Strategic Planning vs Strategy – Meaning and Process

Strategic Planning is the structured process of setting long-term goals, assessing internal and external environments, and allocating resources to achieve those goals. It focuses on how an organization will move forward, outlining specific actions, timelines, and responsibilities.

Strategy, on the other hand, is the overarching guiding philosophy or approach that answers the question why—why a particular course of action will help the organization succeed. It defines the firm’s direction, scope, and competitive positioning, emphasizing the best ways to achieve long-term objectives in a dynamic environment.

Table of Contents

1. Planning vis-à-vis Strategy
2. What is a Strategy?
3. Strategic Management
4. Strategic Planning
5. The Strategic Management Process
6. Business Level Strategic Planning
7. Competitive Advantage

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1. Planning vis-à-vis Strategy

A plan is usually a list of steps taken to accomplish a goal. A plan tackles question like how, when, where, who, and what? Plans are the means by which managers achieve the goals. A strategy, however, is bigger than a plan. Strategy tackles the question of why? It has a large scope and looks at the end result as well as the many paths to the desired outcome. A strategy looks at every possible influencing factor, both seen and unforeseen and comes to terms with the whole situation, not just one end result. A plan says, “Here are the steps,” while a strategy says, “Here are the best steps.” Strategy speaks to the reasons why, while the plan is focused on how. In a perfect world the strategy always comes before a plan and shapes the details of the plan. A strategy is the overarching wisdom that coordinates all of the plans in order to effectively reach the goals. Remember, having a plan is essential, but developing a strategy should always come first. And whatever you do, don’t try to fit a strategy around existing plans. Rather, develop the right strategy and create the appropriate plans around the strategy.

2. What is a Strategy?

A strategy is a plan of action that describes resource allocation and activities for tackling with the environment, achieving a competitive advantage and attaining the organisational goals. It is an integrated and coordinated set of commitments and actions designed to exploit a firm’s internal strengths and external opportunities with a view to gain a competitive advantage.

