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Integrating regional and functional plans at Henkel
Integrating
Integrating Functional
Regional
and Functional
Plans at Henkel
19
Regional and Plans at Henkel
Cm bH and DV. Hans-Giinter Gviinewald, Managing Director of Thompson-Siegel Vellmann, Director of Planning, Accounting and Control DV. Karlheinz
The article describes the planning system of the Henkel KGaA The company is completely family owned. It is the fourth largest chemical company in Germany with affiliated companies nearly all over the world. The product range consists of consumer good articles such as detergents, cosmetics, household cleaners and adhesives and a wide range of chemical specialities which are sold to industry. The turnover world- wide is nearly DM7bn. The planning system of the Henkel KGaA is constructed in such a way that despite the necessity of short-term control the longer-term perspective still remains the basis for decision making. The planning structure and process throughout the company are explained in detail. The authors show that this system is an investment in managerial information processing.
The structure and content of a company’s planning system are determined by two essential factors whose differences lead variations of the planning. These factors are: * the managerial and, fi the company organizational
Managerial
attitude
to planning
structure, conception.
Attitudes
represented
in
term-orientated control the long-term future aspect still remains the basis for decision making. As a company has not only one future but several ‘futures’ possible, the planning system and planning information must enable us to elaborate alternative activities. If planning with all its possibilities and limits is to work in a company, it is necessary to involve the whole company at all its decision-making levels in the planning process. The planning system must be structured accordingly and the planning process be concentrated on these requirements.
Organization
of the Company
An understanding of the planning the knowledge of the company’s structure.
system requires organizational
the
to Planning
Schumpeter’s description of the entrepreneur as someone who permanently tries, by his actions, to succeed with new combinations of economic factors shows in what sense Henkel applies planning. The purpose is that planning should enable the company to seize new activity chances in the optimum structure of marketing, production, personnel and finance in time. The focus of all planning efforts must be the ambition to make decisions today which will determine tomorrow. Therefore the planning instruments are constructed in such a way that despite the necessity of shortDr. Grunewald, now Managing Director of Thompson-Siegel GmbH, the biggest subsidiary company of the Henkel KGaA in Germany, was, for several years. responsible for planning at Henkel. The address of Thompson-Siegel is Postfach 1126,400O Dusseldorf 1, Germany. Dr. Vellmann, Director of Planning, Accounting and Control, built up the Short-term Planning System at Henkel.
Since 1969 Henkel has been organized according to the divisional principle. Both the marketorientated organization units, with profitresponsibility, and the central service-orientated units, with cost-responsibility, are called ‘corporate sectors’. The business with consumer products as well as the business with chemical products is managed by two corporate sectors with different regional responsibility. The responsibility for consumer products (including ms t’itutional consumption) is divided into the corporate sectors ‘consumer productsdomestic market’, ‘consumer .products international and institutional consumption’. The business with chemical products is managed by the corporate sector ‘chemical products’. The activities in the United States and Canada however are combined in a special corporate sector called ‘North America’. The corporate sectors with costresponsibility have world-wide competence within their fields of duties.
20
Long
Range
Planning
Vol. 14
I
April
1981
Management Cons. Products
domestic
:a?,a,
Chemical Products
North American Region
Board Chemical & Technical
I
Finance,
I
Financial Statements Taxes
Purchase, Transport and Warehousing
pzzJ p5j!zKJ Figure
1. Organizational
structure
The organization units of the next lower organization level are called ‘corporate product and functional groups’. The heads of the corporate sectors and corporate groups form the operating management. The management of the total corporation and co-ordination of individual activities by target setting and controlling is under the responsibility of the ‘management board’. The members of this board are the heads of the corporate sectors. As well as the responsibility for sector they have the overall their respective responsibility for the company policies. In addition the corporate group ‘legal services’ and the following staffs are at the disposal of the management board : Public Relations, Organization, Auditing. This is not the place to discuss in detail the advantages and disadvantages of this organizational For f&ther understanding it is only form. important to know that the individual subplannings lead to the plans of the corporate groups and corporate sectors and are then summed up to form the plan for the total corporation. This incorporates the principle of involving all decisionmaking levels in the planning process. The structure and content of the plans is adjusted to the different duties of these organization units. It is a significant fact that all the market activities of the company are relatively close to the consumers.
Thinking and activity within the company is therefore strongly orientated to the careful observation of market activities and the input of corresponding measures. The planning must also correspond to the conditions for handling the ‘marketing-mix’.
Organization Plann
of the Company’s
As has already been said, the total company plan at Henkel is not a central departmeq responsibility. Each organization unit which contributes to the decision-making process in the company must plan and execute its own planning duties at certain dates in the year. The planning organization is concerned with the co-ordination of the planning process. This planning process is as follows: each organization unit shown in Figure 1 has a department which coordinates and controls the planning process in this unit and consolidates the planning. Within the corporate product groups with profit responsthese departments have several people ibility, whose job it is to integrate the plans of the affiliated companies in the planning process. The name of these departments ‘planning and controlling’ indicates the close connection of planning instruments with other management instruments. Within the other organization units the job is mainly done by one person.
