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The pattern of PPB rejection: Something about organizations, something about PPB
Accounting, Organizationsand Society, Vol. 3, No. 314, pp. 215-225. 0 Pergamon Press Ltd, 1978. Printed in Great Britain.
SOMETHING
0361-3682/78/1001-0215$02.00/O
THE PATTERN OF PPB REJECTION: ABOUT ORGANIZATIONS, SOMETHING
ABOUT PPB
STEPHEN F. JABLONSKY and MARK W. DIRSMITH Department of Accounting and Management Information Systems, College of Business Administration, The Pennsylvania State University
Abstract
“Pathology” is defined in Webster’s dictionary as “. . . the study of the essential nature of diseases and especially of the structural and functional changes produced by them”. Thus, a pathological study can reveal information concerning both a disease or toxin and the organism to which it is introduced. Planning, programming and budgeting (PPB) was introduced in not-for-profit organizations in order to improve organizational planning and control. It failed. The purpose of this paper is to conduct a study in pathology concerning PPB and the not-for-profit organization. PPB is considered to be the toxin. The not-for-profit organization is considered to be the organism. The scalpels employed in conducting the examination were forged in the organizational, planning and control, and general systems theory literatures.
Planning, Programming and Budgeting (PPB) was born immediately after World War II when a talented group of analysts at the RAND Corporation developed and used this decision facilitating mechanism to aid in understanding problems related to national defense. In 1962, The Department of Defense adopted PPB to improve planning and control activities. Subsequently, during what may be considered the resource rich “golden days” of the mid 1960’s, numerous organizations at the federal, state and local levels adopted or were mandated to adopt the PPB framework. As resources dwindled, these not-forprofit organizations began to reject PPB (Novick, 1973). Apparently PPB had failed to accomplish objective its of improving decision-making (Wildavsky, 1975). A question arises as to why a comprehensive planning and control system was rejected as resources became constrained - a situation where such an approach should have been highly useful. The purpose of this paper is to examine the characteristics of PPB and the pattern of rejection, and hopefully learn something from the failure of PPB. This examination is accomplished by reviewing and synthesizing recent empirical studies
of PPB through the use of concepts discussed in the organizational, planning and control, and general systems theory literatures. For purposes of exposition, the paper is organized into the following sections: PPB - Where does it come from, what does it do?; PPB characteristics and the pattern of its rejection - The autopsy begins; PPB _ A general system theory perspective with a twist of magic; and Why PPB and why now?
PPB - WHERE DOES IT COME FROM: WHAT DOES IT DO? PPB has been suggested as one approach which would be useful to the not-for-profit organization for actively searching, learning and adapting to a changing environment. PPB reflects a Western longing for “. . . getting a general grip on things, to be in command, to know what is happening and to spell out one’s own course of action” (van Gunsteren, 1976, p. 56). It represents a specific attempt to implement what has been described as orthodox planning which broadly involves “. . . the structuring and analysis of problem situations, operationalization of given goals, systematic 215
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STEPHEN F. JABLONSKY and MARK W. DIRSMITH
investigation of alternative courses of action and evaluation of these alternatives” (van Gunsteren, 1976, p. 7). The principal assumption underlying the PPB framework is that programmatic and resource allocation decisions based on clearly stated goals and objectives have to be superior to fragmented, incremental decisions which are characteristic of a political decision process. Since 1962, the term PPB has come to epitomize what Lindblom (1959) calls the “rational comprehensive” method of decision making which is in direct contrast to the “incremental-remedial” method of decision making which is characteristic of a traditional political decision process. Specifically, PPB is a management system containing ten essential activities (Novick, 1973, pp. 5-61): 1. The objectives of the organization are defined as specifically as possible. 2. Specific programs and possible alternatives capable of attaining stated objectives are determined. 3. Major issues to be resolved in the specification of objectives and development of programs are identified. 4. An annual cycle is delineated with appropriate components which include planning, programming and budgeting steps to ensure approaching problem areas in a rational manner, and to make appropriate amounts of time available for analysis and decision making at all levels of management. 5. Recognition that a continuing process of reexamining program results in light of anticipated costs and outcomes is necessary in order to determine the need for changes in stated programs and objectives. 6. Recognition of problems that span a single annual cycle so that they can be identified and addressed across periods. 7. Analysis of existing programs and alternatives concerning probable outcomes and direct and indirect costs. 8. The construction and use of analytical tools necessary to measuring costs and benefits. 9. The continued development of multi-year programs and financial plans while recognizing that current program commitments often require resource demands spanning several years. 10. The adaptation of existing performance evaluation and reporting systems, both statistical and accounting, to provide useful inputs to the PPB system concerning resources used and objec-
tives attained. In summary, PPB may be characterized as a mechanism designed to facilitate decision making at upper levels within the organization thereby making the organization more sensitive to changes in the external environment. PPB has been likened to strategic planning in the for-profit organization (Novick, 1973, p. 23). PPB rejection - a pattern emerges Wildavsky has stated that “PPBS has failed everywhere and at all times. Nowhere has PPBS (1) been established and (2) influenced governmental decision (3) according to its own principles” (1975, p. 363). PPB failed because no one knew how to do it - PPB could not be stated in operational terms (wildavsky, 1975, p. 359). Keeping in mind the ten characteristics that PPB is supposed to embody, consider the following testimony made by William Gorman, formerly Assistant Secretary, Program Coordination, U.S. Department of Health, Education and Welfare, before the Joint Economic Committee (Hearings before the U.S. Congress Joint Subcommittee on Economy in Government of the Joint Economic Committee, September, 1967, p. 5): . . The benefits of health, education, and welfare programs are diverse and often intangible. They affect different age groups and different regions of the population over different periods of time. No amount of analysis is going to tell us whether the Nation benefits more from sending a slum child to pre-school, providing medical care to an old man or enabling a disabled housewife to resume her normal activities. The “grand decisions” - how much health, how much welfare, and which groups in the population shatl benefit - are questions of value judgments and politics. The analyst cannot make much contribution to this resolution. But, PPB was implemented and it did influence decisions, although perhaps not by its own intended principles; it did have an effect on organizations. A basic assertion made in this paper is that the pattern of PPB rejection reveals information concerning the nature of these influences and effects. In considering the pattern of PPB rejection, organizational and contextual factors appear to play a dominant role. Where it was successfully implemented, or in deference to Wildavsky, where it was less unsuccessful, the following conditions existed. (Cooley, 1972; Worthley, 1974): 1. There was support from top management. 2. Program documents were actually used in the decision-making process.
THE PATTERN
OF PPB REJECTION
3. There was a tradition of accepting authority from above. 4. The individuals within the organization were used to coping with organizational change. 5. The process was supported by good staff analysis. Where PPB was rejected, the opposite conditions existed. In addition, it was found that (Botner, 1970; Federal Accountant, 1972): 1. The PPB system presupposed a centralized decision-making apparatus that was a threat to existing decision makers. 2. The PPB system did not penetrate the bureaucracy. 3. Financial realities were ignored. 4. The system was insensitive to conflict situations, traditional roles and interpersonal relationships. 5. A fear existed that analytical documents would be made public and destroy a necessary confidentiality surrounding internal decisionmaking. Furthermore, De Woolfson (1974) found that PPB tended to be successfully implemented and used in situations in which underlying decision processes were analytical or computational in nature. In contrast, organizations encountered difficulties in using PPB to develop plans and formulate strategies in situations which called for more judgmental decision processes. Recapitulation The PPB concept was developed to enable the organization to actively search, learn and adapt to a changing environment. It was hoped that the benefits of PPB would be accomplished by: clearly specifying the goals and objectives of the not-for-profit entity; specifying the means to accomplishing these objectives; identifying the problems that might be encountered; and establishing the methods to be used in evaluating the degree to which objectives were attained (methods that largeiy involved a cost/benefit, analytical approach). PPB failed. The degree to which it failed appears to have been conditioned by organizational contextual factors. For and example, PPB was rejected in decentralized organizations and proved not to be useful in situations calling for judgmental decision processes. It is asserted that as a management system, PPB is incongruous with managerial strategies which are necessary for coping with environmental uncertainty. The structure imposed on the
217
organization through its use of PPB is the antithesis of the flexibility required to ensure the long-run viability of the organization.
PPB CHARACTERISTICS AND THE PATTERN OF REJECTION - THE AUTOPSY BEGINS Why did PPB fail? This question may be addressed by examining the characteristics of PPB and the pattern of rejection through reference to organizational theory, and planning and control literatures. Within this section, selected characteristics of PPB and key elements concerning the pattern of rejection will be discussed. First, a specific characteristic will be listed in propositional form. Second, the proposition will be examined through reference to various theories. Proposition 1: PPB enables the not-for-profit organization to actively search, learn and adapt to a changing environment. It is not concerned with the performance of day-to-day activities (Novick, 1973). Parsons (1960) suggests that all organizations must exhibit three distinct levels of responsibility and control - technical, managerial and institutional. At the technical level, specific, day-to-day tasks are performed to carry out the basic mission of the organization. Constraints imposed upon organizational activity are those imposed by the technical nature of the tasks being performed and the type of cooperation needed to get the job done. The managerial level serves two primary functions. Management must procure the resources necessary to carry out the technical mission and insure that the technical mission is performed efficiently. The managerial level also serves as a buffer between the technical level and the larger external environment of the organization. At the institutional level, the organization is viewed as part of a larger social system within which the organization elaborates goals and moves toward the accomplishment of these goals. Activity at the institutional level centers around an exchange between the environment and the organization. Thus, PPB is primarily concerned with facilitating decision making at the institutional level. Proposition situations analytical Woolfson, Thompson
2: PPB was successfully used in calling for a decision process that is and computational in nature (De 1974). (1967, p. 134) indicates that each of
STEPHEN
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F. JABLONSKY
the three levels of activity outlined by Parsons (1960) is actively performed by individuals making decisions. These decisions involve two major dimensions: (1) beliefs about cause/effect relationships and (2) preferences regarding possible outcomes. These dimensions can be portrayed in the matrix illustrated in Table 1.
