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Organizing the corporate planning function
Organizing the Corporate Planning Function B. W. Denning, Senior Lecturerin Business Policyand Organization, London GraduateSchool of BusinessStudies
A survey of Corporate Planning in Britain suggests that the way the process is organized varies with the need of the firm. There appear to be two types of needs which foster the development of the planning activity-strategy development and co-ordination. In capital intensive companies, threatened by technological or market change, there is a need for reappraisal of the firm's overall strategy. On the other hand, in a large diversified firm the requirement may be to co-ordinate the plans of different divisions and departments, particularly investment proposals. This article suggests a framework for the analysis of these planning needs.
JUNE, 1969
GREAT MANY BRITISH COMPANIES HAVE recently introduced or are in the process of introducing "long-range planning". The introduction of this activity on a systematic basis usually follows a fairly similar pattern whereby one senior executive feels the need for a more careful approach to problems of strategy and policy, informs himself about the nature of strategic and corporate planning and then persuades his senior colleagues to experiment with making a formal overall corporate plan for three, five or seven years ahead. Assuming that commitment is made to the experiment by top management, there immediately arises a host of organizational proOlems. Who is to do the planning? Do we need a special corporate planner and a new department? If, so, what will he and his department do that is not already done elsewhere? How will a planning department work with heads of divisions or functions who carry executive responsibilty? Is corporate planning a staff or a line function? American experience suggests that the answers to some of these problems are fairly clear. Corporate planning is a staff function which must have direct access to the Chief Executive. Indeed, it is more accurate to consider a corporate planner as an extension of the chief executive responsible for providing an objective analytical ability free from functional or executive responsibilties. 1 Senior line executives must largely plan their own
operations and projects while working within a framework of goals, objectives, policies and standards set by top management, while special projects of a strategic nature may be planned at the centre. Any planning system must obtain executive involvement and motivation which is probably best achieved by dispersing planning responsibilities irt this way3 Unfort~anately, this general type of statement offers little detailed guidance to the corporate planner or to the chief executive with responsibility for organizing an effective planning process in his own company because of the organizational and personality structure, and the business characteristics of his particular firm. It is the purpose of this article to suggest a framework within which any company can systematically approach the definition of responsibility for those activities which need to be carried out in a full corporate planning process. Corporate planning can most usefully be regarded as a process over time involving strategic planning, project planning and operational planning. As with any other process, planning can then be broken down into a number of discrete activities and with these activities isolated and defined, it becomes possible to attach formal responsibility to a particular person or group for that activity and to design the necessary information flows to enable that person or group to carry it out. As part of some current research into
67
•
R E S P O N S I B I L I T Y OF CORPORATE PLANNING DEPARTMENT
ACTIVITY
Responsibility for Initiation
Responsibility for deNo tailed Responsibility work
Responsibility for Coordination
Economic Forecasting Technological Forecasting Establishment of Assumptions about the future
b
Economic Analysis of markets Sales Forecasting Estimation of product life cycles Determination goals
of Corporate
Appraisal of top management's attitudes Examination of company's strengths and weaknesses Evaluation of top ment's proposals
manage-
Determination of markets in which to operate
as
=
Development of new products Market development Manpower projections Capital budgeting Preparation proposals
of
Investment
Planning new facilities Integration of divisional plans FIGURE I. F R A M E W O R K FOR ORGANIZING LONG RANGE C O R P O R A T E PLANNING the organization of corporate planning among the top 300 companies in Britain, information was sought along these lines with particular reference to the rdle of the corporate planning department, if one existed. 3 (See Figure 1). In the left-hand column a list of activities which need to be carried out in any organization doing effective corporate planning was specified. It was assumed that the formal responsibilities of the corporate planning department in each of these areas could be one of four types: (a) Responsibility to initiate that activity with the detailed work being done elsewhere. (b) Responsibility to co-ordinate that activity with the detailed work 68
