- Email: [email protected]
Strategic planning—A contingency approach—Part 2. The plan
46
Long Range Planning, Vol. 16, No. 6, pp. 46 to 58, 1983 Printed in Great Britain
Strategic Planning-A Contingency Approach The Plan
0024-6301/83 $3.00 + .OO Pergamon Press Ltd.
Part 2.
B. C. Ghosh, School of Accountancy and Business Administration and A. Y. C. Nee, Department of Mechanical and Production Engineering, National University of Singapore This is the second article on the subject of the adaptive approach to business strategy formation exercise and illustrates the approach with a case study. Part 7 appeared in the August 7983 issue of the Journal.
Organization Planning* and Its Effect on Strategic Planning Though some have lamented its demise, the managerial ‘push theory’ has now been largely replaced with some modified form of the ‘pull theory’.’ Organizations increasingly need superior performance of more and more of their employees, and these contributions are of a character such that they must be elicited more than forced. Golembiewski’ suggests that the ‘pull theory seems congenial to the technology of the future’. He talks about motivating individuals to group effort and the development of a ‘viable integrative function’. Organizations will evolve to fit people in the design of tasks and structure. In the process, the emphasis will shift from ‘particularistic to integrative departmentation’. Golembiewski also emphasizes on ‘an organizational climate having the minimal constraints consistent with quality performance’. This, he says, ‘is the essence of contemporary stress on manage-
Dr A. Y. C. Nee is Senior Lecturer in the Department of Mechanical and Production Engineering and Mr. B. C. Ghosh is Senior Lecturer in the School of Accountancy and Business Administration, both at the National University of Singapore, Kent Bridge, Singapore 5. ‘A great deal has been written on organizational theory, but the purpose of this section is to generally relate it to planning needs and underline the relevance of an organizational framework to the strategic growth.
ment by objectives’. The newness is the trade mark of our times and it is poorly served by bureaucracy. Bureaucracy with its tentacles hopelessly intertwined not only is incapable of dealing with changes adequately, it also resists change. No organization structure can be without its element of bureaucracy entirely, but the ‘surplus repression’ which is seen as a major product ofbureaucracy is to be kept at a minimum. One can be ordered to obey, but not to be creative--since that is another matter altogether. In designing a long term corporate plan, a company is likely to face two conflicting goals? (a) management would like the planning to reflect pragmatic judgments, but (b) it also forward
function
wants the planning function looking, creative and assertive.
to
be
This viewpoint is somewhat similar, in an organization perspective, to the contingency concept. ‘The contingency approach has the appeal that it permits a reconciliation of viewpoints previously considered to be in direct opposition to one another.4 Though a great deal of research work still remains to be done with regard to environmental uncerstability and constraints, etc. and their tainty, effects on the contingency approach,5 the authors suggest that the concept is of great value in a strategy development context. The concept is analogous to, though not the same, as the combination approach to strategy formulation. The view essentially states that the best way to organize and manage varies from situation and that companies should be organized and operated differently depending on their circumstances. The circumstances will vary from time to time and the
Strategic
Planning-A
functions within a company, bearing goal congruence though in mind, may need a variety of approaches to induce appropriate role behaviour which would be in line with role prescriptions. Ideally, it should be possible to specify the situations in which a certain approach would work best. However, in practical terms, it is hardly possible. Also, if we recall the ‘open constraint’ concept of the decision process, then it is possible to form some guide-lines for planning at this stage:
(4
a variety of approaches is necessary in formulating a strategy-the combination approach;
04 a
variety of motivational methods may be adopted to strike a right balance between the ‘practicality’ aspect and the ‘creativity’ aspect of a strategic plan;
(4
the decision process should essentially be ‘open constraint’. In adopting a certain plan or a certain management style to realize the plan, lines must be kept open for feedback. More informed a decision, better it will be in the conditions of today’s uncertainty.
The overall style and approach is not intended to be one of inconsistency as time passes, but to provide sufficient ‘wriggle room’ so as not to stifle initiative and creativity. Rogers6 maintains that corporate strategy and organization structure are closely associated concepts. ‘The organization structures should be arranged by the dictates of strategy’-and not by industry pattern. He does not deny that there are some general patterns or ‘caveats’. One man organization develops into a functional one. Multinational companies divisionalize on a geographical basis on the assumption that the variables and problems of one place will be different from those of another place. Organizations also grow on a product-group basis as they become larger, or functions may develop on a project-organization basis which would be more self-sufficient from a control viewpoint. A logical extension of this development should be acceptance of the market point of vieworganizing companies or divisions to serve specified customers. Many U.S. companies including GE have re-organized on the basis of this concept which may presage a further wave of re-structuring. Essentially, it stands to reason that as market conditions change and as strategies are re-shaped, organization should accordingly respond.’ This is a continuous change process-today’s organization shaping tomorrow’s strategy and that strategy influencing tomorrow’s organization.* In the 1960s and 1970s the conceptual difference between a strategic manager and an operating two-hat concept-became more manager-the crystallized. Rogers’ quoted the instance of Texas
Contingency
Approach-Part
47
2. The Plan
Instrument where operational units and profit centres were called upon to function within strategic goals and according to a Tactical Action Programme (TAP). In the 1970s the GE, however, approached the task by separating operations from strategy. Superimposed on the operating structure was the new concept of strategic business unit (SBU). Each SBU component must have a unique business mission, a clearly defined competition and be capable of accomplishing an integrated strategic planning with respect to products, markets organization etc. A SBU manager would be evaluated on his strategic plans and his adherence to plans, rather than on short run results. GE’s main problem in the 1960s was massive sales growth but little profit growth. Indeed, return on assets actually fell. It was then realized that their vaunted system of management decentralization was not giving the desired result and the rather intuitive development was the SBU concept. In the earlier days the divisional plans ‘were either overly optimistic or overly pessimistic . . _ depending upon the corporate culture.10 It was essentially a ‘bottom up top down’ process of negotiation and consensus-seeking which resulted in an approved plan for an upcoming period. Commitment was insufficient and variances were explained by unforeseen, mostly uncontrollable, factors. This did not indicate a grasp of the corporate strategy. Strategic management of units, given their competitive positioning, appeared to be more meaningful rather than a corporate structure based primarily on a span of control. This required substantial re-thinking and re-organizing and resulted in substantial organiiational re-structuring in major companies such as GE and Union Carbide. In assessing the strategic positioning of a SBU (or a unit within a group) two criteria would be significant: (a) attractiveness of the product-market segment (or a possible product-market segment), and (b) the SBU’s competitiveness. Hall”
(or
gives a conceptual
the
overall
matrix as follows:
Low
I
unit’s)
High
I
I High
Product-market attractiveness
Low I
I
Competitive
I
position
A variation of this matrix can be usefully employed to assess the product market/competitive position ofa SBU or unit at the evaluation process. It is quite possible though, that none of the products a company at the moment is manufacturing will fall in the high/high portion of the matrix which as
48
Long Range Planning Vol. 16
December
such could be given the maximum corporate support to be groomed for the future. The feedback from the marketplace-the outside-in views-and the reactions of the company’s management team may well indicate development requirement of a somewhat different nature. This is really an illustration of the ‘open constraint’ concept and its relevance to strategic decision process.‘In the same vein, while low/low product lines might be construed to be those which give a cash return now and from which a company should plan to divest, they may also in certain circumstances provide a base load of work and a launching pad for moving into more promising product lines. As new product ventures may enhance the total risk component of a business, this low/low sector, or more particularly a low/high sector, may not be totally unworthy of any future commitment. In analysing organizational listed five key dimensions:
growth,
Greiner”
has
(a) age of the organization; (b) size; (c) stages of evolution; (d) stages of revolution;
1983
dismisses the assumption of freedom of the individual thought-process in the following words: If science does not confirm the assumptions of freedom, initiative and responsibility in the behaviour of the individual, these assumptions will not ultimately be effective either as motivating devices or as goals in the design of culture. We may console ourselves with the reflection that science is, after all, a cumulative progress in knowledge which is due to man alone, and that the highest human dignity may be to accept the facts of human behaviour regardless of their momentary implications.’
Whatever may be the rationale behind Skinner’s thoughts, it is hard to accept the suggestion that human thoughts and actions can be controlled with precision-that freedom, initiative and responsibility in the behaviour of an individual or individuals are mere assumptions and are not dependable motivating devices. A coordination in the form of ‘mobilization” 5 should be possible whereby individuals having responsibilities to share knowledge and skills can be brought together to pave the way for future congenial and constructive relationships. Though such a process will involve a convenient uniformity of conduct, it must nevertheless retain the element of human freedom of action, expression and creativity.
(e) growth rate. Time and size contribute to the institutionalization of the management attitudes, the communication hazards and the coordination bottlenecks. The evolutionary phase of an organization is usually the slow-growth periods which might last for several years at a time. This can be followed by a period of substantial turbulence-the phase of revolution. Though evolution can be prolonged and revolution delayed and though at times that may be bearable, a significant change may still become unavoidable. As an organization feels the weight of the requirement for growth, the earlier management style tends to snap. Communication from the top management tends to become less effective and the coordination becomes strained. As solutions are found, new problems are createddelegation of decision-making authority causes problem of control, for instance. This perspective of development, though the researchers are continuing to study it more and more, cannot possibly be fully appreciated in all its ramifications. Yet, an appreciation of an adequate nature is necessary in any planning exercise. As Forrester13 says (though in a somewhat different context): Man, if he understands well enough and acts wisely, can choose a path out of the conflict of world pressures and is more favourable than present . . policies portend.
A point of great interest is the coordination effort and its relevance to goal congruence. SkinnerI
Relevance Aspects
of Project
Management
As the company in the present case study (EPL) has a large project management component, it may be worthwhile to study how the project management works and its problems and the opportunities. StewardI says that project management in industry is usually a trade-off between standard functional alignment and pure project management. A project is a critical mass of tasks. If a company’s stake lies in the success or failure of an undertaking of this nature, than a project management concept may be the best to apply. A project manager must maintain a strong lateral relationship with the members of his project team from many functional areas. Additionally, working relationships with other functional department heads and other project managers (especially with regard to limited resources available, e.g. equipment, labour, etc.) are among the responsibilities of a project manager. The decision pressures thus created and the organizational uncertainties, not least due to top management’s whims, are among the sources of trouble. A project’s success or failure depends to a large extent on the successful overcoming of these stress elements-‘the managing of the human equation’. Additionally, of course, a reasonable degree of freedom to accomplish the task and the top management commitment and support are also needed.
