EVOLUTION OF STRATEGIC PLANNING THINKING

The essence of planning is to organise in a disciplined manner, the tasks of an organisation that it has to perform and issues that it has to address and to maintain operational efficiency in an existing business. Thus, we see that planning is a complex process and cannot be simply structured empirically or by using quantitative techniques alone. An active planning system has to primarily deal with some important dimensions, viz. being proactive to the changes in environment, responding to the changes in environment and deploying all the internal resources to improve the survival of a company in a highy competitive environment. To be knowledgeable about the external environment, which may be hostile or conducive, is very important for companies. Companies who over the changes in environment may eventually perish. The strategic thinking is a technique that enables firms to adapt to environmental changes.This awareness of being adaptive to the external environment is an active process with high creativity and tough decisions for profitability of the company and can be compared with the adaptive process of living beings with their environment. The response of a company, when strategic thi'1king is internalised, transforms into various actions that the company has to take for enhancing the existing and long term position ofthe company in a competitive environment. The action plans include totality of programs for major areas, hence it involves all the people of the organisation. The planning process must dovetail all the departments viz. marketing, sales, engineering, manufacturing, research and development, quality assurance, technology, financeetc. All functional departments of the organisation must respond to the challenges of the planning process. It should also be responsive to the individual talents and abilities of the departments, and people of the organisation and should take into account the organisational culture that is very vital for the planning process to succeed. Planning for the day does not apply to the present organisation. The environment andthe complex business situations have made it mandatory for organisations to plan forthe future. The table below shows the difference in the nature of formal and opportunistic planning. Purpose Formal Proactive in nature and seeks to adopt as per extenal environment, depending on effectiveness and efficiency internal to organization For Corporation Systematic planning which is chronological and datewise Formal Strategic Planning and highly structured Opportunistic This permits flexibility for quick response to unplanned activities based on existing capabilties of the organization Concentrated at SBU Level Responsive to emergencies, opportunities and threats Opportunistic planning

Scope Time Factors

Emergence of Long-Range Planning

A lot of progress towards comprehensive planning was done with introduction of long-range planning (LRP) in 1950's. The system of LRP consists of defining organisation-wide efforts to define various objectives, programs, budgets etc. over a spanof time, usually a few years. The basic idea of long-range planning is to make an effort towards projecting the environmental trends over a period of time and establish stretched objectives and set guide lines for the people of an organisation to achieve them. The LRP was born in response to the extraordinary boom that

occurred during the post World WarII period. The growth of demand of goods was unprecedented and it was not enough for companies to rely on the one-year projection of requirements. The organisation of capacity expansions and arranging for corresponding financial resources became quite difficult for companies, when long-range planning was found to give managers a wider horizon for doing business. LRP commences with multi-year sales forecast around whichmanufacturing, marketing, personnel, etc. are developed to meet the growing challenge. This shows commitment of an organisation towards growth in future. The plans of individual functions are then aggregated to build total financial plan, including investment decisions and usual budgeting and fmancial controls, but accounting for extended horizon of a long period of time. The historical data of a period of five to six years is usually covered. The planning is usually done to cover a little more than what is reflected by the data. In long-range planning, the capital budgeting is of great significance. Capital budgeting uses the concept of pay back and discounted cash flows for evaluating the worth of capital expenditures. Long-range planning has many limitations and it was probably very useful after World War II due to steep growth of markets. The trends of markets were also fairly predictable as there was comparatively less business rivalry amongst competitors. Usually, a single firm was there in a single business. In the absence of these conditions, long-range planning becomes quite a useless activity. Usually the sales projections and market behaviours will not be as estimated. The changes in business are quick and making projections for long periods of time may prove to be futile. Any effort to analyse the causes of deviations in sales projections may work out to be very complex. A more thorough understanding of the markets rather than merely sales projections is required, and for this, other underlying factors viz. economy, demography, attitudes, polity, etc. and scores of other significant factors must be considered. To define the position of an organisation in a business, more rigorous analysis is required rather than analysis of sales forecasts alone. The future, off late, has become more uncertain. Future is no more smooth as projected by sales forecasts. LRP may also act as a trap for an organisation when it may think that it is making a sustained growth, whereas itmay merely be driven by an external environmental factor, and when this factor, ceases to exist due to some imminent cause, the organisation may be left looking for ways to survive the onslaught. Long-range planning may be simpler for a single product company, but for companies having multiplicity of products it may be difficult to even visualiseLRP taking care of all the products. The problems are also in resource allocation in LRP, as it tends to confuse the planners towards overall focus of the organisation. It is easier to handle a project in isolation but to evaluate its effect in line with the total vision of organisation may be quite difficult.