TABLE
1. The decision Preferences
Beliefs about cause/effect relationships Certain Uncertain
strategy regarding
array possible
outcomes
Certainty
Uncertainty
I II
III IV
Cell I represents decisions made at the technical core where knowledge concerning cause/effect relationships is thought to be certain and it is possible to arrange outcomes in order of preference. In Cell I, an “analytical” or “computational” decision strategy is appropriate. But what if either of these two dimensions of certainty is relaxed? In Cell II, which typifies managerial decisions concerned with procuring and allocating resources, knowledge concerning cause and effect relationships is uncertain yet it is possible to order preferences concerning possible outcomes. In Cell II, a “compromise” decision strategy is employed to select a means for achieving a desired outcome. In Cell III, which represents managerial decisions concerned with mediating between the organization and its environment, a “judgmental” decision strategy is used to establish an order among preferences. Finally, in Cell IV, which represents institutional level decisions, uncertainty concerning both cause and effect relationships and preferences concerning outcomes exists and an “inspirational” decision strategy is employed to establish the domain of the organization. In this context, both the organization and the environment are viewed as being subject to change. It is at the institutional level of decision making that the organization defines or enacts what is its reality and in so doing determines its ability to survive as a system (Weick, 1969). Given that PPB is designed for situations calling for an analytical decision strategy and that it is supposed to facilitate institutional level decision
and MARK W. DIRSMITH
making, which in turn calls for an inspirational strategy, the difference between decision strategies in Cells I and lV illustrates a major weakness to PPB. PPB attempts to apply a decision strategy which assumes certainty to situations plagued by uncertainty. Explosive fuel is added to the fire when one considers how institutional level decisions are evaluated within the PPB framework. Proposition 3: Program results are continually reexamined in light of anticipated costs and outcomes. Performance is evaluated through the use of analytical tools necessary to measuring costs and benefits (Novick, 1973). Parallelling the discussion of decision strategies, Thompson (1967, p. 86) suggests that the process of organizational assessment involves two major dimensions: (1) beliefs about cause/effect knowledge and (2) standards of desirability. These dimensions are portrayed in the matrix illustrated in Table 2. TABLE 2. Organizational
assessment
Standards Beliefs about cause/effect knowledge
Crystallized
Complete Incomplete
I II
array
of desirability Ambiguous
III IV
Based upon the two dimensions depicted in Table 2, four possible assessment situations arise for the organization. In Cell I, standards of desirability are crystallized and knowledge concerning cause/effect relationships is complete. In these situations the organization may be viewed as a closed system to the extent that there is certainty concerning what is to be accomplished and how it is to be accomplished. Thompson indicates this certainty is characteristic of the technical level. At the technical level, organizations attempt to achieve objectives in the most efficient and economical way. Thus, an efficiency or cost/benefit test is employed to evaluate performance. Such tests provide a tangibility that is indisputable in situations in which their use is appropriate. In Cell II, where standards of desirability are crystallized but knowledge concerning relationships is cause and effect incomplete, it is not possible to know if a
THE PATTERN
previously made decision led to the most efficient attainment of organizational objectives. In these situations, organizations try to satisfice and performance is evaluated by instrumental tests. With instrumental tests, emphasis is placed upon the attainment of organizational goals, not on whether these goals are attained efficiently. instrumental tests are most appropriate at the managerial level concerning the procurement and allocation of resources among technical level subsystems. It is much more difficult to evaluate organizational activity where there is ambiguity concerning standards of desirability, as is the case for Cells III and IV. Thompson (1967) states that in such situations neither efficiency nor instrumental tests are appropriate because the relative desirability of attaining one objective, e.g. “providing medical care to an old man,” vs another, e.g. “enabling a disabled housewife to resume her normal cannot be determined. Assessment activities,” necessarily involves the use of social tests or comparisons with similar organizations. Such tests are most appropriate for evaluating managerial level activities concerned with mediating between the technical level and the larger environment (Cell III), and institutional level activities (Cell IV). With social tests, however, differences of opinion over individuals participating in the evaluation process are likely. In addition, social reference groups against which the organization is compared may be unstable. Therefore, the results of social tests performance appraisal are disputable. Because the results of performance evaluation are more likely to be disputed as the progression is made from efficiency to instrumental to social
TABLE
3. A coalignment Decision
Activity level
Preferences concerning possible outcomes
among:
activity
strategy
array
Beliefs about cause/effect relationships
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OF PPB REJECTION
tests, there is a natural tendency to prefer efficiency tests over instrumental tests, and instrumental tests over social tests (Thompson, 1967, p. 87). This tendency appears to have played a dominant role within the PPB framework. In PPB, the methods of performance evaluation used tend to be cost/benefit or efficiency tests (Novick, 1973) despite the intended purpose of evaluating institutional level activity. PPB attempts to employ a performance evaluation method which assumes both crystallized standards of desirability and complete causejeffect knowledge in situations in which neither of these assumptions is met. Thompson indicates that a coalignment among activity level, decision strategy and type of assessment are crucial if appropriate decisions are to be made throughout the organization. This coalignment, which combines Thompson’s two matrices, is portrayed in the matrix illustrated in Table 3. Based upon the coalignment depicted in Table 3, PPB would lead to making the wrong decisions at the institutional level to the extent that PPB embodies a computational decision strategy and employs cost/benefit, efficiency performance measures. Thus, where Wildavsky concludes that the type of analysis required in the PPB approach cannot be done (1976, p. 359), it must be concluded that this type of analysis should not be done. Proposition 4: PPB is analogous to strategic planning in the for-profit organization concerning what is hoped to be accomplished through its use (Novick, 1973). Through a process of objective specification,
level, decision
strategy,
and activity
assessment
Assessment
Decision strategy
array
Standards of desirability
Cause/effect knowledge
Type of assessment
Certainty
Certain
Computational
Crystallized
Complete
Efficiency
Certainty
Uncertain
Compromise
Crystallized
Incomplete
Instrumental
Mediate
Uncertainty
Certain
Judgmental
Ambiguous
Complete
Social test
Institutional
Uncertaintv
Uncertain
Insnirational
Ambiguous
Incomplete
Social test
Technical Managerial Procure & allocate resources
test
test
STEPHEN
220
F. JABLONSKY
and alternative program identification and evaluation, PPB was originally thought of as a planning mechanism. Despite assertions that PPB is to the not-for-profit organization as strategic planning is to the for-profit organization, the question must be raised, does it encompass essential strategic planning activities? The primary purpose of an inquiry conducted by Anthony (1965) was to develop a conceptual framework useful for classifying generalizations about planning and control systems. Three levels of organizational planning and control activities were developed that are strikingly consistent with Parsons’s (1960) framework. At the first level are operating control decisions, defined as decisions concerning the process of assuring that specific tasks are carried out effectively and efficiently within the organization (Anthony, 1965, p. 69).
TABLE 4. Strategic
planning
and management
Strategic
Characteristic
and MARK W. DIRSMITH
At the second level are management control decisions, defined as decisions concerning the process of assuring that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives (Anthony, 1965, p. 27). Finally, at the third level are strategic planning decisions, defined as decisions concerning the process of deciding on the goals and objectives of the organization, of changes in these goals and objectives, on the resources to be used to attain these objectives and on the policies that are to govern the acquisition, use, and disposition of these resources (Anthony, 1965, p. 24). Anthony indicates that these three layers of activity do not constitute well-delineated, mutually exclusive categories, but rather represent a continuum along which critical attributes vary both quantitatively and qualitatively. Van
control
planning
Management
with orthodox control
planning Orthodox
On whole organization, social system
Few variables
Mechanistic, logic
Rhythmic; procedures
Means-end scheme, system logic
On one aspect
2. Complexities
Many variables
3. Degree of structure
Unstructured each problem
4. Nature
Tailor made for the problem; more external and predictive; less accurate
Integrated, more internal and historical; more accurate
Not addressed
Relatively
Relatively
Not addressed
5. Communication information 6. Purpose
of
of estimates
and irregular; different
simple
Show expected
results
planning
On the whole organization
1. Focus of plans
of information
at a time
contrasted
prescribed
difficult
Lead to desired
results
Fixed course, ahead toward
closed system closed
straight given ends
Staff and top management
Line and top management
Not addressed
8. Number of persons involved
Few
Many
Not addressed
9. Mental activity
Creative
Administrative
Mechanistic,
Economics
Social psychology
Social systems models (social psychology)
I.
