Page 134 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 6: Strategic Planning for Management Control

decision by an individual goods manufacturer to diversify into consumer goods is a strategy Notes
formulation, a strategic decision after which a lot of implementation issues have to be sorted out
such as whether to diversify through acquisition or through organic growth, what product lines
to go for, whether to make or buy, which marketing channels to use. The document that describes
how the strategic decision is to be implemented is the strategic plan.
In practice, there is considerable amount of overlap between strategy formulation and strategic
planning. Studies made during strategic planning process may desire changing of goals or
strategies. But strategy formulation usually includes a preliminary consideration of the programs
that will be adopted as means of achieving the goals.

Strategic planning is systematic; there is an annual strategy planning process with prescribed
procedures and timetables. Strategy formulation is unsystematic. Strategies are re-examined in
response to perceived opportunities or threats. Thus, ideally, a possible strategic initiative may
surface at any time from anyone in the organisation. If found to be worth pursuing, it should be
analyzed immediately without waiting upon a prescribed timetable. Once a strategy is accepted,
the planning for it follows in a systematic way.

6.1 Evolution of Strategic Planning

Fifty years ago, management did give some thought to strategic planning but not in a systematic
and co-ordinated way.
A few companies started formal strategic planning in the late 1950s, but most early efforts were
failures, since it were minor adaptations of the existing budget preparation systems, the required
data were much more detailed than was appropriate; staff people rather than line staff did most
of the work, participants spent more time in filling the forms rather than deep thinking about
alternatives and selecting the best options.
Currently, many organizations appreciate the advantages of making a plan for the next 3 to 5
years. The practice of starting this plan in a formula document or model is widely, but by no
means, universally accepted.
6.1.1 Benefits and Limitations of Strategic Planning

Benefits

1. A framework for developing the operating budget: An operating budget involves resource
commitments for the next year; it is essential that such resource commitments are made
with a clear idea of where the organisation is heading over the next several years.
A strategic plan provides that broader framework. Thus, an important benefit of preparing
a strategic plan is that it facilitates the formation of an effective operating budget.
[Figure 6.1 shows how the strategic planning process, narrows the range of options such
that planners can make intelligent resource allocation decisions during the budgeting
process. The strategic plan helps the organisation understand the implications of strategic
decisions for action plans in the short-term.]

As provided in Figure 6.1, a company without a strategic planning process is required to
consider a number of strategic issues during the budgeting stage. This might lead to
information overload, inadequate consideration of some strategic alternatives, or neglect
of some choices altogether – a dysfunctional environment that may affect the quality of
resources, allocations and decisions. An important benefit of strategic planning is to facilitate
optimal resource allocation decisions in the support of key strategic options. Figure 6.2

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