Competitive pressures force Greek entrepreneurs to plan

Competitive Pressures Force Greek Entrepreneurs to Plan Dimitrios N. Koufopoulos

S

INCE BECOMING

and Neil A. Morgan

This article reports the results of a research project examining the practice of strategic planning in 62 major Greek manufacturing companies. The results reported here describe some of the major features of strategic planning found in Greek manufacturing companies and compare these with similar findings in other European countries, The implications of the research for both Greek managers and existing and potential foreign investors are examined.

A FIJLI, MEhIBRR OF TIIK EL~ROPb:AN

Community in 1981, Greece has attracted considerable interest and investment from Multi-national companies (MNCs) both within the EC and from those MNCs outside seeking a foothold in the EC prior to the Single European Market legislation. This has led to a growth of interest in the whole area of strategic management and corporate planning within Greece. However, there exists little or no empirical data concerning the diffusion and practice of strategic planning within Greece. The combination of increasing corporate interest in planning and an almost complete lack of any literature relating to Greece motivated the authors to conduct an exploratory study to discover the current status and practice of long range planning in the Greek context.

The Greek Context Greece has a population of approximately 10 million and a surface area of 132,000 km”. The country has a stable democratic political system and a free market economy with only limited government regulation in practice. The economic system is dominated by a large and often uncompetitive public sector. However, recent changes in auditing and financial reporting requirements in the public sector, relying more heavily on independent rather than state auditors has begun to help the government’s privatization programme. The Greek Labour market is also undergoing a period of liberalization with the abolition of automatic pay indexation in 1991, the establishment of an independent arbitration system for industrial disputes and the introduction of trade disputes reform legislation.

In the manufacturing sector the Greek economy is dominated by privately held small manufacturers. The Bank of Greece figures from 1984 reveal that 99 per cent of manufacturers fulfil the ‘small’ category criteria upon the basis of having P

an average ECUs,

turnover

0

less than 50 employees,

Cl owners actively

of less

than

1.34

million

and

participating

in management.

The most recent ICAP figures’ suggest that of a total population of 6315 manufacturing companies only 707 had over 100 employees. Foreign investment in Greece has increased consistently since the mid 1960s. The Greek government has been particularly keen to attract so called ‘productive investments which are oriented towards the updating and expansion of manufacturing techcapacity and associated infrastructure. nology, Investment incentives are dependent upon the area of Greece under consideration, with a series of regional investment zones and incentives offered to foreign investors by way of capital grants, interest rate subsidies, tax allowances and increase depreciation rates. Investment incentives are particularly

attractive for the Thrace region of northern Greece which has attracted considerable foreign investment interest from companies keen to build a platform for trade with the emerging economies of Bulgaria, Albania and the Republics in former Yugoslavia. Access to Bulgarian markets has already led to the formation of over 200 joint-ventures between Greek and Bulgarian enterprises. In the run up to the single European market, Greece experienced a significant rise in foreign investment through acquisition and, to a lesser extent, joint venture. In particular, larger European companies invested in several Greek industries, often acquiring major Greek players in basic marketplaces. For example in the Brewing industry, Grand Metropolitan acquired Metaxa (the leading Greek brandy distiller) and the French food giant BSN acquired Henninger Hellas, a major brewer. A similar pattern emerged in the Food and Drinks industry where Swiss Confectionery Giants Nest16 and Jacobs Suchard acquired three of the leading Greek confectioners (Loumidis, Ion, and Pavlidis) and Italian food company Barilla purchased the leading Greek pasta producer, Misko. The pattern of foreign investment that has emerged has seen significant investment, from mainly EC-based companies entering the Greek market via the acquisition of market leading Greek companies. This is in contrast to the experience of other EC countries which have tended to attract either Non-EC direct investment from countries wishing to be able to compete in the single market (e.g. the significant Japanese investment in manufacturing capacity in the UK) or investment from ECbased companies in new manufacturing facilities in other EC countries with lower wage costs [e.g. Audi-Volkswagen’s investment in Spain). However, the concentration of share ownership within Greece can lead to control problems even for foreign investors who have a majority shareholding, since the minority Greek shareholding is often in the hands of a very small number of individuals rather than widely dispersed amongst institutional investors as in most EC countries.

