- Email: [email protected]
Managing the planning process: Recent trends and challenges
European Management Journal Volume 0 European Mangement Journal 1986 ISBN 0263-2373 $3.00
4 No 2
Managing the Planning Process: Recent Trends and Challenges Jyoti Gupta and Georges Hirsch Professors of Finance, Ecole Sup&ieure de Commerce de Paris
In the recent years the strategic planning process has undergone important changes. It is becoming more and more difficult to predict even medium term performances, this being due to great number of uncertainties and risks: technological and environmental changes, geopolitical factors and political risks . . . The management needs to adapt rapidly to changing circumstances. The paper discusses the actual issues in the planning process. It stresses the limitations of the numberically oriented long range planning approach based on the bottom-up and topdown basis. It proposes a new open-ended approach, qualitative in content and flexible in application. The merits of this new approach have been pointed out and also the difficulties have been outlined. The authors contend that the long range plan should raise new and relevant issues on the organisation, on financial objectives, on marketing development, on different kinds of risks . . . The need to integrate the human and cultural dimensions of management has also been raised. Strategtc and Long Term Planning “What is the use of strategic planning?” may appear to be a rather naive question, which should lead to an obvious answer. However, the objectives assigned to long-term planning can be numerous, such as identify strategic issues, define long-term
objectives, and working on specific long-term objectives such as market share, competitive position, communication, profit level personel managment, and soon, total quality control, strategic investments, diversification. It may also embrace development of management control systems, creation or development of a corporate culture or image, and help to define a relevant organizational structure schemes, prothrough consensus, decentralization ject management, and innovation. Obviously, strategic planning has evolved strongly since the mid 70s when the economic crisis burst. As Gioroire (1) observes, strategic planning was centralized, technocratic, forecast-oreinted, economic and long-term whereas today it becomes more and more decentralized, volonturiste, opportunist, openly focused, and short, medium and long-term oriented. It is true that, within major organisations, strategic planning is thought of as bound to give the firm some competitive edges. This can be through human resource planning as discussed by (2) and linkages between the research and marketing functions Shanklin et al (3), risk management (4), new financial attitudes (5) (6), innovation devices (7), scanning environmental changes (8), innovative technological choices (9), specific, managerial choices or through organizational changes (10) (11). This list clearly shows that in a risky and discontinuous period one has to find and develop new and discontinuous approaches resulting in a great variety of strategic planning methodologies and procedures. Can we still agree, with (12) that, “the longer the effect of a plan and the more difficult it is to reverse,
MANAGING
*the more strategic it is”, or, “that the more fur&ions of an organization’s activities are affected by a plan, the more strategic it is”. Or that, “strategic planning is longer-range corporate planning-that is, ends oriented (but not exlusively so)“, and that, “it should be apparent that both strategic and tactical planning are required in order to maximize progress”? Should we admit, with more recent works of the same author, that strategic planning is a major support for understanding corporations as purposeful systems? To what extent can we abide by this rational approach of a structured and unambiguous tool ‘devoted to reach well-identified desired futures? To what extent the role of formalized programs and computerized procedures help strategic planning today? Is there a possibility of coping with conflicting short-term objectives and indicators, and longterm development issues? Those questions are exacerbated in the advanced technology sectors, in which one has to face increasing complexity and technological, commercial and financial risks. Issues in the Planning
Process
In order to be clear we shall adopt a working definition of strategic planning which could be defined as, a “set of normal process and procedures which within a regular cycle (generally and annual one), allows to implement the strategic issues of firm in different plans”. Generally speaking, especially in high technology are three kinds of plans as shown in Table 1. In large corporations, long-range planning deals with R & D, and long-term production plans for the factories, industrial units, and dimensions related to the size of the corporation in terms of sales, human
THE
PLANNING
PROCESS
83
resources and assets; for sales organizations commercial units. Medium Range Planning helps in defining operational objectives, generally later used as references in the control process, whereas budgets are there to get up constraints on available resources, and to define precisely monthly subobjectives. Multinational corporations are organized on a worldwide scheme, with industrial units mainly present in developed countries and commercial units attempting, directly or indirectly, to distribute their products around the world through local or regional subsidiaries. Analytical accounting tools have been developed to ensure consistency and the possibility of quickly consolidating balance-sheets, results and income statements. This is particularly valid for short-term plans such as budgets or even medium range plans. One may observe, that executives often seem to concentrate more on quarterly (short-term) profits and price-earnings ratios than on product quality or customer service. (5) Taking the U.S. example, Ellsworth shows how market standards for shareholder returns and financial leverage lead to corporate financial goals that divert executives’ attention from the product-market needs that build long-term competitive strength. More precisely, he discusses the following point, “Do professional money managers interests agree with actions that enhance a companies’ long-term competitive viability?” His answer is negative, even if from a theoretical standpoint one could argue that future dividend streams take into account the consequences of increasing competitiveness. But it is easy to note the direct effects of quarterly or periodically financial reports could be extremely negative. Furthermore, in the high technology sectors, the prediction of even medium term performances has become more and more difficult, this being due to a great number of uncertainties and risks. These include:-
