TE P LANN I N G

by

P e ter Lo r an g e

98 5-78 19 7 8
 CO RP O RA TE P LANN I N G : AN E! E C U T I V E V I EWPO I N T
by

P e ter Lo r an g e

98 5- 78 May 1 9 7 8

Tenta t ive l y to b e pub l i sh ed by P ren ti c e - H al l T hi s dr a f t i s pr e l im in a ry ;

.
-

i t i s no t y e t edi ted .N o t to b e quo te d C ommen ts so l i c i t ed

. .
(To C ome )
P urp o s e of C o rp o ra te P l ann ing : S tr a te g i c

1-1 . I n tr o duc t i on
1- 2 . A l lo c a t ion o f R e s ou r ce s
1 -3 . A dap ta t ion ; I de n ti f i ca ti on o f S t r a te g i c O p tion s
1- 4 . I n t e g r a tion ; N ar row down O p ti on s
1- 5 . Le a rn in g
1-6 . O ut l in e o f B oo k
1- 7 . S ummar y
F oo tno te s
A C on ce p tual App ro a ch to C o rpo ra t e P l ann in g
In tro duc ti on
Thre e Leve ls o f S tr a te g i c P l ann in g : T h e C on c e p ts
Thr e e Leve l s o f S tr a te g i c P lann i n g : I mp l e
m e n ta t i on a l C on s i de r a t ion s

S ta g e s o f th e P l ann in g P ro ce s s
4 -1 : S ta g e O n e : O b j e c t ive s - S e tt in g
4- 2 : S tra te g i c P ro g r am min g
4 -3 : B ud g e tin g
4 -4 : Mon i to r in g
4-5 : Man a g e r i al I n c en tive s :

A Th re e by F ive In fo rma tion F low Mo de l

" “

O f Co rp o r ate P l ann in g
S umma ry
A p p endix : An Examp l e o f a C omp l ex
H i e rar ch i c a l O r g an i z a t iona l S tru c tur e
F oo tno te s
A udi tin g th e C omp any '
s S tra te
gi c P o s i t ion : D e te rmin in g

In trodu c t i on
3-2 0 Th e S tr ate g i c B us ine s s Uni t ( S E U ) C on c e p t
3 -3 . Th e C on c e p ts o f th e Ex p e r i en c e C urve and
th e P ro du c t Li f e C y c l e as P remi s e s fo r S B U
S tr a te g i c An a l y s i s
Th e Ma rke t S h a r e /Mar k e t G row th G ri d
A da p ta t ion an d I n te g r a tion N e e ds o f a $ 8 0
Mo di f i ca ti on s o f th e 5 8 0 S tra te g i c P o s i ti on Ma t r i x
C ons o l i da tion o f S eve ra l S B U s '

C o rpo ra t e S tr a te g i c P l a nn in g N e e d As s e s sme n t : P i
nan c i a l P o s i t ion
Co rp o r a te S tr a te g i c P l ann in g N e e d A s s e s sme n t
S tru c tur a l P o s i ti on
P o r t fo li o L eve l P l ann in g N e ed s : S y n th e s i s
A s s e s sme n t o f Ri s k Exp o su r e o f S tr at e g i c
P o s i tion s

’ ’
j q jg d l
3 - 12 . Wh en S hou ld S tr a te g i c Audi ts o f P l ann i n g
N e ed s B e C a rr i e d O u t and b y Whom ?
,

3 -1 3 . S ummary
A p p endi x : A P o r t fo l i o A ttr ac t ivene s s
I nde x : An Ex amp le
F oo tno te s
Im p l emen ta t ion o f Co r o ra te P l ann in g
p S y s t ems : Gen
e ra l P i t fa l l s an d P rob lems
4-1 , I n tr o duc t ion
Imp lemen ta tio n P i t fa l l s an d P rob l ems D u r in g
Th e O b j e c tive s - S e t t in g S tag e
4 -3 . Imp l eme n ta t io n P i t fa l l s and P rob l ems D u r in g
The S tr a te g i c P ro g r ammin g S ta g e
4-4 . Imp l emen ta tion P i t fa l l s and P rob l ems D u ri n g
Th e B udg e tin g S ta g e
4- 5 . Imp l emen ta tion P i t fa l l s an d P rob l em s D ur in g
Th e Moni to r in g S ta g e
4-6 . Imp l emen ta tion P i t f a l ls an d P ro b l ems Du r in g
Th e Mana g eme n t I n c e n tive s S e ttin g S ta g e
4-7 . S um mary
F oo tno te s
Ta i l o rmakin g th e C o gp o r a t e P l ann in g S y s tem '
s D e s i gn
5-1 . In tro duc t ion
5-2 . D e s i gn in g a P l annin g S y s tems Mo dul e to
Me e t a S B U s P l ann in g N e e ds
'

5-3 .
"
Top - Down ve r s us B o t tom - Up P l ann in g Emph a s i s
"

5- 4 . F ron t En d ve r s us B a ck End
5- 5 . L inka g e s b e twe en th e F iv e Cy cl e s o f the
P l ann in g S y s t em
5- 6 . Th e Mon i to r in g S ys t em
5- 7 . Th e Man a g em e n t In c en tive S y s t em
5-8 . Tai lo rma k in g the P l ann in g S y s t em to Re in fo r c e
S h i f ts in S tr a te g i c D i r e c t ion : An Ex amp l e
5- 9 . S um mary
A p p e nd i x : B u s ine s s P l ann in g C ap ab i l i t i e s o f a
H i g hly D ive r s i f i ed C omp an y
F oo tno te s
 Man a g in g Th e Evo lu t ion o f th e Co o r at e
gp P l ann ing

6- 1 . In tr odu c tion
6- 2 0 Th e Tas k o f Mana g in g th e C o rpo ra t e P l ann in g
S y s tem ove r T ime
6 -3 . A S tr ate g i c Man a g emen t P o in t o f V i ew : C on
s i s ten cy
6- 4 . O ve r lo adi n g o f th e S tr ate g i c S y s t em
6- 5 . S tr a te g i c F i l t e r s
6 -6 . I l l o g i ca l S B U P at te rn s
6- 7 . Mo di fy i n g th e P l ann in g S y s t em to the
M a tr ix O r g an i z a tiona l S t ru c tur e
6- 8 0 P l ann i n g C on s i de r a t ion s in Mu l tina tional
C o rp o r a t io ns
6- 9 0 An O p e r a tiona l Me a s u re o f R i s k
6-10 . S umma ry
F oo t no te s
ve n Ex e c u tive s
'
Ro l e s in P l ann in g
7-1 . I n tro duc t ion
7-2 . A B e hav io ra l P ro ce s s
7- 3 . Th e C h i e f Ex e c u t ive O f f i c e r s R o l e i n P l ann in g
'

7- 4 . Th e L in e M an a g eme n t s R o l e i n th e P l ann in g
'

P ro ce s s
Th e R o le o f th e P l annn er
Th e R o l e o f th e B o a r d o f D i r e c to r s i n P l ann in g
The R o l e o f O uts i de C ons ul tan ts
S um ma ry
F oo tno te s
Cor p
g r at e P l ann ing A S y n th e s i s

8- 1 . I n tro du c t ion
8- 2 . A R a t iona l e f o r C o rp o r ate P l ann in g
8- 3 . Th e El emen ts o f th e A p p ro a ch
8- 4 R e s p ond in g to To da y s N e e ds
'
.

8- 5 Eme r g in g T rends and C h a l l en g e s

8 —6 S um ma ry

( To C ome )
CHAP TER ONE

Pu gp os
e of Co r p o ra t e P lann in g : S tr a te gi c D e c i s i on - M aki n g

1 . In tr o du c ti on

The pu rp o s e of co rpo r at e p l ann in g ( al s o la b e l ed lon g - ran g e p l anning ,

s tr a t e g i c p la nni ng ) i s to be a mana g eme n t to o l in the s tr at e g i c de c i s i on

ma k in g p ro c e s s of a comp a ny . I ts f o cu s is clear : to ai d i n s tr a te g i c

d e c i s i o n- ma k i ng . I f a n a c tiv i ty tha t g oe s u n d e r th e la b e l of c o rp or a te

l a n i ng d a id i n the s t r a te g i c de c i s ion - ma ki n of th e f i rm i t i s
p n o e s
pg£ _
g

no t p l ann i n g ( an d i t i s al s o wa s te f u l ) , ev e n tho ug h th e a c tiv i ty may s e em

to { £36 1ve many o f the r i g ht “

e l eme nt s o f p l ann in g , suc h a s e l ab or a t e f ive ye a -

p la n d oc ume nt s . Th e pr o b l em f r e q u e ntl y i s tha t the f iv e - y ear p lan d o e s o f t e n n

f l ue n c e th e s tr a t e g i c d e c is ion s ; th e k ey exe cu t iv e s r e ly on o ther d e c i s io n ma k i -

a id s . Ef f e c t iv e c o rp or a te p l an ni ng , on the o the r ha nd , does no t hav e t o

be e l a b o r at e , comp l i ca te d or vo lum inou s , b u t lo g i c a l and fo c us e d on the

s tr ate g i c de c i s i on s tha t wi l l hav e to be t ake n . Th e th ru s t of th i s b ook

w i ll be to op er a ti o na l i z e th e c on c e p t of c o rpo r a te p l anni ng as a s tr a te g i c

d e c i s i on -
ma k i ng too l .

How c an we O p e ra ti on a l i z e cor p o r a te p l ann ing b e yon d th e g en e r a l

de cis ion -m
a k i ng thrus t j u s t s ta t e d ? We th i n k th a t th e re ar e a t l e a s t f ou r

a sp e c ts of th i s tas k th at ne e d c l a ri f i c at ion

th e c omp a ny s s c a rc e
' '
Co rp o r a te p la nni ng s ro l e in th e a l lo ca t i on of

r e s ou r c e s suc h as fund s ; man ag eme n t t a l e nt , o r r aw ma t er i a l s :

'
co rp or a te p la nnin g s r o l e in as s i s t in g th e f i rm to ad ap t to

env i r onme nta l O p po r tu ni t i e s and th re a t s ; i de n ti f y th e r e l ev an t

‘
op t io ns ; pr ov i d e . f or an e f fe c t iv e s tr a te g i c f i t wi th th e env ir onme nt ;
 '
c orp ora t e p la nnin g s ro l e in the p ro c e s s of c hoo s in g ? S t r a te g i c

' st zr e ng t h s and
o p t ion s tha t du ly r e f l e c t th e f irm s ow n inte rna l

we ak ne ss e s ; in te gr a ti on ;

f in a l l y , '
co rp o rat e p lann i ng s r o l e in th e p r o c e s s |a f b u i l din g an

or g a ni z a tion tha t i s l e a rni ng a b ou t i ts e l f ; a s tr en gt h e ned s en s e

of p ro f e s s i ona l i sm .

Le t u s di s c u s s each of the s e as p e c ts of c o rp ora te p l ann i n g a s a

s tr a te g i c d e c i s i on - ma k in g p ro c e s s in s ome mo r e d e ta i l .

2 . A l lo ca t ion of re s ou r ce s

R e s our c e s , mo s t obv iou s l y fund s , wi l l have to b e a l l oc a t e d in o rd er to

c ar r y out a s tr a t eg i c de c i s i on . Le t u s d i s c u s s br i e f ly a f ew e x amp l e s o f
1
suc h s tr a t eg ic r e s our c e a l l oc a t ion . For in s tanc e , th e ni e f E x e c ut ive
O f f ic er and h i s s e n ior man a g eme nt o f a d i v i s i o na l i zed c ompany ma y

be fa c ed wi th th e po s s ib i l i t i e s o f whe th e r to mak e a ma j o r c omm i tme n t to

exp an s ion wi th in a par t ic u l ar e x i s t in g d iv i s i on o r wi th i n a no th er . Al t e r

na t ive ly , ma y b e man ag ement shoul d be mak in g a somewha t mo r e eve nl y s p l i t

r e s ou rc e commi tme nt to bo th d iv i s ion s ? Ano th e r a l t e rn at i ve mi g h t be to

'
inve s t i n an ac qu i s i ti on ins te ad o f c ont inua l pur su anc e o f on e s p r e s ent

bu s ine s s e s . D ec i s ion s o f th i s typ e , tak en ex p l i c i t ly or no t , wi l l re p

re s en t ah op t ion o f s e ni or mana g eme nt to re d i s tr ibu t e th e ba l anc e be twe en

th e empha si s on th e f irm s d i f fe r e nt bu s ine s s e s

'
. As s uc h , th e d i s c r e t iona ry

'
r e sour c e a l l o c a t ion too l mi gh t have a pro found imp ac t o n a c omp any s s tr a

t e g ic d ir ec t ion . Ano th er examp l e o f s tr ate g ic r e s ou rc e al loc a t ion mi g ht be

fac e d b y a d ivi s ion mana g e r who mi g h t ma ke a c ho i c e wi th re g ard to how muc h

of
"
the d i s c r e t i onar y fun d s g ene r at e d from h i s l e ad ing pr oduc t l ine should
be p la c ed bac k in the same p r oduc t l ine in o rd er to pro t ec t i ts fu tur e

p o s i ti o n ve r su s how muc h fund s he s hou ld wan t to d ive rt into th e d ev e lo pmen t

of new p roduc t l ine s . Ag a in , the r e s our c e a l lo c a t io n pa t t e rn c ho i c e , th i s

t i me wi th r e g ar d to th e a l l oc a t io n o f s c ar c e r e s our c e s be twe e n th e v ar iou s

pr oduc t d ir e c t io ns , mi g h t have a pr o f ound im p ac t o n th e s tr a t e g ic d i r e c t i on

o f a d i vi s i on . Eve n whe n i t c ome s to a pa r t i c ul a r p r oduc t l i ne th e r e mi g h t

be r ad ic al l y d i f f er en t a l t erna t ive s f or how to al lo c at e re s our c e s to bu i l d

u p a c omp e t i t i ve s tr e ng th , r an g in g fr om a h e avy inve s tment "

in R D to

tak in g ove r a c omp e t i tor who c l e ar l y ha s th e s k i l l , fr om e s tab l i s h i ng a

s tr on g c omp e t i t ive po s i t i on in one mar ke t to inve s t ing in a mo r e d ive r s i f i ed

d i s tr ibu t i on s y s t em , and s o o n . The a l loc a t i on o f s tr at e g i c fund s wi l l

a g a in s hap e the s tr a t e g y , th i s t ime for th i s par t i c ul a r p r odu c t l ine .

S tr a t e g i c r e s our c e ne ed no t be fu nd s on l y , bu t any r e sou rc e th at c an

'
be d i s p o s ed o f by th e f irm s man ag eme nt to c r ea t e v a l ue to th e f irm . A
l i s t o f suc h s tr a t e g i c r e s our c e s mi g h t l oo k a s fo l lows

(a) Fund s . Th e s e w il l hav e to be ava il a b l e and f r e e f o r d i s c r e t i on ar y u s e .

Thu s , f und s a c cumul a t ed in a c oun tr y f r om wh ic h th ey c anno t be tr an s

f err ed b ut wil l hav e to be r e inv e s t ed in t ernal l y ar e no t a s t r at e g i c

r e so urc e . S im il ar l y , a l tho ugh a j o i nt v entur e m i gh t b e h i ghl y s uc

c es fu l th e fund s f lows g e n er a t ed m i gh t typ i c a l l y no t be d i s p o s ed of

at any of th e own e r s fr e e d i s c r e t io n . Ins t ead th e mo r e mod e s t d iv i

d e nd p ayme nt s b e c ome a s tr a t e g i c r e s o ur c e to th e par en t comp an i e s .

(b ) M a na g eme n t s k il l s .
'

Mana ge r s ar e a l s o s c ar c e r e sour c e s to t he ext ent

tha t the y c an be tr an s f er r ed f r om on e ar e a to ano t her , and tha t th ey

r e pr e s en t a s car c e o utpu t f ac to r f or a p ar t ic ul ar c omp any . Fo r a c om

p any wh ic h on th e o ther ha nd i s in a po s it ion of hav in g an amp l e numb er

of qua l if i ed man a g emen t to pur s u e i t s pr e s en t s tr a t e g ic d ir ec t ion man

a gem en t s ki l l i s no t a s tr a t eg ic r e sour c e . To un de r s c or e th i s ,
 ex c e s s ma na geme nt c anno t be so ld to o the r corp o r a tion s , on ly

t rans f e rr ed f r om o ne us a g e pa tte rn to ano the r wi thi n th e s ame

o rg ani z a ti on . I t i s in th i s la tte r fo rm tha t i t b e com e s a s tr a te g i c

r e s ou rc e 0

( c) Tax s he l te r s . Tax s he l t e rs can now a nd the n be tran s f e rr ed an d us e d

e ls ewh e r e too and a s su ch ar e a s c ar ce re s our ce . We a s s ume , how ev e r ,

th a t th e tax she l te r c an be ta k en a d va nta g e of by o th e r pa r ts of the

"
c om pa ny , or tha t the tax sh e l te r can b e so ld ( Th rou gh l e a s ing

a rr an geme nts , fo r in s tanc e , the b e ne f i t s fr om a tax she l te r ma y be

trans f err ed f rom o ne c omp any to ano th er ) . If of no u s e in te rna l ly

and /o r no t tran s f e ra b le , th e tax she l te r i s no t a s tr a te g i c r e s o ur c e .

Ene r gy i s al s o p ot en ti a l ly a s tra te g i c r e s our c e , me a su re d , s ay , ir : BTU

uni t s , p rov i de d tha t f r ee d up e ne rgy c an be tr an s f e rr ed f rom on e pa r t

of a f i rm '
s ope r a ti on to an o th er , or , s o ld to ou ts id e u s e r s .

we do , howev e r , no rma l l y fo cu s on d i s c r e ti on a ry fund s a s th e p r imary

re s our ce tha t we h av e to a l lo ca te s tr a te g i c al l y . Th e a l lo ca ti on of r e s ou r c e s ,

e i th er th rou gh inv e s tmen ts or d is c re ti on ary exp end i tur e s , i s th e d emon s tr a ti on

of s tr at e g i c d ir e c tion in ten de d or no t i ntend e d , ex p l i c i t or imp l i c i t .

Thus , the co rp o ra te p lanning p r o c e s s mu s t be fo cu s e d on th e a l lo ca t i on of

s tra te g i c r e s our c e s ; the re s our ce a l lo c a ti on p a tte rn i s th e k ey ing r ed i en t

of the ou tp u t of s tra te gi c p la nn ing .

3. A dap ta t ion : i de n ti f i cat i on of s t r a t ec ic

'

O
pt i on s

S tra te gi c su c c e s s in mos t ins tan ce s wi l l re qu i re tha t the f i rm

sy s tema ti ca l l y loo k f or Op po r tun i t i e s and /o r thr e a t s in i ts e nv i ronme nt

 1- 5

to c ome up wi th th e be s t a l t erna t ive s th a t the f irm ca n pur sue . Th i s

ou twar d - loo k in g s e ar c h i s c ruc ia l to impr ove th e f irm s c hanc e s to pur su e '

mor e advant a g e ou s d ir e c t io n s and to emp lo y i t s r e s our c e s in su c h a way

2
t hat th e y y i e l d th e be s t r e tur n .

Adap tat i o n ma y be s e e n a s the ant i th e s i s o f e xt rapo l at i on . Too o f t en

p l an s ar e b e ing d eve l op e d ba s ed on a s tr on g e l eme nt o f e x tr a po l at in g f rom

the p a s t wh a t wi l l b e e x p e c ted to b e th e ac t iv i ty l eve l s o f th e fu tu re .

The ep i th o my o f th i s c an be f ound wh e n a c t iv i ty l eve l f or e c a s ts in th e

p l an inc r e a s e s in a ha rm o n iou s manne r , s ay l i ne ar l y o r wi th a s t e ady ,

f ix ed p er c en t a g e ev e ry y e ar . Eve n in c a s e s whe r e th e p l an i s no t bu i l t u p

ar ound su ch v i s ib l e numb er s e x tr apo l at i o ns , th er e mi g h t , howeve r , be a

“ "
s tr ong e l emen t o f me nta l ex tr ap o la t ion b e h i nd the d eve l opme nt o f th e

p l an . Fo r ins t an c e , we ma y have b e c ome f ami l i a r wi th how a bu s in e s s ha s

b e en dev e lo p i ng in th e pa s t . C ons e que nt ly , we wi s h th a t s uc h a p at t er n

wi l l c ont inu e ; we ar e c omf o rt ab l e wi th a sc e na r io th at we f e e l we c a n un

d er s t and and r e l at e to . S uc h e x tr a po la t ion - b a s ed p l ann i ng wa s p r ob ab ly

not a l l th a t wor th l e s s du r i ng th e r e l a t iv e l y s tab l e de c ad e s o f th e f i f t i e s

and s ix t i e s . Howeve r , in a po s t - OP E C , po s t - r e c e s s i on e nv i r onmenta l c l i

ma t e a c ont inu e d extr ap o l a t ive be l i e f in an und i s turb ed g r owth s e ems fa r

l e s s r e l evan t . Thu s , a focu s on adap tat ion to eme r g in g e nvi ronme nta l

O pp o r tun i ti e s and / or thr ea t s ha s be c ome mo r e and mo r e a c r i t i c a l e l eme nt

n
u

o f p l ann in g . P l ann in g s hou l d f ac i l i ta t e a a s s e s s m e nt

'
o f one s s tr at e g i c

ex p o sur e to o ppor tun i ti e s and thr e at s in th e fu tur e , and un l atc h a c r e at iv e

p r oc e s s to tak e advant ag e o f th i s . P l ann i ng s hou ld ne ve r be c ome an ex

t r ap o l a t i ve , c r e a t iv i ty - damp e ning p r oc e s s . N e ed l e s s to s ay , fo r tho s e

c omp an i e s th a t suc c e ed r e l a t ive l y be tt er than th e ir c ompe t i to r s i n in

s t i l l in g an ad ap t ive p l ann in g mod e th er e i s l ike ly to b e mu c h mo r e Op

po r t u n i t i e s to ex c e l l p e r f o rmanc e - wi s e in an un s tab l e env iro nme nt .

 1 -6

P ar adox ic al l y , f or th e so ph i s t i c a t ed , we l l - mana g e d c ompany e nv ir onme nta l

turbu l enc e r e p r e s e nt s a we l c omed op po rtun i ty to mov e ah e ad

.

Adap ta tion mi gh t ta k e p la c e in s eve ra l way s . I t mi g h t be an as s e s sme n t

of Opp o r tuni t i e s to mov e into a new b u s i ne s s , in c lud ing a c qu i r ing ano th er

c omp any ; or i t mi g h t be an O pp o r tu ni ty '

to
'
imp r ov e one s po s i tio n wi th in

one of
'
o ne s p r es en t b us ine s s e s , s ay , b y b r ing ing ou t a new or mod i f ie d

pr o d u c t l i ne ; or b y b re a k ing in to a new mar k e t ; or , i t m i gh t be an adap tiv e

as s e s sme nt tha t is b ound p r ima ri l y to a p ar ti cu l ar f unc tion , s u c h as a new

te chno l ogy Op por tu ni ty tha t s e ems to be eme rg i n g fo r r e s e ar ch and deve lopme n t .

I n p ar e n th e s is i t s hou ld a l s o be po i n te d ou t tha t ad ap ta t ion m i gh t al so ta k e

the f o rm of a d e f e n s iv e mov e , su c h as d iv e s t ing of a b u s ine s s .

Ad ap ta tion mi gh t no t be e qua l ly imp o r t an t f or a l l comp a ni e s . S om e

com pa ni e s may e nj oy mo re than amp l e O p po r tu ni ti e s wi thou t ca rr y in g ou t an

e la b o ra te fo rma l adap ta tio n pr o c e s s . O ne examp l e of thi s mi gh t be a c omp any

whi ch i s w i th in a hi gh l y s p e c i al i z e d s e gme n t of th e e le c tro ni c s b us i ne s s ,

'
wh er e d emand i s d ev e l op in g so rap id l y tha t a l l th e c omp any s a tte n t ion and

r e s our c e s are c hanne l ed into f o l lowi ng up on th e b u s ine s s O p p or tuni ty tha t

th e f i rm f ind s i ts e l f i n . Ano the r examp l e O f r e l a t iv e ly l ow adap ta tion

p re s s ur e mi gh t be for a c omp any wi th in the O i l - b as e d en er g y f i e l d . At l e as t

up unti l re l a tiv e l y r e c e n tl y the s e l l in g O f th e f in i s he d O i l p ro du c ts wa s

le s s of a pro b l em ; th e comp a ny s e f f or t s woul d p r ima r i l y co n ce n t r a te

'
on

how to in cr ea s e O i l thrupu t b y g e t t i ng mo r e O il ou t of th e g rou nd an d /o r

s tr e aml ine p r odu c t io n . Still oth er c ompan i e s ma y have , flo ne su c h a suc c e s s fu l

iden ti f i c a ti on O f Op po r tun i tie s in th e pa s t th a t th ey hav e a b a c k log of

O p p o r tuni t i e s an d can the r e b y de emp h a s i z e fo rma l a d ap ta ti on e f fo r ts

s om ewh at . An ex amp le mig h t be an R& D - inte ns iv e comp any wh i ch ha s had a

’
nu m b e r of ne w p roduc t su c c e s se s an d do e s no t have the c ap a b i l i ti e s to

f o l lo w all of th em th rou gh . A f i n a l s i tu a ti o n mi gh t be a comp an y wh i ch

do e s no t have di s c re ti on ary re sou rc e s of any s i gn i f i c an c e to c omm i t d ur in g

the f o re s e e a b le ye ar s , e i th e r b e c au s e O f we a k e c o nom ic p o s i ti o n w hi ch wi l l

c al l f or co nso l i d ati on of p r es en t s i tu a tion r a the r than exp and in g or

b e ca u s e of a ma j or r e c e n t c ommi tme n t wh i ch wi l l con sume a l l of the f i rm s '

di s c r e ti onary r e s our c e s .

I t a l s o fo l lows th a t th e ne e d to ad ap t mi gh t chang e ov e r time too .

F o r i ns tanc e , the co n tinu ed po ten ti a l f or g rowth an d exp ans ion wi th i n a

b us i n e s s wh i ch has be en h i g hl y s u c ce s s fu l up un t il th e p r e s e n t mi g h t

s la c ken Off , or , a l te rna tiv e ly te chno lo g i c a l innova ti on s and /o r en try O f

' '
new comp ani e s mi gh t we ake n the f i rm s po s i tion . Thus , wh i l e the comp a ny s

mo de of s u c c e e di ng i n i t s b us ine s s p r ev iou s ly wa s r e l a t iv e l y s t rai g h tf o rwar d ,

an i n c r e a s e d ne e d f or ad ap ta t i on i s now b e in g cr e a ted in o rd er to ma in ta i n

an up d a te d c omp e ti tiv e s tra t e g i c ap p ro a ch . An o the r ex amp l e , wh i c h i s ve ry

'
co mmo n , i s th a t th e g ene r al d e g r e e Of ma tur i ty of a f i rm s p r odu c t l in e s

may be sh i f ti ng s omewha t f rom a rap i d g r owth mod e towar ds b e com in g mo r e

ma tu r e a s t ime g o e s by . Th i s p o te n t i a l ly re qu i r e s r e l a tiv e l y l e s s r e cu r r ing

i nv e s tme nts to be "

p l owe d b ac k i n to the b us i ne s s for th e ma i n t e nan ce or

i n cr ea s e of i t s mar k e t sh a re , as we l l as th e e s ta b li s h in g of a p rodu c t ion

and /o r R &D - po s i t io n in or de r to co n ti nu e in th e b us in e s s . Th e f i rm s '

cas h- f l ow po s i ti on w i l l the r e f o re typ i c a l l y chan ge in te rms of in c re as e d

f l ex i b i l i ty to a l l o c a te d i s c r e t iona ry f unds . Howev e r , a n in c re as e d

a d ap ta t io n ne e d h as the r e b y be e n c r e a te d , nam e ly f or ide nti f yi ng v i a b l e

 1 -8

Op ti ons f or wher e to a ll o c a te th e s e re s our c e s in or de r to ach i ev e be s t

po s s i b l e co nt inued g rowth .

4 . In t egra tion : n arrow down O p t i on s

A th i r d impor tan t pu rp o s e of p l ann i ng i s to p rovid e fo r an o rd e rl y

eva lua ti on a nd c ho i c e Of a l te rn ativ e s in su c h a way th a t a d i re c ti on ca n be

e s t a b l i she d wh i ch re f l e c ts the f i rm s '
own in te rn a l s tr eng th s an d we a k ne s s e s .

Thu s , th e in te gr ati on pur p os e O f co rp o r ate p la nni ng i s to f a c i l i ta te th e

"
na rr owi n g d own "
O f th e op tio ns i n s u ch a way th a t a b as i s can be p r ov ide d
3
f or ac h i ev in g an e f f i c i e nt c our s e Of Op er a t ion . In t e g r a t ion , th e n , is c on

c erne d wi th how to deve l op way s o f ac h i eving a s tr a t e g i c d ir e c t ion , a lwa y s

a tt emp t in g as muc h a s po s s ib le to bu i ld on th e s tr en g th s tha t the f ir m

po s s e s s e s and avo id in g th e we akn e s s e s . As s u c h we m i gh t sa y tha t th e r e i s

'
an extr apo l at ive e l eme nt in int e g r a t ion , name ly how to ac h i eve one s s tr a

'
t eg i c g oa l s in the mo s t ec onomi c a l way , i . e . by bu i ld in g on one s p r e s en t

th ru s t to th e ex te nt p o s s ib l e an d avo id in g und er t ak ing ch an g e s in one s '

mo de o f ope r at ion th at ar e no t re qu ir ed .

Int e g r at io n c an ta ke s eve ra l f orms : a domi na t in g a s p e c t o f th e in

t e gr a t i o n p l ann in g pr oc e s s i s th e s tr at e g i c pr o g r am m in g pr oc e s s , whi c h wi l l

em pha s i z e th e d eve l opment o f s tr ate g ic p ro g r ams f or ac h i ev in g p ar t i cu l a r

ob j e c t ive s . Typ ic a l l y th er e ar e man y way s to ac h i eve a par t i cu l ar ob j ec t ive

and to id ent if y an d c hoo s e amon g th e s e al t er na t ive s i s o f te n a t ime - c o nsumi ng

and d i f f i cu l t pr oc e s s . Ano the r and re l ate d inte g ra t io n p l ann i ng ac t iv ity i s

-
z er o ba s e bud ge t in g , wh i c h att emp t s to b re ak down th e c ho i c e s amo n g e xp e n

d i tu r es ac cord in g to th e ir s tr a te g ic r e l evan c e when s e e n a s p ar t o f a s tra

t eg i c pro g ram . F ina l ly , the pr e par a t ion o f an op e r a t in g bud g e t or ac t io n

 1-10

'
name ly nar rowi ng down th e s tra te g i c c ho i c e s i n su ch a way tha t th e f i rm s

own s tr e n g th s and /o r we a k ne s s e s c an b e b rou gh t to b e ar , the f i r s t c omp any

wi l l hav e to pu t h i g he r empha s i s than th e s e co nd c omp any on th i s t oo , w i th

a cons i d e r ab l y mo r e mu l ti f a c e ted s e t of /
s tr eng t h w e a kne s s c o ns id e r a tio ns

to ta k e i nto a c coun t .

H owev er , we s t il l hav e to a dd r e s s the i s s u e of th e r e la tive empha s i s

b e twe e n th e adap ta ti on and i nteg r a ti on d im e ns io ns . A comp any may be in a

s i tu a t io n i n whi ch i t nee d s to emp ha s i z e ad a pta ti on mor e v i g orou s l y , s ay ,

b e c aus e i t i s a c cumu la ti ng r es our ces at a f a s t e r ra t e th an i t can ut i l i z e

th em . Adap ta t ion p l anni ng sh ou l d b e emph as i z e d r e la tive l y mo r e than

in te gr a ti on p la nn i n g in su ch a ca s e . Ano th e r company , howev er , ma y be in

a ti gh t f i nan c ia l s i tua ti o n du e to a s eri es of comp e ti tiv e s e t b a c ks .

R e l a tiv el y mo r e emp ha s i s on in teg r a ti on wou l d be app r O p r i a te in su c h a c as e .

F i na l ly , a l th ou g h a c omp any typ i c a l ly wi l l be i n a po s i tion a t a g iv e n

po int i n time wh i ch woul d c a ll f or b o th a p ar ti cu lar a b s o lu t e lev e l O f

adap ta ti on and i nte g r a ti on emp ha s i s a s we l l as f or a pa r t i c u lar r e la tiv e

adap t a t i on /i n t e gr a t i on p lannin g b a lanc e , th e s e a b so lu te l ev e l s a s we l l as

th e r e l a tive ba la nc e wi l l p ro b a b ly c han ge ov e r time , g iv e n th a t th e ne ed s

of th e f i rm w i l l p ro b a b l y ch an g e , r e f l e c ted i n imp r ov ed or wor s e ne d e co nomi c

cond i ti ons , due to s hi f ti n g env iro nm e nta l op po r tu n i t i e s and /o r th r e a ts

and /or ch an g e s i n th e f i rm s in t e rn a l s tr e n g th s and /o r we a k n e s s e s a s we l l

'
.

For i ns tan ce , a Eur op e an- b a s e d b us i ne s s e s

'

co r p o r a t i on w i t h i n th e au t om o t ives

fa c ed r e la t ive ly le s s n e e d f or p lann ing bo th f or ada p ta t io n a s we l l a s fo r

int eg ra tion , a few ye ar s a go than it p robab l y doe s toda y e nj oy ing a r e l

at i ve l y s tab l e home mar k e t an d hi g h gr owth in i t s ma j o r e xpo r t mar ke t s .

Wi th the emer g e nc e o f a f ie rc er c ompe t i t ion , bo th ab r oad and at home , a s

we l l a s due to added fundame nta l chan g e s i n the

"
c l im a te fo r do in g bu s ine s s ,
 l - ll

abov e a l l th e unc er ta in t i e s du e to the l e s s and l e s s c le ar e ne r gy po l i c y

s i tua ti o n , th e ab s o lut e "

l e ve l "
o f p l ann ing ne ed s wi l l pr ob ab l y ha ve in

cr e a s e d . At th e same t ime th e r e ha s p r ob ab l y a l so b e e n a r e l at i ve s h i f t

in emp ha s i s f rom v i g orou s ly g o in g a f t e r new ad a pt iv e O p p o r tuni t i e s , in

term s o f mar ke t s and mod e l c h an g e s , to p ay ing ve ry c lo s e at t ent io n to

'
inte rna l int e g r a t ive p l ann i ng i s sue s , ab ove al l in or de r to k e e p o ne s

b r eak - ev en p o in t u nd er c ontr o l i n r e s po n s e to s l ac ken in g d emand , r i s ing

lab o r c o s t s and inc r e a s in g g ov er nmen t l e g a l in te rv e nt io n wh i c h c au s e s l e s s

f l exi b i l i ty in tr imming s i z e o f wo rk - f or c e and /o r p l an t s hu t -d own s . Thu s ,

th e ab s o lu te empha s i s o n p l ann ing a s we l l a s th e r e l a t iv e b a lan c e b e twe e n

the t wo p l ann in g p ur po s e s s ho uld p rob ab l y c h an g e ove r t ime . In fa c t , th i s

c a l l s fo r an ap p r oac h f o r mana gi ng th e evo lu t i on o f th e p la nn in g s y s t em

so tha t an a pp r o p r ia t e ab s o l ut e empha s i s a s we l l a s a re l a t i ve b al anc e c an

be ma in ta i ned .

A f o ur th purp o s e of c orp o r a t e p l ann in g i s to pr ov id e f or mo r e e f f e c t iv e

ma n a g er ia l l e a rn in g so tha t th e ex e cu t iv e t e am of a c omp any c an s y s t em a t

,

inc r e a s e i t s s tr a t e i c d e c i s ion g c ap a b i l i t i e s ov e r t ime

- ma k in A
i cal ly g
.

p rop e r ly de s i gn e d and ex e c u ted s tr at e g i c p l ann in g ap p ro a ch mi g h t do th i s

in two wa y s .

F ir s t , th e p r o c e s s of dev e l op in g a p l an and d i s c u s s in g i t w il l p rov i d e

an ex e c u t iv e w i th the opp o r tun i ty to t h in k thr o u gh h i s s tra t e g ic s e tt in g

in a r e l at iv e l y sy s t ema t ic and comp l e t e ma nn e r . Th i s O p p or tun i ty to s ta t e

h is s tr a t e gy and p l an s in an exp l ic i t wa y a nd to commun ic at e the s e to O the r s

mi gh t pr ov i d e a val ua b l e l earn in g ex p er i enc e , p ar t ic ul ar ly d ur in g the f ir s t

t ime s a ro un d wi th p lann in g .
 1- 1 2

'
Po t en t ia l l y an ev en mo r e impor tan t a s p e c t of l e arn ing is p l ann in g s

ro l e a s a s e l f - im p r ov in g sy s t em . B y s ta t in g a s tr a t e gy and a s e t of s tr at e g i c

p ro g rams f or a ch i ev ing the s tr a teg y a b as i s has b ee n p rov i ded f o r mo n i to r in g

su b s e qu e nt pr o gr es s towar d s th e s e go al s . Thus , po s te r io r ana ly s i s c an be

ma d e of why a p ar ti cu lar s tra te g i c p ro g r am , s ay , di d no t fu l f i l l th e

exp e c ta t ions Exp e r i e nc e s c an thus b e l a t ed i n a s y s tema ti c ma nne r

‘

. a c cu m u

s o tha t p as t e r ro rs ca n be avo i de d in th e fu tu r e . Fur the r , exp e r i e nc e

ca n be g ai ne d ab o u t how to r ea c t to adve r s e d ev e lo pm en ts . Imp o r ta nt s te p s

can th er e b y be ma d e towa rd s ma k ing th e corpo ra te p l anning sy s tem a s e l f

c or r e c ti ng s ys tem .