Strategic
Planning-A
The project management, so to speak, is superimposed on the traditional functional organization, creating two operating systems, each with its own problems and constraints. The project manager, in addition to his responsibility of operating within the boundary of a traditional organization, may also have to deal directly with other organizations, i.e. sub-contractors who supply labour, services, etc., or in some cases the project itself may be a subcontract job of a much larger job. This situation often causes the project manager to work under considerable stress. There are other obvious constraints too, i.e. the budget, the time schedule and the performance and the quality requirements. In this sense a project management is a unique concept and is not bound by the constraints of a vertical chain of command, functional separation or distinct line and staff activities. 17*18 The project operates within a unique boundary of its own, as an overlay organization, with a high degree of boundary relevance and inter-boundary contact. In assessing the performance of a project manager vi+&is his project, due consideration to all these factors should be given. In a planning context, such considerations may provide a different dimension of what can be expected as compared to what has been achieved.
The Contingency Planning
Approach
to
As the 1970s progress into 1980s the accelerating rate of change has become the subject of increasing awareness and research-the ‘in’ words are ‘transience’ or ‘ad-hocracy’.19*20 Long planning horizons are still feasible, but an organization must remain prepared to deal with the unforeseen events as and when they occur. The response method to these fast changing conditions is not very clear; no sophisticated method such as extrapolation is possible, nor perhaps desirable. One responsive rationale that some theorists tried to develop was the contingency approach. These theorists contend that the nature of an organization’s technology, its interface with the environment, its products and the market, its size and multiple other dynamic factors offer opportunities as well as constraints and therefore set the ‘tone of the organization’s adaptation’.2’ Contingency approach to planning ought to be distinguished from contingency planning.22 While in the former, the situation and the constraints are taken into account in what is being planned for and in the methodology of planning, the latter means the adoption of an alternative strategy in the case of a specific strategy for a specific situation not materializing. Contingency planning is more like alternative operational plans. What is more relevant from an organization viewpoint is to concentrate on a responsive structure rather than on some specific directions, in a strategy planning context.
Contingency
Approach-Part
2. The Plan
49
The ‘weak signals’ as indicated by the market should form the basis for change. In the case of EPL for instance, the ‘weak signal’ was its incapability to undertake a ‘turnkey’ project or its inability to build a structure complete in terms of top and bottom structural requirement. Yet another ‘weak signal’ was the fact that EPL needed to grow but its top management was less than fully committed because of their pre-occupation elsewhere. Stanford23 states that there is no ‘rule book to tell you when to innovate or when to follow or not follow a trend. These decisions are some of the most critical that you can make, and if you ignore them or are unaware of them, the industry may make a decision for you which you may never know about but that will affect your company’.
The Evaluation
and the Plan
The decision process of evaluating alternatives and focusing on a strategic plan is, of necessity, a rather complex one. It is a process which will involve intuitive judgment, as well as a disciplined method of questioning and gathering information.24 Though intuitive judgment may not be wrong, a formalized approach may enable the planners to avoid the fixation of an idea. Hussey,25 in giving a warning against this kind of trap, says-‘1 do not claim that planning is easy for all industries . . . I think that the more difficult it is, the more it is needed and I cannot accept that it is right for a company to opt out of thinking about its future.’ On a similar vein, Drucker26 states: . . . tomorrow always arrives. It is always different and then even the mightiest company is in trouble, if it has not worked on the future. . . . It will neither control nor understand what is happening; not having dared to take the risk of making the new happen, it took the much greater risk of being surprised by what did happen. And this is a risk that even the largest and richest company cannot afford and that even the smallest business need not run.
Some managers claim that planning is costly and will not work. But, as Hussey points out, benefits are almost impossible to weigh since one is always in an ‘either or’ situation in a case like that. Nor is it a question of usurping some of the chief executive’s power. Top management alone is the final step of the planning process. It is a question of delegation, not abdication. Newman and Logan 27 have listed the following dimensions of selecting a company strategic plan: The product-market scope, i.e. products or services offered or could be offered for which some segment of the society would be prepared to pay.
(b) Future
orientation, i.e. where the company should be headed to having regard to new products, new customers or markets, new competition and new opportunities.
50
Long Range
Planning Vol. 16
December
(4
Matching strengths to market needs, i.e. probable competition, the company’s own strengths and limitations in meeting this competition.
(4
The adoption of multiple niches, e.g. IBM successfully entered the electric typewriter market in addition to being a dominant company in the computer field.
(4
The objectives to be met, e.g. what long term results to be attained?
VI The kinds of synergy to be exploited, e.g. what extra mutually reinforcing synergistic benefits could be obtained through the adoption of a certain strategy. For instance, in the case of EPL, if the company could build its own bottom structure building capability, then it could swiftly move to the position of undertaking complete turnkey projects such as jack-up rigs. While there is a strong market for turnkey jobs-sub-contract jobs were rather spin-off in nature yielding low profits.
1983
weaknesses. The factors considered, amongst others are : Growth rate, market share, profitability, technology position, market diversity, image, competitive structure, social environmental and human elements, etc. A systematic analysis of these factors will produce a model which would be more comprehensive than the one provided by the Boston Group. GE’s model is basically the answer to what Drucker says about the vulnerability of all organizations, big or small, to the uncertainties of the future. Though it appears merely as an expansion of the basic model proposed by the Boston Group, the work involved would be comprehensive. More important, it is an annual rather than an ad hoc exercise. GEs Model
With regard to techniques relating to strategic advantage analysis-one of the first contributions was made by Boston Consulting Group.2* The matrix model they provided has the following appearance:
High
Medium
Growth
Growth
Low
Low potential
Growth Low potential
Boston Group Model
Low potential
Competition
High
Low
Star areas-will need cash but offers best opportunities
? ‘Question marks’
Cash-cow. Low growth areas. Requires less investment but generates cash
Dogsdivestment areas
$
As an extension of this analytical approach, Hofer30 has proposed an analytical tool which would help identify what the company’s strategy has been: a reduced version of his policy tree is given below:
3 s
Undercut
Competitive position
While the model itself is sufficiently selfexplanatory, there are two things to be mentioned:
(4
The products of a company may not neatly fall into the respective compartments. Hence, the basic matrix may need to be expanded. The question mark area may require deeper analysis and the answer is partly a matter of perception. For instance, in a high growth market, even a somewhat late entry may be possible and a certain amount of market may be captured if there are factors which indicate such a possibility.
In its annual planning exercise, GE’s~~ businesses are analysed in terms of their strengths and
Market
Development
Product Range
Pricing
Technological
Hofer then proposes a resource-deployment matrix which would indicate where a company is currently exerting its efforts and has been doing so in the recent past. If the company’s functional area policy tree is examined against similar trees prepared (as far as possible) for its competitors and then examined against its resource deployment matrix, and if this is done systematically at regular intervals of periods, the technique would indicate where the company’s position ought to be strengthened and its limited resources used.
Strategic
Planning-A
Contingency
Glueck31 maintains that, with regard to reality of strategic advantage analysis: (a) very little research work has been done, and (b) the process is not completely
scientific.
The absence of adequate research is one of the reasons why this paper is allied with a case study and a mention of this has been made in the proposition. That the process is not completely scientific is obvious, but that is all the more reason why an open-minded approach has been advocated in this paper. It was rather in this context that the discourse of Skinner was quoted in the earlier chapter and one would like to go with Sir Winston Churchill in replying to the suggestion that science will ultimately be able to control man’s thoughts with precision:
2. The Plan
a full process of information gathering and assessing others’ views on the company, market, products, competition, etc.; an adequate analysis of the company’s internal strengths and weaknesses; an objective information;
marrying
of the two
It is mostly in view of this and the fact that strategic advantage analysis is in its infancy that Glueck has expressly refrained from making any specific propositions. Katz 33 has given the following advice on making a strategic choice: Always lead from strength--choose maximizes the present strength . . .
the alternative
that
Concentrate resources where the company . . has a meaningful competitive advantage and ignore small products . . . Small companies should be as inconspicuous as possible, but should choose products or markets neglected by the large companies.
Katz’s advice is essentially the same as that that has been given by Hofer, in that a company has to decide, not by intuition but by a methodical information gathering process, as to where its strength lies on a long term basis, which alternative
Top managers Planners Board
Verbal search Occasionally Occasionally Occasionally
strategic selection
(a) Managerial perception of external dependence. (b) Managerial
risk perception.
(c) Awareness of past enterprise strategies. (d) Power relationships and organization structure. The facts of the external world may be interpreted differently by different companies, or different executives of the same company. Thus the weights given to strategic alternatives will vary. Though risk is a necessary element in business, what risk is acceptable and in what form will depend on the managerial perception of risk. Industry volatility will be one factor which will influence the risk perception. Balancing risks is one of key managerial functions.34 Past strategies are the beginning point of a new strategy. This has been confirmed by the research work of Mintzberg, 3s Miller and Friesaw. When an existing plan begins to fail, new sub-strategies are grafted onto it and only at a later stage a new strategy is thought of. This explains why changes at the top may be necessary to try a new strategy altogether. By analysing the strategic choices of 358 Fortune companies over 45 years Glueck reported that while
Table 1. Analysis
Strategies
sets of
drawing up of an action plan with regard to the company’s objectives. Glueck has listed the following factors:
Though a precise methodology of the assessment process and pinpointing the strategy is hardly possible or even desirable, a comprehensive and methodical search process and information gathering are recommended. However, GlueckJZ maintains that the strategists conduct this search inadequately and gives the table (based on his own research) (Table 1).
51
would truly maximize its competitive position and what is the exact profile of its competitive advantage (and so forth). Here again, one would be tempted to conclude that only the broadest perspective could provide the solution to the basic question behind any strategic planning exercise-where the company goes from here? And such a perspective is only feasible via the routes of:
I shall be content if my task in this world is done before that happens . . .