Table 1 - Different Types of Corporations
Plan Denomination
Horizon
Column Definition
Long Range Planning
5 years Annual minimum -----_____----__--__--------------------------------------------------------------------------------------------
Medium Range Planning 2 to 3 years Annual or semestrial -----_____--------__-------------------------------------------------------------------------------------------Budgets
1 year
Monthly
Objectives Strategic
Revised Annually
(*)
Tactical/Operational
Twice a year (‘)
Analytical
Twice a year (*) or more often (*) As an example
84
JYOTI
GUPTA
AND
GEORGtiS
HIRSCH
of a company’s estimated future earnings potential”. Burstein thinks that, “discounted cash-flow equations tempt managers to believe that what happens in the future is less important than what happens today” so that capital is rather, “diverted into new and immediately profitable acquisitions rather than reinvested in the basic manufacturing process. (16) This bias is strengthened by the fact that current indicators of performance serve as a basis for the evaluation of managers. Therefore, even in better managed corporations, it is not obvious that enough weight is given to elements which give them some competitive edges. This is all the more important as, historically, industrial units tend to monopolize the power and the domain of strategical decisions. Of course, R & D should play a fundamental role, but it has become more and more important to ensure some consistency with marketing. Shanklin makes the distinction between market-driven and innovation driven-companies. The distinction is interesting though in the real world firms are a mix of these two pure categories (3).
Technological changes, environment changes, socio-economic changes, geopolitical factors including nationalism, covert protectionism, political risks. We may then enter a vicious circle since investors base their decisions on information issued by corporate management which is abridged and weighted heavily to the short-term “the current quarter, the current year or possibly the next two or three years”. Besides, it is true that, generally speaking, corporate predictions “are usually little more than arithmetical projections of near-term trends”. Even when external information and some types of macro-economic modelling are used, short-term events and performances do create a pressure which tends to align long-term range planning with the next two or three periods’ objectives. These are the reasons why, coming back to strict financial considerations, Ellsworth states that, “Finally, the stock market cannot reflect perfectly the discounted present value
Diagram
1 Phases in Long Range Planning
I
1 CORPORATE GUIDELINES
LOCAL ASSUMPTIONS
PAST DATA V
I INTERACTIVE SCENARIO-BUILDING
G FINAL
DECISlON
COMPARISON
TOP-DOWN
, <
>
A
CORPORATE PLANNING DEPARTMENT
1 DATA
LOCAL COLLECTIONS
PHASE
C
BOTTOM-UP
PHASE
MANAGING
This L.R.P. approach is supported by a centralized computer-model which is able to do two things. First it can aggregate low-level data, e.g. from branch local offices to main branch offices, and from main branch offices to the national level, or to aggregate data specific of different product lines or services, and second it allocates, i.e. disaggregates high-level data to lower levels. This model is amenable to simulation by cascades of computations. For instance, through ratios it is possible to measure the consequences of projected sales levels on sales professional productivity. Limitations of the model come from its unique and centralized structure and information format. Can a comprehensive tool refer to a sector of different objectives? To our mind, an affirmative answer requires a decentralized model, in which each module should be dedicated to a specific set of objectives. Besides, we think that the model itself should explicitly include some of the users’ wishes. Therefore it seems necessary to reflect upon this point, since the implementation phase requires time, effort and analysis. In most cases, the work is carried out by the Planning Department. Figures come first, reflections and discussion of issues are judged to be complementary, or even minor, elements. Modem
approach
In recent the ways tion have empirical
THE PLANNING
PROCESS
85
thoroughly a small number of strategic issues. The wilI to develop an interactive tool asking and giving information to concerned managers. Furthermore, it appears more necessary than ever to better integrate industrial and commercial longrange planning. Diagram 2 illustrates a more recent approach to L.R.P. Strategic Issues chosen lead to specific planning models which are progressively developed tested and enforced. Strategic issues may refer to some already discussed issues which have been set up at a priority level for the corporation as a whole. As we can see in the diagram, modern Long-Range Planning tends to give more weight to internal contributions made by the subsidiaries. Diagram 2 - Recent approach to Long-Range Planning Schemes
1 EXTERNAL CONTRIRUTION (Pm”1 company ICVCI)
-
to Long Range Planning.
years, reflections on the objectives and on of developing a good planning contribubeen carried out in a more interactive and manner than before.
