The reason strategic planning and thinking is so helpful is that it saves you an enormous amount of time and money. By thinking through the key questions and concepts of strategy, you very quickly find yourself doing more and more of the most important tasks that can move you toward your key goals. At the same time, you do fewer and fewer of those things that are not particularly helpful. You do more things right and fewer things wrong. You establish specific targets for the company and for everyone in it. You greatly improve your ability to measure and track results. You move onto the fast track in your work and in your life in general.
The purpose of corporate strategic planning is to increase return on equity. Equity is defined as the actual amount of shareholder money invested and working in the enterprise. The aim of strategic planning in business is to reorganise and restructure the activities of the corporation so as to achieve a higher quality and quantity of outputs relative to inputs. It is to improve and increase financial results. It is to achieve superior profitability.
Overall, the goal of strategic planning is to enable the company to utilise its people and resources more effectively. The company will then function better than before. It will be in a superior position relative to its competition. This improvement can be measured in terms of higher sales, greater market share, better profitability, higher returns on invested assets and better positioning for the future.
A London Member of Parliament and stockbroker in the early 1800’s David Ricardo was also an avid student of economics, ultimately succeeding Adam Smith as Britain’s pre-eminent economist. His influence dominated the aims and methods of the discipline throughout the nineteenth century.
Ricardo is perhaps best known for his Theory of Comparative Advantage of Nations, which suggested that specialisation leads to wealth and self-sufficiency leads to poverty. He recognised that two countries can benefit from trade even if one of them is better at producing everything than the other. The example most often cited was England and Portugal. Portugal could produce both wheat and wine cheaper than England (giving them an absolute advantage in both commodities). However, delving deeper into the economics of these two industries, Ricardo found that one unit of wine in England cost the same amount to produce as two units of wheat while in Portugal, the production cost of one unit of wine was the same as 1.5 units of wheat. In other words, Portugal had a comparative advantage in the production of wine and England had a comparative advantage in the production of wheat. Ricardo went on to show how both countries could benefit by trading these two products with each other, with Portugal focusing on the production of wine and England focusing on the production of wheat. Another perspective is that, even though Portugal could produce wheat cheaper than England, every unit of wheat it produced cost the country the opportunity to make a higher profit by producing a unit of wine. This is known as the lost opportunity cost. Read more…