Approach-Part
Documentary search Rarely Rarely Rarely
Formal studies
MIS
Rarely Occasionally Rarely
Rarely Rarely Rarely
52
Long Range
Planning Vol. 16
December
1983
about 54 per cent of companies followed a growth strategy, about 29 per cent followed a combination approach. Glueck also maintains that in a more developed strategic management, alternative strategies are prepared to meet changing conditions. Glueck quoted a Business Week report which stated that companies are reviewing and revising plans more frequently in line with changing conditions. Instead of relying on a single corporate plan with some variations, top management at more and more companies are now considering a whole battery of alternatives and contingency plans.
should learn to develop and is a mark of entrepreneurial process-is the Quick Reaction Capability (QRC).36 This will enable the planners to grasp the opportunities that appear in the horizon and do not allow a great deal of time to study. Some theorists 37 have labelled ‘adaptive’ approach as ‘bargain hunting’ and criticised it as wasteful. The ‘inside-out’ approach has also been criticised on the ground that such an exercise will seek to find justification for mispurchased investments. Even management by objective has been faulted on the basis that it would seek to confirm a current strategy rather than develop a new strategy.
Some Concluding
These criticisms have certain validity, of course. But strategic planning will have to be an organized approach. It will have to be a line of action which
Remarks
One of the key elements-that Contracts
strategic planners Department
Co-ordinate
with the Following Sections and
will See to the Completion
of the Project
I +
r
I
1
I +
1
Purchasing Manager
Liaise with Engineering
Procurement of Material, Nozzles, Dishheads, etc.
(1) (2)
Dept.
Design Details, Generation of Fabricatiing Drawing
Cost Control Planning
and
(1) Work Out Service Changes in Detail (2) Tender for Contractors (3) Production Planning and Control
Liaise with Site and Production Shop
(1) Site and Production (2)
Fabrication
Procedures
I
I
,’
There is Generally Some Communication Between Different I I
/
\
,, I
Sections but not a Great Deal of Feedback Ah
r
Client Liaison (1) (2) (3) (4)
Design Procedures Fabrication Drawings Fabrication Procedures Quality Control
Quality Control 4-b
Inspection
Inspection by Own Q.C. Dept. and Third Party Inspectors Such as ABS, Lloyd, NV, BV, BEI. Hydraulic Test, Stress Relief etc.
Operation
Figure 3
and
and
Services
ED Repair
Strategic
Planning-A
would be appropriate. Seymour Tille?* has emphasized on this appropriateness both with regard to firm’s internal resources and the time horizon. He also emphasized the workability of a plan. Argentr ‘3g advocates a similar approach and further suggests that the weaknesses should be reduced while working on the opportunities. Rumelt4’ proposes consonance-an adaptive response to the external environment and the changes that are occurring within it and feasibility-a workable strategy within the possible stretch of available resources and a plan that does not create unsolvable sub-problems. The managerial perception of risk as a strategic selection factor has already been mentioned, as also the fact that the balancing of risks is a key managerial function. With this perspective in mind, it is hard to deny the key role of an ‘adaptive approach’ in a strategic planning exercise.
Case Study Continued-EPL
Ltd.
An assessment of the opinions expressed by the executives reveals that a great deal of weaknesses lie, so far as organizational set up is concerned, in the areas of contract management, contract coordination, cost information, liaison with the customers and design and fabrication. In Figure 1, a flowdiagram linking some of these functions is given. It reveals the communication bottleneck among the functional responsibilities. A further weakness appears to be, which stems from the company’s recent troubles, the extent of supervision undertaken by the GM himself and his inability to properly functionalize and delegate.
Contingency
I
b>
c
2. The Plan
53
The supervision process is less than satisfactory. To a great extent shop floor management inexperience is probably responsible for cost over-runs. Figure 2 is a possible learning curve for pressure vessel fabrication. Whereas this should be the predicted pattern, in reality it seldom follows this pattern. There also appears to be somewhat inadequate awareness of the growth opportunities and readiness to grasp it. In Figure 3, prepared from reliable sources of statistics, it appears that the sector of industry in which EPL is operating enjoys strong growth prospects. Yet, the company has shared in this in a rather defensive way. It was unable to shed its obviously unprofitable lines, e.g. small-sized vessels. Figure 4 shows the results of two wellknown companies operating in Singapore, both being principally in rigs building and other marine construction business (sales figure not available). They both indicate a very favourable position and this situation continues. One of them started business about 10 years ago, about the same time as EPL started its business. Its projected sales in 1980 was about $140m+, compared to EPL’s $50m (obtained from sources other than published accounts). A product-profitability matrix is given in Figures 5 and 6, but a word of caution must also be given. The range of product is large and though they indicate a range of experience, in the opinion of the writers most of these products other than modules and living quarters of some types do not show much promise. The marketing manager confirms as much. Most of them indicate an inability to undertake a complete construction job. This is the greatest technology weakness which should be rectified. Comments weaknesses below.
a>
Approach-Part
on some specific areas highlighting as well as opportunities are given
Additional Fixed Investment EPL has a high overhead cost structure which is unsustainable with lower value-added products like small carbon steel vessels, particularly in view of keen competition from small operators with low overheads. To attain higher efficiency and productivity in the high value-added products, the company needs to make additional investments. That there is a possible under-investment in fixed assets which is brought out by the high ratio of sales to net fixed assets at 10 to 1.
I 20
1 2.5 Size of Vessel (Tonne)
Figure 2. Learning curve on pressure vessel fabrication
EPL clients have also expressed the opinion that the company should acquire more equipment for faster welding, pipe fabrication and tube sheet drilling for heat exchangers, and for increased rolling capacity.
54
Long Range Planning Vol. 16
December
1983
180% -
160% -
80% -
I
I
I
I
I
I
2nd
3rd
4th
1st
2nd
3rd
60%
1st
I 4th
I
I
I
1st
2nd
3rd
I 4th
I
I
1st
2nd
~-1978’1979~1980~
1. 2. 3.
Petroleum Refining & Related Products. From 1981 Onwards PSC Products will be Added. Electronic Products. It is Expected to Grow Through Eighties. Ship Repairing, Rigs, Pressure Vessels, Living Qtrs. Etc. 1979 Experienced an Overall Growth of 20%+. Strong Growth Exists in 1980 too.
Figure 3. A graphical presentation
of important
Singapore industry groups growth in recent periods
Company 79 Profit Before Tax
21,307
Sales
-
Company - II
- I
79
78 15,811
3006
-
-
Net Assets
44,455
43,326
29,316
Percentage of Profits to Net Assets
47.9%
36.5%
10.25%
Fixed Assets (Net)
14,070
16,428
35,959
EPL -
1979
78
(2530) -
(Not Published)
14,846 (17%) 19,848
(‘000 S$)
Sales Profit (Loss)
30,000 (2043)
Net Assets
6002
Fixed Assets
4535
Percentage of Loss to Net Assets
34%
Ratio of Sales to Net Assets
3.19
-
Includes Prov. on WIP of About $2m
Figure 4. Results of two well known companies in Singapore in marine construction-mainly
rigs
Strategic Planning-A
Contingency
Approach-Part
2. The Plan
55
Prospects for Profitability
I
I
I
Unattractive 3
Attractive 1
Average 2 Cl
c2
c3
Jobs of Low Priority
Divestment
Bl
82
I33
Improvement in Technique and Design is Needed
Need for Careful Investment Policy
Jobs of Low Priority
Al
A2
A3
Need to Choose Whether to Abandon or Go All Out for Success
Area Towards the End of its Life-Cycle
Degree of Mechanization Needed to Cut Down Cost
Justification for Continued Investment to Maintain Leadership
Figure 5 Class Description
Site or Shop
Remarks
Al
Living Quarters
Site
Strong
Bl
Production
Site
Lack of Process Design
Al
Mooring Units
Site
Strong
Cl
Heat Exchangers
Shop
Lack of Equipment
A2
Clad Vessels
Shop
Strong
A3
Carbon Steel Vessels (Small Size)
Shop
Too Competitive
A2
Carbon Steel Vessels (Large Size, up to 2OT)
Shop
Medium Profit
Bl
Pipe Work
Shop
Lack of Special Equipment
Modules
A3
Bulk/Silo/Storage
Site/Shop
Too Competitive
Bl
Columns
Site
Lack of Design
C2
Jackets
Site
Limited Size
C2
Cranes
Site
No Design
C2
Hatch Cover
Site
No Design
Tank
C3
Dredges
Site
No Design
82
Separators
Shop
Lack of Design
Cl
Other Process Design and Turnkey Projects
Site/Shop
Lack of Design/ Experience
Figure 6 Some Proposed Capital Expenditure $ Estimated cost of additional machine for tube-sheets
special
drilling 1 ,ooo,ooo
Estimated cost for automatic welding machine (for pressure vessels)
200,000
Estimated
500,000
cost for pipe fabrication
facilities
Estimated cost for additional rolling machines (for pressure vessels and other products)
1 ,ooo,ooo
Total
2,700,OOO
The pay-back period should be about 24 years. The above list is not quite comprehensive but merely indicative.