DIFFERENCE BETWEEN LONG RANGE PLANNING AND STRATEGIC PLANNING

Long Range Planning

Focus Objective Constraints Rewards Risks Information Organization Leadership Problem Solving Present Annual Profits Present Resources Environment Efficiency,stability No growth Present Business Bureaucratic/stable etc. Conservative Reacts, relies on past experience

Strategic Planning
Growth Future Profits and share Future Resources Environment Development of future potential Slow process, Present business, future opportunities, threats etc. Entrepreneurial/flexible Creative Anticipate, discovers creative approaches

BUSINESS FORECASTING Forecasting is a systematic attempt to probe future with the help of known facts. It is the "research procedure to discover those economic, social and financial influences governing business activity, so as to predict or estimate current and future financial, production and marketing operations." Thus, forecasting is the process of predicting future systematically. The result of this process is known as forecasts. Need and Significance of Forecasting Forecasting has assumed great importance in the modern business world, which is characterised by growing competition, rapidity of change in environment, fast technological changes and increased government control. It offers the following advantages:

It helps in effective planning by providing a scientific and reliable basis for anticipating future operations such as sales, production, inventory, supply of capital and so on. Forecasting aims at reducing the area of uncertainty that surrounds management decisionmaking with respect to costs, production, sales, profits, pricing, etc. If the future were known with certainty, there would have been no need of foreC3sting. But the future is highly uncertain and so there is a great need to have an organised system of forecasting in the organisation. Making and reviewing of forecasts on a continuous basis will compel the managers to think ahead and to search for the best possible decisions with a dynamic approach. Forecasting is necessary for efficient managerial control as it can disclose the areas where control is lacking. Forecast of sales is a must in' order to control the costs of production and the productivity of personnel. Forecasting will help in anticipating the areas where there is a great need to be attentive to control the costs.

Limitations of Forecasting The limitations of forecasting are as under: Though forecasting is a necessity in a modem business, it should not be forgotten that all foret:asts are subject to a degree of error and they can never be made ''with a hundred percent accuracy. Guesswork can never be omitted from forecasts though it can be reduced to a minimum with the help of modern quantitative techniques. The quantitative techniques with the help of which forecasts are made have also got certain limitations. These techniques are based on certain assumptions. So the conclusions derived. by the application of quantitative models can be no better than the assumptions on which they are based. Managers often neglect to examine whether the forecasts are supported by reliable information. Managers must use their knowledge, experience and available information with a great degree of skill and take care to make forecasts more dependable. In spite of its limitations, forecasting has gained wide acceptance because managers ieel that they can plan more successfully on the basis of furecasts than they can think. An attempt should always be made to make forecast more reliable in order to improve the effectiveness of planning. The forecasting techniques should be improved and as far as practicable, the assumptions underlying forecasting should be objective in nature. Moreover, they should be based on all relevant facts. Sufficient information must be collected to have better forecasts. STEPS IN FORECASTING The process of business forecasting involves the following steps: Understanding the Problem The first step in the forecasting process is the understanding of real problem about which forecasts are to be made. A manager must know clearly the purpose of forecasting. Forecasts may be made in regard to technological conditions, sales, choice of people, availability of finance and so forth. The clear understanding of the scope of forecasting will help the manager to probe the relevant information only. Developing the Groundwork In .this stage, the manager will try to understand what changes in the past have occurred. He can use the past data on performance to get a speedometer reading of the current rate (say of sales or production) and how fast this rate is increasing or decreasing. This will help in analysing the causes of changes in the past. Selecting and Analysing Data