by-producL of the research was that when companies were asked to delineate the responsibilities of their corporate planrang departments by giving a highly specific statement of the responsibihtles o1 tide department, they were able to do so. A second relevant point was tnat companies were asked to indicate it any key acUvities of their corporate planning uepartment were omitted. No suggestions were made that tnere were any aaaluonal activmes. Clearly, this could arise from the oroad interpretation winch could be given to activiues such as "EvaluaUon of top management's proposals", and this item could usefully be broken down into more detailed areas such as : investigation of possible acquisitions, proposals to hcence, or proposals to move outside the present field of business. i'~evertheless, it would seem that the use ol this simple ~rameworK to spect~y more accurately the work of a corporate planning department stands up to the test of practice, If this is so, then it can provicle a useful framework for considermg the rdle that a corporate planning department should play in any one organizauon. f o r example, in a multi-divisional orgamzation it is possible to ask questions such
being done elsewhere. (c) Responsibility to do the detailed work. (d) No responsibility. In certain cases, the department could have responsibility both for initiation and the detailed work. No enquiry about the decision-making responsibility of the planning department was made, on the assumption that decisions would be made by line executives with or without the help and advice of their planners. Companies were asked to mark the responsibility of the corporate planning department against each activity and some ccntrasting results in different companies are noted at the end of this paper. One of the points which emerged as a
-"
1. Are divisional managers to be responsible for the planning of new products or are these to be planned at the centre? 2. To what extent do we require a corporate planning department to prepare, assess, or co-ordinate, investment proposals? 3. Is it reasonable to expect operating divisions to have the expertise to make longer-term sales forecasts of key products? The opportunity to ask precise questions of this type also enables top management to relate the design of the planning activity to another important dimension of top management's r61e, namely the retention of planning power over key tasks. If, for example, in a highly technological company, decisions on product development are crucial, then it may be that the corporate planning staff needs to be given the function of detailed planning of new product development. Alternatively, if a company is constrained by shortage of capital and this is a key factor in a strategic development, it may be that the detailed work involved in capital budgeting needs to be carried out by the corporate planning staff. In other words, the adoption of a systematic approach to the analysis and synthesis of the planning process can be helpful to top management in applying the ideas of key task management to its organization for corporate planning. LONG RANGE PLANNING
The virtues of adopting a systematic approach along these lines lie in two fields. First, by detailed examination of the extent to which responsibilty will be held by a division, a function or a planning department, the matter can perhaps be discussed rationally and an acceptable solution to the political problems be evolved. Secondly, if the rSle of the corporate planning department can be defined along these lines, it becomes possible to decide on the nature of staff and the information required to carry out the work allocated to them, two essentials of sound organizational practice. It is not being suggested that the actual planning arrangements in any one company can be fully specified or that demarcation barriers should be erected and maintained. Nor, indeed, would this be desirable, since a large amount of the work done by an effective corporate planner is an influencing process carded out informally by virtue of the respect he commands at senior levels in the organization. Nevertheless, to rely entirely on informal processes in any organized activity can only too often, be a recipe for ineffectivness, and attempts to define boundaries of responsibility are usually an aid to efficiency in planning as in any other acivity,t
SOME DIFFERENT ORGANIZATIONAL PATTERNS Underlying
the
research
are
some
attempts to examine why companies introduce corporate planning and what they hope to achiev~ by it. Certainly, as a fact of life one has to accept entirely different patterns of organization of the function as existing and being effective. To a great extent these differences have historically been viewed as having no underlying rationale, or merely being preferences of particular chief executives. An alternative approach to this puzzling problem of organizational differences would be to argue that the introduction of systematic long-range planning may be a response to quite different needs in different situations. Again, relating the long-range planning process to top management's r61e, there appear to be two vital parts of this r61e which planning systems can assist. The first is formal analytical consideration of strategy through the whole process of environmental and strategic appraisal and the formal setting of objectives and goals. The second arises in large complex organizations where a major task is faced in the co-ordination of diverse product groups, divisions and subsidiary units into a coherent whole. Different companies at different times may find that one or other of these needs is dominant and under
JUNE, I~9
R E S P O N S I B I L I T Y OF CORPORATE PLANNING EPARTMENT Economic Forecasting
Responsibility for Initiation
Responsibility for Coordination
X
Technological Forecasting
Respon. sibility for deNo tailed Responwork sibility X
X
Establishment of Assumptions about the future
X
Economic Analysis of markets
X
Sales Forecasting
X
Estimation of product life cycles
X
Determination goals
X
of Corporate
Appraisal of top management's attitudes
X
Examination of company's strengths and weaknesses
X
Evaluation of top ment's proposals
X
manage-