Persons primarily involved
10. Source
discipline
11. Planning focus
and control
Planning dominant some control
with
causality
Emphasis on both planning and control
12. Time horizon
Tends to be long
Tends to be short
Not addressed
13. End result
Policies and precedents
Action within policies and precedents
Change within given organizational structure
Extremely
Less difficult
Not addressed, although closed system models are easy to evaluate
14. Appraisal job done
of the
difficult
THE PATTERN OF I’PB REJECTION
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Gunsteren states, as discussed earlier, that PPB is a orthodox planning runs into trouble because too prime example of orthodox planning in the much emphasis is placed on control rather than on not-for-profit organization, which broadly involves planning, and a concept of action is employed that “ is much too limited - it does not support an and analysis of problem . . . the structuring decision strategy. This bias toward situations, operationalization of given goals, inspirational systematic investigation of alternative courses of certainty and away from an inspirational perspective has a disastrous effect on the ability of action and evaluation of these alternatives” (1976, individuals to make appropriate or even necessary p. 7). But, PPB is not analogous to strategic planning in the for-profit organization. This decisions as the progression is made from the technical to the managerial to the institutional incongruity can be portrayed by contrasting Anthony’s comparison of management control and level. PPE results in the wrong decision being made strategic planing (1965, p_ 67) with van at the institutional level. This conclusion will be elaborated upon further in the general systems Gunsteren’s desc~ption of orthodox planing theory discussion. (1976, pp. 28-30) as illustrated in Table 4. Although PPB is designed to accomplish for the not-for-profit organization what strategic planning Proposition 5: PPB presupposes a centralized accomplishes for the for-profit organization (the decision making network. It failed and was formulation of policies and precedents in addition rejected in org~izations having decentralized to the delineation of broad actions within these decision making networks. (Cooley, 1972; same policies and precedents), a review of the Worthley, 1974; Botner, 1970; and Federal characteristics of strategic planning and manageAccountant, 1972) ment control portrayed in Table 4 reveals that PPB The basic conclusion of contingency theorists possesses predominantly management control (cf. Lawrence & Lorsch, 1969; Duncan, 1972) is characteristics. For exampIe, given the activities that different org~ization~ coping strategies are contained within the PPB fr~ework described earlier, PPB appears to: (1) focus on the whole called for in different types of environments. More organization; (2) be rhythmic in the sense that it specifically, Lawrence & Lorsch (1969) found that uses an annual cycle in planning; (3) be designed centralized organizations are more successful in to lead to desired results; (4) employ administrasimple stable environments and decentralized tive mental activity; (5) reduce performance org~izations are more successful in complex dynamic environments. But, how did this type of appraisal to a fairly simple (cost/benefit) level; and arrangement come to exist? Simon (6) encompass a fairly short time horizon - 1 organizational (1972, p. 4) provides an answer indicating that the year, although allowance is made for decisions spanning several years. Thus, within PPB, planning properties of organizations are, in a broad sense, is hoped to be ~comp~ished by a process that is Darwinian -they are the results of an evolutional process that enables the organization to survive. i~approp~ate to the task. A review of the MesaroviC et al. (1970) indicate that the most characteristics of orthodox planning hi~i~ts this important property of a decentralized organizaconclusion. Despite the objective of making the tion, or in their terms, a multilevel, multigoal organization sensitive to changes in the environsystem, is that decision-making is dispersed ment, orthodox planning is based upon a means throu~out the org~i~tion. It is throu~ this end (shades of cause/effect certainty), fixed course dispersion that the org~ization is able to attain toward given ends (shades of certainty concerning preference ordering), closed system process. It is the speed of adaptation necessary for survival in a complex, dynamic environment. for these reasons that Anthony & Herzlinger Given that PPB failed and was rejected by (1975) indicate that PPB is not consistent with decentralized organizations, it may be inferred strategic planning. Thompson (1967, p. 152) indicates that there is that PPB was ill-suited to serve as a planning and a natural bias toward certainty as exhibited within control device in complex, dynamic environments. the PPB framework. Because of this bias, This inference is supported by the conclusion organizations tend to emphasize: short term vs drawn concerning Proposition 4, that PPB hoped long term considerations; quantitative vs qualitato accomplish the objective of making the tive data; and precedent vs innovation. Van organization sensitive to its en~ronment via an Gunsteren (1976, pp. 20-23) indicates that approach that was overly simplistic. Within
222
STEPHENF.JABLONSKY andMARKW.DIRSMITH
complex, dynamic environments, a heightened sensitivity to the environment is demanded if the organization is to survive. If the necessary speed of adaptation is not able to be achieved, or if the response formulated was generated by an overly simple mechanism as would be the case with PPB, the long run survival of the organization would be threatened. According to the tenets of evolution, the inhibiting or retarding factor, PPB, would be discarded. Thus, it may be concluded, as did van Gunsteren (1976, p. 45), that PPB failed because it ignored context. Recapitulation PPB was developed and implemented in not-for-profit organizations in order to enhance the organization’s ability to actively search, learn and adapt to a changing environment. As such, the purpose of PPB was to facilitate institutional level decision making. To the detriment of the organization, PPB encourages the use of an analytical, computational decision strategy, and a cost/benefit, efficiency test method of performance evaluation at a level and in situations calling for an inspirational decision strategy and social test performance evaluation. Although it was hoped that the benefits of strategic planning would be accomplished through the use of PPB, PPB embodied characteristics that were not appropriate to the task and would bias decision processes away from the very attributes of the environment that should be focused upon. Finally, PPB most noticeably failed in decentralized organizations operating in complex, dynamic environments, a context which particularly calls for strategic planning and an inspirational decision strategy. Thus, it may be concluded that PPB ignores context and in so doing, results in precisely the wrong decision being made.
PPB - A GENERAL SYSTEMS THEORY PERSPECTIVE WITH A TWIST OF MAGIC Pondy (1976) was concerned with inventing a future for research in organizational theory, basing many of his remarks on Boulding’s (1968) nine-level hierarchical continuum of systems ordered as to complexity. These levels range from a simple, inward looking system in which it is assumed that the system being examined is stable, to a complex, outward looking system in which it is assumed that the system or organization being
examined, as well as its environment, are subject to evolution. Pondy reasoned that, even though organizations must function as complex, outward looking systems, our formal models of how these organizations function or should function are at a simple, inward looking system level. PPB typifies this lower level of system complexity to the extent that it is used to hopefully sensitize the organization to its environment by means of a process (van Gunsteren, simplistic 1976, pp. 28-30). Pondy (1976, p. 12) indicates that organizations must function as complex systems which interact with their environment in order to survive. But how must this process of interaction be carried out, especially when the environment closes in on the organization, or as Pondy states, “becomes scarce”? Pondy provides an answer to this question, stating that an organization’s environment is only partially given and that another part is enacted, i.e. the organization takes action and changes its environment in order to survive; it, in a sense, creates its own world. Thus, as the environment becomes scarce, the organization must do something to change it (,Weick, 1969). Three strategies for action were suggested as a means for accomplishing this enactment process: (1) be playful; (2) act randomly; and (3) discredit the existing organization (,Weick, 1969). Each of these strategies may be embodied by complex systems that are significantly more sophisticated than is the PPB framework. Pondy concludes that complex systems or social organizations “foul their environmental nests” by responding to environmental change via a simplistic system response. This simplistic response, or a response in which the control aspects of the model dominate the planning aspects (van Gunsteren, 1976, p. 20) leads to precisely the wrong type of decision in situations calling for a complex system response. As stated earlier, PPB was implemented during the resource rich, “golden days” of the mid 1960s. As resources dwindled, or as the environment became scarce, PPB ran into difficulty and began to be rejected. Parallelling Pondy’s analysis, van Gunsteren (1976, p. 61) reasons that it is in such times that organizational flexibility is required and that PPB tends to enforce organizational rigidity. Through the use of PPB, an attempt was made to gain control over problem areas, such as runaway defense expenditures, but sometimes this strategy was inappropriate. Van Gunsteren states (1976, p. 57):
THE PATTERN OF PPB REJECTION
. . . There are times when and situations where success in solving a problem depends on relaxing our grip on the world. To solve problems it may be necessary to let go, to trust and accept, to stop trying to control everything. What may be wrong at times is not our lack of grip on the world, our lack of steering capacity and rationality, but our need of or longing for more grip and rationality. In that case our task is not to design additional controlling and steering systems, but to get rid of our compulsion for control. As concluded in the previous section, a control perspective dominated PPB. This dominance negated the ability of the organization to act randomly, be playful or discredit the existing organization, to relax its grip on the world so that new forms of interaction with the environment could be created. A magical perspective - the “why ” behind PPB Given its objectives and the mechanism of objective attainment, the use of PPB might appear to be irrational. The paradox is that irrational behavior is strangely rational if there is adequate knowledge of the behavioral context. Consistent with the “pathological perspective” expressed in the abstract of this paper, it may appear to be irrational behavior for cattle breeders to lace their feed with arsenic prior to a Federal ban on such activity. Within the context of this activity, however, a proper dosage of arsenic acts as a growth stimulant - “rationality” perhaps in the short term. In the long term, secondary consumers of arsenic, man, may develop cancer over a period of years by ingesting the meat of such cattle hence, Federal regulation. Perhaps the implementation of PPB is rational in a short term sense, given the political reality of the not-for-profit world. Wildavsky (1976, p. 356) has indicated that the ability of an organization to accomplish rapid internal reforms is conditioned by its autonomy from the environment. Given that it is much more difficult for a presidential administration to exert control over domestic policy as compared to foreign policy (Wildavsky, 1976, p. 356) is it politically sufficient for administrators to state that such control cannot be meaningfully exerted? Or, must an administration give the appemance of exerting control, of actively doing something? Van Gunsteren (1976, p. 56) “gets the impression” that Kennedy’s endorsement of the PPB reform happened “. . . by accident, or else was dictated by electoral tactics without much prior analysis”. Similarly, Johnson’s mandate that
223
PPB be adopted may be attributed to: a frustration with the inadequacies of the traditional budgeting system; a desire to do something new; or possibly a generally Western desire to get “. . . a general grip on things, to be in command, to know what is happening and to spell out one’s own course of action” (van Gunsteren, 1976, p. 56). PPB may be used in “advanced” societies much as magic is used in tribal societies, i.e. to accommodate awkward facts so as not to disrupt the functioning of society (Gambling, 1976, p. 40). Gambling (1976, p. 41) argues that organizations, or in the current case, presidential administrations, “. . . are often more interested in confidence-building and conflict avoidance than in the objective reporting of facts”. Reflecting, perhaps, a short term, “paste over the cracks” presidential administrators would orientation, desire a system which can be used to generate generally positive messages or at least give the appearance of actively doing something to improve the functioning of government. Gambling states (1976, p. 142): What is sometimes sought from accounting [insert PPB] is not so much absolute truth (if that can be found!) but something to which all parties can assent, albeit temporarily and with many interior reservations. As a result, they can keep going - at least until next week. . . . The trouble is that the absolute truth is not very often revealed to any of the collaborators in any organization [insert Presidential Administration] so that blinding conviction of the need of a common course of action are common mistakes. This is because most organizational problems are ill-structured ones, so it is as much experience as moral cowardice which endorses the fudged compromise in such cases.