Key Concepts The purpose of the research reported here is twofold. First, to provide a benchmark against which

progress in the development of strategic management practice in Greece may be measured. Secondly, it was anticipated that knowledge relating to strategic management practices would provide valuable information and insight for companies considering investing in Greece, particularly, though not exclusively, where acquisition or joint-venture options were being considered as market entry mechanisms. Due to the exploratory nature of this study the key concepts that we sought to measure were of a broad nature. Drawing upon the general literature of strategic management and bearing in mind the ‘benchmarking’ objective we focused in particular on: The adoption manufacturing The nature used.

and practice companies. and extent

The utilization

of planning

of budgeting

of planning

approaches

tools and techniques.

Senior management process.

involvement

Timescales

in the planning

involved

in Greek

in the planning process.

Methodology The data presented here was collected by means of a postal survey in the autumn of 1991. The questionnaire was originally in English. This was then translated into Greek and bilingual questionnaires were used in the data collection exercise. The sample utilized was a random sample of 231 of the 707 manufacturing companies who have more than 100 employees in the ICAP listing from 1991. It was felt that smaller companies in this sector were unlikely to be sufficiently developed in management terms to contribute to any useful understanding of strategic planning in Greece. A further consideration was the target management audience of MNCs that may not be interested in smaller manufacturing companies as potential market entry facilitators.

Presentation Findings

and Analysis of the

Mission Statements Most of the normative models developed in the area of strategic managementzm4 emphasize the importLong Range Planning Vol.27

August 1994

ante of a mission statement as a key element in the strategic planning process, and an obvious starting point for planning activities. For example Drucker” stated that: A business is not defined by its name, statutes or articles of incorporation. It is defined by the business mission. Only a clear definition of the business and purpose of the organization makes possible, clear and realistic business objectives.

The existing literature suggests that the customer, the product or service, the business philosophy, concern for the public image and concern for the employees are among the most common characteristics of an effective mission statement. However, despite the importance attached to mission statements little empirical work has examined this area.“-” Whilst the concept of mission analysis and statements has received renewed interest in the recent past we considered that the most important element of this concept in an exploratory research project looking at the ‘status quo’ of planning was the simple existence of a company mission statement. Our research indicates the penetration of the mission statement concept in manufacturing companies in Greece (see Table 1). In order to give a clearer picture of the Greek reality we should note that Greek law requires a statement which is called ‘purpose of the company’ for any organization to become a legal business entity. This may have caused some confusion. However, the existence of a significant minority of respondents reporting no mission statement would indicate that this question was interpreted as the strategic management rather than commercial law concept. Most of the mission statements of the Greek companies that we were able to review were product oriented. A typical example stated that, ‘the aim of our company is the production of floor-mat,

TABLE‘I.

Existawe af m&ion

Does your company

statements.

have a written

‘mission’

%

No

38 24

61.3 38.7

Total

62

100.0

Competitive

Pressures

Force

Greek

Objectives While mission statements may be reviewed as useful motivational tools, effective planning requires a more definite statement of goals and objectives, not least in order to provide evaluation and control points. As Steiner4 stated: Objectives refer to desired or needed results to be achieved by a specific time they may be expressed quantitatively or qualitatively the time dimension of an objective is long-range as distinguished from short-range targets and goals.

The most common objectives found both in the available literature and in practice are profitability, sales, market share, products, finance, stability, expansion, personnel, organization, flexibility, and research and development.10m’4 In the questionnaire, we asked to what extent the firm as a whole as well departments are managed and as its various monitored by written objectives, by using a five point Likert scale. Table 2 shows that the majority of the companies utilize ‘management by objectives’ in running their businesses. Sixty-eight per cent of the respondent companies were extensively managed by written objectives. Additionally, data indicated that 85 per cent of Production departments, 83 per cent of Finance departments, 80 per cent of Sales departments, 77 per cent of Marketing departments and 54 per cent of Personnel departments were guided in their activities widely by written objectives. These results broadly support earlier research conducted on behalf of the Hellenic Management Association (HMA).‘” These findings are in line with other studies of European planning practices e.g. Ackelsberg and Harris’” found that 10 out of 12 Danish companies studied had written corporate goals. Similarly Gotcher17 reported that 86 per cent of 14 European multinationals set down in writing their objectives and in the majority of the cases they were very clear.

statement?

