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Levels of Corporate Planning and Innovation

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LEVELS OF CORPORATE PLANNING AND INNOVATION
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Executive Summary

One student in an Executive MBA class based his response on introduction of a self scanner in checkout terminals in a British supermarket to an assignment that required them to link a significant innovation that an organisation had introduced with strategic change in the organisation. The student failed the assignment. This report will examine the reasons why the student failed by looking at the differences between strategic, tactical and operational planning. The report analyses what causes the strategic changes in an organisation and what qualifies as strategic change. The report also discusses innovation and the different levels of innovation. This report also discusses whether the student was right to classify self-scanner checkout terminals as a significant innovation that could be linked to strategic change in the organisation.
Table of Contents
Executive Summary 2

1 Introduction 4

1.1 Business Policy 4

1.2 Strategic Change 4

2 Strategic, Tactical and Operational Planning 5

2.1 Statement of the Objective 5

2.2 Differences between Strategic, Tactical and Operational Planning 5

3 Innovation 8

3.1 What is Innovation? 8

3.2 Impact of innovation on growth strategies 10

4 Conclusion 11

Introduction

This report will identify reasons the student failed his assignment by looking at the levels of planning and strategic change as well as innovation. The first part of this report discusses in detail the three levels of planning: strategic, tactical and operational planning. The characteristics of each type of planning are given and comparisons are made. Clear differences and distinctions are made among these types of organisational planning while trying to place the case given in the right level. The interconnections between the three levels of planning are also discussed. The second part of this report defines innovation. The levels of innovation are identified. Lastly, the report discusses the impact of innovation on the growth strategies with reference to the Joseph Schumpeter’s concepts.

1 Business Policy

A business policy can be defined as a set of principles and rules of action that lead an organisation to successfully achieve its specific objectives (Sekhar 2011). It therefore follows that; a good business policy must relate the business objectives to the personnel and the physical factors surrounding the organisation. It must help the top level management in the formulation of rules and regulations that guide the lower levels of the organisation. A good policy should also be based on facts, should be feasible to implement and it should supplement the overall corporate planning.

2 Strategic Change

Sekhar (n.d) defines strategic change as a process whereby an organisation alter its goals, procedures, objectives and strategies to become competitive and how these changes when used in totality or partially enables the organisation to adapt and be viable in the ever changing business environment. Changes are further classified into three kinds i.e. re-engineering, restructuring and innovation. Business process reengineering aims to improve the existing business processes by their increasing effectiveness and efficiency. Innovation refers to the process through which an organisation utilises the skills and resources available to them to come up with new products, services and technologies so as to satisfy the changing needs of the customer (Sekhar n.d.). According to Ahlemann, Stettiner, Messerschmidt and Legner (2012) strategic changes focuses on the improvements of the business performance.

Strategic, Tactical and Operational Planning

1 Statement of the Objective

One student in an Executive MBA class failed his assignment when he based his response on introduction of a self scanner in checkout terminals in a British supermarket to an assignment that required them to link a significant innovation that an organisation had introduced with strategic change in the organisation. This discussion will revealed the reasons which I think caused him to fail. First the focus will to examine whether the introduction of the self scanner could be classified as a strategic change. Secondly, the self scanner checkout terminals will be analysed to determine if it can be classified as a significant innovation.

2 Differences between Strategic, Tactical and Operational Planning

O’Regan and Ghobadian (2002) define strategic planning an attempt by a company to change its strengths in relation to its competitors in an effective and efficient way. The strategic plan will focus on the actions necessary to improve the company’s performance. Toor and Dhir (2011) identify integrated business planning process as the planning function of the company that aims at improving the financial performance as well as the organisation’s alignment. The integrated planning process will connect strategic planning to tactical and operational planning in all the levels of the organisation. Therefore, it follows that strategic planning involves the broad future of the organisation’s performance and it usually focuses on the entire organisation. The link formed among strategic, tactical and operational planning is such that the strategic planning is overall and the other plans are under it. The success of a strategic plan relies on the multilevel involvement of the other levels of planning i.e. tactical planning is charged with translating strategic plans into specific goals of the organisation while operational plans translate tactical plans into specific goals and actions.

Figure 1: A diagram showing the multi-level involvement among the three types of plans in an organisation.

[pic]

Source: (Hitt, Black & Porter 2005).

According to DuBrin (2010) strategic plans come up with master plans that shape the organisation. This planning is carefully considers the external environmental demands and external resources e.g. competition and changes in customer taste and preferences. For example, after careful research, the top management may decide to introduce a new line of product in a bid to expand its market share or to capture a market that has been evasive to the organisation in the past. Once the strategic planning is done the tactical planning comes up with specific plans and goals that are relevant to the organisation and show support to the strategic plans. This level of planning will also provide details on how to make the business unit competitive in the market (DuBrin 2010). On the other hand, operational planning will identify the specific actions and procedures that are required in the day to day running of the organisation. In the example where the company has to introduce a new line of products, the operational plans will be drawn according to the details present in the tactical plans. The details on how to make the product attractive to the customer are made here.