The implementation of PPB in the not-forprofit organization cannot be wholly condemned because it appears to have failed. Granted, it did not attain its stated objective of sensitizing agencies and departments to changes in the environment by means of the principles established within the PPB framework. Perhaps in the short term, its primary use, at least at the administration level, relates to the cosmetic property of appearing to actively do something in the area of domestic policy. It would be premature to conclude that an administration was nayve to think that the unstructurable problem areas related to the not-for-profit world could be effectively addressed by means of a conceptually simplistic approach such as PPB. Quite the contrary, its implementation may have been politically quite astute.
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STEPHEN F. JABLONSKY and MARK W. DIRSMITH
WHY PPB, AND WHY NOW? PPB was originally implemented by the Department of Defense in 1962 in order to facilitate planning and control activities. Subsequently, it was adopted by numerous not-forprofit organizations. Sometimes it was accepted, sometimes it was rejected. PPB has been around for a fairly long period of time; its strengths and weaknesses have been widely noted. So why discuss PPB now? It is contended that the PPB experience provides important information concerning both PPB and the functioning of the not-for-profit organization. PPB was implemented in order to facilitate institutional level decision making, but sought to accomplish this objective by means of a decision strategy and a method of performance evaluation that was overly simplistic and which could not accommodate the richness of the organization-environment relationship. At the institutional level of decision making, PPB would lead to making precisely the wrong decisions. Despite claims to the contrary, PPB would produce the wrong decisions in the sense that the tenets of the PPB framework encourage an inwardlooking perspective which assumes that the organization and the environment are fixed. Clearly, at an institutional level and in a changing environment, an outward looking perspective is called for which actively focuses upon the organization and the environment as changing, evolving, interdependent systems. Critics of this conclusion may counter that PPB was rejected in instances where it was not appropriate to the circumstances, i.e. by decentralized organizations operating in complex, dynamic environments, and that, therefore, its implementation is not so deadly. True, but this rejection did not occur until the collapse of the “golden sixties”. What of the inappropriate decisions that were made in the interim? Additionally, even though the disparity between PPB and the requirements of institutional level activity in centralized organizations operating in simple, stable environments may be less marked,
PPB still reflects a simple, low level system perspective and would lead to inappropriate decisions even in situations where it has not yet been rejected. What also if the environment of such organizations begins to change more rapidly and the institutional philosophy of decision makers is imbedded in the concrete of PPB? The PPB experience is reflective of a much larger problem - that not-for-profit organizations are particularly exposed to the threat of having inappropriate decision “facilitating” mechanisms imposed on them by higher level decision makers. For example, President Johnson mandated that PPB be adopted throughout the Federal government. This type of imposition is reflective of both an understandably human desire to be in control (van Gunsteren, 1976) and a desire on the part of politicians to give the appearance of actively doing something in a “rational, comprehensive” (Lindblom, 1959) way, in areas where there may be conflicts in values, a weak association between action and result, and where raw, politically-based decisions are desirable (van Gunsteren, 1976, pp. 42-45). Van Gunsteren’s (1976, p. 59) suggestion for surviving or even thriving in such situations is not to try to exert control, but, rather “to let go, to trust”. How? By encouraging inspiration, creativity and quite frankly, the use of ambiguous, disputable performance evaluation methods; by allowing organizational evolution, and by encouraging the investment of the discretion necessary to make decisions throughout an agency or program. The perspective discussed above outlines the price that must be paid for rational comprehensive decision making in the not-for-profit sector, and perhaps, a method of reducing this price. Noticeably lacking is a discussion of why this price is currently being paid and what are the benefits that may be derived from paying this price. The pathologist should, for the time at least, withhold announcement of the conclusion “Death caused by PPB poisoning”. Maybe there is a valid reason why this type of toxic agent was found in the corpse in the first place.
BIBLIOGRAPHY Anthony, N., Planning and Control System: A Framework for Analysis (Boston: Harvard University, 1965). Anthony, N. & Herzlinger, R., Management Control in Nonprofit Organizations (Homewood, Illinois: Richard D. Irwin, 1975).
THE PATTERN OF PPB REJECTION Botner, S. B., Four Years of PPBS: An Appraisal. Public Administration Review (July, August, 1970), pp. 423431. Boulding, K., General Systems Theory - The Skeleton of Science. In Walter Buckley (ed.), Modern Systems Research for the Behavioral Scientist (Chicago: Aldine, 1968). Cooley, J. W., Nelson, C. R. & Olewine, L. E., PPBS _ . . Alive and Well. The FederaZ Accountant (June, 1972), pp. 14-21. Cyert, R. M. & March, J. G., A Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 1963). De Woolfson, B. H., PitfaIls in Planning-Programming-Budgeting Systems (Unpublished Dissertation, University of California, Irvine, 1974). Dirsmith, M. W. & Jablonsky, S. I;., MB0 in the Public Sector: A Conceptual Examination. American Institute for Decision Sciences Proceedings (1977). Dirsmith, M. W., Zero-Base Budgeting: A Conceptual Examination. The Pennsylvania State University Working Paper (1978). Duncan, R. B., Characteristics of Organizational Environments and Perceived Environmental Uncertainty. Administrative Science Quarterly (September, 1972), pp. 313-327. FederalAccountant, Selected Papers (June, 1972). Gambling, T., Magic, Accounting and Morale. Accounting, Organizations and Society (1976), pp. 141-151. Hearings Before the U.S. Congress Joint Subcommittee on Economy in Government of the Joint Economic Committee (September, 1967), p. 5. Lawrence, P. R. & Lorsch, J. W., Organization and Environment (Homewood, Illinois: Richard D. Irwin, Inc., 1969). Lindblom, C. E., The Science of Muddling Through. Public Administration Review (Spring, 1959) pp. 79-88. March, J. G. & Simon, H., Organizations (New York: J. Wiley, 1958). Mesarovic, M. D., Macko, D. & Takahara, Y., The Theory of Hierarchical Multilevel Systems (New York: Academic Press, 1970). Miles, R. E., Snow, C. C. & Pfeffer, J., Organization Environment: Concepts and Issues. Industrial Relations (10,1974), pp. 244-264. Novick, D., Current Practice in Program Budgeting (New York: Crane, Russak, 1973). Parsons, T., Structure and Process in Modem Societies (New York: The Free Press of Glencoe, 1960). Pondy, L. R., Beyond Open System Models of Organizations. Presented at the Annual Meeting of the Academy of Management, 1976. Programming Systems for the Office of the Secretav of Defense. A Defense Study Report (May 31, 1962). Simon, H. A., The Organization of Complex Systems. In Howard H. Pattee (ed.), Hierarchy Theory: The Challenge of Complex Systems (New York: George Braziller, 1972). Thompson, J. D., Organizations in Action (New York: McGraw-Hill, 1967). van Gunsteren, H. R., The Quest for Control (London: J. Wiley, 1976). Weick, K. E., The Social Psychology of Organizing (Reading, Mass.: Addison-Wesley, 1969). Wildavsky, A., Budgeting: A Comparative Theory of Budgetary Processes (Boston: Little, Brown & co., 1975). Worthley, J. A., PPBS: Dead or Alive. Public Administration Review (July/August, 1974), pp. 392-394.