Nowadays, clearly the challenges are coming nom various changes brought by the market, by technologies and by organization changes. What should be the future growth rate? Are the objectives of industrial units and commercial units consistent? Which productivity assumptions can we adopt? How should we manage people and assets? How we should hedge against foreign exchange risk? What should be our investments or disinvestment policy? Long Range Planning should help to clarify such issues. Thus, Long Range Planning leads now to raising new and relevant issues on the organisation, on financial objectives, on marketing development, on different kinds of risks and so on. Hence, obviously a centralized L.R.P. model cannot be used, for the following reasons:The great variety of managers concerned by L.R.P. having their own set of objectives which may be conflicting. The need to analyse and investigate more
NATIONAL
COORDINATION
Commrmal Slrale~lc
ISSUP = I
!hll‘~lC
Issue = 2
SlNtrglC
ksue = 3
---
strategic
Issue = .I
-
I”d”Wl.d
-----
INTERNAL CONTRIBUTION (Subs,d,ary
-----
-
-
-
-
-
-
New decentralized L.R.P.s. lead to the development of local training efforts in order to market the models. The qualitative part of strategic planning is becoming more and more important. A decentralized approach increases the need of consistency controls and the need to make sensible choices! The Planning Department is no longer making the plans, but is, rather, coordinating and supporting the whole process. The whole approach is more flexible than it used to be. It also appears that, thanks to this interactive planning, companies benefit more from existing internal available information. Strategic issues modules make managers more sensitive to their own short-term plans and related decisions.
86
JYOTI
GUPTA
AND
GEORGES
HIRSCH
Table 2 - Evolution of Long-Range Planning Concepts
Modern L.R.P.
Traditional L.R.P. Unique centralized L.R.P.-model
Several L.R.P. sub-models corresponding to relevant strategic issues
Nature
Hierarchical
Analytical
Role of Planning Department
Making the L.R.P.
Coordinating
Contributions
QUANTITATIVE:
QUALITATIVE: Advantages
Towards New Planning
Possibility of using existing programs (such as Lotus l-2-3) in the preparation phasis
the L.R.P. model
minor contribution
Major contribution Closer to managers’ objectives More related to medium-term and short-term plans Easier to implant Flexible
Unique tool
Risk of inconsistencies Difficulty in coordination
Rigid information format Difficulty of decentralized use
Drawbacks
L.R.P. sub-models
Concepts
There is a trend to encompass strategic planning as a major tool to define competitive advantages of companies. Then, Long Range Planning helps to implement crucial strategic issues. The planning process is developed so as to bring innovation and creativity through a range of actions corresponding to corporate priorities. Therefore, Long-Range Planning should help to integrate R & D, production, marketing and support functions. L.R.P. cannot be a superbudget, but is found to collect quantitative and qualitative data, then to lead to aggregate different scenarios among which a choice is made. Adaptativeness is introduced through periodic revisions of priorities and plans. Because of the rapid evolution of technologies, markets and other environmental factors, market analysis and research and development strategies should become more important than econometric analysis based upon past data and performances (Table 3). This clearly means that the process has to be decentralized to capture information at the market level rather than to be left only to the planning department, which generally knows better traditional planning techniques, heavily relying on past series analysis.
Table 3 - Evolving L.R.P. - approaches
Econometric Analysis Past Data
w
Long Range w Planning
Market Analysis and R & D Strategy
Traditional L.R.P. - Model building Econometric Analysis of f-, Past Data
Long Range w Planning
Market Analysis and R & D Strategy
New L.R.P. - approach
The new approach tends to leave more autonomy to the local or national levels and yields a greater interation between each subsidiary and the corporation rate planning department. Difficulties stem from the fact that, “planners have to reconcile different and often mutually exclusive objectives” (4). He develops the idea that strategic planning and risk-management spring from the common background of business risk.
MANAGING
THE PLANNING
PROCESS
87
We may admit with him that strategic planning’is, in fact, a continuous process, “because of constant changes in the macro and micro-economic risk/ opportunity environment and corresponding changes in the company’s operations, which deals with the anticipation of future, thus making the risk element very prominent.
culture itself. As it is underlined by Lesourne, in order to develop a flexible long-term strategy, it is necessary that everyone within the firm must integrate to its overall project. (14) It is true that the firm’s culture is not a new idea, but once it has been identified, to ignore it would probably mean the irrelevance of any specific project.
