In the current competitive global market, strategic planning is one of the most essential activities within a firm’s top management unit. For a firm to be able to operate successfully, it needs clearly articulated strategies that can enable it achieve specific goals within a particular time. The process of defining a clear strategy, allocation of the available resources, making the right decisions or directions is what strategic planning entails. According to Simerson (2011), strategic planning deals with the main activities that a firm intends to undertake within a given financial year in order to achieve specific strategic objectives. This scholar says that strategic planning affects an organization in various ways. This means that strategic planning is also linked to financial planning within an organization. This research focuses on the relationship between strategic planning and financial planning within General Motors.
Strategic planning initiative within General Motors
General Motors is one of the leading car manufacturers in the world. This American firm has managed to withstand stiff market competition posed by other industry giants such as Toyota Motors to remain competitive in the market. According to Simerson (2011), for a firm to remain competitive in the face of a stiff market competition, it must devise competitive approaches through strategic planning that would enable it protect its market share while still fighting for more. This is a fact that the management of General Motors has been very keen on. The firm has been keen to ensure that its goals are achieved despite the changing environmental forces.
One of the strategic planning that this firm has been discussing in its recent annual report is strategic change management.
The management realized that emerging technologies are bringing new approaches in this industry, and the only way through which it can remain competitive is to change with the changing forces. Technology has lessened the production time and the approach taken by these firms to produce their products. Technology has also changed the marketing strategies that this firm uses to reach the target market. This means that General Motors has to change its production and marketing strategies. Over the last three years, General Motors has been keen to ensure that it maintains its production and marketing strategies within the current market standards. This has had an impact on the financial capacity of the firm.
The effect of the initiative on the financial planning of the firm
According to Simerson (2011), strategic planning initiatives will always have an impact on the financial planning of an organization. This scholar says that strategies that a firm develops have to be implemented using finances available within the firm. This means that financial planning is part of strategic planning. The policies that a firm comes up with will help increase the asset base of a firm or reduce it depending on how appropriate the strategy is and how well it is implemented. The income generated from strategic planning will also have an impact on the future financial planning of the organization. The balance sheet of this firm in its website shows the financial position of General Motors for the last three years that it has been implementing new strategies.
This balance sheet shows that General Motors has experienced a consistent increase in asset base for the last three years. This increase in asset base is also accompanied by increase in profitability of the firm. The strategic change management employed by the firm has increased the amount of money available for this firm to budget with, in the subsequent years. This is a clear indication that the financial planning for this firm is affected positively. The firm will be planning for an increased amount of money.
The effect of the initiative on costs
The initiative will have direct impact on the costs of the firm. Booker (2006) says that costs that should be undertaken by the firm should always be determined by the strategies developed by the top management. The path that the top management decides to take when making strategic planning for the organization will always dictate the costs that the firm will incur. The plans of an organization can only be implemented with the available finances. If the planned projects are costly, then it means that it would force the firm to use high amount of its disposable income to execute them. Strategic change management involves a series of activities within various departments of a firm. This may cost the firm more if the projects within the departments are involving.
According to Booker (2006), before committing to any initiative, it is important to ensure that the initiative’s benefit is worth the cost that is invested in it. This means that the management has a role to play in ensuring that before a project is finally approved, the attached costs on the project will be realized within a reasonable time. Strategic change management is costly as was mentioned above. The costs of such a project may go even higher in case the project involves technological overhaul that may force a firm to make major changes into its existing system. This means that the firm would need to buy or hire software and hardware to be used by the experts during the installation process. When the system is successfully launched within the organization, it would be important to offer maintenance to ensure that the system runs without any hitches. All these costs must be factored in when determining the worthiness of an initiative.
The effect of the initiative on sales
Strategic planning taken by a firm will always affect sales of a firm directly (Booker, 2006). General Motors strategic change initiative it has taken over the last three years has had direct impact on its sales. The income statement of this firm as given in its website show the revenue generated by the firm over the last three years that this initiative has been in operations. It is important to note that during the first year, the management was concerned of developing the product that would be delivered to the market. The sale of products developed after introduction of the initiative started late the same year when the management had succeeded in using what technology offers in this industry. The second and third year involved active sale of the products of this firm.
The income statement of General Motors shows that the income for this firm has consistently increased over the last three years, from $ 135,592,000 in the year 2010, to $ 150,276,000 in the year 2012, and finally to $ 152,256,000 in the year 2012. The initiative taken by the top management may be considered as a success given the increase in revenues as demonstrated in their books of account. This shows that the initiative has attracted more customers who feel that their needs have been met.
For this reason, they purchased more of this firm’s product. These customers will also help in the evangelism of the new high-end products of the firm. It is through this that a firm can be able to meet all costs and retain some wealth, besides convincing the market that its products are superior. These customers will form the main strength of this firm in the end. This means that the initiative has had a positive effect on the firm’s sales
Possible risks associated with the initiative and its financial effects
This initiative has some risks that may affect it in one way or the other. Embracing change is a risky process because not all changes are good for the company. Engaging in an irrelevant change may have serious negative impact on the firm’s internal operations. This may also affect the financial capacity of the firm. Simerson (2011) observes that technology changes so rapidly, but not all changes brought by the changing technology are good. This means that General Motors must be careful of the initiatives it takes in its change management. Employing a wrong strategy would cost the firm a lot of financial loss, despite the possible damage of its reputation in the market. This demonstrates how keen the management should be when implementing the initiatives. Some firms have had serious impact due to their inability to understand the possible risks associated with the initiative. A lot of precaution should be taken into consideration to avoid risks that the firm may face.
Booker, J. (2006). Financial planning fundamentals. Toronto: CCH Canadian Limited.
Simerson, B. (2011). Strategic planning: A practical guide to strategy formulation and execution. Santa Barbara: Praeger.