Corporate Planning Evolution of Corporate Planning If we examine the last half-century of planning practice in industrial corporations, we find a series of distinct shifts of emphasis over the decades. These shifts are visible across corporations; these are also perceptible within single corporations over time. The following four ideal types describe the stages of evolution of corporate planning. Stage I: Financial Budgeting This is the earliest form of planning, i.e., the earliest mode of dealing with the future. In this, financial targets are fixed for a future period (usually for the next financial year) and the entire organisation is geared up to meet these targets. Financial targets are the main concern when ‘owners’ have the upper hand, who view organisations as artefacts created to maximise their wealth. Stage - I companies often have managers—married to the way things used to be—unable to recognise and understand changes that may be taking place in the wider environment as well as within the organisation. The question of ‘corporate direction’ is seldom raised. Strategy resides only in the hearts and the minds of a few. Management is internally focused and execution oriented. The practice of budgeting, as the organisation grows and as it faces more and more competition, often turns out to be ritualistic. The game of ‘budgetsmanship’ becomes all too apparent. It becomes increasingly clearer to the organisation that a change is required towards a larger time horizon and towards evolving a sense of direction. Stage II: Forecast-Based Planning Stage - II emerges from the frustrations of Stage I. The corporation finds it necessary to deal with wider time horizons. Forecasting of volumes and revenue provides the basis for arriving at financial targets. This of course is a result of the growing concern with survival in an increasingly competitive environment. Forecasts are used for fine-tuning the estimates of future financial performance through rational allocation of resources. Management is still historically oriented and internally focused. Strategy still resides in the minds of a few. The emphasis on forecasting normally emanates from assuming that the environment is likely to remain stable. But during the 1960s and the 1970s, large-scale commercialisation of new technologies, associated with a fast-changing global scenario of trade and commerce, and the emergence of new economic powers, the business environment could no more be seen as stable. Forecasts could not cover the long time horizon, which needed to be covered if the organisation were to survive the ravages of a fast-changing environment. Stage III: Strategic Planning Strategic Planning arises out of a desire to be externally oriented. An understanding of the changing customer needs, technological developments, competitive position, and competitors’ initiatives assumed a key significance in this form of planning. The result of such external orientation was clearly visible in the noticeable increase in the responsiveness of organisations, to the ever-changing demands on them. This kind of orientation eventually tended to get assimilated in organisation culture. Within organisations with a strategic orientation, it was not abnormal to see people discussing about changes in the market place. Such cultural change was manifest in the stress on innovation, experimentation, participation, teamwork, etc. The entire organisational energy was geared up towards creating new sources of sustainable competitive advantage. It is important to note that, although management recognised the need to respond to changes in the environment, it still largely retained its defensive perspective of change. Change was seen as a necessary evil against which the organisation had to be ‘protected’, even at the cost of changing some of the managerial practices. The planning staff was seen as one who jointly works with the top management to dismantle the barriers to strategic thinking, generating the kinds of options which will upset the equilibrium of the market place and re-establish it in the favour of the organisation. The practice of strategic planning eventually brought out the need for a more positive perspective of change, where change is not seen as a threat to survival but as the very mechanism of survival itself. With such a perspective, it became apparent that the entire organisation must be able to continuously redesign itself in terms of strategy, structure, systems, skills, staff, style, and shared values (the 7-S), if it were to remain a relevant part of a wider evolving system. State IV: Strategic Management Strategic management is the most sophisticated form of future-oriented management practice. It combines the external with the internal, and views the whole domain of corporate activities—through which the corporation creates and delivers its product/services—as a domain of alterables. It accepts change as a permanent feature of the socio-economic environment, which is in fact the cumulative effect of the activities of several organisations. All corporations have to operate and thrive within this. In this light, co-operation and collaboration assume greater significance than competition. Towards this, the entire corporation (7-S) is continuously evaluated and assessed to maintain its harmony with the environment. Additionally, it is recognised that an organisation is only an instrument in the hands of its stakeholders, which they use towards furthering their own purposes. Therefore, the effectiveness of a corporation is seen as its capability to improve the quality of life of its stakeholders. The underlying value system of strategic management is: ‘create the future’. This is echoed in the words of the English poet William Blake: I must create a system, or be enslaved by another man’s. Strategic management, for its successful implementation, requires a planning framework, which can operationalise its basic value system. This requires a particular outlook on change, wherein change is no more a necessary evil but an impetus for evolution towards more effective forms of organising. To understand this further, we shall classify various planning postures and reveal the principal beliefs that underlie these postures. Effectiveness of Formal Business Planning
