Economic Analysis and Corporate Strategic Planning

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Economic Analysis and Corporate Strategic Planning

IN RECENT YEARS, business economists and corporate strategic planners have been under fire because of the irrelevancy of the output of many as far as the business world is concerned. One intellectual sin committed all too often is the failure to base corporate strategic plans upon a foundation of solid economic information. Another no less frequent intellectual sin is the preparation of economic analyses and forecasts that make little or no contribution to corporate strategic planning and decision-making. Business economics can be fruitful only if it becomes an integral part of corporate strategic planning and serves as a foundation for the short-term and long-term business decisions associated with that process.

In order to meet the challenges posed by a world of ongoing change, business organizations must deal with five critical questions:

1. What will the world of tomorrow be like?

2. What are the company's hopes for the future?

3. Where is the corporation currently headed?

4. How will the business appear in the future?

5. How can the organization change and what it will look like?

Economic analysis and strategic planning are essential in finding answers to these questions. Consequently, business economists, working closely with corporate planners, can make major contributions to the future success of business organizations.

EXTERNAL ENVIRONMENT

Before any company starts to plan, it should attempt to determine what environmental conditions will be like in the future. This analysis should include an examination of the economic outlook for the world as a whole, countries, geographic regions and specific industries.

The world of tomorrow will include a global economic environment impacted by accelerating structural change. The first step in determining how this change will affect any corporation is to define the business areas in which the company will operate in the years ahead. Each corporation has a unique vantage point in the economic game of cooperation and competition that must be examined.

For multinational corporations, a key issue in this volatile economic environment will be the significant transformations of the industrial profiles of high-growth and low-growth countries. Structural changes generated by such forces as shifting international comparative advantages and rapid technological progress will produce a series of changing pictures of the future business arena. These changes will present a kaleidoscope of opportunities and problems that will shift with increasing frequency for the rest of this century.

One of the consequences of the changing global economic environment will be differential growth rates for various industries. Included will be the further shift in manufacturing from developed toward newly industrializing nations. In addition, the continued expansion of some industries and technological innovation will continue to generate a whole spectrum of opportunities and problems for many sectors of the world economy. These changes can be defined and measured in many ways, including in terms of sales, income, assets, output and employment.

CORPORATE EXPECTATIONS

Before a corporation can formulate strategies, make plans and design programs, it should be clear about where it wants to go. Establishing corporate objectives with respect to future growth and development must take several factors into account. One is the projected external environment and its impact on the organization. Other important considerations are the strengths and weaknesses of the organization and the internal resources expected to be available to meet future external challenges.

In establishing internal objectives, four critical corporate issues should be resolved at the outset: survival, growth, diversification and development. …