Abo ve a ll , th en , th e p l ann ing sy s t em shou l d ins t i l l a mod e o f man

ag em e nt s ty l e wi th i n th e c orp o r a t ion wh ic h fo s ter s p r o fe s s io na l i sm . Th i s

tak e s th e f o rm o f an ac c u mu l a t ion o f s tr a t e g i c unde r s ta nd i ng and s tr eng th

ened ap t i tud e towar d s mana g ing s tr a te g ic a l l y among a r e l at ive ly l ar g e gr ou p

o f ma nag eme nt . Al s o , i t f ac i l i ta t e s th e tr an s fe r ab i l i ty o f s tra t e g i c s k i l l s

f rom one mana g e r to ano th er . Thu s , p l anning ma y b e s e en a s a ve h ic l e f or

"
fac il i tat ing th e no rma l i z at io n o f the s tr a t e g i c mana g eme nt ta s k s wi th in

a f irm . Thi s mi g h t be c ome an in c r e a s in g ly impo rtan t f ac to r f or s eve r a l

r e a s ons . F ir st , g ive n th e d y ing ou t o f the "

old , en tr e pr eneur ia l s a l t s

tha t mana g e d th e bu s i ne s s on th e ir ow n , s e ni o r man ag emen t tr an s i t io n f r om

found er - e ntr e pr eneur to pr o f e s s iona l mana g er mi g h t be f ac i l i tat ed . F ur th e r ,

" "
g iven th e ne ed s to br in g up to s p e e d mana g e r ia l ta l e nt tha t ha s b e e n

br ou g h t in fr om ou t s id e the c om pany , a r e l a t ive ly ra t iona l and ex p l i c i t

ma na g eme nt s t y l e mi g h t be h i g hl y bene f ic ia l . Al so , g ive n th e ne ed to c aus e

le s s d i s ru p t ion whe n tr an s f e rr in g mana g er s in t erna l l y a c ommo n fr ame o f

r ef er enc e to shar ed un de r s tand in g o f the f irm s s t r at e g ic d ir ec ti on s mi g h t '

be e s s en ti al .
 1 - 13

6 . O u tl i n e of boo k

Al l f our s p e c i f i c purpo s e s f or co rp o r a te p l an ni n g t ha t we h av e d i s c us s e d

ar e mer e ly a s p e c t s of th e ov e ra l l pur po s e of th e corp or a te p la nni n g a c tivi ty ,

na me l y to imp rov e th e s tr ate g i c de c i s i on - m ak ing w i th i n th e comp any . Th e

purp o s e of th i s book is to o p e ra t ion a l i z e th e d e s i gn and im p l emen ta ti on of

c orp o ra te p la nn ing s ys tems th a t c an p rov id e e f f ec tiv e s up po r t in th i s . The

f oc us i s thus p r ima r i ly on th e p l anning sy s tems and p ro c e s s e s . As s u ch , th e

b oo k a dd r e s s e s th e is sue of how to com p l emen t g oo d su b s ta n tive s tr ate g i c

de c is ion moves . A co rpo r a t e p l ann in g sy s tem a lo ne c anno t p r ov id e f or

c or p o ra te s u c c e s s ; th e q ua l i ty of the s tr a t e g i c d e c i s io ns i s wha t ma tt e r s .

Ma ny a comp any h a s p ro sp er e d wi thou t a f o rma l co rp o r a te p l ann in g s ys t em ,

b e c aus e of i ntu i tiv e ly s tr a te g i c a l ly s ou nd d e c i s i on - ma k i n g by th e o ld s al t

s e ni or ma na g eme n t of th e comp a ny . S imi l ar ly , a g ood p l ann in g s y s tem c anno t

su b s t i tu te for th e la c k of s tr a te g i c s avvy O f th e ma na g eme n t . I t s e ems

r e a s o na b l e , how eve r , to s e e a p lann ing s y s tem a s a u s e fu l comp l em e n t wh i ch

mi gh t impr ov e th e
"
b a t ti ng av e ra g e
"
of th e ma na g emen t . Al s o , th e p l anni ng

sy s tem mi g h t be an imp o r t a nt f a c to r i n ma k i ng th e s tr a te g i c mana g emen t O f

a c omp any l e s s d ep e nd ent of th e h i gh ly ind ivi d ua l p e r sona l s ty l e e l em en ts

'
of t he l ead e r s h ip of a pa r t i cu lar ch i e f ex e cu t iv e , thu s imp rov in g th e f i rm s

ab i l i ty to co p e wi th ma na g emen t tra d i t i o ns . As d i s c u s s ed , it w il l

" "
pr obab ly b e e a s ie r to br in g n ew ma na g eme nt t al en t u p to s p e ed in te rms

of e f f e c tiv el y fun c tio ni ng wi th in a co rp o ra te ma na g e r ia l se t t in g tha t i s

"
no r ma l i z e d
"
i n te rms of
’
i ts p l ann i ng s ys tem s f or
gu i d e l i ne s s tr ate g i c

d e i -
c s i on ma ki ng c omp ar ed wi th wha t mi gh t be the c a s e wh e n b rou gh t i n to a

hi gh l y indivi dua l i s ti c , ev en a t t ime s e c cen tr i c co rp or a t e s e tti ng . G ive n

 1 -14

the p re s e nt s ta t e - O f- the - ar t , i t s e ems as i f co rp o ra t e p lann ing i s a too l

wh i ch i s l i k e l y to g iv e ma n a g em en t a c omp e ti tiv e adva nta g e ; s inc e c orpo r a te

p lanni ng i s no l ong e r i n i ts i nf a ncy , i t se ems q ue s t i ona b le whe th e r s e nio r

mana g eme nt c an a f f o rd to di sm i s s i t . Th er e is j us t too mu ch ev i de n c e ab o u t

i ts us e f u l ne s s to pe rmi t th i s .

Th e a pp roa c h to be tak en in th i s bo o k i s ba s ed on th e be l i e f tha t th e

ne ed s f o r p l ann in g wi l l d i f f e r f rom c ompany to c ompan y a s a c on s e qu enc e o f

d i f f e r e nc e s in th e s tra t e g i c s i tu a ti ona l s e tt ing s o f th e f irms . Thus , a

p l ann in g sy s t em shou ld be ta i lo rmade so tha t i t wi l l po s s e s s th e un i que

s e t o f c apab i l i t i e s tha t th e p ar t i cu l ar ne ed s o f a g iven c omp any wi l l c a l l

fo r . He nc e , i t i s h i g hl y unl ike l y tha t th er e mi g h t ex i s t a s tanda rd i z ed

appr oac h to p lann in g tha t wi l l be un iv e r s a l l y ac c e p tab l e . D e s p i te th i s ,

we s ha l l att emp t to de ve lo p a g e ne r a l l y app l ic ab l e un i f i ed s e t o f c onc e p t s

abo ut a co nt ing enc y - ba s ed ap p r oac h to the d e s i g n and imp l ement a t i on o f c o r

po r at e p lann ing sy s t ems . Th i s ap pr oac h i s b a s ed on an in i t i a l c onc e p tu a l

fr amewor k f or p la nn ing , whi c h se t s out a few g en er a l p r opo s i t ion s abou t

how to app r oa c h th e fu l f i l lme nt o f the ta s k o f d e s i g n ing a p l ann in g sy s t em .

F rom th i s i ni t i a l ba s e o f g ener a l c ompo ne nt s fo r p l ann in g a s er i e s o f

st e p s wi l l b e sug g e s ted f or pr o g r e s s ive l y t ai lor in g th e p l ann ing s y s t em to

4
the g ive n s tr at e g ic ne ed s at hand .

The ou t l ine o f th i s bo ok , th en , i s a s f o l l ows : We sha l l s tar t ou t i n

C hap te r Two by intr oduc in g a c onc e p tua l s c heme f o r c or po ra t e p l ann ing .

We

hav e be e n invo lve d i n th e d eve lo pmen t o f thi s ove r a num b e r o f ye ar s and

we hav e imp l emen t ed th e s c heme in lar ge , comp l ex c orp o ra t ion s s ev e r al t ime s .

ex pe r ienc e i s tha t i t i s par t ic u l ar l y u s e fu l to have an ov e r al l c onc e p tu al

fr amewo rk ex p l i c i tl y e s tab l i s he d when a tt emp t in g to dev e l op a c or po r a te

p l anning e f for t , g ive n th e c omp l ex i ty o f suc h a sy s tem : th e many e l ement s

 g s
y a u c m W
5 C L 6 Q U LA D D L C Ll L m a u u ci
;

t he ma ny ex ec u t iv e s who wi l l hav e to b e exp o s ed to p ar t s of th e sy s t em and

th er e f or e mus t und er s tand i t s r at i on al e ; as we l l as the po l i t ic al im p l i

ca t ion s of s tr a t e g i c d e c i s ion s c al l in g f or a n e ed to d ev e lo p and c om m u

ni c a t e an ov er al l s e t of
"
rul e s "
f or ex e cu t ive s 1
b e hav ior in the p l ann in g

p r oc e s s .

Hav in g e s ta b l i s h ed ou r conc ep tua l app r oac h we shal l ar gue tha t a

lo g i c al and o f t en ne c e s s ar y s te p w il l be to c arr y ou t a s tr a t e g ic po s i t ion

au d i t "
wi th r e gar d to wh e r e th e f i rm s t and s in t e rms of i ts s tr a t e gi c p lan

n in g n e ed s , th e top ic to be d i s c u s s ed in C ha p t er Th r e e . Th i s i s impo r t an t

f or thr e e r ea so ns . F ir s t , a c l e a r an d exp l i c i t p er c ep t ion of th e O p p or

' '
tu n i t i es a nd thr e a t s in on e s env ironmen t a s we l l a s on e s own s tr eng t hs

an d we a kn e s s e s , i . e. ,
'
o n e s s tr a t e g ic p o s i t io n , mi g h t be on e O f t he mo s t

e s s e n t i al p r er e qu i s i te s f or m a k ing go o d s tr a t e g i c de c i s ion s . S e c ondl y ,

th e s tr at e g ic aud i t mi g h t po in t ou t incon s i s t enc i e s b e tw e en '

on e s s tr at

e g i es an d il l o g i c a l a s p e c t s of
'
on e s o r gan i z a t ion al s tr uc tur e . Th ird l y ,

th e s tr a t e g i c po s i t ion wil l p r ov i d e on e of t he mo s t im p or t ant d e t e rmin an t s

f o r t he ta il o r - ma k ing of t he cor p or at e p lann in g sy s t em to th e g iv e n s i tu

a t i ona l s e tt in g ; i . e. i t w il l e s t ab l i s h a f oc us s ed s e t of ne ed s f or p l an

O ur f ir s t s te p i n te rms o f mod i fy in g our g e ne r a l c onc e p tu a l p lann in g

sc h eme to th e p ar t i cu l ar s i tu a t io n wi l l b e to d i s c u s s a s e r i e s o f p i t fal l s

tha t we hav e exp e r i enc ed wh en d e s i gn ing a p a rt i cu l ar c o rpo r a t e p l an n in g

sy s t em , th e to p i c o f Chap t e r F our . Eac h o f th e s e p rob l ems r e la t e s sp e c i

f i c al l y to a p art i cu l ar a s p e c t o f th e p l ann in g p roc e s s , and we sha l l po int

out wha t s e em to be r e a s onab l e g u id e l in e s f o r hand l ing e ac h o f th em . T hu s ,

we s ha l l d ev e l o p wh at amount s to a f ir s t c he c k l i s t to d e te rm ine th e u s e

fu l ne s s o f the de s i g n o f th e c o r po ra t e p l ann ing s y s t em .

The r e i s ano the r impo r tant a s p e c t o f th e i s su e o f de s i gn i n g a u s e fu l

c or po r a t e p l ann in g s y s t em , name l y to ta i l or -mak e fur th e r th e de s i g n o f th e

 1- 1 6

sy s t em to th e par t icu l ar s i tu a ti on , i . e . , to a tt emp t to bu i ld into th e p l an

ni ng sy s t em sp e c i f i c c a pab i l i t i e s tha t r e f l e c t th e par t i cu l ar ne ed s o f a

g iven f irm . Th i s r e l at e s he av i l y to th e b a l anc e b e twe e n ada p ta t ion and

int eg ra t ion p l ann ing , a con s id er a t i on tha t come s up a ft e r a l l t he p i tf al l s

have b e e n hand l ed , as an att emp t at fur th e r sha rp en in g and impr ov in g th e

p lann in g sy s t em s d e s i gn'
. In Ch ap te r F ive we s h a l l d i s cu s s th i s .

S inc e p l ann ing ne ed s w i l l chang e as a func tio n o f time , we s h al l a l s o

d i s c us s th e i s su e o f how to ma na g e th e p roc e s s o f mod i f i c a ti o n o r evo lut i on

o f th e c orpo r at e p l ann ing p r oc e s s . Wh at mi g h t be a u s e fu l d e s i gn ap p roac h

at a g iven p o int in t ime mi g h t b e l e s s app ropr iat e dur i ng a d i f f e r ent t ime

pe r iod . Th e i s su e , thus , i s to mana g e the s y s t em so tha t i t ma inta in s i t s

us e ful n e s s , whi c h mi g h t b e s e en a s a th ir d p h a s e i n th e suc c e s s ive s t e p s

to ad d c ompan y - s p e c i f i c ta i l o rmad e foc u s to th e p l ann in g app roac h , a top i c

to be d i s cus s e d in C hap t er Six .

G ive tha t a s tr at e g i c p lann ing p r oc e s s , j u s t a s any d e c i s ion - ma k in g

pr oc e s s , i s b eh avior al in natu r e we sha l l c on t inu e wi th a d i s c u s s io n o f

wha t mi g h t b e ap p r op r i at e rol e s for var iou s e x e cu t ive g r oup s wi th in th e

f irm : l ine v s . s ta f f ; s e n ior mana g eme nt vs . d iv i s ion ma na g emen t ; g e ne ra l

bu s in e s s d iv i s i onal man ag eme nt v s . func t iona l s p ec i a l i s ts ; p l ann ing s ta f f

vs . o the r s t a f f , an d so on . Th e s e ro l e exam p l e s sha l l s tr e s s th e c ruc i al

"
ne e d o f s e e in g p l ann i n g wi thi n an or g an iz at ion a s a ma in s tr e am
-
dec i s ion

making pr oc e s s and no t as an
"
ivory tower "
e x er c i s e d e ta c he d f rom th e l ine .

Th i s wil l be the to p i c o f C hap t er S eve n . F ina l l y , in Chap t e r E i gh t we

sh al l unde r tak e a br i e f summa r i z ing o f th e p l ann in g appr oac h p r opo s ed in

th e boo k .
 1 - 18

ta k en to p lanni ng to th e p a r ti cu l ar co rp o r a te s e t tin g a t ha nd . Thu s ,

al thou gh we s h al l s e e ex amp le s of eme r g ing , r e l a tiv e ly g e ner a l p l ann in g

p r i n ci p le s in th i s b oo k , we sha l l nev e r exp e c t p lanni ng to l os e i ts f l avo r

of b e ing a d is c i p li n e w i th a hi gh de g r e e of con t ing e ncy - b a s e d ta i l o rma k in g ,

wi t h f ew s tab l e an d l as t i ng so lut ion s . De s p i te of th e em b ryoni c s tat e

o f- the - ar t of c o rp or a te p lann in g we s h a l l a ttemp t to d i s cu s s ap p r oa c he s

tha t a re fou nd e d in the f o r e f ro n t of a c tua l co rp o ra t e p ra c t i c e s , no t in

a b s tra c t th e o ri z in g . S eve ra l y e ar s of int en s iv e f i e l d r e s e ar ch wi th i n

s ev e ra l do z en co rp o r a tio n s thu s p r ov i d e s th e b as i s f or th e s yn th e ti z in g

th at i s a tt emp ted in th i s b oo k . Examp le s wi l l a l s o be u s ed ex t en s iv e ly

th rou ghou t the bo ok to enh an c e i ts p o ten ti a l u s e f ulne s s a s a too l f o r

p r a c t i t i oni n g mana g e rs .
F oo tno t e s Ch apt e r One

1 . Th e r es ou r c e - a l lo c a t i on purp o s e of s tr a te g i c p l annin g ha s b e e n s tr e s s e d

by s eve r al au thor s , see , in pa r t i cu l ar Be r g , Norm an A Th e Al l o c a tio n

of S tr a t e gi c Fund s in a La r ge D iv e r s i f i ed Com pan y , Unpu b l i s h e d Do c to ra l

Di s s e r t a tion , Ha rva rd Bu s in e s s S c hoo l , B o s ton , 1 963 , Bowe r , J os e p h L .

,

" "
P l annin g W i th in th e F i rm , Ame r i c an Ec on omi c R evi ew , M ay 19 70, B owe r ,

Jo s eph L .
, Mana gi pg th e R e s ou r c e A l l o c at ion P ro c e s s : A S tud y of

Cor p o ra t e P l ann in g an d I nve s tmen t , D iv i s ion of R e s ea rch , Ha rva rd

"
Bus ine s s S c hoo l , B o s ton , 1 9 7 0, and Ca r t e r , E . E .
, Th e B ehav i o r al

"
Th eo ry of th e F i rm and TO p - Leve l Co r po ra te D e ci s i on s , Admi n i s t r a t ive

S c i en c e Qua r te r l y , Vo l . 16 , 19 7 1 .

Th e d u al co nc ep ts of ad ap ta ti on and in t eg ra t ion have b e en d i s c us s e d by

s eve r al auth o r s , al though f r e qu en t l y w i t h u s e of d i f f e ren t wo rd ing s .

S e e Co rd in er , Ra l ph J .
, New F ron t i er s f o r P ro f e s s iona l M ana ge r s ,

Mc Gr aw - H il l , New Y o r k , 19 5 6 , S lo an , Al f r ed P .
, Jr .
, My Y e ar s W i th

J . W . Lo rs ch , O r gan i z a tion and Env i ronmen t : M ana gin g D i f f e r en ti ati on

and I n t e gr a ti on , D iv i s ion of R e s ea r ch , Ha rv a rd B us in e s s S cho o l , Bo s ton ,

"
19 67 , Lawr en c e , P . R . and J . W . Lo r s c h , D i f f e r en t i a tion and I n teg ra ti on

in Comp l ex O r gan i z a t ion s Admin i s tra t ive S c i en c e Qua r te r l y , J un e 1 9 6 7 ,

Th omp s on , J ame s D .
, O r gan i z a ti ons in Ac t i on , M c G r aw - H i l l , New Yo rk ,

1 96 7 , Rh enma n , Eri c , O r gan i z a t i on Th eo ry f

or L on g- Ran ge P l ann in g , Wi l e y

New Yo r k , 19 7 3 , Ada p tive

"
I nte rs c i enc e ,
Wh y b a r k , C l ay D . , Comp ar in g an

De c i s ion Mod e l and Human D e c i s ions

"
, Ac ademy of Man a gement Journa l ,
De c em b e r 19 7 3 ,
Lo r s ch ,
J ay W . and Al l en , S tephe n A III , M ana gin g

di vi s ion al F irms , D iv i s io n of R e s e ar ch , Ha rva rd B u s ine s s S ch oo l ,

Bo s ton , 19 7 3 , M alm A l l an
, T .
, S tra te gi c P lann in g S y s tems : A F ramewo rk

fo r Ana l y s i s an d D e s i gn , S tud en t L i t t e r a tu r , Lund ( Swe d en ) , 1 97 5 , and

No rmann , R i cha rd , Ma na gemen t f o r G rowth , Wi l ey- In te r s c i en c e , New Yo r k ,

19 7 7 .

S e e fo o tno t e 2 f o r d is cu s s ion s of in teg r a tive a sp ec ts of the p l ann in g

tas k s . Al so , s e e W il so n , S . R . and John 0 . Tom b , Im pr ov in g P ro f i ts

thr ou gh In te gr ated P l ann in g and Con tro l , P r en t i c e - Ha l l , En g l ewood Cl if fs ,

"
1968 , Van de r V en , A . H .
, A . I . D e lb e c q and R . Ko en i g , D e te rminan ts

of Coo rd ina tio n Mode l s Wi th in O r gan i z a t ions Ame ri c an S o c i o lo gi c a l

R ev i ew , Apr i l 1 9 76 .

Th e ap pr oa ch to be taken to s tra te g i c p l ann ing in th i s bo ok i s an

ex ten s ion of a c on c ep tu al s cheme dev e lo pe d by R . F . Van c i l and P .

Lo rang e , s e e Van c i l , R i cha rd F . and P e te r L o ran ge , S tra te g i c P lann in g

in D ive rs i f i e d Comp an i e s Ha rva rd B us ine s s R evi ew , Jan .

-
Feb .
, 1 975 .

'
Th e no tio n of in te rr e l a tion sh i p b e twe e n a f i rm s c ap a b il i t i e s and

s tra te g i c s e tt in g have b e en d i s cu s s e d in An s o f f , H . I gor , R . P . De c l er ck

and R . L . H aye s , ed i tor s , From S tra te gi c P l ann in g to S tr a t e gic Ma na ge

"
men t , W il ey I nte rs c i enc e , New Yo rk , 1 9 76 , Lo r an g e ,
P eter ,
D ia gno s is

"
and D e s i gn of S trate g i c P lann in g S ys tems in D ive r s i f i ed Co rp o r ati on s ,

"
S lo an S ch oo l Work in g P ape r , C amb rid g e , 19 7 6 , and Lo ran ge ,
P e te r , An

Ana ly ti c a l S ch eme fo r th e As s e s smen t of a D ive rs i f i ed Comp any s Co rp o ra te '

P l ann in g S ys tem : Ne e ds ; Ca pa b i l i ti e s ; Ef f e c t ivene s s ,

S lo an S cho o l

Wo rk in g P a p e r ,
Camb r id ge , 1 97 7 .
C H AP TER TWO

A C onc e ptu a l A ppr oac h to C o gpo r a t e P l a nn in g

1 . In tr o du c t i on

As d i s cu s s e d i n C ha p te r One , the pur po s e o f th e p r e s e nt c hap t e r i s to

p r e s e nt a c o nc e p tua l mod e l f o r c or po r a te p la nn ing , a s our f i r s t s te p to

}
.

war d s an op er a tiona l i z ed p l ann in g ap p roac h Th i s mod e l , th e n , wi l l s e rv e

a s a s ta r t i ng p o in t o r s c e l e t ho n fo r the p l ann ing sy s t em , in th at i t wi l l

d e f i ne c e r t a in d ime n s ion s abou t a p l ann ing s y s t em and ide nt i fy c e r ta in

c har a c te r i s t i c s tha t s e em to b e mor e o r l e s s un iv er s al l y a p p l i c ab l e . In

sub s e qu e nt c hap ter s we s ha l l d i s c u s s how to bu i ld o n the f ramewo r k d ev e l

O pe d her e in ord e r to ac h i ev e a mo r e focu s s ed , o r t a i l ormad e p l ann i n g sy s

tem wi th c ap ab i l i ti e s tha t ma tc h the s p e c i f i c ne ed s o f a g ive n c omp an y .

The c o nc e p tua l s ch eme fo r p l ann in g to b e adv anc e d i n th i s c hap t e r i s

ba s e d o n th e p r em i s e th a t a p l ann ing p roc e s s s hou l d hav e an e xp l i c i t f oc u s ,

in terms o f ind ic a t ing whi c h e xe cu t ive s shou l d b e invo lve d in wha t a s p e c t s

o f the p lann ing ta s k s , a s we l l a s whe n th e s e var iou s p lann in g ta s k s s hou ld

b e d ea l t wi th . Thu s , we sha l l pr op o s e a c onc e p tua l mod e l fo r cor p o ra te

p l ann in g wh i c h p rov id e s a ve h ic l e f or c om mun ic a t ion , in f orma t ion hand l in g ,

int er a c t ion , i t er a ti on and de c i s i on c on s e n su s among th e v ar i ou s ma n ag e r s

" "
o f a c orp o r a t i on . Th i s i s d one by emp l oy i ng a d iv i s io n o f l abo r amo ng

ma na g er s a t s ev er a l or gan iz a t i onal l e ve l s fo r d if fe r e nt a s p e c t s o f s tr a

t eg i c r e s po ns ib i l i ty . Al so , the r e wi l l be s eve r a l s ta g e s o f fo cu s th at

we sha l l in tr odu c e in or de r to a l l ow th e p l ann in g sy s tem to po s s e s s th e

d e s ir ed ad ap ta t i on , int eg r a t ion and p o s t - fac t o l e a rn in g ca p ab i l i t i e s . Le t

u s in th i s c ha p t er f ir s t d i s cu s s th e c onc e p t o f l eve l s o f s tr a t e gy ; th e n

the c onc e p t o f s ta g e s in th e p l ann ing pr oc e s s ; a nd f ina l l y the in f o rma t io n

hand l ing c har ac t er i s t ic s o f th e p l ann in g p ro c e s s . Th e s e r e pr e s en t the

"
th r e e ba s i c d ime n s ion s in th e c onc e p tua l s ch eme , th e thr e e bac kb one
 e l eme nt s o f c o rp o r a t e p l ann in g . Wh e n i t c ome s to d i s cu s s in g e a c h o f th e s e

thr e e e l ement s , howeve r , we s ha l l f i nd i t u s e fu l to f i r s t in tr oduc t th e

p ar t i c u l ar c onc e p t a s su c h f o r th e n to d i s c u s s how th i s c an b e ap p l i ed o r
2
in terpr e te d in r e a l c o r p o r a t e s e t t i ng s .

2 2 . Thre e L eve l s o f S tr a te
g i c P l ann in g : Th e C on ce p ts

d
I f w e co ns i e r a typ i c a l di vi s i on al i ze d co rp o r a ti on we f i nd th a t i t

ty p i c a l ly wi l l be e ng a g e d in s ev e ral d i ff e r e nt b u s ine s s e s , e a ch b e in g
carr ie d ou t by a g en er a l man a g em e n t un i t , c a l l e d the d iv i s i on man agem en t .

The c o rpo ra te h e a dq uar te rs wi l l a tt em p t to p rov i d e a us e f u l ove r a l l co rp o r a te

s e t t i ng by c re a ting a me an in g f u l b a l an c e b e twe en the d iv i s ion s . Wi th i n e a ch

di vi s io n the re w il l be sp e c i a l i z e d d e p a r t men t s th at pe r fo rm the v ar i o us

f u nc t i o nal tas k s , s u c h a s ma r k e tin g , manu f a c tu r in g an d R & D . Th e s t r a t e g i c

ta s ks o f e ach o f th e s e th r e e ma j o r ma na g eme n t g roup s w il l be different ;

e a c h g r oup w i l l be f a c e d wi t h key s tr a te g i c d e c i s i on s tha t i n th e i r own way

wi l l be cri t i c a l fo r the s u c c e s s of th e c om pa ny ; howev e r , th e s tr a te g i c

va r i a bles in f o c us wi l l na tu ra l l y no t be th e s ame .

A t the co rp o r a te l eve l t h e p r ima ry s t ra t e i c ta s

g k wi l l be to d eve lo p a

fa
y o r ab l e
po rt fo l i o s tra te gy f or the d iv e rs e b us i ne s s a c tiv i t i e s by p r ov i d in g

b th e comp any to s ta n d b a lan c e b e twe e n

" "
a al an ce d se t of l e gs f or on

g row th and p ro f i t s op po r tu ni t i e s , de g r e e of e c onomi c and po l i ti c a l r i s k , an d

3
so on . Th e co n ce rns at the co rpo ra t e l ev e l w i l l be e xp r e s s e d p r imar i l y in

t erms of e f f ec t s on s t r a t e g ic r e sour c e -f l ow s to and fr om the v ar iou s bu s in e s s e s ,

p r ov i d ing a s tra te gy f o r imp rov in g th e qu a l i ty of the p o r tfo l i o . A c e n t ra l

is sue to be d e a l t w i th h e r e i s to de t e rmine f rom wh a t b u s in e s s so u r ce s

exc e s s s tr a t e g i c r e sour c e s shou ld be ta ken and to wh ic h bu s ine s s e s the s e e x c e s s

r e s our c e s sho ul d go .
Or , i n o th er wo rd s , wh ic h of th e comp any ' s b us in e s s e s s e em
 pr ov id e the b e s t ba s is f or gr owth and wh i c h of th e b u s ine s s e s m i gh t be
r e qu ir ed to c ur ta i l th e ir gr owth . Th e fo rmer wo ul d typ ic a l l y r e c e iv e a ne t

inf lux of s tra te g i c r e so ur c e s , wh i l e th e la tt er wo ul d be g iv ing u p s ome of

its g e ne ra t ed r e s our c e s . Th e s tr a t e g i c r e s our c e tha t mo s t typ ic a l ly wi l l

be a t th e c en t er of f o cu s in a po r tf o l io s tr a t e gy anal y s i s i s of c o ur s e

the pa t t er n of f und s f lows .

A key i s su e h er e i s to d e te rmine th e r i sk ine s s o f t h e p o r t fo l io . How

muc h d o th e v ar iou s bu s in e s s e s inte r r e l at e ? Ar e th e y sub j e c t ed to la r g e ly

the s ame or d i f f er ent bus ine s s c y c l e p at te rn s ? To what e x te nt ar e th ey

r e l y in g on th e s ame typ e o f c omp e t i ti on ? T he s e and o the r que s t ion s c an b e

ra i s ed and an a ly z ed a t the c or po ra t e l e ve l i n o rd er to c ome up wi th a

po r t f o l io s tr at e g y an d p l an . In C hap t er Thr e e we s ha l l e xami ne ap p r oac h e s

fo r an al y z in g th e c or por a t e p o rt fo l i o s tr a t e g y p l ann in g ne e d ; a t th i s s tag e

i t wi l l suf f ic e to a c knowl e d g e th e na tur e o f t h er s t r at e g i c p l ann in g ta s k

I
'
at th e c o rpo r at e l eve l ; wha t s hou ld b e th e b a l anc e b e twe e n one s bu s ine s s e s ;

wh er e s hou ld o ne e xp and and wh er e s houl d o ne c on tr ac t ; wh e r e s hou ld e x c e s s

fund s go and whe r e s houl d th e s e fu nd s c ome f r om ?

Th e nex t lev e l of s tr ate g y wi l l be a t th e div i s ion lev e l .

He re the

o
s t r a t e gi c ta s k i s to de te rmine how the p ar ti cu la r b u s i ne s s c an s u c c e e d .

s own b u s in e s s , how t o con c en tr a te on fu tu re d eve l opm en ts of th e

b us i ne s s w i th i n s e gme nts tha t s e em mor e a t tr ac tiv e , an d how t o de ve lop

b us i ne s s a c t ivi tie s th at are comp l emen ta ry to o th e r a c tiv i ti e s a l re ady

pu r s ue d , s u ch as uti l i z a ti on of p l an t ,
e qui pmen t or s a l e s o rg ani z a ti on .

We sha l l de no te th e s tra te g i c p l ann in g t as k a t th e d ivi s ion l eve l as th e

b u s i ne s s s tr a t e gy dev e lopme nt tas k .

 I t i s imp o rtan t to s tre s s th e di f f e r e nc e b e twe e n th e c o rp o ra te

p o r t f o l io s trate g i z in g ta s k and the div i s ion s '

b us in e s s s tra te g i z in g tas k s .

Th e f o rme r , havi ng de l e ga te d the op e ra ting b us ine s s r e s p o ns i b i l i ty to th e

v ar i ous d ivi s i on s , de a l s wi th how to con tr i b u te to th e su c ce s s O f th e

comp any by pu tt in g emph as i s on wh a t s e ems to be a r e as ona b le p a t te rn of

b us i ne s s e s . Th e la t ter de al s wi th how to su c c e ed wi th a g iv en b u s i ne s s .

Mo s t bu s ine s s e s wi l l have mor e th an o ne produc t o r one marke t , and so

we may want to c on s id e r the d ivi s io n s bu s ine s s s t ra te gy a s a p or t f o l i o o f

'

pr oduc t s and /or mar ke t s , i . e. , ano th er p or t f o l i o s tr at e g y anal o g ou s to th e

c or po rat e p o rt f o l io s tr ate g y . O f t en th e pr od u c t /m ar k et e l eme nt s wi th in a

d iv i s ion ar e c al l ed "
S tr a t e g ic B u s ine s s Un i t s "
or "
SBU s . Th i s i s howev e r

no t a re a l i s t i c an a lo g f or th e f o l l owi ng two r e a sons

In the co rp or ate p o rt f ol io the e leme nt s wi l l b e b us ine s s e s th a t a r e

m o re or -
l es s s e l f contai ned and indep e nden t of th e o the r b u s i ne s s e s .
Th us ,

a pa r ti cu la r d ivi s i o n c an be s o ld wi thou t mu ch e f f e c t on the o th e r

b us i ne s s e s '
Ope r a ti ons . Wi th in a div i s ion or b us ine s s ,
th ou gh ,
v ar i ous

pr oduc t s an d / o r mar ke ts wi l l be inte rd e p e nd e nt , s inc e the y wil l be l ar g e l y

s uppo rt ed by th e same func t ional or g an i z at ion . T hu s , i f o ne pr od uc t and / o r

mar ke t i s so ld or c lo s ed down , th e func t ion s wi l l f e e l the e f f e c t im me

d i at e l y in te rms o f ut i l i z at ion o f the ir fr e e d - u p func t ional c ap ac i t i e s .

S e c on dl y , j us t as the cor po ra te ma na gemen t inte ra c ts downwar d in th e

o r gani za ti on p yrami d wi th a s e r i e s of gen e ra l or d iv i s i on mana ge r s , e a ch

r ep r e s en ting a b us ine s s , so e a ch of th e manag e rs in te r ac t s downw ard in the

o r ga ni z a t ion wi th a s er i e s o f func t io na l m ana g e r s , and 88 0 mana g er s ,

 We h ave now ide n ti f i e d th re e lev e l s of s t ra te g i e s an d s tr a te g i c p l anni n g

i n the f i rm . I t s ho u l d be a re qu i reme nt th at a c orp o ra t e p l ann i ng sy s t em b e

hi e ra r ch i c a l i n th e s e ns e th a t i t re f l e c t th e di s ti n ct iv e d ivi s i on of lab o r

i n s tra te g y fo rmul a tion ,

imp leme nta t ion and p lann in g th a t i s imp li e d by thi s .

At th e c orp or ate l eve l th e s tr a t e g ic f ocu s shou ld b e to d eve l op an ov er a l l

po r t f o l io s tr a te gy wh i c h s hou ld r e f l ec t a d e s ir ed r i s k/r e tu r n ba l anc e b e twe e n

th e var iou s bu s ine s s e s tha t th e f irm i s i n . Th i s i s the s tr ate g i c mana g eme n t

ta s k o f the C E O
. . .
par e x c e l l e nc e . At th e d iv i s io n l eve l , in c ontr a s t , th e

'
ta s k wi l l b e to f oc u s on how to suc c e ed re la t ive to one s comp e t i t i on wi th in

th e par t i cu la r bu s ine s s at hand . Th e d iv i s ion ma n ag e r s hou ld b e th e one

c lo s e s t to unde r s tand ing th e intr i c a c i e s o f th i s bu s in e s s . Th e d iv i s i on o f

l abo r among th e mana g er s wi th i n th e f irm thu s c al l s f or e ac h d ivi s ion ma n

ag e r to be r e s pon s ib l e f or the s tr ate g i c suc c e s s o f h i s own bu s ine s s , wi th

in the c ont ex t of the c o rpor a t e po r t f o l i o s tr a te g y . At th e func t i ona l or

SBU l eve l wi th in a d iv i s ion the var iou s ma nag e r s wi l l br ing the ir s pe c ia l i z ed

sk i l l s to be ar on a s p e c t s o f the p lann i ng o f s tr a te g i c p ro g r am s th a t typ i c a l l y

wi l l have to be de ve lop ed wi th inpu t s f rom s ev er a l of the s e s our c e s , a g a in

a d iv i s ion o f l abor s p e c ia l i z ed e x c e l l enc e b e in g p rov id e d a s a c omp l eme nt

'
to the d iv i s ion manag er s g ene r a l mana g emen t r o l e .

We sha l l c l a im th at th i s thr e e - l eve l h i e r arc hy o f s tr at e g i e s i s r e l e

van t in mo s t c or po r ate s e tt in g s . In some c orp o ra t e s e tt in g s whe r e one i s

en g ag ed in one bu s ine s s onl y , ty p i c a l l y smal l e r c ompan i e s , th er e wi l l onl y

be two l eve l s o f s tr ate g y i n tha t th e po r t f o l io l eve l d i s app e ar s . S uc h

s i tua t ions c an be hand l e d mor e o r l e s s an a l o g ou s to a d iv i s ion s bu s in e s s '

p l ann in g and s hou ld no t b e th e c aus e for fur the r d i s cu s s ion a s suc h . In

o the r c orpor ate se tt in g s , however , par t icu l ar l y whe n we a r e d e a l in g wi th

la r g e , c omp l e x or g an i za t i o nl s e tt ing s , we mi gh t be l ed to be l i eve tha t

we sh a l l d i s c u s s s eve r a l e x amp l e s to i l lu s tr a t e whe th e r a r e c o g ni ti on o f

mo r e tha n th r e e s tr a te g i c l eve l s mi g h t be ap p r op r i a t e . As we s h al l s e e

th i s wi l l r ar e l y b e th e c a s e .