If a decision is made to move to a significantly higher technology level, then a completely new study will be required. So far as finance is concerned, there is little problem as the Group has surplus cash. The most promising area in which substantial investment may appear worthwhile is rig-building. Site Development There appears at present to be a shortage of site space for large construction jobs. Unlike some other fabricators in the region, the company has a significant sea frontage which enables it to take large-sized construction work. As marine activity in general is picking up in the region the demand for
56
Long Range Planning Vol. 16
December
products like rigs, modules and living quarters will continue to grow, as confirmed by the market survey. EPL’s limited experience gained in this area may need to be developed to exploit this market in the future. To go into these jobs in a major way, a larger site will have to be sought. But one would like to see that this be approached with due caution and with a positive management commitment to building a medium to long-term capability.
by the design office where standard analysis and procedures can be stored. Work
Level
With rising labour costs, engineering companies in Singapore must increasingly seek to move into value added products. This often means using higher technology and heavier investment in production facilities. EPL cannot compete in the long run unless it moves away from labour intensive lower-level fabrication work which competitors here and abroad with lower overheads will be producing more cheaply. The recommended market strategy and capital investments have been made within this broad perspective. Executives
In the course of the interviews with the executives of the company the writers felt that managers at some levels are hampered by the system within which they operate. For example, they seem to be not adequately informed on cost performance of the projects under their control. To attain better overall control, the writers suggest appropriate delegation with accountability for costs deviations and meeting schedules for completion. Contract
Management
and Coordination
There appears to be insufficient coordination between contracts and other departments. A closer liaison should result in contracts schedule being properly coordinated. Project managers should also be assigned greater responsibility. Cost Performance
Report
The impression obtained is that site, shop and engineering departments are totally unaware of the cost figures on a current performance measurement basis for control purposes. This information processing function is inadequately developed. Welding
Deficiencies
This point has featured in many discussion. Additional personnel should be hired who should participate actively during the design stage of the various vessels etc. to rectify the design faults since a large proportion of customer complaints are related to welding. Computerization
of Quotation
System
Standard information such as material cost, instrument cost, labour and overheads should be stored and categorized by a computer system. Such information should be retrievable by key personnel. This will produce a much faster and more accurate quotation. The computer system can also be used
Study
A work study department is essential for setting up of standards in the shop. The need for this is evident and this will, over a longer run help the shop performance control and increase productivity. Projit
Technology
1983
Outlook
After the lull in the period prior to 1979, the market looks particularly promising, and the company should generate reasonable profits and cash flows during the next 3-5 years if marketing and tight cost controls can be effective. The projected profits for 1980 through to 1982 appear satisfactory. But it is not likely to sustain very long unless the company moves into higher technology. The company is in a growth industry so that if 1980 profit levels are the start of a healthy trend, there should be sufficient cash and economic justification for increased investment to upgrade technology and shop capabilities. In this respect a hesitant approach would result in another opportunity missed. Contribution
Margin
and Overheads
The contribution margin (sales minus material, labour including contract labour and direct expenses) is about 25 to 30 per cent-on a projected 1980 budget basis. EPL’s margin is rather low and the company’s survival will depend on its improvement. The company’s overhead costs are high for its level of turnover. The 1980 projected overhead budget is about $8*5m of which staff salaries and indirect labour accounts for about $4*2m. This means a breakeven point of roughly about $35m turnover. The overhead costs have constantly risen at a fast pace and the apparent reasons for this increase are the increased costs of salaries and wages, electricity, LPG and maintenance costs, etc., and a budgeted repairs and maintenance cost of about $0_6m in 1980, or about 12 per cent of the net fixed assets. It is clear that the overhead burden should be reduced or a higher contribution margin attained in operations. Productivity
The company’s labour productivity rate, as measured by sales to direct labour plus contract labour cost ratio, is lower than other comparable firms in the industry. It was advised that shops experience about 30 per cent overrun over most cost estimates. Product mix can account for some but not all the differences. Problems
of Price Estimates
The company’s price estimates for tenders and quotations may be a source of weakness. Wrong cost allocations not only affect pricing, but also
Strategic
Planning-A
result in erroneous profit and loss measurement. Pricing is currently done by charging overhead rates according to an absorption schedule which is partly based on labour cost and partly on material and other direct expenses involved. The method appeared not logically constructed having due regard to the current operations. This method of overhead application tends to grossly overcharge overheads to the products fabrication shops. Overheads, as far as feasible, should be identified with either shop operation or construction operation and charged directly to each accordingly. The amount charged to each job should be based on its percentage absorption of labour or prime cost. Joint costs can be apportioned to shop or construction on the basis of revenues from each area.
The Broad Recommendations Strategic Development
for
Option 1 The company should increase its investment in equipment by a modest amount of around $3m in order that it can undertake the fabrication of heat exchangers, h’ig h er value added pressure vessels, pipes and tanks in a more productive and efficient manner. The authors also recommended a major review and overhaul of the management information system within the company with a view to more effective cost control. At the same time a core group of managers should be developed with appropriate specialization in the various product lines. These managers should not only be able to assume responsibility but would also be willing to pass their expertise to the next line of managers. In accordance with this strategy, the company can expect to be profitable in the engineering fabrication business for the next 5 years, but is unlikely to enjoy a spectacular rate of growth. The risk of major losses in any particular year can be considered to be quite low provided management keeps a tight control on costs and overheads and exercises care and prudence in its pricing procedures.
Contingency
Approach-Part
achieve a desirable operations.
degree
57
2. The Plan of
stability
in
its
Option 3 If the Group considers its management and financial resources can be better applied in more lucrative investments elsewhere then the company will have to continue in its present state of unimpressive productivity and less than adequate machinery capabilities. Profit margins cannot be expected to improve greatly and as labour costs continue to rise, the company will find itself no longer in a competitive position compared to the small timers around the region who can engage in the same kind of fabrication work at a much lower cost. Failure therefore to step into higher technology products and attain higher value added per worker within production operations must mean the eventual demise of the company. This last option therefore is thus a phasing out of the business. If this be indeed the option chosen by the Group, the authors would recommend that the process be accelerated by a phased disengagement from the industry preferably by finding a suitable outside company to acquire EPL. Implementation It is also recommended that a senior person within the top management is rested with the responsibility to monitor and effect the implementation of improvements and changes, including those that the authors have suggested and are accepted by EPL management. It is felt that a concerted and a formalized effort is made to bring about the necessary changes in an orderly fashion, as otherwise EPL may only remain in a state of knowing its weaknesses and not finding time to rectify them. Postscript These recommendations and analyses were valid, in the opinion of the writers, at the time of writing this article-which was about the beginning of 1981.
Reference (1) Chris Argyris, Integrating The Individualand The Organisations,
Option 2 To take advantage of the tremendous market in rigs and modules and other larger construction jobs, EPL should consider in addition to Option 1 above, a major expansion programme in which increased site space is obtained and large investments would be required in equipment and space. Pursuing such an option will require serious group commitment to the company and the willingness to take some risk, particularly in the initial years. Prospects of growth and profitability are good, and the company may attain turnovers in hundreds of millions of dollars within 5 years or so. This option may essentially enable the company (a) to move to a significantly higher level of technology and (b) to
John Wiley, NY (1964).
(2) R T Golembiewski,
Organisation Patterns of the Future, Personnel Administration, November/December (1969).
(3) J. K. Shank, E G Niblock and W. T. Sandalls, Jr., Balance ‘creativity’ and ‘practicality’ in formal planning, Business Review, Januan//Februan/ (1973). (4)
J. B. Miner, (1978).
The Management
Process, Macmillan,
p. 38
(5)
G. A. Steiner and J. B. Miner, Management Policyand Strategy, Chapter 19, MacMillan (1977).
(6)
D. C. D. Rogers, Business Policy& Planning. Chapter 5, Prentice Hall (1977).
(7)
R. C. Corey and S. H. Stan, Organisation Strategy: A Marketing Approach, Harvard University Press (1971). Also see: A. D. Chandler, Strategy & Structure: Chapters in the History of American Enterprise, pp. 14-I 6, MIT Press (1962).
58
Long Range
(8)
Op. cit. See (7).
(9)
See (6).
December
Planning Vol. 16
(10)
W. K. Hall, ‘SBUs: hot new topic in the management diversification’, Business Horizon (1978).
(11)
See (10).
(12)
L. E. Greiner, Evolution and revolution as organisations grow, Harvard Business Review, July/August (1972).
(13)
J. W. Forrester, World Dynamics, Wright-Allen
(14)
B. F. Skinner,ScienceandHuman (1953).
(15)
of
1983
(27)
W. H. Newman and J. P. Logan, Strategy, Policy & Central Management, South-Western Publishing, 7th Edition, Chapter 4 (1976).
(28)
A. Gerald, A Note On The Boston Counsulting Group Concept of Competitive Analysis and Corporate Strategy, ICCH, June (1976). See W. F. Glueck, Business Policy & Strategic Management, McGraw-Hill (1980).
(29)
A. Michael, Strategic Problems Facing Todays Corporate Planner, Academy- of Management Proceedings, August (1976). G. E. Forbes, Not Recession Proof, but Recession Resistant.
(30)
C. Hofer, The Uses and Limitations Theory, ICCH (1971).
(31)
W. F. Glueck, Business Policy & Strategic Management, McGraw-Hill (1980) and Business Policy-Strategy Formation and Management Action, 2nd Edition-McGraw-Hill Book Co.
Press (1971).
Behaviour, p. 438, Macmillan
F. P. Huddle, Coordination and communication, Management Review, IX (1966).
of Statistical
Decision
California
(16)
J. M. Steward, Making project management work, Business Horizon, Fall (1965).
See (31).
F. J. Jasinski, Adapting organisation to new technology, Harvard Business Review, January/February (1959).
(32)
(17)
(33)
R. Katz, Management (1971).
D. L. Wilemon and J. P. Cicero, The project manager, anomalies and ambiguities, Academy of Management Journal, 13 (3).
(34)
R. C. Anderson and F. T. Paine, Managerial perception and strategic behaviour, Academy of Management Journal. December (1975).
(35)
H. Mintzberg, Research on strategy making, Academy Management Proceedings (1972). See also: Glueck.
(36)
Mr. S. Foster Reed and Professor Alfred Rappaport, in a seminar organized by the Singapore Institute of Management in March (1980).
(37)
See (36).
(38)
Seymour Tilles, How to evaluate corporate strategy, Harvard Business Review, 41 (1963).
(39)
J. Argenti, Systematic Corporate Plenning, John Wiley (1974).
(40)
R. Rumelt, Evaluation of Strategy: Theory and Models, Refer Glueck.
(18) (19)
A. Toffler, Future Shock, Bantam Books, NY (1971).
(20)
P. Drucker, (1969).
(21)
S. K. Mukhi and H. J. Potts, BusinessStrategy& Hall, Australia (1981).
(22)
S. Ft. Michael, Guidelinesforcontingencyapproach Long Range Planning, 12 (6). 62-69 (1979).
(23)
M. J. Stanford, Management
(24)
S. K. Mukhi and H. J. Potts, BusinessStrategy& Hall, Australia (1981).
(25)
D. E. Hussey, Introducing Corporate Planning, Pergamon Press (1971).
(26)
P. Drucker, Managing For Results, Heineman (1964).
The Age of Discontinuity,
Harper & Row, NY Policy, Prentice to planning,
Policy, Prentice-Hall
(1979).
