European Journal of Scientific Research - EuroJournals

423 Cihat Polat
taken as a ground for such processes and activities. This would give managers the opportunity to make
more realistic assumptions in their plans and projections and determine alternative strategies
concerning different outcomes of forecast results for the scenarios being considered.
Flow of information and data from bottom-to-up (functional level to business level and
business level to corporate level) is one of the major inputs in strategic management. Without this
information and data flow from functional level, for instance, to business level managers are unlikely
to formulate business strategies. Also, without such input, business level managers might choose a
strategy that the company does not have the operational and functional resources to attain (Hill &
Jones, 1992: 23). The same is valid for corporate level managers.
Strategy Implementation: Strategy implementation is another key process in strategic management.
The attainability and consistency of strategic objectives are particularly significant for strategic
management levels. The strategic objectives expressed in clear and objective figures are the key
elements in strategy implementation. A good communication between strategic managers at all levels
is a prerequisite in achieving these objectives, which requires clear, concrete, and understandable
messages. Forecasts produced, in this sense, are a major part of the messages in the communication
between both different levels of strategic and operational managers, and among themselves, as well.
The same as in the strategy formulation, without the flow of information (and data) from the
top level to the functional level, the opposite of above, the functional level managers would not know
what strategic objectives are pre-determined; in turn, what the functional level objectives should
accordingly be, what functional decisions to make, and what tools to use for monitoring and control
purposes. In other words, without concrete strategic goals dressed with figures, which are made more
concrete and visible by forecasts, it would be too difficult to implement these strategies determined.
Forecasting can be used in two different ways for strategic purposes: for (i) the realization of
strategic decisions in functional and operational levels and (ii) planning strategic decisions directly.
While the short-term operational forecasts are an example of the former, the medium term and longterm
capacity forecasts based on the market potential are the examples of the latter. Short-term
operational forecasts should normally be the basic guide in running the business’ daily operations. For
instance, production schedules can be set, raw material purchases be guided, and inventories be
controlled, and cash flows are managed by these forecasts (see McLaughlin, 1974: 4-56). The medium
or longer term forecasts can directly be considered for strategic planning purposes mainly because they
have to consider economic, political, social, demographic, and, say, other relevant external (or internal)
characteristics. Good sales forecasts start from forecasting of the general state of an economy, and goes
to forecasting of the specific industry and then to the market potential and sales for a specific period of
time. Within these processes, it is expected that various scenarios are considered and different set of
forecasts for each scenario is produced. Here, strategic thinking is an integral part of forecasting for
different scenarios and the end product is a set of information obtained from such processes, made
ready to be used for strategic purposes.
The following points are about how forecasting function is related to strategic management
context: Strategic decisions are long-termed. Long-term decisions are riskier than are short-term
decisions due to an increase in the uncertainty in the long-term. The higher the increase in uncertainty,
the more the managers need for information for strategic decision-making. In principle the longer the
time horizon is, the higher the planning requirements are (e.g. capacity planning) in companies. It is
obvious that in such situations the information requirements by management increases dramatically,
especially, if the intention is to make strategic decisions, which makes forecasting central to strategic
decision-making.
Cost considerations are another factor that forces strategic managers to consider forecasting. A
forecasting activity with a high accuracy may be needed especially in major planning and investment
decisions based on the forecasts of market potential or sales where high costs are incurred (e.g. plant
expansion and new facilities construction). The size of the costs or financial resources to be invested
may make firms utilize forecasting function in making a ground for such decisions.