Corporate Planning Not all organisations that have developed formal planning systems are completely satisfied with their systems or results. One reason for this dissatisfaction is that they have made mistakes in setting up, doing, and using their systems. Almost three decades of experience with formal planning systems have taught many lessons about what ought to be done and what should be avoided for effective planning. A number of these lessons already have been discussed. This chapter brings together the most significant dangers that experience tells us should be avoided if planning systems are to be effective. A Survey of Planning Pitfalls Several years ago I sent a questionnaire concerning planning pitfalls to 600 companies and received 215 usable replies. Their distribution was skewed toward larger companies although smaller companies were represented. It was my intent to get responses from a representative group of chief executives, division managers, and managers of headquarters staffs. Unexpectedly, however, most companies decided to have only the corporate planner complete the form. Thus, 75 percent of the replies were from corporate planners, which created another bias in the results. Despite these biases I believe the results of the survey still have value. A principal purpose of the survey was to determine whether or not a list of fifty pitfalls, which I had identified and which are shown in Exhibit 1, really covered most or all of the major traps that experience indicated should be avoided for successful planning. Respondents were asked to add to this list, and a number of additions were suggested. They were either modifications of pitfalls identified in Exhibit 1 or subsets of them. The respondents confirmed my conviction that Exhibit 1 includes the most important traps, both conceptually and operationally, which must be avoided if a formal planning system is to be effective. There are, however, some reservations to this observation that should be explained. First, the list of pitfalls is incomplete because it does not include the entire management process associated with planning. As pointed out earlier, strategic planning is inextricably interwoven into the entire process of management. The list isolates only the more significant pitfalls to be avoided in getting the system of planning started, in understanding the nature of strategic planning, in doing planning, and in using the plans once they are prepared. Second, there are other pitfalls in planning such as selecting the wrong subject to examine, or making the wrong type of analysis of the information at hand, or drawing the wrong conclusions from reliable data. Planning can easily fail if such mistakes are made. For instance, it is a serious error to assume that a simple linear extrapolation of past sales data will provide acceptable forecasts for planning. A formal planning system will be accused of failing if a company goes through the process and formulates the wrong strategy for implementation, to illustrate another dimension. This result may or may not be the fault of the planning system. The point here however, is that many mistakes can be made in planning that relate to methodology, decision-making processes, and individuals’ thinking that are not explicitly shown in the list of fifty pitfalls. Third, any company at a particular point in time has many choices about how to avoid the errors shown in Exhibit 1. This is another way of saying that each of the pitfalls encompasses a wide range of possible actions any one of which may have a high or low applicability to a given situation. For example, the first pitfall: Top management’s assumption that it can delegate the planning function to a planner -- has many subtleties associated with it. It is a fundamental mistake to delegate the entire planning function to a planner. On the other hand, a chief executive must get some help from staff. How much planning responsibility a chief executive can or should delegate to staff depends upon many circumstances. Executives and staff must search for and understand the pitfalls discussed here and then determine whether or not, and how much they are applicable to their particular situation. Parenthetically, it is worth noting that many of the pitfalls are obvious. Many are not. Some may be considered counterintuitive. They will be ignored by management at great risk to the effectiveness of their planning systems. EXHIBIT 1: Fifty Common Pitfalls in Formal Strategic Planning
Ten Major Mistakes to Avoid Respondents to the survey mentioned above were asked to rank what they considered to be the five most important pitfalls. From this ranking I developed a list of the most critical pitfalls that respondents thought should be avoided, presented in Exhibit 2 in a descending order of importance. Respondents to the survey were also asked whether or not they were satisfied with their planning systems. They reported much more satisfaction than dissatisfaction, as shown in Exhibit 3. Those who completed the questionnaire were also asked whether they had become significantly ensnared in any of the traps. Without exception those companies that answered affirmatively for any of the snares identified in Exhibit 2 were more dissatisfied than satisfied with their planning systems. Comments on the Ten Major Mistakes to Avoid "Top management’s assumption that it can delegate the planning function to a planner." The chief executive of a company must assume responsibility for planning and must get involved in it. How much of this task the chief executive delegates and how much responsibility he assumes will depend upon the executive, the experience the company has had with planning, staff capabilities, and many other factors. The lesson is clear, however: Complete delegation of planning to staff is the road to planning failure. "Top management becomes so engrossed in current problems that it spends insufficient time on long-range planning, and the process becomes discredited among other managers and staff." There must, of course, be a proper blend of short- and long-range planning. Everyone recognises that most managers are faced with excessive demands on their time, not the least of which are urgent, short-range problems. This fact of life, however, must not lead to the neglect of long-range strategic planning. To do so is likely to lead to poor short-range decisions. EXHIBIT 2: The Ten Most Important Pitfalls to be Avoided as Ranked by Respondents
EXHIBIT 3: Degree of Satisfaction with Reported Planning System
