## Strategy Formulation and Strategic Planning

Strategic planning is the formal process through which a firm crafts its corporate strategy.

### What Is Strategic Planning?

Results from a process of interactive and overlapping decisions.
Determines where an organisation is going over the next 5+ years and how to get there.
Can be organisation-wide or focused on a major function/division.

### Strategic Uncertainty

Strategic uncertainty = unpredictability of future events and circumstances that can impact an organisation's strategy and goals.

Way to Deal	Description
Flexibility	Build flexibility into strategies
Diversification	Diversify product portfolio, markets, and customer base
Monitoring & Scenario Planning	Regularly monitor key indicators; conduct scenario planning for different futures
Building Resilience	Strengthen operational processes; increase financial flexibility
Collaboration & Partnerships	Work with suppliers, customers, and partners

### Impact of Uncertainty

Impact depends on the importance of the affected SBU (measured by sales, profits, or costs).
Current sales/profits may not fully reflect the true potential value of an SBU.

Worked example

### Example 1

A software firm faces uncertainty due to rapid AI disruption. Applying Monitoring and Scenario Planning, it tracks AI adoption rates quarterly and models three scenarios — slow, moderate, and rapid adoption — pre-planning a response for each scenario rather than reacting in crisis.

### Example 2

An FMCG company builds flexibility by keeping 20% of its production capacity idle ('flex capacity'), so it can rapidly scale production if a new product suddenly gains market traction — without needing capital investment on short notice.

⚠️ Common exam mistakes

Confusing strategic planning with operational planning — strategic planning is long-term (5+ years); operational planning is short-term.
Thinking strategic uncertainty can be eliminated — it can only be managed through flexibility, diversification, monitoring, resilience, and partnerships.
Listing only one or two ways to deal with uncertainty in an exam answer — there are five distinct methods, all commonly tested.

Reference:

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Strategy Formulation — Strategic Planning and Uncertainty

Worked example

⚠️ Common exam mistakes