Integrating The corporate group ‘planning, controlling, accounting’ has responsibility for co-ordinating the planning process for the whole corporation and for consolidating all plans into the total corporation’s plan. Because of this responsibility, this corporate group has the guidelines competence for the corporation’s planning system. The formal duty is completed by duties defined with regard to content: to elaborate certain plan targets (compare Section entitled ‘Strategic Planning’), to set up plan alternatives and to make critical statements on the total plan. The contacts between the corporate group ‘planning, controlling, accounting’ and the planning departments ofthe other corporate groups are maintained by planning delegates. These people are contacted by the co-ordinating corporate group when information is required. Vice-versa, the organization units of the company contact the corporate groups responsible for planning with help of the planning delegates. Planning delegates and members of the corporate group ‘planning, controlling, accounting’ form the planning committee. This meets several times a year to discuss and decide on planning problems and formal coordination problems.
Planning
System
Having explained the basic prerequisites for Henkel’s conception of the planning system, the elements of this system and the way in which they are connected by the planning estimate is as follows.
Planning Process
Structure
and Planning
Planning Structure It has already been
system activity future.
indicated that the planning must be able to give target-orientated alternatives with long-term aspects for the
Accordingly, Henkel’s planning system is classified into two elements which cover the fields of general target-setting. These are the corporate purpose and strategic planning, and one element which, in addition to detailed targets, includes the activity alternatives. This is the short-term plan of operation or short-term plan. Corporate purpose and strategic planning belong to the category of target planning whereas the shortterm plan represents planning to achieve the targets and leads to a planning and control estimate which is profit- and liquidity-orientated. Figure 2 shows that all elements should form a unit; this claim must be complied again and again with new methods and knowledge. Planning
The
Process
planning
process
begins
with
targets
for the
Regional
and Functional
Corporate
Figure
2. Planning
Plans at Henkel
21
Purpose
unit
whole corporation being set up by the management board. They are derived from the corporate purpose and they are partially autonomous (within the corporate purpose). The strategic plan is established on this basis by the corporate group ‘planning, controlling, accounting’ (PCA) in co-operation with the other corporate groups. The corporate group PCA contributes figures from the environmental analysis and sees that the planning is established on the basis of the guidelines. The individual corporate units then establish their plans by investigating their detailed targets-based upon the strategic planning-and carry out their planning estimates. The corporate group, ‘planning, controlling, accounting’ consolidates these plans with the total corporate plan. At the same time the plans are analysed, alternatives shown and/or modifications proposed. The management board decides upon the plans in detailed discussions on the contents of the plan with the directors of the corporate groups. Based on the results, the necessary-adjust the fixed tive conditions or decide on to achieve the target. Thus closed.
central board can-if targets to the prospeccorresponding actions the planning cycle is
.Plan Connection Preyaratory
Analyses
Planning cannot be initiated without regard to existing conditions, and to the environment within which the company acts. It is therefore necessary to make a detailed preparatory analysis of these two factors.
Long
22
Range
Plamling
April 1981
Vol. 14
Planning Procedure-Long-term
Y2i.A Management Board
Plan
+------_--_-_-_-_--_-_ Adjustment
+ Planning, Controlling, Accounting
\
of Targets
\
Strategic Plan
\ Environmental Analysis
Guidelines
V
Divisional Units
b Units A
* Plans of Functional Units
Functional Units
Figure
3. Planning
Analysis
process
of the Present
Situation
The strengths and weaknesses of the. existing situation in *the corporation and its sub-units are analysed. It has proved quite useful to structure the analysis so that it relates to the most important sectors of the company or its sub-units. The sectors fall into the following four categories: R market 3
significance,
technology (= plants, nological know-how),
~1 personnel *
(= market
(= intellectual
other
competitors), capacities,
tech-
capital),
finance.
Each of these sectors submits a statement on specific strengths and weaknesses. The weak-point-analysis encounters difficulties, principally from the psychological point of view. It is the aim of this analysis to obtain a basis for planning targets and measures and it is largely verbally formulated. Environmental
Analysis
As the company is inevitably related to its environment, ideas and targets concerning nonoperating factors also affect the company-internal activities. It is the challenge of good planning, to take the probable effects of these external factors into consideration as far as possible. In order to achieve this aim, we classify the environmental
analysis into a qualitative and a quantitative part. The classification has been made pragmatically. Both parts however are closely connected, as shown on Figure 4. In the qualitative part some important components such as, for example, government/society, trade, work environment, consumer behaviour arc listed in their development trends with the method of writing; scenario then the reasons for the development trends are analysed and any possible consequences for the company deduced. The quantitative part lists the economic influence factors which either already exist on the basis of statistic information for data relating to the whole economy and branch specific data, or can be established with sufficient certainty. At Hcnkcl the environment analysis is primarily prepared by the economic research department. If product-specific data is concerned, then there is cooperation with the market research departments of the divisions. This is done because the resulting data are an important input for the marketing planning.
