Today, most business enterprises engage in strategic planning, although the degree of sophistication and formality vary considerably. Conceptually, strategic planning is deceptively simple: analyze the current and expected future situation, determine the direction of the firm and develop means for achieving the mission. In reality, this is an extremely complex process, which demands a systematic approach for identifying and analyzing factors external to the organization, and matching them with the firm?s capabilities.

Planning is done in an environment of uncertainty. No one can be sure what the external as well as the internal environment will be even next week, much less several years from now. Therefore, people make assumptions or forecasts about the anticipated environment. Some of the forecasts become assumptions for other plans.

Strategies and policies are closely related. Both give direction, both are the frameworks for plans, both are the basis for operational plans and both affect all areas of managing. Although specific steps in the formulation of the strategy may vary, the process can be built, at least conceptually, around the key elements like purpose and objectives, external environment and internal environment.

Strategic alternatives are developed on the basis of an analysis of the external and internal environment. An organization may pursue many different kinds of strategies. It may specialize or concentrate. Alternatively, a firm may diversify, extending the operation into new and profitable markets. Still another strategy is to go international and expand the operation into other countries. Under certain circumstances, a company may have to adopt a liquidation strategy by terminating an unprofitable product line or even dissolving the firm. But in some cases, liquidation may not be necessary and a retrenchment strategy may be appropriate. In such a situation, the company may curtail its operation temporarily. The various strategies have to be carefully evaluated before the choice is made.