Determination of markets in which to operate
X
Development of new products
X
Market development
X
Manpower projections
X
Capital budgeting
X
Preparation proposals
of
Investment
X
Planning new facilities
X
Integration of divisional plans
X
FIGURE 2. PROFILE OF C O M P A N Y A - - A LARGE C O M P U T E R A N D D A T A PROCESSING COMPANY these circumstances it would be reasonable to expect that the organization of the planning function would differ markedly in response to the different needs. Strategic planning is of the greatest importance where a company operates in an area of rapid market or technological c h a n g e accompanied by high-capital intensity since these conditions impose the greatest strategic risk. For companies in this technical-economic position, systematic strategic planning becomes a key man,agerial response if profitable survival is to be assured. It would not, therefore, be unreasonable to anticipate that under these circumstances a corporate planning department will be oriented primarily towards strategic planning and the work
which it will be required to do will incorporate a great deal of detailed analytical work exploring strategic alternatives in key areas. This would give a particular r61e definition to the corporate planning function and dictate the type and kind of staff considered necessary to execute this r61e. This state of affairs would seem to be exemplified in the profile of the corporate plannnig department shown in Figure 2. Company A is a major operator in the area of computer and data processing systems. The rate of technological change is very rapid, the investment in research and development for hardware is very high and this is aggravated by substantial investment in the development of soft-
69
R E S P O N S I B I L I T Y OF CORPORATE PLANNING EPARTMENT
Responsibility for Initiation
Responsibility for Coordination
Responsibility for deNo tailed Responwork sibility
Economic Forecasting
X
Technological Forecasting
X
Establishment of Assumptions about the future
X
Economic Analysis of markets
X
Sales Forecasting
X
Estimation of product life cycles
X
Determination goals
of Corporate
X
Appraisal of top management's attitudes
X
Examination of company's strengths and weaknesses
X
Evaluation of top ment's proposals
X
manage-
Determination of markets in which to operate
X
Development of new products
X
Market development
X
Manpower projections
X
Capital budgeting
X
Preparation proposals
of
Investment
X
Planning new facilities Integration of divisional plans
X
X
FIGURE 3. PROFILE OF C O M P A N Y B - - A LARGE I N T E G R A T E D STEEL A N D ENGINEERING C O M P A N Y ware, programs and programming techniques. The risk element in the financial posture of such a company is not dissimilar to a company with more conventional characteristics of high-capital intensity, normally thought of as possessing expensive single purpose assets with a high ratio of fixed capital per employee. Under these circumstances the key rtle of systematic long-range planning would need to be strategic with a great deal of centralized effort and work in all key strategic areas. A glance at Figure 2 indicates that the corporate planning department in this company is responsible for detailed work in all the areas listed except for technological forecasting and appraisal of top 70
management's attitudes. Technological forecasting involves a special knowledge and expertise which can probably best be performed by a small expert group with strong research link which would not necessarily fit inside the corporate planning department. It seems reasonable to suggest that the way in, which the corporate planning function has been organized in this company is primarily a response to the special needs of a company in a situation of major opportunity and high risk, where strategic considerations are of paramount importance and strategic re-thinking is necessary at frequent intervals in an environment of rapid change. Compare this situation with a company
of quite different basic characteristics. Company B, whose planning department profile is shown in Figure 3 was, at the time of enquiry, a large integrated steel engineering concern with many subsidiaries both in the United Kingdom and abroad, covering a vast range of products and markets. In the United Kingdom. subsidiaries were organized into semiautonomous product groups and each product group had several subsidiaries operating in related but separate fields. Through the group as a whole there was substantial inter-company trading, especially in the supply of steel to the engineering groups and this imposed a requirement for vertical co-ordination. A further factor was that the demand for the products of many of the engineering companies was fundamentally derived from activities in other major industrial fields. Under these circumstances, two of the most difficult and critical tasks of top management are the co-ordination of activities across an enormous productmarket spectrum and the need to assess the effects of investment in one area with activity in another. Under such circumstances, a critical function of formal longrange planning can well be the operation of a managerial system which allows more effective co-ordination of activity between product groups, between domestic and foreign ccmpanies, and between raw material producers and finished engineering goods companies. The profile of the responsibilities of the corporate planning department in this company seems to reflect this essential co-ordinative need. The department has virtually no responsibility for detailed work, and its defined responsibilities lie e~tirely in the field of co-ordinating various activities. Operationally, these are concentrated in the area of co-ordinating