No. of companies

Yes

blankets, carpets, etc., as well as any similar items, and finally the selling and promotion of our companys’ or other companies’ similar products’.

Entrepreneurs

to Plan

Budgets The literature states clearly that budgets can be used both for planning and control purposes with the tendency for larger companies to use budgets mostly for control and smaller companies to use budgets

Very widely 5

Very little 1 Firm in general Financial

(g-6%) -

Mean

3.839

(I:,%,

(35.5,

4.164

Marketing (:*I,

(i-2,

(Z.3,

4.021

(1.8) -

1g.4,

(zi.6)

4.214

(35.7,

(2307.7,

4.113

(:: ‘2,

3.519

Production Sales Personnel

3 (5.8)

(lY.5,

*Table contains answers from 56 companies.

primarily as simple planning tools.‘B Budgeting has also been viewed as ‘the critical link between strategic planning and operational control’.‘g Our research showed that all the Greek companies studied formulated at least one kind of budget. (The budget they used most frequently were cash, production and sales.) As Table 3 reports, 95 per cent of the companies use production and cash budget followed by sales budget (93.5 per cent). The extensive use of production budgets is unsurprising since the companies that were surveyed were manufacturing companies. Liquidity problems in the manufacturing sector may be one explanation for the extensive use of cash budgets in Greek manufacturing companies. The above findings support similar findings from the Hellenic Management Association15 which found that 76 per cent of the industrial enterprises had some kind of budgets in 1984 in comparison with 46 per cent in 1970. A considerable proportion of our sample (74.2 per cent) used all the above budgets. However, in order to estimate the utility of budgets as a strategic planning and control tool, further insight may be obtained by examining the time horizons of budgeting involved. The majority of the companies (77.4 per cent) used l-year budgets and 17-i’ per cent 3 year ones. Again the findings from the HMAs survey I5 found that 73 per cent of the companies had 1 year time horizons for their budgets. The research also indicates that in the last decade there has been a shift towards longer time horizons. Fifteen of the companies that had l-year

TABLE3. Budgets in use.* Type of budget

No. of companies

%

Cash Production Sales Selling and administrative Material purchased Capital expenditure Profit and loss Balance sheet

59 59 58 54 53 53 53 46

95.2 95.2 93.5 87.1 85.5 85.5 85.5 74.2

*Table includes multiple replies.

budgets also had a combination of various time horizons. While l-year budgets may be viewed as operational short-term management control systems, the existence of longer term budgets in a number of companies indicates that only a relatively small number of companies appear to have sufficiently long time horizons in budgeting to consider them planners in this context. Long Range Planning (LRP) As has been noted earlier, a substantial confusion exists with regard to the term long range planning. Hewkin and KempnerzO believed that long range planning is associated with anything from 2 years upwards. Denning and Leh?’ defined and explored companies that were using formal and systematic planning on a continuous basis over a 3 year period. On the other hand Schollhammer”’ defined and explored long range planning over a 5 year period. Long Range

Planning

Vol. 27

August

1994

Since there appears to be no agreement amongst researchers as to the time horizon level that may be seen as providing criteria for evaluating what exactly constitutes ‘long range planning’, we have decided to utilize a 1 year cut-off point. Whilst this may not give us a necessarily valid test of companies engaged in LRP, a 1 year cut-off will certainly remove those who do not engage in LRP. Our findings (Table 4) suggest that most of the manufacturing companies in Greece engage in LRP, i.e. plan for a time horizon of longer than 1 year. A considerable number of studies have reported the way that American companies plan. However, it would seem reasonable to expect that planning in the Greek context may be more usefullly compared to European country studies rather than the American studies which largely dominate the planning literature. Denning and Lehr2’,23 showed that 75 (25 per cent) of the Top 300 industrial and commercial companies in the UK were undertaking corporate planning in 1967. For the period 1973-1975 Martins’ findingsZ3 show that at least 50 per cent of the British companies engaged in ‘informal’ planning, 40 per cent in ‘formal’ planning and only 10 per cent in ‘comprehensive’ planning. Bhatty’O reported that 96 per cent of the companies surveyed prepare corporate plans. Higgins and Finn” found that 80 per cent of the 71 British companies interviewed practice corporate planning and a further 6 per cent was developing a corporate plan. Outside the UK, Schollhammer” found that the extent of planning largely depends on company size. Eppink et al. reported’” that 16 out of 20 Dutch companies studied, introduced formal corporate planning in the early 1970s. Keppler et al. found2’ that 35.4 per cent of the 101 German companies interviewed engaged in long range planning. Caeldries and Dievdonck reported” that 66.13 per cent of the 124 Belgian companies researched had formal strategic planning systems. TABLET.