Policy, Prentice
of the Total Enterprise, Prentice-Hall
of
Long Range Planning, Vol. 16, No. 6, pp. 46 to 58, 1983 Printed in Great Britain
Strategic Planning-A Contingency Approach The Plan
0024-6301/83 $3.00 + .OO Pergamon Press Ltd.
Part 2.
B. C. Ghosh, School of Accountancy and Business Administration and A. Y. C. Nee, Department of Mechanical and Production Engineering, National University of Singapore This is the second article on the subject of the adaptive approach to business strategy formation exercise and illustrates the approach with a case study. Part 7 appeared in the August 7983 issue of the Journal.
Organization Planning* and Its Effect on Strategic Planning Though some have lamented its demise, the managerial ‘push theory’ has now been largely replaced with some modified form of the ‘pull theory’.’ Organizations increasingly need superior performance of more and more of their employees, and these contributions are of a character such that they must be elicited more than forced. Golembiewski’ suggests that the ‘pull theory seems congenial to the technology of the future’. He talks about motivating individuals to group effort and the development of a ‘viable integrative function’. Organizations will evolve to fit people in the design of tasks and structure. In the process, the emphasis will shift from ‘particularistic to integrative departmentation’. Golembiewski also emphasizes on ‘an organizational climate having the minimal constraints consistent with quality performance’. This, he says, ‘is the essence of contemporary stress on manage-
Dr A. Y. C. Nee is Senior Lecturer in the Department of Mechanical and Production Engineering and Mr. B. C. Ghosh is Senior Lecturer in the School of Accountancy and Business Administration, both at the National University of Singapore, Kent Bridge, Singapore 5. ‘A great deal has been written on organizational theory, but the purpose of this section is to generally relate it to planning needs and underline the relevance of an organizational framework to the strategic growth.
ment by objectives’. The newness is the trade mark of our times and it is poorly served by bureaucracy. Bureaucracy with its tentacles hopelessly intertwined not only is incapable of dealing with changes adequately, it also resists change. No organization structure can be without its element of bureaucracy entirely, but the ‘surplus repression’ which is seen as a major product ofbureaucracy is to be kept at a minimum. One can be ordered to obey, but not to be creative--since that is another matter altogether. In designing a long term corporate plan, a company is likely to face two conflicting goals? (a) management would like the planning to reflect pragmatic judgments, but (b) it also forward
function
wants the planning function looking, creative and assertive.
to
be
This viewpoint is somewhat similar, in an organization perspective, to the contingency concept. ‘The contingency approach has the appeal that it permits a reconciliation of viewpoints previously considered to be in direct opposition to one another.4 Though a great deal of research work still remains to be done with regard to environmental uncerstability and constraints, etc. and their tainty, effects on the contingency approach,5 the authors suggest that the concept is of great value in a strategy development context. The concept is analogous to, though not the same, as the combination approach to strategy formulation. The view essentially states that the best way to organize and manage varies from situation and that companies should be organized and operated differently depending on their circumstances. The circumstances will vary from time to time and the
Strategic
Planning-A
functions within a company, bearing goal congruence though in mind, may need a variety of approaches to induce appropriate role behaviour which would be in line with role prescriptions. Ideally, it should be possible to specify the situations in which a certain approach would work best. However, in practical terms, it is hardly possible. Also, if we recall the ‘open constraint’ concept of the decision process, then it is possible to form some guide-lines for planning at this stage:
(4
a variety of approaches is necessary in formulating a strategy-the combination approach;
04 a
variety of motivational methods may be adopted to strike a right balance between the ‘practicality’ aspect and the ‘creativity’ aspect of a strategic plan;
(4
the decision process should essentially be ‘open constraint’. In adopting a certain plan or a certain management style to realize the plan, lines must be kept open for feedback. More informed a decision, better it will be in the conditions of today’s uncertainty.
The overall style and approach is not intended to be one of inconsistency as time passes, but to provide sufficient ‘wriggle room’ so as not to stifle initiative and creativity. Rogers6 maintains that corporate strategy and organization structure are closely associated concepts. ‘The organization structures should be arranged by the dictates of strategy’-and not by industry pattern. He does not deny that there are some general patterns or ‘caveats’. One man organization develops into a functional one. Multinational companies divisionalize on a geographical basis on the assumption that the variables and problems of one place will be different from those of another place. Organizations also grow on a product-group basis as they become larger, or functions may develop on a project-organization basis which would be more self-sufficient from a control viewpoint. A logical extension of this development should be acceptance of the market point of vieworganizing companies or divisions to serve specified customers. Many U.S. companies including GE have re-organized on the basis of this concept which may presage a further wave of re-structuring. Essentially, it stands to reason that as market conditions change and as strategies are re-shaped, organization should accordingly respond.’ This is a continuous change process-today’s organization shaping tomorrow’s strategy and that strategy influencing tomorrow’s organization.* In the 1960s and 1970s the conceptual difference between a strategic manager and an operating two-hat concept-became more manager-the crystallized. Rogers’ quoted the instance of Texas
Contingency
Approach-Part
47
2. The Plan
Instrument where operational units and profit centres were called upon to function within strategic goals and according to a Tactical Action Programme (TAP). In the 1970s the GE, however, approached the task by separating operations from strategy. Superimposed on the operating structure was the new concept of strategic business unit (SBU). Each SBU component must have a unique business mission, a clearly defined competition and be capable of accomplishing an integrated strategic planning with respect to products, markets organization etc. A SBU manager would be evaluated on his strategic plans and his adherence to plans, rather than on short run results. GE’s main problem in the 1960s was massive sales growth but little profit growth. Indeed, return on assets actually fell. It was then realized that their vaunted system of management decentralization was not giving the desired result and the rather intuitive development was the SBU concept. In the earlier days the divisional plans ‘were either overly optimistic or overly pessimistic . . _ depending upon the corporate culture.10 It was essentially a ‘bottom up top down’ process of negotiation and consensus-seeking which resulted in an approved plan for an upcoming period. Commitment was insufficient and variances were explained by unforeseen, mostly uncontrollable, factors. This did not indicate a grasp of the corporate strategy. Strategic management of units, given their competitive positioning, appeared to be more meaningful rather than a corporate structure based primarily on a span of control. This required substantial re-thinking and re-organizing and resulted in substantial organiiational re-structuring in major companies such as GE and Union Carbide. In assessing the strategic positioning of a SBU (or a unit within a group) two criteria would be significant: (a) attractiveness of the product-market segment (or a possible product-market segment), and (b) the SBU’s competitiveness. Hall”
(or
gives a conceptual
the
overall
matrix as follows:
Low
I
unit’s)
High
I
I High
Product-market attractiveness
Low I
I
Competitive
I
position
A variation of this matrix can be usefully employed to assess the product market/competitive position ofa SBU or unit at the evaluation process. It is quite possible though, that none of the products a company at the moment is manufacturing will fall in the high/high portion of the matrix which as
48
Long Range Planning Vol. 16
December
such could be given the maximum corporate support to be groomed for the future. The feedback from the marketplace-the outside-in views-and the reactions of the company’s management team may well indicate development requirement of a somewhat different nature. This is really an illustration of the ‘open constraint’ concept and its relevance to strategic decision process.‘In the same vein, while low/low product lines might be construed to be those which give a cash return now and from which a company should plan to divest, they may also in certain circumstances provide a base load of work and a launching pad for moving into more promising product lines. As new product ventures may enhance the total risk component of a business, this low/low sector, or more particularly a low/high sector, may not be totally unworthy of any future commitment. In analysing organizational listed five key dimensions:
growth,
Greiner”
has
(a) age of the organization; (b) size; (c) stages of evolution; (d) stages of revolution;
1983
dismisses the assumption of freedom of the individual thought-process in the following words: If science does not confirm the assumptions of freedom, initiative and responsibility in the behaviour of the individual, these assumptions will not ultimately be effective either as motivating devices or as goals in the design of culture. We may console ourselves with the reflection that science is, after all, a cumulative progress in knowledge which is due to man alone, and that the highest human dignity may be to accept the facts of human behaviour regardless of their momentary implications.’
Whatever may be the rationale behind Skinner’s thoughts, it is hard to accept the suggestion that human thoughts and actions can be controlled with precision-that freedom, initiative and responsibility in the behaviour of an individual or individuals are mere assumptions and are not dependable motivating devices. A coordination in the form of ‘mobilization” 5 should be possible whereby individuals having responsibilities to share knowledge and skills can be brought together to pave the way for future congenial and constructive relationships. Though such a process will involve a convenient uniformity of conduct, it must nevertheless retain the element of human freedom of action, expression and creativity.
(e) growth rate. Time and size contribute to the institutionalization of the management attitudes, the communication hazards and the coordination bottlenecks. The evolutionary phase of an organization is usually the slow-growth periods which might last for several years at a time. This can be followed by a period of substantial turbulence-the phase of revolution. Though evolution can be prolonged and revolution delayed and though at times that may be bearable, a significant change may still become unavoidable. As an organization feels the weight of the requirement for growth, the earlier management style tends to snap. Communication from the top management tends to become less effective and the coordination becomes strained. As solutions are found, new problems are createddelegation of decision-making authority causes problem of control, for instance. This perspective of development, though the researchers are continuing to study it more and more, cannot possibly be fully appreciated in all its ramifications. Yet, an appreciation of an adequate nature is necessary in any planning exercise. As Forrester13 says (though in a somewhat different context): Man, if he understands well enough and acts wisely, can choose a path out of the conflict of world pressures and is more favourable than present . . policies portend.
A point of great interest is the coordination effort and its relevance to goal congruence. SkinnerI
Relevance Aspects
of Project
Management
As the company in the present case study (EPL) has a large project management component, it may be worthwhile to study how the project management works and its problems and the opportunities. StewardI says that project management in industry is usually a trade-off between standard functional alignment and pure project management. A project is a critical mass of tasks. If a company’s stake lies in the success or failure of an undertaking of this nature, than a project management concept may be the best to apply. A project manager must maintain a strong lateral relationship with the members of his project team from many functional areas. Additionally, working relationships with other functional department heads and other project managers (especially with regard to limited resources available, e.g. equipment, labour, etc.) are among the responsibilities of a project manager. The decision pressures thus created and the organizational uncertainties, not least due to top management’s whims, are among the sources of trouble. A project’s success or failure depends to a large extent on the successful overcoming of these stress elements-‘the managing of the human equation’. Additionally, of course, a reasonable degree of freedom to accomplish the task and the top management commitment and support are also needed.