In th i s s e c t i on we s ha l l d i s c u s s whe the r the r e ar e in s t anc e s when

i t wo ul d b e app rop r i at e to h ave mo r e th an thr e e l ev e l s o f s tr a t e g y i n th e

c o rp o r a te p lann in g sy s t em . Toward s th e e nd o f th i s s e c t ion we sha l l al s o

b r i e f ly tou c h upo n th e ins t anc e s whe r e th e s tr a t e g i c l eve l s ge t trunc a t ed

to two . We s ha l l d i s c u s s th r e e ty p e s o f s e t t in g s wh en one mi g h t as s ume

tha t the r e s hou ld b e mor e th an thr e e l e ve l s o f s tr at e g y . O ne i s th e so

c al l ed gr oup s tru c tur e , t yp i c a l l y wi th in ve ry l ar g e and / o r h i g h ly d ive r

s i f ied c omp an i e s . Do e s th i s c a l l fo r a g r ou p p l an an d a g r oup s tr a t e g y ,

i . e . , a s e p ar at e s tr at e g ic l ev e l b e twe e n the c o rpo r a te po r t f o l io an d th e

d ivi s ion s '

bu s ine s s s tr a t e g ic l eve l s ? A s e c ond ty p e o f s e t t in g r e f e r s to

th e ro l e o f th e s o- ca l l e d 8 8 05 wi th in a d iv i s ion , a s a lr e ad y touc h ed u po n .

Doe s th i s c a l l f o r an S EU p l ann ing t a s k be l ow the d iv i s iona l bu s i ne s s

p l ann ing and d i s t inc t f rom the ( c r o s s - ) func t i on al p ro g r am m in g ? A th i rd

s e t t in g oc cur s wh en we ha ve a so- c a l l ed ma tr ix s tru c tur e , suc h as can

c om m on l y b e found in mu l t ina t iona l c o rpo r a t ion s . Doe s th e "

add in g o f ,

s ay , a g eo g ra p h ic a l ar e a d ime n s io n im p l y ang add i t i o na l s tr at e g i c l eve l ?

S tar t ing w i th the so - c a l l ed gr o up p h en ome non , we s ha l l c l a im tha t th e

r ar e ly o r nev e r r e p r e s e nt s a f ou r th s tr at e g i c l e ve l that i s g ene r i c a l l y

d i f f er en t f r om c or po ra t e p o r t fo l io s tr a t e g i z in g o r d iv i s i ona l bu s ine s s

'
s tr a t e g i z in g , bu t tha t th e g r ou p s p la nn i n g e f fo r t s invar i ab ly c an be

s e e n a s p ar t o f one o f th e o th e r two . In in s t anc e s in wh i c h g r ou p p l an

ni ng c an be seen as an e x t en s io n o f c o rp o ra t e p o r t f o l i o p l ann in g we typ

i c al ly have a h i g h l y d iv er s i f i ed c ompany whe r e i t wou l d b e d i f f ic u l t fo r

th e C . E O
. . to int er ac t d ir e c tl y wi th ea c h o p er a t in g d iv i s ion , non e th e

l ea s t due to s h e er l a c k of t ime . So ins t ead th e C E O

. . . c r e a t e s g r oup s

wh er e a group v ic e pr e s id e nt int er a c ts wi th a sm a l l e r and mana geab l e s e t

of d iv i s ion s , on b eha l f of th e C . E O . . and th e c or po r a t e l ev e l . I t i s im

por tan t to r e c o gn i z e tha t th e gro up ther eby hand l e s a pg£ p _

of t he cor p or at e

por tf ol io and no t a gro up po r tf o l io o f i ts own ; th e s tr a t e g i c p ro b l em is

no t to dev e lo p a s er i e s of pa r t ia l gro up s tr a teg i c p lan s r e f l e c t in g a b al

anc e d tradeo f f b e twe en th e expans ion pa t t ern s f or th e gro up s b u s in e s s e s .

Thi s woul d imp l y tha t ea c h group woul d hav e to d e f ine i t s own bus in es s e s

f or exp an s io n a s we l l a s f or f und s g en er at in g ind e p end en tly of th e o th er

g roup s , wi tho u t b e in g fami l ia r w i th the gr owth and fund s g en e ra t ion opp or

tu n i t i es e l s ewher e in th e c omp any . As a c on s e qu e nc e th er e i s a dang er tha t

some g roup s wil l b e e xp a nd in g b us ine s s e s tha t mi gh t be l e s s f avo r a b l e to

the c omp any a s a who l e tha n o ther g r owth Op po r tun i t i e s in o th er gr oup s .

S imil ar l y , s ome b us ine s s e s tha t hav e b e en d e s i gna t ed to prov id e f und s wi th

in a gro up mi gh t no t be th e mo s t advan ta ge ou s sour c e s of fund s wh en s e en

in an overa l l co rp or at e c on t ext . Al s o , a gro up po r t f o l io s tr a t e g y mi ght

be l e s s amena b l e to en c omp a s s in g s e l e c t ed r i s ky inv e s tme nt s , g iv e n tha t

suc h a r i s k wou l d hav e by a sm a l l er numb e r

" "
to be ab s orb ed of bu s ine s s e s

tha n if s e e n a s par t of the en t ir e c or por a t e por t fo l i o . Thu s , group s tr a t

eg i e s ar e l i ke ly to r e su l t in su b o p t ima l r e s our c e al lo ca t ion d e c i s ion s ,

wh ic h woul d al s o in mo s t l i ke l i hoo d r e su l t in t oo c on s e rva t iv e a corp or at e

por t f o l io s tr a t e gy . H e nc e , is no t an an swe r to p r op o s e tha t the c or p or a t e

s tr a teg ic por t fo l i o can be d ev e lop ed a s a por tf o l i o of gro up s ; th e s e ar e

al r ea dy t oo a ggr e ga t ed . S t r at e g ic po r t fo l i o tr ad eo f f s mu s t b e ma d e f r om

a c or pora t e v i ewpo int ; and mu s t b e b a s ed on th e c omp l e t e s e t of bu s in e s s e s

as
"
b ui l d in g b lo c k s ,
"
no t par t ia l sub s e t s .
 By me ans of th e f o l low in g e xamp l e we s ha l l e xp lo re s ome po te n ti a l

p ro b lems wi th p e r c e iv ing a f our th le ve l of p l ann ing in conne c ti on wi th a

g roup s tru c tur e . A c omp any w i th b illion do ll ar s in annu a l s a l e s ha d

b e en reo r g ani ze d in to thr e e group s s ome y ea r s a go . Two of th e s e g roup s we r e

cons i d e r a b l y l a rg e r than the th i rd , one b e in g i nvo lve d in pu lp and p ap e r

ma nu f a c tu r i ng a c tivi ti e s , in cl ud i ng h e avy emph as i s on e nd - u s e c onv e r s i on

th r oug h e i gh t di f f e r e nt div i s i on s , the o the r b e ing invo lv e d in v a ri o us

me ta l s - p ro c e s s i n g ma nuf ac tur ing a c tiv i t i e s , a g a i n s p ann ing a f a i r l y wi de

s p e c trum of a c tivi ti es th r ou gh ni ne div is i on s . The th ir d d ivi s io n was

wi t hi n a d ive r s e area of eme r g in g g row t h Opp o r tun i ti e s , p r ima ri ly b as e d on

p la s ti c s , ma ny of the b u s i ne s s e s of i ts fou r d ivi s i ons h av i ng o ri g in a ll y

d ev e lo p e d as o f f s p r i ng s f rom th e a c tivi ty b as e s of th e o ld b us ine s s e s .

Th e s e ni o r mana g eme n t was p rima ri l y mo t iva te d by th e a t temp t to e a s e the i r

op e ra ti ons - re la te d time - loads by ins ti tu tin g th e th r e e gr oup s . A num b e r of

un f o r e se e n i s s ue s di d howev e r s ur f ac e wh e n th e corp or ate p l ann in g sy s tem

was mod i f ie d to re f l e c t th e new o r g an i z a tion a l S t ru c tur e . F i r s t , th e g r oup

le s s a s k ed ta k e ove r as "
"
-
ma na g emen ts we r e mo r e or to s t and in s l a rg e p ar ts

o f th e ro l e s p revi ous ly h e l d by c orp o ra te man ag emen t in the p l anning p ro c e s s .

'
To f r e e up corp o r a te mana g emen t s tim e was exa c tl y on e of th e ma i n re aso ns

fo r d e l e g a tin g p o r ti on s of the p l ann i ng re sp on s i b i l i ty . Th e g roup

mana g emen ts re s p onde d to th i s tas k by in s ti tut i n g group s t af f s on th e i r own

in o r de r to f ac i l i t ate th e ex e cu ti on of th e i r "
s e m i c or p or a te p lannin g tas k s .

Th e pr o b l em th at s o on a ro s e was wha t s hou l d be th e ro l e of e a ch g rou p

mana g em en t i n s tr a te g i c re s o ur c e al lo c at i on ; sh ou l d th is be add re s s e d by
e a ch g roup as th e n ew grou p s tr u c tur e se t - u p imp l i e d or s hou ld a t le a s t th e
ma j o r re s ou rc e a l lo c a ti on de c i s ion s be re f e rr e d to co rp o ra te mana g eme nt ?

Th e c ompa ny "
exp e rime nte d with b o th app ro a che s , ne i th e r y i e l d in g s a ti s f ac tory

re s u l ts . I n the f o rmer c as e thr e e g ro up po r tf o li os we re eme r g i n g , as a

re s ul t of co ns i de r a b le e f f o r ts by the g ro u p ma na g eme n ts to deve l op po r tf o l i o s

th a t we re re as ona b ly b a lan ce d r i s k /r e t u r n- wi s e as we l l as funds a c cumu l a t ion /

fund s u ti l i z at ion- wi s e . Thus , th e se n ior ma na g emen t a t th e c orp o r a te lev e l

was no long er a b le to s e e di re c t ly wh at was the ove ra l l p a tte rn of b u s in e s s

s tra te g y t r adeo f f s ; ins te a d th e y we re f ac e d wi th de c i din g on r e s o ur ce

a l loc a t i o n trade o f fs be twe e n thr e e g rou p s . . G ive n tha t e ac h g r oup a imed a t

pr e s e nt ing a r e l a t ive ly b a l anc ed p o r t fg li o

_
th er e wer e d e fac to no t muc h o f

a su b s tan t iv e ro le l e f t to co rp o r ate mana g eme n t in th e re s o u r ce a l lo c a tion

'
pr o c e s s , t op mana g eme n t s p o te n ti a l l y mo s t e f f e c tiv e to o l fo r s tr ate g i c

ch an g e . As me n tione d , th e a l te rn a tive ap p ro ach t ri e d wa s to have co rp o ra te

ma n a g ement j o int l y invo lv e d wi th g roup ma na g emen t on th e ma j o r r e s our ce

a l l oc a tio n de c i s i ons . H e re , too , howeve r , co rp or a te mana g eme n t was

su f f e r i n g f rom no t havi n g the e nt i re b us ine s s p o r t f o l i o p a t te rn c l e ar ly at

ha n d ; a d hoc an d spo radi c co rp o r a te invo lvem en t c ou ld no t be a s u b s t i tu te

for a sy s tema ti c co rp or a te a ttemp t a t ta k ing e a ch re s our c e al l o c a tio n

w it hi n the contex t of the ov era l l s tra te g i c p or t f o l i o p a tte rn th a t th e

s en ior ma n a geme nt woul d wan t to dr ive a t . In Ch ap ter 6 we s ha l l c on s id e r fur th er

th e su b j e c t of op er a ti ona l s o l u t ions to p rev e n t th e g roup s f rom b e c omin g

" "
s t r ate g i c f i l ter s .

In o th e r in s t an ce s a g roup may con t ai n a s e t of d iv i s io ns in a hi gh l y

r e l a ted s e t of bu s ine s s e s . Th i s ma y h av e c ome ab ou t by a se ries of

a c q ui s i ti o ns of a numb e r of sma l l e r f i rms w i thi n mo r e or le s s the s ame

bus ine s s , a s pro l i f e r a t ion s into r e l a t ed bus in e s s l in e s an d /o r a s g eo gr ap h i ca l

exte ns i on s .
Wh a t O f te n b e come s ap p a ren t he r e i s tha t ea ch div is ion c ann ot
dev e l op a b us i n es s s tra te g y inde p e nde n t of th e o th e r divi s ion s . On th e

co n t r a ry , by no t coo r d ina ti ng th e s t r ate g ie s of th e div i s i ons a ma j or

comp e ti tiv e advan tag e mi g h t be wa s te d typ i ca l l y th e v e ry r a ti on a l e f or

car ry in g ou t the a cqui s i ti ons in th e f i r s t p la c e . Th e r e sul t i s a lo t of

ove rl ap , c omp e ti t ion wi th on e s e l f , an d so on . I n ins t an ce s l i k e th i s the

g roup i t s e l f i s inde e d one b us ine s s . As su ch i t s hou l d c ar ry ou t th e

b u s in e s s s tr at e g i z i ng and p l ann i ng ; wh e the r or no t th e divi s i on s sho ul d be

k e p t d e pen d s on wh a t woul d be a r a ti on a l way of o r g ani z in g th e fun c tion a l ,

p r o d u c t an d ma r k e t a c tiv i ti e s wi th i n th e bus ines s . To a l l o w e a ch of the

di vi s ion s to deve lop i ts own b u s ine s s p lans and h ave th e g roup c r e a t e a

hi ghe r l eve l b us i ne s s p l an d oe s no t ma ke s e ns e ; a g ai n we ha v e on l y th re e

s t r a te g i c l ev e ls of p lanni n g .

An examp l e of th i s p r ob l em . c ou ld be f o u n d in a Eu ro p e an - b a s ed comp any

whi ch wa s in th e c emen t b us i ne s s a s we l l as i n s eve ra l s e gmen ts of th e

b u i l d in g ma t e r i al s b us ine s s e s . Th e c omp a ny ha d been f o rme d th rou gh th e

m er g e r of tw o p r evi ous l y indep ende n t c omp an i e s e a ch wi th the i r maj o r

b us in e s s emph as i s on ceme n t . Howeve r , e a ch comp any al s o b rou gh t in to the

m erg e r s eve r a l b u i l d in g ma te ri a ls b u s ine s s e s . B o th f irms we re in to s h e e ts

for r oo f in g b ut u ti l i z in g c omp e tin g p ro du c ti on te chno lo g i e s . Th ey h ad

a ls o b e en comp e tin g wi thi n the ma r ke t for p re f a b ri c a te d con c r e te e lemen ts

an
d b lo c k s ; howeve r , th e p rodu c ti on t e chno lo g i e s we r e ev e n mo r e d i f f e re n t

and ea c h ha d we l l e s ta b li sh e d b r an d name s i n the ma r ke t -

p l ac e . F ina l l y ,

e a ch comp any h ad s ev e ra l r e a dy - mi x con cr e t e p l an ts , some of wh i ch de p end e d

he avi ly on de l ive ry to s ome of th e e leme n t manuf a c tu r e r s th a t de p e nd e d on

"
a p ro c e s s whe re con cr e te wa s a ma j o r in g r ed i e n t . Th i s my r i ad of comp ani e s

we re al l ma int ai ne d a s inde p ende n t d iv i s ion s a f te r the me rg e r , e x ce p t for

 2 - 12

th e re ady - mix c on c re te p l an ts , wh i ch f o rme d a new d ivi s i on . C oor d ina tio n

amo ng th e comp an i e s wa s to be a ch i eve d by h av in g a ll b ui l d i n g ma te r i a ls

b as e d div i sion s re po r ting to a b u i l d in g ma te ri a ls g r oup . Wha t h app e ned wh en

th e p l ans from th e div i s i ons em e r g e d was th at the y reve a l e d comp e ti tiv e

s tr ate g i zi ng pa tte rn s wh i c h wou ld hav e po te nti a ll y s tr on g ne g a tive imp a c t

on o the r div i s i ons wi th in th e g roup . Th e mo s t ex tr em e examp l e s of th i s

we re whe n th e p l an by th e re ady - mix c on cre te d ivi s i on p rop o se d to l aun ch

’
its own e l emen t and b lock p r odu c t i on b as ed on an e xc e s s iv e ly con c re te

inte ns ive p ro d u c ti on p ro c e s s , and wh e n the e l emen t d ivi s i on whi ch b as e d i ts

p rodu c ti on on a s ma l l f ract ion of con c r e te raw ma te r i al on ly p r op o se d a ne w

p lan t wh ich du e to economi e s - o f - sc a l e s pr oduc t io n e f f ic i enc i e s comb in ed wi th

an i n t e ns i va t ed re tai le r re b a te mar k e tin g p r og ram wo u ld e na b l e the di vi s ion

to c ap tur e a s i gn i f ic an t mar k e t s har e inc r ea s e ( b ut , al a s , mo s t ly at th e

"
exp ens e of o ther d iv is ions wi th in th e Wha t wa s n e ed ed in th i s

" "
in s ta nc e wa s to c on s ide r th e group a s th e f o c a l p o in t for the d ev e lopme n t

of a b u il d ing ma t er ia l s b us ine s s s tr a t e gy an d to tr ea t r oo f ing ma t er ial s ,

el eme nts and b lo c k s , and r eady - mix con c r e te a s pr oduc t l in e s wi th in th is

bus ine s s .

Th e examp l e j u s t d is c us s ed l e ad us to con s id e r t he s e c ond ar e a wh er e

we m i gh t be l ead to que s t ions wh e the r we ar e d e al ing wi th four l ev e l s of

s tr a t e gy wh en . As we s hal l s e e , howeve r , ther e ar e in f ac t onl y thr e e

d i s t inc t s tr a te g ic l ev e l s h er e t oo . Th e pr o b l em to be d i s c u s s ed d e al s

w i th how to con s ide r th e s tr a t e g i z in g ta s k w i th ina d iv i s ion wh e n th e

div i s ion c ons i s t s of s ev er a l SB U s . We hav e a l r e ady to uc h ed up on th i s

b e f or e , but a mo r e ex t en s iv e d i s c u s s ion i s wa rran ted . Th e SBU s ho ul d b e

s e en a s the "
b u i ld in g b lo c k "
of th e s tra t e g i z in g ta s k w i t h in a d iv i s ion .

Fo r e ac h SBU th e tas k s ho ul d b e to d ev e l op a p att ern f o r s uc c e s s wi th in

b ec aus e th i s mi g ht c r e a te a t e ndenc y to par t i t ion a bu s ine s s s tr a t e g y i nto

un i ts tha t mi ght b e p er c e ived a s mo r e s e p arab l e th en th ey i n fac t ar e .

To i l l us tr a te the d i f f icul t y tha t mi g ht oc c ur whe n a l l owing SBU

s tr a te g i z i ng to fr a gme nt a d iv i s ional bu s in e s s s tr a te g y l e t u s d i s c u s s

two e x amp l e s , wh i c h bo th wi l l i l lu s tr a te tha t we ar e s t i l l de a l ing wi th

th e th r e e o r i g in al g ene r i c s tr a t e g ic l ev e l s d e s p i te th e app e a r anc e o f

s ev er a l mo re le ve l s on th e o r g an i z a t ion c har t s . The f ir s t examp l e r e l at e s

to a c ompany wh ic h i s i n s ev er a l ar e as o f the c o sme t i c s and to i l e tr i e s

bu s ine s s , and wi th annua l s a l e s o f app r ox ima t e l y B i l l ion do l l ar s .

" "
Th e c ompany i s or g an i z ed int o f our d ivi s ions , one b e in g th e de nt al

" "
pr odu c t s d iv i s ion . The de ntal prod uc t d iv i s io n c on s i s t s o f two g roup s

“ " - "
th e too th b ru sh g rou p and th e too th pa s te g r ou p . Ea c h o f th e two

g roup s have the ir s e par ate pr od uc t d ev e lopment a c t iv i t i e s , and p r od uc t i on

fa c i l i ti e s . Mar ke t ing and d i s tr ibut io n i s a l so la r g e ly inde p e nd ent f or

the two g rou p s . Wi th in e ac h g roup th e r e ar e th r e e produc t l ine s , e ac h

he ad ed by a pr oduc t mana g e r and e ac h a ime d at d i f f e r e nt ma r ke t s e gmen t s .

The po tent i a l f or c onf u s io n a s to what wou ld b e th e r e l evan t s tra te g i z in g

e l eme nt s i s amp l i f i ed in th i s ex amp l e due to th e p ar t i cu la r u s e o f or g a

n i zat i o n un i t lab e l s wh ic h i s no t c on s i s te nt wi th th e one s adop t ed i n

th i s boo k . Ac c ord ing to our te rmin o lo g y the c ompan y wou ld have a c or po r ate

po r t fo l io s tr a teg y th at c on s i s t s o f th e c orp o ra t e l eve l and the four “

di

"
v i s ion s , e ac h o f the s e in f ac t b e in g a g rou p . Th e bu s ine s s s tr at e g i z in g

tas k shoul d be c ar r i ed ou t b y th e "

gr oup s ,
"
too th - pa s t e an d too th - b ru sh

be in g th e two e nt ir e l y s e par a t e bu s ine s s e s . Th e th r ee prod uc t l ine s wi t h

in e ac h of the s e d ivi s ion s wou ld be to c on s id e r a s 8 8 05 . Th e s e canno t be

d ea l t wi th a s ind e pende nt s tr a te g i c en t i t i e s ; in or de r to come u p wi th on e

int e gr a ted , non - fra gmented pa th o f d ir e c t ion , the s e shou ld be s e e n as p l an

n ing e l eme nts wi th in the ir r e s pe c t ive d iv i s ion s '

bu s ine s s s tr ate g i z i ng ta s k .
W i thi n e ac h o f th e too thp a s te an d too thb ru s h d iv i s io ns SB U ma na g e r s and

func t i ona l un i t s w i l l c o op e ra t e to de ve l o p ( p r edominant l y ) c ro s s - fu nc t i ona l

" "
s tr at e g ic p r o g r am s to pu t mu s c l e b eh ind th e e xe cu t i on o f th e d iv i s i ona l

s tr a te g i e s . In th i s examp l e , we s e e th at wha t mi gh t a t f ir s t ap p e ar a s

f iv e s tr a t e g i c l e ve l s i n f ac t e a s i ly c an b e r ec o nc i l ed in to the thr e e

s tand ard h i e ra r c h i c al s tr a t e g ic c a t e g o r i e s . N e ed l e s s to s ay , i f we c hoo s e

no t to c on s id e r th e s tr a t e g i z in g h i er a rc hy in suc h a c o ns o l id at ed f orm

bu t in s te ad ba s e th e p l a nn in g t a s k on the mo re e xt e n s ive f ive - l eve l s tr u c

tur e th e r e wi l l be s e r iou s dan g e r s o f bo th a subo p t ima l po r t f o l io s t ra t e g y

a s we l l a s too f ra gme nt e d bu s ine s s s tr a t e g ie s . We a l s o s e e th at we s hou l d

b e awar e o f th e d i f f e r e n t u s a g e o f o r g an i z a t iona l l ab e l s f rom c omp any to

c ompa ny , und e r s c o r ing th e ne e d to f o c u s o n th e g en er i c d i f f e r e nc e s am o ng

th e c omp o ne nt s o f th e o r g an i z at i on c ha r t ; wh er e in th e o r g an i z a t io na l h i

er ar c h y i s in f ac t a pa r t i cu l a r s tr a te g ic ta s k c a rr i e d ou t ?

Le t u s a s a s ec ond e x amp l e c on s id e r th e f orma l s tr uc tur e o f a h i g h

tec hno lo g y or i e nt ed c ompany wi th annua l s al e s o f ar ound 2 00 mi l l ion d o l l a r s

and a r ec ord o f r a p i d g r owth . Th e l owe s t l ev e l a t wh i c h th i s c omp any r e

" "
qui re s s tr a teg ic p l ann ing i s th e bu s ine s s e l ement , de f ined a s a bu s ine s s

s y s t em wh i c h invo lv e s a s i ng l e produc t l ine or a p ar t i cu l ar s e rv ic e c a pa

b i l i ty b e ing su pp l i ed to sa t i s f y th e ne ed s o f a s i ng l e ma rke t s e gme nt .

Th e c ompany h a s 1 01 s e pa r at e bu s ine s s e l eme nt s . C o n s ide rab l e e f fo r t goe s

into d eve lo p in g an ap p ro p r i at e d e l ine a t i o n o f wh at s e ems to be a u s e fu l

bu s in e s s e l emen t , ke e p ing no t on l y a l o g ic a l pr o du c t /m ar ket d e l ine a t i on

in m ind , b ut a l s o a tt emp t ing to ke e p th e S BU s a t r e a s onab l e s i z e , no t to o

" "
sma l l to b e un ab l e to a f f ord a p r o f e s s io na l man a g eme nt ove rhe ad , no t

too lar g e to b e unwi e ldy to mana g e . A s e p ar a t e mana g e r , th e n , is r e sp on

s ib l e for e ac h o f th e s e bu s ine s s e l eme nt s . Abo ve th e b us ine s s e l emen t

 2 -16

l eve l ar e 27 d iv i s io ns . E ac h d ivi s i on , he ad e d by a d ivi s ion vi c e p r e s id e nt

"
i s r e s pon s ib l e for a f ami ly o f bu s i ne s s e l eme nt s . The s e bu s ine s s e l e

me nt s wer e r e l a ted to e ac h o th e r in th e s e n s e tha t the y we r e s ha r ing a

'
lar g e por t io n o f th e d iv i s io n s func t io na l c a p ab i l i t i e s , no tab ly manu

f ac t u r i ng , r e s e ar c h and deve l opme nt . O f t en th e bu s i ne s s e l eme nt s o f a

par t ic ul a r d iv i s ion wer e s erv in g r e la t iv e ly r e la ted mar k e t s , but th i s

d id no t a lway s hav e t o b e the c a s e . Thu s , in some i ns tanc e s bu s ine s s e l e

me nt s mi gh t dr aw on a c ommo n mar ke t in g func t i ona l c a pab i l i t y , i n o th e r i n

s tanc e s no t . Th e d iv i s ion s ar e pa r t s o f s eve n g r oup s , e a c h h e ad ed by a

g roup vic e pr e s id en t . Howe ver , one o f the s e s e ve n g r oup s we r e d i f f e r ent

fr om the o th er s , in th a t i t c on s i s ted o f one d iv i s io n on l y , howeve r , th i s

d iv i s ion b e ing c ons id er ab ly l ar g er tha n th e o th er s .

Th e s tra t e g i z in g ta s k i s c ar r i ed ou t a s f o l lows : Ea c h of th e b u s in e s s e l eme

m
ag er s we r e c har ged wi th d ev e l op in g a s t f a t e gy fo r t h e f? SB U . C ons id e rab l e
e f fo rt we nt into thi s , and a s tanda rd i z ed and qu i te e labo r at e fo rma t was

fo l lowed . Ea c h d ivi s ion mana g e r d eve lo p ed a s tr a t e g y fo r h i s d iv i s ion by

co n s o l id at in g h i s SBU s tr ate g i e s . Th e g rou p s th e n de ve l o ped the ir s t a t

r

'
eg i e s by c on so l id at ing i t s d iv i s ion s s tr at e g i e s , an d , fi nal l y , a c or p o r at e

s tr a t e g y wa s d eve lo p ed a s an a g g r e g a t io n o f th e gr oup s . Two typ e s o f p rob

l ems b e c ame app ar e nt . F ir s t , b y sp l i tt in g th e bu s ine s s s tr a t e g i z in g ta sk

in to tw o by f o cu s s in g on SEU s tr a t e g i e s and d iv i s ion s tr a te g i e s r e su l t ed in t oo

mu ch f r a gme nta t ion . An ove r ly pr ol i f er a ted p a t ter n of d i s j o in t

or a t be s t loo s e ly c onne c t ed bu s ine s s ac t iv i t i e s r e sul ted . S e c ond l y , by

sp l i tt ing the por t f o l io s tr at e g i z in g ta sk into two by foc u s s ing on g roup

s tr a te g i e s an d a c or po rat e s tr at e gy th e po r t f o l io s tr a t e gy be c ame an ama l g am

o f s eve ra l ba l anc ed gr oup mi n i -

por t f o l io s tr a t e g i e s , thu s p r eve nt in g s e n io r

manag ement f rom p r op e r l y c o ns ide r ing th e e nt ir e s p an o f s tra t e g i c o p t ions .

 Fr om ou r d i s c u s s ion o f th e four examp l e s thu s fa r we s e e tha t th e

c re a t io n o f add i t io na l l ev e l s o f s tr a t e g y r ar e ly wi l l b e war r an t ed . Ba

s i c al l y ne i th er th e c or p o r at e p o r t f o l io s tr a te g y no r th e d iv i s io nal bu s i

ne s s s tr at e g y s hou ld a s a ru l e b e d iv id ed up to c r e at e ad di t ion al s tr a te g i c

l ev e l s .

Le t u s now move to a th ird , and o f t e r mo r e c omp le x ar e a wh er e one

fr e que n t l y s e e s a c a l l f or ad d i ti ona l s tr at e g ic l eve l s o f p l ann i ng . Th i s

re l at e s to the int e rn at i ona l ac t iv i t i e s o f c omp an i e s . A lot o f u ns a t i s f a c

to ry s tr a t e g ic tr ea tm e nt o f th e in t er na t iona l O p e r a t i on s s e ems to ex i s t .

We sh al l po in t o u t thr e e ar ea s o f c onc e rn , none o f th em c a l l in g f o r th e

c r e a t io n o f an add i t iona l l ev e l o f s tr at e g y , a s we s h a l l s e e .

The f irs t i s s ue r e l a te s to th e q ue s t ion of whe th e r th e in te rn a t iona l

a c t i vi tie s are p ar t of any of th e ex i s ti n

g b us in e s s e s . I f s o , th e

i n te rna t i on al a c tiv i ti e s s hou l d be tre a te d as p ar t of th e b us i ne s s p l an of

the dome s ti c d iv i s i on ; un r e a l i s ti c bus ine ss p l an s wi l l eme r g e i f a g l o b a l

b us i ne s s p lannin g p o in t of Vi ew i s no t con s i de re d . If, on th e o th e r hand ,

an in te rna ti ona l ac tiv i ty i s no t p ar t of any of th e o th e r b us i n e s s e s b u t is

a b u s in e s s on its ow n , then we have a b us in e s s wh i c h s h ou l d be t re a te d as a

di vi s i on on i ts own . Typ i ca l l y , a b us i ne s s in a for e i g n coun try mi gh t be

run thi s w ay , p a r t i cu l ar l y wi th in cons um er p r odu c ts b u s ine s s e s , eve n tho ugh

s imi l a r typ e s of p ro du cts mi g h t be ma r k e te d i n oth e r p ar t s of th e wo r ld ;

s t r ate g i c al l y th e r e i s b us i ne s s inde p e nden c e .

In ma ny s i tua t ion s , howev er ,

th er e m ig h t b e som e d e gr e e of in t erd e p end enc e

a s s ome ind ep end enc e , so tha t i t i s impo s s ib l e to ge t a c l ea r c u t j ud gmen t a s to

whe th e r a p a r t i cul a r fo re i g n Op e ra t ion s ho u l d be se e n a s a s e p a r at e b u s i ne s s

d i vi s io n or as p ar t of a wo r ldwi de b u s ine s s di vi s ion dome s t i c a ll y b as e d .
Wh a t we mi ght b e f a ce d wi th he r e i s a s o- c al l e d ma tr ix wo r ldwide b us i ne s s
p l ann in g s e tti n g . Take , f o r ins t an ce , a worl dwi de p rodu c t div is ion b us ine s s
wh i ch i s p ar t of a co rp o ra ti on i n wh i ch i t co ex i s t s wi th s eve r a l o th e r

wo r ldwi de p ro du c t div i s ion b us in e s s e s . Fo r e a ch of the wo r ldwi de b us ine s s e s

i t mi gh t be us e fu l to be awa r e of and mayb e ev en e x p lor e po te nti al s for

coor dina ti n g i ts ap p e aran ce in a giv en coun try . Howeve r , th i s do e s no t

chan ge the b as i c wo r ldwi de b us ine s s p la nnin g s tr ate g i c thru s t . Ta k e , on

the o the r hand , a company wh i ch h a s s eve r al indep ende n t fo r e i gn b us ine s s

divi s io ns . I t w il l of c ours e be imp o r tan t f or e a ch of th em to be awa re of

new p roduc t dev e lopmen ts and ev e n to c arry ou t s ome wo r ldwi de coo rdin a tion

of re s e a rch , p rodu c t deve lopme n t and ma r k e ting pr o f i l e . Ag a in , h owev e r ,

ma tr ix p l anni n g doe s no t ca l l f or d r ama ti c re emph as i s ; th e coun try d iv i s i on s '

b us i ne s s p la nnin g i s s ti l l the c o rn e r s ton e of a th re e - l eve l s tr a te g i c

p lann ing hi e ra rchy .

Le t -u s as a f ina l po in t emph a s i z e the r e levan ce of ma tr ix p l ann in g to

he lp p rov i de a p rop e r de gr e e of fo cus at the co rp o r a te p o r tf o l i o l ev e l as

we l l as at the d ivi s i ona l bu s in e s s l eve l . I n Ch ap te r 6 we sha l l d i s cu s s

fu r the r how to op e rational i z e ma tr ix p l annin g . At th e co rp o r a te p or tf o l i o

p la nni n g lev e l the vari ou s bu s ine s s e s w il l p r ov i de th e maj o r s our c e s of

inpu ts . Howe ve r , we mi gh t a ls o wan t to as s e s s th e ge o grap h i c imp l i ca tion s

O f a pa rti cu lar po r tfo l i o , so tha t p o l i t i ca l r i s ks and Op po r tuni ti e s can b e

as s e s s e d on an ove ra l l co rp or ate b as i s . M a tr ix p l annin g i s us e f u l h e re . At

th e b u s ine s s p lanni n g leve l of a wo r ldwide bus in e s s t oo th e r e mi gh t be a ne e d

for ma tri x p l ann in g to ins u r e tha t th e b us i ne s s in corp o ra te s fun c ti ons ,

p rodu cts and coun tr i e s ( marke ts ) . None of th e s e s i tua ti ons c omp l i ca te s

the thr ee - lev e l s tr ate gi c p l ann in g ap p roa c h j u s t deve l op e d .

 I n th e Ap p end ix to t h i s C ha p t er we hav e il l u s tr a ted s ome of th e

is su es of how t o d e f in e r e l ev an t s tr a te g i c l ev e l s w i th in a mu l t ina t ional

co rp or a t io n by mea ns of an ex t ens iv e , d e ta i l ed examp l e . Th i s e x amp l e i s

in tend ed to fur th er i ll u s tr a t e s ome of the comp l ex i t i e s of r e ac h ing a

l ab o r
" "
mean ing f u l s tr a t e g ic d iv i s io n of in r ea l - l i f e co rp or a t ion s .

L e t us now tu rn to th e is s u e of when th er e mi gh t be f ewe r tha n thr e e

s tr a te g ic l ev e l s in th e p l ann in g p ro c e s s . As s ho ul d be c l e ar f r om ou r

p r ev iou s d is cu s s io n , wh en a c ompany c on s is t s of wha t is e s s en t ia l l y o n l y

one b us in e s s th er e wi l l be no s tr a t e g ic po r t f o l io l ev e l , a s th er e i s no

po s s i b i l i ty to d ev e lo p a tr adeo f f s tr a t e gy w i th o th er b u s in e s s e s wi th in the

comp any , th en . Thu s , a s ing l e - b u s ine s s f i r m i s f a c in g a s tr a t e g ic p l ann in g

ta s k wh ic h e s s en t ia l l y i s anal o go u s to th e bu s in e s s p l ann ing ta s k of d iv i s ion s

of a d iv e r s if i ed f irm . Con s e q u en tl y , th er e wi l l b e on l y tw o s tr a t e g ic

pl ann ing l ev e l s in suc h a s ing l e b u s in e s s c ompany .

Al tho ugh th e s i z e of a comp any typ i c a l l y tends to be c o rr e l a te d w ith

i ts de g r e e of div e r s i ty , th i s i s no t a g en e ra l ru l e . Th e re are s eve r a l

l ar g e c omp ani e s th a t e s s e nt i a l l y a re i n on e b us in e s s , or a t l e as t are

e nti r e l y d omi n a te d by one bus in e s s . Ex amp l e s can b e found wi th i n the ene r gy

indu s try , the me ta l s - p r o c e s s in g indus try and w i th i n th e tr ans po r t a ti on

in du s t ry , am on g o th e rs . Amon g s uch l a r ge s ing l e- b us ine s s f i rms th ere i s

of ten a tende n cy to la b e l a fun c t i on al de p a r tmen t as a "

div i s io n "
an d to

ma k e th e d e p ar tme nt mana g e r a "

div i s i on h e ad "
. Fo r ins tan c e , we mi gh t h ave

a sme l t ing d iv i s io n , a ro l l i n g mi l l d iv i s ion an d a s a le s d iv i s ion w ith i n an

in te g r a te d s te e l comp any . Th e u s e O f th e wo rd d iv i s i on in th i s con tex t do e s

of c ou rs e no t g iv e ri s e to a divi s i ona l i ze d po rt f o l i o s tr ate gy . We ar e s ti l l

f a c e d w ith a tw o— l ev e l s t rate g i c p lanni n g ta s k .

 2 -20

We hav e no w comp l e te d ou r d i s cus s ion of th e h i e r ar ch i c al s tr a te gy

d ime ns ion of ou r con c ep tu a l s cheme f o r p l ann in g . As we have s e e n ,

th e re ar e

"
con c ep tual ly th re e g en er i c l ev e ls of s tra te gy an d s tr ate gi c p l ann in g

corp o ra te po r t f o lio p lannin g , d iv i s i on al bu s ine s s p l ann in g and ( in te r

func ti ona l p ro grammin g . We do no t f ind mo re than th e s e th re e d i s tin c t

gene r i c s t ra te g i c le ve l s eve n tho u gh t he a ctua l or gani z a tio n ch ar t mi gh t

i nd ic a t e s ev e r a l a dd i t i ona l l ev e l s . I n a s in g l e - b u s i n e s s c om pan y o nl y tw o

of th e s tra t e g ic l ev e l s w il l be pr e s ent . By now , h owev e r , i t sho ul d be

c l ea r tha t a typ ica l r e a l - l i f e and evo lv in g o r gan i z a t io n m ig h t p r ov id e an

ex tr emel y comp l e x s e tt in g f or the d ev e lo pmen t of an ov e ra l l co r p or a t e s tr a t

egy . Th e r e qu ir emen t tha t a p l ann in g sy s t em shoul d hav e to be lo g ica l l y

c l ear and s p e c if ic in te rms of th e s tr a t e g ic d iv i s ion of labo r amo n g or

gan i za t i ona l subun i ts w i th i n the or gan i za t iona l h i er ar c hy i s f r e qu en tl y

no t ea s il y m e t in pra c t ic e ; i t i s o f t e n d if f i cul t to ge t a c l ear p ic tur e

of th e thr e e l ev e l s of s tr a t e gy and w ho ar e r e s pon s ib l e f or wha t a s p e c ts .

