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Planning in a free market economy
Long Kangc Planning, l’rintd
in Great
002-1~~301/x2/030103~13s03.00/0 I’crgamon I’rcs\
Vol. 15, No. 3, pp. 103 to 115. 1982
Britain
103 Ltd.
Planning in a Free Market Economy* Harmut
Kreikebaum
and Ulvich Grimm,
Thispaperis based on a research study project on Premises and Process of Introducing Strategic Planning in a Company. It presents and discusses some major findings of the study concerning the content of strategic decisions. the elements of a planning system, the process of introducing strategic planning and the impact of environmentalconditions upon the strategic planning system.
Introduction ‘Pren~ises and Process of The research project Introducing Strategic Planning in a Company was supported by the German Research Association (DFG Bonn-Bad Godesberg). In 1977 WC conducted a cross-sectional analysis in the Federal Republic of Germany. We mailed a contact questionnaire to 1394 companies with more than 1000 employees. Two hundred and twenty-three companies answered our main questionnaire. Due to the limited efficiency of a questionnaire as a methodological instrument, we had to confine our study to the formal and institutional aspects of strategic planning. For this reason non-structured or informal planning activities have not been investigated.
(A)
The
Planning
Dissemination
of Strategic
in the Federal
Republic
of
Germany The term ‘Strategic Planning has been defined in a variety of ways.t None of these definitions could, however, be used as a basis for an empirical study since they were not formulated in an operational manner nor could they be adequately transformed.
‘Received in March 1980 under the original title ‘Strategic Planning In the Federal Republic of Germany-Results of an Empirical Study’. Dr. H. Krelkebaum IS Professor and Dr. Grimm is Research Assistant at the Johann Wolfgang Goethe-Unwersltat, Mertonstrasse 17. 6000 Frankfurt am MaIn. Germany. tCf the newer survey of Charles W. Hofer and Dan Schendel, Strategy Formulation: Analytical Concepts, St Paul a o , pp. 16 ~20 (1978)
Johann
WoCfXung Goethe-Universitiit
We did not intend to add a new definition. Instead we wanted to learn from planning practltlonersby asking them to describe typical characteristicshow they conceived strategic planning. We applied this somewhat unconventional procedure, because WC wcrc convinced of the practitioners’ relatively high theoretical knowledge. A ‘contact questionnaire’ was mailed to 13’94 companies with more than 1000 employees. These companies were asked for information about their current planning systems (strategic planning with regard to products and markets). They were also asked to express their willingness to answer the main questionnaire. Five hundred and tifty-seven companies returned the contact questionnaire and responded as follows (see Table 1). Three hundred and seventy-two companies were open to further co-operation and received the main questionnaire in July 1977. Two hundred and twenty-three ( = 60 per cent) companies returned a usable questionnaire. Answers to certain questions in the main questionnaire contained more detailed information about the dissemination and the state of dcvclopnient of Strategic Planning (SP) in the participating companies. The 223 co-operating companies state the following distribution of SPSs (see Table 2). One should not, however, overestimate the favourable result regarding the dissemination of SPSs. We suppose that in answering the questions sonic wishful thinking may have been expressed as ‘facts’.
(B)
Characteristics
Decisions
from
Planning
Experts
of Strategic the Viewpoint
of
The many and various attempts to dcfinc the contents of strategic planning give the impression of a ‘non-theoretical discipline’. We observe indeed
We are in the process of lntroduclng a
We have a SPS
SPS
269 (48.3%) Wflling to co-operale 223 (82.9%)
130
(23 3%)
103
(79 2%)
We don’t have a SPS
158
Total
(28 4%)
557
(100%)
46 (29 1%)
372
(66 8%)
at dcfinitig chardctcristics of Sl’Ss ‘it such 311 Jbstr,lct lcvc~l cdntlot Lx fully rcprcsentati\.c of211 sample colnpanics. 7‘1~ \vidcL range of vari,ltion of t-hc occurring ctinractcristics is also Jut to liiiprccisc dcfiiiitio~is and the uncert,litlty of coinp~iiics reg.irditig the final design of their plC17itiing systc>iii.
Jttclllpt
-___.
--___-._
152 (68 2%) have a SPS 17 (7 6%) do not have a SPS 45 (20 2%) are In the process of lntroductng 9 (4.0%) plan strateglcally wtthout having ‘The 1392 with than
a SPS a SPS
percentage figures are not representative of the total sample of companies with more than 1000 employees, becausecompanlea a SPS were apparently more wllltng to answer the questlonnalre companies wtthout a SPS.
For these rcxs( 71sno gcnc.r,llly theory of strategic planning utitit i1o\v.
acccptcd outline for a h,ls been dcvetop~tl
The 223
compantes
Procurement Production Sales R&D
formulated functtonal 91 126 191 116 -
strategies for the followlng areas Investment 158 Finance 154 Personnel 123 Organization 83
Note. The total sample Includes 27 insurance companies, lnstltutlons and merchandise companies which normally formulate productlon strategies or R & D strategies
banklng do not
Planning
in a Free
Market
Economy
105
Strategic Decisions 1
Are Based on Managerial Decisions
2
Affect
3
Can Also be Valid for Divisions
4
Can Also be Valid for Functional Areas Only
5
Are Always Market Oriented
6
Are Always Product Oriented
7
Are Only Made by Corporate Management
B
Can Also be Made by Divisional Management
9
Basically Imply
the Company
as a Whole
Long-range Aspects
10
Are Connected With the Process of Formulating Corporate Objectives
11
Are Aiso Aiming at Business or Functional Objectives
12
Are Based on an Analysis of Strengths and Weaknesses
13
Include a Risk Analysis of Alternative Actions
14
Are Based on an Analysis and Prognosis of the Actions of Important Competitors
15
Are Based on Information About the Development of the Following Variables Demand Competition Technological
Development
Legislation Median ----Modal
Figure
1. Importance
of characteristic
criteria
of strategic
personal wishes and desires will always be relative to our capabilities and possibilities, in the same scnsc the different strategic areas in a company are interdependent. The consequence is that none of thcsc areas can bc dealt with in an isolated manner. A successful combination of all forces of the company therefore requires an interactive process of co-ordination of all strategic arcas. The interpretation of (Figure 1) proves that about strategies) due company are always
the values of items 7 and X strategic decisions (decisions to th:ir importance for the made by corporate nlanage-
Value
planning
nlent or at least ratified by it. In spite of all existing decentralization-tendencies apparently Iza t.ion, introduction of nc’w nianage(d’ivisiona 1’ ment techniques etc.) this rccult undcrlincs the importance of centralized decision making. Centralization and hence co-ordination of divisional strategies with corporate strntcfiies is also desirable with regard to the ~f~ficicncy of strategic planning. Without further discussion it must be mentioned that diffcrcnt results might have been obtained if a study is b.lsed upon other research objectives.
106
Long
I
I’lanning
Vol.
15
June
The results of question 9 wc‘rc‘ quite unexpected because in literature strategic planning is often identical with ‘long-range’ planning. Our result shows, however, that ‘long-range’ is a very relative term. Prognoses of future corporate development covering long-range periods imply low degrees of validity. Long-range planning spanning 10 years or mm-c’ may. thcreforc, often be useless. The items lo&15 prove the importance of information concerning several selected planning determinants (e.g. expected demand) and the variety of instruments of analysis. The question remains, however, if in reality this information will bc obtained and if the instruments of analysis will be actually deployed.
(C) The Planning Systems Companies Reviewed (1)
I’/nnrrir~‘q
Corporate short-range
usually
(l-2
planning
cncoinp~ssc’s
years);
iiicdiuni-range
(2-S (5 years
Table .5. IIistribution periods Medrum-range planning periods (in months)
6
Total
IIistribution
1Iistribution
Short-range planning penods (rn months)
of short-range
Number of positive responses
8 19
17 3 153 8 4 8
223
Relatwe frequency (“/) 37 05 88 05 05 7-9 14 71-2 37 19
100
Relatrve frequency
Accumulated frequency
(%)
(%)
0.5 14-6 o-5 I-6 1 o-3 l-6 24-3 0.5 76 37.3 1 1
05 15 1 15.7 17 3 27 6 29-2 53-5 54-1 61 6 98 9 100
of long-range
Number of positive responses 1 2 6 7 46 6 4 7 32 3 1 4 1 7 2
planning
100
223
IO 12 14 15 17 20 Open planning horwon Without response
Total
Total
14 69 2 38
horizons.
SIIoyf-Ymp~~ planning periods wc‘rt‘ almost unaniinously agreed upon to cover up to 1 year (94.4 pm cent of the rcspoiidcnts affirmed this rccult).
1 2 3 4 5 6 9 12 18 24 Wrthout response
3 19 3 45
or niorc’)
Our doubts concerning the traditional distinction been stressed already of planning periods hJvc .llthough the obtClincd data wcrc not uniform. For oxample the responses concerning the horizon of (7 differed very strongly (bctlong-range plannin, WCCII 1 and 20 (!) yeurs). The following tables illustrate the results (Tablcj CO).