Strategic
Planning-A
The project management, so to speak, is superimposed on the traditional functional organization, creating two operating systems, each with its own problems and constraints. The project manager, in addition to his responsibility of operating within the boundary of a traditional organization, may also have to deal directly with other organizations, i.e. sub-contractors who supply labour, services, etc., or in some cases the project itself may be a subcontract job of a much larger job. This situation often causes the project manager to work under considerable stress. There are other obvious constraints too, i.e. the budget, the time schedule and the performance and the quality requirements. In this sense a project management is a unique concept and is not bound by the constraints of a vertical chain of command, functional separation or distinct line and staff activities. 17*18 The project operates within a unique boundary of its own, as an overlay organization, with a high degree of boundary relevance and inter-boundary contact. In assessing the performance of a project manager vi+&is his project, due consideration to all these factors should be given. In a planning context, such considerations may provide a different dimension of what can be expected as compared to what has been achieved.
The Contingency Planning
Approach
to
As the 1970s progress into 1980s the accelerating rate of change has become the subject of increasing awareness and research-the ‘in’ words are ‘transience’ or ‘ad-hocracy’.19*20 Long planning horizons are still feasible, but an organization must remain prepared to deal with the unforeseen events as and when they occur. The response method to these fast changing conditions is not very clear; no sophisticated method such as extrapolation is possible, nor perhaps desirable. One responsive rationale that some theorists tried to develop was the contingency approach. These theorists contend that the nature of an organization’s technology, its interface with the environment, its products and the market, its size and multiple other dynamic factors offer opportunities as well as constraints and therefore set the ‘tone of the organization’s adaptation’.2’ Contingency approach to planning ought to be distinguished from contingency planning.22 While in the former, the situation and the constraints are taken into account in what is being planned for and in the methodology of planning, the latter means the adoption of an alternative strategy in the case of a specific strategy for a specific situation not materializing. Contingency planning is more like alternative operational plans. What is more relevant from an organization viewpoint is to concentrate on a responsive structure rather than on some specific directions, in a strategy planning context.
Contingency
Approach-Part
2. The Plan
49
The ‘weak signals’ as indicated by the market should form the basis for change. In the case of EPL for instance, the ‘weak signal’ was its incapability to undertake a ‘turnkey’ project or its inability to build a structure complete in terms of top and bottom structural requirement. Yet another ‘weak signal’ was the fact that EPL needed to grow but its top management was less than fully committed because of their pre-occupation elsewhere. Stanford23 states that there is no ‘rule book to tell you when to innovate or when to follow or not follow a trend. These decisions are some of the most critical that you can make, and if you ignore them or are unaware of them, the industry may make a decision for you which you may never know about but that will affect your company’.
The Evaluation
and the Plan
The decision process of evaluating alternatives and focusing on a strategic plan is, of necessity, a rather complex one. It is a process which will involve intuitive judgment, as well as a disciplined method of questioning and gathering information.24 Though intuitive judgment may not be wrong, a formalized approach may enable the planners to avoid the fixation of an idea. Hussey,25 in giving a warning against this kind of trap, says-‘1 do not claim that planning is easy for all industries . . . I think that the more difficult it is, the more it is needed and I cannot accept that it is right for a company to opt out of thinking about its future.’ On a similar vein, Drucker26 states: . . . tomorrow always arrives. It is always different and then even the mightiest company is in trouble, if it has not worked on the future. . . . It will neither control nor understand what is happening; not having dared to take the risk of making the new happen, it took the much greater risk of being surprised by what did happen. And this is a risk that even the largest and richest company cannot afford and that even the smallest business need not run.
Some managers claim that planning is costly and will not work. But, as Hussey points out, benefits are almost impossible to weigh since one is always in an ‘either or’ situation in a case like that. Nor is it a question of usurping some of the chief executive’s power. Top management alone is the final step of the planning process. It is a question of delegation, not abdication. Newman and Logan 27 have listed the following dimensions of selecting a company strategic plan: The product-market scope, i.e. products or services offered or could be offered for which some segment of the society would be prepared to pay.
(b) Future
orientation, i.e. where the company should be headed to having regard to new products, new customers or markets, new competition and new opportunities.
50
Long Range
Planning Vol. 16
December
(4
Matching strengths to market needs, i.e. probable competition, the company’s own strengths and limitations in meeting this competition.
(4
The adoption of multiple niches, e.g. IBM successfully entered the electric typewriter market in addition to being a dominant company in the computer field.
(4
The objectives to be met, e.g. what long term results to be attained?
VI The kinds of synergy to be exploited, e.g. what extra mutually reinforcing synergistic benefits could be obtained through the adoption of a certain strategy. For instance, in the case of EPL, if the company could build its own bottom structure building capability, then it could swiftly move to the position of undertaking complete turnkey projects such as jack-up rigs. While there is a strong market for turnkey jobs-sub-contract jobs were rather spin-off in nature yielding low profits.
1983
weaknesses. The factors considered, amongst others are : Growth rate, market share, profitability, technology position, market diversity, image, competitive structure, social environmental and human elements, etc. A systematic analysis of these factors will produce a model which would be more comprehensive than the one provided by the Boston Group. GE’s model is basically the answer to what Drucker says about the vulnerability of all organizations, big or small, to the uncertainties of the future. Though it appears merely as an expansion of the basic model proposed by the Boston Group, the work involved would be comprehensive. More important, it is an annual rather than an ad hoc exercise. GEs Model
With regard to techniques relating to strategic advantage analysis-one of the first contributions was made by Boston Consulting Group.2* The matrix model they provided has the following appearance:
High
Medium
Growth
Growth
Low
Low potential
Growth Low potential
Boston Group Model
Low potential
Competition
High
Low
Star areas-will need cash but offers best opportunities
? ‘Question marks’
Cash-cow. Low growth areas. Requires less investment but generates cash
Dogsdivestment areas
$
As an extension of this analytical approach, Hofer30 has proposed an analytical tool which would help identify what the company’s strategy has been: a reduced version of his policy tree is given below:
3 s
Undercut
Competitive position
While the model itself is sufficiently selfexplanatory, there are two things to be mentioned:
(4
The products of a company may not neatly fall into the respective compartments. Hence, the basic matrix may need to be expanded. The question mark area may require deeper analysis and the answer is partly a matter of perception. For instance, in a high growth market, even a somewhat late entry may be possible and a certain amount of market may be captured if there are factors which indicate such a possibility.
In its annual planning exercise, GE’s~~ businesses are analysed in terms of their strengths and
Market
Development
Product Range
Pricing
Technological
Hofer then proposes a resource-deployment matrix which would indicate where a company is currently exerting its efforts and has been doing so in the recent past. If the company’s functional area policy tree is examined against similar trees prepared (as far as possible) for its competitors and then examined against its resource deployment matrix, and if this is done systematically at regular intervals of periods, the technique would indicate where the company’s position ought to be strengthened and its limited resources used.
Strategic
Planning-A
Contingency
Glueck31 maintains that, with regard to reality of strategic advantage analysis: (a) very little research work has been done, and (b) the process is not completely
scientific.
The absence of adequate research is one of the reasons why this paper is allied with a case study and a mention of this has been made in the proposition. That the process is not completely scientific is obvious, but that is all the more reason why an open-minded approach has been advocated in this paper. It was rather in this context that the discourse of Skinner was quoted in the earlier chapter and one would like to go with Sir Winston Churchill in replying to the suggestion that science will ultimately be able to control man’s thoughts with precision:
2. The Plan
a full process of information gathering and assessing others’ views on the company, market, products, competition, etc.; an adequate analysis of the company’s internal strengths and weaknesses; an objective information;
marrying
of the two
It is mostly in view of this and the fact that strategic advantage analysis is in its infancy that Glueck has expressly refrained from making any specific propositions. Katz 33 has given the following advice on making a strategic choice: Always lead from strength--choose maximizes the present strength . . .
the alternative
that
Concentrate resources where the company . . has a meaningful competitive advantage and ignore small products . . . Small companies should be as inconspicuous as possible, but should choose products or markets neglected by the large companies.
Katz’s advice is essentially the same as that that has been given by Hofer, in that a company has to decide, not by intuition but by a methodical information gathering process, as to where its strength lies on a long term basis, which alternative
Top managers Planners Board
Verbal search Occasionally Occasionally Occasionally
strategic selection
(a) Managerial perception of external dependence. (b) Managerial
risk perception.
(c) Awareness of past enterprise strategies. (d) Power relationships and organization structure. The facts of the external world may be interpreted differently by different companies, or different executives of the same company. Thus the weights given to strategic alternatives will vary. Though risk is a necessary element in business, what risk is acceptable and in what form will depend on the managerial perception of risk. Industry volatility will be one factor which will influence the risk perception. Balancing risks is one of key managerial functions.34 Past strategies are the beginning point of a new strategy. This has been confirmed by the research work of Mintzberg, 3s Miller and Friesaw. When an existing plan begins to fail, new sub-strategies are grafted onto it and only at a later stage a new strategy is thought of. This explains why changes at the top may be necessary to try a new strategy altogether. By analysing the strategic choices of 358 Fortune companies over 45 years Glueck reported that while
Table 1. Analysis
Strategies
sets of
drawing up of an action plan with regard to the company’s objectives. Glueck has listed the following factors:
Though a precise methodology of the assessment process and pinpointing the strategy is hardly possible or even desirable, a comprehensive and methodical search process and information gathering are recommended. However, GlueckJZ maintains that the strategists conduct this search inadequately and gives the table (based on his own research) (Table 1).
51
would truly maximize its competitive position and what is the exact profile of its competitive advantage (and so forth). Here again, one would be tempted to conclude that only the broadest perspective could provide the solution to the basic question behind any strategic planning exercise-where the company goes from here? And such a perspective is only feasible via the routes of:
I shall be content if my task in this world is done before that happens . . .