• Scope – A strategy focuses attention primarily on how to use the resources of a firm most effectively in a changing environment. A strategy defines the scope of the firm that is, the kind of products the firm will offer, the markets (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertake. It will, at the same time, throw light on the activities the firm will not undertake.
• Goals – A strategy invariably indicates the long-term goals toward which all efforts are directed. For example long-term goals might be to ‘dominate the market, to be the technology leader or to be the premium quality firm’. Such enduring goals help employees give their best in a unified manner and enable the firm to specify its competitive position very clearly to its rivals. A recent advertisement from Maruti Suzuki for example, claims – “we don’t just sell more cars than No. 2. We sell more cars than the entire competition put together”. Maruti’s commitment to being number one (sales, distribution network, lowest cost producer, highest resale value, one stop solution provider etc) or two in the markets it serves sends clear signals to its rivals in more than one way.
• Comprehensive, Well-integrated Plan of Action – A strategy is a long term plan of action seeking answer to certain basic questions such as where are we going? How are we going to get there? How to attract and please customers? How to grow the business? How to respond to changing market conditions? . It is thus, a comprehensive and well-integrated plan that ties all parts of a firm together, covering almost every aspect of business and critically examining whether all parts of the plan are in sync with each other or not.
• Competitive Advantage – A strategy seeks to put resources to best advantage. It seeks to put the firm in a favourable position when compared to its rivals. It tries to strike a rapport between a firm’s unique strengths and the external environmental forces in order to give the firm an edge or a competitive advantage over its rivals. Competitive advantage is ‘anything that a firm does especially well, compared to rival firms’.
• Terrain – The term ‘terrain’ is highly relevant in explaining the concept of strategy more clearly. From a business sense, terrain refers to markets, segments and products used to win over customers. The essence of strategy is to match strengths and distinctive competence with terrain in such a way that one’s own business enjoys a competitive advantage over rivals competing in the same terrain. The basic premise of strategy, as things stand now, is that an adversary can defeat a rival–even a larger, more powerful one if it can manoeuvre a battle or engagement onto a terrain favourable to its own capabilities. The term ‘capability’ refers to the ability or capacity of a bundle of resources deployed by a firm to perform an activity (Pitts and Lie). For example, 3M’s capability is developing radically new products frequently; Sony’s is making high-quality consumer electronic products in compact sizes and Toyota’s is manufacturing cars efficiently.
• Logic – This is the most important element of strategy. For example, a firm’s strategy is to dominate the market for inexpensive detergents by being the low-cost, mass-market producer. Here the goal is to dominate the detergent market. The scope is to produce low-cost detergent powder for the Indian mass market. The competitive advantage is the firm’s low cost. Yet this example does not explain why this strategy will work. Why the firm will get ahead of others by limiting its scope and by being the low cost producer (competitive advantage) in the detergent industry. The ‘why’ is the logic of the strategy. To see how logic is the core of a strategy, consider the following expanded version of a strategy – ‘our strategy is to dominate the Indian market for inexpensive detergent powder by being the low cost producer selling through mass-market channels. Our low price will generate high volumes. This, in turn, will make us a high-volume, low-cost producer. The economies of scale would help us improve our bottom line even with a low price”. The only thing that needs to be qualified here is that the economies of scale must be sufficient enough to give the firm the cost advantage it believes it will have over its rivals.
• Strategy is All About Winning—capturing mindshare and conquering markets. (Trout) It is about matching the strengths and distinctive competencies of a firm with the terrain in such a way that one’s own business enjoys an edge over rivals competing on the same terrain (Pitts & Lei). Rivals should be compelled to come to a terrain where you have the capabilities to gain an edge. A good strategy—when executed properly enables a company to earn superior returns and gain financial strength over time. The firm is also able to improve its competitive strength and market standing. Strategy is an inherently creative process. Once one understands the firm’s current situation and has a view of the future, improving the firm’s performance requires thinking up new opportunities for creating and capturing value by leveraging its important assets.
• Strategy is Forward looking – It takes the long range view, Strategy, it must be noted, is a dynamic and flexible programme of action. It is basically designed to meet the environmental challenges. Business involves great risk-taking, and strategies provide management the necessary data so that reasonable and informed gambles can be made, when necessary. Flexibility and dynamism are ingrained in the strategic planning process. Changes in the environment bring about changes in strategic planning activities. Thus, strategies are more action-oriented; they specify the need for changing gears and taking appropriate direction in the light of continuous changes in the environment.

3. Strategic Management

Strategic management basically aims at formulating and implementing effective strategies. Effective strategies, of course, are those that help a superior ‘fit’ between the organisation and its environment and the achievement of strategic goals (Andrews). Strategies necessarily need to change overtime to suit environmental changes. But to remain competitive, organisations develop those strategies that focus on core competence, develop synergy and create value for customers.

• Core Competence – An organisation’s core competence is something it does exceptionally well, in comparison to its competitors. It reflects a distinct competitive advantage (like superior research and development, mastery of a technology, distribution channel, manufacturing efficiency or customer service) that provides the firm:

1. 1. access to variety of products/markets,
   2. contributes greatly to customer benefits in the end products,
   3. is an exclusive and inimitable preserve of the firm that is long-lasting and cannot be easily copied by competitors.

• Synergy – When organisational parts interact to produce a joint effort, that is greater than the sum of the parts acting alone, synergy occurs. Some call this, the 1+1=3 effect. In strategic management, managers are urged to achieve as much market, cost, technology and management synergy as possible, when arriving at strategic decisions (such as mergers, acquisitions, new products, new technology, etc.) When one product or service strengthens the sales of one or more other products or services, then market synergy occurs. WalMart’s new Supercenters and Super K marts, that put a discount store and a grocery store under one huge roof (Crossroads, Mumbai; Spencer’s in Chennai) are a good example of market synergy in action.
• Value Creation – Exploiting core competencies and achieving synergy helps organisation create value for their customers. Value is the sum total of benefits received and costs paid by the customer, in a given situation. Ideally, the purpose of a strategy should be to create a lasting value that is greater than the cost of resources that are used to create the same.