Planning of General Targets/Strategies The most difficult
part in the planning
process is the
Integrating Government
Regional
and Functional
Plans at Henkel
and Society
Labour Market I I Purchasing Market
I Capital
Figure
4. Factors
Market
of the environmental
Competitors
analysis
handling of the planning step ‘targets, strategies’ which-generally spoken-should answer the question ‘What does the company want to achieve?’ In the earlier comments on the basic prerequisites it was indicated that planning has the character of a management and control instrument. This character becomes quite obvious in the planning step ‘targets, strategies’. It therefore requires the strongest participation of all management levels in the company. The degree of difficulty which arises in the practical elaboration is proportionate to the significance of this planning . step.
Two problems seem to be especially persistent. The first is that targets and strategies for the control of the business cannot always be clearly defined. Strategies are understood as targets and/or anticipated forms of behaviour with long-term character.
The second problem relates the co-ordination of targets and strategies for the whole corporation and for the sub-units, i.c. the ‘hierachy of targets’. This should be done step by step and be without contradiction. Even having assimilated the litcrature on this subject very carefully, a lot of questions still remain open in practice.
Corporate
Purpose
The corporate purpose as a planning element summarized in four interrelated areas: fields of activity for the company statements on the kind of products, groups, to be used, consumer orientation,
can be
with overall technologies geographic
and limitation orientation of the factor combination of fixed assets, financial assets, personnel and management structure with statements on financing methods, management structure, personnel development, . quantified figures as a measure for the financial success of the company and its sub-units; with the anticipated annual growth rate of gross profit and gross return on investment as well as net return on equity for the total company, social obligations The targets formulated and restrictions. .
to employees are a mixture
and society. of guidelines
The significance and application of the corporate purpose could be compared with the constitution in the political field. The scope is defined with longterm orientated efficiency; and it is within this scope the individual activities have to take place.
Long
24
Range
Changes in standards corporate purpose, necessary.
Strategic
Planning
April
Vol. 14
are of course possible and are sometimes
in the even
Planning
If the corporate purpose establishes targets and the scope of activity for the total corporation, it is the strategic planning which formulates targets and principles of activity for the individual units of the company. The strategic planning concentrates on the listing of important programme and functional which are important and orientated strategies, influence the company activities. On the other hand short-term orientated specifically it neglects business aspects. The following + program business
distinction
is made:
strategies which of the individual
relate to the existing corporate units,
* development strategies which activities still to be established.
Operating
refer
to
new
Sub-Planning
The elaboration of targets/strategies is a necessary prerequisite for the now subsequent planning/budget estimates of the individual units of the corporation. Here the means are elaborated by which the given targets will be achieved. As has already been explained with regard to the planning elements, the long-term orientated operating subplans must allow for alternative estimates whereas
I
Plan of Divisional
1981 the short-term unequivocally.
plans
should
Operating Divisional
Planning Groups
Within these plan groups, the product group is the smallest planning unit. This central position shows very clearly that all Henkel activities are close to the market. Figure 6 gives a survey of the operating sub-plans within the given planning groups. The plans are of course interdependent but it is difficult to take this into account in the planning process and often it takes at least two planning cycles to get control of the degree of interdependency in the plans. As can be seen, the marketing plan is the most important plan in the system. This plan is a system all by itself.
I
Plans
Marketing/Distribution
I
I
Production
Research & Application
Personnel/Administration
Domestic
Regional Plans
Europe
Overseas
of divisional
units plans
Corporate
Beginning with the structure of the divisional plans (the regional plan corresponds to the same principle), Figure 5 shows that there are two groups of plans: functional orientated and regional orientated plans.
Product
5. Structure
of
Units
Functional
established
Once they are set up, targets and strategies can be revised according to requirements. The operating sub-plans are revised every year.
I
Figure
be
Integrating OPERATIONS
PLANS
Regional
and Functional
OF DIVISIONAL
Plans at Henkel
UNITS
\ Environmental
25
Targets of Divisional Units
\ Present Situation Analysis d
Market
Analysis
I
1
.
Income
Assets Plan
Plan
I
b
Figure
6. System
of operations
sub-plans
Financial
Plan
-
4
of divisions
The marketing plan incorporates information from all preceding planning elements. Furthermore the marketing plan incorporates information from later plans by means of feedback; this information includes new developments or bottle-necks in product research, production, purchase, financing or persomlel which must be taken into account. The other functional plans are derived from the marketing plan. All information and figures concerning the marketing and functional plans are summed up in the operating income plan. This is an important part in the planning, corresponding to the principle of profit responsibility in organizations which are active in the market. Therefore the gross profit is an important signal item for the division’s director regarding the effectiveness of planned individual measures in his field of responsibility, and it is an important indicator for the company’s management board to judge individual division activities. The second factor oftarget investment-is determined
.I
setting-gross return on in the assets plan. Once
more, there is no action planning but an estimate. The assets plan incorporates all information on planned changes in fixed assets, current assets and This includes planned short-term liabilities. auxiliaries and fuels, the planning of operating liquid funds, receivables and liabilities. As the corporate divisions have no responsibility for financing their activities, the operating planning of the divisions ends with the operating assets plan. Finance is within the responsibility of the corporate functional group finance.