In this view the introduction of the self-scanner checkout terminal in a British supermarket will not fall under strategic planning but under operational planning. The strategic plan that the supermarket may be seeking to fulfil could be to improve on its customer service in a bid to increase the customer satisfaction. Alternative, the supermarket may have strategic plans to cut down on the costs in a bid to improve on its performance. If the strategic plan is to increase customer satisfaction then the tactical planning may suggest ways by which this can be achieved. The operational planning the being the hands on stage then takes the plan into action by introduction of the terminals. In the second scenario if the strategic plan aims at reducing costs of doing business, the tactical and operational plans might come up with ways though which this can be done. Operational plans may include cutting down the number of employees and specifically introduce the self-scanner which lower the number of employees needed.

Strategic planning determines the nature and extent of an organisation’s diversity (Griffin 2012). It is also right to argue that the strategy plans adopted by an organisation determine its diversification i.e. single product strategy, related diversification and unrelated diversification. They are the most complex and general as the focus on the whole organisation, all sectors, departments and all units. This level of planning involves top level management and it reflects the position where the organisation is to be 3-5 years in the future. They act as a framework or guide to the lower levels of planning. On the other hand, tactical planning deals with specific parts of the organisation and the middle level managers are involved in this level of planning. They take a shorter time frame than strategic plans of between 1 and 2 years into the future. They are not as broad as the strategic plans nor are they as complex but they are more specific because the range of application is more limited. It is their responsibility and function to oversee that the lower level departments fulfil their part in the achievement of the strategic plan.

Consequently at the operational planning focus is narrower and less complex than tactical and strategic planning as they deal with departments or smaller units in the organisation, for example production, inventory, equipment, processes of business among others (Griffin 2012). However, they are very detailed, involve the lower level managers. They usually focus on more or less one year into the future.

Ahlemann, Stettiner, Messerschmidt and Legner (2012) show the impact of changes in both strategic and operational planning as the following; strategic changes are big and their impact is felt throughout the company and possible in the external environment. On the other hand operational changes are small and their impact is only felt in the unit of the organisation and barely felt beyond the organisation. Strategic changes will focus on the improvement of the business performance and the realisation of the organisation objectives while operational changes focuses on excellence and risk management (Ahlemann, Stettiner, Messerschmidt & Legner 2012). When considered in this light, the introduction of the self-scanner terminals will only bring an impact on the efficiency and excellence up to the operational level of the supermarket. The impact of this innovation will not on its own bring about achievement of organisation’s goals or improvement in performance.

Innovation

1 What is Innovation?

Griffin (2012) defines innovation as the managed efforts by an organisation to come up with new products i.e. goods and services or get new customers for existing goods and services. Innovation is classified in two categories i.e. managerial innovation/reengineering process, and technical innovation. Management innovation is the change in the process of management through which goods and services are designed, produced and delivered to the customers. Under technical innovation there are two major innovations: process innovation and product innovation. Product innovation is the changes in the physical attributes of existing goods and services or the creation of completely new brand of goods and services. Process innovation entails changes made in manufacturing, creating and distributing processes of goods or services (Griffin, 2012).

Andriopoulos and Dawson (2009) define innovation as a process through which a new element is made available to the market or introduced within an organisation to bring change to the status quo. Innovation is distinguished from creativity in that creativity comes first and forms the bases by providing the new idea on which the innovation is later based. There are three levels of innovation depending on the impact the have on the organisation. The first level is incremental innovations which refer to all the changes of small magnitude that are based on the existing knowledge and capabilities (Andriopoulos and Dawson, 2009). This level of innovations will involve modifications and improvements to goods and services. Considering the activities carried out in this level of innovation, it can be considered to be in the operational level of the organisation. The second level of innovations is the modular innovations which refer to innovations in the middle range. The third level is the radical innovations which introduce new ideas to take the place of existing ideas and knowledge that has become obsolete. The adoption of the radical innovation will bring about changes in the organisations. The changes can be strategic, tactical and operational.

When viewed in this light then it is right to argue that the student was wrong in viewing introduction of self- scanners as a significant innovation. This is because the changes that would result from the introduction could only be viewed as operational changes and not strategic changes.