There is a definite relationship between the choice of statistical facts and figures and the determination of why business fluctuations have occurred. Statistical data cannot be selected intelligently unless there is proper understanding of the business fluctuations. The reasons of business fluctuations will help in choosing the relevant information. After selecting the data, they are analysed in the light of past changes. Statistical tools can be used to analyse the data. Estimating Future Events Future events are estimated on the basis of analysis of past data. Here, the manager must use his past experience and judgement. He must know dearly what he expects in the future in the light of overall organisational objectives. He should make an estimate of future business from a number of probable trends revealed by the systematic analysis of data. The estimated results can be compared with actual results in the future. This will help in refining the process of forecasting. Implicit Vs. Explicit Forecasting Forecasting may be either implicit or explicit. When a manager makes forecasts on the basis of his past experience and intuition, he is said to .be implicitly forecasting the future events. This approach is generally not successful because it is unsystematic, not very reliable, not very precise and not very accurate. Implicit forecasts cannot be rationally evaluated and so cannot be used as rational basis for planning and control. Therefore, it is generally more useful to consciously forecast and develop explicit planning premises. Explicit forecasts are systematic and are likely to be more reliable, precise and accurate. They can be used as the basis for rational analytical evaluation and also for control purposes. The various techniques of explicit forecasting have come into existence. They include time series analysis, regression analysis and econometric models. TECHNIQUES OF FORECASTING There is nothing new about business forecasting as forecasting is being done by the businessmen for centuries. They have been using their experience and intuition to predict the future events. Even today this method is still popular in the business world. But in recent years, new techniques of forecasting have come into existence because the old technique is always likely to lead to absurd conclusions. Attempts are being made to make forecasting as scientific as possible. Each of the techniques has its special use. Care must be taken to select the right technique for every occasion. The choice of a method of forecaSting depends on the following factors:

the relevance and availability of historical data, the context of the forecast, the desired degree of accuracy, the time period to be covered, the cost benefit of the forecast, and the time available for making the analysis

Various techniques of forecasting may be classified into two major categories: (i) Quantitative and (ii) Qualitative.

Quantitative techniques apply various statistical tools to data for predicting future events. They include Time Series Analysis, Regression Analysis, Econometric Models and Extrapolation. Qualitative techniques employ mainly human judgement to predict future events such as historical perspective (business barometers), Panel Consensus, Delphi Method, Morphological Research Method and Relevance Tree Method. These methods are used where quantitative data is not readily available. For instance, quantitative methods cannot be used to forecast technological environment. A brief discussion of various quantitative and qualitative methods .of forecasting is given below:Time Series Analysis Time series analysis assists to identify and explain : (i) Any regular or systematic variation in the series of data which is due to some seasons; and . (ii) Cyclical trends that repeat every two or three years or more. With the help of time series analysis, a trend line can be fitted (by using the method of least squares) which is the best indicator of the trend. Time series analysis provides an initial approximation forecast that takes into account the empirical regularities, which may be expected to persist. After the seasonal effects have been identified and measured, the original data may be adjusted for these influences, yielding a new historical time series consisting of the trend and seasonally adjusted data. The new time series may be used in the analysis and interpretation of cyclical and residual influences. This method has certain limitations also. Since the future does not always reflect the past, the time series analysis may give misleading results in some cases. Moreover, this method can be used only when data of several years are available. Regression Analysis Regression analysis is the means by which we can select from among the many possible relationships between different variables, which are relevant to forecasting. If two variables are functionally related, then the knowledge of one will make possible an estimate of the other. For instance, if it is known that advertising expenditure and sales are correlated, then we can find out the probable increase or decrease in sales with the given increase or decrease in the advertising expenditure. Regression analysis also helps in forecasting where there are one dependent variable and several independent variables. The help of computer programmes may be sought to estimate the regression equations that are very complex and time consuming. Econometric Models Econometrics refers to the application of mathematical economic theory and statistical procedures to economic data in order to verify economic theorems and to establish quantitative results. Econometric models take the form of a set of simultaneous equations. The number of equations may be very large in some cases. So the help of electronic data processing equipment may be sought to solve these equations. It is also significant to point out that the development of an econometric model requires sufficient data so that the correct relationships.can be established. The econometric models reveal in quantitative terms the way in which various aspects of a problem are interrelated. These models are very complex in practice as they combine the knowledge of