Table 4. periods
27
Long-range olanninq perrods(In years)
years):
of medium-range
Number of posrtive responses
12 15 18 24 30 36 42 48 60 72 Wrthout response
Table 6. periods
HoYizorr~
planning
long-range
of the
19X2
Relatwe frequency
planning
Accumulated frequency
(%)
(%)
08 1 6 47 54 35 7 47 31 54 24 8 23 08 3.1 0.8 54 l-6
0.8 2-4 6-9 12-4 48.0 52 7 55 8 61 2 86.0 88.3 89-l 92 2 93.0 98 4 100
94
223
100
planning
Accumulated frequency (%) 37 42 13.0 13-5 14 0 21 ,9 23-3 94.4 98 1 100
:~Irrlilrrrr-var~C~e planning periods also nppearcd to bc in accordance with the traditional viewpoint; Xl .O per cent of the corporations indicated that their medium-range planning spanned 2 .5 years. This relatively clear result is however discounted by the fri-equcncy peaks, which are located at 1, 3, 3 and 5 years. The distribution of the peaks did not provide a rea~onablc mc‘asurc of central tendency (mean : 30.x 111011~11s). The table of /mg-ymge planning periods, too, shows an unclear picture. It is especially rcmarkablc that the most frequent value is located at 5 years, equal value of medium-range to the inost frequent planning periods. This result allows two possible explanations:
Planning (1)
Under the assumption that in the majority of already had planning cases all companies systems that followed the traditional distinction ofplanning periods, the missing statements (medium-range, 38; long-range, 94 companies) are to be interpreted as follows: increasing uncertainty implied in long-range prognoses caused corporations to refrain from quantitative long-range planning. This might occur by shortening the different planning horizons or by giving up long-range planning (possibility accompanied by lengthening the shortand medium-range planning periods).
(2) If the above assumption is incorrect, it can be expected that the corporations are only beginning to set up a planning system (as indicated by the increasing number of missing statements (8-38-94) when the planning horizons became longer). Thereby they start with short-range planning and eventually proceed towards long-range planning. First results of the second phase of our investigation lead to the assumption that only a few of the companies followed the pattern described under (1). The majority of the companies were just in the process of setting up a planning systern.
The frequency of formulating is show; in Figure 2.
Functional
functional-unit
plans
(3)
in a Free
ClzuraCfrVisfiCs
Plfltttfittg
ard
Market
Drveloyrrlcnf
Divcdo~ls
80.7
Inventory
75.8
R&D
72.6”
Production
84.3
Capacities (Lay-out)
89.2
Marketing
97.8
Profit
93.7
Investment
93.7
Finance
95.5
Balance
80.7
Personnel
95.1
Organization
57.4
In another complex of questions we investigated characteristics of the present planning systems of the participating companies. If we assume a certain direction of development of planning systems, we can speak of a ‘degree of maturity’ of a planning system. We also assume that a I’S develops without specifying how the desuccessively, velopment process unfolds. The development of a planning system can start at the ‘top’ of a company and proceed to the ‘bottom or \rice versa. Normative considerations are usually based upon a ‘top-down’ development. In reality it can be expected that in the majority of cases operative planning systems are eventually extended to an overall strategic planning system. In order to describe possible development-directions of 1’S we investigated several developmental characteristics by employing the Guttman-Scale-Analysis. The list of items and their frequency distributions appear in Table 7. We first had intended to set up a single GuttmanScale covering all eight items. Because of the nature of the data it was, however, necessary to distribute the items to two scales. The first four items were included in one scale, the second four in another. The scales were termed ‘Deduction of Goals Based on General Corporate Guidelines’ (scale 01, Figure 3) and ‘Formalization of Planning’ (scale 02, Figure 4).
35.4
Acquisition 0
1% n = 223
*The Value of Frequency of R & D Planning Changes to 82.7, if Banks, Insurance Companies and Merchandise Companies are Eliminated.
Figure
2. Frequency
of functional
unit
plans
c$
Systems
Unit Plans
Procurement
107
Economy
Table
7. IIcvelopmental
characteristics
of a 1’S
Absolute frequency
(1)
Planning a wrltten
(2)
The PS IS connected corporate leadershIp
procedures are based corporate philosophy
on
with prlnclples
towards (3) The PS is oriented corporate objectives
stated
Relative frequency
97
43-5
96
43 0
149
66.8
199
89.2
In a planmng
68
30.5
IS accompllshed by an (6) Planning organized set of formula describing planning procedures
134
60 1
at least two (7) The PS contains different planmng periods
200
89.7
budget IS part of (8) The corporate the PS (and IS revtewed regularly)
201
90-I
quantlfled (4) The PS contains short-range goals (5) The PS IS described manual
Scale 01 shows that the deduction of goals from general corporate g:uidelines~Piii the dcvclopmtmtal phase of a planning systeni-hardly cvc‘r occurs. First, quantitative short-range goals are detcruiind, and in a second step, overall corporate objectives are developed. At a later stage n corporate philosophy is stated and the 1’S is intcgratd into existing lcadcrship principles. Thus, planning systuns dcvclop from bottom to top. In d siniildr manner scale 02 can he interprtxed : planning is guided hy budgets for the different planning periods. (;rowiiig faniili2rity with the planning procdure often results in sets offormula dcscribiiig planning proccdurcs. Finally all planning activities art‘ suniinnrized in d planning manual. Only
F9Pl
F9P3
a single itelii of scale 01 fits the logic of sc,ile item 4 (‘the 1’S contains quantified short-range godls’). This result md our experience with tlic intcrprctation of these scales led to the assulliption that corporate goals (scale 01) and tlic actultl dcsigii
03:
F9P4
Number
Scores
of Cases
Line
F9P2
1
1
1
1
1
60
4
2
0
1
1
1
24
3
3
0
0
1
1
36
2
4
0
0
0
1
41
1
5
0
0
0
0
9
0
170 --1
0
1
1
17
3
7
1
1
0
1
4
3
8
1
1
1
0
_
3
9
1
1
0
0
-
2
10
1
0
1
0
2
2
11
1
0
0
1
IO
2
12
0
1
1
0
2
2
13
0
1
0
1
7
2
14
1
0
0
0
3
1
15
0
1
0
0
-
1
16
0
0
1
0
8
1 53 ___
Figure
3.
Scale
-_-----
6
Coefficient
of
Coefficient
of Scalability
OIPdeduction
Reproducibility
of goals
0.8812 0.6357
Planning
Line
---
F9P5
F9P6
F9P7
Number
F9P9
1
1
1
1
55
0
1
1
1
65
0
0
1
1
59
0
0
0
1
10
0
0
0
0
6
-___----_--
---_------------
6
1
0
1
1
6
7
1
1
0
1
3
8
1
1
1
0
4
9
1
1
0
0
-
10
1
0
1
0
-
11
1
0
0
1
-
12
0
1
1
0
3
13
0
1
0
1
3
14
1
0
0
0
-
15
0
1
0
0
1
16
0
0
1
0
8
in a Free
Market
Economy
109
Scores
of Cases
195
28 223 Coefficient Coefficient
Figure
4.
Scale
of the planning synchronized.
of Reproducibility of Scalability
02-formalization
system
(scale
0.9372 0.7228
of planning
02)
are
not
fully
Item
4 (quantified short-range goals) helps to create connection between the two scales : the Formulation of quantified short-range goals may be seen as the ‘linking pin’ between the two developmental directions of PSs. Two different and apparently independent directions of development as well as certain developmental stages could be detected. Now the question remains as to how the development processes proceed in time. * *The development directtons discussed above concern two different levels of one planning system. The development processes are, therefore, not to be regarded as alternatives, but form two Independent processes towards the development of the total PS.
We confronted the two scales in order to answer this question by cross-tabulating. If the statement is valid, that a qualitative consideration of the planning procedure (deduction of goals from the scale 02) precedes guidelines, corporate formalization of the planning system, in the majority of cases certain values of scale 01 would coincide with lower values of scale 02. This however turned out to be correct for only 25 per cent of the cases; 33.6 per cent provided equal values for both scales and 41.3 per cent contradicted the statement. It can be deduced that the design of a corporate planning system was initiated, after an operative PS was implemented and to a great extent formalized. This result clearly shows that shortrange goals which are necessary for the guidance of operative system quite often were not an synchronized with corporate policy.
110
Lolig
Range
Planning
Vol.
