MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 47)

Entities rely on strategic planning as a way to effectively manage complexity. Top-Down Strategic planning is a method used as a way to program future success. Here, the strategic intelligence and decision making responsibilities rest at the top (ex. the office of the CEO).

The Analyze-Formulate-Implement process can be thought of as a top-down process (in that order). As an example, leaders at the top form detailed analysis of the internal and external environment and apply it to quantifiable areas such as price, cost, margin, etc. They then form multi-year plans attempting to predict the future, budgets are tied to this plan and future performance is monitored. Based on this process, the firm’s Vision-Mission-Values are adjusted before forming corporate, business and functional strategies. Organizational Structures, controls and Governance Structures aid in its implementation.

The Top-Down approach assumes that the future can be predicted. Thus it works well when the environment does not change. Also, the formulation is separate from the implementation. Information only flows one way (Top-Down). Realistically, one cannot know the future and unforeseen events can make even the best plans obsolete.