O ur c on c ep tua l s c hem e f or p l ann in g w i ll a s on e of its ma j o r p r em i s e s be

ba s ed on an ut il i z a t ion of th e d iv i s ion of l abor tha t th i s s ha r p en ed

s tr a t e g i c foc u s pr ov id e s . Thu s , th e thr e e s tr a te g i c l ev e l s d i s t inc t ion

is cr i t ic a l in ou r p l ann in g s c h eme .

Le t us now turn to a d is c u s s io n of the o th er d imen s ion of ou r c on

c ep t u a l p l ann ing sc h eme ,

name l y wha t s e ems to be a r e l ev an t s e t of s ta ge s ,

or s t ep s , or p lann ing cy c l e s , for id en t if ic at io n of s tr a t e g ic op t ion s , for

na rrowi n g do w n th e s e o p t ion s , and f or mon i tor in g p r o gr e s s toward s s tr a teg y

ful f i l lmen t .
 four a s p e c ts of th e obj e c t iv e s - s e t t in g s ta g e . Th es e ar e an a s s e s smen t

of th e O pp or tun i t i e s and /o r thr e a t s fa c in g the cor p o ra t io n a s we l l a s i ts

'
var iou s bus in e s s e s , th e c ompar i so n O f on e s ow n p er f o rman c e c r i t er ia wi th

ava i l a b l e o ut s id e c r i t er ia f or wha t s e ems to be no rma l "

p er f orman c e to

be exp e c ted of comp arab l e or gan iz a t ion s , a de l in e a t io n of a s sump t ion s and

c on s tra in ts fo r ob j e c t iv e s - s e t t in g , i nc l ud in g a con s id er a t io n f or th e

ge nera l ec onomi c ou tl oo k , '

th e f i rm s f inan c ia l po s i t ion , a s we l l a s

s oc ia l and r e gula to ry fa c to r s , and f inal ly , a r e c on c il ia t ion wi th th e

p er so na l a s p ir a t ion and s ty l e of th e C.E 0 . . and h i s key man a g eme n t team .

Th e f ir s t a s p ec t of th e Ob j e c t iv e s - s e tt in g p ro c e s s , then , is to

a s s e s s the ra t iona l e f or th e s tr a t e g i c d ir e c t ion of th e f irm an d i t s

b us ine s s e s b y a s s e s s in g how to ta k e advan ta g e of e nv ironme n ta l O p p or t u

n i t i es and thr ea t s . Th i s sho ul d ta k e p la c e bo th at th e cor por a t e and a t th e

d iv i s iona l b us in e s s l ev e l s . Th e d iv i s iona l ta s k to s ear c h f or n ew O pp or

t u n i t i es and thr e a t s w i th in i t s bus in e s s wi l l ty p ic a l l y hav e thr e e a s

p ec t s . F ir s t , a s y s tema t i c a s s e s smen t sho ul d be ma d e of p o t en t ial d ev e l

opm en t s wi th r e g ard to the a t tra c t iv ene s s of the bus ine s s ; f or in s tanc e ,

wh ic h s e gmen ts of th e b us ine s s s e em to hav e th e b e s t growth po t en t ial ,

and wh ic h s e gmen t s s e em p ro n e to s l a c k en of f in th e fu t ur e . S e c ondl y ,

a s s e s sme n t s ho ul d be ma de w i th r e gard to th e d ev e l opme n t of one s'

own

’
bus in e s s comp e t i t iv e s tr en gth ; fo r in s ta nc e , wha t move s mi g ht be l ikel y

fr om p r e s ent and po t ent ia l c omp e ti to r s , g iv e n th e ir s tr eng th s and we a k

'
ne s s e s r e l a t iv e to on e s ow n . Th ir dl y , th e r i s ks of a fun dame n ta l br ea k

thr oug h of some so r t s hou l d be con s ider ed ,

s uc h a s an en t ir e l y n ew pr o

c e s s fo r ma k in g a p r oduc t , r ad i ca l s h i f t s in c on sumer b e hav io r or s udd en

raw ma t er ial shor ta g e s , th i s mi gh t en t ir e l y c han ge th e na tur e of th e

bus in e s s . We ar e of c our s e on v er y so f t gro und her e ; s c e nar io - bu i l d in g

an d tec hno lo g i c a l f or e c a s t in g ma y b e us e f ul too l s , b ut th e s e ar e typ ica l l y

 2 -2 3

"
amon g th e mo s t ar ty asp ec t of p l ann in g . A ga in , howeve r , th e pur p o s e i s

to a s s e s s th e s en s i t iv i ty of
"
ro b u s tn e s s of the d e gr e e of a t t ra c t ive n e s s

an d s a f e ty imp l i ed by th e s tr a t eg i c po s i t i on of th e b us in e s s .
I t sho ul d

be po in t ed ou t tha t th e s tr a t e g i c po s i t ion a s s e s sme n t mu s t be pr e c i s e

and s p e c if ic in te rms O f the mar k e t s and pr oduc t s a s we l l as th e c on c ep t s

f or c a r ry ing ou t b us in e s s . On e s houl d avo id d e f i n in g bu s in e s s s tr a t e gy

a t suc h a h i gh l ev e l of ab s tr a c t io n tha t i t b e c ome s me an in g l e s s , an i s su e

to be d i s c u s s ed f ur th er in C ha p t er Th r e e .

One comp any a t temp ted t o hav e i ts b u s ine s s e s add re s s the i s su e of

op e r at ion a l i z i ng the i r l on g- te rm p e r fo rma n c e a s p i r a t ion s by h av in g e a c h of

th em a t temp ti n g to f o rmu l a te a p i c tu r e of whe re the i r b us ine s s wo u ld b e a t

a g iv e n po int in t ime in th e f u tu r e , in th i s in s tanc e te n ye ar s ou t . Th e

b us i ne s s e s we re as k e d to a ttemp t to f o cu s on th e Op po r tun i ti e s and th re a ts

th at th ey s e e on the i r b us ine s s ho ri z on , and to exp l i c i tl y at t emp t to

d i sr e g ar d on e '
s own in t erna l s tr e ng th s and /o r we a kn e s s e s . I t wa s p o in t ed

out to the d iv i s ion s tha t th e na tur a l t end enc y m i g h t be to do j u s t th e

"
o p po s i te , an ex am p l e of men tal ex tr ap o l a t ion in to th e fu tur e ba s ed on

'
on e s pr e s en t b u s in e s s s i tua t ion . Th e dan g er of th i s , i t wa s p o in t ed ou t ,

wo ul d be to dev e l op a p i c tur e of th e f u tur e of th e b u s in e s s wh i c h woul d

b e b a s ed on th e mo r e or l e s s wi sh f u l a s s ump t io n tha t fu tur e O p p or tun i t i e s

an d /o r thr ea t s woul d be ba s ed on ex t en s ion s of th e pr e s en t . Hav in g at

temp t ed to ta k e a c on t ex t f r e e- "
l oo k a t th e fu tur e in te rms of th e Op

por t u n i t i e s and /o r thr e a t s s e e n , th e d iv i s io n wa s th en a s k ed to ass es s

wha t b ro ad ar e a s of c ha n g e th i s mi ght c a l l f or in o r de r to ma k e th e n ec

'
e s s a ry r eor i en ta t ion of on e s in t erna l s tr eng th s and we a kn e s s e s . I n th i s

in s tan c e , on e d iv i s ion , wh ic h ha p p ene d to b e in a p ar t ic ul a r s e gmen t of

th e comp u t er - ma nu f a c tur in g b u s in e s s , id en t i f i ed a n e e d to sub s tan t ial l y

s tr eng the n i ts ow n te c hno lo g i ca l ba s e in th e s emi conduc to r a r e a , wh ic h was

s e en a s c r i ti c al for go in g a f t er eme r g in g O p po r tun i t i e s wi th in an emer g in g

s e gmen t of th e min icomp u ter bu s in e s s . A ra p id move wa s d e t ermin ed to be

e s s en t ia l in o r de r to b u il d up a n ic h e v i s a v is on e s p er c i eve d comp e '

"
t i t ion , in or der to too l up fo r a mo r e a gg r e s s ive p er fo rman c e wi thin

th i s n i c he in the ma r k e t tha t the d iv i s ion had id en t i f i ed . I n par en th e s i s ,

the d iv is ion pro po s e d an a c qu i s i tion wh i c h wa s sub s e qu en tly ap p r oved and

c on summa t e d . Ne edl e s s to s ay , th i s typ e of a c q u is i t ion s was me r e l y a

move to dev e lo p a b e tter p roduc t l in e po s i t ion wi th in an ex i s t in g bus i

ne s s , fa s t er than thro u gh in t er na l d ev e l opmen t and in r e s po ns e to the

mor e a ggr e s s iv e p er f o rma nc e exp e c ta t ion s e s ta b l i sh ed . Th i s s hou l d no t

be conf us ed wi th th e ro l e f or ac qu i s i t ion s a s a way of ta k ing advan ta g e

of O p po r tun i t i e s and avo id in g tr e at s f or th e c or po r a t e l ev e l por t fo l io ,

an i s su e tha t we s ha l l now di s c us s .

Th e c orpo r a t e l ev e l ta s k of a s s e s s ing Op po r tun i t i e s and thr e at s

shoul d inc lud e a s a s s e s sme n t th e ava il a b i l i ty

"
of th e g ener al c l ima t e for

of n ew b us in e s s e s f or th e comp any to a c qu ir e , or , p r ob a b l y in r ar er in

s tan c e s , fo r n ew in t erna l bus in e s s gr ow t h op po r tun it i e s f or th e c o rpo r a te

l ev e l to dev el op in to a fu l l — b l own n ew d iv i s ion . P ar t O f th i s c o rp o r a t e

al t erna t ive bus in e s s O p por tun i ty ava i l a b i l i ty a s s e s sme n t pr o c edur e a l s o

invo lve s a s s e s s in g th e po t en t ia l for d ive s t i tur e of a g iven b u s in e s s .

It w il l of c ou r s e b e qu i te r ar e tha t an a c qu i s i t ion or a d ive s t i tur e

a c tua ll y ta k e s pl ac e , but th e pur p o s e of th i s p lann in g ac t ivi ty i s to

c arry ou t a sy s t ema t ic a s s e s sme n t of th e o ppo r tun i t i e s of th i s k ind on a

mo r e or l e s s con t inuou s b a s i s in or d e r to h e i ght en the al er tn e s s of wh e r e

"
th e c omp any r e al i s t ic a l l y m i gh t b e abl e to go in t e r ms O f up gr ad in g th e

por tf o l io of bu s ine s s e s . Th i s s houl d unde r s c or e tha t ther e sh oul d b e

r e al i s t ic a s s e s sme nt of p o ten t ial thr e a t to e a c h ex i s t in g b u s in e s s t oo ,

and tha t th ey hav e to r ep ea t ed l y e a rn th e ir p l ac e a s par t of th e c or

po r at e por tf o l io , g iv en th e eme r g in g pa tt er n of O p po r tun i t i e s f ac in g th e

comp any a t d i f f er en t po in t s in t ime . Th e no t ion tha t some

"
co r e "
b us i
n e s s s hou l d be ex p e c t ed to be tr e at ed a s pa r t of th e c omp any fo r ev e r

s ho ul d be r e s i s t ed h e nc e , the ongo in g a s s e s smen t of d iv e s t i tur e po

t en t i al s . Th e o vera l l r e su l t of th i s ,
as p e c t of th e ob j e c t iv e s - s e tt in g

pro c e s s is of cou r s e tha t exp e c ta t ion s abo ut wha t s ho ul d be r ea l i s t i c

O p po r tun i t i e s a nd /o r t hr e a t s a t th e c or po ra t e po r t fo l io l ev e l c a n be ap

pr op r i a t el y dev e l op e d .

M a ny c omp ani e s f a ll i n to th e tr ap of d ev e lo p ing th e i r no t io n of wha t

sh oul d be a r e as o na b l e s e t of lon g - te rm p e r f o rmanc e exp e c ta ti on s f or th e i r

comp any b a s ed to a l ar g e ex t ent on an

"
in te l le c tu a l ex tr apo l a tio n of the

f i rm ' s p e rf o rma n c e of th e pa s t . I ns t e ad , a l e s s inh i b i ted a s s e s sm e nt of

wh a t s e en to be r ea s ona b l e long - te rm O pp o r tuni ti e s and /o r th r e a t s sh ou ld

l e ad to
'
the f irm s ov e ral l p e r f ormanc e exp e c ta ti o n . To ke ep a c l o s e ey e on

wha t p e rf o rma nc e a s p i r ati on s o th e r comp an i e s s e em to be aimin g a t i s u se f u l

in th i s r e s p ec t . We s h a l l di s cus s th i s a s par t of ou r s e c ond g en er a l

is sue a b o ut th e o b j ec t iv e s - s e t t ing s ta ge .

Le t us now turn to t h e s e cond ma j o r as p ec t of o b j e c t ive s - s e t t in g ,

name ly th e d e s ir a b il i ty of c omp ar in g a c omp any s '

own t en ta t iv e c r i t er ia

fo r o b j ec t iv e s p er f o rm an c e wi th ava i lab l e ou t s ide p e r f o rma n c e c r i t er i a

tha t c omp ara b l e c or p or a t ion s and /o r b u s in e s s e s s e em to be p ur s u in g . A

f i r s t s te p for th e co rp or a t ion a s a who l e mi gh t be to c omp ar e it s e l f wi th

th e p er fo rman c e of s e l ec t ed o th er comp an i e s d e emed by ma na g em en t to be

r el a t iv e l y e q u al to on e s '
ow n comp any in te rms of su c h bus in e s s e s as s i z e

and typ e s of b u s in e s s invo lveme n ts . Comp ar a t iv e p e r f o rma n c e da t a can be

Indu s tr y , or s to c k ma r k e t r e po r ts . Th i s s hou l d s i gna l wh e th e r the

p er f orm a nc e of th e comp any a s a who l e s e ems r e a s onab l y up to p ar , or

wh e the r i t i s ou t s tand in g , a l t ern a t iv e ly la gg in g b eh ind . Th i s s houl d

'
g ive co rp o rat e ma n a gement an ind i c at ion a s to the s uc c e s s of th e comp any s

adap t ive a tt emp t s a s a who l e and whe ther or no t th er e s e ems to be an im

mi n en t ne ed to s tr en gth en the e f fo r t s to a da p t to the env ironmen t .

Fo r e ac h of th e par t i cul a r bus in e s s d iv i s ion s a s imil a r eval ua t ion

of
'
on e s p er f o rman c e c an now al so be ma de by ma k in g u s e of the so - c al l ed

PINS data b an k . Curr en tl y ove r 1 2 00

"
b us in e s s e s "
a r e con ta in ed in th e

d a ta b a s e , a "
b us ine s s b e in g
"
de f in ed in t erms of an O p e ra t in g un i t

s el l in g a d i s t in c t iv e s e t of pr odu c t s to a d i s t inc t iv e ma r k e t and wi th a

cl ea r l y i den tif ia b l e s e t of co m p e t i tor s , i . e. wha t we hav e d e no t ed an

SBU . A mul t i p l e r e gr e s s ion mo d e l i s us ed to d ia gno s e s tr at e g i e s a t th e

SBU l eve l , ind ic a t in g wha t wo ul d be a no rma l ROI f or an SBU in a p a r t i cul ar

s tra t e g i c po s i t ion ( in t erms of i ts ma r ke t s har e po s i t ion , growth , and so

"
on ) . Thu s , a d iv i s ion c an c omp ar e its own SBUs p er fo rman c e r e co r d

a ga in s t th e no rm , a ga in l e ad in g to p o t en t ia l iden t i f i ca t ion of b u s in e s s e s
tha t mi gh t be und er pr es sur e to im p r ov e on i ts adap ta t ion po s tur e to th e

env ironmen t .

Th e pr oc e s s of ma k in g ac qu i s i t ion s and /o r d iv e s t i tur e s mi gh t a l s o

s hed imp or tan t and us e f u l l i gh t on th e comp any own p er f o rma n c e c r i ter ia .

TO il l us tr a t e th e po s i t iv e ef f ec t s of an on go ing ac qu i s i t i on /d iv e s t i tu r e

as s e s smen t o n th e e s tab l i s hment

‘
of rea l i s ti c and O p er a tiona l ly u s e fu l

p e r fo rma nc e exp e c tatio ns as pa r t of th e p l ann in g p ro c e s s , on e h i gh l y

di ve r s i f i e d comp a ny w i th annual s a le s of ap prox ima te ly tw o b i l l i o n do l l ar s

mi gh t s e rve a s an examp l e Th i s comp any re c e ive s an av e ra ge of 12

“

.
 2 -2 7

ac q u i s i t ion l ead s p er we e k ( some of wh i c h b e in g r e l a t iv e ly pr e l im inary ,

Ot h er s co n s id er a b ly mor e d e ta il ed ) . A s e p ar a t e group wi th in th e c orp o r a t e

p lann in g d e par tmen t ma k e th e f ir s t s c r e en in g- ty p e an al y s i s and r e c om mend a t ion s

on th i s . R el at ive l y f ew l e ad s wi l l of cou r s e be fo l l owe d up f u r th e r , but

'
th e co rp o ra te p l ann in g dep ar tmen t s ac qu i s i ti on g roup p lay s a c e n tr al ro l e

in p r ov i di ng the con tinued ana ly t i c a l su p p o r t h er e t oo . Th e re s u l ts f rom

th i s a c t ivi ty a re tha t a h ea lth y no ti on of wha t mi ght be a re al i s t i c se t

of a l te rn a tive s f or mod i f y in g th e p re s e n t b u s ine s s p o r t f o l io wi th i ts th re e

g r oup s and 5 2 di vis ion s g e ts s ur f a c e d . The c ons tan t exp o sur e to ex te rna l

b us i ne s s Op po r tu ni ti e s and w ha t s e em to b e r e as on abl e p a tte rns of p e r f o rman c e

amo ng the s e hav e he i gh ten e d s e n i or manag emen t s a b i l i ty '

to ar ti c ul a te and

exp r e s s wha t the y f e e l a re re as o n a b l e s tra te g i c p e r f o rman c e s tand ard s f o r

i ts own b us i ne s s div i sion s . B e in g a b l e to dr aw on thi s ex te rn a l

"
da t a - b a s e

have inc r e as e d c orp o ra te ma na gemen t s c r e d i b i l i ty wi th i ts

'
fu r th e r s e ems to

div i s i ons when i t come s to commun i ca tin g and d i s cu s s in g i ts p er f o rman c e

exp e c ta tions w ith them . I n or de r to a ch i ev e th i s u s e fu l e f f e c t on th e

c o rp o ra te p lann in g pro c e s s , th en , a k ey f e a tur e s e ems to be tha t th e

ac q u i s i ti on an a l y s i s s up p or t fu nc tion i s r e s t in g e n ti r e ly wi th the co rp or at e

p lanni ng g rou p so th a t th i s l ea rn in g e f f e c t c an be in s ti l le d in to th e

p lann in g p ro c e s s . Th e c om monly found c or p or a t e p ra c t i c e of hav in g a s e p ar a t e

co rp or a t e a cqui s i t i on gr oup is le s s l i ke l y to b e a b le to p rov i de th i s

po s i t iv e e f f ec t . In p ar en th e s i s ,
su c h de t ac h ed gr oup s m i gh t a l s o f ac e th e pr o b ]

of no t fu l l y comp r eh endin g the p e r f o rma nc e ne e ds of th e co rp o ra te po r tf o l i o

p att e rn and th e s p e c i f i c di r e c ti ons towa rd s wh i ch th e po r tf o l i o shou l d

c han g e . Ac qu i s i t ion s tha t ar e s tr a t e g ic al ly d e ta c h ed f r om th e p or tf o l io

s tr a te gy mi ght be th e no t t oo uncom mon r e su l t .

 A th ird ma j o r as p e c t O f th e obj ec t iv e s — s e tt in g pha s e is to ma k e mor e

exp l ic i t and to c ommun ic a te a s e t of und e r l y i n g a s sump t ion s and con s tr a in t s

r e l evan t to wha t wil l b e a f ea s i b l e co r por a t e s tr a t e gy . Th e s e hav e a t

l ea s t f our a s p e c ts . F ir s t , the g en er a l e c onomic ou tl oo k s ho ul d be c on

s i d er e d a s a f a c to r tha t mig h t hav e a damp en ing or a s t imu la t ing ef f e c t

on
'
the f irm s obj e c t iv e s - s e t t in g in g ener al . Exp ec ta ti on s a b o u t the l on g

te rm d eve lo pmen ts of th e g en er al e c onomi c c l ima t e tr ad i t iona l ly p a y an im

'
por tan t r ol e in mod if y in g co rp or a t ion s O bj e c t iv e s . R e l a t iv e ly r e c en tl y

d ev e lo p ed n ew sour c e s of inf orm a t ion f or th e f irm to u s e in th i s r e s p ec t

ar e ec onom i c f or ec a s t i c mod e l s su c h a s th e DR I mod e l , th e Wha r ton mod e l

5
or the C ha s e Ec onome tr i c s mod e l . Th e s e mo d e l s e rv ic e s mi ght g iv e f or e c a s ts

of narr ower bu s in e s s s e gme n t s too , of p ar t icul ar r e l evanc e to spec if ic di

v i s ion s .

A s ec ond c l a s s of con s tr a in t s wo ul d b e to s ta t e c ommon a s sump t io n s

wi th r e ga rd to suc h i t ems a s in t er e s t r a t e , so c ial s e cur i ty exp end i tur e

r a t e s , tax ra t e s , c ur r enc y ra t e s , int erna l ov er head char g e s ,

and so on .

Th e pur po s e her e i s to s e e tha t p lan s can be d ev e l op ed on th e bas is of

com mon a s sump t ion s , so tha t th ey can b e c omp a r ed an d d i s c u s s ed on the ba s i s

O f s ub s tan t iv e s tra t e g i c i s su e s of c onc ern , no t bo gg ed down in qu e s t ion s

r el a t in g to th e pr emi s e s f or the p l an s

Th irdl y , th e f inan c ial c on s tr a in t s tha t the f i rm fa c e s s ho ul d be

made mo r e exp li ci t . Th i s r e l a t e s to th e unu s ed n ew f inan c in g c a p ac i ty

tha t th e company po s s e s s e s , the co s t of r a i s ing n ew c ap i ta l an d th e r a t e

of
'
d iv id end p ayou t s tha t i s b e in g a tt emp t ed . I t al s o relates to the f irm s

d ec i s ion w i th r e s p e c t to r e la t iv e empha s i s on pur su ing gr owth v er su s RO I ,

th e f o rme r typ ic a l l y b e in g a mo r e lon g- t erm o r i en ted typ e of goa l wh i l e th e

"
la tt er typ ic al ly b e in g mo r e s ho r t te rm o r i en ted in na tur e
-
. An O p t im a l
p lannin g a s s ump tions muc h of th i s confu s io n di s ap p e ar ed and the re wa s a

b e tte r b as i s fo r di s cus s i on of wha t mi g h t be su b s tan tive ma tter s of

d i s a g re eme nt . Th e corpo r a te p lannin g as sump ti ons d o cumen t con ta ined th e

f o l low in g e l eme nts

a co rp or a te c r eed , s ta ti n g i n b r o ad te rms wha t typ e of compa ny

i t was s tr iv in g to be . Th i s c r ee d was p ar tly b as e d on th e

r e s ul ts f rom a survey a b ou t h ow s ev e r al l ev e l s of ma na g emen t

we r e s e e i ng th e i r comp a ny .

a set of p r i nc i p l e s wi th r e g a rd to mo de s of e th i c al ly a c ce p ta b l e

b us i ne s s condu c t and s o c ia l r e s pon s i b i li ty .

a set of d e f i ni t i on s of te rms . S ome of the s e we r e v e rb a l ,

whi le o the r s ind i c a ted uni fo rm ways of me a su rin g qu ant i ta tiv e

p h e nom ena e ( s uch a s how to me as ur e r e l a tiv e mark e t sh are ) .

'
a set of e conomi c a s sump ti ons f rom th e co rpo r a te e co nomi s t s

o f fi ce wh i ch ind i ca ted wh a t d i s cou n t ra te s to u s e in ne t

p e r cen t va lu e cal cu la tio ns , wha t annua l p er c e nta g e in cr e as e

ra te to us e f o r i t ems su ch as wa g e s a nd ene r gy , and wh i ch

cu rr e ncy exchan g e r a tes to ma ke u s e O f . Th e corp or a te

'
e co nomis t s as s e s sme nts we r e r ev i s e d ev e ry ye a r , and wa s

r ev iewed and ap p rov ed by the ch i e f ex e cu tiv e O f f i c e r .

Th e four th and f ina l c la s s of is su e s w i th r e s p ec t to the ob j e c t iv e s

s e tt in g pr oc e s s r el at e s to the r ol e of the C E O . . . and h i s k ey l in e ma na ger s .

Th e Obj ec t ive s - s e tt in g s ta ge pr ov id e s a ve h ic l e f or the C E 0 . . . and th e d i

v i s ion mana ger s to be e xp l ic i t abou t th e ir a s p ira t ion s f or th e ir or gan i z a t i on

Wh a t is th e na tu r e of the r i s k they ar e wil l ing to ta ke f or t h e ir or gan iz a

t iona l c l ima t e in the c omp any in te r ms of wha t s e ems to be a min imum

to l er a b l e p er fo rma n c e exp e c ta t io n ? H ow can we be mo r e exp l ic i t a b out wha t

is an a c c ep ta b l e o r g an i za t iona l no t io n O f wha t s een to be pr e f err ed di r e c

t ion s t o go ?

Fo r i n s tan c e , whe n we contr a s t a we l l e s ta b l i s he d f i rm wi th i n a

r e l a tiv e ly ma tu r e b u s ine s s , s ay , a ceme n t ma nu f a c tu r in g comp any wi th a

r e l a t iv e ly new , ex tr eme ly rap id ly g rowi ng comp any wi th in an eme r g in g h i gh

te ch no log y b u s i ne s s a r ea , we mi gh t pr o b a b ly ( a t l e as t imp l i c i t ly ) f ind

s i g ni f i c ant di f f e re nc e s i n th e ma na g emen ts '

a s p i r at i ons : by tr adi ti on

r e l a t iv e ly l i ttl e wi ll ing ne s s to ta k e new r i s k s , s ay , by d iv e r s i f y in g in t o

new b us in es s ar ea s in the f ir s t c as e v er su s mu ch mo re of a r e ad i ne s s to go

a f te r new eme rg ing s tr ate g i c op p or tuni ti e s in th e la t te r ; a c c ep tanc e of

r e la tiv e ly com f or ta b l e and l e s s c ha l l eng in g p e r fo rmanc e l ev e l s v e r s u s s tr ive

for ev e n mo r e r ap id g r ow th and in cr e a s e in p r o f i ts amb i ti ons . Th i s

as p i r at ions r e l a te d as p e c t
- of
'
a f i rm s o r gani z a t iona l c l ima te i s h i gh l y

r e l evan t fo r s tr i k i ng a re a l i s ti c and u s e f u l p lann ing d i r e c ti on . Undo u b te d ly ,

we a r e h e r e d e a l i ng wi th imp or tan t co ns tr a i n ts in te rms of s e t t i ng r ea l i s ti c

a sp i ra t ion s f or wha t i s the r e l evan t p o ten ti a l f o r s tra te g i c ch an g e .

R e c o gn i z i ng th is exp l i c i tl y in th e p l ann in g p ro c e s s doe s of c our s e no t m ea n

th a t p l ann i n g do e s no t have a mi s s i on to a ttemp t to imp rov e l a c k lu s te r

as p i r a t io ns . R a the r , i t imp l i e s th a t one s hou ld a ttemp t to b e r e as ona b ly

exp l i c i t ab ou t th e r e a l i s t i c po te n t i a l f o r chan g e in s tr ate g i c th i n k in g

The p e rva s iv e i n f l ue nc e of a C E O
. . . in pa r t icul ar , w ho m i gh t h ap p e n to b e

an ex tr eme l y s tro ng - wil l ed ind iv idua l who s e e s Ob s ta c l e s a s cha l l en ge s and

enj o y s pur su ing un or thodox op po r tun i t i e s , i s pr o b a b ly an extr eme l y in f luen t ia l

d e t er min an t of th e c ho i c e of o b j ec t iv e s .
 B e fo re con c lud in g ou r d i s cu s s i on of th e o b j e c tiv e s - s e t ti n g s ta g e , l e t us

b ri e f ly di s c us s th e dis tin c t i ons b e twe e n tw o no tio ns th a t h av e be come

e s tab l i sh e d i n th e te rmino lo gy of p l annin g , name l y wha t do we mean wi th a

g g al ve rs us an o b j e c tiv e ? O bj e c tiv e s , in th e te rm ino lo gy of th i s boo k , are

mo re g enera l s ta temen ts abo u t a di r e c tio n wher e th e f irm inte nds to go ,

wi tho u t s ta ting sp e c i f i c ta r ge ts to be r e a che d by p a r ti cu l ar p o in ts in time .

A g oa l , on th e o the r ha nd , is mu ch mo r e s p e c i f i c , ind i c a t in g wh e re on e

i nt end s to be a t a g iven p o in t i n time . A g oa l thu s i s an op e ra tiona l

tr an s fo rma t ion of an O bj e c t iv e ; typ ic al ly a ge ner al ob j ec t iv e O f t en g e t s

trans f o rme d into s ev e ral sp e c if i c go al s .

I t is impor tan t no t to l e t s eman ti c s bl ock '

o ne s u s e of th e go a l s an d

O b j e c tive s no ti ons . F i rs t , i t shou ld be no ti c ed th a t s om e p e r so ns us e th e

wor d s i nte rchang eab ly , or s ome la b e l th e mo re g e ne ra l d ir e c tio n - s e tt i ng

O b j e c tiv e
" " " "
exp re s s ion a s a g oa l and th e mo re sp e c i f i c targ e ts an , exa c t ly

con tr a ry to th e us e of th e wo rds tha t we have pr op o s ed a b ove . Ev e r y o r ga

n i za t i on shou l d of co ur s e b e en t ir e ly f r e e to us e the lab e ls i t choo s e s ; howev e r ,

i t sho ul d b e con s is ten t in its us e of th e tw o wo r d s . A mo r e imp or tan t

O b j e c t ion ab ou t th e us e of th e tw o wo rd s , howeve r , i s th e f a c t th a t th ey

t end to di cho tomi z e wh en we are de al i ng wi th on e de c i s io n - ma k i n g p ro c e s s i n

whi ch the emp ha s i s shou l d be on th e tr ans f o rma tion f rom g ene r al to sp e c i f i c .

Thus , we a re de a li ng wi th an Ob j e c t i ves /g oa ls - s e ttin g p ro c e s s i n wh i ch we

empha s i z e b o th g ener a l and sp e c i f i c e lemen ts . Th e ob e c t i ve s

j /go a l s - s e t tin g

s ta g e i s thu s on e s te p , no t tw o . Th e ou tpu t f rom th i s s tep wi l l b e a s e t

of ob j e c t ive s , tran s fo rmed in to mo r e s p ec i f i c go a l s , sp ec i f i c enou gh in t e rms

o f n on - f inan c ial a s we ll a s f inan c ia l d e ta i l to p rov id e an op era t iona l bas is

and f o cus f o r the sub s e qu en t or gan i z a t ional e f f o r t of d ev e lo p in g s tra t e g i c
pr o grams f or h ow t o ach i ev e th e ob j e c t iv e s and go al s . Th e s tr a t e g ic

pr og r am min g ta s k w il l be d i s c u s s e d in th e n ex t s ec t ion . Ano th er ind i c a t ion

of th e d e gr e e of s p e c i f ic i ty n e ed ed a t th e pr e s en t s ta g e i s tha t su b s e qu en tl y

we mu s t b e ab l e to mea sur e pr o gr e s s towa r d s the go a l s , on e O f th e in t en ts

of the mon i to r ing s ta g e .

I n summa ry , th e ob j e c t i v e s — s e t t in g s ta g e s e rv e s a v e ry im po r tan t pu r

po s e i n the p l a nn ing pr o c e s s in tha t i t f ac i l i ta t e s a c r e at iv e , ima g ina t iv e

ad a p t iv e f ocu s on e nv iro nme n ta l O p p or tun i t i e s and thr ea ts . Un l e s s th i s

s t ep of id en t if y i ng and d o in g a f ir s t so r t in g of th e ma j o r r e l ev an t s tr a

t ag i o O p t ion s is ap pr o p r ia t e l y ex ecu t ed th e en t ir e r e s t of th e p l ann in g

pro c e s s i s l i k e ly to mor e or l e s s r e s emb l e an ex tr ap o l a t iv e ex er c i s e . Th e r e

w il l o f c our s e be a la r g e e l emen t of in tu i t iv e manag er ia l ta l e n t b e h ind th e

s e tt in g of ima g ina t iv e o b j e c t iv e s . Howev e r , we hav e r ec om me nd ed tha t i t i s

u s e f ul to pa y s p ec i f i c a t t e n t i on to th e f o l lo wi ng four c l a s s e s of i s su e s

whe n d ev e l op ing o b j ec t iv e s : a t hor o u gh a s s e s sme n t of th e op por tun i t i e s

a nd /o r thr ea t s fa c in g th e c omp any and ea c h of its b u s ine s s e s , th e e s ta b

l i s hm en t of ou t s id e and r e la t iv e ly o b j ec t iv e c r i t er ia f or a s s e s s ing th e c om

pany
'
s an d i ts d iv i s ion s l ev e l s of p e r f orm a nc e , the d e l in ea t ion of va r iou s

c la s s e s of con s tr a i nt s tha t ne ed to be O b s erv ed wh en d ev e l op in g o b j e c t iv e s ,

and , f ina l l y , an ex p l i c i t r e c o gn i t io n of t he p e rva s iv e inf lu en c e of th e

C E O
. . . on wh e th er th e o b j e ct iv e s w il l b e ma r k ed by exc e l l enc e or med io c r i ty .

4 -2 . S tr a te gic P ro gram min g

Th e s e c on d s ta ge o f th e p la nn in g p ro c e s s r e la t e s
-
to th e d ev e lo pmen t of

s tr a te g ic pr ogr ams for a c h i ev ing th e c ho s e n Obj e c t iv e s , or we hav e d e

c id ed d ur in g the pr ev iou s o b j e c t iv e s s e tt in g s t ep -
"
wh er e we int end ed to go ;

"
now th e i s su e i s th e how to g e t ther e ex e cu t ion of th e s tr a t e g i c p r o g r am

ming pr oc e s s ta ke s p l a c e pr ima r i l y a t th e fun c t iona l l ev e l s w i th in ea c h of

t he ex is t in g b us ine s s d iv i s ion s . Th e in t en t and empha s i s is on d ev e lo p in g

lon g- term pro gr ams fo r a c h i ev in g in t erna l growt h . A s e p ar a t e , co r p or a t e l ev el

set of pro grams mi gh t de a l wi th a c q u i s i t io n and /o r d iv e s t i tu r e s an d /o r n ew

b u s in e s s dev e lo pmen t tha t f al l ou t s id e th e c ha r t er s of the e x is t ing bus i

n e s s e s ; we shal l d i s cu s s th is a f t er hav in g gon e thro u gh thr e e a sp e c t s of

in t erna l gr owth pr o gr amm ing . We sha l l f ir s t d i s c u s s wha t s e em to be s ome

of th e b a s ic c ha ra c t er i s t i c s of s tr a t e g i c pr o gr am ming , bo th in g en er a l as

we l l a s mo r e sp e c if ic al l y fo r four d i f f er e n t typ e s of s tr a t e g ic p r o gr ams

tha t we have id en t i f i ed . Th en we s ha l l d i s c u s s th e n e ed f o r eva lua t in g th e

ma tc h b e twe en th e s en s e of d ir e c t io n a c tua l l y p rov id ed by a par t ic u l ar s tr a

t e gi c pr o gr am and th e s tr a t eg ic go al s tha t th e pr o gram i s int end ed to h el p

ful f il l . Th e f ina l a s p e c t of ou r d i s c u s s i on of s tr a t e g i c pro gr am min g a t th e

fun c t ional l ev e l s wi th in th e bu s ine s s e s s ha l l de al wi th th e ne ed to util iz e

'
on e s s p ec ial i z ed fun c t i ona l human r e s our c e s in su c h pr ogr ams wher e th i s

sc ar c e r e s our c e wh ic h is so c r i t ic al in th e s tr a t e g ic pr o gra m min g c on t ext

c an b e uti l i z e d a s mean in g fu l l y as po s s ib l e .

