First, there are a large number of external variables whose values do not remain constant that affect the operations of the organization. These variables include changing international environment, political and governmental policies and forces, economic trends, social dynamism and so on. Strategic plans must have provisions to cope with these changing situations.
Second, all natural resources are becoming scarce. The management must decide on how to compete for these resources and how to allocate and utilize them properly. The profiles of human resources are constantly changing in nature.
There is more and more of an educated work-force and most of the routine and repetitious work is being taken over by computers and robotics. Hence a proper redistribution of human resources must be put into proper focus.
Thirdly, there has been an information explosion which has tremendously increased the data base and has necessitated increase in knowledge and ability to plan effectively. Since effective strategic planning takes into account the contributions of all environmental forces, most companies find it necessary to develop strategic plans to cope with the influences of such forces.
Strategic planning and implementation of strategic plans constitute a separate management process known as strategic management. Strategic management? Top level management’s responsibility and is defined as, “the process of identifying and pursuing the organization’s mission by aligning the organization’s internal capabilities with the external demands of its environment.”
Since demands of the external environment affect every organization, large or small, strategic planning becomes necessary to respond to competition, cope with the rapidly changing environment and effectively utilize resources for the purpose of fulfilling organization’s missions.
Some of the critical questions that strategic managers address in the process of strategic planning are.
1. What is our business? What business should we be in?
2. Who are our customers and what do they want?
3. Who are our competitor? What are their strengths and limitations?
4. What is our competitive strength? How should we use our resources to gain a competitive edge?
5. What major changes are occurring in our environments? How will these changes affect our businesses?
The analytical responses to these result in “strategic thinking” which is necessary to cope with the changing dynamics of the market place.