Strategic planning is long range in nature and deals with the overall direction of the firm. It is largely concerned with anticipating significant new developments and changes that will have a major impact on the industry and the firm. For example, few would have anticipated 10 years ago that e -commerce would become as big as it has. Companies that did not anticipate this major development in how people buy and transact business are trying to play catchup to small but agile start -ups that have responded to this new way of merchandising.
Take, for instance, Barnes & Noble, the largest bookstore chain in the world. A few years ago, when the Internet was still in its nascent stages, Barnes & Noble did not think trading via this medium was going to be a significant factor. For one thing, they felt the experience of going to a bookstore and browsing through the aisles could not be duplicated. As Barnes & Noble found out, this idea couldn’t be further from the truth. Among all e -commerce ventures, buying books via the Internet is one of the most dominant businesses. Amazon.com, a firm that began operations only in July 1995, caught the Internet wave and now commands a majority share of all books purchased over the Internet.
Barnes & Noble did ultimately start selling its books through the Internet but remains a distant second to Amazon.com.With a proper strategic planning process, Barnes & Noble probably could have positioned itself to better take advantage of the opportunities presented by the Internet medium. While strategic planning focuses more on the overall direction of the business and the industry, operational planning, as the phrase denotes, is designed to be a blueprint detailing where the firm wants to be at some future point in time and what resources are needed to get it there.
Operational plans are generally conducted at two levels —long- term and short -term. Long -term plans are typically done over a 5 -year planning horizon while short-term plans are conducted over a 12–18-month window. This chapter focuses on the operational rather than strategic plan of the firm (and especially on its financial aspect). The operational plan begins with a series of operational objectives that define where the firm wants to be at the end of the planning period. These objectives are very specific. Some examples are
To address these objectives, the firm must develop an operational plan, which consists of a marketing plan, a production plan, a human resource plan, and a financial plan. The marketing plan lays out the marketing resources needed to meet the operational objectives and includes such things as advertising strategy, marketing promotions, channels of distribution and distribution incentives, and assignment of sales territory. The production plan consists of facilities needed to achieve the operational objectives including the number of shifts, plant refurbishment and expansions, vendor and supplier arrangements, inventory control, etc.
The human resource plan is concerned with the personnel aspect of the objectives. It looks at the managerial and labor pool that is needed to attain the objectives. The financial plan lays out the financial resources that are needed to achieve the operational(including the financial) objectives of the firm. Operational planning is crucial to a firm’s survival in the short and long run. The lack of adequate operational planning has doomed many a firm, both small and large. Figure presents an overview of the corporate planning process as described here. The strategic plan is determined by the long -term goals of the firm, but it also affects the operational objectives of the firm.
The operational objectives in turn are implemented via the operational plan, which consists of marketing, production, human resource, and financial plans. The dashed line from the operational plan to operational objectives and back to the operational plan indicates that the operational plan should be continually monitored to see if the objectives are being met or not. If the objectives are not met, then the operational plan needs to be adjusted so that it is in alignment with the objectives. Thus, the operational plan is not only a planning device; it is also a monitoring device.
LAn integral part of the operational plan and the financial plan are the financial forecasts. However, before discussing various financial forecasting techniques, the next section focuses on cash flow analysis, which is an important element of financial planning.
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Financial Management Tutorial
The Role And Objective Of Financial Management
The Domestic And International Financial Marketplace
Evaluation Of Financial Performance
Financial Planning And Forecasting
The Time Value Of Money
Risk And Return On At&t Common Stock
Fixed-income Securities: Characteristics And Valuation
Common Stock: Characteristics,valuation, And Issuance
Capital Budgeting And Cash Flow Analysis
Capital Budgeting: Decision Criteria And Real Option Considerations
Capital Budgeting And Risk
The Cost Of Capital
Capital Structure Concepts
Capital Structure Management In Practice
Working Capital Management
The Management Of Cash And Marketable Securities
Management Of Accounts Receivable And Inventories
Lease And Intermediate-term Financing
Financing With Derivatives
Internationan Financial Management
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