Advantages of Strategic Planning

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Strategic Management Assignment 1

Table of contentsPage

1. Introduction2
2. Advantages of Strategic Planning
2.1. Financial Advantage2

3. Disadvantage of Strategic Planning

3.1 Distortions and Deceptions3

4. Friedman view of business social responsibility3

5. Having a look at Sasol’s Social contribution5

6. References6

1. Introduction

There are a number of advantages and disadvantages of strategic management. To me the advantage that stood out was the financial advantage organisation can achieve by implementing a strategic planning process. There are evidence of this as a study was done on banks in the United States - they do show a financial advantage over bank that have not implemented a strategic planning process.

The disadvantage that stood out was Distortions and Deceptions and as explained how people can make a decision, the wrong decision and it can have a huge negative implication on the organisation. Some time because of just plain and simple human error or people are over optimistic or simply because they are trying to benefit them self’s.

Milton Friedman's statement that a business's social responsibility lies in making profit has shown a controversial point of view in modern business. Some people believe in Friedman's ideas while others do not.

Include is an example of Sasol’s social responsibilities.

2. Advantages of Strategic Planning

2.1. Financial Advantage

The intensity with which company’s engage in the strategic planning process has a direct, positive effect on the company’s financial performance, and mediates the effects of managerial and organizational factors.

Gup and Whitehead (1989) tested the notion that strategic planning only pays off after a period. They found no statistically significant relationship between the length of time company’s had been engaged in the strategic planning process and their financial performance.

A Recent study found that banks that planned with greater intensity, regardless of whether their strategic planning process was formal or informal, outperformed those banks that planned with less intensity (Hopkins and Hopkins, 1994).

Financial performance in firms is not the direct result of strategic planning, but the product of the entire range of managerial capabilities in a firm. These capabilities include knowledge and expertise to successfully engage in the strategic planning process.

Managerial, environmental, and organisational factors are all expected to have a positive, direct effect on the intensity with which banks engage in the strategic planning process secondly organisational factors and strategic planning intensity are expected to have a positive, direct effect on banks’ financial performance. (Hopkins & Hopkins, 1997)

3. Disadvantage of Strategic Planning

3.1 Distortions and Deceptions
Errors in strategic decision making can arise from the cognitive biases we all have as human beings. These biases, which distort the way people collect and process information, can also arise from interactions in organisational settings, where judgement may be colored by self-interest that leads to employees to perpetrate more or less conscious deceptions. (Lovallo & Olivier, 2006)

Distortions
1. Over optimism – high expectations of the unknown, “hockey stick” forecast 2. Loss aversion – leading to inaction in the face of acceptable risks 3. Overconfidence – resulting in underestimation of challenges

Deceptions
1. Misaligned time horizons – focusing solely on time horizon for one’s current position 2. Misaligned risk aversion profiles – real or perceived career risks in projects with moderate corporate risks. 3. Champion bias – accepting evaluation of proposal more willingly when proponent is trusted associate 4. Sunflower management –...
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