15
Environmental Conditions Their Influence on the Planning System In addition to an analysis of the present (II)
June
and introduction of a SI’S on one h;lnd and the factors ‘legal structure’, ‘legal depcndcncc’, and ‘ownership’ on the other hand. Thcrc is a positive correlation, however, bctwccii increasing corpor,itc size and the dcploynient of Sl’.
and
state of planning systcins in Gcrniany, one’ purpose of our study was to prove the assumption that the state or dcgrcc of maturity of planning systcnis is strongly the prcvailiiig cnvironinental infuenccd by conditions. The dcpendcncc of PSs on cnvironnicntal conditions is shown by using the contingency approach. This concept is based on the assumption that bcsidcs the influence of environmcntnl factors 011 the 1’S tlicrc exists a certain range of design alternatives. one ofwhich is selected and arranged by decision of rc>sponsible managcmcnt.
(1) hnlysi~
qf rlw firtcrrralCowpmy
Siflrnfiorl
the approach choscii \I’C assuiilcd that readiness for strategic planning might dcpcnd on factors like ‘leg31 structure of the company’. arc ‘ownership’, ’ corporate size’, etc. .I‘hc following our results. Uased
There
on
is no positive
correlation
between
19x3
The assumption that certain environnicntal fdctors induce the ncccssity to introduce strategic planning is also the basis of the followiiig hypothesis: ‘(:onsunicr-orieiit~~~ co~npaiiics ;lrc confronted with a stronger necessity for strategic planniiig, bccausc they fact a more compl~s and faster cnvironnicnt’. In other words it is changing ‘1 fast changing atid coiiipl~~ assun1cd that iiiduccs the need for ctratcgic mviroiinicnt planning. If these hypotheses arc correct, then corporations with differing dcgrccs of coiisunic’r orientation (c.g. rc’sourcc’ industries, durable goods industries, coiisunic‘r goods iiidustrics, dnd ser\rice oriented industries) would show significant differcncc‘s with regard to their SI’Ss. Our ,Itialysis that the frequency of SI’Ss showed, however, within diffcrcnt industry sectors differs onl> arc no significalit slightly from average. Thcrc diffcrenccs in the dissemination of SI’Ss in rcsoiircc consi111ic7fi”Od5 a s coinparcd to industries industries. In addition to the nicasurablc context filctors legal structure, legal depcndencc, ownership)
the design
External environment
internal environment
State of PS Degree of Maturity of PS, Especially of SPSS
Dependence Structure -
of Company
Status of Legal Dependence
_ of Entity (Holding Company, Subsidiary
-
Situation of SPS (According to Table 2)
r
etc.) -
Market Situation
Competition
- Ownership Structure
Organizational
Structure
Leadership Philosophy and Other Organizational Variablest
Figure tCf
.5. Measured
dcpcndencc
Figure 6, I” connectlon with Table 8
_____)
Degree of Maturity of PS (Summary of Scales 01 and 02)
-
of strategic
planning
systems
-
Complexity of External Environment
-
Pace of Environmental
on environnlental
Change
condltlons
(size, wc
Planning
in a Free Market
Economy
111
also asked for environmental conditions which are difficult to verify (e.g. participation in decision adaption of organizational rules to making, exogenous influences: homogenity and variety of environmental influences, quality and extent of changes of certain environmental factors, etc.). Confronted with contrasting statements, the respondents evaluated the external and internal situation of the corporation by using an importance scale (from 1 to 7). For the description of the internal environment 12 contrasting pairs of terms were formulated. The data obtained were invcstigated by factor analysis (principal factoring with iteration and orthogonal rotation). The results appear in Table 8. The five extracted factors now represent the former 12 items. They explain 59.9 per cent of the total variance.
pairs of contrasting terms for factor analysis. The results appear in Table 9. The four factors represent 62.3 per cent of the total variance of the 10 items.
(2) Analysis oj’ the Exterrzal SituatioPz To describe the external situation we formulated
(1) Legal control as a rule aims at companies attempt to oppress competition and
Table 8. Results
of factor
analysis
regarding
10
the internal
Commitment innovations Factor
(1) (2)
Centralization
(3)
Adaption
of decision
Participation
making
in the decision of internal
organizational
rules to exogenous (4)
Distribution
(5)
R & D commitment
(6)
Diversification
(7)
Deployment
(8)
Leadership
(9)
Freedom
process
Flexibility Commitment
groups
Factor
3
0.25839
~ 0.01806 -0.21307
0.42115
flow
Factor
-0.02676 0 38075
rG?ziiq
-0.10972
- 0 05924
of organizational to market
structure
of factor
(1)
Homogenity Stability
of environmental
of environmental
(3)
Dangers
for corporate
(4)
Intensity
(5)
Ability
(6)
changes Increase
(7)
Opportunities
conditions
existence
of competition to forecast
environmental
in external implied
0.14184
0.17506
0.09378
0 06043
0.06574
- 0.09673
-0.11704
!
0.03518
O-01 693
[I
0 26241
- 0.05029
0.04277
-0.16238
%zBiz @?z&
0.29577 -0-I
the external
7432
-0.02686 0.16912
/l
environment
O-38320
of corporations
Anticipated restrictions of action range
Technology oriented external influences
Environmental changes
Joint-interest factor
Factor
Factor
Factor
Factor
6
-0.17555
0.35597
w /
influences in environmental
0.21745
0 06400
I 0.77009
regarding
conditions
O-08732
0.11578
- 0.39612
0.33029
analysis
0.11967
0.02760 0.19477
leadership
0.27171 0.14382
0.18092 - 0 05453
(2)
0.12408
7
8
0.06673
- 0.16943
0.21140
0.06326
0.17377
0.07830
0.09607
o-1 2297
-0.13610
lptzs%q -0.19166
-0.15292
0.42395
0.25924
0.27858
- 0.09614
0.10611
-0-06299
0.29178
- 0.04060
-0.10347
- 0.20305
- 0.08506
j]
developments (8)
Technological
(9)
Corporate
change influences
on environmental
factors (10)
Legal
Participation by teams
4
0.07625
0.00659
budget
Table 9. Results
Factor
0.05741 0.02784
style
(12)
2
Sales oriented organization design
0.01474
efforts
of information
(II)
Factor
1
of corporations
Flexibility of organizational structure
Leadership philosophy
authority
of prolect
Advertising
to
environment
which
influences
of decision
(IO)
A detailed analysis of these factors under aspects of organizational theory might be interesting; it would, however, exceed the scope of this study. As an interesting example we would like to pick out factor 9, which we called ‘joint-interest factor’. Factor 9 indicates that corporations in a ‘partnership-like’ competition situation face significant legal restrictions. Vice versa, corporations with heavy competition have to deal with only minor legal restrictions. This result camlot be regarded as accidental since it also shows LIP when extraction methods are used. An alternative interpretation of these results leads to two comments:
restrictions
o-301 71
0.11227
0.01447
r?z?zq
9
5
(2)
‘true’ ni,lrkct systeln sc‘vcrc legal restrictions.
d
dlso
opc‘r,ltcs
co~nplcx environment. Factors 6 and X do not, llow.cvu-, sho\v any positive correlation with the degree of Iiiaturity of the planning systcni. The re;isons cdntiot Lx deducted from tlic supplied data.
without
Iii sunimary it can be stated that there is no highly Jctcriiiinis~ic correlation bct\vccn estcrml c‘nvironiiic‘nt 2nd the method of dealing Lvitli cnvironliiclital factors (i.c’. nature of the plaiiiitig system). Of tlic extc‘rnal ciivironineiit~~l factors tcclinological influences slio~v dn interprctJL~lc correlation with the dcgrcc’ of maturity of the planning systems. On the whole, howcvcr, the measured correlations are not strong cnougll to csclud~ additional determinants for the design 3nd degree of maturity of planning systems, which we did not esaminc iii our questionnaire.
(E) The Introduction Planning System
of a Strategic
Our cross sectional study was restricted to some institutional aspects of tlli introduction of pldiiiiiiig systcnls. In tlic second pliasc our rcscarcli project bvt’ ‘ire dt prcsait dealin g with the personnel ,iiid process aspects ofimplem~ntation. To ~nalysc these aspects WC 3rc employing coiiiparativc cCIIsc‘studies.
In corpor,itioiis Lvith rather ‘progressive’ principle of iiiaii~igemciit (dccentralizatioii of dccisioii of el:~ployws iri decision processes, lilm-nl style of lc,idcrsliip) once finds ‘1 high frqucncy of well d~velopd p13iiiiing systcmis.
of
bet\vccn a fdst clidriging end TllC corrclntioli cnvironIiicnt 011 one 11and and the complex Iiccessity f?)r strategic planning (which has been iiicntioncd ,ibovc) is represciited by factors 7 and X. The dctc~rmining values of- factor h are also to be regnrdcd as cliaractcrizing d rapidly changing and
(1) Rci7SorJ.q;w IrlrrodJrc-ir/‘~ Stvm~i~- I%7llllil3 Figure 7 shows the import~~ncc of rcdsons for strategic planning judged by the introducing respondents. The reasons for iln~~lcnlcntatioll wc‘rc’ pre-selected by the authors. Uiifortunatcly th two
0.02
Anticipated Restrictions of Action Range
n.s.