Thus, we think that strategic planning requires to work on different scenarios and also contingency plans, specific to a risk management approach. A long range planning is not decided once for all, but should be revised, or rather adapted to major environmental changes. This, in turn, may mean that nowadays, there is a need for a strategic development group composed of different working teams, each of them dealing with a strategic issue and paving the way, in domains such as:
Therefore, strategic orientations have to reconcile the firm’s internal factors, objectives and cultures and the specific R & D I production / marketing linkages which are evolving under competitive pressures.
Macro. and micro-economics studies. Market research and studies. Risk management (as a comprehensive approach of the vulnerability level of a given company). Strategic planning. Human Resources management. This list cannot be exhaustive, but the idea should bring new perspectives in strategic planning in fast evolving sectors. From another standpoint, we still agree with Saaty and Kearns that planning is ‘a thinking and social process which requires to work on certain assumptions about current realities, future likelihoods and available methods for eliciting and evaluating information. (13) Besides, as planning takes place within a context of human interaction, it is clear that, “the planning process and the plans themselves are shaped, defined, constrained, acted upon, or ignored by forces in the socio-political environment”. A fundamental point about the plan’s relevance, or lack of relevance, leads us to conclude that the planner runs the risk of either producing knowledge that is perceived by decision-makers to be irrelevant or, alternatively, adding to the time and expense of research by failing to take full advantage of the knowledge embodied in the consciousness of those around him. We observe that strategic planning can no longer rely on a dichotomy between planners and decision-makers. As we have already discussed, there is a need to coordinate different contributions in the planning process. The integrating role of the planning department should be a major step in the strategic definition process. Another
integrating
factor appears to be the firm’s
Conclusion The existence of specific strategic-issues related plans, within the comprehensive long-range planning system should help to bring it more realism and flexibility. More research efforts should be devoted to the human aspects of strategic planning. As a matter fact, many problems are stemming from the perception, understanding, motivation, willingness and capacities of managers involved in the process. It is reasonable to admit that, for too long, we have been overlooking the human and cultural dimensions of management. Strategic planning should reflect the companies philosophy, and therefore should serve as a communications tool, on the one hand within the managerial levels of the organization and on the other hand as a link with major partners of the company such as shareholders, customers, suppliers, government, banks, and competitors. Unless this role is carried out satisfactorily, the credibility and the performance of long-range planning can be seriously questioned. We contend that the modern approach discussed in this paper is an important step in the right direction. Unfortunately, many organizations are still using highly centralized planning processes which are developed before the growth crisis in the world economy. In the end, we would like to stress that modem planning should meet the difficult challenge of both looking at a long horizon and at the same time, adapt to rapid changes in technology, market, managerial process and other environmental factors.
References 1. Giroire J. “La volente strategique de I’entreprise” - Entreprise Moderne d’Edition - 1985. (Especially p. 36). 2. Mills D.Q. “Planning with people in mind” Harvard Business Review - July/August 1985. 3. Shanklin W.L. and Ryans K.P. “Analytical Plan-
88
4. 5.
6.
7.
8.
JYOTI
GUPTA
AND
GEORGES
HIRSCH
ning - The organization of systems” - Pergamon Press - 1985. Zajdlic W. “The risk manager’s role in strategic planning - Risk-Management - Jan. 1985. Ellsworth R.R. “Capital markets and competitive decline - Harvard Business Review - Sept./Ott. 1985. Burstein D. “U.S. Managers debate how to plan for tougher to-morrow” - International Management - Dec. 1982. d’Halluin M. “L’evaluation du potentiel d’innovation des grandes entreprises” - Analyse FinanciPre - 2Pme trim. 1985. Nishi K., Schoderbek P.P., Schoderbek C. “Scanning the organizational environment: some empirical results” - Human Systemes Management - 3; 1982.
9. Ayres R.U. “Industrial Policies: An analysis” Economic impact - No 41 - 198513. 10. Prahalad C.K. and Doz Y.L. “Strategic Control * the dilemna of headquarter-subsidiary relationships” in Otterbeck - 1985. 11. Brilman J. “Gestion de crise et redressement d’entreprises” - Editions Hommes et Techniques 1985. 12. Ackoff R.L. “A concept of Corporate Planning Wiley 1970. 13. Saaty T.L. and Kearnes K.P. “Analytical Planning - The organization of systems” - Pergamon Press - 1985. 14. Lesourne J. “Vers un retour en grace de la prevision et de la prospective” - Revue Franguise de Gestion - No 53/54 - Sept./D&. 85.
