Steps in Corporate Planning

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Steps in corporate planning and its successor---strategic management---pose a series of questions. Some look at how well a firm's current internal structure aligns with external realities, such as markets and macroeconomic trends. This inventory tells a company what it is and where it stands. Now come the forward-looking questions: What and where does the company want to be, and how does it get there?

Function

  • Key constructs and processes of structured corporate planning---situation analysis, mission statement, objectives and strategies---underpin today's strategic decision making. A firm must know what it is good at and what it is not, which markets it can prosper in, and which structural, competitive and economic challenges it faces. It must also define itself by pinpointing who its customers are and what unique benefits it provides to those customers. Only then the firm can come to grips with the fundamental question of what and where does it want to be in the future? This vision shapes its operational goals, including which products, markets, positioning and expertise it will invest in. Attention now shifts to the practicalities of execution: market entry or exit, product development, manufacturing or service delivery, pricing, advertising and distribution.

History

  • Corporate planning began in the 1950s as an outgrowth of yearly capital budgeting. Decisions on how much to invest in a growing number of diverse product lines proved to be increasingly complicated. Weighing the potential impact of each investment against the long-term growth of corporation simplified the decision making. In the 1960s and 1970s, the focus shifted more towards entering new markets. Detailed long-range plans marshaled all the corporation's resources towards that end. These were abandoned during the economic volatility and structural change of the 1980s in favor of identifying and leveraging a firm's "competitive advantage." Bottom-line-driven corporations in the 1990s turned to developing flexible core competencies capable of meeting ever-changing market demand.

Tools

  • Strengths, weaknesses, opportunities and threats analysis maps the business realities a firm must deal with as it goes forward. Political, environmental, social and technological analysis identifies trends affecting its external environment. Competitive strategy charts the influence of buyers and suppliers, the likelihood of product substitutes, barriers to entry and exit, and the intensity of rivalry between firms in a given industry. Critical success factors spell out goals that must be met without fail. Decision trees outline alternative scenarios step-by-step; risk analysis assigns a probability of an anticipated outcome. Brainstorming encourages visionary thinking; benchmarking establishes the efficiency of the firm's operations. Strategic business unit analysis evaluates the strength of a product line in relation to its competitors and the overall attractiveness of the industry segment in which it belongs.

Steps

  • Strategic management is more fluid than corporate planning was. A number of other steps can and are interspersed between, or conducted parallel to, the basic sequence of situation analysis, mission statement, objectives and strategies. Internal enabling factors---ranging from knowledge management, to process and organizational design, to leveraging new technology---are examined. External factors, like intercompany alliances and new sources of capital, also enter the mix. Firms that periodically think "outside the box" are better at spotting emerging markets and unexpected competition. One step remains, and some companies ignore this step at their peril: putting a system in place to monitor the subsequent effectiveness of the chosen strategy.

Time Frame

  • Experts now agree that strategic management is an ongoing process. At its inception, the centerpiece of corporate planning was the five-year plan. Confidence in data-rich economic forecasts encouraged use of a three- to five-year time horizon. This suited the corporate ambitions of the day to expand and diversify. Subsequent unanticipated events---the oil shocks of the 1970s and globalization in the 1980s---showed how uncertain the long term could be. Planning time horizons shrank to one year.

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