Global Strategic Planning

Global strategic planning is a process adopted by organizations that operate internationally in order to formulate an effective global strategy. Global Strategic Planning is a process of evaluating the internal and external environment by multinational organizations, and make decisions about how they will achieve their long-term and short-term objectives.

GSP is different from normal domestic strategic planning, because, in this case, organizations consider internal as well as external environments. In fact, the external environment is more crucial to consider when you are operating at a global level because at a domestic level competition is very directional and optimized, but at international level the competition is crucially important to be considered; otherwise survival is not at all possible at global level.

Corporate and global strategic planning

At this site the strategic planning I am talking about goes by the description corporate strategic planning. It would be more helpful if common usage was ‘corporate planning’ rather than strategic planning. This usage would make it clearer that we are not talking about planning for any unit other than the entire organization as a corporate whole.

Strictly speaking, corporate strategic planning therefore cannot be carried out in, or done for, a part or unit of an organization. However, in a number of practical cases, such as very large corporations, and some government agencies, with large subsidiaries or divisions, they have corporate or strategic planning functions in their major divisions as well as at corporate headquarters. This is especially so in the case of enterprises which operate on a global scale, such as multinational corporations.

Corporate headquarters role in
global strategic planning

The task of these planners at the corporate centre, or group headquarters, is to arrange a global strategic planning process to enable two important things.

Firstly the global strategic planning process should enable the corporate management team to determine the corporate objectives for the entire group as a corporate whole.

Secondly the global strategic planning process should lead the top management team to design or select a suitable strategic structure for the group as a whole.

Neither of these results can be satisfactorily achieved from within any subsidiary company - they must be carried at the corporate centre.

In deciding what the overall strategic design of the corporation should be, the central planners must decide what role each major part of the group should play within the group over the longer term. This implies that, when a proposed group structure has been approved, the corporate management team has to instruct each subsidiary company to take whatever actions are required to implement this strategic structure. But if that is the case it implies that part or all of the overall strategic structure is decided at the corporate centre. This may leave very little strategic planning to be done at the subsidiary or divisional level.

To make this clearer let is consider an actual example.

The kind of decisions involved in
global strategic planning

The names have been changed to protect the innocent. Consider a multinational company, Macro Engines Global Inc. (MEG), which manufactures small engines for many applications especially in agriculture. They have manufacturing and assembly plants in seventeen nations across the world.

In 1992 Macro Engines Global Inc. decided to extend its business by diversifying into making the appliances and vehicles that were powered by its engines. In effect they were deciding to go into competition with some of their best customers! This included many kinds of pumps, small compressors, and a range of agricultural machines such as brush cutters, and rotor tillers.

They decided that they would start in some of the countries where they already operated. However, on the assumption that any diversification is more risky than continuing in an existing field of business, the top management of MEG decided not to invest any additional capital in the countries which were experiencing increasing political instability. The headquarters corporate management team believed that the reduced political risks would very roughly balance the increased diversification risk for the group as a whole.

They had agreed in the most recent corporate strategic planning exercise that total riskiness of the corporation was to be left unchanged or slightly reduced.

These decisions, which were taken at the corporate centre in the interests of the corporation as a whole, and which were designed to affect the overall group strategic structure, inevitably also impacted the structure of each of the national subsidiaries. Thus the Malaysian subsidiary rapidly became a diversified manufacturer of a range of agricultural machines, as intended. By contrast, the Sri Lankan engine assembly plant was shut down in 1994.

The two decisions, invest in Malaysian expansion, and close down the Sri Lankan operation, were taken at the corporate headquarters, and they included very little in the way of detail. Nonetheless each decision impacted the structure of each subsidiary down in considerable detail and for many years into their future.

Of course there was much of planning still to be done in each subsidiary, including in the first case, planning for production facilities, human resources, acquisitions and finance, and the second decommissioning plant, selling assets, redeploying or terminating employees. In general, these actions are not corporate global strategic planning, they are facilities planning, manpower planning, acquisition planning, human resources planning, and so on. However, it is vital to realize that these individual decisions are consequent actions following the larger corporation wide decision to diversify the product range, and to balance the risk profile associated with this move. This was a corporate global strategic planning decision, the kind of decision that could only be made at the corporate headquarters level.

A spectrum of global strategic planning

In devising an approach to global strategic planning either one has to accept that the corporate centre should decide the role of the parts or one argues that it should not. If one adopts the former view then corporate strategic planning as defined elsewhere on this site cannot be practised in the parts; if one adopts the latter view then one must accept that it leads the organization directly to the true conglomerate.

In practice we usually see a compromise somewhere along a spectrum between these two extremes. The area of compromise stretches all the way from simply setting Return on Capital (RoC) targets for the subsidiaries to deciding the details of their role within the group.

At one extreme the centre will set the same ROC target for all the subsidiaries, and leave it entirely to them to determine sales revenue targets, geographic scope of operations within their country of activity, nature of business, human resources policies, and so on.

At the other extreme all these decisions will be centralized. Some companies encourage direct competition between their subsidiaries in the same products and markets; others rigidly specify the boundaries for each subsidiary’s products and markets.

Regardless of where the global strategic planning process is on this spectrum of possibilities, there is one thing we should make really clear, and that is the locus of ultimate responsibility, and the effect this has on the sequencing of the stages of the global strategic planning process.