(6)
/ (1) Commitment Innovations
to
0.17””
0.20”“”
Ir-
I (2) Leadership Style
(3) Aspects of Organizational Flexibility
0.27”
Figure 6. Connection planning systciii
-0.08
I
l
&&
Environmental
Changes (8)
Joint-Interests
(9)
n.s.
0.18””
’
by
of cxtcrnal
(7)
Degree of Maturity of the Planning System
(4) Sales Oriented Design of Organization Structure
(5) Participation Teams
Technology-Oriented Exterior Influences
* Significant on 5%.level ** Significant on 1%.Level l ** Highly Significant (O.l%-level) n.s. Not Significant
0.15”
and
internal
I
mvironmcnt
fglctors
with
the dug-cc
of maturity
of the
Planning
1
Conviction
2
Opportunities for Middle Management to Carry Out Their Tasks
3
Competitors SPS
4
SPS Becomes Necessary Nowadays
5
Recession Caused Strategic Thinking to be Necessary
6
SPS Was Made Possible by Computerization
7
Replacement Personnel
8
Recommendation Firm
9
Decrease of Returns Made Strategic Planning Necessary
10
of Corporate
in a Free
Market
113
Economy
Management
Work Already
25
101
With
34
131
2
of Top-management
by Consulting
Product-line Policy was to be Upgraded
,8
, 16
, 34
I
134
20
29
27
15
103
6
6
23
16
143
3
7
14
23
147
7
19
25
37
106
N=
194 Median
----
Figure
7. Reasons
for introducing
SPS and
their
most frequently named reasons tend to mask the actual reasons for the introduction because of their It is possible that many of the general nature. respondents did not know the true reasons, which had ‘convinced’ top-management of the necessity of strategic planning. On the other hand it may be possible that the great importance of some characteristics for a few corporations is compensated by the lack of importance of the majority of characteristics for the rest of the corporations. The importance of such specific reasons in single cases is demonstrated by the fact that 161 times ‘very great importance’ and 274 times ‘great importance’ were indicated. These data appear in Figure 7. (2) Beginning and Duration In searching for an answer
of the Concept Phase to the question
for the
Modal Value
importance
beginning and duration of the concept has to answer two questions first: Q; ‘What
is strategic
_“_ ‘Which elements system?’
phase,
one
planning?’ constitute
a strategic
planning
Initially we attempted to answer these questions by analysing the literature on SP. The obstacles, however, turned out to be unsurmountable. Opinions in literature were too widespread and imprecise to permit a reasonable answer. We finally dropped the idea of an immediate ‘introduction’ of strategic planning systems and rather preferred to speak of the ‘development’ of a planning system. This development proceeds in time towards a more or less systematic formation of strategic planning. We nevertheless were able to achieve some
114
Long
Range
Planning
Vol.
15
June
1982
40-
Before 196d '
Figure
8.
Beginning
with
1960
the conception
Since the completely
definition of the conception phase was open to respondents interpretation,
Table
IIuration
Duration conceptlon
of the phase
(wars) 1 2 3 4 5 6 7 ConceptIon phase still in progress Permanent lmplementatlon of SPS Not determinable Total
of conception
phase
70
75
1977
of a Sl’S
definitive statements. This may be due to the ‘normative power’ of our questions. Another reason may be that respondents were free to define the beginning of the introduction of strategic planning based on their own judgment. The interviews conducted during the second phase of our project lead to the following conclusion. The starting moment of introduction is, in general, the point in time at which either the proposed design of a SI’S was discussed or the point in time when an initial tool of strategic planning was deployed (e.g. analysis of strengths and weaknesses). With this information in nlind the data concerning the initiation and duration of the concept phase of a SI’S arc to be interpreted. As Figure X shows the ‘St’ boom’ in Germany begins in 1970.
10.
65
of a Sl’S
Table 11. Units/persons designing a SPS
Units/persons responsible for designing a SPS
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Central planning department Planning commlttee Admlnlstration. accounting department Other functlonal departments Organlzatlon department ControllIng department Divisions Business consultants Not known Others Total
responsible
for
Relatwe frequency
Accumulated frequency
Number
(%)
(%)
68
37-2
37 2
17 30
9.3 16.4
46 5 62 9
14
7-7
70-6
2 10 3 12
1 ,l 5-5 l-6 6.5
71 ,7 77.2 78 8 85.3
4 23
22 12 5
a7 5 100
183
100
our data only reflect (see Table 10) how long the conception phase of a SPS lasted in reality. About half of all companies completed the concept phase within 2 years, for other it took up to 7 years.
Relative frequency (%)
Accumulated frequency (%)
29 5 24 6 7.1 4-4 5.5 0.5 0.5 180
29.5 54 1 61.2 65 6 71 .l 71 .6 72.1 90 1
Regarding the introduction process WC grouped and direct the actors into clients, suppliers participants. A further group of actors, the initiators were not included in our study, since according to several pre-tests the initiators could not be identified.
8
4.4
94.5
10
5.5
In 94 per cent ofthe cases the order to develop a SI’S was given by corporate management (company management, X0.9; corporate nlanagcment, 11 .S; ‘Aufsichtsrat”“, 1.6).
Number 54 45 13
a
10 1 1 33
183
100
(3) Actorr in the Introduction Procc~sz
100 ‘See
the German
Aktiengesetz,
Sectlons
95-l
16.
Planning Table
12.
Participants
Participants
in
conceptualizing a SPS Members of corporate management Division management Heads of functlonal units Heads of staffs Assistants to division management Employees of functional units Members of staff units External consultants Others
in conceptualizing Number of positive statements
a SPS
Relative
Market
Economy
115
Table 13. The attitudes of corporate management towards the implementation
of SPS
frequency
186-100
Attitudes of corporate management
(%)
93
50
63 60
33.9 32.3
77 31
41.4 16.7
63
33 9
70 40 8
37.6 21-5 4.3
Number of positwe responses
(1) Reserved (2) Sceptlcal interest (3) Neutral (4) Favourable (5) Co-ordmatlng and directing (6) Continually supportive (7) Effectively forcing
Total
505
Table 11 reveals which persons were asked to develop a SPS concept. The relatively small share of central planning departments is striking: the conception of planning systems obviously belongs to the most important tasks of this department. On the other hand it is amazing that line positions are named rather often (25.7 per cent, ciphers 3, 4 and 7 in Table 11). This result indicates the growing opinion that planning tasks are rather a line than a staff function. Therefore, line management has to provide the instruments and techniques necessary for the fulfilment of its planning tasks. This impression is reinforced, if Table 12 is being analysed. Table 12 contains the answers to the question: which other participants appear in the process of developing a SPS? In 21 cases the ordering unit itself developed the SI’S.
‘The total of 50.5 quotations 165 firms. On the average departments outside the involved in the development
in a Free
is distributed to only approximately three charged unit were of SPS.
(4) ‘I’op :!4ana~qrmcnt’s Attitudes Towards l~npliwcritiu~~~ a Stratqic Plarznifz~ Systcrii We frequently find the opinion that a positive attitude of corporate management-which of course must be manifested in positive actiontowards reorganization projects is necessary for completing these projects successfully. Introducing a SPS aims at a systematic and well-founded decision making at the policy-level. Therefore, corporate management proves to be the critical success factor. According to the results ofour study, the comment of a head of corporate planning staff: ‘Without the board of directors, SP cannot operate’, can be generalized for all corporations. This is underlined by the survey in Table 13. In only 11.4 per cent of the cases, the attitudes of corporate management were expressed as reserved and sceptical. In 8.56 per cent of the cases, however,
a positive indicated.
(F)
highly
Accumulated frequency
(%)
(%)
5 18
2.5 9-o
6 30 34
3.0 14.9 16.9
14.4 29.4 46.3
55
27.4
73.6
53
26.4
201
or
Relative frequency
2.5 11 4
100
100
supportive
attitude
was
Summary
We have learned to think of SP as being situationally dependent and, therefore, generalizing statements are barely possible. There are a great number of situational variables that might be responsible for the deployment of a SPS. There are, indeed, many more variables as we have stressed in our study. A situational theory is only valid if it is as complex as reality itself. It would be fatal, however, to formulate a normative approach without recognizing the consolidated agreements and perceptions of planning practitioners since they are leading to theoretical efforts. In this sense we hope to have clarified some aspects of SP. A great many of previous studiesincluding our own project-have tried to consider SP from an organizational point of view. Strategic planning, however, is basically an instrument of corporate guidance. Therefore, the object of SP is decision making for the balanced guidance of a company. The determining basis for these decisions has not yet been sufficiently described. The contents and the determinants of these decisions should be agreed upon prior to organizing the decision making process. Therefore, future research should focus on this important point. Therefore, this attempt at explanation is useless as the only theoretical basis. Normative approaches offer better chances.
in Great
002-1~~301/x2/030103~13s03.00/0 I’crgamon I’rcs\
Vol. 15, No. 3, pp. 103 to 115. 1982
Britain
103 Ltd.
Planning in a Free Market Economy* Harmut
Kreikebaum
and Ulvich Grimm,
Thispaperis based on a research study project on Premises and Process of Introducing Strategic Planning in a Company. It presents and discusses some major findings of the study concerning the content of strategic decisions. the elements of a planning system, the process of introducing strategic planning and the impact of environmentalconditions upon the strategic planning system.
