Norrin Radd

Strategy

A wise person once said that "if you don't know where you're going, you'll never get there." This axiom is no more true anywhere than in the business arena. Development of a successful business does not happen as a result of luck, but requires planning. As in pathfinding, the roadmap to success in the business world is to determine where one is going and then to specify the best way to get there.

In business, determining the target destination for the organization is called goal setting. Goals define in practical terms what the organization would like to be within a specific period of time. Determining the best way to accomplish these goals is called strategic planning. A strategy is a plan of action to help the organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including market needs and trends, competitor capabilities and offerings, and the organization's resources and abilities. Implementation of the plan is done through policies and practices. These are guiding principles or specific procedures or courses of action developed to help the organization meet its goals and objectives. Policies are typically developed to support business strategies, or in response to government regulations. For example, an organization may have a series of customer service policies that deal with how employees are supposed to interact with customers in order to keep them loyal to the organization's brand, and it may also have a series of human resource policies for how it deals with its own employees to not only encourage them to maximize their performance, but also so that the organization is in compliance with various laws regarding equal treatment, minimum wage, and so forth. Organizations may also have policies about social and environmental concerns or other factors that it perceives as important to its reputation and success.

Determining the organization's business goals requires an examination of several areas of the firm's functioning. To avoid falling into the trap of doing activities that appear to reach a goal but that, in fact, are only spinning the corporate wheels without making real progress, the objectives of the organization need to be expressed in concrete terms. For example, rather than stating that the goal of the company is to "maximize profits and return on investment," "develop new and high quality products," or "meet our corporate social responsibility," objectives need to be specific; stating how success will be determined in measurable terms. For example, rather than saying that the organization is going to increase profits, a well-stated objective would state how much profit the organization is trying to make and the time frame in which this is to be achieved.

Strategic planning is the process that helps the organization determine what goals to set and how to reach them. This process allows the organization to determine and articulate its long-term goals and to develop a plan to use the company's resources — including materials, equipment, technology, and personnel — in reaching these goals. This business plan summarizes the operational and financial objectives of the organization and is supported by detailed plans and budgets to show how these objectives will be achieved. In addition to articulating organizational objectives and strategies for reaching these goals, the business plan also analyzes the risk involved. In business terms, risk can be defined as the quantifiable probability that a financial investment's actual return will be lower than expected. Higher risks mean both a greater probability of loss and a possibility of greater return on investment. The goal of organizations is to reduce risk by managing it. Risk management is an essential part of business strategy development. This process includes analyzing projected tasks and activities, planning ways to reduce the impact if the predicted normal course of events does not occur, and implementing reporting procedures so that project problems are discovered earlier in the process rather than later.

Whether the organization is trying to maintain its market share or it is trying to be on the leading edge of the industry through sustainable innovation, there are a number of sources of data that can be tapped in order to help make better informed strategic decisions about the direction in which the organization should go. In general, it is advisable to look at every business event — whether it was a success or a failure — as a learning opportunity that can help the organization better understand and anticipate the needs of the market or how to improve internal processes and practices. The organization can also look forward by examining incongruities between the way things currently are and how the industry or organization perceives they should be (e.g., the requirement for more complicated desktop computing capabilities required the development of more affordable computing power) and developing solutions that meet these needs. Similarly, changes to the market or industry as the result of an innovation, contributed by the organization itself or by a competitor, can help organizational management better develop strategies to stay competitive, become leaders in the field, or practice sustainable innovation.

There are a number of factors that need to be taken into account during the strategic planning process in order to develop a sound, achievable business plan. One of the most important of these steps is setting realistic, achievable objectives. To be useful, objectives should specify the performance that the organization wants to see as a result of meeting the objective, the activities in which the organization will engage to help meet the objective, and the measurable results that will allow the organization to know whether or not the objective has been achieved.

In order to develop meaningful objectives that will support the organization in reaching its goals, financial concerns should be expressed in terms of objective, measurable results, such as profits, return on investment, earnings per share, or profit-to-sales ratio.

- eNotes