Mumber of companies engaged in long range planning (LRP)* No. of companies

%

Yes No

43 19

69.4 30.6

Total

62

100.0

Competitive Pressures Force Greek Entrepreneurs

to Plan

TAIXE 5. Year of introduction of LRP. Year 1991 1990 1989 1988 1987 1986 1984 1983 1982 1981 1980 1972 1970 1969 1966 1965 1964 1960 Total

No.ofcompanies 2 6 1 2 5 3 1 1 1 1 5 1

%

1 2 1 1 1

5.4 16.2 2.7 5.4 13-5 8.1 2.7 2.7 2.7 2.7 13.5 2.7 2.7 2.7 2.7 5.4 2,7 2.7

37

100.0

1

Mean:1981,Mode:1990.

The vast majority of the Greek companies that engaged in long range planning had started formulating plans in the early 1980s. Thirty-seven companies out of the 43 who prepared plans indicated the year in which they initiated long range planning (see Table 5). With such a range of different findings over time in the literature relating to Europe it is difficult to draw comparative conclusions. The most recent studies, however, would suggest that significantly fewer Greek companies engage in LRP than in the UK, France and Holland. These results suggest that the introduction of long range planning in Greece has taken place significantly later than in other EC and North American countries. This may be due to a relatively longer period of economic stability in Greece throughout the 1960s and 197Os, conditions that may negatively influence the development of planning.‘” The relative ‘newness’ of the planning concept in the Greek context may well impact upon the degree of formalization and sophistication of planning evidenced in this study. Time Horizon Several authors support the view that environmental complexity is associated with short planning horizons.2Y Table 6 reports that there is variation in the existing planning horizons among the Greek

No. of companies

%

1 year 1 to 3 years 3 to 5 years More than 5 years

3 22 22 4

5.9 43.1 43.1 7.9

Total

51

lOO*O

companies. Nevertheless, the most common time horizons in use are 1 to 3 and 3 to 5 years. Forty-three per cent of the companies in both cases utilized such horizons in their plans. Two companies with planning horizon over 5 years have a 12 year planning horizon and another company had a 10 year planning horizon. The previously mentioned conceptual disagreement concerning the term ‘LRP’ was reflected in the answers given by the Greek managers in eight companies. Despite stating that they did not engage in LRP, subsequent responses revealed that they were actually involved in some sort of planning. Specifically, two of these companies have 1 year planning horizons, five of them 2 years, and one of them 3 years. We suspect that managers from these companies perceived their planning efforts to be more short than long term. The dominance of these two time dimensions (1 to 3 and 3 to 5) are supported in the general European context and reported in a number of studies.“0m32 Introducing Long Range Planning The most important motives for introducing long range planning as they were perceived by Greek managers were: the need to improve management control, advocacy by the top management, opportunities and threats of 1992 and the absence of clear objectives and goals (see Table 7). Similar results are exhibited by Eppink et a1.,26 who reported that advocacy by top management, recommendation of management consultants, bottom-up pushing because of absence of clear objectives, goals and policies and decreasing profitability are the most frequently mentioned reasons for starting formal corporate planning. Ackelsberg and Harris refer to poor performance,16 the need for longer term perspectives because of turbulent environments, the need for research planning in order to improve communication/co-ordination, and

Reason To improve management control Advocacy by top management Opportunities and threats of 1992 Bottom up pushing because of absence of clear objectives and goals Decreasing profitability Recommendation of management consultants Mergers and other acquisitions Group policy/mother company Decreasing market share In order to improve effectiveness Profit maximization Improve share market