Top-down

The approach I take to corporate strategic planning is essentially ‘top-down’. This means, I believe, that a corporate strategic plan should never be built up by adding together the plans of the individual constituent parts of an organization.

This does not mean that the overall or global strategic planning should exclude involvement of people from the parts, and have no regard for their information, and ideas. That would be an unhelpful, unwise or even absurd.

It is vital to understand that there may come a time when a part that does not fit the corporate strategic intent may be have to be wound up, sold off, or merged in with another part of the overall organization. So sometimes a part may have to be discarded, so the corporate or global strategic planning process, cannot be built on a prerequisite that the corporate entity has to accommodate all the parts whether they fit or not. Top-down means the strategy is right for the whole; the dog wags the tails.

In practice, global strategic planning is a special case of planning for a group of with multiple divisions. It is essential to start a corporate plan for a group with a group corporate strategic plan. This will answer such questions about the group as whether the number, size and activities of each subsidiary is appropriate, whether the group’s geographical spread is sensible, whether it is effectively structured, and so on. These are all matters that affect the group as a corporate whole. Only when these group issues have been addressed should the divisions, and then their individual profit or accountability centres, start to prepare their plans.

Their plans will, needless to say, be made with the outputs of the group or global strategic planning process clearly in view. Part of the result of the group or global strategic planning will be a statement of the intended role for each country division or profit centre in the group, and so the output of the global level plan becomes part of the input of the country one — not the other way round. Top-down, not bottom-up; the tails do not wag the dog.

Top-down means starting the process for a group before starting for a division.

The approach that is most influential on my thinking on strategic planning is that of John Argenti. The system developed by him comes in a number of versions and there is a version specially designed to suit the group structure we have been looking at. This Group Version of the Argenti Process of Strategic Planning has a number of sections on the coordination of several planning teams at Group, at Division and at Profit Centre levels.

global-group-strategy

For more information go to Argenti versions.

Global strategic planning is becoming relevant to organizations of all sizes.

In essentials the global strategic planning process for a huge a huge multinational or international non-profit agency is no different in principle to planning in a small firm in a single country. As I have said elsewhere corporate strategic planning is concerned with the big elephant sized issues facing the organization, so the crux is what we mean by ‘big’.

‘Big’ applies to the issues challenging the organization, and also to the small number of decisions that constitute the ‘strategic structure’ of the organization. Big refers to issues that could impact the overall performance of the organization in a significant way. For example in the case of a business an issue that is likely to impact profits by 20% or more is a big issue. Decisions taken to address the issues are big decisions. They are also decisions with links to other considerations.

These decisions are designed to achieve the fundamental purpose of the organization in the form of a range of performance targets, and to do this within the limits of a code of corporate conduct, and importantly within a range of tolerable and management risk.

This set of overall guides to strategic decision making, in terms of performance, conduct and risk profile can only be decided at the top most level of the organization.

The corporate strategic plan of all organizations, large or small, national or multinational, must specify at least some aspects of this, and which aspects are and which are not specified is itself an important decision.

In order to select a set of strategies or design a strategic structure it is seldom necessary to delve into great detail. The Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis for example, need contain very little detail.

However, unlike those in other organizations, those engaged in global strategic planning do have to examine one area in thorough and painstaking detail. This is the complex web of international trade and financial legislation and practice. All other details may be left to decision by local managements who know the local conditions; what they may not know and what the central management may not know either is the regulations governing trade between the various nations in which the multinational proposes to operate. Some illustrations of the need to have this local knowledge at work follow.

Culture and International Business

Chevrolet made a marketing blunder, and missed out on sales revenue, when it introduced the Chevy Nova to Mexico. In Spanish, “No va” means “it doesn’t go.”

The American Motor Corporation, trying to tap into Puerto Rican ideas around images of strength and virility called one of its vehicles the “Matador”. The prospective customers interpreted “Matador” as “killer”. In a land where the road toll was very high this was not a good marketing move.

In addition to getting corporate headquarter to set strategic guidance on matters such as currency, trade regulation, the corporate central staff need to listen very carefully to its people who know the cultural conditions first hand in the local markets!

It is therefore imperative to conduct an evaluation of names prior to introducing a product on the market.

Lost in translation

It is not just product names that need evaluation for cultural relevance and appropriateness. Translation errors are behind a lot of blunders in global trade. The Coors slogan “Turn it Loose,” turned into “Drink Coors and Get Diarrhea.”

As is obvious, these mistakes and others like them can result in a devastating loss of revenue for companies in today’s global marketplace. Hence, it is very important to know its culture before conducting international business with a country.

Technology addressing the international problem in global strategic planning

As I said earlier, the aspect of global strategic planning that requires special treatment is the complex web of international trade and financial legislation and practice.

I believe this ‘international problem’ to be the primary difference in principle between global strategic planning for the international enterprise and strategic planning for a national organization.

The problem can, to some extent, be addressed by the more extensive use of information and communications technologies in which the great burden of calculating the effect of international financial regulations will become more manageable.

Revolutionary changes in technologies provided the mechanisms that propel the growth of international business. The intensification of competition at both domestic and international levels has driven firms to look beyond their domestic markets for new opportunities. The progressive removal of barriers to trade and capital movements has stimulated greater flows of exports, imports and capital.

Multinational operation requiring global strategic planning is therefor no longer the sole province of the larger corporations. Quite small and many medium sized enterprisers can operate on an international stage.


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