As a f ir s t a s p ec t of s tr at e g ic pr o gram min g a t th e fun c t iona l l ev e l s

“

wi th in the b u s ine s s e s of th e f i rm , we s ha l l s tr e s s tha t the s tr a t e g i c p r o

gr ammin g p ro c e s s po s e s in tel l ec tua l cha l l en g e s , c a l l in g f or ima g ina t io n ,

s k il l and pr o f e s s ional i sm . S tra t e g i c p ro gram s c anno t b e h eav i ly ba s ed on

pa s t exp er i enc e ; they a r e un i qu e , and th e c ha l l en g e i s to a tta c k u n s tr u c

t u r ed pr o b l ems in an im a g ina t iv e way . Typ ic al ly s tra t e g i c p ro gr ams ar e

in t er f u nc t i ona l in th e ir na tur e , r e qu ir in g c oor d ina ted input s from d i f f er en t

func t ion s , suc h a s R D, ma nu f a c tur in g , d i s tr i b ut ion and ma r ke t in g . Th e

s tr a t e g ic pr o gr ammin g a c t iv ity a l s o typ ica l ly go e s on al l year aro und ; i t

is a c on t inuou s pro c e s s . I nf orm a l e l em en ts of c om mun i ca t ion and int er a c t ion

ar e par t ic u lar l y impor ta n t , abo ve al l a t the in i t ia t in g s ta g e s . Th e

annua l l y r e c urr in g co r p or at e p la nn in g pro c e s s add s to th e s tr a t e g ic p r o

gr am mi ng pr oc e s s in suc h a way tha t i t r e qu ir e s tha t th e s ta tu s of th e

pro gr ams be wr i t t en down on c e a y ea r , th er e b y prov id in g an exp l i c i tn e s s

"
or inv en to ry as to th e s ta tu s of th e va r iou s s tra t e g ic p r o gr ams in pro c e s s

a t tha t po i n t in t im e .

Giv en th at the r e typ i c al l y w i l l be a la rg e , d ive r s e and uni qu e s e t

of s t r ate g i c p ro g r ams f o r any c omp any a t a g iv e n p o in t in time , it is

d i f f i cul t to g iv e u s e fu l g e ne ra l ex amp l e s . Howev e r , th e p r og r am a c tiv i ti e s

6
s e em to f al l into th e fo l l owi ng b ro ad ar ea s .

a) Exi s ti n g r evenue p ro g r ams . O ne examp l e of th i s mig h t be th e

deve l opme nt of a se t of ma r k e tin g p r o g rams f or th e e xi s t in g

p r o d u c t l ine . Typ i cal l y , th i s wi l l imp ly a h e av y inv o lv eme nt

by th e ma r k e t i n g de pa r tment in wo rkin g ou t the b as i c c on cep ts

o f th e p r og ram , s u ch a s adv e r t i s in g th eme and s e l l in g app r oa ch .

H oweve r , o th e r fun c tion a l dep ar tmen ts , s u ch as p rodu c ti on and /or

di s tri b uti on al s o typ i cal l y wi l l be invo lv ed in o rde r to

fa c i l i ta t e th e ava i l a b i l i ty of th e p rodu c ts a t th e ri gh t p la c e

and time . Ano th e r examp l e mi gh t be th e dev e lopme nt of an

imp r oved p rodu c t , wh i ch mi gh t be p e rc e ive d as ne c e s s a ry by th e

ma r k e ting dep a r tme n t bu t wh i ch mi ght invo lv e the re s e a r ch and

deve lo pme n t fun c t io n s as we l l as p rodu c ti on t oo . In b o th

in s t anc e s th e ne c e s s ary f unc tion a l s k i l l s ne e d to be mo b i l i z e d

to me e t th e r e q ui r emen ts of th e p a r t i cu l a r pr o gr am . Co o pe ra ti on

e s s en t i al A l t h o u gh ma y b
am o n g fun c t iona l sp e c ia l i s t s is e
t he
.

a t oo s tron g g en er a l i z a t i on th i s ty p e of s tr a t e g i c pr o gr ams

'
on
t end s to fo cu s on h ow t o mo d i f y an d imp r ov e on e s produ c t s

o r s ervi c e s in an e f f o rt to ada p t to em er g in g env ironm en ta l

pr e s sur e s suc h a s pur su ing new o p p o r t u n i t i es or r e s po nd in g to

, l
thr ea t s .
Thu s , th e s e pro gr ams ar e pr ima r il y a imed a t impr ov in g

th e ef f e c t iv en e s s of e x i s t in g SEU s tra te g i e s .

New rev e nue p ro grams . On e examp l e of th i s mi ght b e th e p lann in g

and d ev e l opmen t of new p ro du c ts wi th in th e g e ner a l bus i ne s s a re a

o f a div i s ion . He r e typ i c al ly the re wi l l be a ne e d f or th e

invo lvemen t of a b roa de r s e t of fun c ti onal s k i l l s th an O f t en

mi gh t be th e c as e in ex i s t in g r eve nu e p ro gr am dev e l opm ent s .

Al s o , g iv e n th a t the unc e r ta i n ty typ i ca ll y wi l l be h i ghe r wi th

s uch a p ro g ram ,
ma k i n g i t d if f i cu l t to s p e c i f y th e ex a c t na tur e

of
'
e a ch func ti on s i nvo lveme n t , it b e come s p ar ti cu la r ly imp or tan t

th a t s u ch p ro grams ge t ma na ge d on s uch a b a s i s th a t a cro s s

fun ct iona l and p r oj e c t - f o cu s e d emph as i s c an be ma int ai ne d . We

s ha l l di s cus s asp e c t s of h ow to op e r at i on al i z e th i s l at e r , and

s e e th e c r i ti c a l impo r t an c e of a p ro g r am f o cus p a rt i cu l a r ly wh en

i t come s to tak in g d e ci s i on s wi th re gard to maj or ch an ge s in i ts

d i r ec t i on , d i s con t i nua t i on or s c a l in g up . I n gen era l we m i gh t

sa y tha t th i s s tr a t e g ic p r o gr am typ e to o i s c en ter e d ar ound

ado p t in g to env ironmen ta l op por tun it i e s and /o r thr ea t s by d ev e l

Op ing n ew pr oduc t s and /o r s e rv ic e s , o f t en fo r new ma r k e t n i ch e s .

Thu s , th e thrus t of th e s e s tr a t e g i c p ro gr am s tend s to be to de

v e l op n ew , e f f e c t iv e SB U s tr a t e g i e s .

imp rov ement p ro grams . On e be

’

Ef f i c i en cy examp l e of th i s mi gh t

"
a p ro g r am to s tr eaml in e th e pr o du c t i on /di s t r i b u t i on pro ces s ,

so th a t th e pr odu cti on runs b e c ome mo re e c onomi c a l and tha t

inv ento ri e s mi gh t b e tr i m me d as we l l . Th i s mi gh t no t on ly

inv o lve the p rodu c ti on and d i s tr ibu tion de p ar tment b u t mi gh t a l s o

r e qu i r e en g ine e r in g inpu ts in re de s i gn in g the p rodu c t l ine ,

'
marke tin g s inpu ts i n ha rmo ni z in g th e new p r o gram wi th the i r

ne e ds , R& D f o r mod i fy in g the p rodu c t it s e l f so th at i t can be

con c ern s , ho wev er , emp ha s i z e s th e ov er a ll s tr a t e g i c f i t a s suc h . A pr o

gr am mi gh t r epr e s en t trul y innova t iv e r e s ea r c h b r e a k thro u ghs w i thou t

con tr ibu t in g toward s th e d ev e lopmen t of a n ew p roduc t f or a p ar t i cu la r

ma r k e t n ic h e a s ho p ed f or . Th e mar k e t po ten t ia l may in f ac t be ent ir e ly

l a c k in g . S imi lar l y , a pro duc t ion exp an s ion pr o gr am mi g ht ma k e s ens e f rom

a produc t ion e f f i c i enc y po in t of v i ew , al t hou gh th e ma r ke t f or th e ex

pa nded pr oduc t ion mi gh t b e la c k in g . To c omp l em en t th e o f t en pa r t i al

ro l e s of th e func t iona l mana ger s , i t i s imp or tan t tha t th e d iv i s io n man

a g er ap p ly h i s g eneral mana g emen t v i ewp o in t to th e eval ua t ion of s tr a t e g i c

pro gr am a l t er na t ive s . I t w il l be on e of his k ey ta s k s to ma k e a pr op er

s e l e c t io n of pro g r am a l t e rn a t iv e s in su c h a way tha t th e b u s in e s s pr o

c eeds a s in t end ed towa r d s th e s ta t ed o b j e c t iv e s .

Th e a s s uran ce of s tra te g i c f o cu s of th e s tr ate g i c p ro gramming a c tiv i ti e s

is no t e as y to a ch i eve . We sha l l d i s cu s s ap p ro a ch e s to th i s l a te r i n th e

b o ok ; howeve r , a r ath e r invo lv e d e x amp l e to i l lus tr at e the natu r e of th e

tas k mi gh t b e b en e f i ci a l to di s cu s s a t th i s s ta ge . We sh al l th e r e f or e s e e

ho w the pha rma c eu t ic al d i v i s ion of a h i ghl y d iv er s i f i ed comp any , h eav il y

dep end en t on it s R&D fun c t ion , ap p ro ac h e s th i s . Fo r su c h a b u s in e s s

wh ic h w il l be h eav i ly R & D- in t ens iv e r el a t iv e to b us in e s s e s in mo s t o t h er

indu s tr i e s i t s e ems pa ramoun t th a t ma j or d e c is ion s ta k en w i th in the R &D

f un c t ion '
s doma in ar e r e so lv ed con s i s t en t wi th th e p ha rma c eut i c a l s bu s i
n es s s tr a te gy . I t is par t icul ar ly n e c e s s ary to int e gr a t e R & D p l ann in g

c lo s e ly wi th o th er fun c t ion s so tha t th e pro gr am s f i t in th e ov er a l l bu s i

n e s s p la n , in orde r tha t th e s tr a t e gi c thru s t of R &D wi l l pr ov id e the n ec

e s s ary inpu ts for the imp l emen ta ti on of th e s tra t e g ic p ro gr am s of th e

b u s in e s s and al so to enab l e th e d e gr e e of r i s k- ta k in g wi th in R &D to be

c on s i s t en t w i th th e r i s k- ta k ing po s tur e of th e obj e c t ive s of th e phar

ma c e u t i c a l bu s in e s s a s a whol e .
 As a p ro gr am of dev e lo p in g a n ew d ru g p r o c e ed s thro u gh the s ta ge s O f

gr a d ua l c omp l e tion ide a s - f e a s i b i l i ty c h e c k dev e lo pmen t p i lo t s ta g e

s em ic om mer c ia l s ta g e c omm e r c ia l s ta g e two c r i t i c a l i s s u e s em er g e

s hou ld we do th i s pr o gr am a ll to g e th er do e s i t hav e th e d e s ir ed

s t r a t e g ic p o t en t ial ?

is th e l i k el iho o d of comme r c ia l s u c ce s s h i gh enou g h so tha t we

mi ght c on t inu e inv e s t in g in th e s tr a t e g ic p r o gr am ?

Th e d i l emma of th e l at t e r d e c i s ion , i . e. , of whe the r to con t inu e wi th a

pro g r am or no t , s t ems l a r g e ly fr om th e a go n i z in g j ud gme n t tha t ha s to be

ma de wi th r e g ar d s to wh e th er th e add ed co s t s inc ur r e d c an be exp e c t ed to

y i el d enou gh p ro g r e s s toward s r edu c ing th e r i s k of c omm e r i c ia l f a i l ur e .

Trade - of f c on s ide ra t i on s of th i s k ind w il l be c en tr al to th e s tr a t eg ic

pr og rammi ng pro c e s s .

In o r der to a s s e s s th e s tr a t e g i c im pa c t of a n ew pr o gr am , th e p har

ma c eu t i c al comp any r a i s e s thr e e c l a s s e s of q ue s t ion s a s p ar t of i t s s tr a

t e gi c pro g r ammi ng pr oc e s s

1 . Do e s th e c on t emp la t e d p ro gr am con tr ibu te toward s e s ta b l i s h in g f or

d i v i s ion a b us in e s s s e gme n t th a t it woul d be goo d to be in ?

2 . H ow do e s t he thru s t of th e s tr a t e g i c pr o gr am imp ac t th e in t end ed

outp u ts , i . e. , h ow is i t exp e c t ed to l e ad to mo d i f i ed or n ew

p ro d uc t s t ha t f i t in ou r own b us i n e s s ac t iv i t i es ?

3 . Do e s t he d iv i s ion have its own fun c t iona l cap a b i l i t i e s to s o lv e

t he pr o gr am mi n g i s s u e s a t hand , a b ov e a l l th e t ec hn ic al R &D

cap a b il i ti e s ?

B e fo r e a t temp t in g to an swer any of th e s e thr e e is su e s th e d iv i s ion

ma na gemen t a t t emp ts to a s s e s s the impo r tan t im p l i c i t t e c hn i c a l /s c i en t i f i c

r i s ks of s tr a t e g ic pr o grams . A fo rma l l i s t of a s s e s smen t f ac to r s sh ou ld

be deve lo p ed f or th i s . El s ewi s e it i s ea s y to
"
ex c l ude
"
th s s c i en t i f i c
 '
r e s e a r ch s ta f f s inpu ts fr om th e ov era l l a s s e s smen t of th e pro gr am . In

t e rms of a s s e s s in g the gen er a l b us in es s goodn e s s pro p er t i e s of a p ro gr am

we mi gh t a s k th e fo ll owi n g que s t ion s ( the d iv i s ion shou l d of cou r s e alr e ady

know the an swer s to t he b e low qu e s t ion s f or i ts b us in e s s s e gmen ts a l r e ady

in ex i s t enc e )

i . I s th e comme r c i al sa l e s po t en t ia l s i gnif i c an t or qu i te l imi t ed ?

?
ii . Wh a t i s the p ot e n t ial annua l gr owth r a t e

iii . Wha t i s th e r i s k of s urp r i s e f a c to r ob s ol e s c e nc e ? "

In cas e of

va r i ous ne ga tiv e dev e lopmen ts f or the p r odu c t do we h ave

a l te rn ative ways of ma kin g po te nti al com mer c i al us e of th e p ro j e c t ?

Fo r ins tance , a mod i f i c a ti on wh i ch had b e en po s i ti one d wi th in the

r e l at iv ely mor e ma tu r e l o c a l ane s th e ti cs s e gme n t tu rn ed ou t to

h av e us e fu l ap p l i c at i on as a me di ca t ion to re s tore he a rt arrhy thmi a ,

a r e la tive l y f as te r g rowin g ma rk e t .

iv . Wh a t is ou r p ro t e c t iv e r e s ear ch - b a s e po s i t ion v i s a v i s

comp e ti to rs ? H ow fa s t mig h t comp e ti to rs r e a c t ? Wh a t wou ld be

th e s treng th of a p a ten t po s i ti on ? Wh at i s th e de g re e of

"
ex clus ivi ty of k nowl edg e ab out the te chno l o gy ? ( Al te rna tiv e ly ,

i s th e te chno lo gy wi de ly s ha re d ? ) Fo r in s t an c e , p a ten ts an d

S p e ci a li z e d know — h ow h as g iv en on e ph arma ce u ti c al co rp o rati on a

v i r tual mo nop o l y w i th in th e li gh t tran qui l i z e r mark e t . Wi th th e

exp ir a t ion of th e p a t en ts , howev e r ; i t i s qu e s tionabl e whe th er

th i s domi nan c e can be ma in ta in e d . A p a ten t po s i t ion doe s , h owev e r ,

no t s e em to yi e ld the s ame p ro te c t i on in a l l coun tr i e s ; in s ome

 coun tr ie s , no ta b l y , th e re i s l i tt l e re in fo r c eme n t to p r eve n t

C o p yi n g . I s sue s of th es e k i nd s wi l l be imp o r tan t f or as s e s s in g

the contr i b u ti on of an R& D e f f o rt to e s ta b l i s h a s tra te g i c

p os i t io n .

v . Wha t a r e the op po r tun i t i e s to hav e a ma j o r r e s tru c tur in g imp ac t

on comp e ti ti on an d on the who le indu s tr y ? Th e adv en t of th e

di g i tal and s emi condu c to r - te chno l o g i es , for ins tanc e , h ad p r o found

im p a c ts on th e c omp e t i tive b a lan c e wi th in th e wa t ch in d us try and

the c al cu la to r indu s try , inde e d th e s e in d u s tr i e s are en ti r e ly

di f f e re n t in na tu r e tod ay ( comp e ti to r s ,
mar k e t ing ou tl e ts ,

p ri ce s ,

vi . Wha t S p e c ial env ironm en ta l f ac to r s m ig h t be s ig n i f i c an t in j ud g in g

t he go odn e s s of th e pro g r am , s u c h a s e co lo gy , en er gy , po l i t i c a l or

g eo g r ap h i c a l i s su e s , an d a b o ve al l , t i g ht er tha n no rm a l g ov e rn

men tal s a f e ty p r oc e dur e s f or n ew d ru g te s t in g ?

A dd r e s s in g now the na tu r e O f th e po t en t ial s tr a t e g ic f i t of th e

pro g r am w ith th e pr e s en t b u s in e s s e s we m i gh t a s k th e f ol low ing s e t of

q u e s t io n s
i . How mu ch ca p i ta l i s ne ed e d? I s th e ma gn i tud e of th e c ap i ta l

r e q u ir emen t so l ar g e tha t we mo s t l i k e ly wi l l be una b l e to car ry

ou t t h e p ro j ec t ? Ano the r qu e s t ion r e la t ing to c ap i ta l n e ed s

wo u l d be wh e th er th e inv e s tm en t n e ed ed i s l ar ge enou gh to pr ov id e

a b ar r i er . t o e n try pro t e c t ion fr om o th er c oun tr i e s . A t h ir d

r e la te d i s su e i s to a s s e s s th e pa t t ern s of th e exp e c t ed n e ga t iv e

and p o s i t iv e fund s f l ows a s s o c ia t e d w i th th e s tr a t e g i c p r o gr am s ,

so tha t th e m a gn i tude of th e ba l an c e b e twe en th e n e ga t iv e and

po s i t iv e fund s f l ow s c an b e j ud ged dur in g va r i ou s s ta ge s of th e

'
pr o gr am s d ev e l opmen t .
 ii . DO we have th e ih- hou s e ma r k e t in g c ap ab il i t i e s fo r r e la t ive ly

im med ia t e co m mer c ia l i z a t ion of th e pr oduc t , or wo ul d i t ta k e t ime

to d ev e l op th e r e l ev an t mar k e tin g cap a b i l i t i e s throu gh e s tab l i s h in g

n ew ma r k e t n i c h e s ?

iii . Do we hav e the n ec e s sa ry ma nu f a ctur in g ca pa b i l i t i e s , or do we

n e ed to dev e l op th e s e ?

iv . Wou l d th e r e be po t en tial s f or raw ma t er ia l s shor ta ge s , and in

c a s e , woul d th er e b e sub s t ituta b i l i ty po t en t ia l s ?

v . I s th er e a c hamp ion f or th e pro j e c t in th e o r gan i z a t io n ? It

s e ems impo rtan t tha t the r e i s a c r ed i b l e p er so n i n th e or g ani z a ti on

who b e l i eve s i n and pus he s "

th e p ro j e c t . Th i s p o i nt is p r ob ab ly

'
a cr i ti c a l o ne fo r a n o r g ani z a tio n s ab i l i ty to a c tua l l y de l iv e r

innov a tiv e , op er a tio na l new p roduc t ou tpu ts , but it ma y al s o p o s e

a di l e mna . The v e s ted i nte r e s t tha t th e c hamp ion m i gh t d ev e l op

in th e pro g r am mi gh t j eo pa rd i z e h i s j u dgme n t wh en i t come s to

'
de ci s ions c a l l i ng f or s i gn if i can t chan g e s in th e p ro gr am s s ta tu s ,

a b andonme nt d e c i s ions i n p ar ti cul a r . A f o rma l i z ed s tra te g i c

r ev i ew a pp roa ch s uc h a s th e o ne we hav e j u s t di s cus s ed i s p ro b a b l y

p ar ti cu lar ly imp or ta nt to r edu c e ind e c i s iv ene s s wi th r e gar d s to

pe t p r og rams .

Th e r el a t iv e imp or tan c e of eac h of the ab ov e f a cto r s wo ul d obv iou s ly

no t be the same ; a t the pha rma c eu t i ca l d ivi s io n b u s in e s s att r a c t iv en e s s

f a c tor s 1 , 2 , 3 an d 4 an d s p e c i f i c f i t f a c t or s 1 and 2 ar e pa r t i cul ar ly

cr i t i cal .

We mi gh t draw a tw o- d imens iona l char t wh i c h summ a r i z e s th e p or t f ol io

of s tr at e g i c p r o gr ams in t erms of the attra c t iv en e s s of th e ou tpu t s ta t e s

tha t the pr o grams ar e int end ed to l ead towar ds , as wel l a s in t e rms of

s trat e g ic f it wi th on e s ex i s t in g f un c t iona l cap a b il i t ie s

'
an d s k il l s , as
i s done in Exh ib i t 2 - 1 .

JH EDnu a

H E O IU h H ‘G H
L
'

O W

Exh ib i t 2 -
1 . R D P ro je c t s '
S tr ate g i c R o s t u r es

As wi l l be s e e n f rom th i s we wo ul d ex p e c t s t r a t e g i c pr o gr ams th a t mea s ur e

hi g h on b o th d imen s ion s to con t r ib u t e po s i t iv e l y towa rds th e imp l emen ta t ion

o f s t ra t e g i e s of b u s in e s s s e gmen ts tha t we wou l d at t emp t to g iv e h i gh p r i

or i ty to , wh i l e a t th e o th er ex tr eme we wou l d exp e c t a p r o gr am wh i c h me a

sur e s low on b o th d imen s ion s to b e pa r t of an un a t tr a c t iv e s trat egy tha t

we woul d no t pur su e . Th e d i f f icu l t s tr a t e g i c cho i c e s , t h en , come for th e

in- b e twe en cas es , wh i ch n e ed to be m a na ge d s e l e c t iv e l y an d wh i c h s ho ul d

r e c e ive pa r t i cul ar a t t en t io n dur in g th e pr o gr amm i n g pro c e s s .

We s hal l now r e tu rn to th e th ird ma j o r a s p e c t of s tr a t e g i c p ro g r am mi n g ,

name l y tha t f o r a Str a t e g ic pr o gr ammi n g ef f o r t to b e su c c e s s fu l i t w il l

hav e to be ex e c ut ed in su c h a way tha t i t ta ke s advan ta g e of the pa r t i cul a r

s tr eng th s tha t th e func ti ona l o r g ani za tio na l u ni ts p os s e s s . S in c e o r g a ni z a t i ona l

" "
cap ab i l i ti e s , i nv o lv i n g i nv e s tmen t in huma n r e s our c e s , c an be d i f f i cu l t to

b u i ld up ov e r a s hor t p e r i od of time , i t i s imp or ta nt no t to und e r tak e

s tr a te g i c p ro gr ams wh ic h r e qu ir e f unc t iona l s ki l l s tha t ar e we ak or

no nex i s te nt S im il ar ly , i f a p ar ti cu l a r o r g ani z a t io na l s k i l l i s s e e n a s a
'

.
s tr en gth , i t w il l be advan ta ge ous to pur su e s t rat e g i c pr o grams tha t u t il i z e

thi s s kil l . A us e f ul to o l f o r che c kin g wh e th e r th e s tr a t e g i c pr o gr ams ar e

’
con s i s tent wi th the or gan i za t ion s s tr en g th s i s to dev e l o p a fun c t iona l

'
s tr eng th p ro f i l e , wh i ch c ons i s ts of a s s e s s in g on e s o wn s tr e n g th wi th in

'
ea c h f unc ti on r e la tiv e to o ne s ma j o r c omp e ti to r ( or , if o ne c anno t

meani n g fu l l y ide nt i f y on e ma j o r comp e ti to r , r e l a tiv e to th e c omp e ti ti o n in

g ene ra l w i th i n th e bu s i ne s s ) . B e s id e s s e rv i ng th e pu rpo s e of pr ov id in g a

b e t te r ma t ch b e twe en th e s tra te g i c p ro grammi n g a c tiv i ti e s a nd th e

o r g an i za t io n s '
own s tre ng th s and we a k ne s s e s , su ch a p ro f i l e mi ght al s o

p rov i de the b a s i s f or a key fun c t iona l exec u t iv e d ev e l opmen t p l an for

'

'
im p rov ing on e s p ro gr am mi ng s tr en g th s in the lon g run . F inal l y , a b us i
n e s s mi gh t wan t to a c qu ir e ano the r comp any in s t ead of emb ar k in g on th e

o f t en t ime - c on sumin g ta s k of dev e l o p in g a p ar t i cu l a r s e t of fun c t ion al

s k il l fa cto r s in t erna l ly . In su c h ins tan c e s , i t i s p ar t icu la rly im p or tan t

'
tha t on e s own comp e t enc e pr o f il e and th e on e of th e c and ida t e f or ac

qu i s i t i on comp l emen t ea c h o th er so tha t on e c an ob ta in s tr eng th s no t

p r e s en tl y p r e s en t ed .

Exh ib i t 2 - 2 i l l us t rate s how s u ch a comp e tenc e curve was look in g i n

the pha rma c e u t i ca l f i rm th a t we h ave di s cu s s e d e ar l i e r . T hi s comp any

 Hav ing now comp l e t ed ou r d is cu s s io n of s tra te g i c p ro g ramm in g a t the

func t iona l l ev e l , emphas i z in g the c o r s s - fun c t iona l na tu r e of th e p r o c e s s ,

tha t i t s hou ld be ca rr i e d ou t wi th a c l e ar s tr a te g i c c ontex t i n m ind , a nd

th a t ma j o r d i f f er enc e s i n func t iona l c ap ab il i t i e s s ho u ld be r e c o gni z e d i n

o rd e r to u ti li z e s l ac k f rom s tr e ng th s and avo id b o t tl ene cks f rom we a k ne s s e s ,

we s hal l s h i f t emphas i s and d is cu s s th e s tr a t e g ic pr o gr ammin g ta s k a t the co rp or

l ev e l . I n th i s r e s p e c t , i t is impo r tan t to d i s t ingu i s h b e twe en a c q u is i t ion s wh i

ar e a l te rna t iv es to inte rna l grow th s tr a te g i c p ro gram s of a b u s i ne s s , as

j u s t d i s cus s e d , and a c qu i s i ti ons /di v e s t i t u r es of b us i ne s s e s to cha n g e the

s tr a te g i c p or t f o l io b al anc e . Wh i l e th e fo rm e r i s th e p rimary r e s p on s i b i l i ty

of an ex i s ti ng b us i ne s s d iv i s i on i t s e l f r e su l t in g from an a na l ys i s s howi n g

tha t th i s is an eas i er way of a tt a i ni n g th e b us ine s s '

O b j e c tiv e s than th rou gh

i nt e r na l dev e lo pme n t , c or po ra t e a c qu i s i t i ons /di ve s t i tu r es re qu i re a di f f e r ent

k i nd of s tr a te g i c p ro gr am mi ng a c t iv i ty . Typ i ca l l y , th i s i s th e ma jo r co rp o r ate
l ev el s tr a t e g ic p ro g ramm i ng a c t iv i ty . O th e r s mi gh t be co rp or a t e l ev e l exp l o r a t c

"
R& D t o p rov ide s e ed to the d iv i s i o ns f o r new p rodu c t s f o r th e fu tu re ,

'
a s we l l a s s tr a te g i c pr o g r ams to imp rov e as p e c ts of th e f i rm s a dmi ni s tr at ive

s y s t ems . Th i s pr og r amm ing ac t iv i ty i s o f t en somewha t mor e s tand ardi z e d th an

wh a t is typ i c al for p ro g rammi ng w i th i n the d ivi s ion s . Fo r i ns t an c e , a

corp o r a t e s ta f f g roup ma y be c har te re d wi th th e tas k s of s e cur i ng po tent i a l

a c q ui s i t ion c andi da te s , of ana l y z i n g th e i r e f f e c ts on th e ov e ra l l b u s i ne s s

p or t f o l i o p a t t er n , p ar ti c u l a r ly the ove ra l l f inan c i a l and r i s k s i tu a ti on ,

as we l l as ne g o ti a t i ng . O th e r co r po ra t e gr oup s mi ght l oo k f o r new ve n tur e

" "
opp or tuni t ie s and nur tu r e tho s e p ro g rams de c i de d up on th ro u g h i ts f i r s t

"
s tag e s of dev e lopme nt th roug h a cor p o ra te i n te rna l new v e n tu r e s d iv is i on

As so on a s the new p ro du c t ha s b een f i rmly e s ta b l i sh ed th e typ i c a l i n te n t

i s to tra ns fo rm i t i nto an o r d ina ry b u s in e s s d iv is ion . A th i r d typ e of

c o rp o ra t e s tra t e g i c p r og r ammin g a c tiv i ty m i g h t be var iou s c e n tra l r e s e a r ch

a c tivi ti es wh i ch ar e d e emed to be i n a h i gh l y exp lo r a to ry s ta g e and wo u ld

th e r e fo r e no t be tou c he d by th e d iv i s ions or wh i ch m ight be so r i s k y tha t

no s i ng l e d iv i s i on mi gh t wan t to und e r t a k e the p rog r am . Th e ou tpu t of

the s e a c tivi t i e s i s a l s o exp e c te d u l tima te l y to h av e a ma j o r e f f e c t on the

c om pa ny s '
b u s ine s s po r t f o l i o th rough e s t ab l i sh i n g th e b as is f or new

b us i ne s s d ivi s i ons . I t i s imp o r t an t th a t th e s e a c t iv i ti e s a r e s e e n a s a

p ar t of th e ove r a l l p l a nni ng p ro c e s s as s t ra t eg i c p rog ramm in g to imp l eme nt

i nt end e d po r t f o l io s t ra te gy ch ang e s .

We have se e n s eve ra l examp l e s of pr o b l em s b e in g cr e a te d i n th e

s tr at e g i c p ro g ramm i n g ph as e wh e n th e cl e a r d i s t i nc t ion i s
-
b e ing r e l ax ed

b e twe e n the in t e r f u n c t i onal pr o g ram min g ac t ivi t ie s th a t a r e so c r i ti c a l a s

p ar t of the imp l eme nta ti o n of a b us ines s s tr at e g y v e r su s s t ra te g i c p ro g rammi ng

a c t ivi ti e s tha t a r e pa rt of co rp o r ate po r tf o l i o s t ra t e gy dev e lopme n t . In

par ti cu l ar the r e s e ems to b e a dan g e r th a t co rp or a te p ro grammin g a c tiv i ti e s

mi ght h amp e r p ro g ramming wi th in th e b us in es s e s . On e comp any , f o r ins tan c e ,

was v e ry a c tiv e in i ts a tt emp ts t o g row th rou gh a c qu i s i t ions , thi s a c tiv i ty

b e i ng s p e arh e ad ed by th e C . E O
. . h ims e l f . S ev e r a l of th e a c qu i s i t ion s we r e

wi th i n b us ine s s a re a s tha t we r e ov e r lap p in g or v e ry c lo s e to s ome of i ts

"
p r e s e nt divi s io ns . Wh e n the s e a cqui s i t ions sub s e qu en tl y we re h ande d ov e r

to th e d ivi s i ons , thi s di d no t on ly c au s e th e exp ec ted r e s en tmen t s temmi n g

f rom the d iv i s io n ma na gemen ts '

l ac k of par ti cip a ti on i n wh at wa s i nde ed a

s tra te g i c p ro g r am f or th e i r b us i ne s s . Al s o , howeve r , th e d ivi s i on s p re s e nt '

p ro g r ams ne e d e d c omp le te ov e rh au l no w that a p r ev iou s comp e ti to r s udd e nl y

wou ld h ave to be inte gra ted in th e bu s ine s s . Ano th e r company ca rr i e d ou t

c e ntra l r e s e a r ch wh i ch was sub s e que ntl y h ande d ov e r to ex is t in g d iv is i ons .

Not o nl y was th e r e s tron g d iv i s iona l r es e ntmen t b e c au s e it ha d to

"
p ay f or

an i nc r eas in g sh a re of th e r e s e ar ch ac tiv i ty as a p roj e c t p r o gr e s s e d A

mo re fundamen ta l p rob lem of c ou r s e wa s the poo r s tra t e gi c f i t of th e

c e ntra l l y d eve l o p e d pro g r ams wi th th e b us in e s s s tra te g i e s . C en tr a l re s e ar ch ,

on th e o ne h and , typ i ca lly d id no t h av e a c l os e enou gh und e rs tand in g of and

f e e l in g f or th e b u s in es s . Th e b u s ine s s on the o the r h a nd pu t the b l ame on

c e ntral res e ar ch whe nev er o ne of the i r p rodu c ts wa s in s ome s o r t of

c omp e t i tiv e troub l e . I n gene ral , ex tr eme c ar e shou l d be ta k e n whe neve r a

s i g ni f i ca nt s har e of the s tra t e g i c p ro g r am m in g a c tiv i ty i s c a rr i ed ou t

ou ts i de th e div i s ions , no ta b ly a t the c orpo r a te l eve l . I n su ch c as e , a

c le ar po r tf o l i o fo cus of i ntende d impa c t mu s t be demon s tr a ted to be th e

r a tiona le fo r th e corpo r a te p rog r ammi n g ac t iv i ty in e a ch cas e .

 We hav e now comp l et ed ou r d i s cu s s ion of the s e cond s ta g e of th e p l an

n ing pro c e s s , n ame ly the dev e lo pmen t of s tr a t e g i c p r o gr am s fo r o p e ra t ion

al i zi n g th e imp l emen ta t io n of th e b ro ad er s tr a t e g i c d i r e c t ion s d e c id e d

up on dur in g th e pr e c ed in g Ob j e c t iv e s — s e tt in g s ta g e . A su c c e s s ful s tr a

t e gi c p r ogram mi n g e f f o r t i s of cou r s e c r i t i c a l f or th e d ev e l opme n t of a

u s e fu l ov er a l l p l an n in g ap pr oa c h ev en the mo s t b r il l i an t p er c e p t ion s

a b ou t s tra t e g i c d ir e c t ion b e c ome r a the r u s e l e s s un l e s s th e y c an be f ol

l owe d u p by an ima g ina t iv e im p l emen ta t ion e f f or t . To su c c e s s f ul l y fa c i l

i te t e s tr a t e g i c p r o gr e s s al on g an in t en d e d p a th of d i r e c t i on wi l l typ i c a l l y

be a lon g - t erm e f f or t . Con s e q u en tl y , mo s t s tr a t e g ic pr o gr am s wi l l be

lay ing ou t the p a t t ern of imp l emen ta t ion ov e r a p er iod of s ev er a l y ear s .

I t fo l lows tha t the d e gr e e of d e t ia l of p ro gr am s p e c i f i c a t ion c anno t

po s s i b l e be t oo ov e r ly a b undan t . Howeve r , fo r th e n ea r - t e rm po r t ion of

th e s tr a t e g i c p ro gr ams a mo r e s p e c i f i c e l a b o r a t io n of th e s tra t e g ic p r o

gr ams i s o f t en us e fu l , ih o r de r to e s ta b l i s h a r e la t ive ly c l e ar p a tt ern

o f a c t iv i t i e s to be ca r r i ed ou t , s ay , ove r the n ex t y ea r by a w id e num b e r

of o r g an i z a t iona l su b g r oup s , an d in ord e r to s p e c i fy th e na tur e of var iou s

ex ecu t iv e s '
r e s pon s i b il i t i e s an d wha t to be h e l d a c coun ta b l e f or . Th i s

i s th e purp o s e of th e th ird s ta g e in th e p lann in g pr o c e s s , th e b u d ge t in g

cy c l e , to be d i s cu s s ed in th e n ext s e c t i on .
 Th e b ud g e t in g s ta g e , a l s o c al l ed th e a c t io n p ro gr am s ta g e , is th e

thi rd s t ep in th e c orp or a t e p l ann in g pr o c e s s . As po in t ed ou t th is s ta g e i s

c lo s e ly r e la t ed to th e s tr at e g i c p ro grammi n g s ta ge : Af te r a s e t of s tr a t e g i c

pro grams ha s b e en de c ided on , a mo r e d e ta il ed s e t of a c t ion p ro gr ams wil l

have to be e s ta b l i s h ed fo r the n ex t y e ar . As su ch , the bud ge t in g s ta ge i s

th e i c e b er g
"
me r e ly th e tip of r e f l e c t in g a de ta il e d op er a t ion s a c t iv i ty

pa tt ern f o r n ext y ear wh i ch shou ld be c on s i s t en t w i th th e lon ge r - t e rm

s tr at eg i c p r o gr ams . Th e pu rp o s e of th e b ud ge t in g s ta g e th en is a b ov e a ll

to e s ta b l i s h a p a tt e rn of a c t iv i t i e s fo r th e n ea r - te rm ex e cu t io n of th e

s tr at e g i c p ro grams , in term s of a s s i gn in g s p e c i f i c ta s ks to var iou s o r ga

n i za t iona l un i t s an d gr oup s of man a gemen t , an d in te rms of a l lo c at in g th e

n ec e s s ary f ina n c ia l r es our c e s to th e c a rry in g ou t of th e env i s io n ed p a t

tern s O f a c t iv i t i e s . As s uc h th e b ud g e t ing cy c l e s e rv e s th e pur po s e of

f a c i l ita t in g co o rdina t ion and in te gr a t ion a b ov e a ll , i . a. fa c il i ta t in g

tha t the s tr a te gy imp l emen ta t ion a c t iv i t i e s a re c arr i ed ou t in an e f f i

7
c i ent ma nn er .

I t i s impor tan t to s ee b udg e t in g a s th e cu lmina t ion of th e s tr a t e g i c

p lann ing p ro c e s s . Unl e s s ther e i s a c l e ar and l o g i c al r e la t i on s h i p b e twe en

o b j e c t ive s - s e tt in g , s tr a t e g i c pro gram mi n g an d b u d ge t in g , th e d e c i s ion - ma k in g

purp o s e wh ic h s houl d b e the a im of th e co rp or at e p lann in g a c t iv i ty w il l be

s a c r if ic ed . Th e thr e e s ta g e s p f th e pr oc e s s d i s cu s s ed so f ar c an be s e en

na rr ow down
" "
as a tt emp t in g to iden t i fy th e s tr at e g i c Op t i on s and to th e s e

o p tions thr ou gh e l imi na t in g al t erna t ive s gradua l l y , th e r eb y fo cu s in g on

ana ly s i s of th e remainin g al te rna t iv e s . Th i s c an be s e en f rom E xh ib i t 2-3 .