No. of companies

%

37 36 18 12

59-7 58-l 29.0 19.4

9 8

14.5 12.9 9.7 6.5 4.8 3.2 1.6 l-6

*Table contains multiple answers.

pressure from subordinates as the major reasons for the introduction of long range planning in Danish companies. A similar study in Belgium” revealed the problems of managing growth and the need for coordination as the primary reasons for introducing planning. Control may be seen as a particularly important issue in the Greek context, given the highly centralized nature of management in Greek industry and the comparatively very high number of owner/ managers in larger Greek businesses. These contextual differences may account for the high incidence of control improvement as a reason for introducing a planning system, and also the advocacy of top management. In an economy that has experienced a long period of relative stability, the largest environmental factor motivating Greek companies to initiate planning was the imminent arrival of the single European Market. The Single European Market Act has been viewed as a potentially massive environmental change for Greek industry. The research reported here did not seek to explore the impact of the Single European Market. However, a survey conducted by the Association of Chief Executive Officers in 1991 reported that Greek CEO’s saw the major impact of 1992 being manifested in terms of; the recruitment and development of more highly skilled workforces, a greater commitment to the setting of corporate goals Long Range Planning Vol. 27

August 1994

and the development of results oriented structures and systems, improvements in levels of customer service, and the adoption of TQM based approaches. In the face of such pressure the 1992 issue is unsurprisingly seen as a significant motivator for the introduction of planning systems and may well account for the large number of companies considering and introducing planning in the recent past. Planning Techniques Much of the planning literature and textbooks concentrate upon the use of appropriate tools and techniques in the planning process. The findings from empirical studies of planning practices in Europe has presented a wide variety of popular planning tools and techniques. Ackelsberg and HarrisI found that scenario planning was used in 6 out of 12 Danish companies, Life cycle in four companies, Boston Consulting Group portfolio analysis in three companies, simulation and gap analysis in one company. Competitor analysis, Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis industry analysis, market segmentation, budgeting, investment planning, assessment of alternative strategies, are the most common techniques in Belgian firms.” Eppink et al. reported x that investment selection methods as well as financial ratios were in wide spread use in the Netherlands. Also forecasting methods such as moving average, Critical Path Analysis, break-even, regression and correlation sensitivity, and SWOT analysis. In addition the normative literature suggests that techniques such as discounted cash flow and net present value are used for evaluating capital expenditure projects. Statistical methods such as trend projection and moving averages are used to forecast future demand and sales. Financial ratios are used widely in order to evaluate the current position of the company. One interesting finding is the relative popularity of scenario analysis techniques among Greek manufacturers. Scenarios provide the tools for the forecasting of long range complex and highly uncertain environments.“3-“s The relatively extended use of scenarios may be explained by the high uncertainty that lately exists in the economic environment, which forces companies to employ alternative plans for unexpected situations. It seems that scenario techniques have been used widely because they facilitate the introduction of contingency planning Competitive Pressures Force Greek Entrepreneurs to Plan

which has been popular in the highly uncertain economic future for Greece in the Single European Market. The familiarity with and use of planning tools and techniques in Greek manufacturers is worthy of some further comment. Greek manufacturers are obviously more familiar and comfortable with using quantitative financial tools and ratios than the more qualitative and subjective tools often associated with strategic planning. The most plausible explanation for this state of affairs is the relative youth of formal planning previously highlighted. Similarly, in many companies the reason that planning systems were developed and introduced was concerned with improving management control and setting more clearly identifiable and measurable objectives. Thus it is probable that relatively new planning systems, introduced in order to focus control efforts, would concentrate upon quantitative, finance based tools and approaches. As these planning systems evolved and mature however, it may seem reasonable to expect that a wider range of the more qualitative strategic management tools, techniques and approaches will be adopted. This is certainly likely to be happening already as companies respond to the challenges of European economic integration and also become exposed to the increasing number of multinational companies building positions in Greece through direct investment. Participation in the Planning Process In the European and American research literature there is considerable agreement concerning the important role that the Chief executive or the Board of Directors play in the encouragement and the introduction of strategic planning. This literature generally reports that a strong and continuous commitment from the Chief Executive is the key to the successful introduction of long range planning; even though, in many companies, the initial impetus comes from other sources such as external consultants or internal planners. As can be seen from Table 9, the findings from this study show that in most cases the Chief Executive was an important party involved in the planning process. These findings reinforce the previous finding that the advocacy of the top management is an important factor in the introduction of long range planning. Similar results from a study of Bourantas