Operating Functional
Planning Groups
of Corporate
The structure and content of the operating plan of the functional organization units are determined by the specific setting of tasks for these units (as explained earlier). The resulting mixture makes it difficult to structure the sub-plans as clearly as can be done for divisional units operating in the market.
Long
Range
Planning
Vol. 14 OPERATIONS
April
1981
PLANS OF FUNCTIONAL
UNITS
,
, Environmental Analysis
Present Position Analysis
Targets for Functional Units
Requirements from Plans of Divisional Units
of Functional
.
Allocation of Invested Capital to Divisional Units
Allocation of Cost to Divisional Units
Figure
7. System
of the operations
sub-plans
of functional
Therefore the primary plan of the functional units is a verbally formulated action plan. Figure 7 shows the central role of this plan. the ‘influencing factors and In considering considerations, it can be seen that environmental analysis, present situation analysis and target basic items for the settings, are also important functional organization units. Another item is entitled ‘requirements resulting from the divisions plans’. This sums up what the functional units are expected to do. The expectations result from the of the divisional units and refer to plans performances in goods and services (engagement of personnel, enlargement of warehousing, tinancing of methods the development etc.) or to salary pay system, EDP pro(organization, gramme). On the other hand the functional units themselves have to plan actions concerning the development of their own services. There are the same divisional units: *
investment
*
procurement
*
personnel
operating
sub-plans
as for
plan, plan,
units
the functional organization units have corresponding units in the divisions. This gives the functional units the opportunity to initiate a corporate-wide summing up of certain functional-orientated subplans. In the field of planning this procedure allows the company to use the possibilities of the matrix by the divisional organization, as afforded principle. The corporate-wide recording and such functional data allows a approach and a better use of resources corporation. For instance, the figures the individual corporate groups are
evaluation of differentiated for the whole established by processed
From
To
Corporate group ‘production and engineering’
the total corporation’s investment plan
Corporate group ‘research and dcvelopmcnt’
the research
Corporate group ‘personnel and industrial relations’
the corporate-wide personnel plan.
plan
plan and
$7 cost estimate The organizational
and assets plan. structure
of Henkcl
shows that
Only actions proposed by the management board (and not by the corporate groups) arc included in these summarizing plans.
Integrating
1
Market inalysis
Regional
and Functional
Plans at Henkel
27
_i
Product
1
Group
Marketing
Plan I
f
+
Material
Personnel Plan 1
Plan
1
I
I
1
7 Fixed Assets Plan
I
Companies Corporate Groups Non-operating
Plan
+
v Financial
I
Plan
I
1 Total
I
Corporation
Figure
8. Procedure
of planning
Process of the Planning It is interesting
the company
Total Corporation
estimate
Estimate
to see the process ofplanning within in its formal aspect (Figure 8).
In the previous comments it has been pointed out that Henkel attributes importance to an integrated planning system where all organizational units and all sub-units with their planning can be summarized in a planning estimate and control calculation. Planning activities. however system if
is established world-wide for all company Smaller European or overseas activities are only planned within the Henkel the plan economy justifies it.
The consolidation of the individual plans to the plans of the corporate units on one hand and to the company plans-on the other (including functional unit plans) allows, as shown in Figure 9, a controlling plan co-ordination within the plan of the whole corporation.
Conclusion When establishing planning system,
Plan
and handling as shown in
an integrated the previous
comments, one must always be aware that it is an investment which can be compared with fixed assets investments with regard to the use of intellectual capital as well as of monetary capital. It is an investment in instruments related to managerial economics for information processing; the following comment of the President of the Japanese Sony Corporation regarding the necessity for such instruments is worth heeding. Modern industries demand more and more knowledge instead of mere manpower. Today, abihties and technical know-how of the company have the importance which in earlier times applied to capital and land property. Tomorrow, information systems will be the factor number OllC?.
In practice this means;that a planning system has to be treated as carefu.lly as is usually done with technical investments. There are many traps and points where the whole system fails. The system is vulnerable at those points whcrc the participation of all management levels in the planning process is concerned, the transformation, the careful preparation when introducing planning and maintaining a steady flow of all the necessary information.
28
Long
Range
Planning
April 1981
Vol. l’4
Product Groups Company
A. q A
.
III
C
Corporate Group A in Company I
Corporate Group B in Company II
Non-operating Plan Company I
Total Company
I
l
C
B
I
Non-operating Plan Company II
Total Company
II
1 Total Corporation
1
Figure
9. Consolidation
process
of individual
plans
In the Henkel experience the ‘investment’ in an integrated planning system must also be compared with larger investments in regard to time requirement. The preparation time takes about 2-3 cycles need to be years, and three planning completed before a pay-out with satisfying planning results is achieved. Even then companies generally However, planning
the risk of failure still exists. Nevertheless which take the risk of ‘plan investment’ have a more active image in the market. only one thing is worse than not having a system and that is to have bad planning.
