Formal Strategic Planning vs Informal Strategic Planning (Essay Sample)

1.0 Formal Strategic planning Vs Informal strategic planning
According to Martin (2014) the strategic planning process being conducted by most firms presently is considered to be too simple therefore failing to exhibit the difficult and creative task which encompass strategy development. Further, there are three steps involved in the strategic planning process such as the development of a firm’s vision, firm interventions, in addition to the identification of the financial resources needed for the implementation of the firm’s interventions. Martin (2014) goes ahead to recommend four different approaches towards the strategy planning process which includes identification of a target market, ways to win and keep customers, scenario assessment of the revenue generation process in the market.
Further, the comprehensive analysis of the external and internal environment through a formal process entails five main stages such as identifying the environmental factors and exploring their likely impact on a firm, categorizing them into opportunities and threats while prioritising the factors and designing corrective measures or pre-emptive strategic action (Sammut‐Bonnici and Galea 2015). Therefore, by conducting an external environment and analysing the external environment factors, the company is able to know if any changes in the political, economic such as inflation and deflation, social-cultural factors, technological advancements or innovations, legal environment such as taxes and the ecological environment factors such as environment laws have the capacity of posing threats or opportunities to the firm. Therefore, according to Martin (2014), the strategic planning process should never be a simple guesswork process but rather a more clear and comprehensive process which comprises all critical analysis of the entire environment (internal and external) including budgets developed for all the strategic business units of a firm. This is because a firm’s costs are controlled by the firm itself but for the revenues, the customers are in charge. Therefore, a firm’s management should be more focused on the customer while making budget plans for the entire company because that is where the revenue of the firm comes from. Further, if a firm was to make the strategic planning process simple would not make revenues appear magically. Therefore, making the strategic planning process quite detailed and comprehensive with the focus of finding customers ensures that customers’ needs are identified and strategies on how to meet them are designed as well as.
Environmental changes resulting in opportunities have the capacity of increasing the revenue of the firm whereas threats could result in a decline of the firm’s revenue and profits (Maqin and Hendri, 2017). In this regard it is advantageous for the company to know external factors which could move their business forward or backwards.
On the other hand, conducting an internal environment analysis during strategic plan development comprehensively helps the firm to understand the micro environment factors that includes the marketing intermediaries, the customers, the firm’s competitors and the public thence enabling the firm to develop strategic plans in the preparation of any eventualities that could occur in the future. Further, by comprehensively examining the environment, the firm is able to know its strengths and weaknesses with regards to the threats and opportunities that could occur in the external environment in the future (Atighechian, Maleki, Aryankhesal, and Jahangiri, 2016).
Further, GRIN (2014) argues that the strategy-making process through intended formal planning approaches is advantageous since it sets benchmarks that evaluate a firm's performance and encourages a longer-term strategic view. One advantage of using a formal strategic planning approach is that a firm can cope with any expected future changes by taking advantage of foreseeable opportunities and minimising any foreseeable threats. Therefore, it is good to be more proactive than being reactive to a given situation. Further, according to GRIN (2014), it is advantageous to conduct a comprehensive assessment of the internal and external environment, allowing a firm to attain a deeper understanding of its current state within the environment. This could enable the firm to be able to communicate its key agreed objectives and foster its commitments and motivations. However, the informal process cannot guarantee a deeper understanding of the environment both externally and internally and enable a firm to communicate its objectives effectively and precisely.
An example of informal strategic planning led to a disaster when Ford car manufacturer in 1957 introduced the Edsel automobile without any strategic analysis of the external environment. The introduction of the vehicle has in history been regarded as one of the biggest mistakes that Ford committed. The car manufacturer lost $ 350 million, whereby the car manufacturer's dealers also lost a significant amount of money (Naylor, 1983).
Therefore, formal strategic planning reduces uncertainty and eliminates wasteful spending and overlapping of wasteful activities. Lastly, formal strategic planning promotes innovation in a firm and ensures resources are used efficiently, boosts team spirit in a firm, and helps in earning credibility and the trust of its shareholders. The reverse is valid for informal strategic planning in an organisation (Anastacia, 2019).
Formal strategic planning benefits organisations such that it enables them to anticipate threats in the internal and external environment and take advantage of opportunities that present themselves in the external environment since they are well prepared for them.
2.0 H&M Clothing retail company
2.1 H&M industry type
A monopolistic competition is one in which there are many sellers who don’t sell identical products but differentiated products even though they serve the same purpose. In this industry type, differentiation of products is achieved by using geography selling and branding, through product promotions by advertising designed to convince consumers that the product is different from others. Under monopolistic competition, firms have limited control over the price (Kononenko and Kugai, 2019).
On the other hand, oligopolistic competition refers to an industry with few sellers where each seller sells to a large segment of all the products sold in the market. Further, the cost of starting a business is always high in the oligopolistic industry (Kononenko and Kugai, 2019).
Further, those firms which practice monopoly over an industry take the advantage of being the only seller in the market place. Their market could be geographical for example a city or a regional area but don’t necessarily need to be a whole country. On the other hand, in perfect competition, there are many small companies which none has the power to control the prices but simply accept the market price determined by forces of demand and supply (Kononenko and Kugai, 2019)
The H&M company operates in the retail clothing and footwear industry, which deals with selling clothes, accessories, and footwear for all age groups and genders. The women's clothing segment is the most profitable segment that generates 53% of the industry's total profit for the company. The clothing industry is characterised by many firms, most of which are well-known brand names such as Zara Mark and Spencer that operate internationally (Kononenko and Kugai, 2019).
Lastly, H&M operates in a monopolistic competition industry, which is a kind of imperfect competition characterised by many firms selling similar products that are not identical. Therefore, the firm should pursue corporate strategies which have the potential of increasing its market strength by increasing demand for its differentiated products in each market segment the firm operates.
2.2 H&M Porter five forces
The Porter five forces uses a five dimension to analyse the strategic directions of a company in the market place. All the information that is obtained through the model enables the creation of viable strategic plans to overcome the competition. Through the analysis of the Porter’s five forces, the company is able to know its competition environment in which it operates therefore respond by formulating viable and feasible strategies in response to the threats and opportunities which could be present in the environment. It also helps the firm to determine its strengths and weaknesses in relation to the environmental analysis (Schawel et al., 2014). The five forces are shown on the figure below:
Source: (Visual Paradigm, 2019)
Figure 1: Porter's five forces
2.2.1 Bargaining power of buyers
The buyer power in the UK clothes and foot wear industry is high. This is because the customers have various options from which to purchase clothes and footwear items. Therefore, this means that they can choose to buy from the competing retailers in clothe and footwear or even order online. With this kind of power, they can dictate the pricing of the merchandise. Further, in case a firm chooses to increase the price of its products or lower the quality of the products, then the buyers would be forced to quickly switch to a company which produces quality clothes and offers good prices for the products. Further, this implies that switching costs for buyers is high which could therefore impact on the performance of the firm if it does not have loyal customers. This therefore means that clothe and foot wear companies in the UK have no option but to offer the best quality to their customers so as to stay competi...