investment proposals and divisional plans, and the strategic level, there is a responsibility to bring together heads of staff departments or chief executives of product groups for strategic review. This line of argument would be supported by other evidence arising from the present research where there is a marked tendency for systematic corporate planning to have been introduced where more complex organizational structures have been created due to size or the geographical dispersion of operations. Even within the limits imposed by an attempt to define responsibilities in this area and the possibilities of misunderstanding inherent in any questionnaire approach, it is clear that the concept of the planning function in Company B is of a totally different order to that of Company A. It seems probable that differences of this order are not merely LONG RANGE PLANNING
responses to different cultural patterns of the two organizations, but are likely to be related to different basic needs in the two situations. In Company B the emphasis is clearly on the need for a mechanism to co-ordinate a wide range of activities under conditions of substantial decentralization, an organizational structure relevant to the particular operating needs of the business. Companies A and B represent to a certain extent two poles of possible organization of the planning function where different circumstances pose different critical top management needs. Most compames probably need to gain from their planning systems a more effective response both to strategic problems and co-ordination problems. Company C illustrates this rather more diverse pattern of organization (see Figure 4). The company is a major chemical man,ufacturer with comparatively autonomous product divisions operating predominantly in the United Kingdom but with important overseas activities. The company is capital intensive, exists in a situation of fairly rapid technological change and is in a growth field where there are substantial opportunities woth domestically and internationally. Heavy investment is needed both in fixed assets for process operations and in research and development. Top management of Company C therefore faces substantial strategic problems as well as important problems of coordination. Under these circumstances it would be exoected that the profile of responsibility of the corporate planning deoartment would reflect these dual needs and Figure 3 offers something of a compromise profile between the previous two companies. It is of interest to note that the der~artment does have responsibility for detailed work in the area of capital budgeting, and given the characteristics af this business with its capital intensive, single,purpose plants, this would be a critical dimension of strategy. The other activities of the department reflect the mixture of strategic development work and the co-ordination needs of a complex organization.
SUMMARY Systematic corporate planning in large organizations is introduced in response to key needs of top managers in their particular situations. It is suggested that these needs can well be different and can broadly be classified into strategic development needs and co-ordination needs. The extent to which these needs are dominant should be reflected in the organization of the planning activity. In organizing a corporate planning JUNE, 1969
ACTIVITY
DRESPONSIBILITYOF CORPORATE PLANNING EPARTMENT "~
Responsibility for Coordination
Responsibility for Initiation
Economic Forecasting
Responsibility for deNo tailed Responwork sibility
X
X
Technological Forecasting Establishment of Assumptions about the future
X X
X
Economic Analysis of markets
X
Sales Forecasting
X
Estimation of product life cycles
X
Determination goals
of Corporate
X
X
X
X
X
X
Appraisal of top management's attitudes Examination of company's strengths and weaknesses Evaluation of top ment's proposals
manage-
Determination of markets in which to operate Development of new products
X
Market development
X
Manpower projections
X
Capital budgeting Preparation proposals
of
X
X
Investment
X
Planning new facilities Integration of divisional plans
X
'
X
FIGURE 4. PROFILE OF C O M P A N Y FACTURER
C - - A LARGE CH E M I C A L
process, the first step can usefully be to define the key needs and subsequently to adopt a systematic approach to organizing the work of the corporate planner and his department. This can be done by listing the activities necessary, by specifying the extent of responsibility which the corporate planning department should have in each activity and allocating the remainder of the tasks to other appropriate departments or divisions. Such a framework allows reasoned consideration for organizational decisions and, once these decisions have been taken, provides both a clearer task definition for appointment of staff and the design of information flows relevant to the responsibilities allocated. A framework for analyzing
these responsibilities has been suggested and the framework stands the test of practice in the principal companies in the United Kingdom involved in formal, systematic long-range planning. •
MANU-
REFERENCES (1) B. W. Denning, Top Management and Long Range Planning, Director's Handbook,
McGraw-Hill, 1969.
(2) E. Kirby Warren, Long-Range Planning: The Executive Viewpoint, Prentice Hall, 1966. See also B. W. Denning, Organising for Planning in a large decentralised Company, Long Range Planning International Symposium, Paris, September 1965, Durod, 1967. (3) B. W. Denning, Preliminary results of an enquiry into the actual pattern of Corporate Long Range Planning in the United Kingdom (Privately circulated only). (4) G. A. Steiner, Managerial Long Range Planning, pp. 323-4, McGraw-Hill, 1963.