Introduction ‘Pren~ises and Process of The research project Introducing Strategic Planning in a Company was supported by the German Research Association (DFG Bonn-Bad Godesberg). In 1977 WC conducted a cross-sectional analysis in the Federal Republic of Germany. We mailed a contact questionnaire to 1394 companies with more than 1000 employees. Two hundred and twenty-three companies answered our main questionnaire. Due to the limited efficiency of a questionnaire as a methodological instrument, we had to confine our study to the formal and institutional aspects of strategic planning. For this reason non-structured or informal planning activities have not been investigated.
(A)
The
Planning
Dissemination
of Strategic
in the Federal
Republic
of
Germany The term ‘Strategic Planning has been defined in a variety of ways.t None of these definitions could, however, be used as a basis for an empirical study since they were not formulated in an operational manner nor could they be adequately transformed.
‘Received in March 1980 under the original title ‘Strategic Planning In the Federal Republic of Germany-Results of an Empirical Study’. Dr. H. Krelkebaum IS Professor and Dr. Grimm is Research Assistant at the Johann Wolfgang Goethe-Unwersltat, Mertonstrasse 17. 6000 Frankfurt am MaIn. Germany. tCf the newer survey of Charles W. Hofer and Dan Schendel, Strategy Formulation: Analytical Concepts, St Paul a o , pp. 16 ~20 (1978)
Johann
WoCfXung Goethe-Universitiit
We did not intend to add a new definition. Instead we wanted to learn from planning practltlonersby asking them to describe typical characteristicshow they conceived strategic planning. We applied this somewhat unconventional procedure, because WC wcrc convinced of the practitioners’ relatively high theoretical knowledge. A ‘contact questionnaire’ was mailed to 13’94 companies with more than 1000 employees. These companies were asked for information about their current planning systems (strategic planning with regard to products and markets). They were also asked to express their willingness to answer the main questionnaire. Five hundred and tifty-seven companies returned the contact questionnaire and responded as follows (see Table 1). Three hundred and seventy-two companies were open to further co-operation and received the main questionnaire in July 1977. Two hundred and twenty-three ( = 60 per cent) companies returned a usable questionnaire. Answers to certain questions in the main questionnaire contained more detailed information about the dissemination and the state of dcvclopnient of Strategic Planning (SP) in the participating companies. The 223 co-operating companies state the following distribution of SPSs (see Table 2). One should not, however, overestimate the favourable result regarding the dissemination of SPSs. We suppose that in answering the questions sonic wishful thinking may have been expressed as ‘facts’.
(B)
Characteristics
Decisions
from
Planning
Experts
of Strategic the Viewpoint
of
The many and various attempts to dcfinc the contents of strategic planning give the impression of a ‘non-theoretical discipline’. We observe indeed
We are in the process of lntroduclng a
We have a SPS
SPS
269 (48.3%) Wflling to co-operale 223 (82.9%)
130
(23 3%)
103
(79 2%)
We don’t have a SPS
158
Total
(28 4%)
557
(100%)
46 (29 1%)
372
(66 8%)
at dcfinitig chardctcristics of Sl’Ss ‘it such 311 Jbstr,lct lcvc~l cdntlot Lx fully rcprcsentati\.c of211 sample colnpanics. 7‘1~ \vidcL range of vari,ltion of t-hc occurring ctinractcristics is also Jut to liiiprccisc dcfiiiitio~is and the uncert,litlty of coinp~iiics reg.irditig the final design of their plC17itiing systc>iii.
Jttclllpt
-___.
--___-._
152 (68 2%) have a SPS 17 (7 6%) do not have a SPS 45 (20 2%) are In the process of lntroductng 9 (4.0%) plan strateglcally wtthout having ‘The 1392 with than
a SPS a SPS
percentage figures are not representative of the total sample of companies with more than 1000 employees, becausecompanlea a SPS were apparently more wllltng to answer the questlonnalre companies wtthout a SPS.
For these rcxs( 71sno gcnc.r,llly theory of strategic planning utitit i1o\v.
acccptcd outline for a h,ls been dcvetop~tl
The 223
compantes
Procurement Production Sales R&D
formulated functtonal 91 126 191 116 -
strategies for the followlng areas Investment 158 Finance 154 Personnel 123 Organization 83
Note. The total sample Includes 27 insurance companies, lnstltutlons and merchandise companies which normally formulate productlon strategies or R & D strategies
banklng do not
Planning
in a Free
Market
Economy
105
Strategic Decisions 1
Are Based on Managerial Decisions
2
Affect
3
Can Also be Valid for Divisions
4
Can Also be Valid for Functional Areas Only
5
Are Always Market Oriented
6
Are Always Product Oriented
7
Are Only Made by Corporate Management
B
Can Also be Made by Divisional Management
9
Basically Imply
the Company
as a Whole
Long-range Aspects
10
Are Connected With the Process of Formulating Corporate Objectives
11
Are Aiso Aiming at Business or Functional Objectives
12
Are Based on an Analysis of Strengths and Weaknesses
13
Include a Risk Analysis of Alternative Actions
14
Are Based on an Analysis and Prognosis of the Actions of Important Competitors
15
Are Based on Information About the Development of the Following Variables Demand Competition Technological
Development
Legislation Median ----Modal
Figure
1. Importance
of characteristic
criteria
of strategic
personal wishes and desires will always be relative to our capabilities and possibilities, in the same scnsc the different strategic areas in a company are interdependent. The consequence is that none of thcsc areas can bc dealt with in an isolated manner. A successful combination of all forces of the company therefore requires an interactive process of co-ordination of all strategic arcas. The interpretation of (Figure 1) proves that about strategies) due company are always
the values of items 7 and X strategic decisions (decisions to th:ir importance for the made by corporate nlanage-
Value
planning
nlent or at least ratified by it. In spite of all existing decentralization-tendencies apparently Iza t.ion, introduction of nc’w nianage(d’ivisiona 1’ ment techniques etc.) this rccult undcrlincs the importance of centralized decision making. Centralization and hence co-ordination of divisional strategies with corporate strntcfiies is also desirable with regard to the ~f~ficicncy of strategic planning. Without further discussion it must be mentioned that diffcrcnt results might have been obtained if a study is b.lsed upon other research objectives.
106
Long
I
I’lanning
Vol.
15
June
The results of question 9 wc‘rc‘ quite unexpected because in literature strategic planning is often identical with ‘long-range’ planning. Our result shows, however, that ‘long-range’ is a very relative term. Prognoses of future corporate development covering long-range periods imply low degrees of validity. Long-range planning spanning 10 years or mm-c’ may. thcreforc, often be useless. The items lo&15 prove the importance of information concerning several selected planning determinants (e.g. expected demand) and the variety of instruments of analysis. The question remains, however, if in reality this information will bc obtained and if the instruments of analysis will be actually deployed.
(C) The Planning Systems Companies Reviewed (1)
I’/nnrrir~‘q
Corporate short-range
usually
(l-2
planning
cncoinp~ssc’s
years);
iiicdiuni-range
(2-S (5 years
Table .5. IIistribution periods Medrum-range planning periods (in months)
6
Total
IIistribution
1Iistribution
Short-range planning penods (rn months)
of short-range
Number of positive responses
8 19
17 3 153 8 4 8
223
Relatwe frequency (“/) 37 05 88 05 05 7-9 14 71-2 37 19
100
Relatrve frequency
Accumulated frequency
(%)
(%)
0.5 14-6 o-5 I-6 1 o-3 l-6 24-3 0.5 76 37.3 1 1
05 15 1 15.7 17 3 27 6 29-2 53-5 54-1 61 6 98 9 100
of long-range
Number of positive responses 1 2 6 7 46 6 4 7 32 3 1 4 1 7 2
planning
100
223
IO 12 14 15 17 20 Open planning horwon Without response
Total
Total
14 69 2 38
horizons.
SIIoyf-Ymp~~ planning periods wc‘rt‘ almost unaniinously agreed upon to cover up to 1 year (94.4 pm cent of the rcspoiidcnts affirmed this rccult).
1 2 3 4 5 6 9 12 18 24 Wrthout response
3 19 3 45
or niorc’)
Our doubts concerning the traditional distinction been stressed already of planning periods hJvc .llthough the obtClincd data wcrc not uniform. For oxample the responses concerning the horizon of (7 differed very strongly (bctlong-range plannin, WCCII 1 and 20 (!) yeurs). The following tables illustrate the results (Tablcj CO).