225
SOMETHING
0361-3682/78/1001-0215$02.00/O
THE PATTERN OF PPB REJECTION: ABOUT ORGANIZATIONS, SOMETHING
ABOUT PPB
STEPHEN F. JABLONSKY and MARK W. DIRSMITH Department of Accounting and Management Information Systems, College of Business Administration, The Pennsylvania State University
Abstract
“Pathology” is defined in Webster’s dictionary as “. . . the study of the essential nature of diseases and especially of the structural and functional changes produced by them”. Thus, a pathological study can reveal information concerning both a disease or toxin and the organism to which it is introduced. Planning, programming and budgeting (PPB) was introduced in not-for-profit organizations in order to improve organizational planning and control. It failed. The purpose of this paper is to conduct a study in pathology concerning PPB and the not-for-profit organization. PPB is considered to be the toxin. The not-for-profit organization is considered to be the organism. The scalpels employed in conducting the examination were forged in the organizational, planning and control, and general systems theory literatures.
Planning, Programming and Budgeting (PPB) was born immediately after World War II when a talented group of analysts at the RAND Corporation developed and used this decision facilitating mechanism to aid in understanding problems related to national defense. In 1962, The Department of Defense adopted PPB to improve planning and control activities. Subsequently, during what may be considered the resource rich “golden days” of the mid 1960’s, numerous organizations at the federal, state and local levels adopted or were mandated to adopt the PPB framework. As resources dwindled, these not-forprofit organizations began to reject PPB (Novick, 1973). Apparently PPB had failed to accomplish objective its of improving decision-making (Wildavsky, 1975). A question arises as to why a comprehensive planning and control system was rejected as resources became constrained - a situation where such an approach should have been highly useful. The purpose of this paper is to examine the characteristics of PPB and the pattern of rejection, and hopefully learn something from the failure of PPB. This examination is accomplished by reviewing and synthesizing recent empirical studies
of PPB through the use of concepts discussed in the organizational, planning and control, and general systems theory literatures. For purposes of exposition, the paper is organized into the following sections: PPB - Where does it come from, what does it do?; PPB characteristics and the pattern of its rejection - The autopsy begins; PPB _ A general system theory perspective with a twist of magic; and Why PPB and why now?
PPB - WHERE DOES IT COME FROM: WHAT DOES IT DO? PPB has been suggested as one approach which would be useful to the not-for-profit organization for actively searching, learning and adapting to a changing environment. PPB reflects a Western longing for “. . . getting a general grip on things, to be in command, to know what is happening and to spell out one’s own course of action” (van Gunsteren, 1976, p. 56). It represents a specific attempt to implement what has been described as orthodox planning which broadly involves “. . . the structuring and analysis of problem situations, operationalization of given goals, systematic 215
216
STEPHEN F. JABLONSKY and MARK W. DIRSMITH
investigation of alternative courses of action and evaluation of these alternatives” (van Gunsteren, 1976, p. 7). The principal assumption underlying the PPB framework is that programmatic and resource allocation decisions based on clearly stated goals and objectives have to be superior to fragmented, incremental decisions which are characteristic of a political decision process. Since 1962, the term PPB has come to epitomize what Lindblom (1959) calls the “rational comprehensive” method of decision making which is in direct contrast to the “incremental-remedial” method of decision making which is characteristic of a traditional political decision process. Specifically, PPB is a management system containing ten essential activities (Novick, 1973, pp. 5-61): 1. The objectives of the organization are defined as specifically as possible. 2. Specific programs and possible alternatives capable of attaining stated objectives are determined. 3. Major issues to be resolved in the specification of objectives and development of programs are identified. 4. An annual cycle is delineated with appropriate components which include planning, programming and budgeting steps to ensure approaching problem areas in a rational manner, and to make appropriate amounts of time available for analysis and decision making at all levels of management. 5. Recognition that a continuing process of reexamining program results in light of anticipated costs and outcomes is necessary in order to determine the need for changes in stated programs and objectives. 6. Recognition of problems that span a single annual cycle so that they can be identified and addressed across periods. 7. Analysis of existing programs and alternatives concerning probable outcomes and direct and indirect costs. 8. The construction and use of analytical tools necessary to measuring costs and benefits. 9. The continued development of multi-year programs and financial plans while recognizing that current program commitments often require resource demands spanning several years. 10. The adaptation of existing performance evaluation and reporting systems, both statistical and accounting, to provide useful inputs to the PPB system concerning resources used and objec-
tives attained. In summary, PPB may be characterized as a mechanism designed to facilitate decision making at upper levels within the organization thereby making the organization more sensitive to changes in the external environment. PPB has been likened to strategic planning in the for-profit organization (Novick, 1973, p. 23). PPB rejection - a pattern emerges Wildavsky has stated that “PPBS has failed everywhere and at all times. Nowhere has PPBS (1) been established and (2) influenced governmental decision (3) according to its own principles” (1975, p. 363). PPB failed because no one knew how to do it - PPB could not be stated in operational terms (wildavsky, 1975, p. 359). Keeping in mind the ten characteristics that PPB is supposed to embody, consider the following testimony made by William Gorman, formerly Assistant Secretary, Program Coordination, U.S. Department of Health, Education and Welfare, before the Joint Economic Committee (Hearings before the U.S. Congress Joint Subcommittee on Economy in Government of the Joint Economic Committee, September, 1967, p. 5): . . The benefits of health, education, and welfare programs are diverse and often intangible. They affect different age groups and different regions of the population over different periods of time. No amount of analysis is going to tell us whether the Nation benefits more from sending a slum child to pre-school, providing medical care to an old man or enabling a disabled housewife to resume her normal activities. The “grand decisions” - how much health, how much welfare, and which groups in the population shatl benefit - are questions of value judgments and politics. The analyst cannot make much contribution to this resolution. But, PPB was implemented and it did influence decisions, although perhaps not by its own intended principles; it did have an effect on organizations. A basic assertion made in this paper is that the pattern of PPB rejection reveals information concerning the nature of these influences and effects. In considering the pattern of PPB rejection, organizational and contextual factors appear to play a dominant role. Where it was successfully implemented, or in deference to Wildavsky, where it was less unsuccessful, the following conditions existed. (Cooley, 1972; Worthley, 1974): 1. There was support from top management. 2. Program documents were actually used in the decision-making process.
THE PATTERN
OF PPB REJECTION
3. There was a tradition of accepting authority from above. 4. The individuals within the organization were used to coping with organizational change. 5. The process was supported by good staff analysis. Where PPB was rejected, the opposite conditions existed. In addition, it was found that (Botner, 1970; Federal Accountant, 1972): 1. The PPB system presupposed a centralized decision-making apparatus that was a threat to existing decision makers. 2. The PPB system did not penetrate the bureaucracy. 3. Financial realities were ignored. 4. The system was insensitive to conflict situations, traditional roles and interpersonal relationships. 5. A fear existed that analytical documents would be made public and destroy a necessary confidentiality surrounding internal decisionmaking. Furthermore, De Woolfson (1974) found that PPB tended to be successfully implemented and used in situations in which underlying decision processes were analytical or computational in nature. In contrast, organizations encountered difficulties in using PPB to develop plans and formulate strategies in situations which called for more judgmental decision processes. Recapitulation The PPB concept was developed to enable the organization to actively search, learn and adapt to a changing environment. It was hoped that the benefits of PPB would be accomplished by: clearly specifying the goals and objectives of the not-for-profit entity; specifying the means to accomplishing these objectives; identifying the problems that might be encountered; and establishing the methods to be used in evaluating the degree to which objectives were attained (methods that largeiy involved a cost/benefit, analytical approach). PPB failed. The degree to which it failed appears to have been conditioned by organizational contextual factors. For and example, PPB was rejected in decentralized organizations and proved not to be useful in situations calling for judgmental decision processes. It is asserted that as a management system, PPB is incongruous with managerial strategies which are necessary for coping with environmental uncertainty. The structure imposed on the
217
organization through its use of PPB is the antithesis of the flexibility required to ensure the long-run viability of the organization.
PPB CHARACTERISTICS AND THE PATTERN OF REJECTION - THE AUTOPSY BEGINS Why did PPB fail? This question may be addressed by examining the characteristics of PPB and the pattern of rejection through reference to organizational theory, and planning and control literatures. Within this section, selected characteristics of PPB and key elements concerning the pattern of rejection will be discussed. First, a specific characteristic will be listed in propositional form. Second, the proposition will be examined through reference to various theories. Proposition 1: PPB enables the not-for-profit organization to actively search, learn and adapt to a changing environment. It is not concerned with the performance of day-to-day activities (Novick, 1973). Parsons (1960) suggests that all organizations must exhibit three distinct levels of responsibility and control - technical, managerial and institutional. At the technical level, specific, day-to-day tasks are performed to carry out the basic mission of the organization. Constraints imposed upon organizational activity are those imposed by the technical nature of the tasks being performed and the type of cooperation needed to get the job done. The managerial level serves two primary functions. Management must procure the resources necessary to carry out the technical mission and insure that the technical mission is performed efficiently. The managerial level also serves as a buffer between the technical level and the larger external environment of the organization. At the institutional level, the organization is viewed as part of a larger social system within which the organization elaborates goals and moves toward the accomplishment of these goals. Activity at the institutional level centers around an exchange between the environment and the organization. Thus, PPB is primarily concerned with facilitating decision making at the institutional level. Proposition situations analytical Woolfson, Thompson
2: PPB was successfully used in calling for a decision process that is and computational in nature (De 1974). (1967, p. 134) indicates that each of
STEPHEN
218
F. JABLONSKY
the three levels of activity outlined by Parsons (1960) is actively performed by individuals making decisions. These decisions involve two major dimensions: (1) beliefs about cause/effect relationships and (2) preferences regarding possible outcomes. These dimensions can be portrayed in the matrix illustrated in Table 1.