Technique investment

selection

Sporadic

40 31 30

64.5 50.0 48.4

51 45 41 31

41 36 23 21 23 18 15 13 13 11 6 4 1 0

use

%

Not used

%

11 13 11

17.7 21.0 17.7

11 18 21

17.7 29.0 33.9

82.3 72.6 66.1 50.0

5 6 5 8

8.1 9.7 8.1 12.9

6 11 16 23

9.7 17.7 25.8 37.1

66.1 58.1 37.1 33.9 37.1 29.0 24.2 21.0 21.0 17.7 9.7 6.5 1.6 0.0

6 6 5 6 6 6 8 9 8 19 8 6 15 13

9.7 9.7 8.1 9.7 9.7 9.7 12.9 14.5 12.9 30.6 12.9 9.7 24.2 21 *o

15 20 34 35 33 38 39 40 41 32 48 52 46 49

24.2 32.3 54.8 53.2 53.2 61.3 62.9 64.5 66.1 51.6 77.4 83.9 74.2 79.0

ratios

Profitability Liquidity Efficiency Leverage Strategic

%

methods

Internal rate of return Net present value Payback period Financial

Regular use

analysis

techniques

Break-even analysis Cost benefit analysis Scenario analysis Trend projection SWOT Sensitivity analysis Moving average Risk analysis Key issue analysis Linear programming Matrix analysis Porter’s structural analysis Non-linear programming Delphi method *Table contains multiple replies.

and ManteF manifest the concern of Senior Greek executives for planning as an essential factor for success. Another important issue emerging is that nonboard, top and mid level management was strongly involved in the preparation of the long range plans. This is again consistent with the improvements of management control as a reason for developing Tkfm 9, Patibip&on

in planning.*

Level of management

No. of companies

%

Chief executive Board of directors Non-board top level and middle management Internal planners External consultants

(2) (3)

44 33

71 *o 53.2

(1) (4) (5)

45 11 5

72.6 17.7 8.1

*Table contains multiple answers. Number in parenthesis indicate the rank order.

planning systems. This interesting finding may be explained by the fact that Greek management and ownership is highly centralized. Therefore, it is possible that by involving middle management in the planning process, the Greek entrepreneur is attempting to maintain a level of management control as well as to make middle managers responsible for the achievement of the desired results. In most private enterprises in Greece the top management consists of family members who both own and manage the company. Approximately 20 per cent of Greek companies have fewer than four shareholders. The overwhelmingly centralized style of Greek management is reported in various empirical research findings37.38 and Veiga and Yanouzas3g found Greek managers to be significantly less willing to give up control than managers from other countries. Taylor and Irving,40 in order to underline the importance of the Chief Executive’s contribution, stated that, ‘without the active support and involveLong Range Planning Vol. 27

August 1994

ment of the Chief Executive, corporate planning could never get off the ground’. However, studies have generally not reported significant CEO involvement in corporate planning. For example Bhattyl” reported that in the UK 52 per cent of CEO’s spent less than 10 per cent of their time in planning. Notably, this study also revealed that consultants are not often used in the planning process. This finding is in line with Gouyl” who reported that European firms seldom call on consultants for strategic matters. The above findings would seem to suggest that corporate planning in Greece is dominated by a topdown approach. This is unsurprising in the context of the family ownership levels apparent in Greek manufacturers. The involvement of chief executives in planning may therefore be seen as a manifestation of the desire to maintain centralized control as well as highlighting the importance with which planning is viewed within the company. Reviewing Long Range Plans The review process occurs highly frequently as Table 10 illustrates. Eighty-three per cent of the companies review their plans more than one time per year and 30 per cent annually. Similar findings for Greek companies were presented in HMA’” which found that 7 per cent of plans were reviewed on an annual basis; 18 per cent every 6 months; 27 per cent every 3 months; and 31 per cent every month. By contrast, in the UK Bhatty’” found that 30 per cent of the companies favour monthly and annual reivews of their plans. In a comparative research study of 93 UK projects companies Kono 41 found that important were reviewed several times a year in 46 per cent of the cases. It is possible that the very frequent review of plans evident in Greek companies is related to the relatively recent introduction to planning systems. The uncertainty associated with the introduction of planning, combined with the control tendencies of may account for this high Greek managers, frequency of plan reviews.