71
A survey of Corporate Planning in Britain suggests that the way the process is organized varies with the need of the firm. There appear to be two types of needs which foster the development of the planning activity-strategy development and co-ordination. In capital intensive companies, threatened by technological or market change, there is a need for reappraisal of the firm's overall strategy. On the other hand, in a large diversified firm the requirement may be to co-ordinate the plans of different divisions and departments, particularly investment proposals. This article suggests a framework for the analysis of these planning needs.
JUNE, 1969
GREAT MANY BRITISH COMPANIES HAVE recently introduced or are in the process of introducing "long-range planning". The introduction of this activity on a systematic basis usually follows a fairly similar pattern whereby one senior executive feels the need for a more careful approach to problems of strategy and policy, informs himself about the nature of strategic and corporate planning and then persuades his senior colleagues to experiment with making a formal overall corporate plan for three, five or seven years ahead. Assuming that commitment is made to the experiment by top management, there immediately arises a host of organizational proOlems. Who is to do the planning? Do we need a special corporate planner and a new department? If, so, what will he and his department do that is not already done elsewhere? How will a planning department work with heads of divisions or functions who carry executive responsibilty? Is corporate planning a staff or a line function? American experience suggests that the answers to some of these problems are fairly clear. Corporate planning is a staff function which must have direct access to the Chief Executive. Indeed, it is more accurate to consider a corporate planner as an extension of the chief executive responsible for providing an objective analytical ability free from functional or executive responsibilties. 1 Senior line executives must largely plan their own
operations and projects while working within a framework of goals, objectives, policies and standards set by top management, while special projects of a strategic nature may be planned at the centre. Any planning system must obtain executive involvement and motivation which is probably best achieved by dispersing planning responsibilities irt this way3 Unfort~anately, this general type of statement offers little detailed guidance to the corporate planner or to the chief executive with responsibility for organizing an effective planning process in his own company because of the organizational and personality structure, and the business characteristics of his particular firm. It is the purpose of this article to suggest a framework within which any company can systematically approach the definition of responsibility for those activities which need to be carried out in a full corporate planning process. Corporate planning can most usefully be regarded as a process over time involving strategic planning, project planning and operational planning. As with any other process, planning can then be broken down into a number of discrete activities and with these activities isolated and defined, it becomes possible to attach formal responsibility to a particular person or group for that activity and to design the necessary information flows to enable that person or group to carry it out. As part of some current research into
67
•
R E S P O N S I B I L I T Y OF CORPORATE PLANNING DEPARTMENT
ACTIVITY
Responsibility for Initiation
Responsibility for deNo tailed Responsibility work
Responsibility for Coordination
Economic Forecasting Technological Forecasting Establishment of Assumptions about the future
b
Economic Analysis of markets Sales Forecasting Estimation of product life cycles Determination goals
of Corporate
Appraisal of top management's attitudes Examination of company's strengths and weaknesses Evaluation of top ment's proposals
manage-
Determination of markets in which to operate
as
=
Development of new products Market development Manpower projections Capital budgeting Preparation proposals
of
Investment
Planning new facilities Integration of divisional plans FIGURE I. F R A M E W O R K FOR ORGANIZING LONG RANGE C O R P O R A T E PLANNING the organization of corporate planning among the top 300 companies in Britain, information was sought along these lines with particular reference to the rdle of the corporate planning department, if one existed. 3 (See Figure 1). In the left-hand column a list of activities which need to be carried out in any organization doing effective corporate planning was specified. It was assumed that the formal responsibilities of the corporate planning department in each of these areas could be one of four types: (a) Responsibility to initiate that activity with the detailed work being done elsewhere. (b) Responsibility to co-ordinate that activity with the detailed work 68
by-producL of the research was that when companies were asked to delineate the responsibilities of their corporate planrang departments by giving a highly specific statement of the responsibihtles o1 tide department, they were able to do so. A second relevant point was tnat companies were asked to indicate it any key acUvities of their corporate planning uepartment were omitted. No suggestions were made that tnere were any aaaluonal activmes. Clearly, this could arise from the oroad interpretation winch could be given to activiues such as "EvaluaUon of top management's proposals", and this item could usefully be broken down into more detailed areas such as : investigation of possible acquisitions, proposals to hcence, or proposals to move outside the present field of business. i'~evertheless, it would seem that the use ol this simple ~rameworK to spect~y more accurately the work of a corporate planning department stands up to the test of practice, If this is so, then it can provicle a useful framework for considermg the rdle that a corporate planning department should play in any one organizauon. f o r example, in a multi-divisional orgamzation it is possible to ask questions such