Bad planning means, as was once said, a complicated procedure that offers you the possibility going the wrong way with a higher degree of security. Both aspects-the positive one of getting an important information system and the negative one of failure with loss of funds, be it cost or motivation-causes a good planner to have the following sentence always on his desk: The more precisely hit you.
you plan, the harder chance will
Integrating Functional
Regional
and Functional
Plans at Henkel
19
Regional and Plans at Henkel
Cm bH and DV. Hans-Giinter Gviinewald, Managing Director of Thompson-Siegel Vellmann, Director of Planning, Accounting and Control DV. Karlheinz
The article describes the planning system of the Henkel KGaA The company is completely family owned. It is the fourth largest chemical company in Germany with affiliated companies nearly all over the world. The product range consists of consumer good articles such as detergents, cosmetics, household cleaners and adhesives and a wide range of chemical specialities which are sold to industry. The turnover world- wide is nearly DM7bn. The planning system of the Henkel KGaA is constructed in such a way that despite the necessity of short-term control the longer-term perspective still remains the basis for decision making. The planning structure and process throughout the company are explained in detail. The authors show that this system is an investment in managerial information processing.
The structure and content of a company’s planning system are determined by two essential factors whose differences lead variations of the planning. These factors are: * the managerial and, fi the company organizational
Managerial
attitude
to planning
structure, conception.
Attitudes
represented
in
term-orientated control the long-term future aspect still remains the basis for decision making. As a company has not only one future but several ‘futures’ possible, the planning system and planning information must enable us to elaborate alternative activities. If planning with all its possibilities and limits is to work in a company, it is necessary to involve the whole company at all its decision-making levels in the planning process. The planning system must be structured accordingly and the planning process be concentrated on these requirements.
Organization
of the Company
An understanding of the planning the knowledge of the company’s structure.
system requires organizational
the
to Planning
Schumpeter’s description of the entrepreneur as someone who permanently tries, by his actions, to succeed with new combinations of economic factors shows in what sense Henkel applies planning. The purpose is that planning should enable the company to seize new activity chances in the optimum structure of marketing, production, personnel and finance in time. The focus of all planning efforts must be the ambition to make decisions today which will determine tomorrow. Therefore the planning instruments are constructed in such a way that despite the necessity of shortDr. Grunewald, now Managing Director of Thompson-Siegel GmbH, the biggest subsidiary company of the Henkel KGaA in Germany, was, for several years. responsible for planning at Henkel. The address of Thompson-Siegel is Postfach 1126,400O Dusseldorf 1, Germany. Dr. Vellmann, Director of Planning, Accounting and Control, built up the Short-term Planning System at Henkel.
Since 1969 Henkel has been organized according to the divisional principle. Both the marketorientated organization units, with profitresponsibility, and the central service-orientated units, with cost-responsibility, are called ‘corporate sectors’. The business with consumer products as well as the business with chemical products is managed by two corporate sectors with different regional responsibility. The responsibility for consumer products (including ms t’itutional consumption) is divided into the corporate sectors ‘consumer productsdomestic market’, ‘consumer .products international and institutional consumption’. The business with chemical products is managed by the corporate sector ‘chemical products’. The activities in the United States and Canada however are combined in a special corporate sector called ‘North America’. The corporate sectors with costresponsibility have world-wide competence within their fields of duties.
20
Long
Range
Planning
Vol. 14
I
April
1981
Management Cons. Products
domestic
:a?,a,
Chemical Products
North American Region
Board Chemical & Technical
I
Finance,
I
Financial Statements Taxes
Purchase, Transport and Warehousing
pzzJ p5j!zKJ Figure
1. Organizational
structure
The organization units of the next lower organization level are called ‘corporate product and functional groups’. The heads of the corporate sectors and corporate groups form the operating management. The management of the total corporation and co-ordination of individual activities by target setting and controlling is under the responsibility of the ‘management board’. The members of this board are the heads of the corporate sectors. As well as the responsibility for sector they have the overall their respective responsibility for the company policies. In addition the corporate group ‘legal services’ and the following staffs are at the disposal of the management board : Public Relations, Organization, Auditing. This is not the place to discuss in detail the advantages and disadvantages of this organizational For f&ther understanding it is only form. important to know that the individual subplannings lead to the plans of the corporate groups and corporate sectors and are then summed up to form the plan for the total corporation. This incorporates the principle of involving all decisionmaking levels in the planning process. The structure and content of the plans is adjusted to the different duties of these organization units. It is a significant fact that all the market activities of the company are relatively close to the consumers.
Thinking and activity within the company is therefore strongly orientated to the careful observation of market activities and the input of corresponding measures. The planning must also correspond to the conditions for handling the ‘marketing-mix’.
Organization Plann
of the Company’s
As has already been said, the total company plan at Henkel is not a central departmeq responsibility. Each organization unit which contributes to the decision-making process in the company must plan and execute its own planning duties at certain dates in the year. The planning organization is concerned with the co-ordination of the planning process. This planning process is as follows: each organization unit shown in Figure 1 has a department which coordinates and controls the planning process in this unit and consolidates the planning. Within the corporate product groups with profit responsthese departments have several people ibility, whose job it is to integrate the plans of the affiliated companies in the planning process. The name of these departments ‘planning and controlling’ indicates the close connection of planning instruments with other management instruments. Within the other organization units the job is mainly done by one person.