Conclusions The aim of this empirical analysis was to produce a preliminary description and a partial explanation of the way Greek manufacturing companies use corporate planning. From the study some basic conclusions Competitive Pressures Force Greek Entrepreneurs to Plan

TABLE‘10. Frequency of reviewing Frequency More

than

Once

per year

once

per year

plans.*

No. of companies

%

37t

88-24

16

30.18

*Table includes multiple answers from 51 companies. tTwo companies review their plans both quarterly and yearly.

may be drawn to enable us to fundamental questions concerning:

answer

a

few

the current state of development of planning major Greek manufacturing companies, why leading companies in Greece strategic planning, and the CEO’s involvement

in

are introducing

in the planning

process.

Before drawing conclusions it should be noted that the survey sample for this research constituted a relatively large proportion of Greek industry (1 per cent of the total population). However, whilst this sample size allows a degree of confidence in generalizing from the research findings, the exploratory nature of the research approach can only allow a relatively superficial analysis of the status of planning in Greek companies. The descriptive character of the study and its cross-sectional nature are also limitations to the study. We were unable to explore in depth areas such as the extent to which top management engage in planning, the perceived usefulness of the planning techniques employed, the dimensions of planning systems utilized, problems and benefits of planning experienced, etc. However, many of the findings revealed in this study are supported by results of other studies, e.g. HMA’” in the Greek context or from similar research in other European countries. From a temporal perspective”z it appears that planning in Greece is in the first phase of development; where the l-year budgeting is extended to longerterm operating plans enriched with some forecasting techniques. Similarly, according to Gluck et al.,“” it stands between phase 1 and 2 when the time horizon of financial planning is extended beyond the annual budgeting cycle and planners tend to develop more advanced forecasting tools. Even though the majority of the companies studied (69.4 per cent) are actively engaged in LRP,

the planning systems in use have been mainly developed during the last decade and do not yet seem to be highly sophisticated. The results of this study suggest that the majority of Greek planning systems may be characterized as extended budgeting However, the strong budgetary orientaprocesses. tion that exists among Greek companies may be a valuable asset to the extent that it may be integrated with the corporate planning process.44 In the majority of the companies studied here, the main stimulus for the introduction of planning processes were the need for increased management control, the environmental jolt presented by the opportunities and threats of the 1992 single market, and that absence of clear objectives and goals. Strategic planning may also be characterized as a family activity in Greek industry. The function of planning is mainly concentrated in the CEO of the company who may or may not involve top and middle management in the planning process. Vancil reported45 that the greater the CEO’s involvement in the planning process, the more accurate the resulting plans are likely to be. He also found that the more top down the approach, the more likely it is that the plans will be inaccurate. Both of these are characteristics of planning in Greece. The importance of the perceived need for increased management control as a stimulus for introducing planning and the central role of budgeting and quantitative methods in the emerging planning systems suggests that in Greece planning is undertaken for control purposes rather than strategy. Greek managers often view the planning process as a system for control rather than a framework for analysis and decision making. Ringback’s observations’+ on planning practices in US companies in 1969 are still valid today in Greek manufacturing: ‘Corporate planning is neither as well accepted or as well practiced as is suggested by the literature on the subject. Although much planning is done, the effort is often sporadic, it is lacking co-ordination, and it is less formalized and sophisticated than most of the literature suggests.’ Further research into the Greek industry may well find support for the findings reported here and those of Hewkin and Kempne?” who reported that, ‘The extent to which planning methods have been developed and formalized to date is considerably influenced by companies’ traditions and top management philosophy. The entrepreneur, for

example who has built up his business from next to nothing and still dominates it as Chief Executive, has usually moulded the company’s planning framework to suit his personality.’

