Types of Strategic Planning in Business

A manager is a planner and a strategist. The modern world presents an uncertain and fast-changing environment where constant planning and strategy must take place in order to stay on top. Various types of strategic planning in business can be a applied to any industry.

Gareth R. Jones and Jennifer M. George's book "Contemporary Management" describes three main steps in planning--determining the organization's mission, formulating a strategy and implementing that strategy. Jones and George define planning as "identifying and selecting appropriate goals and courses of action." Strategy is "a cluster of decisions about what goals to pursue, what actions to take and how to use resources to achieve goals." Planning occurs in all levels of the organization: corporate, business and functional. Another aspect of a plan is setting the "intended duration of a plan." Scenario planning considers "multiple forecasts of future conditions followed by an analysis of how to respond effectively to each of those conditions." During planning, top-level managers communicate the organization's vision to lower levels of the organization's hierarchy.

SWOT analysis is a common type of strategic planning method in business. A SWOT analysis is acronym used to identify an organization's internal strength (S) and weaknesses (W) and external environmental opportunities (O) and threats (T). SWOT analysis can be applied to corporate, business and functional levels of an organization. When conducting a SWOT analysis, create a list under each of the four points.

Jones and George say the five-forces model helps managers focus on the five most important competitive forces or potential threats in the external environment. Created by Michael Porter, professor at the Harvard Business School, the five forces can be used as an extension of the SWOT analysis. The five factors are level of rivalry within your industry, potential for your entry into the industry, power and impact of large suppliers, power of large customers and threat of substitute services or products.

Porter also developed a theory of how managers can choose a business-level strategy. George and Jones describe this as "a plan to gain a competitive advantage in a particular market or industry." Successful business-level strategy "reduces rivalry, prevents new competitors from entering the industry, reduces the power of suppliers or buyers, and lowers the threat of substitutes--and this raises prices and profits." Managers must choose to pursue one of four business-level strategies: low cost, differentation, focused low cost or focused differentation. Differentiation increases value to customer by distinguishing its product from other competitors through tweaking product design, quality, or customer service. By lowering costs in making the product, you can lower overall costs compared to its rivals, making it more competitive in the market. Low-cost strategy and differentation strategy aim to serve many or most segments of a certain market, while focused differentation and focused low cost serves only one or few segments of the overall market.

Corporate-level strategies can help organizations stay on top of the industry. There are four aspects--concentration on a single industry, vertical integration, diversification, and international expansion. By concentrating on a single industry, the organization is reinvesting a company's profits in order to strengthen the position within an industry. Vertical integration can expand business operations backward or forward in the industry. An example of backward vertical integration occurs when a business takes over in creating raw materials, rather than purchasing it from a supplier. An example forward vertical integration is when a product developer goes from purely developing products to opening a chain of stores to distribute the product. Diversification means when a business expands their reach by producing new kinds of goods or services within an industry. International expansion means marketing products by reaching out to different national markets.