TABLE
1. The decision Preferences
Beliefs about cause/effect relationships Certain Uncertain
strategy regarding
array possible
outcomes
Certainty
Uncertainty
I II
III IV
Cell I represents decisions made at the technical core where knowledge concerning cause/effect relationships is thought to be certain and it is possible to arrange outcomes in order of preference. In Cell I, an “analytical” or “computational” decision strategy is appropriate. But what if either of these two dimensions of certainty is relaxed? In Cell II, which typifies managerial decisions concerned with procuring and allocating resources, knowledge concerning cause and effect relationships is uncertain yet it is possible to order preferences concerning possible outcomes. In Cell II, a “compromise” decision strategy is employed to select a means for achieving a desired outcome. In Cell III, which represents managerial decisions concerned with mediating between the organization and its environment, a “judgmental” decision strategy is used to establish an order among preferences. Finally, in Cell IV, which represents institutional level decisions, uncertainty concerning both cause and effect relationships and preferences concerning outcomes exists and an “inspirational” decision strategy is employed to establish the domain of the organization. In this context, both the organization and the environment are viewed as being subject to change. It is at the institutional level of decision making that the organization defines or enacts what is its reality and in so doing determines its ability to survive as a system (Weick, 1969). Given that PPB is designed for situations calling for an analytical decision strategy and that it is supposed to facilitate institutional level decision
and MARK W. DIRSMITH
making, which in turn calls for an inspirational strategy, the difference between decision strategies in Cells I and lV illustrates a major weakness to PPB. PPB attempts to apply a decision strategy which assumes certainty to situations plagued by uncertainty. Explosive fuel is added to the fire when one considers how institutional level decisions are evaluated within the PPB framework. Proposition 3: Program results are continually reexamined in light of anticipated costs and outcomes. Performance is evaluated through the use of analytical tools necessary to measuring costs and benefits (Novick, 1973). Parallelling the discussion of decision strategies, Thompson (1967, p. 86) suggests that the process of organizational assessment involves two major dimensions: (1) beliefs about cause/effect knowledge and (2) standards of desirability. These dimensions are portrayed in the matrix illustrated in Table 2. TABLE 2. Organizational
assessment
Standards Beliefs about cause/effect knowledge
Crystallized
Complete Incomplete
I II
array
of desirability Ambiguous
III IV
Based upon the two dimensions depicted in Table 2, four possible assessment situations arise for the organization. In Cell I, standards of desirability are crystallized and knowledge concerning cause/effect relationships is complete. In these situations the organization may be viewed as a closed system to the extent that there is certainty concerning what is to be accomplished and how it is to be accomplished. Thompson indicates this certainty is characteristic of the technical level. At the technical level, organizations attempt to achieve objectives in the most efficient and economical way. Thus, an efficiency or cost/benefit test is employed to evaluate performance. Such tests provide a tangibility that is indisputable in situations in which their use is appropriate. In Cell II, where standards of desirability are crystallized but knowledge concerning relationships is cause and effect incomplete, it is not possible to know if a
THE PATTERN
previously made decision led to the most efficient attainment of organizational objectives. In these situations, organizations try to satisfice and performance is evaluated by instrumental tests. With instrumental tests, emphasis is placed upon the attainment of organizational goals, not on whether these goals are attained efficiently. instrumental tests are most appropriate at the managerial level concerning the procurement and allocation of resources among technical level subsystems. It is much more difficult to evaluate organizational activity where there is ambiguity concerning standards of desirability, as is the case for Cells III and IV. Thompson (1967) states that in such situations neither efficiency nor instrumental tests are appropriate because the relative desirability of attaining one objective, e.g. “providing medical care to an old man,” vs another, e.g. “enabling a disabled housewife to resume her normal cannot be determined. Assessment activities,” necessarily involves the use of social tests or comparisons with similar organizations. Such tests are most appropriate for evaluating managerial level activities concerned with mediating between the technical level and the larger environment (Cell III), and institutional level activities (Cell IV). With social tests, however, differences of opinion over individuals participating in the evaluation process are likely. In addition, social reference groups against which the organization is compared may be unstable. Therefore, the results of social tests performance appraisal are disputable. Because the results of performance evaluation are more likely to be disputed as the progression is made from efficiency to instrumental to social
TABLE
3. A coalignment Decision
Activity level
Preferences concerning possible outcomes
among:
activity
strategy
array
Beliefs about cause/effect relationships
219
OF PPB REJECTION
tests, there is a natural tendency to prefer efficiency tests over instrumental tests, and instrumental tests over social tests (Thompson, 1967, p. 87). This tendency appears to have played a dominant role within the PPB framework. In PPB, the methods of performance evaluation used tend to be cost/benefit or efficiency tests (Novick, 1973) despite the intended purpose of evaluating institutional level activity. PPB attempts to employ a performance evaluation method which assumes both crystallized standards of desirability and complete causejeffect knowledge in situations in which neither of these assumptions is met. Thompson indicates that a coalignment among activity level, decision strategy and type of assessment are crucial if appropriate decisions are to be made throughout the organization. This coalignment, which combines Thompson’s two matrices, is portrayed in the matrix illustrated in Table 3. Based upon the coalignment depicted in Table 3, PPB would lead to making the wrong decisions at the institutional level to the extent that PPB embodies a computational decision strategy and employs cost/benefit, efficiency performance measures. Thus, where Wildavsky concludes that the type of analysis required in the PPB approach cannot be done (1976, p. 359), it must be concluded that this type of analysis should not be done. Proposition 4: PPB is analogous to strategic planning in the for-profit organization concerning what is hoped to be accomplished through its use (Novick, 1973). Through a process of objective specification,
level, decision
strategy,
and activity
assessment
Assessment
Decision strategy
array
Standards of desirability
Cause/effect knowledge
Type of assessment
Certainty
Certain
Computational
Crystallized
Complete
Efficiency
Certainty
Uncertain
Compromise
Crystallized
Incomplete
Instrumental
Mediate
Uncertainty
Certain
Judgmental
Ambiguous
Complete
Social test
Institutional
Uncertaintv
Uncertain
Insnirational
Ambiguous
Incomplete
Social test
Technical Managerial Procure & allocate resources
test
test
STEPHEN
220
F. JABLONSKY
and alternative program identification and evaluation, PPB was originally thought of as a planning mechanism. Despite assertions that PPB is to the not-for-profit organization as strategic planning is to the for-profit organization, the question must be raised, does it encompass essential strategic planning activities? The primary purpose of an inquiry conducted by Anthony (1965) was to develop a conceptual framework useful for classifying generalizations about planning and control systems. Three levels of organizational planning and control activities were developed that are strikingly consistent with Parsons’s (1960) framework. At the first level are operating control decisions, defined as decisions concerning the process of assuring that specific tasks are carried out effectively and efficiently within the organization (Anthony, 1965, p. 69).
TABLE 4. Strategic
planning
and management
Strategic
Characteristic
and MARK W. DIRSMITH
At the second level are management control decisions, defined as decisions concerning the process of assuring that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives (Anthony, 1965, p. 27). Finally, at the third level are strategic planning decisions, defined as decisions concerning the process of deciding on the goals and objectives of the organization, of changes in these goals and objectives, on the resources to be used to attain these objectives and on the policies that are to govern the acquisition, use, and disposition of these resources (Anthony, 1965, p. 24). Anthony indicates that these three layers of activity do not constitute well-delineated, mutually exclusive categories, but rather represent a continuum along which critical attributes vary both quantitatively and qualitatively. Van
control
planning
Management
with orthodox control
planning Orthodox
On whole organization, social system
Few variables
Mechanistic, logic
Rhythmic; procedures
Means-end scheme, system logic
On one aspect
2. Complexities
Many variables
3. Degree of structure
Unstructured each problem
4. Nature
Tailor made for the problem; more external and predictive; less accurate
Integrated, more internal and historical; more accurate
Not addressed
Relatively
Relatively
Not addressed
5. Communication information 6. Purpose
of
of estimates
and irregular; different
simple
Show expected
results
planning
On the whole organization
1. Focus of plans
of information
at a time
contrasted
prescribed
difficult
Lead to desired
results
Fixed course, ahead toward
closed system closed
straight given ends
Staff and top management
Line and top management
Not addressed
8. Number of persons involved
Few
Many
Not addressed
9. Mental activity
Creative
Administrative
Mechanistic,
Economics
Social psychology
Social systems models (social psychology)
I.
