means that you need to develop subtly different scorecards for each of your reports, and each of your reports needs to develop scorecards for the people who report to him or her. Scorecards need to "ripple down" through your organization if everyone is to work to achieve your vision, in their own particular ways. More than this, you'll need to implement the systems needed to collect performance information. All of this is time-consuming: Make sure that you leave plenty of time for it to happen, and that you keep an eagle eye on this strategy transmission process.

Step Five: Plan Initiatives

Once you have specific goals and targets in place, you plan the initiatives and actions needed to achieve them. Make these easy for your team to understand so they can follow the plan to completion.

Step Six: Follow-up and Evaluate

The chances are, the first time you use the balanced scorecard, some strange behaviors may emerge. Perhaps particular measures are misinterpreted, or errors develop as ideas are transmitted down through layers of management. More than this, the measurement processes may fail or give spurious results. Be alert to these issues, and monitor and correct performance closely. And where the scorecard itself is misleading, adjust it appropriately.

Disadvantages

The "Balanced Scorecard" approach is not a quick fix; it takes considerable thought to develop an appropriate scorecard.
While communication can commence within a short time, the complete implementation should be staged.