Note. Adapted from Gluck, F. W., Kaufman, S. P., & Walleck, A. S. (1980). Strategic management for competitive advantage. Harvard Business Review, July-August, p. 157. Planning Postures Concurrent with the evolution of planning practice, corporations find a progressive shift in their posture towards change. These postures can be classified into the following four ideal types, viz., Reactive, Inactive, Preactive and Interactive. Reactive A reactive posture implies a dislike for change. Caught in a current of change, reactivists try to swim against the stream. They like things as they were. Their fascination with the old is manifested in their adherence to older forms of organising, e.g., into machine-like bureaucratic forms. They try to get rid of what they don’t want, and hope that in the process they will get what they do want! Here, budgeting is the only activity concerning the future. This posture creates an illusion of an invulnerable status, which may be comforting to the members in the short-run. Inactive Inactivitists are satisfied with the way things are. They are not optimistic about the future. Therefore, they prevent change. ‘Don’t fix it, if it ain’t broke’ is their philosophy. This inactivist posture is usually justified by referring to the self-healing capability of organisations. This stance evokes suspicion against dissidence and disloyalty. The latter two behaviours are seen as disruptive and therefore worthy of punishment. When inactivists are pushed strongly enough, they constitute a committee! In their effort to combat change, the inactivists are perennially busy preventing things from happening. They are experts in crisis management. Preactive The preactive posture involves a welcoming attitude towards change. Because preactivists feel that the future can be better than both the past and the present, they try to accelerate change. Therefore, they value creativity and inventiveness. They encourage people to make mistakes, because that is how, they believe, can new things be invented. Their interest in accelerating change is reflected in their dedication to forecasting. ‘Predict and prepare’ is their motto. Through this, they like to optimise performance. Since one corporation’s preparation affects the way other corporations behave, preactive managers often find that their systems are not being presented with the situations for which they are optimally designed! Interactive Interactivism is a much bolder outlook. It arises out of an unwillingness to return to a previous state, a desire to improve the current situation, and a rejection of the future that seems to confront the corporation. Interactivists believe that the future is subject to creation. In this view, planning is considered to be the design of a desirable future and the invention of ways to bring it about. Figuratively speaking, caught in a steam of change that does not suit them, interactivists try to change the direction of the stream. Since they believe that performance can always be improved, they like to idealise about ultimate ends, towards which progress can be made. They try to build ideal-seeking systems. Adopting an interactive posture has serious implications for the way organisations are built, systems are designed, decisions are made and ends are pursued. The methodology of Interactive Planning, developed by Russell Ackoff, provides a detailed framework, within which strategic interactive management can be pursued. Kinds of Planning Organisational ends can be of three types, viz., Ideals, Objectives and Goals. Goals are those ends that can be achieved within the planning horizon. Objectives may not be fully achieved within the planning horizon, but can eventually be achieved. Ideals can never be achieved, but these are ends towards which progress can be made within any time horizon.
To operationalise the ends, the corporation must develop suitable means. Planning must deal with all the three ends, i.e., ideals, objectives, goals and the means to accomplish them. Depending upon the level of hierarchy within an organisation, one of these four items would assume a greater importance. Accordingly, planning might be classified into the following types.
Interactive planning is the total framework, from which all the four kinds of plans can be derived. Distal and Proximal Benefits of Planning The distinction between distal and proximal is an old one in philosophy, physics, and psychology (Cooper, 1992). Distal thinking refers to effects and outcomes, the ‘finished’ things or objects of thought and action; proximal thinking, to process and event, to the carriers or mediators of things or objects. For the distal thinker, the destination is more important than the journey; for the proximal thinker, to travel is better than to arrive. It is useful to distinguish between the distal and the proximal benefits of planning. Distal benefits are embodied in the ‘product’ of planning, namely, the plan, i.e., the report generated through the planning process. It contains planners’ understanding of the environment (both internal and external), a list of specific opportunities and threats facing the corporation, the mission statement, objectives and goals, the corporate strategy, functional strategies, and the programme of implementation and control. Without contesting the value of the report and its contents, we propose to look at planning from the proximal angle. This brings to sight the team work, the brain-storming, the questioning of assumptions and the very enriching experience of ‘creating the future’, which are involved in the planning process, at least if it is of the interactive variety. This process itself embodies several benefits to a corporation. The IP process contributes enormously to the participants by changing the ‘corporate mind-set’ and contributing to organisational learning. It inspires team spirit, innovativeness and commitment; it changes the perception of what is deemed possible and what is not, or what is felt to be implementable and what is not. The experience of idealised designing generates among the stakeholders a feeling of themselves being in control of their own destiny. The cumulative effect of all such benefits is corporate development. Therefore, in the interactive framework, planning is justified because of its proximal benefits, through which the corporation continuously creates its future. References Ackoff, R. L., (1981). Creating the corporate future. NY: Wiley. Cooper, R. (1992). Systems and organisations: Distal and proximal thinking. Systems Practice, 5(4), 5-18. Gardner, J. R., Rachlin, R., & Allen Sweeny, H. W. (Eds). (1986). Handbook of strategic planning. NY: Wiley. (chap. 1: "Strategic Management: An Overview" by F. W. Gluck) |