If managers want to be successful strategic planners, they must understand the fundamentals of strategic planning and how to formulate strategic plans.² This section presents the basic principles of strategic planning. In doing so, it discusses the definitions of both strategic planning and strategy in detail.

Strategic planning is long-range planning that focuses on the organization as a whole.³ In conducting strategic planning, managers consider the organization as a total unit and ask themselves what must be done in the long term to attain organizational goals.⁴ Long range is usually defined as a period of time extending about three to five years into the future. Hence, in strategic planning, managers try to determine what their organization should do to be successful three to five years from now. The most successful managers tend to be those who take a comprehensive approach to strategic planning and are careful not to “cut corners” during the process, all the while encouraging innovative strategic thinking within their organization.⁵

Managers may have difficulty trying to decide exactly how far into the future they should extend their strategic planning. As a general rule, they should follow the commitment principle, which states that managers should commit funds for planning only if they can anticipate, in the foreseeable future, a return on planning expenses as a result of long-range planning analysis. Realistically, planning costs are an investment and therefore should not be incurred unless a reasonable return on that investment is anticipated.

Strategy is defined as a broad and general plan developed to reach long-term objectives. Organizational strategy can, and generally does, focus on many different organizational areas, such as marketing, finance, production, research, and development, and public relations. As such, it gives broad direction to an organization.⁶

Strategy is actually the end result of strategic planning. Although larger organizations tend to be more precise in developing organizational strategy than smaller organizations are, every organization should have a strategy of some sort.⁷ For a strategy to be worthwhile, though, it must be consistent with organizational objectives, which, in turn, must be consistent with organizational purpose. Table 7.1 illustrates this relationship between organizational objectives and strategy by presenting sample organizational objectives and strategies for three well-known business organizations.