4 No 2
Managing the Planning Process: Recent Trends and Challenges Jyoti Gupta and Georges Hirsch Professors of Finance, Ecole Sup&ieure de Commerce de Paris
In the recent years the strategic planning process has undergone important changes. It is becoming more and more difficult to predict even medium term performances, this being due to great number of uncertainties and risks: technological and environmental changes, geopolitical factors and political risks . . . The management needs to adapt rapidly to changing circumstances. The paper discusses the actual issues in the planning process. It stresses the limitations of the numberically oriented long range planning approach based on the bottom-up and topdown basis. It proposes a new open-ended approach, qualitative in content and flexible in application. The merits of this new approach have been pointed out and also the difficulties have been outlined. The authors contend that the long range plan should raise new and relevant issues on the organisation, on financial objectives, on marketing development, on different kinds of risks . . . The need to integrate the human and cultural dimensions of management has also been raised. Strategtc and Long Term Planning “What is the use of strategic planning?” may appear to be a rather naive question, which should lead to an obvious answer. However, the objectives assigned to long-term planning can be numerous, such as identify strategic issues, define long-term
objectives, and working on specific long-term objectives such as market share, competitive position, communication, profit level personel managment, and soon, total quality control, strategic investments, diversification. It may also embrace development of management control systems, creation or development of a corporate culture or image, and help to define a relevant organizational structure schemes, prothrough consensus, decentralization ject management, and innovation. Obviously, strategic planning has evolved strongly since the mid 70s when the economic crisis burst. As Gioroire (1) observes, strategic planning was centralized, technocratic, forecast-oreinted, economic and long-term whereas today it becomes more and more decentralized, volonturiste, opportunist, openly focused, and short, medium and long-term oriented. It is true that, within major organisations, strategic planning is thought of as bound to give the firm some competitive edges. This can be through human resource planning as discussed by (2) and linkages between the research and marketing functions Shanklin et al (3), risk management (4), new financial attitudes (5) (6), innovation devices (7), scanning environmental changes (8), innovative technological choices (9), specific, managerial choices or through organizational changes (10) (11). This list clearly shows that in a risky and discontinuous period one has to find and develop new and discontinuous approaches resulting in a great variety of strategic planning methodologies and procedures. Can we still agree, with (12) that, “the longer the effect of a plan and the more difficult it is to reverse,
MANAGING
*the more strategic it is”, or, “that the more fur&ions of an organization’s activities are affected by a plan, the more strategic it is”. Or that, “strategic planning is longer-range corporate planning-that is, ends oriented (but not exlusively so)“, and that, “it should be apparent that both strategic and tactical planning are required in order to maximize progress”? Should we admit, with more recent works of the same author, that strategic planning is a major support for understanding corporations as purposeful systems? To what extent can we abide by this rational approach of a structured and unambiguous tool ‘devoted to reach well-identified desired futures? To what extent the role of formalized programs and computerized procedures help strategic planning today? Is there a possibility of coping with conflicting short-term objectives and indicators, and longterm development issues? Those questions are exacerbated in the advanced technology sectors, in which one has to face increasing complexity and technological, commercial and financial risks. Issues in the Planning
Process
In order to be clear we shall adopt a working definition of strategic planning which could be defined as, a “set of normal process and procedures which within a regular cycle (generally and annual one), allows to implement the strategic issues of firm in different plans”. Generally speaking, especially in high technology are three kinds of plans as shown in Table 1. In large corporations, long-range planning deals with R & D, and long-term production plans for the factories, industrial units, and dimensions related to the size of the corporation in terms of sales, human
THE
PLANNING
PROCESS
83
resources and assets; for sales organizations commercial units. Medium Range Planning helps in defining operational objectives, generally later used as references in the control process, whereas budgets are there to get up constraints on available resources, and to define precisely monthly subobjectives. Multinational corporations are organized on a worldwide scheme, with industrial units mainly present in developed countries and commercial units attempting, directly or indirectly, to distribute their products around the world through local or regional subsidiaries. Analytical accounting tools have been developed to ensure consistency and the possibility of quickly consolidating balance-sheets, results and income statements. This is particularly valid for short-term plans such as budgets or even medium range plans. One may observe, that executives often seem to concentrate more on quarterly (short-term) profits and price-earnings ratios than on product quality or customer service. (5) Taking the U.S. example, Ellsworth shows how market standards for shareholder returns and financial leverage lead to corporate financial goals that divert executives’ attention from the product-market needs that build long-term competitive strength. More precisely, he discusses the following point, “Do professional money managers interests agree with actions that enhance a companies’ long-term competitive viability?” His answer is negative, even if from a theoretical standpoint one could argue that future dividend streams take into account the consequences of increasing competitiveness. But it is easy to note the direct effects of quarterly or periodically financial reports could be extremely negative. Furthermore, in the high technology sectors, the prediction of even medium term performances has become more and more difficult, this being due to a great number of uncertainties and risks. These include:-
