Benefits and costs of planning

The strategic planning process enables corporate management to encourage and shape the emergent process of strategy development that should be occurring at business level.
The planning process acts as a prompt for managers to develop intelligence and question their assumptions concerning the environment in which their business operates.
For some organizations there is a need to achieve coordination between business strategies to develop the interdependencies that can lead to the synergies which can underpin the organization's capabilities.
There may also be a need for centralized coordination to manage the way in which the organization, as an entity rather than separate businesses, is perceived by groups such customers and regulators.
The need to plan is largely based upon the nature of the assets and systems of a business, and the limited flexibility of these implies that new circumstances cannot be fully accommodated as they arise.
The act of planning attempts to anticipate future uncertainties. It also attempts to devise strategies that will help, as far as possible, to protect core assets from those anticipated uncertainties.

Formal strategic planning has its costs. The process requires the extensive involvement of the organization's senior management. There may also be the expense of the employing staff to specifically lead the planning process. Senior managers must be committed to achieving the plan and, if necessary, part of their remuneration should be based upon achieving planned performance. Owing to the need to be committed to plans, it has often been argued that formal plans reduce the flexibility of an organization and its ability to respond to events as they arise. In addition, the planning process will fail to be effective unless it is infused with a high quality of strategic thinking. This, in turn, often requires a substantial investment in management development.
Is formal strategic planning worthwhile? Rather than representing alternative approaches to strategy development, formal strategic planning and emergent strategy processes such as incrementalism (forming strategy through trial and error) complement each other, especially if the business environment is unstable. This is achieved by formal plans being "fine tuned" during their implementation, modified to take account of changing circumstances. The study also concludes that organizations need to learn how to make strategic planning effective for their particular organization and its context.
As a consequence, it typically takes four years of planning experience before formal planning results in improved organizational performance.
The way in which strategic planning can be developed to suit a changing organizational context is illustrated by the following brief case study concerning PowerGen and its experience of planning in the years immediately following the company's creation.

PowerGen was formed in 1991 following the privatization of the UK electricity industry. When nationalized, the main role of the planning process had been to provide the UK Government with control of both the industry's performance and investment. To achieve that role, the planning process was highly centralized. Planning documents throughout the industry followed a specified format, forecasts and strategies were centrally determined and, in the absence of competitive market pressures, the planning process could take the greater part of a year to complete.
Privatization divided the industry into a number of electricity generating companies and progressively introduced a competitive market in electricity. The privatized companies faced the need to achieve a return for their shareholders. For a time, PowerGen continued to take a centralized approach to planning, with business level managers essentially acting to determine the resource implications of the company's centrally determined strategy. By 1992, competitive pressures and the growing diversification of PowerGen, both domestically into gas supply and internationally, required a more devolved approach. The size of the central planning team was reduced and greater emphasis placed upon their role as enablers of divisional and business level planning. To reflect the new devolved approach to planning, the level of detail required in business level plans was reduced to provide a document that required only a few sheets of paper. The devolution of the strategy process was assisted by an extensive process of management development. In addition, in an attempt to respond to the increasingly dynamic business environment, the length of the planning cycle was substantially reduced.