 2 - Sl

'Ob ectives ~3 em n I
] q Program m ing Bu dgeting

ACT I O N P RO GRAM I

ACT I O N

Tim e
Dim ension: Jon . M ar .

( Exam p le)

8
V e r su s no de f a cto N ar row ing D own B e f o re Bud
ge tin g .
It c an al s o b e s e en fr om Exh ib i t 2-3 th a t by no t adh e r i n g to th e s tr a te g i c

"
de ci s ion- maki n g pu rp o se by al lowin g f or a gr adua l na r rowi n g down du r in g

th e Ob j e c ti ve s - s e tt i n g and s t ra te g i c p ro gram m in g s t a g e s , vi r tu a l ly the s ame

set o f s tra te g i c O p t ions fa ce d by th e f i rm dur i n g the obj e c t iv e s — s e ttin g

s ta ge wi l l ha ve to b e f a ce d by the f i rm and de c i de d up o n du ri ng th e b ud ge tin g

st a g e , s t rat e g ic Op t ion s s pan A ver su s s tr a t e g i c o p t ion s s p an B i n th e ca s e

an e x c e p t iona l l y h i g h
"
of p r io r narrow in g down . Thu s , cap a c i ty for s tr at e gi c

de c i s ion ma k i ng wil l be c a l l ed fo r du ing a s ho r t p e r io d of t ime . Mo r e

l i k el y , th e qua l i ty of s tr at e g i c de c i s ion - ma ki n g wi ll s uf f er , e i th er b e c au s e
of l e s s in- d ep th an al y s i s of a l l r e l ev an t a l t erna t iv e s , or b e caus e s ev er al

al t e rna t iv e s m i ght no t hav e b e en id en t i f i ed a t al l . Thus , Ac t i on P ro gr am I

of E xhib i t 2 -
3 i s l ik e l y to be o f a b e tte r qua l i ty th an "
A c ti on P ro g r am II .

I t shoul d be no ti c ed th a t wh i l e i t i s e s s e n ti a l th a t s ome "

n ar rowin g

down "
is done duri ng th e o b j e c tiv e s - s e t t in g and s tr ate gi c p ro grammi ng s ta ge s

so tha t the b ud ge ting p ro ce s s can be c ar r ie d ou t wi th in a r e l a t ive ly we ll

de f ine d c on tex t , i t is no t pos s i b le t o p rov ide ge ne ra l gu ide l i ne s ab ou t

p r e cis e ly how much the s t ra te g i c cho i c e s can be na rrowe d down p r i o r to

b udg e ting . Th i s w i ll vary f r om c omp any to comp any d ep end in g a b ov e a l l on

'
th e de gr e e of comp lex i ty an d un c e r ta inty as s o ci a ted wi th the comp any s

bus in es s e s . Wi th in re lat iv e ly s ta b l e b u s ine s se s re l a t iv e l y mo r e rap id

na rr owi ng down c an tak e p l ac e ear ly i n the p ro c es s , thu s p rov id in g f or a

b u d ge t i ng p ro c es s whi ch wil l b e mo r e fo c u sse d an d con c e rn e d w i t h less

al t erna t ive s than in the ca s e of mo r e c om p l ex and un c er ta in b u s in e s s e s .

We sha l l re turn to th is is su e of s y s t em s ta il orma k in g in Chap t er F iv e .

Ma yb e the mo s t impor t an t ro l e o f th e budge t i s to p rov ide a "

b lue p r in t
fo r th e a c t io n s tha t ea c h group of th e o r gan i z a t i on wi l l be exp e c t ed to car ry
 r th e o ther of the d imen s ion s i s

4: Th e S tra te g i c P r og r amm i ng /B u dg e t ing S e qu e n c e

E xh ib it 2 —
 One extr eme wo ul d be a b u s in e s s tha t i s v ir tua l l y in i ts en t ir e ty in

an exp l ora tory or em b ryon ic s ta g e of d ev e l opme n t an d wh i c h ha s t hu s no t

ye t emer g ed a t a com me r c ia l i z ed s ta g e . I n suc h a s e t t in g th e b u s in e s s

a c t iv i ty c an ap p ro p r ia t e ly be d e s c r i b ed a s on e of p er s ev e r ing a s e t of

cr i t i c a l dev e l opmen ta l p ro gr ams , an d ma na g eme n t ar e a tta c h e d to th e s e

pr o gr ams ; the ir ta s ks ar e b a s ed on a t emp or a ry p ro gr am o r gan i za t i on . No

p e rma n en t fun c t iona l d e par tmen ts a s s u ch ar e y e t d ev e l op ed . Th e b ud g e t

in th i s ca s e wo ul d me r el y be mor e d e ta i l ed s p e c i f i ca t ion s of th e s tr a t e g i c

p ro g rams in d i c a t in g th e n ea r - t erm a c t ion s to fo ll ow for t h e t emp or a ry

o r g an i z a t io n . Ex am p l e s of th i s mi gh t be l a r g e n ew b u s in e s s d ev e l opme nts ,

'
s uc h a s fo r in s tan c e an o il comp an y s a tt emp ts to dev e l op s yn th e t ic fu e l s

f r om a c oa l l i qu if i c a t i on pr oc e s s .

At th e o th er end of the s p ec trum , we mi g ht con c e iv e of an ex tr emel y

s ta b l e and w e l l e s ta b l i s he d b u s in e s s wher e n ext to no n ew b us in e s s s tr a

t egi c pr o g r am i s b o und to o c cu r . Al l s tra t e g i c p ro g r am s a s s o c i a t ed w i t h

th e ex i s t in g b u s in e s s t end to be e f f i c i en cy dev e lo pm en ts an d ar e a f f e c t in g

on e fun c t ion in par t i cu l ar , d ue to th e w el l d e f in e d an d un de r s too d way of

c ar ry in g ou t b u s in e s s . I n th i s in s tan c e bo th s tr at e g i c p r o gr ams an d b ud
g e ts wi l l be d ev e l op ed by the fun c t i ona l de pa r tmen ts . Examp l e s of th i s

mi gh t be f oun d wi th in th e int e gr a t ed o il indu s try , th e s t e e l indu s tr y or

mi ght v i ew the s e indus tr i es a s ex tr eme l y s t a b l e

'

the ut il it i e s indu s t ry . We

in t he ir way of ca rry in g ou t th e ir b u s in e s s . Th us , th e na tu r e of th e s tr a

t egi c p r o gr am /b u dge t in t er f a c e wi l l chan ge as we go f rom a t empo r a ry or

gan i za t i on ( cr o s s efu n c t i onal dominan c e of pr o gr ammi n g and b u dg e t in g)

t hr ou gh . t hc
"
no rma l "
b us in e s s c a s e s ( c ro s s - fun c t ion a l p ro g r am min g ; f un c
t i ona l b ud ge t in g ) to h i gh ly s ta b l e b u s in e s s s e tt ing s ( fun c t io na l dom in an c e

of bo th pro gr ammin g an d b ud ge t in g) .
 Th e b udg e tin g pr oc e s s i s a cr i ti c al s ta ge as pa r t of th e ove r a l l

int e gra te d s tra te g i c pl annin g s ys tems ap p roa ch t ake n in th i s b oo k i n tha t

we s h al l h ave to co ns i de r the ove r al l comp l e tene s s and b a lan c e of de s i gn .

Howev e r , b ey ond di s cu s s in g b u dge tin g to th e ex ten t n e c e s s ary f o r th e

ov e ra l l s ys tems unde r s tandi n g , i t is outs i de the s cop e of th i s b oo k to g ive

a d e tai le d d i s cus s i on of th e many as p e c ts of th e budg e tin g p ro c e s s per s e .

Le t us the r e fo r e tu rn to th e rema inin g tw o s ta ge s of th e co rpo r a te p l annin g

p ro ce s s , whi ch de al wi th mon i tor in g of a c tu al pe rf o rman c e and l i n k i ng

s tr ate gi c p e r f orm a n c e to th e in cen t ive sy s tem . A va l i d qu e s tion , ma y b e ,

is to a s k why als o th es e tw o f un c ti on s s hou ld be s e e n as p a r ts of th e

in t e gra t ed co rp o rat e p l ann in g sy s t em . Th i s w il l be c lear , howev er ,

af ter

we hav e b r i e f l y de s c r ib e d th e tw o n ex t s t a ge s .

4-4 . Mon ito r in g

Th e mo ni to ri n g s t a g e i s int ende d f o r me as u remen t of pr o g r e s s t owa rds

ful f i l lment of th e s t rate g i es d e c i ded on du rin g the thr e e pr evi ou s s ta ge s .

Th e meas ur eme nt of p ro g re s s s hou l d ta k e p la c e f o r th e ou tpu t of e a ch of the

thr e e p r evi ous s ta ge s , i . a. , p rog r e s s towa rds ob j e c t iv es - fu l f i l lme nt ,

towards s tr ate g i c p r og rams fu l f i l lme nt , and towards th e fu l f i l lmen t of the

op e ra ting bud ge t . At th e p re s e nt s t a ge , we s ha l l rai s e and b ri e f l y di s cu s s

th e typ e s of mon ito rin g tas ks we mi gh t f a c e , th e typ e s of me asu r emen ts we

9
mi gh t emp loy and wha t typ e s of co rr e c tiv e a c ti ons mi gh t r esu l t . I n Ch ap te rs

Fou r and Fiv e , a sp e c ts of th i s di s cu s s ion s ha l l be fo l lowed up mo r e tho rou gh l y .

The r e a r e thr ee ty p e s of .a c t i on s tha t c an be ta k e n to me a s ur e ac tu a l

p er fo rma nc e r e la tive to a s tan da rd ( a p l an ) and ob s e rvi n g a pa r ti cu l a r

dev i at ion . On e is to t ak e co r re c tiv e a ct ion in time to ame l i or a te a p ro b lem

wh i le the imp l emen tati on of a s tra te gy i s s ti l l taki n g p l a c e ; the s t ra te g i c

goa l s mi gh t st ill be r ea c h ed , p a r t ic ul a r ly i f n ec e s s ary co rr e c t iv e

mo d i f i c a t ion s a r e ta k en in t ime . We sha l l ca l l th i s a s t e er in g c on tr o l

ap p roa c h . A s e con d r e su l t of me a su r in g d ev ia t i on f r om p l an i s to d e c id e
to wi th d r aw f rom th e pa rt i cu l a r s t r a t e gy or to con t inu e fu rth e r . I n s t ead

of a b andon ing a s tra t e gy w e m i ght al so have th e O pp o s i t e s i tua t i on th a t

we ar e mon i to r in g a par t i cul a r e c onom i c and /o r comp e t it iv e p o s i t ion b efore

c ommi tt in g s i gn i f ic an t r e so ur c e s to in i t ia t e a p ar t i cul a r s tr a t e g i c mov e .

We s hal l c a l l th i s an an t ic ipa t iv e go no go con tro l ap p ro a c h . F ina l l y ,

we mi gh t be f a c e d wi th a s i tu a t i on wh er e th e r e is l it t l e we c an do p os t

f a c to in te rms of mo d i f y i ng or a b andoni n g a s t r ate gy as a re su l t of

d i s cr ep an cy b e twe en a ctua l an d p l ann e d . H oweve r , a va luab le b e ne f i t i n many

s u ch i ns t an c es i s th e l e a rn in g th a t tak e s p la ce i n an a ly z i n g wh a t we n t wr on g

Wh a t was un re as o na b l e i n ou r as sump ti on s ? H ow di d we mi s i n te rp re t

comp e t i tiv e fo r c e s i n th e env i ronm en t ? Wh i ch of ou r own s k i l l s di d no t

ho ld as as s ume d ?

We want to mon i to r th e p ro g r e s s towa rd s th e f u lf i l lme n t of the

o b j e c tive s ag r e e d up o n dur i ng the o b j e c tiv e s - s e tt i n g s ta ge f o r th e re a so n

th a t th i s g iv e s u s th e mo s t di r e c t and exp l i c i t p i c tu r e of whe th e r we ind e e d

p ro g r e s s a s in t end ed towa rds ou r o b j e c t iv e s . A c r i t i ca l p ar t of th i s

mon i to r ing ta s k w il l be to f oc u s on pa r t i cul a r env ironme n ta l f a c to r s . Of

t he thr e e typ e s of co nt r ol j us t d i s cu s s e d ( s t e er in g c on tr o l , go no c on

tr o l an d l e arn in g c on tr o l ) , s t e er in g con tro l i s c l e ar ly th e mo s t at tr a

t ive g i ven tha t we mi gh t hav e an Op po r tun i ty to mod i fy ou r ap p roa ch b efor e

the . tas k ha s b e en comp l e t ed , i . e. , we mi gh t s t il l hav e a c han c e of r e a c h in g

th e g oa l o r i g ina ll y in t end ed and we mi gh t b e a b l e to s av e r e s our c e s wh i c h

O th e rwi s e wo u l d hav e b e en wa s t ed by ta k in g u s in an un in t end ed d ir e c t ion .

Wh en i t come s to o b j e c t iv es - mon i tor in g , s t e er in g co n tr o l mi ght be pa r

t i c u l ar l y u s e ful . H er e we ar e mon i t or in g pro gr e s s towar d s a goa l tha t

typ ic al l y wi l l be s eve r al ye a r s ou t
in th e t ime ho r i zo n b e fo r e a tta inme n t . Thus , we mi g h t h av e time an d

f l ex ib i li t y to ac t i f we mo ni to r p ro g re s s towa rd s th i s p henome non . S in ce

we a r e de al i n g with i s s ue s tha t wi l l be of c ri ti ca l ma g n i tud e f o r th e f i rm ,

th e p ay o f f f r om th i s typ e of p e r f o rman c e mo ni to r i ng mi gh t be high .

I n att emp tin g to me a s ur e pro gr e s s towa rds a p a r ti c ul ar ob j e c tive , we

shou l d ta k e an app roa ch whi ch is ta i lo rmade to th e p ar ti c u la r c i r cums tan c e

a t hand . Th i s mi gh t imp ly tha t we ma k e us e of me asu remen t s tha t ar e no t

exp r e s s e d in do l la rs , bu t i n s ome phys i c a l ph e nome non , or as an index . In

p er fo rmanc e me a s ur e s of mos t k ind s the re wi l l be a trad eo f f b e twe e n the

de gr e e of r e l evan c e of th e me a sur e we cho o s e f o r r e f l e c tin g cha ng e s i n th e

ph e nomenon we wan t to mo n i to r , and the de gr e e of o b j e c t iv i ty tha t we c an

a ttach to the p re c i s e ne s s of th e me as ure . Wh i l e mo r e tr ad it iona l do l l a r

var i ab l e s a re ea s i e r to mea su r e o b j e c t ive ly , th e y a re no t ne c e s s a r i l y

re l evan t to me as ur e p ro gr e s s towar ds a l ong - te rm s trat eg i c go a l .

Fa i l ur e to ful f i l l a p ar t i cu la r go a l mi gh t be due to unre as on a b le

a s sump ti on s at the outs e t wh i ch w i l l ca ll f o r s u b s e que n t mod i f i c a tion of

th e goa l , or i t mi ght b e du e to th e o r gan i z a t io n s l a c k '

of ab il i ty to

imp l eme nt s a t i s f ac tory s trate gi c p ro g r ams . We h ave to mea su r e p ro gr e s s of

e ach of th e s t ra te g i c pr o gr ams to de te rmin e whe th e r l ac k of p r o gram

fu l f i l lme nt i s a pr o b l em , and i f so , in whic h s tr ate gi c p ro gr am and wha t

pa r ti cu l ar p ro b l em . The r e is ano the r impo r tan t re as on f o r me as u ri ng p r o gr e s s

towa r ds s tra t e g i c p ro gr am s . As al r e ady di s cu s s e d , a s tra te g i c p ro g ram i s

uni qu e ; it i s one of a k ind Th us , i t f o l lows th a t we ne e d tempor ary

p e r f orma nc e moni tor in g sy s tems f or e a ch p ro gr am , in con tr as t to th e moni to r in g

of th e maj or ob j e c tive s and goa l s wh i ch typ i c al l y w i l l no t chan ge d rama ti ca l ly

in g ene r a l na tur e ov er t ime , a l thou gh c han ge s i n emph as i s mi ght o ccu r mo r e

fre que n t ly . Fo r s u ch temp o r ary phe nomen a i t i s p a r ti cul ar ly imp o r tant to

"
mea s ur e p ro g r e s s towa rd s a comp l e ti on s c he du l e . A se t of mi l e s tone s

wi l l h ave to be a ch i ev e d wi th in c e r ta i n t ime l imi ts and a t s p e c i f i ed co s t .

A t p ar ti cu l a r i nte rva ls th e s tr a te gi c p ro gram s vi a b il i ty w i l l '

be re as s e s s e d

and a de c i s i on m a de whe the r to p ro c e ed , mo d i f y or d i s con t inu e . S uc h p ro g re s s

mo ni to r i n g is imp or tan t fo r a s t ra t e g i c p ro g r am , g iv e n i ts t emp or ary na tu re

and the i nt e r fu n c t i ona l , p ro j e c t na tu r e of th e ma na geme n t g r oup s i nvo lv ed .

Moni to r i ng of p e r f o rma nc e r e la t ive to th e b udg e t is of cou r s e a we l l

e s t a b l i s h ed p r oc e dur e in ma ny co rp o r a ti on s . P e r f o rma n c e me a s u reme nt s a t

th i s s tag e o f f er a uni qu e O p po r tu ni ty to tr a c k s ho r t- te r m p ro g r e s s f ul f i l lme n t ,

an d ou r m ea s u re s ar e re l a tiv e l y mo r e pr e c i s e th an ou r me a su r eme n t of

O b j e c t iv e s and p rog ram f ul f i ll me nt . I t i s u se fu l to ge t th i s i n f o rma ti on ,

even th o u gh a r e l a tive l y lar g e r s h a re of i t wi l l h av e to be r e a c te d to as

l ea rni ng c ontro l . In f ac t l e a rni ng c o ntr o l w i l l be domi nan t f or pr og r e s s

mo ni to r i n g a t th i s s ta g e , in co ntr as t to the go no go co n tro l dom inan t in

the s t ra te g i c p rog r amming s ta ge and th e s t e e ri ng c ontro l of th e o b j e c t ive s

se t ti ng s tag e .

Th e r e i s how eve r an imp o r tan t mo d i f i c at i on of the mon i to r in g ap p r oa ch

to be ma de whe n in te rp r e ting s ho r t - te rm p e r f orman c e p ro g r e s s . Th e re mi gh t

be op por tuni ti e s to tr ade O f f l on g- te rm s tr a te gi c p r og re s s ag a i n s t s ho r t — te rm

p ro gr e s s , unl e s s t he b u dg e t -m on i to r in g s ys t em s p e c i f i c a l ly al s o me as ur e s

cha n g es i n th e s tra te g i c p o s i ti on , so th at s ho r t - te rm p e r f o r ma nc e c an be
i nt e rp r e t ed r el a tiv e to th e ch an g e s th a t hav e take n p l a c e . If no t , a

b u s i ne s s mi g h t f o r ins tan c e b oo s t i t s sho r t - te rm r e su l ts by trad in g -

off

ag a in s t l on g - te rm ma r k e t s h ar e th rou gh ma k i ng cu ts in i t s adv e r t is i ng and /or

p ro d uc t d ev e l opmen t exp end i tur e s .

 L e t us no w turn to th e r e la te d i s su e of mo tiva tin g ma na g em en t b as e d
on ho w we l l the y p e r fo rm r el a tive to ob j e c tiv es , s tra te g i c p ro g rams and

b u dg e ts . Th e f e a s i b i li ty of and b as i s f o r p e r f o rma nc e in c e ntiv e s have of

cou rs e been e s tab l i s he d th rou gh s e tt i n g lo n g to s hor t - te rm s tan da rds f or

p er fo rma nc e du rin g s ta ge s on e th rou gh thr e e and mo ni to r i n g p er f o rma nc e

th rou gh s ta ge four .

4- 5 . Man a ger ia l I nc en t iv e s

Th e co nc ep t of co rpo rat e p l ann i ng re s ts up on the p rem is e tha t ma na g e rs

ar e mo tiva te d and wi ll ing to wo r k to g e the r towards a lon g- te rm s tr a t e g i c

a d v an ta ge ous p os i ti o n f or th e f i rm . F or th i s to be po s s i b l e , th e r e mu s t be
at l eas t s ome de gre e of co n gru e n c e b e twe e n the pe r s on a l go a ls of e a ch

i nd ivi du al k ey mana g e r and the co rpo r a ti on s go a l s '

. C le ar ly , g iv e n tha t th e

ke y m a na g e rs th ems e lves ar e in s trume nta l in th e f o rmu l ati on of o b j e c tiv e s

an d g o a l s a s we ll as s t rate g i c p r o gr ams , th e p e rsona l b e l ie f s and b u s in e s s

j ud gments of the manag emen t te am wi l l to a l a r g e ex te n t be con grue nt wi th

th e f i rm s '
. Howev e r , an indiv i dua l s o b j e c t iv e s mi gh t
'
to some ex ten t di f f e r

'
fr om the f i rm s , an d th e re mi gh t al s o be or g an i z a ti on a l sub grou p s tha t h av e

d i f f e re n t go a l s . A pa rti c u l ar ly di f f i c ul t p ro b l em whe re th er e mi gh t b e go a l

in co n gru enc e is th e di f f e ren c e in time ho r i z on b e twe en the corp o r a te s t ra te gy

'
an d the ind iv idu al ma na ge r s go a ls . B e c aus e of p re s su re s to s how a s ho rt - t e rm

ind iv idua l tr ac k r e cord to es t ab li s h on es e l f f or p romo tion s and job au tonomy ,

th e indi v idua l ma na ge r mi gh t tend to ov er empha s i z e sho r t - te rm window dr e s s in g

s harp e l b ow b u d ge t
"
and ind ivi dua l i sm , and cons e que n tl y s e e th e as re la t ive ly

mo re imp o rtant to h im than obj e c tive s and s tr ate gi c p ro grams fu l f i l lme n t .

F re que nt job tr an s f e r s ma k e th i s an ev en mo re p lau s i b l e mode of mana ge r i a l

p ro c es s i n mo s t corpor a tio ns , a t lea s t wh en i t come s to p r omo ti on s a b ov e

c er ta i n ma na g e r ia l lev e ls . To s ome ex te nt the p romo t ion p ro c e s s c an b e

dep o l i ti c i z e d and ti ed to s ome s or t of fo rma l a s s e s sme nt of h ow we ll a

ma na ge r h as p er fo rmed , a fa ir e r and mor e p ro f e s s ion a l a p p ro a ch . Ano th e r

re l a ted no n— mo ne tary in c e n tiv e woul d b e th e d e gr ee of d i s c r e t io n th a t a

ma na g e r i s g ive n f or mana g i ng h i s op e ra t io n , s ay h i s b us i ne s s . M an a g e r s
who p er f o rm b e tter s houl d exp e c t to e nj oy mo r e f r e edom in d e s i g n in g a nd

ex e cu ti ng the i r s tr ate g i e s , wi th f ewe r mod i f i c a tion s impo s ed du r i n g the

p l anni n g r ev i ew p ro c e s s . As sum ing th a t i t wou l d no t j e op a rd i z e th e co rp or a te

po r tf o l i o s tr a te gy , the mor e suc c e s s fu l mana g e r s mi g h t be g iv e n mor e

di s cr e ti on over fu nd s ma na g em ent a nd r e c e iv e mo r e inv e s tmen t fund s as we l l ,

' '
in re co gni tio n of s e ni o r mana g eme nt s co nf i d e nc e in the su c c e s s fu l div i s io ns

s tra te g i es and p r o gr ams .

Th i rdly , b e hav io r al i nc en tiv e s w il l con s i s t of i nd iv idu a l p ra i s e ,

f e ed b a c k r ev i ew , and cr i ti c i s m g iv en to ea ch mana g e r . A s y s tema ti c r ev i ew

wi th e a ch mana ge r of h i s s tr a te g i c a s we l l a s o p er a tin g p e r f o rma nc e mi gh t b e

an impo r ta nt mo tiva tin g d ev i ce i n the hands of an ins p i r i n g le ade r .

S imi la r ly , p r a i s e and o c c as i ona l l y som e cr i ti c i sm dur in g p lann in g and /o r

mo ni to ri n g rev iew me e ti n g s mig h t b e e f f e c tiv e .

The ke y of cours e i s tha t the i nc e n tiv es mu s t b e ti ed to p e r f o rma nc e

as r e f l e c ted in th e a c h iev em ent of o b j e c tiv e s , s tra te g i c p rog rams and b u dge ts .

Wh i l e mana ge r i a l in c en tive s a s j u s t d i s cus s e d ar e o ld and we l l e s ta b l i s he d

in mo s t compa ni es th ey may no t hav e been ex e cu ted in th e c on tex t of th e

s tra te g i c p lanni n g sy s tem . He nc e , no t onl y mi gh t an O pp o r tu ni ty to c re ate

a mo r e r e a l i s ti c emphas i s on p la nnin g b e lo st , but , w ors e , the no n- c oo rd i na te d

inc en tiv e s mi ght a c tu a l ly r e in f or c e non- s tra te g i c ma na ge r i al b e hav io r .

 2 - 63

Th i s con c lud e s ou r di s c u s s ion of th e d i f f e r en t s ta g e s of th e p lan

n ing pr oc e s s . Th e ma j o r pu rp o s e of emp ha s i z in g a s e t of d i s t inc t iv e

s ta ge s ha s b e en to s tr en g th en th e f oc us of th e var iou s p l ann ing ac t iv i t i e s ,

so t ha t it b e c ome s c l ea r
"
wh en on e i s do in g wha t .
"
S p ec if ic a l l y we hav e

s np ha s i z ed th e ne ed to o r der ly id e n t if y and n arr ow down s tr a te g ic O p tion s ,

to a c h i ev e bo th adap ta t i on a s we l l a s int e gr at io n , thro u gh th e ex ecu t io n

of an o b j e c t iv e s - s e tt in g s ta ge , a s tr a t e g i c p ro gr am mi ng s ta g e an d a b ud
g e t ing s ta g e . W e hav e a l s o s tr e s s ed th e ne ed s f or tw o fo l l ow - u p s ta ge s

in or der to r e inf o r c e th e s tr a t e g ic d ir e c t ion s e t d ur in g th e f ir s t thr e e

s ta g e s , name l y mon i to r in g and i nc en t iva t i n g . Th i s foc u s on f iv e s p ec if i c

s ta g e s for s e t t in g s tr a t eg i c d ir ec t ion co n s t i tu t e s th e s e co nd ma j o r d i

m e n s i on of ou r co n c ep tual s c h eme f o r cor p or a t e p l ann ing .

5 . A T h re e
"
by F ive "
I n fo rma t ion Mo de l of C or p ora te P l ann in g
We h ave by now i de n ti f i e d two o f th e th re e ma j o r di me ns ion s o f our

co rp o ra te p l ann in g con c e p tua l s c heme th re e leve ls o f s tr ate g i e s an d f ive

dime ns i on s o f i de n ti f y in g , na rrowi n g down an d mon i to rin g s t ra te g i c Op tion s .

Th e th i rd dime ns io n o f th e con c e p tua l s ch eme , wh i ch i s to be di s c us s e d in

th i s s e c t ion , empha s i z e s th a t th e r e i s an impo r tan t i n f o rma t ion an d

commun i c a t ion - flow a s p e c t o f th e p lann i n g p ro c e s s th at ne ed s s p e c i f i c

ll
a t t e n t io n . Th i s w i l l i de n t i fy a p a t te rn o f in te ra c t i on an d i te r a t ion amon g

th e va r i ou s mana g e r s re s po ns ib l e fo r th e va r i ou s l eve l s o f s tra te g y , al l

o f whom con tr ib u tin g towa r ds th e deve lopmen t o f on e ove ra l l p l an fo r the

comp any as a who l e , in te rna l l y con s i s t en t amon g i ts p ar t s b ut al l owin g fo r

th e r e s ta t emen t o f wha t ar e th e p l an s fo r th e va r ious o r g an i z a t iona l s ub

u n i ts as pa r t o f th is . E x h ib i t 2 - 5 g ive s a f low - ch ar t mode l wh i ch i h

di ca t e s how th e va ri ous l eve l s an d s ta g e s di s c us s e d thus f ar c an b e p ut

to g e th e r . Th e mo de l s p e c i f i e s a lo g i ca l s e que nc e o f s te p s th a t s hou l d b e

"
c ar ri e d ou t i n o r de r to mak e th e p ro c e s s come al i ve wi th in a c o rp o ra ti on .

We sha l l b ri e f ly di s cus s e ac h s te p , fo l lowi n g th e num b e rin g wi th i n th e

ci r c le s o f Exh ib i t 2 - 5 . I t shou l d b e no te d , howeve r , th a t the me an in g fu l

im p l emen ta t ion o f th e s e s t e p s may no t a lwa y s b e s tr a i gh t f o rwar d , fo r two

re a s ons . P ar tly th i s i s due to th e f ac t th at we a r e de al in g wi th a be

havi o r a l p ro c e s s , a s a l re a dy s ta te d above . Th i s me an s th a t a de s c ri p tion ,

s te p - b y - s t ep ; ~
of th e lo g i c a l p a th throu gh th e p ro c e s s i s l ik e l y to b e f a r

too s imp l i s ti c a s a g ui de l in e fo r de s c rib in g how th i s b ehavio ra l p ro c e s s

ac tu a l ly may tak e p l ac e . Eve n th ou gh th e di s cus s ion o f th e s e que n c e o f

s te p s in th i s s e c ti on the r e fo re p rob ab ly sma ck s s omewh a t o f be in g too

" "
me ch an i s t i c i t i s howeve r a us e fu l s tar t in g p o in t fo r de s c r ib in g th e

p lann in g p ro ce s s . S ub s e que n tl y th rou g h th e boo k we s ha l l s e e how th i s

be havio ra l p ro c e s s i s domin a te d by fe edb a ck s , ne g o t i a t i on me e ti n g s , re

vi s io ns , an d s o on . I n addi t ion to the fundame n ta l n e e d to re c o g n i z e th a t

we a r e dea l in g wi th th e imp l eme n ta tion o f a be havi o r al de c i s i on - mak in g

p ro c e s s , th e r e a r e a l s o a numb e r o f o th e r imp l eme n ta tio n p rob lems , ty p

"
i ca l l y s t emmi n g f rom mi s c on c e p tions ab ou t te chn i ca l a s p e c t s o f th e p l an

nin g p ro c e s s . In Ch ap te r F our we sh a l l di s cu s s th e mo s t comm on o f th e s e

imp l eme n ta t io n i s s ue s .

S tep 1: Th e C E O
. . . s t at e s h i s lon g - t e rm as p i r at ion s fo r th e comp an y ,

in terms o f ten ta t ive and re l a t ive l y g ene r a l lon g

- te rm
oh

ject ive s an d s ta t in g h i s k e y as sum p ti on s b e h ind th e ob j e c ti ve s

( s u ch as , fo r in s tan c e , ge n e r a l e conomi c tre nds and r e s o ur ce

c ons tr a in t s on th e comp any ) . C omp a ri s on wi th th e p e r fo rman c e

pa t te rn s o f o th e r comp an i e s re l at iv e ly s imi l ar to hi s own

mi gh t p lay an im p o r tan t ro le in s h ap in g th e as p i

ra t ion s . Al s o , of cou r s e , th e C E O
. . . wi l l dr aw on any ex

p e r i en c e i n th e comp any wi th p l ann in g in th e p as t a s we l l a s

th e pa s t p e r fo rman c e r e c o rds .

S te p 2 : E a ch di vi s i on de f i n e s h i s bu s i n e s s ch a rt e r i n te rms o f i de n

"
t i f y i ng th e bo r de r l i ne s fo r th e pr o du c t /m ar k e t /s e r vi c e s

h i s di vi s i on i s in , an d in te rms o f p rovi din g a g e ne r a l r a t i on a l e

fo r why on e shou l d b e in th i s bus in e s s ba s e d on i ts l on g - te rm

exp e c t e d a t tr a c t ive n e s s . He al s o p rop os e s a s e t o f di v i s i on

go a l s in te rms o f comp e ti tive s tr e n g th p o s i t ion to b e g e ne r a l ly

a i me d a t , an d e l abo ra te s o n th e r a ti ona l e an d as s ump t i on s b e h in d

'
the s e . Th e ce n ter o f th e div i s io n mana g e r s em ph a s i s i n al l

thi s i s on th e envi ro nme n t he i s fa c in g , a cre a tive a nd op p o r

" "
tu n i s t i c di g e s ti on o f th e op po r tun i ti e s an d th re a ts he s e e s .

H e f in a l ly p rop o s e s a te n ta t ive r e so ur c e re q u i r eme n t e s t ima te

 in a c cord an c e wi th th e s tr a te g i c p os i t io nin g p r op os e d fo r th e

bu s in e s s . ( I t shou ld b e no ti c ed th a t in Ch ap te r Th r e e we s ha l l

di s cu s s i n de ta i l a wa y o f s ta ting th e s t r at e g i c po s i tio n

o f a bus ine s s in terms o f i ts comp e ti tive s tre n g th an d th e

a t tr a c t ive ne s s o f i ts bus i ne s s . We sh a l l s e e th e n tha t th e

s tr a t e g i c p o s i ti on in g o f th e bus in e s s i s l ik e ly to h ave s tron g

imp l i c a t ions on wh e th e r th e bus in e s s wi l l b e e x p e c te d to be

c ome a ne t funds us e r o r a n e t c on tr ibuto r o f fun ds ) .

S te p 3: Th e C E O
. . . ap p rove s th e div i s io n o b j e c t ive s and s t r a te g i e s .

'
Th e ap p rova l o f e a ch di vi s ion s s ta teme n ts mus t be a s s e s s e d

wi th in the c on te x t o f th e ove ra l l p o r t fo l i o p a t te rn th a t eme r g e s

f rom the ove ra l l s e t o f div i s iona l inpu ts , as we l l a s f rom

p o t en ti a l a c qui s i ti on o p p o r tun i t i e s th a t mi gh t e x i s t . He th en

summa ri z e s th e ou tpu t o f th e ob j e c tive s - s e tt in g cy c l e by s ta t in g

th e co rp o r a te p or t fo l io s t r at e g y as we l l as s p e c i f i c but te n

t a t i ve c o rp o r a te and divi s iona l g oa l s , wh i ch wi l l s e rve a s

the fo cus fo r th e nex t cy c le

S te p 4 : Th e C E O
. . . ini tia t e s th e s tr a te g i c p ro g r ammin g c y c l e wi th a

c a l l for d ivi s ion s p r o gr ams to be foc u s s ed on how to ac h i eve

th e d iv i s iona l g oa l s .

S tep 5: E ac h d ivi s ion man a g e r wi l l s ta te fo r h i s fu nc t i ona l o r g an i z at i on

'
th e d iv i s ion s s tr ate g y , g e ne ra l ob j e c t ive s and spec if ic goa l s ,

i . e. th e d iv i s ion s exp ec ted s tr ate g i c ro l e wi th in th e ove ra l l

'

s tr at e g ic p a t te rn d eve lop e d in th e pr ev iou s c yc l e . He wi l l

th e n as k h i s fun c t i ona l o r g an i z a t i on fo r a l te rna tive s tr a te g i c

"
p ro g rams fo r how to ge t th e r e .
Th e fun c t ions wi l l iden ti fy s t ra te g i c p ro g r am al te rn a t ive s ,

typ i ca l ly in c lo s e c r os s f u n c t i on a l c oop e ra ti on . Th e a l te r

na t ive s may b e new on e s , s uch a s th e deve lopme n t o f a new

p ro duc t , o r re as s e s sme n t o f e x i s tin g one s , su ch as cont inui n g

wi th a ma tur e p ro duc t . P ro g ram al te rn at ive s wi l l b e an a ly z e d

an d the be s t one s wi l l be r e commen de d to th e di vi s i on g e ne r a l

man a g e r . Typ i ca l ly th e ta s k o f c ar ry in g ou t th i s s te p tends

to b e extr eme ly t ime - con s u m i n g an d i s no rma l ly g oin g on a l l

y ear aroun d . Howeve r , a t th e time wh en th i s s t ag e o f th e

p lanni n g p ro c e s s i s re a ch e d e a ch y ea r th e "
s t a tu s "
o f th e

on g o in g s tr at e g i c p ro g ram mi n g a c t ivi ti e s sh ou l d b e sum ma ri z e d .

Th e divi s ion mana g e r shou l d a t th i s po in t mak e a s e l e c t ion

amon g s tra te g i c p ro g ram a l te rn a t ive s , at temp tin g to come up

"
wi th a s tr a t e g i c p ro g r am p a ck a g e tha t ful f i l l s th e in tende d
'

ob j e c t ive s and go a l s fo r th e d i vi s i on . Th i s s tra te g i c p ro g r am

p a cka g e , in c l udi n g th e e x p e c te d a s s o c i a te d fun ds f l ow ch ar

ac t e r is t ics , wi l l then b e re c om me nde d to th e C E O

. . .

Th e C E O
. . . wi l l eval ua te e ac h div i s i on al p ro g ram p a ck a g e i n

p u t wi thi n th e ove ra l l p or t f o l i o con te x t that eme r g e s . He

wi l l th en mak e ten ta tive re s our ce a l lo c a ti on s to th e s e lon g

t e rm di v i s i on al s tr a te g i c p ro g ram s , b as e d on th e i r me r i ts i n

th e ove r al l s t rate g i c p o rt fo l i o con te x t , and

”
comp e t ing no t

on ly wi th e a ch o the r in t e rna l l y bu t al s o ag ai n s t th e al lo ca t i on

o f funds fo r a c qui s i tion s . Thus , i t i s p r imar i l y a t thi s

s ta g e th a t th e ma j o r th rus t o f th e powe r to in fl ue nc e

-
th e lon g te rm di r e c ti on o f th e f i rm mi gh t be ap p l i e d . Th i s

r e sour c e al lo c a t i on pa t te rn mark s th e cu lmi n a t i on o f th e s tr a

t eg i c p ro g rammin g cy c l e of the p l annin g p r o c e s s .

o f a c tua l p e r fo rman c e wi th th e p e r fo rman c e th a t h a d b e e n

p l anne d .