Approach-Part
Documentary search Rarely Rarely Rarely
Formal studies
MIS
Rarely Occasionally Rarely
Rarely Rarely Rarely
52
Long Range
Planning Vol. 16
December
1983
about 54 per cent of companies followed a growth strategy, about 29 per cent followed a combination approach. Glueck also maintains that in a more developed strategic management, alternative strategies are prepared to meet changing conditions. Glueck quoted a Business Week report which stated that companies are reviewing and revising plans more frequently in line with changing conditions. Instead of relying on a single corporate plan with some variations, top management at more and more companies are now considering a whole battery of alternatives and contingency plans.
should learn to develop and is a mark of entrepreneurial process-is the Quick Reaction Capability (QRC).36 This will enable the planners to grasp the opportunities that appear in the horizon and do not allow a great deal of time to study. Some theorists 37 have labelled ‘adaptive’ approach as ‘bargain hunting’ and criticised it as wasteful. The ‘inside-out’ approach has also been criticised on the ground that such an exercise will seek to find justification for mispurchased investments. Even management by objective has been faulted on the basis that it would seek to confirm a current strategy rather than develop a new strategy.
Some Concluding
These criticisms have certain validity, of course. But strategic planning will have to be an organized approach. It will have to be a line of action which
Remarks
One of the key elements-that Contracts
strategic planners Department
Co-ordinate
with the Following Sections and
will See to the Completion
of the Project
I +
r
I
1
I +
1
Purchasing Manager
Liaise with Engineering
Procurement of Material, Nozzles, Dishheads, etc.
(1) (2)
Dept.
Design Details, Generation of Fabricatiing Drawing
Cost Control Planning
and
(1) Work Out Service Changes in Detail (2) Tender for Contractors (3) Production Planning and Control
Liaise with Site and Production Shop
(1) Site and Production (2)
Fabrication
Procedures
I
I
,’
There is Generally Some Communication Between Different I I
/
\
,, I
Sections but not a Great Deal of Feedback Ah
r
Client Liaison (1) (2) (3) (4)
Design Procedures Fabrication Drawings Fabrication Procedures Quality Control
Quality Control 4-b
Inspection
Inspection by Own Q.C. Dept. and Third Party Inspectors Such as ABS, Lloyd, NV, BV, BEI. Hydraulic Test, Stress Relief etc.
Operation
Figure 3
and
and
Services
ED Repair
Strategic
Planning-A
would be appropriate. Seymour Tille?* has emphasized on this appropriateness both with regard to firm’s internal resources and the time horizon. He also emphasized the workability of a plan. Argentr ‘3g advocates a similar approach and further suggests that the weaknesses should be reduced while working on the opportunities. Rumelt4’ proposes consonance-an adaptive response to the external environment and the changes that are occurring within it and feasibility-a workable strategy within the possible stretch of available resources and a plan that does not create unsolvable sub-problems. The managerial perception of risk as a strategic selection factor has already been mentioned, as also the fact that the balancing of risks is a key managerial function. With this perspective in mind, it is hard to deny the key role of an ‘adaptive approach’ in a strategic planning exercise.
Case Study Continued-EPL
Ltd.
An assessment of the opinions expressed by the executives reveals that a great deal of weaknesses lie, so far as organizational set up is concerned, in the areas of contract management, contract coordination, cost information, liaison with the customers and design and fabrication. In Figure 1, a flowdiagram linking some of these functions is given. It reveals the communication bottleneck among the functional responsibilities. A further weakness appears to be, which stems from the company’s recent troubles, the extent of supervision undertaken by the GM himself and his inability to properly functionalize and delegate.
Contingency
I
b>
c
2. The Plan
53
The supervision process is less than satisfactory. To a great extent shop floor management inexperience is probably responsible for cost over-runs. Figure 2 is a possible learning curve for pressure vessel fabrication. Whereas this should be the predicted pattern, in reality it seldom follows this pattern. There also appears to be somewhat inadequate awareness of the growth opportunities and readiness to grasp it. In Figure 3, prepared from reliable sources of statistics, it appears that the sector of industry in which EPL is operating enjoys strong growth prospects. Yet, the company has shared in this in a rather defensive way. It was unable to shed its obviously unprofitable lines, e.g. small-sized vessels. Figure 4 shows the results of two wellknown companies operating in Singapore, both being principally in rigs building and other marine construction business (sales figure not available). They both indicate a very favourable position and this situation continues. One of them started business about 10 years ago, about the same time as EPL started its business. Its projected sales in 1980 was about $140m+, compared to EPL’s $50m (obtained from sources other than published accounts). A product-profitability matrix is given in Figures 5 and 6, but a word of caution must also be given. The range of product is large and though they indicate a range of experience, in the opinion of the writers most of these products other than modules and living quarters of some types do not show much promise. The marketing manager confirms as much. Most of them indicate an inability to undertake a complete construction job. This is the greatest technology weakness which should be rectified. Comments weaknesses below.
a>
Approach-Part
on some specific areas highlighting as well as opportunities are given
Additional Fixed Investment EPL has a high overhead cost structure which is unsustainable with lower value-added products like small carbon steel vessels, particularly in view of keen competition from small operators with low overheads. To attain higher efficiency and productivity in the high value-added products, the company needs to make additional investments. That there is a possible under-investment in fixed assets which is brought out by the high ratio of sales to net fixed assets at 10 to 1.
I 20
1 2.5 Size of Vessel (Tonne)
Figure 2. Learning curve on pressure vessel fabrication
EPL clients have also expressed the opinion that the company should acquire more equipment for faster welding, pipe fabrication and tube sheet drilling for heat exchangers, and for increased rolling capacity.
54
Long Range Planning Vol. 16
December
1983
180% -
160% -
80% -
I
I
I
I
I
I
2nd
3rd
4th
1st
2nd
3rd
60%
1st
I 4th
I
I
I
1st
2nd
3rd
I 4th
I
I
1st
2nd
~-1978’1979~1980~
1. 2. 3.
Petroleum Refining & Related Products. From 1981 Onwards PSC Products will be Added. Electronic Products. It is Expected to Grow Through Eighties. Ship Repairing, Rigs, Pressure Vessels, Living Qtrs. Etc. 1979 Experienced an Overall Growth of 20%+. Strong Growth Exists in 1980 too.
Figure 3. A graphical presentation
of important
Singapore industry groups growth in recent periods
Company 79 Profit Before Tax
21,307
Sales
-
Company - II
- I
79
78 15,811
3006
-
-
Net Assets
44,455
43,326
29,316
Percentage of Profits to Net Assets
47.9%
36.5%
10.25%
Fixed Assets (Net)
14,070
16,428
35,959
EPL -
1979
78
(2530) -
(Not Published)
14,846 (17%) 19,848
(‘000 S$)
Sales Profit (Loss)
30,000 (2043)
Net Assets
6002
Fixed Assets
4535
Percentage of Loss to Net Assets
34%
Ratio of Sales to Net Assets
3.19
-
Includes Prov. on WIP of About $2m
Figure 4. Results of two well known companies in Singapore in marine construction-mainly
rigs
Strategic Planning-A
Contingency
Approach-Part
2. The Plan
55
Prospects for Profitability
I
I
I
Unattractive 3
Attractive 1
Average 2 Cl
c2
c3
Jobs of Low Priority
Divestment
Bl
82
I33
Improvement in Technique and Design is Needed
Need for Careful Investment Policy
Jobs of Low Priority
Al
A2
A3
Need to Choose Whether to Abandon or Go All Out for Success
Area Towards the End of its Life-Cycle
Degree of Mechanization Needed to Cut Down Cost
Justification for Continued Investment to Maintain Leadership
Figure 5 Class Description
Site or Shop
Remarks
Al
Living Quarters
Site
Strong
Bl
Production
Site
Lack of Process Design
Al
Mooring Units
Site
Strong
Cl
Heat Exchangers
Shop
Lack of Equipment
A2
Clad Vessels
Shop
Strong
A3
Carbon Steel Vessels (Small Size)
Shop
Too Competitive
A2
Carbon Steel Vessels (Large Size, up to 2OT)
Shop
Medium Profit
Bl
Pipe Work
Shop
Lack of Special Equipment
Modules
A3
Bulk/Silo/Storage
Site/Shop
Too Competitive
Bl
Columns
Site
Lack of Design
C2
Jackets
Site
Limited Size
C2
Cranes
Site
No Design
C2
Hatch Cover
Site
No Design
Tank
C3
Dredges
Site
No Design
82
Separators
Shop
Lack of Design
Cl
Other Process Design and Turnkey Projects
Site/Shop
Lack of Design/ Experience
Figure 6 Some Proposed Capital Expenditure $ Estimated cost of additional machine for tube-sheets
special
drilling 1 ,ooo,ooo
Estimated cost for automatic welding machine (for pressure vessels)
200,000
Estimated
500,000
cost for pipe fabrication
facilities
Estimated cost for additional rolling machines (for pressure vessels and other products)
1 ,ooo,ooo
Total
2,700,OOO
The pay-back period should be about 24 years. The above list is not quite comprehensive but merely indicative.