Persons primarily involved
10. Source
discipline
11. Planning focus
and control
Planning dominant some control
with
causality
Emphasis on both planning and control
12. Time horizon
Tends to be long
Tends to be short
Not addressed
13. End result
Policies and precedents
Action within policies and precedents
Change within given organizational structure
Extremely
Less difficult
Not addressed, although closed system models are easy to evaluate
14. Appraisal job done
of the
difficult
THE PATTERN OF I’PB REJECTION
221
Gunsteren states, as discussed earlier, that PPB is a orthodox planning runs into trouble because too prime example of orthodox planning in the much emphasis is placed on control rather than on not-for-profit organization, which broadly involves planning, and a concept of action is employed that “ is much too limited - it does not support an and analysis of problem . . . the structuring decision strategy. This bias toward situations, operationalization of given goals, inspirational systematic investigation of alternative courses of certainty and away from an inspirational perspective has a disastrous effect on the ability of action and evaluation of these alternatives” (1976, individuals to make appropriate or even necessary p. 7). But, PPB is not analogous to strategic planning in the for-profit organization. This decisions as the progression is made from the technical to the managerial to the institutional incongruity can be portrayed by contrasting Anthony’s comparison of management control and level. PPE results in the wrong decision being made strategic planing (1965, p_ 67) with van at the institutional level. This conclusion will be elaborated upon further in the general systems Gunsteren’s desc~ption of orthodox planing theory discussion. (1976, pp. 28-30) as illustrated in Table 4. Although PPB is designed to accomplish for the not-for-profit organization what strategic planning Proposition 5: PPB presupposes a centralized accomplishes for the for-profit organization (the decision making network. It failed and was formulation of policies and precedents in addition rejected in org~izations having decentralized to the delineation of broad actions within these decision making networks. (Cooley, 1972; same policies and precedents), a review of the Worthley, 1974; Botner, 1970; and Federal characteristics of strategic planning and manageAccountant, 1972) ment control portrayed in Table 4 reveals that PPB The basic conclusion of contingency theorists possesses predominantly management control (cf. Lawrence & Lorsch, 1969; Duncan, 1972) is characteristics. For exampIe, given the activities that different org~ization~ coping strategies are contained within the PPB fr~ework described earlier, PPB appears to: (1) focus on the whole called for in different types of environments. More organization; (2) be rhythmic in the sense that it specifically, Lawrence & Lorsch (1969) found that uses an annual cycle in planning; (3) be designed centralized organizations are more successful in to lead to desired results; (4) employ administrasimple stable environments and decentralized tive mental activity; (5) reduce performance org~izations are more successful in complex dynamic environments. But, how did this type of appraisal to a fairly simple (cost/benefit) level; and arrangement come to exist? Simon (6) encompass a fairly short time horizon - 1 organizational (1972, p. 4) provides an answer indicating that the year, although allowance is made for decisions spanning several years. Thus, within PPB, planning properties of organizations are, in a broad sense, is hoped to be ~comp~ished by a process that is Darwinian -they are the results of an evolutional process that enables the organization to survive. i~approp~ate to the task. A review of the MesaroviC et al. (1970) indicate that the most characteristics of orthodox planning hi~i~ts this important property of a decentralized organizaconclusion. Despite the objective of making the tion, or in their terms, a multilevel, multigoal organization sensitive to changes in the environsystem, is that decision-making is dispersed ment, orthodox planning is based upon a means throu~out the org~i~tion. It is throu~ this end (shades of cause/effect certainty), fixed course dispersion that the org~ization is able to attain toward given ends (shades of certainty concerning preference ordering), closed system process. It is the speed of adaptation necessary for survival in a complex, dynamic environment. for these reasons that Anthony & Herzlinger Given that PPB failed and was rejected by (1975) indicate that PPB is not consistent with decentralized organizations, it may be inferred strategic planning. Thompson (1967, p. 152) indicates that there is that PPB was ill-suited to serve as a planning and a natural bias toward certainty as exhibited within control device in complex, dynamic environments. the PPB framework. Because of this bias, This inference is supported by the conclusion organizations tend to emphasize: short term vs drawn concerning Proposition 4, that PPB hoped long term considerations; quantitative vs qualitato accomplish the objective of making the tive data; and precedent vs innovation. Van organization sensitive to its en~ronment via an Gunsteren (1976, pp. 20-23) indicates that approach that was overly simplistic. Within
222
STEPHENF.JABLONSKY andMARKW.DIRSMITH
complex, dynamic environments, a heightened sensitivity to the environment is demanded if the organization is to survive. If the necessary speed of adaptation is not able to be achieved, or if the response formulated was generated by an overly simple mechanism as would be the case with PPB, the long run survival of the organization would be threatened. According to the tenets of evolution, the inhibiting or retarding factor, PPB, would be discarded. Thus, it may be concluded, as did van Gunsteren (1976, p. 45), that PPB failed because it ignored context. Recapitulation PPB was developed and implemented in not-for-profit organizations in order to enhance the organization’s ability to actively search, learn and adapt to a changing environment. As such, the purpose of PPB was to facilitate institutional level decision making. To the detriment of the organization, PPB encourages the use of an analytical, computational decision strategy, and a cost/benefit, efficiency test method of performance evaluation at a level and in situations calling for an inspirational decision strategy and social test performance evaluation. Although it was hoped that the benefits of strategic planning would be accomplished through the use of PPB, PPB embodied characteristics that were not appropriate to the task and would bias decision processes away from the very attributes of the environment that should be focused upon. Finally, PPB most noticeably failed in decentralized organizations operating in complex, dynamic environments, a context which particularly calls for strategic planning and an inspirational decision strategy. Thus, it may be concluded that PPB ignores context and in so doing, results in precisely the wrong decision being made.
PPB - A GENERAL SYSTEMS THEORY PERSPECTIVE WITH A TWIST OF MAGIC Pondy (1976) was concerned with inventing a future for research in organizational theory, basing many of his remarks on Boulding’s (1968) nine-level hierarchical continuum of systems ordered as to complexity. These levels range from a simple, inward looking system in which it is assumed that the system being examined is stable, to a complex, outward looking system in which it is assumed that the system or organization being
examined, as well as its environment, are subject to evolution. Pondy reasoned that, even though organizations must function as complex, outward looking systems, our formal models of how these organizations function or should function are at a simple, inward looking system level. PPB typifies this lower level of system complexity to the extent that it is used to hopefully sensitize the organization to its environment by means of a process (van Gunsteren, simplistic 1976, pp. 28-30). Pondy (1976, p. 12) indicates that organizations must function as complex systems which interact with their environment in order to survive. But how must this process of interaction be carried out, especially when the environment closes in on the organization, or as Pondy states, “becomes scarce”? Pondy provides an answer to this question, stating that an organization’s environment is only partially given and that another part is enacted, i.e. the organization takes action and changes its environment in order to survive; it, in a sense, creates its own world. Thus, as the environment becomes scarce, the organization must do something to change it (,Weick, 1969). Three strategies for action were suggested as a means for accomplishing this enactment process: (1) be playful; (2) act randomly; and (3) discredit the existing organization (,Weick, 1969). Each of these strategies may be embodied by complex systems that are significantly more sophisticated than is the PPB framework. Pondy concludes that complex systems or social organizations “foul their environmental nests” by responding to environmental change via a simplistic system response. This simplistic response, or a response in which the control aspects of the model dominate the planning aspects (van Gunsteren, 1976, p. 20) leads to precisely the wrong type of decision in situations calling for a complex system response. As stated earlier, PPB was implemented during the resource rich, “golden days” of the mid 1960s. As resources dwindled, or as the environment became scarce, PPB ran into difficulty and began to be rejected. Parallelling Pondy’s analysis, van Gunsteren (1976, p. 61) reasons that it is in such times that organizational flexibility is required and that PPB tends to enforce organizational rigidity. Through the use of PPB, an attempt was made to gain control over problem areas, such as runaway defense expenditures, but sometimes this strategy was inappropriate. Van Gunsteren states (1976, p. 57):
THE PATTERN OF PPB REJECTION
. . . There are times when and situations where success in solving a problem depends on relaxing our grip on the world. To solve problems it may be necessary to let go, to trust and accept, to stop trying to control everything. What may be wrong at times is not our lack of grip on the world, our lack of steering capacity and rationality, but our need of or longing for more grip and rationality. In that case our task is not to design additional controlling and steering systems, but to get rid of our compulsion for control. As concluded in the previous section, a control perspective dominated PPB. This dominance negated the ability of the organization to act randomly, be playful or discredit the existing organization, to relax its grip on the world so that new forms of interaction with the environment could be created. A magical perspective - the “why ” behind PPB Given its objectives and the mechanism of objective attainment, the use of PPB might appear to be irrational. The paradox is that irrational behavior is strangely rational if there is adequate knowledge of the behavioral context. Consistent with the “pathological perspective” expressed in the abstract of this paper, it may appear to be irrational behavior for cattle breeders to lace their feed with arsenic prior to a Federal ban on such activity. Within the context of this activity, however, a proper dosage of arsenic acts as a growth stimulant - “rationality” perhaps in the short term. In the long term, secondary consumers of arsenic, man, may develop cancer over a period of years by ingesting the meat of such cattle hence, Federal regulation. Perhaps the implementation of PPB is rational in a short term sense, given the political reality of the not-for-profit world. Wildavsky (1976, p. 356) has indicated that the ability of an organization to accomplish rapid internal reforms is conditioned by its autonomy from the environment. Given that it is much more difficult for a presidential administration to exert control over domestic policy as compared to foreign policy (Wildavsky, 1976, p. 356) is it politically sufficient for administrators to state that such control cannot be meaningfully exerted? Or, must an administration give the appemance of exerting control, of actively doing something? Van Gunsteren (1976, p. 56) “gets the impression” that Kennedy’s endorsement of the PPB reform happened “. . . by accident, or else was dictated by electoral tactics without much prior analysis”. Similarly, Johnson’s mandate that
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PPB be adopted may be attributed to: a frustration with the inadequacies of the traditional budgeting system; a desire to do something new; or possibly a generally Western desire to get “. . . a general grip on things, to be in command, to know what is happening and to spell out one’s own course of action” (van Gunsteren, 1976, p. 56). PPB may be used in “advanced” societies much as magic is used in tribal societies, i.e. to accommodate awkward facts so as not to disrupt the functioning of society (Gambling, 1976, p. 40). Gambling (1976, p. 41) argues that organizations, or in the current case, presidential administrations, “. . . are often more interested in confidence-building and conflict avoidance than in the objective reporting of facts”. Reflecting, perhaps, a short term, “paste over the cracks” presidential administrators would orientation, desire a system which can be used to generate generally positive messages or at least give the appearance of actively doing something to improve the functioning of government. Gambling states (1976, p. 142): What is sometimes sought from accounting [insert PPB] is not so much absolute truth (if that can be found!) but something to which all parties can assent, albeit temporarily and with many interior reservations. As a result, they can keep going - at least until next week. . . . The trouble is that the absolute truth is not very often revealed to any of the collaborators in any organization [insert Presidential Administration] so that blinding conviction of the need of a common course of action are common mistakes. This is because most organizational problems are ill-structured ones, so it is as much experience as moral cowardice which endorses the fudged compromise in such cases.