Table 4. periods
27
Long-range olanninq perrods(In years)
years):
of medium-range
Number of posrtive responses
12 15 18 24 30 36 42 48 60 72 Wrthout response
Table 6. periods
HoYizorr~
planning
long-range
of the
19X2
Relatwe frequency
planning
Accumulated frequency
(%)
(%)
08 1 6 47 54 35 7 47 31 54 24 8 23 08 3.1 0.8 54 l-6
0.8 2-4 6-9 12-4 48.0 52 7 55 8 61 2 86.0 88.3 89-l 92 2 93.0 98 4 100
94
223
100
planning
Accumulated frequency (%) 37 42 13.0 13-5 14 0 21 ,9 23-3 94.4 98 1 100
:~Irrlilrrrr-var~C~e planning periods also nppearcd to bc in accordance with the traditional viewpoint; Xl .O per cent of the corporations indicated that their medium-range planning spanned 2 .5 years. This relatively clear result is however discounted by the fri-equcncy peaks, which are located at 1, 3, 3 and 5 years. The distribution of the peaks did not provide a rea~onablc mc‘asurc of central tendency (mean : 30.x 111011~11s). The table of /mg-ymge planning periods, too, shows an unclear picture. It is especially rcmarkablc that the most frequent value is located at 5 years, equal value of medium-range to the inost frequent planning periods. This result allows two possible explanations:
Planning (1)
Under the assumption that in the majority of already had planning cases all companies systems that followed the traditional distinction ofplanning periods, the missing statements (medium-range, 38; long-range, 94 companies) are to be interpreted as follows: increasing uncertainty implied in long-range prognoses caused corporations to refrain from quantitative long-range planning. This might occur by shortening the different planning horizons or by giving up long-range planning (possibility accompanied by lengthening the shortand medium-range planning periods).
(2) If the above assumption is incorrect, it can be expected that the corporations are only beginning to set up a planning system (as indicated by the increasing number of missing statements (8-38-94) when the planning horizons became longer). Thereby they start with short-range planning and eventually proceed towards long-range planning. First results of the second phase of our investigation lead to the assumption that only a few of the companies followed the pattern described under (1). The majority of the companies were just in the process of setting up a planning systern.
The frequency of formulating is show; in Figure 2.
Functional
functional-unit
plans
(3)
in a Free
ClzuraCfrVisfiCs
Plfltttfittg
ard
Market
Drveloyrrlcnf
Divcdo~ls
80.7
Inventory
75.8
R&D
72.6”
Production
84.3
Capacities (Lay-out)
89.2
Marketing
97.8
Profit
93.7
Investment
93.7
Finance
95.5
Balance
80.7
Personnel
95.1
Organization
57.4
In another complex of questions we investigated characteristics of the present planning systems of the participating companies. If we assume a certain direction of development of planning systems, we can speak of a ‘degree of maturity’ of a planning system. We also assume that a I’S develops without specifying how the desuccessively, velopment process unfolds. The development of a planning system can start at the ‘top’ of a company and proceed to the ‘bottom or \rice versa. Normative considerations are usually based upon a ‘top-down’ development. In reality it can be expected that in the majority of cases operative planning systems are eventually extended to an overall strategic planning system. In order to describe possible development-directions of 1’S we investigated several developmental characteristics by employing the Guttman-Scale-Analysis. The list of items and their frequency distributions appear in Table 7. We first had intended to set up a single GuttmanScale covering all eight items. Because of the nature of the data it was, however, necessary to distribute the items to two scales. The first four items were included in one scale, the second four in another. The scales were termed ‘Deduction of Goals Based on General Corporate Guidelines’ (scale 01, Figure 3) and ‘Formalization of Planning’ (scale 02, Figure 4).
35.4
Acquisition 0
1% n = 223
*The Value of Frequency of R & D Planning Changes to 82.7, if Banks, Insurance Companies and Merchandise Companies are Eliminated.
Figure
2. Frequency
of functional
unit
plans
c$
Systems
Unit Plans
Procurement
107
Economy
Table
7. IIcvelopmental
characteristics
of a 1’S
Absolute frequency
(1)
Planning a wrltten
(2)
The PS IS connected corporate leadershIp
procedures are based corporate philosophy
on
with prlnclples
towards (3) The PS is oriented corporate objectives
stated
Relative frequency
97
43-5
96
43 0
149
66.8
199
89.2
In a planmng
68
30.5
IS accompllshed by an (6) Planning organized set of formula describing planning procedures
134
60 1
at least two (7) The PS contains different planmng periods
200
89.7
budget IS part of (8) The corporate the PS (and IS revtewed regularly)
201
90-I
quantlfled (4) The PS contains short-range goals (5) The PS IS described manual
Scale 01 shows that the deduction of goals from general corporate g:uidelines~Piii the dcvclopmtmtal phase of a planning systeni-hardly cvc‘r occurs. First, quantitative short-range goals are detcruiind, and in a second step, overall corporate objectives are developed. At a later stage n corporate philosophy is stated and the 1’S is intcgratd into existing lcadcrship principles. Thus, planning systuns dcvclop from bottom to top. In d siniildr manner scale 02 can he interprtxed : planning is guided hy budgets for the different planning periods. (;rowiiig faniili2rity with the planning procdure often results in sets offormula dcscribiiig planning proccdurcs. Finally all planning activities art‘ suniinnrized in d planning manual. Only
F9Pl
F9P3
a single itelii of scale 01 fits the logic of sc,ile item 4 (‘the 1’S contains quantified short-range godls’). This result md our experience with tlic intcrprctation of these scales led to the assulliption that corporate goals (scale 01) and tlic actultl dcsigii
03:
F9P4
Number
Scores
of Cases
Line
F9P2
1
1
1
1
1
60
4
2
0
1
1
1
24
3
3
0
0
1
1
36
2
4
0
0
0
1
41
1
5
0
0
0
0
9
0
170 --1
0
1
1
17
3
7
1
1
0
1
4
3
8
1
1
1
0
_
3
9
1
1
0
0
-
2
10
1
0
1
0
2
2
11
1
0
0
1
IO
2
12
0
1
1
0
2
2
13
0
1
0
1
7
2
14
1
0
0
0
3
1
15
0
1
0
0
-
1
16
0
0
1
0
8
1 53 ___
Figure
3.
Scale
-_-----
6
Coefficient
of
Coefficient
of Scalability
OIPdeduction
Reproducibility
of goals
0.8812 0.6357
Planning
Line
---
F9P5
F9P6
F9P7
Number
F9P9
1
1
1
1
55
0
1
1
1
65
0
0
1
1
59
0
0
0
1
10
0
0
0
0
6
-___----_--
---_------------
6
1
0
1
1
6
7
1
1
0
1
3
8
1
1
1
0
4
9
1
1
0
0
-
10
1
0
1
0
-
11
1
0
0
1
-
12
0
1
1
0
3
13
0
1
0
1
3
14
1
0
0
0
-
15
0
1
0
0
1
16
0
0
1
0
8
in a Free
Market
Economy
109
Scores
of Cases
195
28 223 Coefficient Coefficient
Figure
4.
Scale
of the planning synchronized.
of Reproducibility of Scalability
02-formalization
system
(scale
0.9372 0.7228
of planning
02)
are
not
fully
Item
4 (quantified short-range goals) helps to create connection between the two scales : the Formulation of quantified short-range goals may be seen as the ‘linking pin’ between the two developmental directions of PSs. Two different and apparently independent directions of development as well as certain developmental stages could be detected. Now the question remains as to how the development processes proceed in time. * *The development directtons discussed above concern two different levels of one planning system. The development processes are, therefore, not to be regarded as alternatives, but form two Independent processes towards the development of the total PS.
We confronted the two scales in order to answer this question by cross-tabulating. If the statement is valid, that a qualitative consideration of the planning procedure (deduction of goals from the scale 02) precedes guidelines, corporate formalization of the planning system, in the majority of cases certain values of scale 01 would coincide with lower values of scale 02. This however turned out to be correct for only 25 per cent of the cases; 33.6 per cent provided equal values for both scales and 41.3 per cent contradicted the statement. It can be deduced that the design of a corporate planning system was initiated, after an operative PS was implemented and to a great extent formalized. This result clearly shows that shortrange goals which are necessary for the guidance of operative system quite often were not an synchronized with corporate policy.
110
Lolig
Range
Planning
Vol.