2 Impact of Innovation on Growth Strategies

In a bid by the organisation to gain a competitive advantage over its competitors a continuous process of innovation and creativity has developed (Medearis 2004). Economist Joseph Schumpeter referred to the constant innovative state of the capitalist economy as creative destruction because he could see the negative effects of uncontrolled innovation and creativity. According to Schumpeter’s theory new productive combinations i.e. new products, new ways of production, marketing and distribution, were needed to stimulate development in the economy.

A study carried out by Cainelli, Evangelista and Savona (2004) concludes that innovation is an important aspect to be considered when explaining the economic performance of an organisation. Organisations that support innovation were found to have better productivity and higher economic growth levels than the organisations which do not support and embrace innovation. The extent, to which an organisation supported innovation efforts, for example through the allocation of resources for innovation purposes, is reflected in the productivity differential levels and the growth rate exhibited by the organisation. Tsai (2003) states that innovations have both positive and negative impacts which are often unanticipated and these effects often go beyond the issue that they were meant to solve. Technological innovations could be used to demonstrate the positive and negative impact of innovations to an organisation’s processes. The global market is dynamic such that the economy is shifting from the traditional model of business to e-business models. Businesses that ignore technological innovations are quickly losing their competitive advantage. Other negative impacts to these innovations are organisational inertia and resistance to change.

Reati and Toporowski (2009) point out those western economies have undergone four long waves and currently the fifth wave is in force. It is important to note that the trigger for these waves is radical innovations. The first wave was triggered by the industrial revolution. The second originated in the steam power age. The third was from the era of electrical and heavy engineering, the fourth from the era of mass production and finally the current long wave has been triggered by the computerisation of all areas of the economy (Reati & Toporowski 2009). This argument supports Joseph Schumpeter’s concept of creative destruction which points out that change is not random but occurs in radical innovation clusters that form revolutions which improve and develop the productive structure.
Therefore, could the self-scanner trigger many changes as with the innovations discussed above? The answer to this question is no, which further proves that the student failed when he classified the self-scanners as a significant innovation.

Conclusion

A successful business is one which meets the set objectives goals that it has set. These goals and objectives are of great importance such that the policies, plans and processes in the organisation are required to reflect these goals and objectives. As noted by Sekhar (n.d.) the business environment is ever changing and therefore in order to remain relevant the company should change its policies, process, strategies and goals accordingly. This need to change in order to remain competitive gives rise to strategic change. The organisation has three types of planning i.e. strategic, tactical and operational planning. Strategic, tactical and operation planning are formulated by top level management, middle level management and lower level managers respectively. Strategic planning focuses on the broad future of the organisation. The plan is broad and general. For strategic planning to succeed, there exists a link with the other levels of planning. Tactical plans convert strategic planning into specific goals for the organisation while operational planning convert tactical plans into goals and actions that are more specified. (DuBrin 2010) refers to strategic plans as master plans while Toor and Dhir (2011) view it as the organisation’s attempt to improve its effectiveness and efficiency by focusing on its strengths.

Businesses exist in an environment that keeps changing. To ensure that they remain competitive, they strive to come up with new goods and services that satisfy the customer changing preferences and help the organisation to capture a new market. Research has shown that organisations that embrace innovations perform better than those that do not support innovation.

References

Ahlemann, F, Stettiner, E, Messerschmidt, M, & Legner, C 2012, Strategic enterprise architecture management challenges, best practices, and future developments. Berlin, Heidelberg, Springer Berlin Heidelberg. .

Andriopoulos, C, & Dawson, P 2009, Managing change, creativity and innovation. London, Sage.

Cainelli, G, Evangelista, R, & Savona, M 2004, 'The Impact of Innovation on Economic Performance in Services', Service Industries Journal, 24, 1, pp. 116-130, Hospitality & Tourism Complete, EBSCOhost, viewed 3 April 2013.

DuBrin, A J 2010, Essentials of management. Australia, South-Western. Viewed 3 March 2013

Griffin, RW 2012, Fundamentals of management. Mason, OH, South-Western Cengage Learning.

Hitt, M A, Black, S & Porter, L M 2005, Management. Upper Saddle River, NJ: Pearson Prentice Hall.

Kingston, W 2006, "Schumpeter, Business Cycles and Co-evolution", Industry and Innovation, vol. 13, no. 1, pp. 97-106.

Medearis, J 2009, Joseph A. Schumpeter. New York, Continuum.

Reati, A, & Toporowski, J 2009, An economic policy for the fifth long wave. PSL Quarterly Review.Vol. 62, pp. 248-251, viewed 3 April 2013,

Sekhar, GVS (n.d.). Business policy and strategic management. [S.l.], I K International Publishers.

Tsai, HL 2003, Information technology and business process reengineering new perspectives and strategies. Westport, Conn, Praeger, viewed 2 April 2013, .

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