What is the highest level of planning in an organization? A strategic plan is the main course of action created by top-level managers. A strategic plan helps to answer three questions:

1. Where is the company going?

2. What should the company focus on?

3. How will the company achieve its goals?

Simply put, a strategic plan points an organization to where it wants to be in the future and identifies how it will get there. Although individual goals sometimes contribute to the plan, the overall strategic plan is focused on an entire organization or an entire department.

How is a strategic plan developed? A good strategic plan reflects what is happening inside and outside an organization and shows how those conditions and changes will affect the organization in the future. Those making strategic plans must pay attention to the capabilities and resources of an organization as well as changes in the environment. There are several steps to the process of developing a strategic plan, as Figure 7.4 shows.

Figure 7.4

Strategic Planning Process

Consider the strategic plan development for the Wikimedia Foundation (WMF). WMF supports the online collaborative encyclopedia Wikipedia as well as nine other projects with a common goal (Wikibooks, Wikiquotes, Wikiversity, and so on).3 In 2009 WMF began to modify the strategic plan it would use for the next six years.4 WMF found that only about 15 percent of the world was using Wikimedia’s products—far fewer than it wanted. Even in the United States, only about one-third of online users had ever accessed a Wikimedia product.

One problem was that participation and contributions to WMF projects had begun to decline—in fact, more than 50 percent of the content was coming from about 1 percent of the contributors. In addition, the organization wanted to enhance the ability of the WMF community to think strategically and focus on the organization’s strategic plan long term.

To develop a plan that could address these problems and challenges, WMF asked its community of contributors and asked for proposals. Every submission was available for the entire WMF community to view and comment on. Together the community created goals and decided how to achieve these through specific actions. The process was conducted primarily online and involved more than 1,000 people using over 50 different languages. The content of about 1,500 wiki pages of input was consolidated into a strategic report. Although this process wouldn’t work for every business, it seems appropriate for the tech-savvy WMF community.

What helps define the direction of a business? The first step in creating a strategic plan is to establish a corporate purpose through a clearly defined vision. A vision identifies what the business wants to be in the future, what you would like to see as the end result of all your work. The vision should be made clear to all employees and stakeholders. The vision statement for General Electric (GE) under the former CEO Jack Welch read as follows: “To become the most competitive enterprise in the world by being number one or number two in every business in which we compete.”5 A single clear vision worked for GE—during the 20 years Welch was CEO, the company’s market value went from $14 billion to more than $410 billion.6

What helps define the purpose of a business? People often confuse the vision of a company with its mission statement. The vision statement sets the long-term objective of a company and tells where the company is headed. A mission statement is a description of an organization’s current purpose, basic goals, and philosophies. A mission statement not only helps management remain focused but also lets employees understand the core values of the company for which they work.

Mission statements reflect the personality of a company, so even companies in the same industry can have mission statements that vary greatly in design and content. Some use scientific jargon in a no-nonsense manner directed specifically to a certain target audience. Others may try to reach a larger audience by using a simple, direct statement that inspires the average consumer. You may find that a company uses its mission statement to highlight its environmental awareness or to set an abstract goal for the firm’s employees, like working to make the world better able to communicate. Other companies may discuss only their own business goals. The mission statement is a chance for consumers and employees to get a peek into the central values of a company.

What makes an effective mission statement? If employees feel an owner’s passion for the business through the mission statement, it has a positive impact. Employees then incorporate the goals and objectives of the mission into their daily work and pass these on to customers and suppliers through their words and actions.

An effective mission statement does not to be flowery. Even simple mission statements can be effective if they are written clearly and convincingly. Read over several mission statements at www.missionstatements.com. The Culver’s restaurant chain has a concise seven-word statement of mission, while the cosmetics firm Avon has a 240-word mission statement. But both statements are effective and reflect a passion for excellence.

What are some benefits of well-defined vision and mission statements? The vision and mission statements lead to important benefits like the following:

• Keeping management on track by ensuring strategies are consistent with the organization’s goals

• Inspiring employees

• Giving investors insight into the values of the organization

Are mission statements only for businesses with a profit? No, mission statements are useful for not-for-profit companies as well. The mission statements of not-for-profit organizations are focused on outreach to the community or a specific public service rather than on investor return. For example, the American Cancer Society has a mission statement focused on eliminating cancer and reducing suffering with no mention of proft. This statement reflects the organization’s commitment to serving the ­community, the range of goals they have, and the set of avenues they use to accomplish their goals.

Where can I find a company’s vision and mission statements? Both the vision and mission statements are usually found on an organization’s website. However, because the mission statement is directed toward customers—unlike the vision, which is directed toward employees—the mission statement is often used alone on advertising materials or on actual products.

How does the management team begin to move a company toward achieving its vision? Once a company’s vision and mission statement have been articulated, the firm’s managers must assess the company’s strengths and weaknesses as well as its position among its competitors. What changes are anticipated to occur both inside and outside the organization? Is the company poised appropriately to respond to such changes? These are questions that must be answered first.