Implications There is obvious scope for improvement in the practice of planning in Greece in terms of the planning tools and techniques utilized. Greek executives should look further into the future for the most important areas by using more advanced methods and tools. The combination of budget driven systems, top-down only approach, limited use of non-quantitative tools and techniques, and an overall goal of improving the degree of management control over the company will obviously impact upon the quality and potential effectiveness of strategic plans produced by Greek planning processes. Although corporate planning now exists in a significant proportion of companies in the Greek manufacturing it has been introduced sector, relatively recently, and seems to be more oriented towards the achievement of budgets than to accomplishing strategic, long range goals and plans. Bearing in mind the fact that the research surveyed Greek manufacturing companies with over 100 employees it could be reasonably assumed that smaller manufacturing companies will reveal a significantly lower incidence of planning systems. While the planning approaches of Greek companies are likely to change following the uncertainty that surrounds the introduction of a new type of approach to long-term decision making, this research suggests a potential paradox in terms of the future development of strategic planning in Greece. The strength of existing budgeting systems and the importance of control in the Greek management style have influenced the development of current planning systems. If Greek companies are to obtain the full range of benefits from planning, systems need to be developed which can accommodate qualitative goals and methodologies and non-financial, longer term decisionmaking. The key to moving into the next stage of development may lie in the introduction of longer term, non-financial goals. These could act as the starting point for the development of more broadly based strategic planning systems comparable with those found in other EC countries. Long Range Planning Vol. 27

August

1994

The study also highlights some issues that will be of considerable interest to foreign companies interested in investing in Greece. Perhaps the most important of these is the issue of corporate governance and the role of the CEO. The fragmented nature of many of the basic industries in Greece has allowed ownership and control to become far less separated than in the rest of the EC. This largely accounts for the top-down nature of the planning systems uncovered in this study. However, this may be a source of problems for investors considering the acquisitions or joint-ventures, since control appears to be vested in Greek CEOs to a greater degree than elsewhere. In most cases foreign acquirers have so far been content to allow the previous management to run newly acquired Greek companies. External checks on CEO activities are exercised at a macro-level in the form of legislative financial reporting requirements and the Ministry of Trade’s controls over competition through trade and antitrust regulations, etc. Company regulations require regular shareholder meetings and the election of boards of directors for specific periods of time (usually up to 6 years). However, fewer members of the board (often only one) are involved in the day-today management of the company. This presents foreign investors with potential problems in introducing checks and balances to CEO or joint-venture companies. power in acquired However, the strong budgeting systems that characterize many Greek companies, in conjunction with the financial control orientation of the planning systems uncovered in this study, may offer foreign investors a basic mechanism for initial corporate governance. It may be possible to use the strong control bias in management systems and styles in Greece in order to achieve targets which may be set jointly by the local management and foreign investors as part of the highly quantitative planning systems. The strong budgetary systems, may then be used by the foreign investors to maintain accurate reporting of information relating to the achievement of corporate goals. Therefore participation in the setting of strategic goals, along with the auditing and

use of existing budgeting systems, may be the most appropriate tools for maintaining effective control of investments in Greece. In conclusion we should bear in mind the following factors: Economic Context: Greece has experienced a rapid shift from an agricultural economy to an industrial and service based economy since World War II. This shift has taken place with little or no direct intervention from government in terms of centralized planning, etc. Public Sector: The large public sector which controls Greece’s remaining large nationalized organizations has been accused of gross resource inefficiencies. This has caused a shortage of resources for the private sector and cultivated a climate or protectionism. Public Sector expenditure as a percentage of GNP is variously estimated as having reached levels of between 35 per cent and 50 per cent in the 1980s. Industrial Organization: The development and growth of the private sector has depended overwhelmingly on the emergence of a large number entrepreneurs of developing family-based businesses. This resulted in a large number of small organizations with strong egocentric elements. Management Quality: Cultural as well as sociological explanations have been given concerning the status of Greek management who, ‘display little belief in their subordinate’s capabilities for leadership and initiative while advocating the practice of participative management’. The challenge for Greece, therefore, is to enable its sector organizations and managers to private develop sufficiently to be in a position to benefit from membership of the Single European Market. This will require the development of better planning skills than are currently apparent from this study. Acknowledgement-The authors would like to acknowledge the financial support from the Hellenic Organization of Small and Medium Sized Companies and Handicrafts (EOMMEX).

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