If a decision is made to move to a significantly higher technology level, then a completely new study will be required. So far as finance is concerned, there is little problem as the Group has surplus cash. The most promising area in which substantial investment may appear worthwhile is rig-building. Site Development There appears at present to be a shortage of site space for large construction jobs. Unlike some other fabricators in the region, the company has a significant sea frontage which enables it to take large-sized construction work. As marine activity in general is picking up in the region the demand for
56
Long Range Planning Vol. 16
December
products like rigs, modules and living quarters will continue to grow, as confirmed by the market survey. EPL’s limited experience gained in this area may need to be developed to exploit this market in the future. To go into these jobs in a major way, a larger site will have to be sought. But one would like to see that this be approached with due caution and with a positive management commitment to building a medium to long-term capability.
by the design office where standard analysis and procedures can be stored. Work
Level
With rising labour costs, engineering companies in Singapore must increasingly seek to move into value added products. This often means using higher technology and heavier investment in production facilities. EPL cannot compete in the long run unless it moves away from labour intensive lower-level fabrication work which competitors here and abroad with lower overheads will be producing more cheaply. The recommended market strategy and capital investments have been made within this broad perspective. Executives
In the course of the interviews with the executives of the company the writers felt that managers at some levels are hampered by the system within which they operate. For example, they seem to be not adequately informed on cost performance of the projects under their control. To attain better overall control, the writers suggest appropriate delegation with accountability for costs deviations and meeting schedules for completion. Contract
Management
and Coordination
There appears to be insufficient coordination between contracts and other departments. A closer liaison should result in contracts schedule being properly coordinated. Project managers should also be assigned greater responsibility. Cost Performance
Report
The impression obtained is that site, shop and engineering departments are totally unaware of the cost figures on a current performance measurement basis for control purposes. This information processing function is inadequately developed. Welding
Deficiencies
This point has featured in many discussion. Additional personnel should be hired who should participate actively during the design stage of the various vessels etc. to rectify the design faults since a large proportion of customer complaints are related to welding. Computerization
of Quotation
System
Standard information such as material cost, instrument cost, labour and overheads should be stored and categorized by a computer system. Such information should be retrievable by key personnel. This will produce a much faster and more accurate quotation. The computer system can also be used
Study
A work study department is essential for setting up of standards in the shop. The need for this is evident and this will, over a longer run help the shop performance control and increase productivity. Projit
Technology
1983
Outlook
After the lull in the period prior to 1979, the market looks particularly promising, and the company should generate reasonable profits and cash flows during the next 3-5 years if marketing and tight cost controls can be effective. The projected profits for 1980 through to 1982 appear satisfactory. But it is not likely to sustain very long unless the company moves into higher technology. The company is in a growth industry so that if 1980 profit levels are the start of a healthy trend, there should be sufficient cash and economic justification for increased investment to upgrade technology and shop capabilities. In this respect a hesitant approach would result in another opportunity missed. Contribution
Margin
and Overheads
The contribution margin (sales minus material, labour including contract labour and direct expenses) is about 25 to 30 per cent-on a projected 1980 budget basis. EPL’s margin is rather low and the company’s survival will depend on its improvement. The company’s overhead costs are high for its level of turnover. The 1980 projected overhead budget is about $8*5m of which staff salaries and indirect labour accounts for about $4*2m. This means a breakeven point of roughly about $35m turnover. The overhead costs have constantly risen at a fast pace and the apparent reasons for this increase are the increased costs of salaries and wages, electricity, LPG and maintenance costs, etc., and a budgeted repairs and maintenance cost of about $0_6m in 1980, or about 12 per cent of the net fixed assets. It is clear that the overhead burden should be reduced or a higher contribution margin attained in operations. Productivity
The company’s labour productivity rate, as measured by sales to direct labour plus contract labour cost ratio, is lower than other comparable firms in the industry. It was advised that shops experience about 30 per cent overrun over most cost estimates. Product mix can account for some but not all the differences. Problems
of Price Estimates
The company’s price estimates for tenders and quotations may be a source of weakness. Wrong cost allocations not only affect pricing, but also
Strategic
Planning-A
result in erroneous profit and loss measurement. Pricing is currently done by charging overhead rates according to an absorption schedule which is partly based on labour cost and partly on material and other direct expenses involved. The method appeared not logically constructed having due regard to the current operations. This method of overhead application tends to grossly overcharge overheads to the products fabrication shops. Overheads, as far as feasible, should be identified with either shop operation or construction operation and charged directly to each accordingly. The amount charged to each job should be based on its percentage absorption of labour or prime cost. Joint costs can be apportioned to shop or construction on the basis of revenues from each area.
The Broad Recommendations Strategic Development
for
Option 1 The company should increase its investment in equipment by a modest amount of around $3m in order that it can undertake the fabrication of heat exchangers, h’ig h er value added pressure vessels, pipes and tanks in a more productive and efficient manner. The authors also recommended a major review and overhaul of the management information system within the company with a view to more effective cost control. At the same time a core group of managers should be developed with appropriate specialization in the various product lines. These managers should not only be able to assume responsibility but would also be willing to pass their expertise to the next line of managers. In accordance with this strategy, the company can expect to be profitable in the engineering fabrication business for the next 5 years, but is unlikely to enjoy a spectacular rate of growth. The risk of major losses in any particular year can be considered to be quite low provided management keeps a tight control on costs and overheads and exercises care and prudence in its pricing procedures.
Contingency
Approach-Part
achieve a desirable operations.
degree
57
2. The Plan of
stability
in
its
Option 3 If the Group considers its management and financial resources can be better applied in more lucrative investments elsewhere then the company will have to continue in its present state of unimpressive productivity and less than adequate machinery capabilities. Profit margins cannot be expected to improve greatly and as labour costs continue to rise, the company will find itself no longer in a competitive position compared to the small timers around the region who can engage in the same kind of fabrication work at a much lower cost. Failure therefore to step into higher technology products and attain higher value added per worker within production operations must mean the eventual demise of the company. This last option therefore is thus a phasing out of the business. If this be indeed the option chosen by the Group, the authors would recommend that the process be accelerated by a phased disengagement from the industry preferably by finding a suitable outside company to acquire EPL. Implementation It is also recommended that a senior person within the top management is rested with the responsibility to monitor and effect the implementation of improvements and changes, including those that the authors have suggested and are accepted by EPL management. It is felt that a concerted and a formalized effort is made to bring about the necessary changes in an orderly fashion, as otherwise EPL may only remain in a state of knowing its weaknesses and not finding time to rectify them. Postscript These recommendations and analyses were valid, in the opinion of the writers, at the time of writing this article-which was about the beginning of 1981.
Reference (1) Chris Argyris, Integrating The Individualand The Organisations,
Option 2 To take advantage of the tremendous market in rigs and modules and other larger construction jobs, EPL should consider in addition to Option 1 above, a major expansion programme in which increased site space is obtained and large investments would be required in equipment and space. Pursuing such an option will require serious group commitment to the company and the willingness to take some risk, particularly in the initial years. Prospects of growth and profitability are good, and the company may attain turnovers in hundreds of millions of dollars within 5 years or so. This option may essentially enable the company (a) to move to a significantly higher level of technology and (b) to
John Wiley, NY (1964).
(2) R T Golembiewski,
Organisation Patterns of the Future, Personnel Administration, November/December (1969).
(3) J. K. Shank, E G Niblock and W. T. Sandalls, Jr., Balance ‘creativity’ and ‘practicality’ in formal planning, Business Review, Januan//Februan/ (1973). (4)
J. B. Miner, (1978).
The Management
Process, Macmillan,
p. 38
(5)
G. A. Steiner and J. B. Miner, Management Policyand Strategy, Chapter 19, MacMillan (1977).
(6)
D. C. D. Rogers, Business Policy& Planning. Chapter 5, Prentice Hall (1977).
(7)
R. C. Corey and S. H. Stan, Organisation Strategy: A Marketing Approach, Harvard University Press (1971). Also see: A. D. Chandler, Strategy & Structure: Chapters in the History of American Enterprise, pp. 14-I 6, MIT Press (1962).
58
Long Range
(8)
Op. cit. See (7).
(9)
See (6).
December
Planning Vol. 16
(10)
W. K. Hall, ‘SBUs: hot new topic in the management diversification’, Business Horizon (1978).
(11)
See (10).
(12)
L. E. Greiner, Evolution and revolution as organisations grow, Harvard Business Review, July/August (1972).
(13)
J. W. Forrester, World Dynamics, Wright-Allen
(14)
B. F. Skinner,ScienceandHuman (1953).
(15)
of
1983
(27)
W. H. Newman and J. P. Logan, Strategy, Policy & Central Management, South-Western Publishing, 7th Edition, Chapter 4 (1976).
(28)
A. Gerald, A Note On The Boston Counsulting Group Concept of Competitive Analysis and Corporate Strategy, ICCH, June (1976). See W. F. Glueck, Business Policy & Strategic Management, McGraw-Hill (1980).
(29)
A. Michael, Strategic Problems Facing Todays Corporate Planner, Academy- of Management Proceedings, August (1976). G. E. Forbes, Not Recession Proof, but Recession Resistant.
(30)
C. Hofer, The Uses and Limitations Theory, ICCH (1971).
(31)
W. F. Glueck, Business Policy & Strategic Management, McGraw-Hill (1980) and Business Policy-Strategy Formation and Management Action, 2nd Edition-McGraw-Hill Book Co.
Press (1971).
Behaviour, p. 438, Macmillan
F. P. Huddle, Coordination and communication, Management Review, IX (1966).
of Statistical
Decision
California
(16)
J. M. Steward, Making project management work, Business Horizon, Fall (1965).
See (31).
F. J. Jasinski, Adapting organisation to new technology, Harvard Business Review, January/February (1959).
(32)
(17)
(33)
R. Katz, Management (1971).
D. L. Wilemon and J. P. Cicero, The project manager, anomalies and ambiguities, Academy of Management Journal, 13 (3).
(34)
R. C. Anderson and F. T. Paine, Managerial perception and strategic behaviour, Academy of Management Journal. December (1975).
(35)
H. Mintzberg, Research on strategy making, Academy Management Proceedings (1972). See also: Glueck.
(36)
Mr. S. Foster Reed and Professor Alfred Rappaport, in a seminar organized by the Singapore Institute of Management in March (1980).
(37)
See (36).
(38)
Seymour Tilles, How to evaluate corporate strategy, Harvard Business Review, 41 (1963).
(39)
J. Argenti, Systematic Corporate Plenning, John Wiley (1974).
(40)
R. Rumelt, Evaluation of Strategy: Theory and Models, Refer Glueck.
(18) (19)
A. Toffler, Future Shock, Bantam Books, NY (1971).
(20)
P. Drucker, (1969).
(21)
S. K. Mukhi and H. J. Potts, BusinessStrategy& Hall, Australia (1981).
(22)
S. Ft. Michael, Guidelinesforcontingencyapproach Long Range Planning, 12 (6). 62-69 (1979).
(23)
M. J. Stanford, Management
(24)
S. K. Mukhi and H. J. Potts, BusinessStrategy& Hall, Australia (1981).
(25)
D. E. Hussey, Introducing Corporate Planning, Pergamon Press (1971).
(26)
P. Drucker, Managing For Results, Heineman (1964).
The Age of Discontinuity,
Harper & Row, NY Policy, Prentice to planning,
Policy, Prentice-Hall
(1979).
Policy, Prentice
of the Total Enterprise, Prentice-Hall
of