Integrating The corporate group ‘planning, controlling, accounting’ has responsibility for co-ordinating the planning process for the whole corporation and for consolidating all plans into the total corporation’s plan. Because of this responsibility, this corporate group has the guidelines competence for the corporation’s planning system. The formal duty is completed by duties defined with regard to content: to elaborate certain plan targets (compare Section entitled ‘Strategic Planning’), to set up plan alternatives and to make critical statements on the total plan. The contacts between the corporate group ‘planning, controlling, accounting’ and the planning departments ofthe other corporate groups are maintained by planning delegates. These people are contacted by the co-ordinating corporate group when information is required. Vice-versa, the organization units of the company contact the corporate groups responsible for planning with help of the planning delegates. Planning delegates and members of the corporate group ‘planning, controlling, accounting’ form the planning committee. This meets several times a year to discuss and decide on planning problems and formal coordination problems.
Planning
System
Having explained the basic prerequisites for Henkel’s conception of the planning system, the elements of this system and the way in which they are connected by the planning estimate is as follows.
Planning Process
Structure
and Planning
Planning Structure It has already been
system activity future.
indicated that the planning must be able to give target-orientated alternatives with long-term aspects for the
Accordingly, Henkel’s planning system is classified into two elements which cover the fields of general target-setting. These are the corporate purpose and strategic planning, and one element which, in addition to detailed targets, includes the activity alternatives. This is the short-term plan of operation or short-term plan. Corporate purpose and strategic planning belong to the category of target planning whereas the shortterm plan represents planning to achieve the targets and leads to a planning and control estimate which is profit- and liquidity-orientated. Figure 2 shows that all elements should form a unit; this claim must be complied again and again with new methods and knowledge. Planning
The
Process
planning
process
begins
with
targets
for the
Regional
and Functional
Corporate
Figure
2. Planning
Plans at Henkel
21
Purpose
unit
whole corporation being set up by the management board. They are derived from the corporate purpose and they are partially autonomous (within the corporate purpose). The strategic plan is established on this basis by the corporate group ‘planning, controlling, accounting’ (PCA) in co-operation with the other corporate groups. The corporate group PCA contributes figures from the environmental analysis and sees that the planning is established on the basis of the guidelines. The individual corporate units then establish their plans by investigating their detailed targets-based upon the strategic planning-and carry out their planning estimates. The corporate group, ‘planning, controlling, accounting’ consolidates these plans with the total corporate plan. At the same time the plans are analysed, alternatives shown and/or modifications proposed. The management board decides upon the plans in detailed discussions on the contents of the plan with the directors of the corporate groups. Based on the results, the necessary-adjust the fixed tive conditions or decide on to achieve the target. Thus closed.
central board can-if targets to the prospeccorresponding actions the planning cycle is
.Plan Connection Preyaratory
Analyses
Planning cannot be initiated without regard to existing conditions, and to the environment within which the company acts. It is therefore necessary to make a detailed preparatory analysis of these two factors.
Long
22
Range
Plamling
April 1981
Vol. 14
Planning Procedure-Long-term
Y2i.A Management Board
Plan
+------_--_-_-_-_--_-_ Adjustment
+ Planning, Controlling, Accounting
\
of Targets
\
Strategic Plan
\ Environmental Analysis
Guidelines
V
Divisional Units
b Units A
* Plans of Functional Units
Functional Units
Figure
3. Planning
Analysis
process
of the Present
Situation
The strengths and weaknesses of the. existing situation in *the corporation and its sub-units are analysed. It has proved quite useful to structure the analysis so that it relates to the most important sectors of the company or its sub-units. The sectors fall into the following four categories: R market 3
significance,
technology (= plants, nological know-how),
~1 personnel *
(= market
(= intellectual
other
competitors), capacities,
tech-
capital),
finance.
Each of these sectors submits a statement on specific strengths and weaknesses. The weak-point-analysis encounters difficulties, principally from the psychological point of view. It is the aim of this analysis to obtain a basis for planning targets and measures and it is largely verbally formulated. Environmental
Analysis
As the company is inevitably related to its environment, ideas and targets concerning nonoperating factors also affect the company-internal activities. It is the challenge of good planning, to take the probable effects of these external factors into consideration as far as possible. In order to achieve this aim, we classify the environmental
analysis into a qualitative and a quantitative part. The classification has been made pragmatically. Both parts however are closely connected, as shown on Figure 4. In the qualitative part some important components such as, for example, government/society, trade, work environment, consumer behaviour arc listed in their development trends with the method of writing; scenario then the reasons for the development trends are analysed and any possible consequences for the company deduced. The quantitative part lists the economic influence factors which either already exist on the basis of statistic information for data relating to the whole economy and branch specific data, or can be established with sufficient certainty. At Hcnkcl the environment analysis is primarily prepared by the economic research department. If product-specific data is concerned, then there is cooperation with the market research departments of the divisions. This is done because the resulting data are an important input for the marketing planning.
