The business environment that a vast majority of enterprises operatetoday is highly competitive, dynamic and uncertain. As a result, manybusinesses have had to make quick decisions with regard to thebusiness environment. The dynamic business environment has pushedmanagers and chief executives of business enterprises to often comeup with short innovations and production cycles. The dynamic andunpredictable environment has calls for chief executives to take theopportunities which might come up through making decisions quicklywithout following any long and undue procedure. Research hasindicated that formal strategic planning, which is an organizationalprocess that numerous organizations follow, is increasingly becomingan inappropriate tool for organizations that need to make strategicdecisions in a dynamic and uncertain environment.
Formal strategic planning involves a thorough process of identifyingthe goals, dreams and objectives of a business and then coming upwith strategies on how to achieve such objectives. More often thannot, the strategic planning process follows the business plan andhighlights how the identified and set goals of a business will bemet. It is worth noting that formal strategic planning may alsoinvolve the allocation of resources towards various activities.Formal strategic planning has been practiced by numerousorganizations since the 1960s (Grant, 2013). This is a process whichhas been viewed as a strategy of achieving long term goals andobjectives of an organization. Therefore formal strategic planningbecomes a difficult affair in situations where the quick decisionsare supposed to be made and resources allocated (Rudd et al,. 2013).
In a highly uncertain and dynamic environment, formal strategicplanning is inappropriate. It is evident from research that highlyuncertain and dynamic environments are fond of producingopportunities for an organization to grasp before competitors canrealize its presence. In such a situation, a formal strategicplanning which sets out the strategies and resource allocation forthe various activities in an organization may not be appropriate.Research has indicated that the formal strategic planning process isa rigid process which does not allow for changes which can cater fornew opportunities (Falshaw et al., 2006). Uncertainty in the businessenvironment produces risks for competitors as well and the executivesof companies must be in a position to grasp the opportunities andbenefit from them. However, a formal strategic planning process maylimit the exploitation such opportunities (Grant, 2003).
One of the main objectives of FSP is to develop strategies that willmaintain a steady market position for an organization. However, it isimpractical to maintain a steady market position in a dynamic andunpredictable environment. It is critical for managers to ensure thatthey embrace the market dynamism and be ready to move along with themarket trends. Resources and production plans must be implemented ina dynamic environment if the organization is to remain relevant inthe market (Glaister & Falshaw, 1999). Organizations must be inapposition to accept the changes in the market and adopt them. Thismay call for changes in production levels, prices and marketsegments. However, a formal strategic plan does no cater for theshort term emergencies or changes in the market. This causes firms inhighly uncertain and dynamic environments to fail to put up with thecompetitors. A perfect example of one of the most dynamic and highlyuncertain industry is the oil industry. The prices keep on changingevery often and firms in the industry must be extremely flexible toadopt new strategies to deal with the changes. It is extremelydifficult for firms in such a sector to have static goals andconstant market positions.
The rigidity of formal strategic planning does not allow for changesin the laid down strategies. The decisions made by strategic plannersare based on the future likely conditions. However, in an uncertainand dynamic environments, the conditions foreseen might changedrastically hence rendering the firm in trouble. For instance, astrategic plan may opt that a firm invests heavily in estate agency.In instances where such estate agencies gain immense competition, thefirm may lose an enormous amount of money (Courtney et al., 1997). Itis clear that the estate agency is one sector that is highly volatileand today’s prices can hardly be used to determine the value of thesector in future days. Formal strategic planning is extremelyrestrictive and it does not allow for adjustments but follows astrict plan.
Research has also indicated that strategic plans constitute enormouswork by professionals or consultants who are hired by firms. As aresult, the strategic plan has for a long been a substitute foraction. Once a firm develops the plan, the management forgets aboutaction and relies entirely on the plan to deliver the firm’s goals.Formal strategic planning can become an entirely separate activityfrom the organization’s or the firm’s activities. This is anextremely dangerous trend especially in a dynamic environment that isfull of surprises (Courtney et al., 1997). The plan does not lookinto the dynamism of the environment and only concentrates on futuregoals of the firm.