4. Strategic Planning

Strategic planning involves decisions about the organisation’s long term goals—such as survival, growth etc. It involves setting long term objectives (by top management) and deciding about the judicious deployment of resources to achieve those objectives. Strategic planning, thus, is long-term in nature. It tends to be a top management responsibility. It requires looking outside the organisation for threats and opportunities. It also requires looking inside the organisation for finding out weaknesses and strengths. It affects many parts of the organisation, as its decisions have enduring effects that are difficult to reverse. It tries to equip the organisation with capabilities needed to confront future uncertainties, by taking a holistic view of the entire organisation. Its focus is clearly on the ‘jungle, not the trees’. The main objective is to position the firm in an advantageous position in relation to the environment, keeping the firm’s own capabilities in mind. Example – In business, it means how much money is going to be dedicated to a project, and by when you expect the project complete. In personal life, suppose you plan a wedding, it means deciding on the budget and the date.

4.1 Benefits of Strategic Planning

• It provides the roadmap for the firm; it shows the way for achieving targets.
• It helps the firm utilise its resources in the best possible manner. It allows more effective allocation of time and resources for identifying opportunities.
• The firm can respond to environmental changes in a better way by exploiting opportunities to its advantage and avoiding costly mistakes in investment decisions.
• It minimises the chances of mistakes and unpleasant surprises. It seeks to prepare the firm to confront future challenges through certain proactive steps and even shape the future to its advantage. As rightly pointed out by F R David, strategic planning “allows an organisation to initiate and influence (rather than just respond to) activities, and thus exert control over its own destiny”.
• It creates a framework for internal communication among personnel. It helps to integrate the behaviour of individuals into a total effort. It provides a basis for the clarification of individual responsibilities. It gives encouragement to forward thinking. It encourages a favourable attitude towards change. It provides a cooperative, integrated and enthusiastic approach for tackling problems and realising opportunities.

4.2 Limitations of Strategic Planning

Strategic planning is laborious and time-consuming. There are very few satisfactory shortcuts. Immediate results are rarely obtained. Further, establishing and maintaining a formal system involves many expenses. Sophisticated strategic planning systems are a luxury for small-scale organisations. Again, it should be remembered, that trying to reach 100 per cent perfection is an ideal, a pious intention that can never be satisfied through strategic planning. Many executives, enthralled by strategic planning, tend to overdo the fact-gathering job. Much time and effort is wasted, thus in collecting all sorts of data that is not fully put to fruitful use. Strategic planning, quite often, restricts the organisation and executives to the more rational and risk-free options. Managers are wedded to a philosophy of adopting those strategies or objectives that bear the weight of careful scrutiny and detailed analysis. In the process, many attractive opportunities may be lost since they are characterised by a high degree of risk and uncertainty. Finally, strategic planning is not a sure bet. There is no guarantee that it will help an organisation to outwit rivals and ride over the market place.

5. The Strategic Management Process

The various steps involved in the strategic management process may be listed thus:

• Vision, Mission and Objectives – In the organisational context, vision is a picture of the organisation – the core values for which an organisation stands and a clear description of what the organisation wishes to become in the years ahead. A mission statement, on the other hand, specifies what an organisation is and why it exists. The strategic management process begins with an evaluation of the organisation’s current vision, mission objectives and strategy. The principal value of a mission statement lies in its specification of a firm’s ultimate aims. It offers a sense of shared expectations among all levels and generations of employees. It consolidates values over time and across individuals and interest groups. It projects a glorified sense of worth and intent that can be identified and assimilated by external groups too. It also exhibits a firm’s commitment to responsible action in line with the firm’s internal (survival, growth, profitability) as well as external (ethics, corporate governance, social responsibility) objectives.
• External and Internal Analysis – The firm’s external environment is challenging and complex. Because of the impact the external environment has on performance, the firm must develop requisite skills to identify opportunities and threats existing in that environment. The external environment has three important parts:

1. 1. The general environment (elements in the broader society that affect industries and their firms)
   2. The industry environment (factors that influence a firm, its competitive actions and responses, and the industry’s profit potential) and
   3. The competitive environment (in which the firm examines each major rival’s future objectives, current strategies, assumptions and capabilities). In order to exploit environmental opportunities to its advantage, a firm must have internal resources and capabilities.

A systematic internal appraisal helps a firm find:

1. where it stands in terms of its strengths and weaknesses
2. pick up opportunities that are in tune with its resource base
3. take steps to bridge any resource gaps and
4. select appropriate areas that help consolidate its position in the industry.

A major task of strategists, while carrying out internal analysis, is to match the conditions of the external environment with the firm’s internal strengths and weaknesses. If a firm can perform an activity better than its rivals, it then possesses a distinctive (or core) competence that helps the firm to build its own source of competitive advantage. In the final analysis, the choice of which strategy to pursue should be based on using and exploiting the firm’s competitive advantage.

• Strategy Formulation – Strategy formulation is the process of offering proper direction to a firm. It seeks to set the long term goals that help a firm exploit its strengths fully and encash the opportunities that are present in the environment. There is a conscious and deliberate attempt to focus attention on what the firm can do better than its rivals. To achieve this, a firm seeks to find out what it can do best. Once the strengths are known, opportunities to be exploited are identified, a long term plan is chalked out for concentrating resources and effort. Since strategies consume time, energy and resources, they must be formulated carefully. Strategies, once formulated, must ensure a best fit between goals, resources and effort put in by people. The ultimate goal of every strategy that is being formulated should be to deliver outstanding value to customers at all times—if the firm wants to survive and flourish in a competitive environment. In the words of Daft,

“strategy formulation may include assessing the external environment and internal problems and integrating the results into goals and strategy. …It includes the planning and decision making that lead to the establishment of the firm’s goals and the development of a specific long term plan”

A firm’s strategy formulation occurs at three levels, namely, corporate level, business and at functional level:

A. Corporate Level Strategy Formulation – The question ‘what business are we in’ is the cornerstone of corporate strategy. Corporate strategy represents the firm’s decisions and actions to gain advantages over rivals by managing a portfolio of products or businesses. It focuses on the scope of the business enterprise, that is the range of products/businesses in which the firm will compete and the value chain activities it will perform to realize growth or profits. Corporate strategies are formulated by the top management of an organisation. They are mainly concerned with decisions regarding the product or service to produce and the geographic location to target. They give a direction to an organisation to achieve its objectives. Decisions regarding allocation of resources, expansion moves, exploiting new opportunities, striking deals with outside firms, moves to deal with competition effectively etc also come under the purview of corporate strategy. Corporate strategies are also known as grand or master strategies. They specify the time period to achieve the long term objectives of an organisation. Corporate level strategies fall into four general categories: growth/expansion, stability, retrenchment and combination

