Components of the Strategic Planning Process

As part of the strategic planning process, a situation analysis must be conducted before a company can decide on specific actions. A situation analysis involves analyzing both the external (macro and micro factors outside the organization) and the internal (company) environments. Figure 2.2 "The Strategic Planning Process" and Figure 2.3 "Elements of a SWOT Analysis" show examples of internal and external factors and in a SWOT analysis. The firm's internal environment - such as its financial resources, technological resources, and the capabilities of its personnel and their performance - has to be examined. It is also critical to examine the external macro and micro environments the firm faces, such as the economy and its competitors. The external environment significantly affects the decisions a firm makes, and thus must be continuously evaluated. For example, during the economic downturn in 2008–2009, businesses found that many competitors cut the prices of their products drastically. Other companies reduced package sizes or the amount of product in packages. Firms also offered customers incentives (free shipping, free gift cards with purchase, rebates, etc). to purchase their goods and services online, which allowed businesses to cut back on the personnel needed to staff their brick-and-mortar stores. While a business cannot control things such as the economy, changes in demographic trends, or what competitors do, it must decide what actions to take to remain competitive - actions that depend in part on their internal environment.