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Strategic planning is the act of determining how an organization is going to reach its objectives. The strategic plan is the road map to help guide the organization to its destination. The timeline for this plan is at least one year, but usually lasts more like three to five years.Strategic planning is one of the few remaining tools that upper management can use to gain and keep an advantage over competitors.
Scope
Strategic planning allows management to use their abilities to cope with threats from both outside and inside the organization. Change can often create those threats and strategic planning can prepare management for change. Management can look to the future and have a hand in changing it to their advantage. Strategic planning is best done by involving various business units of the organization. Without the input from all the business units, the strategic plan will not be complete.
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Key definitions
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Summary of requirements
The human resource (HR) department is one of the business units that must be involved in the strategic planning process. However, in order to be effective as team player in the strategic planning process, the HR professional must learn and understand the organization’s business.
Fluid strategic planning process. Strategic planning is an ongoing process that is constantly in a state of flux. Outside events can have an immediate impact on the process, causing the strategic plan to become obsolete in some cases. If the plan becomes obsolete, upper management should go back to the drawing board and begin the strategic planning process all over.
The planning itself is the important part of strategic development. The strategic plan is just the end result of intensive thinking and discussion among the development team.
Why should HR be involved? HR is a service department. It provides information and advice to management to help managers and executives make informed decisions. In order to do this, HR professionals must understand the company’s business plan, since this gives clues as to where the company is headed. With this business plan knowledge, HR can leverage itself as a key player in the strategic planning process.
HR must also understand how the other business areas of the company operate and how they are all intertwined.
Responsibilities of HR in strategic development. One of the most important functions of strategic planning is to anticipate change and how it will affect the organization. To assist top management in implementing the strategic plan, HR needs to recognize that the change is apt to come from outside the organization.
The process used to detect these changes is called assessing the external environment.
Monitoring the external environments. Monitoring the external environment is done to determine if there are any emerging threats to the organization. When performing this external assessment, the HR professional is looking for emerging trends or issues that could affect the organization’s strategic plan.
There are six areas, or environments, that need to be monitored. They are:
- Economic environments,
- Technological environments,
- Labor environments,
- Competitive environments,
- Social environments, and
- Political environments.
Each of these is discussed below.
Economic environment. The economic environment consists of both national and international economic information. It’s important to understand that this environment has a significant impact on most organizations. However, organizations can do little to influence this environment. Therefore, the monitoring of information for this environment is done to form reasonable judgments about the future direction of the economy and how it will affect the organization.
Some of the national economic activity that is typically monitored include:
- Unemployment rate,
- Interest rates (both short- and long-term),
- Consumer price index (CPI),
- Disposable income,
- Retail sales, and
- Inflation rate.
The term “global economy” is nothing new. However, the increasing complexity of the global economy can have a huge effect on organizations in the United States. For example, manufacturing jobs are going overseas at an alarming rate, while at the same time, companies in the United States are hiring immigrants for certain high-tech and low-tech jobs.
To stay on top of this ever-changing environment, monitor the following international economic activities:
- Trade agreements,
- Globalization, and
- International unions
By staying on top of economic changes, organizations can:
- Anticipate fluctuations in the need to hire and retain employees, for example, when the economy is picking up.
- Increase wages to keep up with the cost of inflation.
- Adjust salaries to keep pace with the gross national product.
- Understand the cost of borrowing money and how it will affect the organization.
Technological environment. Technological change is occurring at a dizzying pace. Changes in technology have a ripple effect on most of the other environments. Because of that, organizations need to monitor this area to stay current with advances in technology and the related requirements for changes in employee skills.
Some technological changes are improvements that have a direct impact on HR. For instance, the development of computers spawned the creation of the computerized Human Resource Information System and the resulting time savings for HR staff.
Labor environment. The labor environment is made up of demographic and employment factors. Demographic factors include things like the changing age mix of the workforce, the increase in the number of women working, the increase in the number of adults working past retirement (or returning to the workforce after retirement), differences in skilled versus unskilled workers, and an increase in non-English speaking workers.
Employment factors that should be looked at are unemployment rates, recruitment options, immigration trends, unionization, and retirement.
Competitive environment. The competitive environment is fairly easy to determine. A company’s success is usually related to its market share. The larger the number of competitors, the greater the chance that market share will be smaller for each.
It is important that companies analyze their competitors and determine what makes them tick. There is an abundance of information available to shift through. Company press releases are one area that can be used to gather these insights.
Social environment. Social changes can have a significant effect on strategic planning. As mentioned earlier, increase in non-English speaking workers can have a huge effect on how a company trains its workers. The declining birth rate is also a factor that is having a significant impact on how companies plan for the future.
Political environment. Monitor the political environment, especially in the area of new legislation. Every year there are numerous laws enacted at every level of government. These laws can have a significant impact on how a company operates and makes money.
After scanning the political environment, companies need to make the necessary revisions to their policies and procedure. Training may also be necessary for managers, foreman, and employees to remain in compliance with the changing regulatory environment.