Th e C E O
. . . s ta te s th e ove ra l l moni to r in g ta s k s ; to tr a ck a c tua l

p e r fo rman c e ag ai ns t the ne ar - te rm go a l s , a g ain s t th e a ch i eveme n t

o f th e s tr a te g i c p r o g rams an d a g a in s t th e ful f i l lme n t o f th e

o b j e c tive s , i . e. a g a ins t th e ou tpu t s o f p lann in g cy c l e s th re e ,

two , an d one . He as s i gn s to e a ch o f th e div i s ion s th e ta s k

o f mo ni to rin g th e i r ow n p e r fo rman ce in p ro g r e s s in g towar ds th e

fu l f i l lme nt o f th e i r ob j e c t ive s , s tr a te g i c p ro g rams an d b ud

g e ts . Al s o h e as s i gn s to h i s own o f f i c e th e ta sk o f mo n i to r in g

th e p ro g re s s towar ds po r t fo l i o s tr a te g y ful f i l lme n t . As part

o f th i s , th e C E O
. . . e s t ab l i s he s l imi ts o f devi a t i on s fo r a c tu a l

p e r fo rman c e a g a i n s t ea ch o f th e ob j e c t ive s , s t ra te g i c p ro g ram

an d bud g e t s tanda rds , a tt emp ti ng to a s s e s s wh en a mo di f i ca t i on

o f one o r mo re as p e c t s o f th e po r t fo l i o s tr ate gy i s n e e de d ,

e i the r as a re s ul t o f a de vi at i on induc e d by on e o f th e in

te rn al di vi s i on s o r b e c aus e o f envi ronmen ta l chan g e s .

Th e divi s i on mana g e r s ta te s the mo ni to rin g ta s k s fo r h i s own

o r g ani z at i on , an d as s i g n s to h i s fun c ti ona l man a ge r s and to

mana g e r s s p e c i fi ca l ly app o in te d to ru n s p e c i fi c s tr a te g i c

p r o g ram s th e ta s k s o f mon i to rin g p r o g re s s towa r ds bud g e ts an d

s tr a te g i c p ro g r ams . Th e di vi s i on ma n a g e r a l s o a s s i g n s to hi s

'
own o f f i c e th e moni to r in g o f p ro g re s s towards hi s bu s ine s s

s tr ate gy fu l f i l lme n t . F u rth e r , h e deve lop s s tandar ds fo r

wh e n devi at i on s sh ou l d le ad to mo di fi ca ti on ( s ) in o ne o r mo re

as p e ct s o f h i s bus in e s s s tr ate gy , e i th e r as a re su l t o f de

vi a t i o ns in s tr a te g i c p ro g ram fu l fi l lme n t , fun c t iona l b ud g e t

ful fi l lmen t , o r chan g e s in ke y env i ronme n tal fa c to rs a f fe c t in g

th e bus ine s s .

Th e fun c ti o nal man a g e r s mo n i to r p ro g r e s s a g a in s t th e i r bu dg e ts .

S imi l a r ly , p ro g re s s a g ai n s t th e s tr a te g i c p ro g rams i s b e in g

mo n i to r e d , by a fun c t io na l man a g e r i f th e p ro g r am invo lve s

h i s de p ar tme n t p r ima ri ly , o r by a man a g e r a s s i gn e d to th e

ta s k i f th e p ro g r am i s mo r e he avi ly cr o s s f u n c t i on a l in na tur e .

S i g ni f i c an t de v i a t ion s ar e b e in g r e po r te d to di vi s i on ma na g emen t ,

to g e th e r w i th an a ly s i s an d s ugg e s t i on s f o r how to re a c t , if

at all . Le s s s i gn i f i c an t de vi a t ion s a re b e i n g r e s p onde d to

by th e fun c t iona l o r s tr ate g i c p ro g ram mana g e r s di r e c t ly . It

s houl d b e no t e d tha t th e mon i to rin g o r con tro l cy c l e c on s i s ts

of two di s t in c t ive but in te r r e l at e d typ e s o f ta s k s , th e tr a ck i n g

o f a c tua l p e r fo rman c e to b e c omp ar e d w i th th e e s tab l i s h e d

s tanda rds f rom th e p l an s , an d th e ex e cu ti on o f co r re c t i ve

a c t ion s re s u l ti n g i n modi f i ca tion o f th e p l an s . In E x h ib i t 2-5

th i s h as b e en in di ca te d b y l i gh t ly b rok en l i n e s fo r th e tr a ck i n g

r e l a ti ons h i p s an d wi th do t te d l in e s fo r th e co rre c t i ve a c t i on

r e la ti on s h i p s r e s p e c t ive l y .

Th e va r io us moni to r in g inpu ts fr om th e di f f e r e n t as p e c t s o f

th e fu l f i l lme n t o f the s tr at e g i c p ro g r ams , f u n c t i on al b ud g e ts

a s we l l as p er t in en t ch an g e s in th e k e y env i r onmen ta l fa c to r s ,

ar e be in g r e c o n c i l e d in te rms o f th e eme r g i n g e f f e c t s on th e

p r o g re s s o f th i s bus i ne s s as a who l e , p ro g r e s s towa rds th e

'
fu l f i l lme n t o f th e b us in e s s s tr ate g i c ob j e c ti ve s , towar ds

i ts s tra t e g i c p ro g rams an d towa r ds i ts bud g e t . Th e eme r g in g

p a t t ern o f p ro g r e s s an d de v i a t i on s i s b e in g r e a c t e d to in

t e rms o f in i t i a ti on o f ame l io r a tin g a c t i on s an d r evi s i on o f

p lan s ; howe ve r , p ar ti c ul ar ly s e r i o us de vi a t i on s a r e be in g
commun i cate d to th e co rp o rate man a g eme n t .

Th e C E O
. . . moni to rs p ro g re s s towar ds th e lon g - te rm p o r t fo l i o

ob j e c t ive s , towa r ds th e ove r a l l p o rt fo l i o o f s t ra te g i c p ro g rams

an d towards ne a r te rm b ud g e ts , p a r t ly a s th e r e s ul t o f th e

p e r fo rman c e inpu ts h e i s re c e iv in g from h i s di vi s ion , an d

p ar t ly bas e d on th e inpu ts r e c e ive d from h i s own office s '

mo ni to r in g , p a rt i cul a r ly o f ke y e nvi ronmen ta l fa c to r s . Th e

mon i to ri n g a t th i s l e ve l too i s l i k e ly to le ad to co rr e c t i ve

a c ti ons i f n e c e s s ary and p o s s ib le , th e ini ti a tion o f s uc h

a c t ions de p endi n g on th e de g r e e o f ma g n i tude o f th e de c i s i on

a s we l l as th e e x t en t to wh i ch a de c i s ion mi g h t h ave r e pe r

cu s s i on on th e ex e cu ti on o f o th e r s t r ate g i c e l eme n ts wi th in

th e ove r a l l p o r t f ol i o , i . e. wh e th e r o r no t a p ar ti c u la r or

g ani za t i on a l le ve l p o s s e s s e s th e di s c re tio nary powe r to a c t .

Th e mon i to rin g cy c l e doe s no t cu lmi na te a t a p ar t i cu l a r p o in t

in time but i s an n-
’
p ro c e s s un t i l ne x t y ea r s rev i s e d
, o g o in g

mo ni to rin g ta r g e ts ar e be in g e s tab l i s h e d th rou gh th e ca r ry in g

ou t o f p l ann in g cy c le s one to th re e a g a i n .

Th e f i f th cy c l e , rewar di n g o r i n c e n t i va t i ng , a l s o re p r e s e n ts

a di s cont inui ty in th e ove ra l l i n f o rmat i on f low p ro ce s s f rom

cyc l e fou r . Howe ve r , th i s cy c l e i s neve r th e l e s s c lo s e ly re

l a te d wi th th e o th e r four . It ,
em e r ges wi th th e in

vo l ve m e n t in s e tt in g p e rs ona l a ch i eveme n t g oa ls wi th h is di

vi s i on man a g e rs , wi th re g a r d to th e i r e x p e c te d con tr ibu t i on

to th e s uc ce s s o f th e fu l f i l lme n t o f ob j e c tive s , s t ra te g i c

p rog rams an d ne ar - te rm bu d g e ts . Th i s dr aws di re c t ly on th e

p l anne d outp uts o f Cy c l e O ne ( S te p Cy c l e Two ( S te p an d

C y cl e Th re e ( S te p an d re f l e c t s th e ac coun tab i l i ty tha t

enou g h mo s t comp ani e s wi l l ty p i c al ly h ave c on s ide r ab l e di f f i cu l ti e s in

" "
a ctua l ly mak in g s uch a way o f s t ra te g i c a l ly man a g in g th e comp any wo rk .

Mo s t o f th e r ema inde r o f thi s book , in fa c t, wi l l di s cu s s how to op e ra

t i ona l i ze th e mo de l . At th i s po i n t , howe ve r , i t i s imp o r t an t to s tr e s s

ag a in th at th i s mo de l i s a be havi o ra l o ne , i ts g en e r a l di s ti n c t i ve ch ar

ar t e r i s t i cs thus be ing th a t i t i s a co mmun i ca ti on f low mo de l ; i t i s i n

t er a c t i ve ; i t i s i t e r ative . At th i s po in t i t i s us e fu l to di s cu s s e a ch

o f th e s e thr e e c hara c te r i s t i c s mo re s p e c i f i ca l ly .

Th e ta s k o f deve l op in g an op e r ati on al s e t o f c oo rdi n a te d s t ra te g i c

p lan s fo r a l ar ge , comp l ex co rp o ra ti on i s c e r ta in l y no t a tri vi a l on e ,

g iven th at a l ar g e numb e r o f in te r r e l a te d e l eme n ts o f p lan s wi l l h ave to

be c re a t e d . Th e comp l e x i ty o f the tas k o f de ve lop in g p l an s i s p ar ti c ul a r ly

h i gh when we ar e fa c e d w i th a h i ghly dive r s i f i e d co rp o ra ti on , wh e r e e a ch

bus in e s s p l an wi l l have to fi t wi th in th e ove r a l l co rp o r a t e po r t fo li o

s tr a te gy cont ex t . I n o r de r fo r th i s to be come fe a s ib le i t i s typ i c a l ly

ne c e s s ary to deve l op ti g h t t ime s ch e dul e s fo r wha t shoul d b e de ve l op e d an d

rev i ewe d by whom wi th i n th e co rp or a tion . Th e com mun i c a ti on sy s t em sp e c

if ies th is ; a s indi ca te d b y th e f l ow ch ar t ( o r “
s n ak e ) o f
"
E x h ib i t 2-5, it
i s a s y s tem w i th a h i g h de g r e e o f i n te r de p e nden c e an d typ i ca l ly l i t t l e

s la ck ; i t i s the r e fo re ne c e s s a ry fo r e a ch un i t wi th in th e o r g an i z a t io n to

a dh e r e s tr i c tl y to c om m u n c i a t i on p a tte rn s an d t ime s ch e dul e s .

The sy s tem i s inte ra c t ive Th i s i s a r e f l e c ti on o f the inte nt to

'

de ve l op a sy s t em whi c h enab l e s th e r e l e a s e o f th e c r e a t iv i ty , sk i l l s and

ins i g h t o f ind ividua l pe o p l e ac ro s s th e or g an i z a t i on by mea ns o f a c l e ar

”
d iv i s ion o f lab or
"
amo ng mana g e r s . Th i s int e rac t ive mode fo l lo ws a

h i g h l y fo rma l i z ed p att er n o f "

top -
u p
"
int er fac e s wi th in

th e or g an i z at io n .
Th i s two - wa y p roc e s s go e s on a t eac h o f th e f ive
 s tag e s o f th e p roc e s s , whe n i t c ome s to o b j e c t ive s - s e t t i ng , s tr a t e g i c

p ro g r ammin g , bud g e t in g , mo ni tor in g a s We l l a s i nc e nt i va t i ng . A l thou gh

i t th er e f or e wi l l b e e s s e n ti a l wi th a two - wa y int er ac t ion a t e ac h s ta g e ,

th e ac tua l ba l anc e b e twe e n th e to p — d own and bo t tom- u p i nf lu e nc e s ma y o f

c our s e c han g e be twe e n the c y c l e s , and i t wi l l no rm a l l y a l s o b e d i f f e r ent

f rom one f irm to ano th e r . In C ha p te r F ive we s h al l d i s c u s s th i s .

Th e s y s t em i s a l s o i t e r a t ive , a l thou g h th i s m ay no t be di r ec t ly

ap p ar en t f rom Exh ib i t 2 - 5 , e x ce p t fo r th e co r re c tive a c t ion s tha t a re

b e i n g in i ti a te d a s p a r t o f th e mo ni to r in g s tag e an d wh i c h may l e ad to

mo di f i c a t i ons in ob j e c ti ve s , s tra te g i c p ro g r ams and / o r b ud g e ts . How

eve r , wi th th e ne e d to deve l op comp l ex , coo rdi n a te d p l ann in g o utp u ts at

e a c h s ta g e o f the p l anni n g p ro c e s s , a l o t o f tr i a l and e rro r w i l l no rma l ly

have to tak e p l ac e b e fo r e a f in a l i z e d s e t o f p l an s c an b e r e ac he d . Th e r e

ar e two as p e c ts o f th i s . F i rs t , du r i n g e ach s ta g e a g r a dua l , coo rdi na te d

'
commi tme n t ac ro s s th e o rg ani z a t ion s s tr a te g i c h i e r ar chy i s th e o u tp u t

ob j e c t ive s , s tr a te g i c p ro g rams o r bud g e ts . P a r ti cu l ar l y wh e n th e p l an

ni n g sy s t em i s n ew an d/ o r dur i n g p e r i o ds o f ma j o r an d r ap i d ch an g e s th e

" " " "

ten ta t ive p lan s c an go up an d down s e ve ra l t ime s be fo re a co n s e n sus

i s re a ch e d wi th r e s p e c t to th e o utpu ts o f a p ar t i cu l ar p lann in g cy c l e

"
th a t can b e s i gn e d o f f by s en i o r man a g eme n t . Th e s e i t e r a tio n s ar e

in evi tab l e , a l tho u gh th ey mi gh t r e p r e s en t a time - co ns umi n g an d p e rh ap s

f r us tr at i n g s e t o f me e tin g s and re vi s i on s . Th i s i s a n ec e s s ary an d

unavo i dab l e p ar t o f p l ann i n g wh i c h unde rs co r e s a ma j o r ch ar a c te r i s t i c

o f th e p ro c es s : p lann in g invo l ve s r i g o rous , de ta i l e d an d t ime - cons umi n g

wo rk for a l l : th e p l ans ar e on l y as g oo d as th e i r we ak e s t p ar t . .
I n Ex

hib i t 2 - 6 we have in di c a te d tha t th e r e ty p i c al ly mi g h t be f ive di f f e r en t

"
k inds o f i te r at ive loo p s o f th i s k in d wi th th e p l ann i n g p r o c e s s
(En c i r c l e d numb e r s 1 th ro u gh 5 in E xh ib i t 2 -6)

Exh ib i t 2 - 6 : I te rat ive Lo op s in th e S t ra te gi c P l ann in g P ro ce s s

loop 1 : Wh en th e C E O
. . . re c e ive s th e d iv i s ion a l inpu ts indi c a t in g the

po ten ti a l s fo r wh e r e th e bu s i ne s s e s mi gh t b e g o in g h e may

have to r e c onc i l e th e eme r g in g p or t f o l i o p i c tu r e wi th h i s

in i tia l te n ta t ive ob j e c t ive s . As a r e su l t we may a s k on e o r

mo re o f th e div i s ion s to r ev i s e th e ir inpu ts , an d he mi g h t

chan g e h i s or i g ina l te n ta tive ob j ec t ive s a s we l l . On e or

mo re i te ra ti on s ma y b e ne c e s s ary b e f o re th e loo p i s c lo s e d .

loo p 2 : Du rin g '

th e div i s ion man a g e r s s tr a te g i c p ro g r amm i n g p a cka g e

c onso l i da ti on he ma y fr e que n tl y go b a ck to th e fun c t i onal

de par tme n ts an d re que s t rev i s ion s in pa r ti cul a r p ro g r am s ,

in o rde r to fa c i l i ta t e a be tt e r ove ra l l ma tc h o f the ind i

v i dua l p ro g rams in to a mo r e co he r e n t p ac k ag e f rom th e bus i

ne s s v i ewp o in t .
have be en comp le te d , i . e . i te r a tion s a f fe c t in g two o r mo re o f Cy c l e s 1

to 3 . The s e unde s i r ab l e revi s ions sh ou l d no t be c on fus e d wi th th e de

s i rab l e revi s i on s o f Cy c l e s 1, 2 or 3 re s ul t in g from a c ti on s tak en in

th e mon i to r in g s ta g e .

6 . S umm a ry

I n th i s ch ap te r we have deve l op e d a c on c e p tua l mo de l fo r co rpo r a te

p l ann in g . Th i s con c e p tua l s c heme i s b as e d on th re e g e ne r al s e ts o f p r em

i s es . F irs t , i t a c knowl e dg e s th a t th e r e i s an op p or tun i ty fo r "

di vi s i on

o f l abo r "
amon g th e va r i ous l eve l s o f mana g e me n t in an o r g an i z a t ion , s o

tha t thr e e d i s tinc t ive l eve l s o f s t r a te g y c an b e deve l op ed , wi th th e

co rp o rat e mana g eme n t to b e h e l d p r imar i ly a c coun tab l e fo r th e p o r t fo l io

s tr at e g i z in g ta s k , wi th d iv i s ion mana g eme n t to fo cus on bus in e s s s tr a t

e g i z in g , an d th e s p e c i a l i z ed fun c t iona l man a g eme n t g ro up s to coo p e r a te

on deve lop in g s tr a te g i c p ro g rams . We have a t temp ted to demons tr a t e in

our di s cus s ion th e s i gn i f i c an t b e ne f i ts tha t mi g h t ac c rue to an o r g an i

za t i o n by hav in g an exp l i c i t s tru c tur e in th e d ivi s ion o f l ab o r to c ar ry

ou t th e s tra te g i c ta s k s . Th i s wi l l p r ovi de fo r s p e c i a l i za t ion , bu t wi th

in an over a l l co rp or a te c on te x t .

Th e s e con d p r emi s e tha t th e con c ep tua l s c heme r e s ts on i s th a t th e

p l ann ing ta s k mu s t a c comp l i s h a mul ti fa c e ted s e t o f pur p os e s , mu ch b roa de r

th an we ma y b e tr adi ti ona l ly have b e e n r e co gn i z i ng . S p e c i f i c al ly , re l ev an t

opp o r tun i ti e s mu s t be ide n ti f i e d and narrow ing down ch o i ce s mus t b e ma de

" "
to ar r ive a t a bes t s e t o f c oo rdi na te d a c t i on pr og r ams fo r the comp any .

Th i s unde r s co re s an i s s ue th at we have be e n s tr e s s in g , name ly th a t p l an

n in g i s a de c i s ion - mak in g p ro c e s s . In l in e wi th th i s i t i s a l s o ne c e s s a ry

to s e e mon i tor in g an d i nc e n t i va t i ng a s p ar t o f th e p l ann ing p r o c e s s . We

hav e su gg e s t ed th a t a sy s tema t i c an d s e quen tia l s h i f t o f f ocu s f rom one
ke y a c tiv i ty to ano th e r i s u s e fu l to f a c i l i ta te th e de ve lopme n t o f ful l

bo di e d p l an s , wh i ch mi g h t e ncomp as s bo th adap t iv e a s we l l a s in te g ra tive

qua l i ti e s in s te ad o f b e in g p ar t i a l . A us e fu l s e t o f cy c l e s a re ob j e c t ive s

s e t t in g , s t r ate g i c p ro g r ammi n g , bud g e tin g , mon i to r in g , an d i n c e n t i va t i n g .

A f ina l p r emi s e o f th e co n c e p tua l s ch eme i s th e a c knowl e d gme n t o f

th e b e havi o ra l na tu r e o f p l ann in g , tha t i t i s a fr amewo rk fo r in te ra c ti on

amo n g hum an ta l e n ts . Thu s , th e p l ann in g p ro c e s s sh ou l d b e s e e n a s an

in fo rm a t ion p ro c e s s , an d above a l l sh ou l d f a c i l i ta te innova tive and

c re a tive mana g e r i a l b e havio r . To fa c i l i ta te th i s th e p l ann in g s ch eme

th a t ha s be e n deve lo p e d in c o rp o ra t e s e x p l i c i t p a tte rn s o f in te r a c t i on ,

s e ts o ut c l e ar s e ts o f a g e nda s fo r "
wh e n to di s cu s s wha t , a s s i gn s e x

p li ci t p a tt e rn s o f ac coun tab i l i ty to the va r i ou s man a g e r s an d i nc e n t i va t e s

tho s e mana g e r s tha t c on tr ibu t e towa r ds th e f i rm s s tra t e g i c su c c e s s '

.

Why i s i t n e c e s s a ry wi th s uch an e l ab o ra t e c on c e p tua l s c h eme fo r

p l ann ing ? We
-

s ha l l b r i e f ly su gg e s t two in te r r e l a te d re as on s a t th i s

po in t ; h owev e r , a s our d i s c u s s i on p ro c e ed s s eve r a l o th er re as on s wi l l

emer g e . F i rs t , g i ve n tha t we ar e p r op o s i n g th a t th e ta s k o f p l ann in g

s houl d be ap p roa ch e d by me an s o f pro c e s s - mo de l fo r p lann in g i t b e c ome s

e s s en t ia l tha t th e ove r a l l lo g i c an d ra ti on a l e o f th e p ro c e s s i s ma de e x

p l i c i t and un de r s t andab l e to a r e la ti ve ly wi de num b e r o f man a g e r s . In

o rde r to do a g oo d j ob , bo th i n te rms o f un de r s tan din g an d mo t iva ti on ,

wi th i n the mu ch nar rowe r p ar t o f th e p lann i n g p ro c e s s m o de l tha t h e no r ?

ma l ly wi l l s e e , i t i s e s s e n ti a l tha t h e ha s a c l e ar fe e l fo r th e ove r al l

ap pr oa ch . On ly an e x p l i c i t p ro ce s s - o ri e n t ed c on c e p tua l co rp o r a t e p l an

n in g s ch eme c an fa c i l i ta te th i s . Re l ated to thi s i s our s e c ond ra t io na l e

fo r th e ne c e s s i ty o f a con c e p tua l s c h eme : G i ve n th e many f a ce t s tha t

p l ann in g con s i s ts o f i t i s un r e a s on ab l e to e x p e c t th a t a l l as p e c t s o f

p l ann in g s ha l l be e qua l l y we l l e l abo r a te d an d Op e r a ti ona l i z e d a t on c e .

Howeve r ,
de ve lop in g a f i rm s p l ann in g sy s tem
'
g r adual l y re qu i r e s a k e en

un de r s tan di n g of how th e va r i ous e l eme n ts tha t a r e be in g deve l op e d f i t

in to an ove r a l l s c heme , a lmo s t l ik e a t ta ch in g b i ts an d p ie c e s to a

s c h e l e th o n . Many comp an i e s , un fo rtun a te ly , lo s e tr a ck o f th i s , an d co n

s e que n tl y , end up wi th s eve r al mo du l e s fo r as p e c ts o f p l ann in g that canno t

b e re con c i l e d . C ons e que n tly , e ve n th ou g h cons i de r ab l e e f f o rt s h ave g on e

in to p lann in g , th e s e e f fo r t s do no t l e ad to a p a tt e rn o f evo lu t io n towa rds

an ove ra l l in te g rate d p l ann in g s y s tem .

O ur con ce p tua l s ch eme i s a gen e ra l mo de l wh i ch s hou l d ap p ly to any

mul ti divi s i on a l comp any , an d al s o to any s in g l e - bus in e s s f i rm in a mo di

f ie d ve r s i o n b y e l imina tin g th e po r t fo l i o s t ra te g i c le ve l . I t i s c l e ar

tha t th e con ce p tu al mo de l a s out l i ne d h e r e re p r e s en ts onl y a fi r s t cut

at in s ta l l in g a co rpo r a te p l annin g s y s tem . F ur the r mo di f i ca ti on i s ne e de d

to tai lo r - mak e th e s y s tem to re s pon d to the p l ann in g ne e ds di c ta te d by

'
th e fi rm s s i tuat iona l s e t tin g ; we s ha l l di s cu s s th i s i n Chap te r s F o ur an d

F ive . Th e r e fo re , b e fo r e s e e in g how we mi gh t bui l d ce r tain de s i r e d cap a

b i lit ie s in to th e mo de l we ne e d to di s cus s how to un de r tak e an an a ly s i s

'
o f a p art i c ul ar f i rm s s i tua t i on al s e t t in g , in o rde r to be t te r i den ti fy

'
a fi rm s pa r t i cul a r p l ann in g ne eds . T he s u b j e ct o f th e ne x t chap te r wi l l

de a l wi th th i s , p a rt i cu l a r l y th e i de n t i fi c a ti on o f wh a t ne eds a fi rm mi gh t

have fo r p l ann in g , s te m min g from the s tr ate g i c s e t tin g that th e f i rm fin ds

i ts e l f in .
ib i t 2- 7 : O rg an i z a t iona l S tru ctu re , S we di s h Mu l ti na ti ona l C om p an
o ve ra l l comp any s tr at e g y b a s e d on th e bus in e s s e s a s s t ra te g i c un i t b ui l din g

b lo ck s th e p r e s en t o r g an i z a t iona l s e t - u p i s po te n ti al l y l e s s u s e fu l , in

th a t th e smal l e r di vi s i on s mi g h t de tra c t f rom th e a tt en t ion o f s e n io r m an

ag em e n t as to whe r e th e tru e po r t fo l i o tra de o f fs an d cho i c e s s hou l d b e ,

above al l b e twe e n va r i ou s s e gme n ts o f the pha rma ce u ti ca l ar e a . By addi n g

re l a t i ve ly s m a l l , un fami l i ar an d po ten ti a l l y p rob l em - r i dde n bus i n e s s e s to

' n
a comp any s p o rt fo l i o th e r e mi g h t e a s i ly de ve lop a p rob l em o f ove r lo a di n g

o f th e s tr a te g i c s y s t em in th a t s e ni o r man a g eme n t ge t di s tr a c te d i n too

man y di re c t ion s and fa i l s to p ay s u f f i c i e n t a t te n tion to cr i t i ca l s tr ate g i c

p o rt fo l io i s su e s con c e rn in g th e co re bus in e s s e s . Th us , i t s e ems to b e a

de f i n i te a dv an ta g e fo r e f f e c t ive po r t fo l i o s tr ate g i z in g th at th e s i z e di s

tr ib u t i on am o n g bus ine s s div i s i on s i s re l a tive ly eve n .

A s e cond or g ani z a tion a l i s s u e re l at e s to the way th e pha rma ceu ti c al

s e cto r i s buil t up in s t ru c tu re . we a re de a l in g wi th a remarka b ly comp l ex

s tru c ture wi th at l e as t f iv e ma j or d i f f e re nt ke y s ub s tru c tu re s

a) I n S we de n we h ave a di vi s i on a l i ze d
"
typ e of o r gani z a ti on a l s tru c tur e ,

wi th e ach of the th r e e S we di sh p rodu c t c omp an ie s O p e r at in g th e i r own

"
b u s i ne s s wi th th e i r own R& D c ap ab i l i t i e s and ind ep e nde n t mar k e t in g

and d i s tri b ut ion f o r c e s . Th i s imp l i e s a con s i de r ab le dup l i c at i on of

e f f o r ts wi th thr e e R & D o r g an i z a ti ons and e i gh t s a le s f or c e

o rg an i z a t io ns in S we de n . P r e suma b ly th e a c tiv i ty l ev e ls of the

p ro d u ct comp ani e s i s hi gh enou gh to j us t i f y th e c o s t s of dup l i c a t ion .

Th e r e is con s i de r a b l e b e ne f i t s f rom h av in g r e la tive ly s imp l e and

e as i ly i d en ti f ia b l e s t ra te gi c un i t s l i k e the s e , no t th e l e as t b e c aus e

p e op l e ty p i cal ly c an b e t te r as s o c i ate thems e l f wi th s u ch s t r ate g i c ,

s e t ti n g s . Th e re a re , howev e r , a ls o po ten t ia l d i f f i cu l ti e s th at a

" "
p rod uc t company mi g h t deve lop s tra te g i e s th at m i gh t hurt th e o th e r
p rodu c t comp anie s and th e reby p o te n ti al l y hu rt th e c omp any as a wh o le ,

by adop tin g ma rk e tin g c amp a i g ns th a t mi ght c re a te b ad - wi l l fo r th e

oth er s , by f o cus in g on th e s ame cus tome r s and the r eb y cau s ing

cu s tome r "
f a ti gue "
,
by comp e tin g f o r th e s ame p er s onne l r e s our c e s ,

an d so on . Thi s p rob lem b e c ome s ev en mo r e di f f i cu l t due to a h i gh

p o ten ti a l f o r inc r e as in g ov e r l a p b e twe en the th re e p r odu c t comp ani e s

b us ine s s s e gmen ts , s temmin g p rima ri l y f rom th e di f f i cu l ty of

k e e p ing th e outpu ts f rom ph armac eu ti ca l R& D e f fo r t s to deve lop

wi thi n th e in te r e s t a re as of e a ch p roduc t c omp any , no t tou ch ing

'
up o n o th e r pr odu c t comp ani e s s ph e r e of invo lv eme nt . I t shou ld

thu s be a p l anni n g tas k to p rov ide s tra te g i c coo rdi na ti on a c ros s

th e ph arma ce u ti c a l bus ine s s e s i n S we de n , i . e . in te g r a t ion p l ann in g .

Wi th in th e re s t of th e No rd i c c oun tr i e s ( No rway , D enmar k , F i nl and )

e a ch of the p ro du c t c omp an i es have th e i r own mar k e ti n g a nd s a le s

org an i za t i on s . Howev e r , a l l of th e s e ( to g e the r wi th th e s a le s

o rg ani z ations of th e no n - pha rmac eu t i c a l divi s i on s ) ar e p a r t of a

g e og r aph i c a l ar e a comp any . We thu s s e em to have a s o rt of ma tr i x

or gani za ti on with th e p rodu c t dimens i on b e in g th e domina tin g or

"
le ading
"
on e and th e ar e a d imen s ion b e i ng s upp leme n ta l or gr own

P r e sumab ly , th en , we mi gh t exp e c t th at th e p rodu c t or gan i z ations

shou l d b e p r ima ri ly inv o lv ed in in te gr at ion p lanni n g . Howeve r , we

w ou l d e xp e c t th e a re a dime ns ion to b e p r ima ri l y invo lve d in a dap ta ti on

p lanni n g . Thus , th e are a vi ewp o in t shoul d be in the c e n te r of

f o c us wh en dev e lop ing th e inp u ts f r om the s e c oun tr i e s to th e ove ra ll

ph armac e uti ca l s e ctor s trate gy . Th us , th e i s sue wou ld b e to fo cu s

on the s tr a te gi c opp o r tun i ti e s of e a ch coun tr y so th a t th e r e l a tive

invo lv emen t can b e d e te rmine d on the b as i s of r e l a tive c oun try

p r o du ct /b u s i ne s s op por tuni t ie s in U S A . . . an d F ran c e , so th at the

ph a rma c eu ti ca l s e c to r c an tak e th e p ote n ti al s of th e s e imp o r tant

ma r k e ts in to ac coun t when the s e c to r s ove r a l l ob j e c tive s a r e

'

fo rmu l a te d . S e c ondl y , the re i s a p l ann in g nee d to b e c ar r i e d ou t

wi th re s p e c t to th e di re c ti on Of th e pa r ti cu l ar p r odu ct /b u s i ne s s

s e gme nt of the o rg an i z a t ion , ana lo gou s to th e p l annin g ta s k s of

th e th r e e S wed i s h p ro du c t comp an i e s . Th e o r gan i z a tion wi l l h ave

an impo r tan t ne e d fo r are a Op p o r tun i ty inp uts from th e 10 mark e tin g

c omp an i es a s we l l a s f rom th e S we di sh and o th e r No rdi c coun tr i e s to

deve lop me an in gfu l p lan s f or th i s . I n gene ra l a c l e ar cu t di s tin c ti on

wi l l h ave to be drawn wi th re gard to th e tw o ab ove p lann in g tas k s ,

so th a t the ov e ra l l ph a rma c eu ti c a l s e c to r s g l o b a l s t r ate gy wi l l

'

no t s uf f e r f rom un cl ar i ty w i th re g ard to the R& D /p r odu ct ro le s of

U S A
. . . an d F ran c e as we ll as wi th re g a rd to th e ma r k e t op p or tun i ti e s

in U S A . . . and F ran c e f or th e o the r ( S we di sh ) ph arma c eu ti c a l p r oduc ts

an d R &D .

O u ts i de of Sweden th e fou r no n- ph a rmac eu ti cal divi s i on s s e em to re ly

'
on the pha rma c eu ti c al div i s i on s o r g ani z a ti on al re s our c e s . A ma j o r

argumen t fo r thi s i s th at th e s i z e of th e o the r divi s i on s i s s ti l l

so sma l l tha t the y cann o t af ford th e i nv e s tmen t in dev e l op in g

the ir ow n s e p ara te inte rna t ion a l o r gan i z a t ion s . Th e p ro b lem w ith

thi s , howeve r , is tha t a la c k of re a l i sm mi gh t deve lop a s to wha t

shou l d be th e tru e s tr a te gi c Op p o rtun i t i e s wor ldwi de . S imi l ar l y ,

the a c coun tab il i ty f o r s uc c e s s fu l s tra te g i c ful f i l lmen t m i gh t

e as i ly ge t di lu te d .
 2 -
87

In s ummary , th en , we s e e th a t co rpo r a te po r t fo l i o p l ann in g tas k i h

vo lve s deve lop in g an eme r g in g b al an c e b e twe e n th e p harma ce ut i ca l di v i s i on

an d th e o th e r fo ur di vi s ion s wh e r e s hou l d th e emph as i s be ? Howe ve r ,

i t al s o s e ems c l e ar th a t th e po rt fo li o s t r a te g i z in g tas k i n th i s ins tan c e

i s bo th mu ch s imp l e r an d p rob ab l y a l s o re l a tive l y l e s s imp o r tan t th an th e

ta s k o f deve lop in g a bus in e s s p l an wi th in th e p harma ce u t i c a l di v i s ion .

He re th e i s s ue i s th at th e f ive p ro du c t comp an i e s re p r e s e n t di f f e r en t SBUs .

Thus , a goo d ph a rma ce u ti c a l di vi s ion bu s in e s s p l an wi l l have to be ba s e d

p a rt ly on p l ann in g inpu ts f rom th e 8 8 05 an d p a rt ly on an ap p roa ch whi ch

bui l ds on th e in t e r re l a t ion s h i p s b e twe en th e S BU s Wh e n i t come s to

‘

the th i r d le ve l o f p l ann in g , name ly the deve lo pme n t o f p r e domi n an tl y c ro s s

fun c t ion a l s tr ate g i c p r o g rams , th i s wi l l a l s o b e re l a tive ly comp l i ca te d

g i ve n th e e x t en s ive dup l i c atio n of fun c t i ona l cap ab i l i ti e s , p a r t i cul a r ly

wh en i t come s to R D . Th e s e t t in g o f th i s e x amp l e sh ou l d i l l u s tr a te th e

eno rmou s di f f i cu l ty
-
of dev e lop ing a meani n g fu l h ie r ar ch y of s tr a te g i c tas k s

in a hi ghl y comp l ex or g an i z at ion al , mul tin at iona l and wi th ma tr ix s tru c tu re s .

Two addi t i on a l i s s u e s of re l ev an c e f o r the di s cus s ion i n th i s b oo k eme r ge

'
f r om thi s : H ow c an a comp any s p lann i ng sy s tem ind e e d p rov i de th e ne ce s s a ry

s upp or t th at i s ne e de d to deve l op s u ch comp lex s tr at e g i e s ? S e c ond ly , i s i t

re a l ly ap p ro p ri a te and ne c e s s a ry wi th su ch a comp l ex ,
f r a gmen ted and mu l ti

h i e r ar chi c al or g ani z a ti ona l s t ru c tu re g ive n th e con s i d e ra b l e ri s k s tha t wi l l

be imp l i e d f rom l ac k of s t r a te g i c fo cu s and h ig h c os ts i n th e f o rms of

ove rh e ads , d up l i c at ion and commun i c a t i on ? We sh a ll di s cu s s e a ch of the s e

i s s ue s , in Ch ap te rs F our an d S ix re s p e c tive l y .
Foo tno te s C h a p te r Tw o

1 . Th e c on c e p tu a l s ch eme to b e p re s e n te d i s an ex ten s ion of V an c i l , R . F .

D ive r s i f i ed Comp an i es
" "
and P . Lo ran g e , S tra te g i c P l ann in g in , H arvard

Bu s ine s s R evi ew , Jan .

- F eb .
, 1 975 . S ev e r al au tho r s hav e p r e s ent ed

c onc e p tual f ramewo r k s f or co rp or at e p l ann in g ; s e e , fo r in s tan c e ,

G i lmor e , F ran k F and B r anden b e r g , R

"
. . G .
, An a tomy of Co rpo r a te

P l ann in g Ha rvard B us ine s s R ev i ew , Nov .

