Connecting System Thinking with Strategic Planning - Essay Example

SYSTEM THINKING: STRATEGIC PLANNING Introduction The concept of system thinking and integrating this with strategic planning is a powerful tool in developing organizations in terms of setting plans and objectives. It has been observed that analysis of the environment and the internal factors within the organization is a typical approach of strategist. However, this broad analysis may lack certain specifics which can be a weakness in itself and this is where system thinking can come in where its approach requires specifics of cause and effects. The identification of particular problems in this approach can tremendously improve the output of strategic plans. As such, the fusion of these two approaches can lead to better management practices in today’s organizations. System Thinking The process of system thinking as had been discussed is different from that of strategic planning and the process is as follows (Batra et. al, 2010, p.7): 1. Situational definition 2. Development of behavioural patterns 3. Evolving the underlying structure 4. Identification of the leverage points 5. Developing alternative structures, and 6. Finding solutions to the problem In the process outlined above, the definition of the situation is critical and which is usually the major problem. The causes of the problem such as behavioural patterns would be reviewed. In addition, the underlying structure of the behavioural patterns should also be evaluated as well as the identification of the leverage points. The alternative structures should then be formulated as well as the solution to the problem (Batra et.al, 2010, p.7). Strategic Planning The process of strategic planning differs from system thinking and this is as follows ((Batra et.al, 2010, p.7) : 1. Identification of the problem 2. Definition of missions and objectives 3. Analysis of the environment and internal factors 4. Strategy formulation 5. Implementation, and 6. Control In the process outlined above, the firm identifies its problem in relation to its mission and objectives and the company has to evaluate the external environment as well as its internal environment. The environment would consist of the political factors, socio-cultural factors, technological factors, economic factors, legal factors, natural factors, and global factors. Political factors should be taken into consideration such as the political situation considering a country’s form of government and it direction towards liberalization, globalization, and privatization. Socio-cultural factors should also be considered since the cultures of the people in a country are important determinants in the market as well as its social structure (Chandler, 1962). Technological factors such as the state of technology in a given country and the world should be taken into consideration. (Ansoff, 1965). Economic factors also should be considered in the formulation of strategy. The current global economic crisis spurred by the United States real estate bust had given some problems to some markets in the world. In addition, the legal factors in the country must be considered such as the laws and regulations for business as well as the natural factors such as the materials and natural resources in a country. Global factors such as the current trend in globalization which is attracting huge foreign investments is a vital consideration in strategy formulation (Ansoff, 1965) The company resources should be considered such as its organizational structure, human resources, capital, managerial expertise and experience, and facilities. The organizational structure of the company must be responsive to its strategy. In other words, if the company’s strategy is towards expansion, thus, the structure of the company must also expand and designed to meet the objectives of the plan (Ansoff, 1965) Strategy formulation should then be made based on the analysis. Implementation of the strategy as well as control should also be made as the final step in the process. Porter’s Strategic Analysis of Industry In order to give more depth to strategic planning, Michael Porter (1998) of Harvard University developed competitive analysis of the industry as a tool to help improved strategic planning organizations. The following factors in the industry must be considered in order to have a good strategic plan and these will be discussed as follows: Substitutes Products can be substituted by other products which can serve as alternatives. The buyer will consider the price of the substitute as well as its relative benefits as compared to the existing product available (Porter, 1998). Entry An industry or market that results to satisfactory returns could attract many investors or new firms to enter into it. This could increase the intensity and number of competitors and as such will decrease the rate of return for firms in the industry unless these new entrants can be prevented by the existing firms (Porter, 1998). Firms The competition intensity among the firms in the industry would consider the number of firms in it as well as their sizes. The financial and managerial capabilities of the competing firms as well their relative market share must be considered in the analysis (Porter, 1998). Customers The power of the customers to bargain would depend upon its size and capabilities. The bigger the industrial customer, the more power it has to bargain the firm or firms in the industry. The smaller the customer, the less power it can bargain with the firms. In here, the concentration of buyers versus the firms should be evaluated as well the level of dependency of the buyers to the firm. Thus, the volume of products being bought by the buyers and the switching costs of the buyer to another firm will play a significant role in the analysis of the industry (Porter, 1998). Suppliers The larger the suppliers and the volume of goods supplied to the firm can determine its bargaining power toward the firms in the industry. Also, if they are few and larger than the firms, the more it can exert pressure to increase their prices as well take advantage of their position in the industry (Porter, 1998). Marketing Strategy and Strategic Planning Marketing strategy is defined as the strategy of the company concerning the positioning of company products in relation to the market and it’s competitors while a strategic plan is the overall plan of the company with focus on its broad strategy and goals in the short, medium, and long term horizons (Kotler, 1994). Marketing Mix is the combination of pricing strategy, product strategy, distribution strategy, and promotion strategy of the company (Kotler, 1972). Moreover, product strategy is the strategy of the company as to the positioning of its products (Kotler, 1990) while pricing strategy is the strategy of the company as the price it is going to offer to its customers (Kotler, 1994). The distribution strategy of the firm is the strategy of the firm in relation to the placing of its products so that it can reach its customers efficiently and effectively (Kotler, 1994) and finally, the promotion strategy of the firm is the strategy of the firm in relation to the advertising of its products so that its image will be well accepted by customers and market. It is important to have a marketing strategy because the firm can incur losses if it has the wrong marketing strategy or make profits if it has the right one. The firm can maintain or could lose its leadership in the market with not having the right marketing strategy. The effectiveness of marketing strategy can be measured through its market share of its products in the industry as well as through its sales volume increase from previous years. Finally, profitability per product can also be measured in terms of its revenues and cost (Kotler, 1994). Strategic planning must be compatible with the structure of organizations but it is important that structure follow organizations. The culture of the organization must also be compatible with the strategic planning process so that there would be smooth relationships in the implementation of system thinking and strategic planning in organizations. System Thinking and Strategic Planning: A Synthesis The synthesis between system thinking and strategic planning is illustrated in the diagram: The integration of system thinking through the process of situational definition; development of behavioural patterns; evolving underlying structures; identification of leverage points; developing alternative structures; and finding solutions led to an improved strategic plan for organizations. Thus, the fusion between the two would lead to better systems and performance in the organization since the inclusion of system thinking in strategic plans would greatly improve the output of strategic plans as specific parameters and indicators had already been inputted in the process of system thinking. REFERENCES Ansoff, Igor. 1965. Corporate Strategy McGraw Hill, New York. Batra, Arush, Kaushik, Prabhakar, and Kalia, Leena, 2010. “System Thinking: Strategic Planning,” SCMS Journal of Indian Management. Chandler, Alfred (1962) Strategy and Structure: Chapters in the history of industrial enterprise, Doubleday, New York. Hansen, Morten T., аnd Nitin Nohria. 2004. "How tо Build Collaborative Advantage." MIT Sloan Management Review 46, no. 1: 22–31. Kotler Philip (1972), "A Generic Concept of Marketing,” Journal of Marketing, 36 (April),pp. 46-54. _____ (1972) Marketing Management. Englewood Cliffs, NJ: Prentice-Hall. ______ (1994) Marketing Management. Englewood Cliffs, NJ: Prentice-Hall. Lumpkin, G.T., аnd Gregory G. Dess. 2004. "E-Business Strategies аnd Internet Business Models: How thе Internet Adds Value." Organizational Dynamics 33, no. 2: 161–173. Porter, Michael. 1998. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press. Read More