being done elsewhere. (c) Responsibility to do the detailed work. (d) No responsibility. In certain cases, the department could have responsibility both for initiation and the detailed work. No enquiry about the decision-making responsibility of the planning department was made, on the assumption that decisions would be made by line executives with or without the help and advice of their planners. Companies were asked to mark the responsibility of the corporate planning department against each activity and some ccntrasting results in different companies are noted at the end of this paper. One of the points which emerged as a
-"
1. Are divisional managers to be responsible for the planning of new products or are these to be planned at the centre? 2. To what extent do we require a corporate planning department to prepare, assess, or co-ordinate, investment proposals? 3. Is it reasonable to expect operating divisions to have the expertise to make longer-term sales forecasts of key products? The opportunity to ask precise questions of this type also enables top management to relate the design of the planning activity to another important dimension of top management's r61e, namely the retention of planning power over key tasks. If, for example, in a highly technological company, decisions on product development are crucial, then it may be that the corporate planning staff needs to be given the function of detailed planning of new product development. Alternatively, if a company is constrained by shortage of capital and this is a key factor in a strategic development, it may be that the detailed work involved in capital budgeting needs to be carried out by the corporate planning staff. In other words, the adoption of a systematic approach to the analysis and synthesis of the planning process can be helpful to top management in applying the ideas of key task management to its organization for corporate planning. LONG RANGE PLANNING
The virtues of adopting a systematic approach along these lines lie in two fields. First, by detailed examination of the extent to which responsibilty will be held by a division, a function or a planning department, the matter can perhaps be discussed rationally and an acceptable solution to the political problems be evolved. Secondly, if the rSle of the corporate planning department can be defined along these lines, it becomes possible to decide on the nature of staff and the information required to carry out the work allocated to them, two essentials of sound organizational practice. It is not being suggested that the actual planning arrangements in any one company can be fully specified or that demarcation barriers should be erected and maintained. Nor, indeed, would this be desirable, since a large amount of the work done by an effective corporate planner is an influencing process carded out informally by virtue of the respect he commands at senior levels in the organization. Nevertheless, to rely entirely on informal processes in any organized activity can only too often, be a recipe for ineffectivness, and attempts to define boundaries of responsibility are usually an aid to efficiency in planning as in any other acivity,t
SOME DIFFERENT ORGANIZATIONAL PATTERNS Underlying
the
research
are
some
attempts to examine why companies introduce corporate planning and what they hope to achiev~ by it. Certainly, as a fact of life one has to accept entirely different patterns of organization of the function as existing and being effective. To a great extent these differences have historically been viewed as having no underlying rationale, or merely being preferences of particular chief executives. An alternative approach to this puzzling problem of organizational differences would be to argue that the introduction of systematic long-range planning may be a response to quite different needs in different situations. Again, relating the long-range planning process to top management's r61e, there appear to be two vital parts of this r61e which planning systems can assist. The first is formal analytical consideration of strategy through the whole process of environmental and strategic appraisal and the formal setting of objectives and goals. The second arises in large complex organizations where a major task is faced in the co-ordination of diverse product groups, divisions and subsidiary units into a coherent whole. Different companies at different times may find that one or other of these needs is dominant and under
JUNE, I~9
R E S P O N S I B I L I T Y OF CORPORATE PLANNING EPARTMENT Economic Forecasting
Responsibility for Initiation
Responsibility for Coordination
X
Technological Forecasting
Respon. sibility for deNo tailed Responwork sibility X
X
Establishment of Assumptions about the future
X
Economic Analysis of markets
X
Sales Forecasting
X
Estimation of product life cycles
X
Determination goals
X
of Corporate
Appraisal of top management's attitudes
X
Examination of company's strengths and weaknesses
X
Evaluation of top ment's proposals
X
manage-
Determination of markets in which to operate
X
Development of new products
X
Market development
X
Manpower projections
X
Capital budgeting
X
Preparation proposals