Planning of General Targets/Strategies The most difficult
part in the planning
process is the
Integrating Government
Regional
and Functional
Plans at Henkel
and Society
Labour Market I I Purchasing Market
I Capital
Figure
4. Factors
Market
of the environmental
Competitors
analysis
handling of the planning step ‘targets, strategies’ which-generally spoken-should answer the question ‘What does the company want to achieve?’ In the earlier comments on the basic prerequisites it was indicated that planning has the character of a management and control instrument. This character becomes quite obvious in the planning step ‘targets, strategies’. It therefore requires the strongest participation of all management levels in the company. The degree of difficulty which arises in the practical elaboration is proportionate to the significance of this planning . step.
Two problems seem to be especially persistent. The first is that targets and strategies for the control of the business cannot always be clearly defined. Strategies are understood as targets and/or anticipated forms of behaviour with long-term character.
The second problem relates the co-ordination of targets and strategies for the whole corporation and for the sub-units, i.c. the ‘hierachy of targets’. This should be done step by step and be without contradiction. Even having assimilated the litcrature on this subject very carefully, a lot of questions still remain open in practice.
Corporate
Purpose
The corporate purpose as a planning element summarized in four interrelated areas: fields of activity for the company statements on the kind of products, groups, to be used, consumer orientation,
can be
with overall technologies geographic
and limitation orientation of the factor combination of fixed assets, financial assets, personnel and management structure with statements on financing methods, management structure, personnel development, . quantified figures as a measure for the financial success of the company and its sub-units; with the anticipated annual growth rate of gross profit and gross return on investment as well as net return on equity for the total company, social obligations The targets formulated and restrictions. .
to employees are a mixture
and society. of guidelines
The significance and application of the corporate purpose could be compared with the constitution in the political field. The scope is defined with longterm orientated efficiency; and it is within this scope the individual activities have to take place.
Long
24
Range
Changes in standards corporate purpose, necessary.
Strategic
Planning
April
Vol. 14
are of course possible and are sometimes
in the even
Planning
If the corporate purpose establishes targets and the scope of activity for the total corporation, it is the strategic planning which formulates targets and principles of activity for the individual units of the company. The strategic planning concentrates on the listing of important programme and functional which are important and orientated strategies, influence the company activities. On the other hand short-term orientated specifically it neglects business aspects. The following + program business
distinction
is made:
strategies which of the individual
relate to the existing corporate units,
* development strategies which activities still to be established.
Operating
refer
to
new
Sub-Planning
The elaboration of targets/strategies is a necessary prerequisite for the now subsequent planning/budget estimates of the individual units of the corporation. Here the means are elaborated by which the given targets will be achieved. As has already been explained with regard to the planning elements, the long-term orientated operating subplans must allow for alternative estimates whereas
I
Plan of Divisional
1981 the short-term unequivocally.
plans
should
Operating Divisional
Planning Groups
Within these plan groups, the product group is the smallest planning unit. This central position shows very clearly that all Henkel activities are close to the market. Figure 6 gives a survey of the operating sub-plans within the given planning groups. The plans are of course interdependent but it is difficult to take this into account in the planning process and often it takes at least two planning cycles to get control of the degree of interdependency in the plans. As can be seen, the marketing plan is the most important plan in the system. This plan is a system all by itself.
I
Plans
Marketing/Distribution
I
I
Production
Research & Application
Personnel/Administration
Domestic
Regional Plans
Europe
Overseas
of divisional
units plans
Corporate
Beginning with the structure of the divisional plans (the regional plan corresponds to the same principle), Figure 5 shows that there are two groups of plans: functional orientated and regional orientated plans.
Product
5. Structure
of
Units
Functional
established
Once they are set up, targets and strategies can be revised according to requirements. The operating sub-plans are revised every year.
I
Figure
be
Integrating OPERATIONS
PLANS
Regional
and Functional
OF DIVISIONAL
Plans at Henkel
UNITS
\ Environmental
25
Targets of Divisional Units
\ Present Situation Analysis d
Market
Analysis
I
1
.
Income
Assets Plan
Plan
I
b
Figure
6. System
of operations
sub-plans
Financial
Plan
-
4
of divisions
The marketing plan incorporates information from all preceding planning elements. Furthermore the marketing plan incorporates information from later plans by means of feedback; this information includes new developments or bottle-necks in product research, production, purchase, financing or persomlel which must be taken into account. The other functional plans are derived from the marketing plan. All information and figures concerning the marketing and functional plans are summed up in the operating income plan. This is an important part in the planning, corresponding to the principle of profit responsibility in organizations which are active in the market. Therefore the gross profit is an important signal item for the division’s director regarding the effectiveness of planned individual measures in his field of responsibility, and it is an important indicator for the company’s management board to judge individual division activities. The second factor oftarget investment-is determined
.I
setting-gross return on in the assets plan. Once
more, there is no action planning but an estimate. The assets plan incorporates all information on planned changes in fixed assets, current assets and This includes planned short-term liabilities. auxiliaries and fuels, the planning of operating liquid funds, receivables and liabilities. As the corporate divisions have no responsibility for financing their activities, the operating planning of the divisions ends with the operating assets plan. Finance is within the responsibility of the corporate functional group finance.
