Relationship between Strategy Formulation and Strategic Planning

The word “strategy” or “strategic” is used in both terms, there is a possibility of confusion. The distinction is that strategy formulation is the process of deciding on new strategies, whereas strategic planning is the process of deciding how to implement the strategies. In the strategy formulation process, management arrives at the goals of the organization and creates the main strategies for achieving those goals. The strategic planning process then takes the goals and strategies as given and develops programs that will carry out the strategies and achieve the goals efficiently and effectively, The decision by an industrial goods manufacturer to diversify into consumer goods is a strategy formulation, a strategic decision, after which a number of implementation issues have to be resolved: whether to diversify through acquisition or through organic growth, what product lines to emphasize, whether to make or to buy, which marketing channels to use the document that describes how the strategic decision is to be implemented is the strategic plan.

In practice, there is a considerable amount of overlap between strategy formulation and strategic planning. Studies made during the strategic planning process may indicate the desirability of changing goals or strategies. Conversely, strategy formulation usually includes a preliminary consideration of the programs that will be adopted as a means of achieving the goals. Nevertheless, is important to keep a conceptual distinction between strategy formulation and strategic planning, one reason being;that the planning process tends to become institutionalized, putting a damper on purely creative activities. Segregating strategy formulation as a separate activity, at least in the thinking of top management, can offset this tendency. Strategy formulation should be an activity in which creative, innovative thinking is-strongly encouraged.

Strategic planning is systematic, there is an annual strategic planning process, with prescribed procedures: and timetables; Strategy formulation is unsystematic. Strategies are reexamined on response to perceived opportunities or threats. Thus, ideally, a possible strategic initiative may surface at any time from anyone in the organization. If judged to be worth pursuing, it should be analyzed immediately, without waiting upon a prescribed timetable. Once a strategy is accepted, the planning for it follows in a systematic way.

In many companies, unfortunately goals and strategies are not stated explicitly enough or communicated clearly to the managers who need to use them as a framework for their program decisions. Thus, in a formal strategic planning process an important first step often descriptions of the organizations goals and strategies task, for although top management presumably has an initiative what the goals and strategies are, they may not be able to verbalize them with the specificity necessary for making good program decisions. Planners may have to interpret or elicit management thinking as a first step.

Credit: Strategic Management-KU

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