Formal strategic planning restricts initiative from enterprisingfirms. In a highly uncertain and dynamic environment, initiative isextremely necessary. Action must be taken and quick decisions must bemade when the market environment changes. If this does not happen,the firm adopting strategic planning is bound to lose in terms offinances and market share. The management of a firm must be ready toadopt and endorse volatility in the market. For instance, a firm mustbe able to leave a market that becomes flooded with competitors andventure into new markets. However, a strategic plan appears as theperfect plan and a way of achieving the firm’s goals. Therefore,firms that have a formal strategic plan in place are unable toinitiate new strategies to remain competitive in the market.Additionally, FSPs restrict any form of creativity by the managementof the firm since they strictly follow the set strategy in the plan(Minzberg, 1994). This implies that the firm cannot come up with newstrategies which are in line with the demands presented by theenvironment.
A formal strategic plan lacks realism in its entirety. It is evidentthat the plan is mainly developed by consultants at a very exorbitantfee to the firm. The strategies that are put in the strategic planare too formalized and do not take into consideration the reality ofthe environment on the ground (Chakravarthy, 1997). An uncertainenvironment will present challenges and opportunities that were notcaptured in the strategic plan. This renders firms with formalstrategic plans incompetent in a highly unpredictable and dynamicenvironment.
Formal strategic plans have for long suffered from the fallacy ofdetachment. As mentioned earlier, the strategic plan is normallydeveloped by a group of professional consultants without involvingthe middle level managers and the junior employees. It is worthnoting that the formal strategic planning process is a two levelprocess which involves formulation and implementation (Kaplan &Beinhocker, 2003). In this case, the formulation process is donedifferent people from who implements the plan. As a result, the planfails to capture the real dynamic environment and the needs the planseeks to address. The plan ends up coming up with very formalstrategies which end up failing terrible at the end. It is alsoargued that strategic plans are developed at the top by the managersand the consultants and are aimed at controlling the middle managersand the other employees. In this regard, it is evidently clear thatthe strategic plan may not address the real needs of the firm inorder to succeed. The strategies that such plans come up with areineffective and cannot compete with the strategies employed by othercompetitors (Chakravarthy, 1997). Additionally, strategic plans aredeveloped in the basis of non-current data and therefore does notaddress the current problems or come up with strategies that canaddress the current problems. It is also evident from research thatthe process only focuses on quantitative data forgetting thequalitative data, which is extremely vital in developing an actionplan.
Despite the above shortcomings of a formal strategic planning in ahighly uncertain and dynamic environment, it is worth stating a fewadvantages that are associated with the process. To start with, astrategic plan that is based on well researched and analyzed dataprovides the management of a firm with distinct steps to follow inorder to achieve the set goals (Werther & Chandler, 2011). Thisis an extremely vital and competitive way to achieve the goals of thefirm without getting lost or losing track of what the firm targets.The plan also sets the long term goals that a firm seeks to achieve.Whereas there might be changes of the environment along the way, astrategic plan focuses on the long term goals.
Managers who adopt this strategy of formal planning are able to planand develop strategies for a longer period such as 20 years. Theminimum strategy that a manager can develop is three years (Hitt etal., 2008). These strategies clearly stipulate the roles that everyperson is supposed to play with regard to the achievement of thegoals. Managers who do not have such plans cannot plan ahead and theymight fall into trouble with finances since none has been allocatedfor specific purposes.
Since the plan clearly stipulates the goals and the strategies toachieve them, it is extremely easy for the management to monitor andevaluate the success of the plan. One of the key components of thestrategic plan is evaluation where the firm seeks whether the goalsset were achieved (Hill & Jones, 2010). The performance of thestrategies is easily assessed and the necessary changes can beeffected if the strategies fail to achieve the set goals. Continuousassessment of the strategy is also a component of the strategicplanning process where the attainment of the set goals is assessedgradually.
In instances where the middle managers and some employees areinvolved in the process of developing the plan, they feel motivatedto contribute towards the achievement of the goals set in the plan.However, as it has been stated earlier, middle managers and junioremployees are hardly involved in the process and therefore this onlyhappens in very unique instances (Pearce et al,. 1987). Additionally,the roles are clearly roles are clearly stated and there iscoordination between the managers and the employees. Instances ofconflicts as to who will perform which roles are extremely few.