Strategic Alternatives

• Growth/Expansion Strategy – Organisations generally seek growth in sales, market share or some other measure as a primary objective. When growth becomes a passion and organisation’s motive is to seek sizeable growth, (as against slow and steady growth) it takes the shape of an expansion strategy. The firm tries to redefine the business, enter new businesses, that are related or unrelated or look at its product portfolio, more intensely. Growth or expansion moves are made in order to survive in a competitive terrain. Growth options, when exploited properly, offers scale economies and permits best use of talent and pushes the organisation to commanding heights. Growth may be an exciting option for firms willing to go that extra mile and willing to burn cash on risky ventures. But before taking the call, managers must see whether growth is manageable or not. Growth must happen in sync with environmental demands. Of course, a firm can have as many alternatives as it wants, by changing the mix of products, markets and functions. Thus, the growth opportunities may come internally or externally. Internal growth possibilities may be exploited through intensification (all resources and efforts put on a single product or a single market to achieve growth) or diversification (efforts and resources put on different areas irrespective of whether the business has strengths in it or not, so it can be related diversification or unrelated diversification) External growth options include mergers, takeovers and joint ventures
• Stability Strategy – A stability strategy involves maintaining the status quo or growing in a methodical but slow manner. The firm follows a safety-oriented, status-quo-type strategy without bringing about any major changes in its present operations. The resources are put on existing operations to achieve moderate, incremental growth. As such, the primary focus is on current products, markets and functions, maintaining the same level of effort as present.
• Retrenchment Strategy – It is a corporate level, defensive strategy followed by a firm, when its performance is disappointing or when its survival is at stake. When a firm is confronted with a precipitous drop in demand for its products and services, it is forced to effect across-the-board cuts, in personnel and, expenditures. Retrenchment strategy, as such, is adopted out of necessity, not by deliberate choice. In actual practice, retrenchment may take one of the following forms:

1. 1. Divestment – When a company sells or “spins off”, one of its business units, it is engaging in divestment. Divestment usually takes place when the business unit is not doing well or when it no longer fits the company’s strategic profile.
   2. Turnaround – A turnaround is designed to reverse a negative trend and bring the organisation back to normal health and profitability. It usually involves getting rid of unprofitable products, trimming the workforce, pruning distribution outlets, and finding other useful ways of making the organisation more efficient. If the turnaround is successful, the organisation may then focus on growth strategy.
   3. Liquidation – This is a strategy to be followed as ‘last resort’. When neither a turnaround nor a divestment seems feasible, liquidation is used. Liquidation involves selling or disposing of, all or part of, an organisation’s assets
   4. Bankruptcy – It is a means whereby an organisation that is unable to pay its debts can seek court protection from creditors and from certain contract obligations while it tries to regain financial health and stability (reorganisation bankruptcy). In case of a more serious one, liquidation bankruptcy, the liquidating firm agrees to distribute all assets to creditors, most of whom receive a small fraction of the amount they were owed. If the firm can convince its creditors about the revival of the firm in the near future, a reorganisation bankruptcy comes into existence.

• Combination Strategies – Large, diversified organisations generally use a mixture of stability, expansion or retrenchment strategies either simultaneously (at the same time in various businesses) or sequentially (at different times in the same business). For example, growth could be achieved by an organisation through acquisition of new businesses or divesting itself of unprofitable ventures. Depending on situational demands, therefore, an organisation can employ various strategies to survive, grow and remain profitable. In recent times, three more strategies have gained popularity namely joint ventures, strategic alliances and consortia.

B. Business-level Strategy – The question ‘how do we compete’ is the focus of business level strategy. Business level strategy is concerned with how a business competes successfully in a particular market—what steps the firm would take to gain competitive advantage or superiority in a particular business. Thus, it is a strategy for a single business. Its main focus is dealing with competitive threats. That is why it is also known as competitive strategy. It seeks to achieve superior performance by building competitive advantages—either through a favourable market position (it is able to exploit this better than rivals) or by acquiring a unique internal strength or core competence (rivals not in a position to compete simply because they are not able to acquire such a strength despite best efforts).

C. Functional-level or Operational Strategy – The question, ‘how do we support the business level competitive strategy’ is the main concern of functional level strategy. It deals with strategies followed by major functional departments within a business unit. Key focus areas here would be resources, processes, people, methods, procedures, etc. Managers heading each functional department (such as production, finance, marketing etc) would be basically choosing actions and decisions that help them gain competitive edge to effectively pursue the business level and corporate level goals. Functional level strategies always run in sync with the firm’s chosen business and corporate level strategies.