"Failure to develop company goals suitable as a basis for formulating long-range plans." I was surprised to see this mistake listed so high so I queried a number of respondents about it. It turned out that in many companies objectives were set only in broad terms, such as "make the best acquisition possible" or "optimise profits." Other companies set unrealistic objectives for growth, profits, share of market, and so on. In other companies there appeared to be problems of clarification and/or agreement between central headquarters and divisions. In some cases divisions wanted headquarters to specify objectives for the divisions but headquarters would not do so. The results were frustration in trying to plan. Long-range objectives should be concrete and well understood. Failure to meet these requirements inevitably creates problems in strategic planning. "Failure to assume the necessary involvement in the planning process of major line personnel." Line managers at lower levels in an organisation will not spend time on projects that they do not believe top management is thoroughly committed to doing. Exhortation by top management to others in the organisation to get on with strategic planning is not enough. Some years ago Kirby Warren identified tests that managers applied when planning was first introduced in organisations to determine what their response would be. These tests are still valid. Warren said that before managers did much of anything they took a wait and see attitude. In this period they applied four tests to chief executive commitment. First, "Who is chosen to be the director of planning and how is he or she treated?" If a strong, capable director is chosen and is treated with respect and is welcomed by top management the first test is passed. Second, "How much direct backing does the president give longer-range proposals?" If top executives focus on the short range the other managers will conclude that long-range thinking is a waste of time. This signal makes clear what the chief executive’s commitment to strategic planning is -- no matter what is said. Third, "What is management’s response to strong and weak planning efforts?" What happens when a manager presents a poorly conceived strategic plan but an excellent operating performance? On the other hand, how does management react when a manager presents a first-rate strategic plan that is well thought out and creditable, along with a poor short-term performance? If the first manager is praised and the second is criticised there will be little managerial effort given to long-range strategic planning in this company. Finally, "How much emphasis is given to long-range planning in determining bonuses and promotions?" It was pointed out earlier that if a manager is evaluated solely on the basis of the short-term bottom line there would be little or no long-range strategic thinking. General Electric evaluates managers partly on the basis of what they do with products under their jurisdiction located in different parts of the market strength/market attractiveness matrix. The GE bonus weighting system is illustrated in Exhibit 4. EXHIBIT 4: General Electric Company Bonus Calculation (Source: Michael G. Allen, "Diagramming GE's Planning for What's Watt,"Planning Review, September 1977, p. 8.) "Failure to create a climate in the company which is congenial and not resistant to planning." This is an important issue that was explored at length. No further discussion will appear here. (See Steiner’s book for further information.) "Assuming that corporate comprehensive planning is something separate from the entire management process." This point, too, was covered previously. (See Steiner’s book for further information.) "Injecting so much formality into the system that it lacks flexibility, looseness, and simplicity, and restrains creativity." One common mistake some large centralised companies make is to prepare a planning manual and make it applicable to all divisions, irrespective of size, planning capabilities, culture of the organisation, and so on. Divisions, like companies, need a planning system to fit their unique characteristics. My observation is that fewer companies fall into this trap today than previously. "Failure of top management to review with departmental and divisional heads the long-range plans which they have developed." If top management does not review plans or does not tell managers who prepared plans that they have been reviewed, managers will believe top management does not care about their planning efforts. Review and feedback by top management to managers making plans are essential. "Top management’s consistently rejecting the formal planning mechanism by making intuitive decisions which conflict with the formal plans." Whenever a company falls into this error it means that the top manager is in effect delegating the planning function to someone else and if plans do not sit well with the top executive they are rejected. It means insufficient involvement of the top executive in the planning process. If plans are rejected very often in such a situation they are not likely to be prepared with care. On the other hands, a planning system must incorporate the intuitive judgements of managers -- including top executives -- throughout its development. Formality and intuition, however, should be balanced. The pattern should not be one of rigid, sequential steps whereby lower level managers complete their planning and top executive then accept or reject. This pattern is not likely to produce the best results from lower level managers especially if the typical experience is top-level rejection. Other Major Mistakes to Avoid Many writers in recent years have addressed themselves to reasons for the failure of planning. For the most part the reasons given duplicate or are subsets of one or more of the fifty pitfalls shown in Exhibit 1. It is worthwhile, however, to comment on some of them because they do highlight specific mistakes that can result in poor planning. In a study of 350 companies in Europe and the United States Ringbakk found ten major reasons for the failure of planning: 1. "Corporate planning has not been integrated into the firm’s total management system." 2. "... lack of understanding of the different dimensions of planning." 3. "Management at different levels in the organisation has not properly engaged in or contributed to the planning activities." 4. "The responsibility for planning is often wrongly vested solely in a planning department." 5. "In many companies, management expects that the plans as developed will be realised." 6. "... in starting formal planning too much is attempted at once." 7. "Management fails to operate by the plan." 8. "... extrapolation and financial projections are confused with planning." 9. "Inadequate inputs used in the planning." 10. "Many companies fail to see the overall picture of planning. They get hung up on little details." Most of Ringbakk’s causes of planning failure directly relate to one or more of the pitfalls shown in Exhibit 1. Some are not readily identified with my pitfalls because they are subsets. They all are important and should be kept in mind by managers. Hans Schollhammer and I used the same questionnaire that included the fifty pitfalls noted in Exhibit 1 and surveyed Japan, Canada, England, Italy, and Australia. The top ten important mistakes to avoid generally were identified by respondents in these countries as the same ones the U.S. respondents listed. In some countries some other of the fifty pitfalls were high on the list. For instance, in Japan pitfall 43 was in fifth place: "Forgetting that the fundamental purpose of [planning] is to make better current decisions." In England pitfall 27 was ranked fourth: "Too much centralisation of long-range planning in the central headquarters so that divisions feel little responsibility for developing effective plans." In Canada pitfall 27 was ranked sixth; number 43 was ranked seventh. Summary In this chapter a comprehensive list of mistakes that must be avoided in formal strategic planning was presented and the more important of these errors were identified. The reader should not assume, however, that those warnings discussed in this chapter as being the most critical to heed are the only significant ones. Any of the fifty pitfalls, and other subsumed in the list of fifty, may be dominant in a particular situation. |