Table 1 - Different Types of Corporations
Plan Denomination
Horizon
Column Definition
Long Range Planning
5 years Annual minimum -----_____----__--__--------------------------------------------------------------------------------------------
Medium Range Planning 2 to 3 years Annual or semestrial -----_____--------__-------------------------------------------------------------------------------------------Budgets
1 year
Monthly
Objectives Strategic
Revised Annually
(*)
Tactical/Operational
Twice a year (‘)
Analytical
Twice a year (*) or more often (*) As an example
84
JYOTI
GUPTA
AND
GEORGtiS
HIRSCH
of a company’s estimated future earnings potential”. Burstein thinks that, “discounted cash-flow equations tempt managers to believe that what happens in the future is less important than what happens today” so that capital is rather, “diverted into new and immediately profitable acquisitions rather than reinvested in the basic manufacturing process. (16) This bias is strengthened by the fact that current indicators of performance serve as a basis for the evaluation of managers. Therefore, even in better managed corporations, it is not obvious that enough weight is given to elements which give them some competitive edges. This is all the more important as, historically, industrial units tend to monopolize the power and the domain of strategical decisions. Of course, R & D should play a fundamental role, but it has become more and more important to ensure some consistency with marketing. Shanklin makes the distinction between market-driven and innovation driven-companies. The distinction is interesting though in the real world firms are a mix of these two pure categories (3).
Technological changes, environment changes, socio-economic changes, geopolitical factors including nationalism, covert protectionism, political risks. We may then enter a vicious circle since investors base their decisions on information issued by corporate management which is abridged and weighted heavily to the short-term “the current quarter, the current year or possibly the next two or three years”. Besides, it is true that, generally speaking, corporate predictions “are usually little more than arithmetical projections of near-term trends”. Even when external information and some types of macro-economic modelling are used, short-term events and performances do create a pressure which tends to align long-term range planning with the next two or three periods’ objectives. These are the reasons why, coming back to strict financial considerations, Ellsworth states that, “Finally, the stock market cannot reflect perfectly the discounted present value
Diagram
1 Phases in Long Range Planning
I
1 CORPORATE GUIDELINES
LOCAL ASSUMPTIONS
PAST DATA V
I INTERACTIVE SCENARIO-BUILDING
G FINAL
DECISlON
COMPARISON
TOP-DOWN
, <
>
A
CORPORATE PLANNING DEPARTMENT
1 DATA
LOCAL COLLECTIONS
PHASE
C
BOTTOM-UP
PHASE
MANAGING
This L.R.P. approach is supported by a centralized computer-model which is able to do two things. First it can aggregate low-level data, e.g. from branch local offices to main branch offices, and from main branch offices to the national level, or to aggregate data specific of different product lines or services, and second it allocates, i.e. disaggregates high-level data to lower levels. This model is amenable to simulation by cascades of computations. For instance, through ratios it is possible to measure the consequences of projected sales levels on sales professional productivity. Limitations of the model come from its unique and centralized structure and information format. Can a comprehensive tool refer to a sector of different objectives? To our mind, an affirmative answer requires a decentralized model, in which each module should be dedicated to a specific set of objectives. Besides, we think that the model itself should explicitly include some of the users’ wishes. Therefore it seems necessary to reflect upon this point, since the implementation phase requires time, effort and analysis. In most cases, the work is carried out by the Planning Department. Figures come first, reflections and discussion of issues are judged to be complementary, or even minor, elements. Modem
approach
In recent the ways tion have empirical
THE PLANNING
PROCESS
85
thoroughly a small number of strategic issues. The wilI to develop an interactive tool asking and giving information to concerned managers. Furthermore, it appears more necessary than ever to better integrate industrial and commercial longrange planning. Diagram 2 illustrates a more recent approach to L.R.P. Strategic Issues chosen lead to specific planning models which are progressively developed tested and enforced. Strategic issues may refer to some already discussed issues which have been set up at a priority level for the corporation as a whole. As we can see in the diagram, modern Long-Range Planning tends to give more weight to internal contributions made by the subsidiaries. Diagram 2 - Recent approach to Long-Range Planning Schemes
1 EXTERNAL CONTRIRUTION (Pm”1 company ICVCI)
-
to Long Range Planning.
years, reflections on the objectives and on of developing a good planning contribubeen carried out in a more interactive and manner than before.