The implementation of PPB in the not-forprofit organization cannot be wholly condemned because it appears to have failed. Granted, it did not attain its stated objective of sensitizing agencies and departments to changes in the environment by means of the principles established within the PPB framework. Perhaps in the short term, its primary use, at least at the administration level, relates to the cosmetic property of appearing to actively do something in the area of domestic policy. It would be premature to conclude that an administration was nayve to think that the unstructurable problem areas related to the not-for-profit world could be effectively addressed by means of a conceptually simplistic approach such as PPB. Quite the contrary, its implementation may have been politically quite astute.
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STEPHEN F. JABLONSKY and MARK W. DIRSMITH
WHY PPB, AND WHY NOW? PPB was originally implemented by the Department of Defense in 1962 in order to facilitate planning and control activities. Subsequently, it was adopted by numerous not-forprofit organizations. Sometimes it was accepted, sometimes it was rejected. PPB has been around for a fairly long period of time; its strengths and weaknesses have been widely noted. So why discuss PPB now? It is contended that the PPB experience provides important information concerning both PPB and the functioning of the not-for-profit organization. PPB was implemented in order to facilitate institutional level decision making, but sought to accomplish this objective by means of a decision strategy and a method of performance evaluation that was overly simplistic and which could not accommodate the richness of the organization-environment relationship. At the institutional level of decision making, PPB would lead to making precisely the wrong decisions. Despite claims to the contrary, PPB would produce the wrong decisions in the sense that the tenets of the PPB framework encourage an inwardlooking perspective which assumes that the organization and the environment are fixed. Clearly, at an institutional level and in a changing environment, an outward looking perspective is called for which actively focuses upon the organization and the environment as changing, evolving, interdependent systems. Critics of this conclusion may counter that PPB was rejected in instances where it was not appropriate to the circumstances, i.e. by decentralized organizations operating in complex, dynamic environments, and that, therefore, its implementation is not so deadly. True, but this rejection did not occur until the collapse of the “golden sixties”. What of the inappropriate decisions that were made in the interim? Additionally, even though the disparity between PPB and the requirements of institutional level activity in centralized organizations operating in simple, stable environments may be less marked,
PPB still reflects a simple, low level system perspective and would lead to inappropriate decisions even in situations where it has not yet been rejected. What also if the environment of such organizations begins to change more rapidly and the institutional philosophy of decision makers is imbedded in the concrete of PPB? The PPB experience is reflective of a much larger problem - that not-for-profit organizations are particularly exposed to the threat of having inappropriate decision “facilitating” mechanisms imposed on them by higher level decision makers. For example, President Johnson mandated that PPB be adopted throughout the Federal government. This type of imposition is reflective of both an understandably human desire to be in control (van Gunsteren, 1976) and a desire on the part of politicians to give the appearance of actively doing something in a “rational, comprehensive” (Lindblom, 1959) way, in areas where there may be conflicts in values, a weak association between action and result, and where raw, politically-based decisions are desirable (van Gunsteren, 1976, pp. 42-45). Van Gunsteren’s (1976, p. 59) suggestion for surviving or even thriving in such situations is not to try to exert control, but, rather “to let go, to trust”. How? By encouraging inspiration, creativity and quite frankly, the use of ambiguous, disputable performance evaluation methods; by allowing organizational evolution, and by encouraging the investment of the discretion necessary to make decisions throughout an agency or program. The perspective discussed above outlines the price that must be paid for rational comprehensive decision making in the not-for-profit sector, and perhaps, a method of reducing this price. Noticeably lacking is a discussion of why this price is currently being paid and what are the benefits that may be derived from paying this price. The pathologist should, for the time at least, withhold announcement of the conclusion “Death caused by PPB poisoning”. Maybe there is a valid reason why this type of toxic agent was found in the corpse in the first place.
BIBLIOGRAPHY Anthony, N., Planning and Control System: A Framework for Analysis (Boston: Harvard University, 1965). Anthony, N. & Herzlinger, R., Management Control in Nonprofit Organizations (Homewood, Illinois: Richard D. Irwin, 1975).
THE PATTERN OF PPB REJECTION Botner, S. B., Four Years of PPBS: An Appraisal. Public Administration Review (July, August, 1970), pp. 423431. Boulding, K., General Systems Theory - The Skeleton of Science. In Walter Buckley (ed.), Modern Systems Research for the Behavioral Scientist (Chicago: Aldine, 1968). Cooley, J. W., Nelson, C. R. & Olewine, L. E., PPBS _ . . Alive and Well. The FederaZ Accountant (June, 1972), pp. 14-21. Cyert, R. M. & March, J. G., A Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 1963). De Woolfson, B. H., PitfaIls in Planning-Programming-Budgeting Systems (Unpublished Dissertation, University of California, Irvine, 1974). Dirsmith, M. W. & Jablonsky, S. I;., MB0 in the Public Sector: A Conceptual Examination. American Institute for Decision Sciences Proceedings (1977). Dirsmith, M. W., Zero-Base Budgeting: A Conceptual Examination. The Pennsylvania State University Working Paper (1978). Duncan, R. B., Characteristics of Organizational Environments and Perceived Environmental Uncertainty. Administrative Science Quarterly (September, 1972), pp. 313-327. FederalAccountant, Selected Papers (June, 1972). Gambling, T., Magic, Accounting and Morale. Accounting, Organizations and Society (1976), pp. 141-151. Hearings Before the U.S. Congress Joint Subcommittee on Economy in Government of the Joint Economic Committee (September, 1967), p. 5. Lawrence, P. R. & Lorsch, J. W., Organization and Environment (Homewood, Illinois: Richard D. Irwin, Inc., 1969). Lindblom, C. E., The Science of Muddling Through. Public Administration Review (Spring, 1959) pp. 79-88. March, J. G. & Simon, H., Organizations (New York: J. Wiley, 1958). Mesarovic, M. D., Macko, D. & Takahara, Y., The Theory of Hierarchical Multilevel Systems (New York: Academic Press, 1970). Miles, R. E., Snow, C. C. & Pfeffer, J., Organization Environment: Concepts and Issues. Industrial Relations (10,1974), pp. 244-264. Novick, D., Current Practice in Program Budgeting (New York: Crane, Russak, 1973). Parsons, T., Structure and Process in Modem Societies (New York: The Free Press of Glencoe, 1960). Pondy, L. R., Beyond Open System Models of Organizations. Presented at the Annual Meeting of the Academy of Management, 1976. Programming Systems for the Office of the Secretav of Defense. A Defense Study Report (May 31, 1962). Simon, H. A., The Organization of Complex Systems. In Howard H. Pattee (ed.), Hierarchy Theory: The Challenge of Complex Systems (New York: George Braziller, 1972). Thompson, J. D., Organizations in Action (New York: McGraw-Hill, 1967). van Gunsteren, H. R., The Quest for Control (London: J. Wiley, 1976). Weick, K. E., The Social Psychology of Organizing (Reading, Mass.: Addison-Wesley, 1969). Wildavsky, A., Budgeting: A Comparative Theory of Budgetary Processes (Boston: Little, Brown & co., 1975). Worthley, J. A., PPBS: Dead or Alive. Public Administration Review (July/August, 1974), pp. 392-394.
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