Operating Functional
Planning Groups
of Corporate
The structure and content of the operating plan of the functional organization units are determined by the specific setting of tasks for these units (as explained earlier). The resulting mixture makes it difficult to structure the sub-plans as clearly as can be done for divisional units operating in the market.
Long
Range
Planning
Vol. 14 OPERATIONS
April
1981
PLANS OF FUNCTIONAL
UNITS
,
, Environmental Analysis
Present Position Analysis
Targets for Functional Units
Requirements from Plans of Divisional Units
of Functional
.
Allocation of Invested Capital to Divisional Units
Allocation of Cost to Divisional Units
Figure
7. System
of the operations
sub-plans
of functional
Therefore the primary plan of the functional units is a verbally formulated action plan. Figure 7 shows the central role of this plan. the ‘influencing factors and In considering considerations, it can be seen that environmental analysis, present situation analysis and target basic items for the settings, are also important functional organization units. Another item is entitled ‘requirements resulting from the divisions plans’. This sums up what the functional units are expected to do. The expectations result from the of the divisional units and refer to plans performances in goods and services (engagement of personnel, enlargement of warehousing, tinancing of methods the development etc.) or to salary pay system, EDP pro(organization, gramme). On the other hand the functional units themselves have to plan actions concerning the development of their own services. There are the same divisional units: *
investment
*
procurement
*
personnel
operating
sub-plans
as for
plan, plan,
units
the functional organization units have corresponding units in the divisions. This gives the functional units the opportunity to initiate a corporate-wide summing up of certain functional-orientated subplans. In the field of planning this procedure allows the company to use the possibilities of the matrix by the divisional organization, as afforded principle. The corporate-wide recording and such functional data allows a approach and a better use of resources corporation. For instance, the figures the individual corporate groups are
evaluation of differentiated for the whole established by processed
From
To
Corporate group ‘production and engineering’
the total corporation’s investment plan
Corporate group ‘research and dcvelopmcnt’
the research
Corporate group ‘personnel and industrial relations’
the corporate-wide personnel plan.
plan
plan and
$7 cost estimate The organizational
and assets plan. structure
of Henkcl
shows that
Only actions proposed by the management board (and not by the corporate groups) arc included in these summarizing plans.
Integrating
1
Market inalysis
Regional
and Functional
Plans at Henkel
27
_i
Product
1
Group
Marketing
Plan I
f
+
Material
Personnel Plan 1
Plan
1
I
I
1
7 Fixed Assets Plan
I
Companies Corporate Groups Non-operating
Plan
+
v Financial
I
Plan
I
1 Total
I
Corporation
Figure
8. Procedure
of planning
Process of the Planning It is interesting
the company
Total Corporation
estimate
Estimate
to see the process ofplanning within in its formal aspect (Figure 8).
In the previous comments it has been pointed out that Henkel attributes importance to an integrated planning system where all organizational units and all sub-units with their planning can be summarized in a planning estimate and control calculation. Planning activities. however system if
is established world-wide for all company Smaller European or overseas activities are only planned within the Henkel the plan economy justifies it.
The consolidation of the individual plans to the plans of the corporate units on one hand and to the company plans-on the other (including functional unit plans) allows, as shown in Figure 9, a controlling plan co-ordination within the plan of the whole corporation.
Conclusion When establishing planning system,
Plan
and handling as shown in
an integrated the previous
comments, one must always be aware that it is an investment which can be compared with fixed assets investments with regard to the use of intellectual capital as well as of monetary capital. It is an investment in instruments related to managerial economics for information processing; the following comment of the President of the Japanese Sony Corporation regarding the necessity for such instruments is worth heeding. Modern industries demand more and more knowledge instead of mere manpower. Today, abihties and technical know-how of the company have the importance which in earlier times applied to capital and land property. Tomorrow, information systems will be the factor number OllC?.
In practice this means;that a planning system has to be treated as carefu.lly as is usually done with technical investments. There are many traps and points where the whole system fails. The system is vulnerable at those points whcrc the participation of all management levels in the planning process is concerned, the transformation, the careful preparation when introducing planning and maintaining a steady flow of all the necessary information.
28
Long
Range
Planning
April 1981
Vol. l’4
Product Groups Company
A. q A
.
III
C
Corporate Group A in Company I
Corporate Group B in Company II
Non-operating Plan Company I
Total Company
I
l
C
B
I
Non-operating Plan Company II
Total Company
II
1 Total Corporation
1
Figure
9. Consolidation
process
of individual
plans
In the Henkel experience the ‘investment’ in an integrated planning system must also be compared with larger investments in regard to time requirement. The preparation time takes about 2-3 cycles need to be years, and three planning completed before a pay-out with satisfying planning results is achieved. Even then companies generally However, planning
the risk of failure still exists. Nevertheless which take the risk of ‘plan investment’ have a more active image in the market. only one thing is worse than not having a system and that is to have bad planning.
Bad planning means, as was once said, a complicated procedure that offers you the possibility going the wrong way with a higher degree of security. Both aspects-the positive one of getting an important information system and the negative one of failure with loss of funds, be it cost or motivation-causes a good planner to have the following sentence always on his desk: The more precisely hit you.
you plan, the harder chance will