Nowadays, clearly the challenges are coming nom various changes brought by the market, by technologies and by organization changes. What should be the future growth rate? Are the objectives of industrial units and commercial units consistent? Which productivity assumptions can we adopt? How should we manage people and assets? How we should hedge against foreign exchange risk? What should be our investments or disinvestment policy? Long Range Planning should help to clarify such issues. Thus, Long Range Planning leads now to raising new and relevant issues on the organisation, on financial objectives, on marketing development, on different kinds of risks and so on. Hence, obviously a centralized L.R.P. model cannot be used, for the following reasons:The great variety of managers concerned by L.R.P. having their own set of objectives which may be conflicting. The need to analyse and investigate more
NATIONAL
COORDINATION
Commrmal Slrale~lc
ISSUP = I
!hll‘~lC
Issue = 2
SlNtrglC
ksue = 3
---
strategic
Issue = .I
-
I”d”Wl.d
-----
INTERNAL CONTRIBUTION (Subs,d,ary
-----
-
-
-
-
-
-
New decentralized L.R.P.s. lead to the development of local training efforts in order to market the models. The qualitative part of strategic planning is becoming more and more important. A decentralized approach increases the need of consistency controls and the need to make sensible choices! The Planning Department is no longer making the plans, but is, rather, coordinating and supporting the whole process. The whole approach is more flexible than it used to be. It also appears that, thanks to this interactive planning, companies benefit more from existing internal available information. Strategic issues modules make managers more sensitive to their own short-term plans and related decisions.
86
JYOTI
GUPTA
AND
GEORGES
HIRSCH
Table 2 - Evolution of Long-Range Planning Concepts
Modern L.R.P.
Traditional L.R.P. Unique centralized L.R.P.-model
Several L.R.P. sub-models corresponding to relevant strategic issues
Nature
Hierarchical
Analytical
Role of Planning Department
Making the L.R.P.
Coordinating
Contributions
QUANTITATIVE:
QUALITATIVE: Advantages
Towards New Planning
Possibility of using existing programs (such as Lotus l-2-3) in the preparation phasis
the L.R.P. model
minor contribution
Major contribution Closer to managers’ objectives More related to medium-term and short-term plans Easier to implant Flexible
Unique tool
Risk of inconsistencies Difficulty in coordination
Rigid information format Difficulty of decentralized use
Drawbacks
L.R.P. sub-models
Concepts
There is a trend to encompass strategic planning as a major tool to define competitive advantages of companies. Then, Long Range Planning helps to implement crucial strategic issues. The planning process is developed so as to bring innovation and creativity through a range of actions corresponding to corporate priorities. Therefore, Long-Range Planning should help to integrate R & D, production, marketing and support functions. L.R.P. cannot be a superbudget, but is found to collect quantitative and qualitative data, then to lead to aggregate different scenarios among which a choice is made. Adaptativeness is introduced through periodic revisions of priorities and plans. Because of the rapid evolution of technologies, markets and other environmental factors, market analysis and research and development strategies should become more important than econometric analysis based upon past data and performances (Table 3). This clearly means that the process has to be decentralized to capture information at the market level rather than to be left only to the planning department, which generally knows better traditional planning techniques, heavily relying on past series analysis.
Table 3 - Evolving L.R.P. - approaches
Econometric Analysis Past Data
w
Long Range w Planning
Market Analysis and R & D Strategy
Traditional L.R.P. - Model building Econometric Analysis of f-, Past Data
Long Range w Planning
Market Analysis and R & D Strategy
New L.R.P. - approach
The new approach tends to leave more autonomy to the local or national levels and yields a greater interation between each subsidiary and the corporation rate planning department. Difficulties stem from the fact that, “planners have to reconcile different and often mutually exclusive objectives” (4). He develops the idea that strategic planning and risk-management spring from the common background of business risk.
MANAGING
THE PLANNING
PROCESS
87
We may admit with him that strategic planning’is, in fact, a continuous process, “because of constant changes in the macro and micro-economic risk/ opportunity environment and corresponding changes in the company’s operations, which deals with the anticipation of future, thus making the risk element very prominent.
culture itself. As it is underlined by Lesourne, in order to develop a flexible long-term strategy, it is necessary that everyone within the firm must integrate to its overall project. (14) It is true that the firm’s culture is not a new idea, but once it has been identified, to ignore it would probably mean the irrelevance of any specific project.