15
Environmental Conditions Their Influence on the Planning System In addition to an analysis of the present (II)
June
and introduction of a SI’S on one h;lnd and the factors ‘legal structure’, ‘legal depcndcncc’, and ‘ownership’ on the other hand. Thcrc is a positive correlation, however, bctwccii increasing corpor,itc size and the dcploynient of Sl’.
and
state of planning systcins in Gcrniany, one’ purpose of our study was to prove the assumption that the state or dcgrcc of maturity of planning systcnis is strongly the prcvailiiig cnvironinental infuenccd by conditions. The dcpendcncc of PSs on cnvironnicntal conditions is shown by using the contingency approach. This concept is based on the assumption that bcsidcs the influence of environmcntnl factors 011 the 1’S tlicrc exists a certain range of design alternatives. one ofwhich is selected and arranged by decision of rc>sponsible managcmcnt.
(1) hnlysi~
qf rlw firtcrrralCowpmy
Siflrnfiorl
the approach choscii \I’C assuiilcd that readiness for strategic planning might dcpcnd on factors like ‘leg31 structure of the company’. arc ‘ownership’, ’ corporate size’, etc. .I‘hc following our results. Uased
There
on
is no positive
correlation
between
19x3
The assumption that certain environnicntal fdctors induce the ncccssity to introduce strategic planning is also the basis of the followiiig hypothesis: ‘(:onsunicr-orieiit~~~ co~npaiiics ;lrc confronted with a stronger necessity for strategic planniiig, bccausc they fact a more compl~s and faster cnvironnicnt’. In other words it is changing ‘1 fast changing atid coiiipl~~ assun1cd that iiiduccs the need for ctratcgic mviroiinicnt planning. If these hypotheses arc correct, then corporations with differing dcgrccs of coiisunic’r orientation (c.g. rc’sourcc’ industries, durable goods industries, coiisunic‘r goods iiidustrics, dnd ser\rice oriented industries) would show significant differcncc‘s with regard to their SI’Ss. Our ,Itialysis that the frequency of SI’Ss showed, however, within diffcrcnt industry sectors differs onl> arc no significalit slightly from average. Thcrc diffcrenccs in the dissemination of SI’Ss in rcsoiircc consi111ic7fi”Od5 a s coinparcd to industries industries. In addition to the nicasurablc context filctors legal structure, legal depcndencc, ownership)
the design
External environment
internal environment
State of PS Degree of Maturity of PS, Especially of SPSS
Dependence Structure -
of Company
Status of Legal Dependence
_ of Entity (Holding Company, Subsidiary
-
Situation of SPS (According to Table 2)
r
etc.) -
Market Situation
Competition
- Ownership Structure
Organizational
Structure
Leadership Philosophy and Other Organizational Variablest
Figure tCf
.5. Measured
dcpcndencc
Figure 6, I” connectlon with Table 8
_____)
Degree of Maturity of PS (Summary of Scales 01 and 02)
-
of strategic
planning
systems
-
Complexity of External Environment
-
Pace of Environmental
on environnlental
Change
condltlons
(size, wc
Planning
in a Free Market
Economy
111
also asked for environmental conditions which are difficult to verify (e.g. participation in decision adaption of organizational rules to making, exogenous influences: homogenity and variety of environmental influences, quality and extent of changes of certain environmental factors, etc.). Confronted with contrasting statements, the respondents evaluated the external and internal situation of the corporation by using an importance scale (from 1 to 7). For the description of the internal environment 12 contrasting pairs of terms were formulated. The data obtained were invcstigated by factor analysis (principal factoring with iteration and orthogonal rotation). The results appear in Table 8. The five extracted factors now represent the former 12 items. They explain 59.9 per cent of the total variance.
pairs of contrasting terms for factor analysis. The results appear in Table 9. The four factors represent 62.3 per cent of the total variance of the 10 items.
(2) Analysis oj’ the Exterrzal SituatioPz To describe the external situation we formulated
(1) Legal control as a rule aims at companies attempt to oppress competition and
Table 8. Results
of factor
analysis
regarding
10
the internal
Commitment innovations Factor
(1) (2)
Centralization
(3)
Adaption
of decision
Participation
making
in the decision of internal
organizational
rules to exogenous (4)
Distribution
(5)
R & D commitment
(6)
Diversification
(7)
Deployment
(8)
Leadership
(9)
Freedom
process
Flexibility Commitment
groups
Factor
3
0.25839
~ 0.01806 -0.21307
0.42115
flow
Factor
-0.02676 0 38075
rG?ziiq
-0.10972
- 0 05924
of organizational to market
structure
of factor
(1)
Homogenity Stability
of environmental
of environmental
(3)
Dangers
for corporate
(4)
Intensity
(5)
Ability
(6)
changes Increase
(7)
Opportunities
conditions
existence
of competition to forecast
environmental
in external implied
0.14184
0.17506
0.09378
0 06043
0.06574
- 0.09673
-0.11704
!
0.03518
O-01 693
[I
0 26241
- 0.05029
0.04277
-0.16238
%zBiz @?z&
0.29577 -0-I
the external
7432
-0.02686 0.16912
/l
environment
O-38320
of corporations
Anticipated restrictions of action range
Technology oriented external influences
Environmental changes
Joint-interest factor
Factor
Factor
Factor
Factor
6
-0.17555
0.35597
w /
influences in environmental
0.21745
0 06400
I 0.77009
regarding
conditions
O-08732
0.11578
- 0.39612
0.33029
analysis
0.11967
0.02760 0.19477
leadership
0.27171 0.14382
0.18092 - 0 05453
(2)
0.12408
7
8
0.06673
- 0.16943
0.21140
0.06326
0.17377
0.07830
0.09607
o-1 2297
-0.13610
lptzs%q -0.19166
-0.15292
0.42395
0.25924
0.27858
- 0.09614
0.10611
-0-06299
0.29178
- 0.04060
-0.10347
- 0.20305
- 0.08506
j]
developments (8)
Technological
(9)
Corporate
change influences
on environmental
factors (10)
Legal
Participation by teams
4
0.07625
0.00659
budget
Table 9. Results
Factor
0.05741 0.02784
style
(12)
2
Sales oriented organization design
0.01474
efforts
of information
(II)
Factor
1
of corporations
Flexibility of organizational structure
Leadership philosophy
authority
of prolect
Advertising
to
environment
which
influences
of decision
(IO)
A detailed analysis of these factors under aspects of organizational theory might be interesting; it would, however, exceed the scope of this study. As an interesting example we would like to pick out factor 9, which we called ‘joint-interest factor’. Factor 9 indicates that corporations in a ‘partnership-like’ competition situation face significant legal restrictions. Vice versa, corporations with heavy competition have to deal with only minor legal restrictions. This result camlot be regarded as accidental since it also shows LIP when extraction methods are used. An alternative interpretation of these results leads to two comments:
restrictions
o-301 71
0.11227
0.01447
r?z?zq
9
5
(2)
‘true’ ni,lrkct systeln sc‘vcrc legal restrictions.
d
dlso
opc‘r,ltcs
co~nplcx environment. Factors 6 and X do not, llow.cvu-, sho\v any positive correlation with the degree of Iiiaturity of the planning systcni. The re;isons cdntiot Lx deducted from tlic supplied data.
without
Iii sunimary it can be stated that there is no highly Jctcriiiinis~ic correlation bct\vccn estcrml c‘nvironiiic‘nt 2nd the method of dealing Lvitli cnvironliiclital factors (i.c’. nature of the plaiiiitig system). Of tlic extc‘rnal ciivironineiit~~l factors tcclinological influences slio~v dn interprctJL~lc correlation with the dcgrcc’ of maturity of the planning systems. On the whole, howcvcr, the measured correlations are not strong cnougll to csclud~ additional determinants for the design 3nd degree of maturity of planning systems, which we did not esaminc iii our questionnaire.
(E) The Introduction Planning System
of a Strategic
Our cross sectional study was restricted to some institutional aspects of tlli introduction of pldiiiiiiig systcnls. In tlic second pliasc our rcscarcli project bvt’ ‘ire dt prcsait dealin g with the personnel ,iiid process aspects ofimplem~ntation. To ~nalysc these aspects WC 3rc employing coiiiparativc cCIIsc‘studies.
In corpor,itioiis Lvith rather ‘progressive’ principle of iiiaii~igemciit (dccentralizatioii of dccisioii of el:~ployws iri decision processes, lilm-nl style of lc,idcrsliip) once finds ‘1 high frqucncy of well d~velopd p13iiiiing systcmis.
of
bet\vccn a fdst clidriging end TllC corrclntioli cnvironIiicnt 011 one 11and and the complex Iiccessity f?)r strategic planning (which has been iiicntioncd ,ibovc) is represciited by factors 7 and X. The dctc~rmining values of- factor h are also to be regnrdcd as cliaractcrizing d rapidly changing and
(1) Rci7SorJ.q;w IrlrrodJrc-ir/‘~ Stvm~i~- I%7llllil3 Figure 7 shows the import~~ncc of rcdsons for strategic planning judged by the introducing respondents. The reasons for iln~~lcnlcntatioll wc‘rc’ pre-selected by the authors. Uiifortunatcly th two
0.02
Anticipated Restrictions of Action Range
n.s.
