Strategic planning entails the creation and documentation of the direction of the organization. Essentially, the process of strategic planning allows the management to develop the mission and vision of the organization, values, long-term objectives and concise action plans to achieve those goals. Numerous studies have defined strategic planning from functional terms. From a functional standpoint, strategic planning refers to a set of tools, processes and ideas that can assist decision-makers to determine what a firm does and the reasons why it does it (Bryson et al., 2017). In essence, strategic planning entails a family of concepts aimed at determining the present situation of the organization and its long-term vision. In this regard, SWOT and PESTEL analyses are vital ideas in the strategic planning process. The two concepts allow the assessment of the prevailing situation of the organization as well as the external factors that affect the operations of a particular organization. This paper utilizes scholarly research to examine the SWOT and PESTEL analyses as key strategic planning concepts.
SWOT Analysis
Quantitative strategic planning requires businesses to systematically analyze their internal and external environments, strengths and weaknesses of available alternatives and determine the appropriate course of action. Therefore, SWOT analysis is fundamental in quantitative strategic planning as it guides the selection of the appropriate strategy (Ommani, 2011). SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. In this regard, the SWOT analysis indicates the present situation of the firm with respect to the above-mentioned factors. Essentially, it is a tool that analyzes the company’s strengths against its weaknesses and informs strategies that can be put in place to improve the weaknesses and capitalize on the strengths. SWOT analysis is crucial in dynamic strategic planning as it helps the organization to build on what it does well, minimize risks, and capitalize on new opportunities. In other words, SWOT analysis is a critical strategic planning tool that enables the organization to define its vision (Olivarius et al., 2010). The SWOT analysis reveals the present situation of the organization and informs the core topics of the vision. The core topics of the vision include both strengths as well as the critical problems that the organization is bound to face in the foreseeable future. Primarily, the SWOT analysis matrix is the foundation upon which the strategy of the organization is crafted. This implies that from the analysis of the strengths, weaknesses, threats and opportunities, the organization can forecast the expected future state of the organization.
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Strategic planning requires the definition of key focus areas in both the short-term and long-term goals of the organization. For instance, if the long-term goal of the organization is to grow its market share by 50 percent, the focus area could be building the capacity of the sales and marketing team. The focus area could be traced back to the SWOT analysis which could pinpoint gaps in the skills and competencies of the organization’s human resources. Therefore, SWOT analysis defines the key focus areas of the organization. Importantly, the SWOT analysis guides the development of an action plan in strategic planning (Olivarius et al., 2010). Ideally, an action plan ought to be tailored to the specific core focus areas of the organization for it to be effective in meeting the goals of the organization. By basing the action plan on the SWOT analysis matrix, the organization minimizes costs and boosts efficiency in the implementation of the strategy.
PESTEL Analysis
PESTEL stands for political, environmental, social, technological, economic and legal factors in the external environment of an organization. Political factors include government interventions and lobbying activities in the economy that can potentially affect the business. Economic factors refer to macroeconomic conditions. Social factors include aspects of society, culture and demography in the external environment. Technological factors include technology-related activities, infrastructure, incentives and technology changes in the environment. Lastly, legal factors cover the established legal framework including legislation that shape the external environment. PESTEL analysis is another premise of strategic planning as it identifies significant trends in the external environment and guides the selection of the best strategy. An effective strategic plan ought to be in tandem with the dynamics of the external environment to foster the attainment of the goals of the organization. PESTEL analysis allows the management to make valid assumptions about the strategy to developed (Ho, 2014). Effective strategic planning is founded on market-risk awareness. Consequently, PESTEL analysis augments strategic planning by exposing the risks in the external environment and guiding the design and implementation of remedial measures. Importantly, PESTEL analysis determines the strategic direction of the business and makes it adaptable to changing environmental factors (Pourmohammad et al., 2020). PESTEL analysis guarantees that the approach embraced by the organization is flexible and can successfully react to changes in the external environment. Ideally, an effective strategic plan is one that is responsive to change. Therefore, PESTEL analysis fosters adaptability in strategic planning.
Summary
Strategic planning is a set of tools, procedures and concepts that can help decision-makers to determine what an organization does and why it does it. Some of the key strategic planning concepts include SWOT and PESTEL analyses. SWOT analysis facilitates quantitative strategic planning by allowing the organization to assess its strengths, weaknesses, risks and opportunities. PESTEL analysis assesses the organization’s external environmental factors and shapes the strategic vision of the business in the long-term. In a nutshell, the strategic planning process largely depends on SWOT and PESTEL analyses.
References
Bryson, J. M., Edwards, L. H., & Slyke, D. M. (2017). Getting strategic about strategic planning research. Public Management Review, 20 (3), 317-339. DOI:10.1080/14719037.2017.1285111
Ho, J. K. (2014). Formulation of a Systemic PEST analysis for strategic analysis. European Academic Research, 2 (4), 6478-6493.
Olivarius, N. F., Kousgaard, M. B., Reventlow, S., Cuelle, D. G., & Tulinius, C. (2020). Dynamic strategic planning in a professional knowledge-based organization. Journal of Research Administration, 16 (1), 35-49.
Ommani, A. R. (2011). Strengths, weaknesses, opportunities and threats (SWOT) analysis for farming system businesses management: Case of wheat farmers of Shadervan District, Shoushtar Township, Iran. Africa Journal of Business Management, 5 (22), 9448-9454.
Pourmohammadi, K., Bastani, P., Shojaei, P., Hatam, N., & Salehi, A. (2020). A comprehensive environmental scanning and strategic analysis of Iranian Public Hospitals: A prospective approach. BMC Research Notes , 13 (1), 179. https://doi.org/10.1186/s13104-020-05002-8