economics, mathematics and statistics. That is why, they are not popular with the small business houses. Extrapolation This technique is used frequently for sales forecasts and other estimates when other forecasting methods may not be justified. It is the simplest method of forecasting. In many forecasting situations, it can be expected more reasonably that' the variable will follow its already established path. Extrapolation assumes the relative consistency in pattern of past movements in some time .series. If this assumption is taken, the problem is to determine accurately the appropriate trend curve and the values of its parameters. Numerous trend curves are suitable for business forecasting. They include arithmetic trend, semi-log trend, modified exponential trend, logistic curve, etc. Selection of an appropriate curve depends on empirical and theoretical considerations relevant to the forecasting problem. Historical Perspective (Business Barometers) Historical perspective technique uses business barometers to make business forecasts. The term 'barometer' is used to indicate the economic situations. The assumption behind the use of business barometers, i.e., various indices, is that past patterns tend to repeat themselves in the future and that the future can be predicted with the help of certain happenings of the present. The various barometers, which can be used in forecasting include gross national product, wholesale prices, consumer prices, industrial production, volume of money supply, stock exchange quotations, etc. Some of these index numbers may also be combined into a general index of business activity. The general index refers to general condition of commerce and industry. However, this composite index may show quite contrary tendencies from those of some of its components. So proper care must be taken while using the index numbers for business forecasting. If the business barometer being used is reliable, it will reduce the chances of wrong forecasting. Panel Consensus Method Under this method, data is presented openly to a group of experts - related to a particular problem area is prepared with great care and the experts are brought together to have a face-to-face discussion and arrive at a consensus forecast. Such a forecast is expected to prove better as compared to a forecast made by one expert. Several experts can determine a better forecast than one working alone. Delphi Method This method enjoys respectability due to its scientific approach to the problem of forecasting. It is used for a systematic probing of the minds of the people who possess the necessary expertise in the pertinent or related areas. Under this method, a panel of experts related to a particular problem area is prepared. Instead of bringing these experts together to have a face to- face discussion, they are kept apart and their identity is kept secret from one another. This is done to prevent experts from being influenced by others and to eliminate the possibility of the emergence of a band-wagon mentality. The opinions of the experts are solicited by eliciting their response to-a carefully