Despite the few advantages and strengths associated with formalstrategic planning, it is clearly evident from this research that inhighly uncertain and dynamic environments, the plan is highinappropriate. The rigidity of the plan and its restrictive naturedoes not allow managers and employees to come up with initiative thatare responsive to the environment demands (Johnson et al,. 2013).Additionally, the fallacy of detachment is an extremely huge setbackfor the plans success in an unpredictable and ever changingenvironment. The middle managers who are not involved in thedevelopment of the plan do not feel as part of the strategy and donot therefore feel obliged to implement it fully. It has been foundout that the plan developed by consultants fails to capture the realdemands in the environment but only focuses on the analysis of theoutdated quantitative data that they collect. Although the formalstrategic plans have been in use since the 1960s, evidence issprouting each day that they are not as effective as they wereinitially thought of (Selsky et al,. 2007). Their assumed controlnature have seen the middle managers and the junior employees ignorethem and fail to be part of the plan. It is, however, worth notingthat the plan can only not be effective in the highly uncertain anddynamic environments.
Chakravarthy, B. (1997). A New Strategy Framework for Coping withTurbulence. Sloan Management Review http://msimoes.com/pipermail/adm2823/attachments/20090821/094109e7/ANewStrategy FrameworkforCopingwithTurbulence.pdfCourtney, H, Kirkland, J., Viguerie, P. (1997). Strategyunder Uncertainty, Harvard Business. ReviewNov1997 http://www.civ.utoronto.ca/sect/coneng/tamer/Courses/1299/Ref/strategy%20under%20u ncertainty.pdfFalshaw, R. et al (2006). Evidence on Formal Strategic Planningand Company Performance. Management Decision 44 1p9-30 http://www.emeraldinsight.com/Insight/viewPDF.jsp?contentType=Article&Filename=ht ml/Output/Published/EmeraldFullTextArticle/Pdf/0010440102.pdfGlaister, K. & Falshaw, K. (1999). Strategic Planning:Still Going Strong Long Range Planning 32 1p107-116 http://www.sciencedirect.com/science?_ob=MImg&_imagekey=B6V6K-3WSVR66-D- 7&_cdi=5817&_user=132448&_orig=search&_coverDate=03%2F19%2F1999&_sk=99 9679998&view=c&wchp=dGLbVtz- zSkzS&md5=207def86cec293ab0379674d85c546de&ie=/sdarticle.pdf
Grant, R. M. (2013). Contemporary strategy analysis.Hoboken, N.J., Wiley.
Hill, C. W. L., & Jones, G. R. (2010). Strategicmanagement theory: an integrated approach. Boston, MA, HoughtonMifflin.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E.(2008). Strategic management: competitivenessand globalization. Mason, Ohio, South-Western.
Johnson, G., Whittington, R., Angwin, D., Regner, P., & Scholes,K. (2013). Exploring strategy.
Mintzberg, H. (1994). The Fall and Rise of Strategic PlanningHarvard Business Review January/Februaryp107-114 http://online.worcester.edu/external/evescio/Principles%20of%20Management/strategicpl an.pdfMinzberg, H. (1994). Rethinking Strategic Planning Part I:Pitfalls and Fallacies 27 3p12-21 http://www.mintzberg.org/pdf/Rethinking%20Strategic%20Planning%201.pdfKaplan, S. & Beinhocker, E. (2003).The Real Value ofStrategic Planning MIT Sloan Management Review Winter. 2003p71-76 http://www.sirim.my/techinfo/P3/Text/msm_p71.pdfPearce, J. III et al (1987). The Tenuous Link Between FormalStrategic Planning and Financial Performance, Academy ofManagement Review 12 4p658-675 http://www.jstor.org/stable/pdfplus/258071.pdf  Rudd, J., et al (2008). Strategic Planning andPerformance: Extending the Debate. Journal of Business Research61 p99-108 http://www.sciencedirect.com/science?_ob=MImg&_imagekey=B6V7S-4P83HKD-1-Grant, P. (2003). Planning in a Turbulent Environment: Evidencefrom the Oil Majors. Strategic Management Journal 24p491-517 http://www.jstor.org/stable/20060552
Selsky et al,. (2007). Contrasting Perspectives on Strategy Making inHyper Environments, Organization Studies, Vol. 28, No. 1. (1January 2007), pp.71-94. http://research.sabanciuniv.edu/335/1/Contrasting.pdf
Werther, W. B., & Chandler, D. (2011). Strategiccorporate social responsibility: stakeholders ina global environment. Los Angeles, SAGE.