of
Investment
X
Planning new facilities
X
Integration of divisional plans
X
FIGURE 2. PROFILE OF C O M P A N Y A - - A LARGE C O M P U T E R A N D D A T A PROCESSING COMPANY these circumstances it would be reasonable to expect that the organization of the planning function would differ markedly in response to the different needs. Strategic planning is of the greatest importance where a company operates in an area of rapid market or technological c h a n g e accompanied by high-capital intensity since these conditions impose the greatest strategic risk. For companies in this technical-economic position, systematic strategic planning becomes a key man,agerial response if profitable survival is to be assured. It would not, therefore, be unreasonable to anticipate that under these circumstances a corporate planning department will be oriented primarily towards strategic planning and the work
which it will be required to do will incorporate a great deal of detailed analytical work exploring strategic alternatives in key areas. This would give a particular r61e definition to the corporate planning function and dictate the type and kind of staff considered necessary to execute this r61e. This state of affairs would seem to be exemplified in the profile of the corporate plannnig department shown in Figure 2. Company A is a major operator in the area of computer and data processing systems. The rate of technological change is very rapid, the investment in research and development for hardware is very high and this is aggravated by substantial investment in the development of soft-
69
R E S P O N S I B I L I T Y OF CORPORATE PLANNING EPARTMENT
Responsibility for Initiation
Responsibility for Coordination
Responsibility for deNo tailed Responwork sibility
Economic Forecasting
X
Technological Forecasting
X
Establishment of Assumptions about the future
X
Economic Analysis of markets
X
Sales Forecasting
X
Estimation of product life cycles
X
Determination goals
of Corporate
X
Appraisal of top management's attitudes
X
Examination of company's strengths and weaknesses
X
Evaluation of top ment's proposals
X
manage-
Determination of markets in which to operate
X
Development of new products
X
Market development
X
Manpower projections
X
Capital budgeting
X
Preparation proposals
of
Investment
X
Planning new facilities Integration of divisional plans
X
X
FIGURE 3. PROFILE OF C O M P A N Y B - - A LARGE I N T E G R A T E D STEEL A N D ENGINEERING C O M P A N Y ware, programs and programming techniques. The risk element in the financial posture of such a company is not dissimilar to a company with more conventional characteristics of high-capital intensity, normally thought of as possessing expensive single purpose assets with a high ratio of fixed capital per employee. Under these circumstances the key rtle of systematic long-range planning would need to be strategic with a great deal of centralized effort and work in all key strategic areas. A glance at Figure 2 indicates that the corporate planning department in this company is responsible for detailed work in all the areas listed except for technological forecasting and appraisal of top 70
management's attitudes. Technological forecasting involves a special knowledge and expertise which can probably best be performed by a small expert group with strong research link which would not necessarily fit inside the corporate planning department. It seems reasonable to suggest that the way in, which the corporate planning function has been organized in this company is primarily a response to the special needs of a company in a situation of major opportunity and high risk, where strategic considerations are of paramount importance and strategic re-thinking is necessary at frequent intervals in an environment of rapid change. Compare this situation with a company
of quite different basic characteristics. Company B, whose planning department profile is shown in Figure 3 was, at the time of enquiry, a large integrated steel engineering concern with many subsidiaries both in the United Kingdom and abroad, covering a vast range of products and markets. In the United Kingdom. subsidiaries were organized into semiautonomous product groups and each product group had several subsidiaries operating in related but separate fields. Through the group as a whole there was substantial inter-company trading, especially in the supply of steel to the engineering groups and this imposed a requirement for vertical co-ordination. A further factor was that the demand for the products of many of the engineering companies was fundamentally derived from activities in other major industrial fields. Under these circumstances, two of the most difficult and critical tasks of top management are the co-ordination of activities across an enormous productmarket spectrum and the need to assess the effects of investment in one area with activity in another. Under such circumstances, a critical function of formal longrange planning can well be the operation of a managerial system which allows more effective co-ordination of activity between product groups, between domestic and foreign ccmpanies, and between raw material producers and finished engineering goods companies. The profile of the responsibilities of the corporate planning department in this company seems to reflect this essential co-ordinative need. The department has virtually no responsibility for detailed work, and its defined responsibilities lie e~tirely in the field of co-ordinating various activities. Operationally, these are concentrated in the area of co-ordinating investment proposals and divisional plans, and the strategic level, there is a responsibility to bring together heads of staff departments or chief executives of product groups for strategic review. This line of argument would be supported by other evidence arising from the present research where there is a marked tendency for systematic corporate planning to have been introduced where more complex organizational structures have been created due to size or the geographical dispersion of operations. Even within the limits imposed by an attempt to define responsibilities in this area and the possibilities of misunderstanding inherent in any questionnaire approach, it is clear that the concept of the planning function in Company B is of a totally different order to that of Company A. It seems probable that differences of this order are not merely LONG RANGE PLANNING