prepared questionnaire. The answers collected are studied carefully to separate the answers to questions on which a general consensus has emerged. The experts who have differed with majority opinion are fed back the results of the first round of survey and are requested to communicate the reasons for their divergence. Similarly, in the case of such questions on which wide difference of opinion has surfaced, the same process is employed to narrow down the differences. The process of successive feedbacks and seeking of opinions continues until the experts re-evaluate their estimates and a better convergence of opinion emerges or at least the scatter of opinions gets narrowed. The final results are taken as the forecasts. It should be noted that the Delphi method would not give only one answer in all the cases. Morphological Research Method ''The morphological research method concerns itself with the development and the practical application of basic methods which will allow us to discover and analyse the structural or morphological interrelations among objects, phenomena and concepts and explore the results gained for the construction of a sound world." This method is used to find out, at least theoretically,all possible technological alternatives which can be derived from the various permutations and combinations of the variables of the parameters relevant to the solution of a problem. Relevance Tree Method In its normative application, the-purpose of the relevance tree method is to help the businessman in detennining objectives and predicting ways to attain them. According to this method, the feasibjIity of the future objective is judged first of all, and then by working backwards, attempt is made to find the technological innovations needed to achieve the objective. In its exploratory application, the relevance tree method is similar to the decision tree method of decisions making. It is used to develop alternatives and to detennine the most desirable course of action: STRATEGIC PLANNING According to Glueck and Jauch, "Strategic planning is a set of interactive and overlapping decisions leading to the development of an effective strategy for a firm." In the words of Robert Anthony, "Strategic planning is the process of deciding on the objectives of the organisation, on changes in these objectives, on the resources used to attain objectives and on the policies that will govern the acquisition, use and disposition of these resources." Strategic planning is the process of determining the major objectives of an organisation and the policies that will govern the acquisition, use and disposition of an organisation's resources for effective accomplishment of these objectives. It provides the firm with long-range direction. It is a valuable aid by which management can plan company's future and shape it successfully in the face of turbulent environment. Strategic planning enables the management to conceptualise the purpose of the organisation taking into account the strengths and weaknesses of the organisation in the light of the external and internal environment. Strategic planning enables the management to plan for a desired future and to ensure survival and growth of the organisation.

Features of Strategic Planning The basic characteristics of strategic planning are as follows:

It emphasises the basic mission and goals of the organisation. The nature of business and the nature of customers or clients are clearly stated. It is a top management activity. It determines the basic policies and programmes of the organisation. It provides a framework for operational planning and day-to-day decisionmaking. It is normally long-term in nature. The time frame is longer than other types of planning. It provides for coherence in organisation's policies, decisions and activities over time. It deals with uncertain environment by forecasting opportunities and threats in the environment. It is designed to improve the organisation's relations with its environment. It is a comprehensive and unified plan for the deployment of scarce organisational resources. It sets the direction of organisational activities for the attainment of organisational objectives. Other plans lay down how this 'direction' is to be put into action.

Significance of Strategic Planning Strategy formulation has become an important function of modern organisation because of the following reasons: Every business should have a strategy or an overall plan of action to meet the challenges of environment in future. An effective strategy would enhance the likelihood of business survival and enable to meet aspirations of individuals for opportunities in the company. Strategic planning clarifies the objectives of the organisation towards which its resources will be directed. All decisions and activities are guided by organisational objectives. Strategy facilitates the implementation of policy and long-range plans for achieving organisational goals. It is also important in defining the kind of business in which the organisation engages and its reliance on ethical business practices. The companies that do strategic planning are able to predict the outcome of planning better than other companies. Strategic planning is very useful to fight competition in the market and to have control over the market. Strategic planning facilitates environment scanning. It helps in reducing environmental uncertainty by identifying key factors for the success of the business. Strategic planning is the only way to anticipate future problems and opportunities and to respond to changing environment.

Process of Strategic Planning and Management Analytically speaking, the process of decision-making which goes the formulation and implementation of strategy may be said comprise a number of steps at various stages in the

process. A formal system of strategic planning and management normally consists of the following steps:

Developing a strategic vision of where the organisation headed, and defining the business mission or purpose. Analysis and diagnosis of the current and likely future environment, identifying opportunities and threats. Appraisal of internal capabilities, existing and potential strengths and weaknesses of the organisation. Setting corporate objectives in broad terms subject to realities of external environment and power relations, internal resources and power relations, and the values and preferences of executives. Formulation of alternative strategies, evaluation of strategic options and choice of appropriate strategy. Implementation of the chosen strategy establishing the structural and administrative systems and the planning and control mechanism besides formulating functional policies Review of strategy, monitoring the results of strategy implementation.