Thus, we think that strategic planning requires to work on different scenarios and also contingency plans, specific to a risk management approach. A long range planning is not decided once for all, but should be revised, or rather adapted to major environmental changes. This, in turn, may mean that nowadays, there is a need for a strategic development group composed of different working teams, each of them dealing with a strategic issue and paving the way, in domains such as:
Therefore, strategic orientations have to reconcile the firm’s internal factors, objectives and cultures and the specific R & D I production / marketing linkages which are evolving under competitive pressures.
Macro. and micro-economics studies. Market research and studies. Risk management (as a comprehensive approach of the vulnerability level of a given company). Strategic planning. Human Resources management. This list cannot be exhaustive, but the idea should bring new perspectives in strategic planning in fast evolving sectors. From another standpoint, we still agree with Saaty and Kearns that planning is ‘a thinking and social process which requires to work on certain assumptions about current realities, future likelihoods and available methods for eliciting and evaluating information. (13) Besides, as planning takes place within a context of human interaction, it is clear that, “the planning process and the plans themselves are shaped, defined, constrained, acted upon, or ignored by forces in the socio-political environment”. A fundamental point about the plan’s relevance, or lack of relevance, leads us to conclude that the planner runs the risk of either producing knowledge that is perceived by decision-makers to be irrelevant or, alternatively, adding to the time and expense of research by failing to take full advantage of the knowledge embodied in the consciousness of those around him. We observe that strategic planning can no longer rely on a dichotomy between planners and decision-makers. As we have already discussed, there is a need to coordinate different contributions in the planning process. The integrating role of the planning department should be a major step in the strategic definition process. Another
integrating
factor appears to be the firm’s
Conclusion The existence of specific strategic-issues related plans, within the comprehensive long-range planning system should help to bring it more realism and flexibility. More research efforts should be devoted to the human aspects of strategic planning. As a matter fact, many problems are stemming from the perception, understanding, motivation, willingness and capacities of managers involved in the process. It is reasonable to admit that, for too long, we have been overlooking the human and cultural dimensions of management. Strategic planning should reflect the companies philosophy, and therefore should serve as a communications tool, on the one hand within the managerial levels of the organization and on the other hand as a link with major partners of the company such as shareholders, customers, suppliers, government, banks, and competitors. Unless this role is carried out satisfactorily, the credibility and the performance of long-range planning can be seriously questioned. We contend that the modern approach discussed in this paper is an important step in the right direction. Unfortunately, many organizations are still using highly centralized planning processes which are developed before the growth crisis in the world economy. In the end, we would like to stress that modem planning should meet the difficult challenge of both looking at a long horizon and at the same time, adapt to rapid changes in technology, market, managerial process and other environmental factors.
References 1. Giroire J. “La volente strategique de I’entreprise” - Entreprise Moderne d’Edition - 1985. (Especially p. 36). 2. Mills D.Q. “Planning with people in mind” Harvard Business Review - July/August 1985. 3. Shanklin W.L. and Ryans K.P. “Analytical Plan-
88
4. 5.
6.
7.
8.
JYOTI
GUPTA
AND
GEORGES
HIRSCH
ning - The organization of systems” - Pergamon Press - 1985. Zajdlic W. “The risk manager’s role in strategic planning - Risk-Management - Jan. 1985. Ellsworth R.R. “Capital markets and competitive decline - Harvard Business Review - Sept./Ott. 1985. Burstein D. “U.S. Managers debate how to plan for tougher to-morrow” - International Management - Dec. 1982. d’Halluin M. “L’evaluation du potentiel d’innovation des grandes entreprises” - Analyse FinanciPre - 2Pme trim. 1985. Nishi K., Schoderbek P.P., Schoderbek C. “Scanning the organizational environment: some empirical results” - Human Systemes Management - 3; 1982.
9. Ayres R.U. “Industrial Policies: An analysis” Economic impact - No 41 - 198513. 10. Prahalad C.K. and Doz Y.L. “Strategic Control * the dilemna of headquarter-subsidiary relationships” in Otterbeck - 1985. 11. Brilman J. “Gestion de crise et redressement d’entreprises” - Editions Hommes et Techniques 1985. 12. Ackoff R.L. “A concept of Corporate Planning Wiley 1970. 13. Saaty T.L. and Kearnes K.P. “Analytical Planning - The organization of systems” - Pergamon Press - 1985. 14. Lesourne J. “Vers un retour en grace de la prevision et de la prospective” - Revue Franguise de Gestion - No 53/54 - Sept./D&. 85.