responses to different cultural patterns of the two organizations, but are likely to be related to different basic needs in the two situations. In Company B the emphasis is clearly on the need for a mechanism to co-ordinate a wide range of activities under conditions of substantial decentralization, an organizational structure relevant to the particular operating needs of the business. Companies A and B represent to a certain extent two poles of possible organization of the planning function where different circumstances pose different critical top management needs. Most compames probably need to gain from their planning systems a more effective response both to strategic problems and co-ordination problems. Company C illustrates this rather more diverse pattern of organization (see Figure 4). The company is a major chemical man,ufacturer with comparatively autonomous product divisions operating predominantly in the United Kingdom but with important overseas activities. The company is capital intensive, exists in a situation of fairly rapid technological change and is in a growth field where there are substantial opportunities woth domestically and internationally. Heavy investment is needed both in fixed assets for process operations and in research and development. Top management of Company C therefore faces substantial strategic problems as well as important problems of coordination. Under these circumstances it would be exoected that the profile of responsibility of the corporate planning deoartment would reflect these dual needs and Figure 3 offers something of a compromise profile between the previous two companies. It is of interest to note that the der~artment does have responsibility for detailed work in the area of capital budgeting, and given the characteristics af this business with its capital intensive, single,purpose plants, this would be a critical dimension of strategy. The other activities of the department reflect the mixture of strategic development work and the co-ordination needs of a complex organization.
SUMMARY Systematic corporate planning in large organizations is introduced in response to key needs of top managers in their particular situations. It is suggested that these needs can well be different and can broadly be classified into strategic development needs and co-ordination needs. The extent to which these needs are dominant should be reflected in the organization of the planning activity. In organizing a corporate planning JUNE, 1969
ACTIVITY
DRESPONSIBILITYOF CORPORATE PLANNING EPARTMENT "~
Responsibility for Coordination
Responsibility for Initiation
Economic Forecasting
Responsibility for deNo tailed Responwork sibility
X
X
Technological Forecasting Establishment of Assumptions about the future
X X
X
Economic Analysis of markets
X
Sales Forecasting
X
Estimation of product life cycles
X
Determination goals
of Corporate
X
X
X
X
X
X
Appraisal of top management's attitudes Examination of company's strengths and weaknesses Evaluation of top ment's proposals
manage-
Determination of markets in which to operate Development of new products
X
Market development
X
Manpower projections
X
Capital budgeting Preparation proposals
of
X
X
Investment
X
Planning new facilities Integration of divisional plans
X
'
X
FIGURE 4. PROFILE OF C O M P A N Y FACTURER
C - - A LARGE CH E M I C A L
process, the first step can usefully be to define the key needs and subsequently to adopt a systematic approach to organizing the work of the corporate planner and his department. This can be done by listing the activities necessary, by specifying the extent of responsibility which the corporate planning department should have in each activity and allocating the remainder of the tasks to other appropriate departments or divisions. Such a framework allows reasoned consideration for organizational decisions and, once these decisions have been taken, provides both a clearer task definition for appointment of staff and the design of information flows relevant to the responsibilities allocated. A framework for analyzing
these responsibilities has been suggested and the framework stands the test of practice in the principal companies in the United Kingdom involved in formal, systematic long-range planning. •
MANU-
REFERENCES (1) B. W. Denning, Top Management and Long Range Planning, Director's Handbook,
McGraw-Hill, 1969.
(2) E. Kirby Warren, Long-Range Planning: The Executive Viewpoint, Prentice Hall, 1966. See also B. W. Denning, Organising for Planning in a large decentralised Company, Long Range Planning International Symposium, Paris, September 1965, Durod, 1967. (3) B. W. Denning, Preliminary results of an enquiry into the actual pattern of Corporate Long Range Planning in the United Kingdom (Privately circulated only). (4) G. A. Steiner, Managerial Long Range Planning, pp. 323-4, McGraw-Hill, 1963.
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