What is a SWOT analysis? The acronym SWOT stands for the following:

• Strengths

• Weaknesses

• Opportunities

• Threats

A SWOT analysis is an analysis of the strengths, weaknesses, opportunities, and threats a company is facing. It helps managers determine the strategic fit between an organization’s internal, capabilities, and external possibilities relative to the business and economic environments. Figure 7.5 provides a brief explanation of each component of the SWOT analysis.

Figure 7.5

SWOT Analysis

When evaluating a company’s internal strengths and weaknesses, managers have to analyze a company’s internal resources, including such elements as its financial health, the strengths of its employees, and its marketing, operations, and technological resources. For example, a company’s strength might be its strong marketing department, but its weakness could be an unfavorable location.

To evaluate the threats and opportunities facing a company, managers assess various external elements, such as the economic, political, and regulatory environments as well as social, demographic, macroeconomic, and technological factors that could affect the company. Managers also analyze the state of the firm’s industry and its market as well as its competitors. For example, a recession could threaten an alternative energy company, whereas increasing awareness of global warming may provide greater opportunity for market growth.

What happens after a SWOT analysis is completed? After conducting a SWOT analysis, managers establish a set of goals and objectives based on the information. To help ensure they actually get accomplished, the acronym SMARTER is helpful when designing and wording them: Goals should be Specific, Measurable, Acceptable (to those working to achieve the goals), Realistic, Timely, Extending (the capabilities of those working to achieve the goals), and Rewarding to employees as well (see Figure 7.6).7 So if you are conducting a fund-raiser as a student government project, having the goal of “Collecting 500 coats before the end of December by advertising our clothing drive through social media” works better to focus action than stating “We plan to collect clothing for the needy.”

Figure 7.6

SMARTER Design of Goals

How do managers decide how to execute a strategic plan? The next part of the process of creating a strategic plan is to have middle managers generate tactical plans to carry out the goals of a company. Tactical plans specifically determine the resources and the actions required to implement particular aspects of a strategic plan. Whereas strategic plans have a long-term focus, tactical plans are made with a one- to three-year horizon in mind. Determining a company’s annual budget, for example, is one function of a tactical plan. Let’s say one goal of the strategic plan of a paper supply company is to sell more products to large offices on the East Coast. One part of this company’s tactical plan might be to determine how much money should be allocated to advertising in that area.

How is a tactical plan translated into instructions for employees? The specifics of carrying out tactical plans are operational plans. In an operational plan, first-line managers precisely determine the process by which tactical plans can be achieved. Operational plans depend on daily or weekly schedules and focus on specific departments or employees. For example, once the paper supply company determines how much of its budget can be allocated to advertising, specific department managers might have to determine which employees will travel to advertise the product.

What if unforeseen events occur? Contingency planning is a set of plans that ensures that an organization will run as smoothly as possible during an unexpected disruption (see Figure 7.7). What happens if a company’s best-selling product is recalled because of a defect or if it experiences more sales of a good than it can produce? How should a company fight off an unpredictable takeover threat from a competitor or a rapidly spreading computer virus that threatens to shut down all internal and external lines of communication? Sometimes, extreme circumstances occur that force a company to alter its plans and find alternative ways to survive. For example, the massive earthquake and tsunami in 2011 that left 20,000 people dead and devastated Japan led to power shortages and disrupted supply chains and drastically impacted the output of factories worldwide that relied on Japanese parts.8 All the best corporate strategies can be negated quickly if an unexpected crisis occurs and a plan is not in place to deal with it adequately.

Figure 7.7

Contingency Planning: Are You Ready?

How can planning help companies weather unexpected events? Part of contingency planning includes how a company will communicate, both internally and externally with all of its stakeholders during a crisis. Internally, employees need to be informed about how they should continue to do their jobs. Externally, an organization must have a plan in place to deal with requests for information either from employees, the families of employees, or even the media.

Contingency planning also involves determining what departments within a company are vital to the immediate needs of the organization when an unexpected crisis occurs. The particulars of each plan differ depending on the size and function of a company and the magnitude of crisis for which the plan is needed. For example, the Vanguard Group, an investment management company, has in place specific, formal business contingency plans to respond to a range of ­incidents—from worst-case scenarios, such as the loss of a data center, buildings, or staff, to more common occurrences, such as power outages.9

As important as it is to have plans in place, it is just as important to ensure that the plans are tested and that key individuals know exactly what is expected of them. Similar to fire drills in school, companies should periodically review and rehearse their plans. Vanguard officials put their contingency plans through rigorous testing, including full-scale practice drills in which the company closes a building and works from a remote location. The company also conducts mock disaster drills together with local, state, and federal authorities. Because Vanguard’s business would be impacted significantly should a disruption in any of its technical systems occur, it also conducts tests to determine how quickly its IT systems can be made operational in the event of a disruption. Figure 7.8 summarizes the types of contingency plans that companies such as Vanguard use.

Figure 7.8

The Four Types of Management Plans