• Strategic Analysis and Strategic Choice – Strategic analysis is concerned with the strategic situation of the organisation. Here the organisation looks into issues such as changes in the organisational environment and its likely impact on the organisation, assessment of its resources and strengths and weaknesses in the light of changes in environment. A vigilant and proactive organisation always tries to get ahead of competition through a constant re-examination of its position in the marketplace in terms of its products, services, strategies etc. Strategic choice is concerned with the selection of appropriate strategies taking a broad view of various factors such as – Internal capabilities, competencies, Resource strength, degree of risk involved, timing of the decision, Overall organisational vision and mission, Competitive reactions, Reactions from government, customers, society at large etc Strategic analysis provides a basis for strategic choice. This is basically concerned with the formulation of suitable courses of action, their evaluation and the choices between them. The relevant issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture and how to avoid a hostile takeover etc. The chosen strategies must incorporate both long term and short term perspectives—that is setting the eyes on the future looking at the present operating environment. For example laying off employees may help to cut costs and improve short term profitability, but will have a telling effect on the moral of people working in a firm. While trying to select and enforce a plan of action, managers need to look at both short term impacts and the long-term consequences on the firm as well as its multiple stakeholders. Peter Senge referred to this need as a sort of ‘creative tension’
• Strategy Implementation – This is the action stage of strategic management. Implementation means mobilising employees to translate formulated strategies into concrete action. This step requires a firm to:

1. 1. establish annual objectives,
   2. devise policies,
   3. motivate employees,
   4. allocate resources,
   5. develop a strategy of supportive culture
   6. create an effective organisation structure
   7. channel marketing efforts
   8. prepare budgets
   9. develop and utilise information systems and
   10. link employee rewards to organisational performance. Often, successful strategy implementation hinges upon a manager’s ability to motivate people.

• Strategy Evaluation – This is the final stage in strategic management. Evaluation is required, because success today is no guarantee of success tomorrow. Success creates new and complex problems. So, managers need to constantly:

1. 1. review external and internal factors that form basis for current strategies,
   2. measure performance and,
   3. take corrective steps. Ultimately, all strategies are subject to change because the environment in which they operate is constantly changing.

6. Business Level Strategic Planning

Business level strategy deals with how a particular business competes. The principal focus is on meeting competition, protecting market share and earning profit at the business unit level by performing activities differently, offering superior value to customers. It is a strategy designed to gain competitive advantage or superiority in a single business (unlike corporate strategy which deals with actions firms take to gain competitive advantage by operating in multiple markets or industries simultaneously). How to overcome threats from competitors through a favourable market position and/or acquisition of unique internal competencies—is the focal point of study here. How the firm should compete in its business or industry is put to a detailed examination. Such a question is generally influenced by beliefs, values, past experiences of managers regarding running a business and winning over competition over the years. For example, Sam Walton’s belief that if a firm is able to offer standard quality products at lower prices in a consistent manner would guarantee success influenced WalMart’s selection of a cost-leadership strategy. Unless a firm is able to create and deliver value to customers through effective use of resources, developing unique strengths and constant innovations. It is not possible to survive in the present-day economic jungle. When a firm is able to organise and perform value chain activities better than its rivals consistently. It is able to get past competition and emerge as a winner in a competitive world. (To quote Porter—“ doing well on what rivals do is not strategy; doing well on what rivals cannot do is”). Porter argues that performing similar activities better is not strategy; it is operational effectiveness—the ability to execute similar activities more efficiently than rivals do that gives a firm the needed strength to gain the upper hand in the market place. A firm should do things differently and do them consistently better than its rivals in order to deliver superior value to customers.

7. Competitive Advantage

A firm is able to deliver superior value to customers when it is able to offer the same benefits as competitors but at a lower cost (cost advantage) or deliver unique and