This essay will critically evaluate whether formal strategic planning is no longer an applicable approach for corporate decision-making in today´s highly uncertain and dynamic business environment. In recent decades company leaders have been quite successful maneuvering their organisations through daily business and a number of economic crises by the means of formal strategic planning. Arguably, it offers several benefits on the one side, but also drawbacks on the other side. The first part of this essay will focus on the nature of formal strategic planning and its key characteristics as well as potential advantages and disadvantages. The second part will then evaluate why the formal planning approach may be perceived as not comprehensive enough in today´s highly uncertain and dynamic environment, yet show how it may still be able to make crucial contributions towards sound, efficient and comprehensive corporate decision-making.
Evaluation of the formal strategic planning approach
In order to evaluate the question of whether formal strategic planning is an appropriate approach in today´s highly uncertain and dynamic environment, it is necessary to first clarify the key characteristics. The second part of this section then describes and discusses potential benefits and drawbacks of the formal strategic planning process.
In the late 1950s, senior executives of growing and complex organisations found it increasingly difficult to coordinate and control long-term development. Formal strategic planning as a highly rationalized and formalized approach was therefore developed to provide long-term guidance on strategy making, based on macroeconomic forecasts and had its glory days from the 1960 to the early 1980s, in some cases even beyond (Grant, 2013).
The planned (intended) approach divides strategy-making into three major steps:
(1) analysis of internal and external surrounding by the means of certain analysis tools; (2) formulation of an adequate strategy that takes anticipated future developments into account; and (3) implementation of the developed strategy. This rational approach is a sequential, systematized process to generate strategy following a strict logical order. Furthermore, formal strategic planning distinguishes clearly between formulating and implementing; the resultant strategy is explicitly planned and deliberately formulated by top-level managers while at the same time it is applied by those responsible for the business-level (Campbell, et al., 2011, p. 223; Johnson, et al., 2011, pp. 397-402).
It is arguably clear, that strategy-making by the means of an intended formal planning process provides certain advantages, such as setting benchmarks to evaluate an organisation´s performance and encouraging a longer-term view of strategy (Falshaw, et al., 2006, pp. 13-15). Moreover, formal strategic planning recognizes the need for organisations to look into the future in order to be in a position, that enables the organisation to cope with any anticipated future change, while potentially taking advantage of upcoming opportunities and minimizing threats associated with the situation; in other terms, proactivity is more effective than reactivity. Furthermore, carrying out a comprehensive analysis allows the firm to achieve a deeper understanding of its current position within the environment and is therefore highly effective in communicating the agreed objectives and fostering commitment and motivation (Johnson, et al., 2011, pp. 402-403).
On the other hand, however, formal strategic planning arguably has weaknesses. According to Henry Mintzberg (1994 B, p. 109), “the problem is that planning represents a calculating style of management, not a committing style”. He is arguably clear that thinking and thus strategy must be done and created by people, not processes. Furthermore, he pinpointed in particular three fallacies of formal strategic planning: formalization, detachment and prediction (1994 A). The fallacy of formalization criticizes the rational and mechanic process from analysis through formulation to implementation that leads to both, a stifling of ideas and a negative impact on creativity and innovation within an organisation. Mintzberg (1994 B) strongly criticizes the institutionalization of learning, comprehending, synthesizing and innovating. The second fallacy refers to the detachment of the decision-making process: the separation of formulation from implementation or in other words thinking from doing, strategists from the objects of their strategies, hence an alienation of senior managers and planners from the reality of day-to-day business operations. Eventually, Mintzberg´s fallacy of prediction addresses the impossibility of forecasting discontinuities and making predeterminations with a given accuracy over a certain planning period, based on the assumption that the future will be, to a greater or lesser extent, similar to the present (1994 A, pp. 14-17; 1994 B, pp. 110- 111).
Mintzberg (1994 B, p. 108) is arguably clear that formal strategic planning, based mainly on these as misconceptions proved assumptions, is therefore not ´the one best way´ to develop and implement strategies as it was embraced by decisionmakers in most organisations since the 1960s.
Despite numerous advantages, the main limitation of formal strategic planning, however, is the vast dependence on accurate prediction and anticipation of future developments. Hence, Mintzberg´s (1994 B) findings arguably intensify the demand for clarification regarding whether formal strategic planning is applicable in today´s unstable and volatile business atmosphere. However, there is some evidence that formal planning may be supportive and beneficial if linked with emergent strategy development that will be introduced and evaluated in the following section.
Strategy-making in a highly uncertain and dynamic environment This section will first illustrate recent examples for changes of the business environment before introducing and evaluating an alternative approach of strategy development in a highly uncertain and dynamic atmosphere.
In recent decades environmental change has been increasingly driven by forces such as politics, economic instability and exchange rate volatility.
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- Franz-Joseph Reisner (Author), 2014, Formal Strategic Planning in highly uncertain and dynamic environments, Munich, GRIN Verlag, https://www.grin.com/document/293090