(6)
/ (1) Commitment Innovations
to
0.17””
0.20”“”
Ir-
I (2) Leadership Style
(3) Aspects of Organizational Flexibility
0.27”
Figure 6. Connection planning systciii
-0.08
I
l
&&
Environmental
Changes (8)
Joint-Interests
(9)
n.s.
0.18””
’
by
of cxtcrnal
(7)
Degree of Maturity of the Planning System
(4) Sales Oriented Design of Organization Structure
(5) Participation Teams
Technology-Oriented Exterior Influences
* Significant on 5%.level ** Significant on 1%.Level l ** Highly Significant (O.l%-level) n.s. Not Significant
0.15”
and
internal
I
mvironmcnt
fglctors
with
the dug-cc
of maturity
of the
Planning
1
Conviction
2
Opportunities for Middle Management to Carry Out Their Tasks
3
Competitors SPS
4
SPS Becomes Necessary Nowadays
5
Recession Caused Strategic Thinking to be Necessary
6
SPS Was Made Possible by Computerization
7
Replacement Personnel
8
Recommendation Firm
9
Decrease of Returns Made Strategic Planning Necessary
10
of Corporate
in a Free
Market
113
Economy
Management
Work Already
25
101
With
34
131
2
of Top-management
by Consulting
Product-line Policy was to be Upgraded
,8
, 16
, 34
I
134
20
29
27
15
103
6
6
23
16
143
3
7
14
23
147
7
19
25
37
106
N=
194 Median
----
Figure
7. Reasons
for introducing
SPS and
their
most frequently named reasons tend to mask the actual reasons for the introduction because of their It is possible that many of the general nature. respondents did not know the true reasons, which had ‘convinced’ top-management of the necessity of strategic planning. On the other hand it may be possible that the great importance of some characteristics for a few corporations is compensated by the lack of importance of the majority of characteristics for the rest of the corporations. The importance of such specific reasons in single cases is demonstrated by the fact that 161 times ‘very great importance’ and 274 times ‘great importance’ were indicated. These data appear in Figure 7. (2) Beginning and Duration In searching for an answer
of the Concept Phase to the question
for the
Modal Value
importance
beginning and duration of the concept has to answer two questions first: Q; ‘What
is strategic
_“_ ‘Which elements system?’
phase,
one
planning?’ constitute
a strategic
planning
Initially we attempted to answer these questions by analysing the literature on SP. The obstacles, however, turned out to be unsurmountable. Opinions in literature were too widespread and imprecise to permit a reasonable answer. We finally dropped the idea of an immediate ‘introduction’ of strategic planning systems and rather preferred to speak of the ‘development’ of a planning system. This development proceeds in time towards a more or less systematic formation of strategic planning. We nevertheless were able to achieve some
114
Long
Range
Planning
Vol.
15
June
1982
40-
Before 196d '
Figure
8.
Beginning
with
1960
the conception
Since the completely
definition of the conception phase was open to respondents interpretation,
Table
IIuration
Duration conceptlon
of the phase
(wars) 1 2 3 4 5 6 7 ConceptIon phase still in progress Permanent lmplementatlon of SPS Not determinable Total
of conception
phase
70
75
1977
of a Sl’S
definitive statements. This may be due to the ‘normative power’ of our questions. Another reason may be that respondents were free to define the beginning of the introduction of strategic planning based on their own judgment. The interviews conducted during the second phase of our project lead to the following conclusion. The starting moment of introduction is, in general, the point in time at which either the proposed design of a SI’S was discussed or the point in time when an initial tool of strategic planning was deployed (e.g. analysis of strengths and weaknesses). With this information in nlind the data concerning the initiation and duration of the concept phase of a SI’S arc to be interpreted. As Figure X shows the ‘St’ boom’ in Germany begins in 1970.
10.
65
of a Sl’S
Table 11. Units/persons designing a SPS
Units/persons responsible for designing a SPS
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Central planning department Planning commlttee Admlnlstration. accounting department Other functlonal departments Organlzatlon department ControllIng department Divisions Business consultants Not known Others Total
responsible
for
Relatwe frequency
Accumulated frequency
Number
(%)
(%)
68
37-2
37 2
17 30
9.3 16.4
46 5 62 9
14
7-7
70-6
2 10 3 12
1 ,l 5-5 l-6 6.5
71 ,7 77.2 78 8 85.3
4 23
22 12 5
a7 5 100
183
100
our data only reflect (see Table 10) how long the conception phase of a SPS lasted in reality. About half of all companies completed the concept phase within 2 years, for other it took up to 7 years.
Relative frequency (%)
Accumulated frequency (%)
29 5 24 6 7.1 4-4 5.5 0.5 0.5 180
29.5 54 1 61.2 65 6 71 .l 71 .6 72.1 90 1
Regarding the introduction process WC grouped and direct the actors into clients, suppliers participants. A further group of actors, the initiators were not included in our study, since according to several pre-tests the initiators could not be identified.
8
4.4
94.5
10
5.5
In 94 per cent ofthe cases the order to develop a SI’S was given by corporate management (company management, X0.9; corporate nlanagcment, 11 .S; ‘Aufsichtsrat”“, 1.6).
Number 54 45 13
a
10 1 1 33
183
100
(3) Actorr in the Introduction Procc~sz
100 ‘See
the German
Aktiengesetz,
Sectlons
95-l
16.
Planning Table
12.
Participants
Participants
in
conceptualizing a SPS Members of corporate management Division management Heads of functlonal units Heads of staffs Assistants to division management Employees of functional units Members of staff units External consultants Others
in conceptualizing Number of positive statements
a SPS
Relative
Market
Economy
115
Table 13. The attitudes of corporate management towards the implementation
of SPS
frequency
186-100
Attitudes of corporate management
(%)
93
50
63 60
33.9 32.3
77 31
41.4 16.7
63
33 9
70 40 8
37.6 21-5 4.3
Number of positwe responses
(1) Reserved (2) Sceptlcal interest (3) Neutral (4) Favourable (5) Co-ordmatlng and directing (6) Continually supportive (7) Effectively forcing
Total
505
Table 11 reveals which persons were asked to develop a SPS concept. The relatively small share of central planning departments is striking: the conception of planning systems obviously belongs to the most important tasks of this department. On the other hand it is amazing that line positions are named rather often (25.7 per cent, ciphers 3, 4 and 7 in Table 11). This result indicates the growing opinion that planning tasks are rather a line than a staff function. Therefore, line management has to provide the instruments and techniques necessary for the fulfilment of its planning tasks. This impression is reinforced, if Table 12 is being analysed. Table 12 contains the answers to the question: which other participants appear in the process of developing a SPS? In 21 cases the ordering unit itself developed the SI’S.
‘The total of 50.5 quotations 165 firms. On the average departments outside the involved in the development
in a Free
is distributed to only approximately three charged unit were of SPS.
(4) ‘I’op :!4ana~qrmcnt’s Attitudes Towards l~npliwcritiu~~~ a Stratqic Plarznifz~ Systcrii We frequently find the opinion that a positive attitude of corporate management-which of course must be manifested in positive actiontowards reorganization projects is necessary for completing these projects successfully. Introducing a SPS aims at a systematic and well-founded decision making at the policy-level. Therefore, corporate management proves to be the critical success factor. According to the results ofour study, the comment of a head of corporate planning staff: ‘Without the board of directors, SP cannot operate’, can be generalized for all corporations. This is underlined by the survey in Table 13. In only 11.4 per cent of the cases, the attitudes of corporate management were expressed as reserved and sceptical. In 8.56 per cent of the cases, however,
a positive indicated.
(F)
highly
Accumulated frequency
(%)
(%)
5 18
2.5 9-o
6 30 34
3.0 14.9 16.9
14.4 29.4 46.3
55
27.4
73.6
53
26.4
201
or
Relative frequency
2.5 11 4
100
100
supportive
attitude
was
Summary
We have learned to think of SP as being situationally dependent and, therefore, generalizing statements are barely possible. There are a great number of situational variables that might be responsible for the deployment of a SPS. There are, indeed, many more variables as we have stressed in our study. A situational theory is only valid if it is as complex as reality itself. It would be fatal, however, to formulate a normative approach without recognizing the consolidated agreements and perceptions of planning practitioners since they are leading to theoretical efforts. In this sense we hope to have clarified some aspects of SP. A great many of previous studiesincluding our own project-have tried to consider SP from an organizational point of view. Strategic planning, however, is basically an instrument of corporate guidance. Therefore, the object of SP is decision making for the balanced guidance of a company. The determining basis for these decisions has not yet been sufficiently described. The contents and the determinants of these decisions should be agreed upon prior to organizing the decision making process. Therefore, future research should focus on this important point. Therefore, this attempt at explanation is useless as the only theoretical basis. Normative approaches offer better chances.