Process of Corporate Planning - Financial Planning and Administration, Business Economics & Finance | Business Economics & Finance - B Com PDF Download

Steps in corporate planning process:

1. Establishing corporate mission, objectives and goals.

2. Establishing Strategic Business Units

3. Assigning resources to each Strategic Business Unit

4. Planning for Business Growth.

1. Establishing Corporate Mission, Objectives and Goals:

Top management prepares statements of mission, objectives and goals that play the role of a framework within which divisions and business units prepare their plan. They are guiding force for the organisation and express the reasons of being in business and what specific goals the firm is pursuing at a given point of time.

A mission statement addresses the organization’s fundamental reason for existing and specifies the functional role that the organisation is going to adopt in its market place. When the top management is convinced about the irrelevance of mission, the famous management thinker Peter F Drucker recommends answering some fundamental questions;

a. What is our business?

b. Who is the customer?

c. What is the value to the customer?

d. What will our business be?

e. What should our business be?

Apparently these questions do not seem to be complicated at all. A casual approach to answering these questions is definitely going to be counterproductive. In fact, these are among the toughest yet most important questions that any corporation can answer. Creating or revising a mission statement is quite difficult because of the many complex variables that must be examined.

The enterprise mission that provides a sense of direction with respect to where it wants to go and what it aspires to achieve in overall business, often also reflects much idealism. The next step is to establish a specific set of objectives, (here objectives and goals as synonymous).

i. Objectives provide direction to stay focused on common purpose. Every activity is directed towards the objectives and every individual contributes to accomplish the objectives.

ii. Objectives coordinate the activities and keep them on the right track. They make behaviours in an organisation more rational and coordinated and thus more effective.

iii. Objectives serve as performance standards to compare actual results.

iv. Objectives provide a basis for motivation of employees to be result oriented because they know towards what ends they are working.

2. Establishing Strategic Business Units:

Once the organisation mission, objectives and goals are set, they will provide a framework for determining what kind of organisational structure and business models are a ‘best fit’ for the organization’s marketing effects. The organisation structure for a single product will be simple as it can be designed by management function of geographic territory.

But in case of multi-product organisations, the structure can be very complex. So companies prefer establishing strategic business units (SBUs). A SHU is a distinct business unit of the business organisation in the form of a subsidiary company, department, division or product line with a specific product-market focus and independent authority and responsibility of the manager to take business decisions.

A strategic business unit operates like a company within a company which is organised around a business model and cluster of offerings that share some commonality in the form of similar production process, similar target markets or similar investment requirements. A SBU has control over its own business model and marketing strategy.

3. A strategic business unit has the following characteristics:

(a) Separate responsibility for strategic planning and profit performance and profit influencing factors.

(b) A separate set of competitors.

(c) Single business or a collection of related businesses, which offer scope for independent strategic planning form remaining organisation.

The understanding of an SBU is, therefore, a convenient starting point for planning since the company’s strategic business units have been identified. In practice, big companies in India work on the basis that strategic planning at SBU level has to be agreed to by the corporate management.

4. Planning for Business Growth:

Intensive growth strategies are appropriate when current products and current markets show the potential for sales increase. There are three main strategic options that seem to be appropriate to accomplish intensive growth.

a. Market Penetration

b. Market Development

c. Product Development

a. Market Penetration:

It is a strategy of increasing sales of existing products in current markets. For example, Proctor and Gamble reduced the price of its detergent Ariel in the Indian market to increase its sale among existing and new consumers in the current market. Depending on the product category, other approaches can be to increase advertising, sales promotion, personal selling and increase distribution network in the current markets.

b. Market Development:

It refers to increasing sales by introducing current products into new markets. This strategy often involves expanding business in new geographic areas. For example, with globalisation and opening up of Indian borders for businesses, many organisations have introduced their products in the Indian market. These companies were marketing these products in their domestic and other markets for quite sometime.

c. Product Development:

It means increasing sales by improving current products in some way or developing entirely new products for current markets. For example, Gillette has modified its razor and named it Vector for Indian consumers. In auto industry, manufacturers regularly introduce redesigned or new products.