-
Dec .
, 1 962 , S tewa r t , Ro b ert P .
,

A F ramewo rk f or Bu s ine s s P l ann in g , R ep or t NO . 1 62 , Long R an g e P l ann in g

S e rv i c e , S tan fo rd R e s e a rch In s t i tu te , Me n l o Pa r k , 1 96 2 , An tho ny ,

Rob e rt N .
,
P lann in g and Con tro l S y s tem s : A F r amewor k fo r Ana l y s i s ,

D iv is ion of R e s e a rch , H a rva rd Bu s ine s s S choo l , Bo s ton , 1 96 5 , Humb l e ,

John W. ,
"
Co rp o ra te P l ann in g and Ma n a g em en t by Ob j e c t ive s "
, L on g R an ge

P lann in g , June , 1 969 , S te in e r , G e o r g e A .

, To p M an a gem en t P l ann in g ,

M acM i ll an , New Yo rk , 1 96 9 , A c ko ff , Ru s s e l L .
, A Con c e pt of Co r po r a te

W i l ey In te r s c i en c e , New Yo r k , 1 9 7 0,
"
P l annin g ,
-
R i ngb a kk , K . A .
, Th e

"
C or po ra te P lann in g L i f e Cy c l e An In te rna t i ona l P o in t of V i ew , Lon g

Ra n g e P l ann in g , S e p temb e r , 1 972 , Cohen , Ka lman J . an d R i ch a rd M . Cy e s t ,

"
S tra te gy : Fo rmul a t ion , Imp l em en ta ti on and Mon i to r in g J ou rn al of

Bu s in e s s , Vol . 46 , J u ly , 1 9 7 3 , M alm , Al l an T .
, S tra te gi c P l ann i n g

S y s tems : A F r amewo rk fo r Ana l y s i s an d D si

gp S tuden t Li t t e r a t u r
e , ,

Lund ( Swed en ) , 1975 , H ax , Arno l d o C . and Ni co l a s S . M ajl u f ,

"
Towa rds

"
th e Fo rma l i z a ti on of S tra te g i c P lann in g A Con c ep tua l Ap p r o ac h ,

Te chni c al R e po r t NO . 2, S l oan S ch oo l of M an a gem en t ,

C am b r id ge ,

1 9 77 , S te ine r , Ge o r ge A . and J ohn B . M ine r M an a gemen t P o l i c y

, and

S tra te gy , M a cMi l l an , New Yo rk , 1 97 7 , and Tay lo r ,

B e rna rd and Jo hn R .
 2 - 90

Th e r e e x i s t s ev e r a l ex c e l l en t l i te r a tu r e d is cus s ions on th e r e l ev an t

a s p e c ts of Ob j e c t iv e s s e t tin g ; s e e
—
, f or ins t an c e , S imon , H . A
"
On
th e C o nc e p t of O r gan iz a t io na l Goa l
"
, Adm in i s tr at ive S c i en c e Qua r te r l y ,
-

New Yo r k , 19 6 7 , Andr ews , Kenn e th R .

, Th e Con c e pt o f Cor po r a t e S tra te gy ,

Dow J one s - I rvi n g , Homewo o d , 19 7 1 , G uth , W i l l i am D . ,

"
F o rmu l a t in g
O r gan i z a tiona l O b j e c tive s and S tra te gy : A S ys tema t ic Ap pro a ch "
,

Env i r onme n ta l A p pr ai s a l , Lon g R an

ge P l anning , Mar ch 19 7 3 , Rh enm an

Er i c , O r gan i z a tion Th eo ry f or Lo gg- R an ge P l ann in g , Wil ey - I n t er s c i enc e ,

New Yo r k , 1 9 7 3
"
, B owman , Edwa rd H .
, Ep i s temo l o gy , Co rp o r a te S tra tegy ,

F r an k T
"
and Academe , S l oan Man a geme nt R ev i ew , Win te r , 1 9 74 , Pa ine , .

and W i l l iam Naume s , S tra te gy and P ol ic y Form a t i on : An I n te gra tive

Appro a c h , S aund er s , Ph i l ad e l ph i a , 1 97 4 , La th am , G . P . and Y u k e l , G . A

"
R ev i ew of R e s e a rch on th e Ap p l i c a tion of Go al S e t t in g in O r g an i z a t io n s
Ac ad emy of Man a gemen t J ou rn al , D e c emb e r , 1 97 5 , V an c i l , R i ch ard F .
,

"
S tr a te gy Fo rmul a tio n in C omp l ex O r gan i z a t ion s S lo an M ana gemen t
"
R evi ew , W in t e r , 1 976 , Qu i nn , J ame s B r ian , S tra te g i c Go al s : P roc e s s

and Po l i t ic s
"
, S lo an Mana gement R evi ew , F al l , 1 9 77 , and To s i , H . J .
,

R i z zo , J . R .
, and C arro l l , S . J .
,
"
S e t t ing Go al s b y M an ag eme nt by

O b j e c tive s C a l i fo rn i a Mana gemen t R ev iew , S umme r , 197 7 .

Da ta R e sour c e s I ns ti tu t e (DR I ) p ro v i de s a we l l - known s e rv i c e of

indu s try - s p e c if i c as we l l as la r g e r s e c to r ec onome tr i c mod e l s .

-
Ano th e r
we l l - known mod el i s th e Wh a r ton e c onome tr i c mod e l . S e e Mc ca r ty ,
M . D .
,

"
Th e Wh ar ton Qua r te r ly Ec onome tr i c For e c as ting Mo de l ,
Ma rk III
 2 - 91

Wh a rton S cho o l of F inan c e and Comm e rc e , P h i l ade l ph i a , 1 9 74 , and Du gg al ,

V . D .
,
L . R . Kl e in and M . D . M c ca rty ,
"
Th e Wh a rton Mod e l M ar k II I : A

M o d e rn I S - LM Cons truc t I nt e rn a t i ona l Ec onom i c R ev i ew , O c to b e r , 19 7 4 .

S e e a l so P indyc k , Ro b e r t S . and D av id L . R u b in f i e l d , Eco nome tr i c

M ode l s and Ec onomic Fo r e c a s t s , M c Gr aw — H i l l , New Y o r k , 1 9 7 6 , Ch . 12 .

S e e Van c i l , R i ch a rd F B e t te r M an ag em en t of C or por a te Dev e lo pmen t

H a rv a rd Bu s ine s s R ev i ew , S ep .
-
Oc t .
, 197 2 .

Th e fo l l owin g ar t i c l e s and bo o k s d i s cu s s in mo re d e ta i l is su e s b r ou gh t
up in s e c t ion 2 - 4- 3: S ihl e r , W il l i am H
"
Towa rd s B e t te r M ana g eme n t
C on tro l S y s tems C a l i f o rn i a M ana gemen t R evi ew , Vo l . 10, NO . 3, 19 71 ,

Mo c kl e r , Ro b ert J .
, Th e M an ag em en t C on tro l Pr o c e s s , Ap p l e ton - C en tu ry

C ro f ts N ew Y o rk
, , 19 7 2 , Py hr r , P e ter A . , Z e ro - B as e B u dg e tin g , W i le y
I n te rs c i enc e , New Y or k , 1 9 7 3 , Newman , W i l l i am H .
, C on s tru c t iv e C on tro l ,

"
P re n t i c e Hal l , - En g l ewo od C l i f f s , 1 97 5 , B a l e s , C . F .
, S tra te g i c C on tro l

Th e P r e s ident s P a r adox '

B us ine s s Ho r i z on s , A ugus t , 19 7 7 , C ar t e r , E . E

" "
De s ig n ing the Cap i ta l B udg e t ing Pr oc e s s , in Ny s trom , P au l C . and

W i l l i am H . S tarb uc k , ed i to r s , P r e s c r i p tiv e Mo de l s of O r gan i z a t ion s ,

Nor th — Ho l l and P ub l i sh in g Co .
, Ams te rd am , 1 97 7 , and S ton i ch , P aul J .
,

Z e ro - B a s e P l ann in g and Bud ge t in g , D ow Jon e s - I rw in , Homewoo d , 1977 .

S e e Lo ran g e , P e te r and Ri cha rd F . Van c i l , H ow to D e s i gn a S tr a te g ic

P l anni ng S y st em
"
, Ha rva rd B us ine s s R ev i ew , S ep t .
—
Oct .
, 19 76 , E x h ib i t 2 .

S e e fo o tno t e 7 fo r a numb e r of r ef e r en c e s p e r t ine n t to mon i to r ing .

S e e a l s o Ch i ld , John ,
"
S tr a te gi e s of Con t ro l and O r gan i z a t i on B e hav i o r
and Mi chae l S . S c o tt M o r ton , A F ramewor k f or M ana gem en t Con tro l

S y s tem s S lo an Man a gemen t R evi ew , Fa l l , 19 7 4 .

S e e P or te r , L yman W .
, Edwa rd E . Lawl e r I I I an d J . R i ch ard H ac kman ,

B eh avi or in O r gan i z a ti ons , M c G r aw — Hill , New Yo rk , 19 7 5 , S te e r s ,

R i cha rd M . and Lyman W . P o r t e r , Mo t iva t ion and Wo r k B e havi o r , M c G r aw

Hi l l , New Yo r k , 1 97 5 , Mur thy , K . R . S .

, Co rp or a te S tra te gy and To p

Ex e cu tive Com p en s a ti on , Harva rd Un iv e r s i ty P r e s s , Camb ri d g e , 1 9 7 7 ,

"
and To s i , H . J .
, Ri z z o , J . R .
, and Ca rr o l l , S . J .
, S e tt ing Go a l s b y

Mana gemen t by Ob j e c t iv es C a l i f o rn ia Man a gemen t Revi ew , S umme r , 1 97 7 .

For d is cu s s ions of s eve ra l a s p e c ts of th e p l ann ing p ro c e s s a s a b as i s

for communi c a ti on , inte ra c ti on and con f l i c t— re so lu t i on , s e e D e lb ec q ,

Andr e L .
,
"
Th e Mana g emen t of De c i s ion Ma k in g Wi th in th e F irm : Th re e

S tra te g i es fo r Thr e e Typ e s of D e c i s ion M ak in g A c ademy of Mana gemen t

J ourna l , D e c emb e r , 19 67 , M e l che r , Ar lyn J .

, Towa rd s a Th eo ry of

O rg an iz a t io n Com mun i c a ti on : C on s id e ra ti on in Ch ann e l S e l e c ti on "

,

J ou rna l of th e Ac ademy of Man a geme n t , M a rc h , 1 96 7 , A rrow ,

K . J .
,
Th e

Limi t s of O r gani z a t i on , No r ton , New Y o rk , 19 74 , Hi nn i ng s ,

C . R .
,

H i cks on , D J P enni ng s J M and S chne c k , " S tru c tu ral

. .
, , . . R . E .
, C on

V ol . 19 , NO . 1, 1974 , V room , V i c to r H . and Ar t hu r G . J a go , D e c i s ion

Mak ing a s a S o c i al P ro c e s s : No rma tive and D e s c ri p t iv e M od e l s of

L e a d e r B ehav i or , D e c i s ion S c i enc e s , Vo l . 5, NO . 4, 19 74 , Ar row , K . J

V e r t i c al I nte gra tion and Commun ic a t ion Th e Be l l Jo urna l O f Economi cs ,

CHAP T ER TH REE

3- 1 . I n trodu c ti o n

B e f o re any s te p can be ta ken in te rms of a tt emp t ing to imp l emen t a

s tr a te g i c p lann in g s y s tem a lon g the con c ep tu al l in e s p r e s e n ted in Ch ap te r

Two , it wi l l be ne c e s s ary to d ev e lo p a c le a r p i c ture of wh e r e th e comp any

an d i t s p ar ts s t and i n te rms of s tr a t e g i c p o s i t ion a s of tod ay . Th e

s i tu a t io na l s e tt i n g of the f i rm , i ts s tr ate g i c p o s i t ion , w i ll be a ma j o r

f a c to r in e s tab l i s h i ng the n e e d s f or p l anni n g tha t a p ar t i cu l ar f i rm wi l l

h ave . Th e p urpo s e of th i s ch ap te r i s to p ropo s e a f r amewo r k f or a s s e s s in g

th e typ es of n e e ds a comp a ny w i l l hav e fo r p l ann i n g . O n ly a f te r hav in g

e s ta b l i s h ed a r e l a t ive ly c l e ar p i c tu r e of wh a t c ap a b i l i t i e s th e p l ann in g

s y s tem s hou ld be ab l e to p r ov id e wi l l we b e in a p o s i t io n tha t we c an

ta i l o rma k e a p l ann i ng s y s t em in s u ch a way tha t i t mi ght be ab l e to me e t

the s e n ee d s , b y "
b u i l d in g "
the d e s i re d ca p a b i l i t ie s into the co nc e p tu a l

p l anni n g s cheme . I t i s thus an e s s ent i a l s tep to c a rry ou t a s t r a te g i c

'
aud i t of th e f i rm s s i tu a ti o na l s e tt in g , as a p r ere qu i s i t e to a t a i lo rmad e

ap p ro a ch f or imp l emen t in g a s tr ate g i c p l annin g s y s tem . Th i s c hap te r

exp lo r e s ap p roac h e s to s tra te g i c aud it s and p l ann in g ne e d s an a ly s e s .

A ne c e s s a ry f i rs t s t ep in th e s t r a te g i c aud i t — p la nn ing ne e d s an al ys i s

wi l l be to i d en ti fy wh at ar e the b u i ld ing b lo c k s "

of th e p l anni ng s y s t em

whi c h ar e th e d iv i s i on s ( f rom a s t rat e g i c r e l evan c e po int of v i ew ) ; wha t

is th e n a tur e of the c o rp o r a te po r t f o l io s t rat e g i z in g tas k , an d so on .

We sh a l l a pp ro a ch th i s by f i rs t op e r a t ion a l i z in g th e c on c e p t of a S tr a t e g i c

B us i ne s s Uni t ( S BU ) as th e sma l l e s t g e ne r a l mana geme nt d enominat o r and

b us i ne ss s tr a te g i z i n g b u i ld ing b l o c k "
fo r th e p lann i ng s y s t em . We sh a l l
 3- 2

th en p rop o s e an ana ly ti ca l app ro a ch f o r a s s e s s in g th e s t r at e gi c po s i ti on of

an SBU , in te rms of i ts ma rke t s ha r e and the growth of the b u s in e s s it is

in Th i s i s howeve r b as ed on the r e l ev anc e of tw o p hen om e na e tha t

-
.
, ,

p rov id e th e b a s i s f or th e SBU s t r a te gy ana ly s i s , the ex p er i en c e cu rve and

th e p roduc t l i f e - cy cl e con c ep ts . We s h a l l hav e to d i s cu s s whe n th e s e

p remi s e s s e em to be re l ev ant as we ll a s ide nti f y in g th e s i tu a t io na l s e t t in g s

whe r e the y s e em l e s s re l evant . Th e SEU an al y s i s wi l l cu lmi na te wi th th e

i de nti f i ca t ion of the adap ta tion and in te gra t ion - r e l a ted p lann in g n e ed s

s temmi n g f rom th e s tr ate g i c po s tu r e iden ti f i e d .

H avi n g di s cu s s e d how to a s s e s s the s tr a te gi c po s tur e and p l ann in g

ne e ds of on e SEU we sh al l the n app ro a c h the i s s u e of h ow to c ons o l idat e

'
th i s i n to an an aly s i s of a c lu s te r of s eve ra l SB U s , typ i cal ly wha t on e

wil l be f a c ed w i th to e s ta b l i sh the p l annin g ne ed s a t th e d iv i s i on l ev e l

of th e f i rm . A s hi f t in f o cu s wi l l th en fo l low , in tha t the co rpor ate

l eve l s tr a te gi c po r tf o l io po s i ti on and p l annin g ne ed s of the f irm a l so wi ll

be as s e s s e d . We sha ll d i s cu s s tw o b a s i c a s p e c ts of th is : F i r s t , we s ha l l

a ddr e s s re l evan t ways of as s e s s in g the na tu re of the f inan c i al p e r f o rman c e

p r e s s ur e s tha t th e f i rm as a who l e i s unde r . P rom inen t f ac to r s in th i s

r e s p e c t w i l l b e p ro f it ab i l i ty and s ta b i l i ty in . e a r n i ng s p a tte rn s . S e cond ly ,

we s ha l l analy z e th e na tur e of s tru c tur a l p re s sur e s tha t the f i rm mi ght be

f a c i n g , su c h as b e ing in ex ce ed in gly una ttra c t iv e bu s ine s s s e gmen t s or

s e e in g
’
o ne s comp e ti tor s mak in g innov at ive corp o r at e mov e s r e s t ru c tu re
to

th e i r b us ine s s mix . Ch i e f amo n g th e t oo l s to as s e s s th i s p henomenon wi l l

b e funds f low an a ly s i s an d compa ra tiv e po r tfo l io ana ly s i s of one s e l f ve r su s

ke y comp e ti to rs . At th i s po in t we s ha ll a l so f ind i t us e fu l to addr e s s

th e i s s u e o f how t o as s e s s the compan y '

s Ove r a l l e x p o sur e to e nv i ronmen t al
 3— 4

comp e t i tor s . Th i s wi l l have to b e s p e c i f i c an d f ar - r e a ch in g . S e cond l y ,

it wil l be c r i t i ca l l y imp or tan t tha t th e p ar t i cul ar d e f in i ti on of an SBU

ac tua l ly al l ows mana gemen t to b e t te r con c e iv e of and fo cu s on a se t of

tru l y un i qu e po t enti a l s and r i s ks th at char a c t er i z e th i s b u s i ne s s . Th es e

opp o r tuni ty and /o r thr ea t f a c to r s s ho u ld hav e a h i gh l ev e l of v i s i b i l i ty

and ou gh t to b e c l e ar ly id e nti f i ed . Thu s , th e d e f in i t ion ta s k i s a

c re a tive on e , c al l in g fo r an ima g in at iv e de l in e a t io n of an SEU a l on g

d ime ns ions wh i ch ar e l ike ly to be cr i t i c a l f o r the d ev e lopmen t of a

s u c c e s s fu l comp e ti tive s tr at e gy . Th i rdly , the c om mon thr e ad of p rodu c ts

and /o r s e rv i ce s tha t run th ro u gh th e S EU en t i ty mu s t be c l e ar ly ide n ti f i ed .

Thu s , the de f i ni t io n of the SEU mus t no t r ep r e s e n t su ch a h i gh l eve l of

ab s tr ac t ion tha t i t wi l l b e come mo r e or l e s s me anin g l e s s . F ina l l y , we

pro b ab ly w i l l hav e to be r e con c i l e d to the f ac t th a t a l thoug h th e t a sk to

come up wi th a us e fu l de f in i ti o n of an SBU an d to deve l op a c l ea r ly

'
de l i ne a te d and us e fu l pa tt e r n of SBU s i s a cr i t i c al requ i r emen t fo r

s tra te gi c man a gemen t , th i s ta s k i s a d i f f i cu l t one wh i ch p ro b ab ly w i l l

h av e to be c las s i f i e d mo re as an ar t than an e x a c t s c i en c e . Th i s i s an

impo r tant r e co gni tion , in tha t i t s hou ld a l l ow mana g emen t to ap p ro a ch the

SBU d e f ini ti o n tas k in a c r e a tiv e and ima gi na t iv e manne r , w i thou t b e in g

fru s tr ate d by the p red i c ta b l e l a ck of su c c e s s th e y mi gh t b e l ike ly to

exp e ri enc e i n a pp ly i n g t oo s tr in gen t and in f l ex i b l e c r i te r i a to the t as k .

Le t u s p rov id e a s e t of que s t ion s that mi gh t s e r ve as a f i r s t

che c kl i s t fo r wh e ther we have a re as ona b l e del ine a tion O f an SEU , in th at

i f any of the qu e s t ions b e l ow wi l l have to b e answe r e d in ne gat ive te rms ,

the n we mi gh t have a p ro b l em w i th th i s pa r ti cu la r SEU d e l ine a t ion .

 3-5

'
Do e s th e S BU e nj oy a s tr ate g i c i nd e p end e nc e f r om o the r SB U s

wh i c h i s Op e ra t ion al , in th e s en s e tha t i t i s f ea s i b l e to

d eve lo p a comp e ti t iv e s tr a t e gy for a p a r t i cu la r SEU , r e l a t ive ly

in d e p e nd en tly of o th e r SBU '

s? Ano the r way of p hr a s in g th i s

q ue s tio n is to d e t e rmine th e ex te n t to wh i c h th e c omp e t i t iv e

s t ren g th of th e SEU i s b as ed on o th er SBU

'
s or no t , and wh e th e r

an as s e s smen t of th e a t tra c t ive ne s s of the b us in e s s can be don e

i nde p e nde n t ly of th e o th e r b u s ine s s e s or no t . Th i s l a s t

q ue s ti on c a n no rma ll y no t be an swe r ed a f f i rma tiv e ly un l e s s th e

SEU h as con t ro l ov e r i t s ow n r aw ma t e r i a l s sou r c e s as we l l a s

i ts own f ini s h ed pr o du c ts ma r k e t s . I f howev er an SBU do e s no t

h av e fu l l con tr o l ov e r i ts so ur c e s and /o r ma rke ts , th en th e r e

i s a t Le a s t a r e qu i reme nt tha t th e r e s hou ld be s e p ar ab i l i ty of

'
cos t and /or r eve nu e p a tte rn s amon g th e SBU
-
s , by m e a ns of a

t rans f e r p ri c i n g s ch eme . Ne ed l e s s to s ay , th e c r i t er io n of

"
p s e udo ind ep en de nc e
- "
b e tw e en SBU
'
s by me ans of tr an s f e r

p r i c in g s ch eme s h as to be don e c a r e fu l l y ; i t i s O f t en di f f i cu l t

mana g e r i a l j ud gmen t to dr aw th e l i ne b e yond wh ic h th e

ar b i tr a r i ne s s of f or c ed indep end e nc e b e come s so gr e at tha t i t

woul d be mo r e natur al an d b e ne f i c i a l to c omb ine th e s e un i t s

i nto one l a r ge r S EU , pur s u in g on e l ar g e r s tr at e gy .

I t shou l d b e s tr e s s ed tha t a l tho u gh an SEU no rma l l y sh ou l d

e nj oy i ndep ende nc e f rom o th er SBU '

s wh en i t c ome s to b e in g
ab l e to p ur s u e i t s ow n comp et i t iv e s tr a te gy in a di s c r e ti ona ry

ma nne r , a s j u s t di s cu s s e d , th i s d oe s no t ne c e s s ar i l y imp l y
 3- 6

tha t e a ch SEU s hou ld b e o r gan i z e d so tha t i t po s s e s s e s i t s ow n

fun c ti ona l dep a r tmen ts . Func t iona l de p artmen t s mi gh t b e s ha red

by all or some of the SBU

'
s wi th in a d iv i s ion , a s a way of

p e r f o rmi n g a fun c t i onal ta s k mo re e f f i c ie n t ly . The fun c t iona l

d ep a r tme nt mi gh t re po rt di r e c t ly to th e d iv i s ion mana gemen t , or

to , s ay , the SBU wh i c h i s d r awin g mo s t e x tens iv e l y of thi s

p a r ti cu la r func t io n .

I f the pro du c t or s e rv i c e tha t i s b e i ng c re a te d by the SEU

hyp o th e t i c a l ly wa s wi th d rawn f rom the mar k e tp l a c e , th e n a ke y

qu es ti on i s wh e the r or no t th e c ompan y wou ld be ou t of th e

comp e ti tion wi th in th i s g ene r a l are a of bu s ine s s . If no t , we

h av e an ind i ca tio n tha t th e SBU mi ght no t be s tr at e g i c al ly

in d ep e nden t of o th er SBU '

s, and we ne e d to a s se s s the de gr e e

'
to wh i ch s tra te g i c r e l a t i on s h p s to o th er SB U s exi s t .

'
I s th e corp o ra te an d /o r th e d iv i s io na l mana gem en t s in ten t

p s eudo or re a l wh e n i t com e s to the d e al ing wi th an SBU ? An

'
impo r tant p r emi s e f o r th e ra t i onal e of es t ab l i sh i n g SBU s is

the po te nti a l to b en e f i t f rom a

"
d ivi s ion of l ab o r amon g

'
ma na g e rs wi th in th e f i rm s o r gan i z a ti ona l h i e rar chy wh e n i t

come s to fo cus in g on var ious s tra te gi c ta s ks , as d i s cu s s e d in

Cha p te r Tw o . A mana ge r r es po ns ib le fo r an SBU s hou ld b e a b l e

to be "
c lo s e r to th e comp e t i tive s c e ne "
than anyon e e l s e in th e

comp any , and s houl d have su f f i c i e nt d i s c r e tion ary l ev e ra ge to

a ct on th e b as is of th i s to s e cur e an advan ta ge f o r th e f i rm .

However , a typ i c al ph enomeno n amon g ma n a ger s i s tha t th ey

 3— 8

has c re ate d a g ive n ne t ou tpu t ) . We mi gh t con s i de r an SBU as

a lo gi cal ext en s io n of the inv e s tmen t c en te r , in th e s e ns e th at

re s p ons i b i l i ty f or l on g- te rm p e r f o r manc e ha s b e en d e l e g a ted to

the mana gemen t of th e r e s p on s ib i l i ty cen te r , in add i t ion to

s ho r t te rm p e r fo rman c e re s pons ib i l i ty . We mi gh t app ly a

con c e ived me as ur e of l on g- te rm ROI ( o r re s idua l in c ome ) to be

op timi z ed by the SEU . I n o rde r to do th i s the SBU '

s mana gemen t

mus t deve lop an d imp l eme nt a l on g- t e rm s tr a te gy wh i ch en c omp a s s e s

the d eve lopment of th e long — te rm c omp e t i t iv e s tr en gth of th e S EU ,

i ts s tr a t e g i c b as e . Th us , an SEU ma y be mo r e app rop r i a te ly

re l ab e le d a "
s tr a te gy ce nt e r "
, wi l l hav e di s cr e t ionary

re sp o ns i b il i ty for inpu ts , ou tput s , inv es tment b as e and

"
s tr a te gi c b as e "
.

I n an evo lut ion ary s ens e , th e s tep from ma na g in g an inve s tmen t c en te r

to the on e of mana gin g an SEU i s p ro b ab ly a r e l a t ive l y na tur al and s ho r t

one . Thus , a s tr on g inv e s tme n t c e nt e r tr ad i tion i s p roba b ly an advan ta g e

wh en a ttemp tin g to d eve l op a de c entr al i z e d s tr a te gi c mod e of op e ra tio n .

How eve r , th e ch an ge fr om a s ho r t - te rm p e r f o rman c e fu l f i l lment o r i enta t ion

to a lon g— te rm s tr ate gi c o ri en ta tion c an ce r ta in ly neve rthe l e s s b e a

fo rmid ab l e p ro b l em . P ar ti cul ar ly cr i ti c a l i s th e c ha n g e in th e r e spons i b i l i ty

'
c en te r mana ger s s ty le from b e ing h e av i l y into th e s hor t - te rm , f ir e f i ght in g ,

s ti c k- and - c ar ro t g ame
"
to havi n g to go throu gh an o rde r ly p l ann i n g p r oc e s s

of ide n ti fy i n g and narrowin g down lon g— t e rm s t r a te gi c Op ti ons . Th e swi t ch

in mana ge r i a l s ty le i s of cour s e eve n h i gh e r when o ne at temp t s to evo lve

i nto s u ch a s tr a te g i c mod e of O p e ra t ion from a le s s

"
ful l - b lown "
tr adi tio n al
 3- 9

mod e of de c en tr al i z ed Op e r a t i on , s u ch a s a ttemp t i ng t o go f rom a p ro f i t

c e nte r or p ar ti cu la rly a c o s t c en t e r mod e of op e r a t ion to an SBU . S uc h

a monume ntal c han ge in mana g eme n t s ty l e s e ems to b e wh a t wa s c a l l e d f o r

i n th e cas e s of s ome of t he ma j o r i nt e gr at ed o il comp a ni e s when the s e

b ro k e th ems e lve s up in to s t r a te gy c e nte r s . ( Gu l f Oil Co rp o ra t ion f o r

i ns t anc e was re o rg an iz e d in to s even s t r a te gy — ce nt e r s , S un Oil Comp any

'
( now S un Comp any ) was r eo r ga ni z e d i nto 1 4 S BU s .
) To re s tru c tur e into a

'
p a t te rn of SB U s i s th e r e f or e p ar t i cu l arl y d i f f i cu l t in in s tan c e s wh e r e

the r e i s an evo lu t io na ry j ump byp as s in g one or mo re of the evo lu t ion ary

s eque n c e of s t ag e s in the r e s p ons i b i l i ty ce n te r c ha in . I t mi gh t be a

r e a l i s s ue wh e th er an o r gani za t i on in fa c t wi l l be ab l e to mo b i l i z e th e

ne c e s s a ry ma na g e ri a l c omp e ten c e s f o r th i s sw i t ch in mod e of op e r a ti on

ove rn i gh t .

A s e cond and r e l a ted i s s ue invo lv e s th e d e g r e e of pa s t s ta b i l i ty in

or g an i z a t iona l s t ru ctu r e a s we ll as ma tu r i ty of mana g er i al com mun i c a ti on

p a tt e rn s w ith i n th e o r gan i z a t io n . I f the r e hav e b e en a numb e r of r e c en t

r eo r gan i z a tions and /o r s tru c tu r e ch an g e s du e to, s ay , a c qu i s i t i on s , and /o r

i f f o r i ns tan c e th e man a g ement s u c ce s s io n ra te ha s b e en h i gh , the n i t mi gh t

be mor e d if f i cu l t to cr e a t e a me an in g fu l SEU s tr u c tu r e . An e s s en t i a l

r e as o n f o r the SB U conc ep t a s i ts ro l e a s a b u i l d in g b lo c k : the f o cu s of

s tr a te g i z i n g f or comp e ti t iv e b u s in e s s succ ess . I n o rd er to do th i s ,

h oweve r , i t as s ume s tha t man ag emen t in f a ct ar e f ami l i ar w i th th e i r

b u s in e s s e s in a q u i te in timat e way .

'
W e s e e the n th at th e i s su e of i den t i fy i n g a r e a s on ab le s e t of SBU s

is no t an e a s y one , and b e caus e i t cal ls f o r a c on s i de r ab l e d e gr e e of

ma na g e r i a l j ud gm en t , th i s tas k ty p i c al l y cau s e s c o nc e rn amon g mana gemen t

 3 - 10

a tt emp ti n g to unde r tak e a b u s ines s po s i t ion s tr a te g i c as s e s smen t th e f ir s t

t ime . E xp e ri e n ce ,
howeve r , s how s that th e ta s k typ i c a l ly do e s no t tu rn

ou t to be as d i f f i cu l t as ant i c ip a te d f or th r e e r e asons . F ir s t , whe n

s ta r tin g ou t wi th the as sump ti on that one s p r e s ent p rodu c t - ma r k e t grou p in g

'

i s g o in g to be the b as i s f or th e ana ly s i s un l e s s comp e l l in g r e as on s f o r

do ing o th e rwi s e a r e g ive n , the tas k b e c ome s mo re o ne of mo d i f y in g , r a the r

than c r e a tin g a n ew s tru c tur e f rom z e ro . S e c ond ly , a s we s t ar t ap p ly in g

to ou r SBU
'
s th e que s t io n of wh a t i s th e mar k e t s h ar e of th e SEU r e l a tive

'
to o the r SBU s , we mi ght c om e up w i th answe rs tha t ind i ca te th at ou r

d e f i ni ti on of S BU
'
s i s unr e as on a b l e . F or i ns t an c e , i f we c an qu i te re ad i ly

ide nti fy wh at mi ght s e em to be s eve r a l ma rke t s ha r e s , e ac h f or d i f f e ren t

"
s ub - s e gme nt s of t he b us ine s s , the n we mi gh t h ave app l i ed a t oo a ggr e gat ed

SBU de f i n i ti on . Or , a l t e rn a tive ly , i f the mark e t s har e i s 1 002 or c lo s e to

thi s , then we s hou ld be p a rt i cu la r l y su s p i c iou s ab out wh e the r a too na r row

de f i ni tion ha s b e en mad e of wha t wo u ld be a re l evant mar k e t s e gmen t fo r th e

'
SEU . Th i rd ly , wh en we emp loy the conce p t of ma r ke t growth to the SB U s and

we f ind th a t they s e em to f a l l remar k ab ly c lo s e to ge the r into a p at te rn

'
wh i ch r e f le c ts a s o u nd /s t e ady g rowth , and w i th a f ew SBU s re c e iv in g the

emb ry on i c hi gh gr owth l abe l

—
on th e one han d or the ma tur e or d e c l i ne l ab e l

on th e o th er hand , th en we have an ind i ca tion tha t we mi gh t have group ed

'
ou r SB U s in to t oo la r ge un i t s . Conve r s e ly , i f the re i s no domin anc e of

'
no rma l growth SB U s on th e mi dd l e of the s c a l e we mi ght hav e app l i ed a t oo

f r a gmen ted SEU group i n g .

( I n the nex t s e c t io n we s h al l d i s cu s s y py t he

conc ep ts of ma rk e t s har e and ma rk e t g rowth s hou ld b e in cl ud ed in ou r

ana ly s i s , and we s ha l l d e f ine ma rk e t s h ar e an d ma rke t gr owth th e n ) .

 A l thou gh tr ad i tio na l ly d ev e l o p e d in the con text of j ob - sho p

man uf a c tu ri ng s e tti n gs on e m i ght exp e c t tha t th e re w il l be le arn ing - curv e

e f f e c ts a t wo rk whe n i t come s to co n ti nuous p ro c e s s o r i ent e d indu s tr i e s

t oo . I n s u ch s e t tin g s , howeve r , i t mi gh t pr ob a b ly b e mo r e th e te chno lo g i c a l

advan ta g e s as s o c i a te d wi th mo de rn and lar g e cap i t al e qu ipment th at pr ov id e

th e comp e ti t ive adva nta ge ra the r tha n th e l e ar n in g e f f e c t s exp e r i en c ed by

th e la b or fo r c e . Thu s , th e mo r e cap i ta l in te n s i ve the indus try , the l e s s

impo r tant wi l l typ i ca l ly the l e arn in g cu rv e e f f e c t b e . I ns t e ad , p l ant s i z e

and s oph i s ti ca ti o n of eq ui pmen t mi gh t p rov id e an al t er na t ive comp e t i tiv e

a dva nta g e for tho s e w ho a r e ab l e to inve s t th e e qu ipme n t wi th th e lar ge s t

s c a l e e conomi es .

Th e con c ep t of l ea rn in g curv e e f f e c t s has b e en ex tend ed to also

ap p l y to many of th e mana ge r i al an d s up po rt fun c t ion s tha t ar e ca rr i ed ou t

w ith in a f i rm . Th i s i s b a s e d on the as sump t i on th a t a ma na gement t e am

wh ic h c ons is ts of exp e ri e n ce d ex e cut ive s and i s we l l co o rdi na te d wi l l

p ro b ab ly do a job f as te r and b e tt e r than a r e c en t ly a s s emb l e d te am of less

exp er i en c ed exe cut ive s . M a rk e ti n g exp e rt i s e , f or in s tan c e , is p r ob a b ly

on e of s eve r a l ma na ge r i a l f a ctor s tha t wi l l b e a c cumul a ted wi th e x p e r i en c e .

Th e marke ting or gan i z a ti on wh i c h enj o y s th e l a r ge r vo lume of bus in e s s wi ll

be in a p o s i tion to po ten ti al ly ac cumu l a t e r e l evan t ins i gh t s and e x p e r i en c e

to a lar ge r ex ten t th an a sma l l e r comp e t i to r . Thu s , it will be in a b e t te r

" "
po s i tio n in te rms of marke t in g value ad ded p er un it p roduc ed . G iv en th is

b ro ade r and ext end e d app l i c a ti on of the l ea rn in g curv e con cep t i t ha s b e c ome

common to de not e th i s as th e le arn in g cu rv e p henom eno n .

Ther e mi gh t , howeve r , be s eve r a l l imi ta t ions on th e l e a rni n g cu rve

phenomenon . As a l r e ady di s cu s s ed i t shou l d be c l e a r th at th e a b s o lut e

 3 - 13

magn i tud e of a p o s i tive l e arn i ng curv e e f f e c t i s l i k e ly to de c r e a s e a s

vo lume go e s up ; a f te r som e leve l of a c t iv i ty the r e i s p ro b a b l y l i t t l e mo r e

to be gai ne d i n le a rn ing c urv e e f f e c t s . Thu s , whe n tw o comp e t i to r s hav e

r e a c h e d th i s l eve l of s i z e the r e i s p rob a b ly no lon ge r a ve ry s i g n i f i cant

comp e ti tiv e adv an t a ge to be th e l ar g e r o ne . Fur the r , t he s tr en gth s of

l ea rn in g curv e e f f e c t s w i l l al s o d i f f e r f rom ind us try to indu s try . I t is

p ro b ab ly h i gh e r i n l ab o r - in t ens ive indus tr i e s , and in indu s tr i e s wh i ch to

a l ar g e ex te nt r e ly on jo b -
sh o p , p rodu c t - r e l a t ed manu f a c tu r in g . Th e

d ur ab i l i ty of th e l e a rn ing curv e a dv an ta ge s i s a l s o an un k nown ; th e e f f e c t

i s c e r ta inl y no t p e rman en t . On e r e a s o n i s du e to f a c to r s su ch a s job

ro ta tio ns ; h en c e , th i s i s an o the r r e as o n f o r mana g emen t to a t temp t to cut

down on unne c e s s a ry job ro ta t io ns . Ano th e r is tha t t he r e mi gh t be ne c e s s a ry

w i t h ma j o r job t as k mod i f i cat i on s tha t in man y way s c an be c omp a r e d wi th

s tar ti n g th e l e arn i ng cu rv e an ew . Thu s , f o r comp an i e s tha t are in indu s tr y

s e t ting s th a t a re e n count e r in g a r ap i d rat e of ch ang e , s u ch a s f r e q ue nt

te chno lo g i ca l mod if i c at io ns wi th in ar e a s of th e e l e c tr o n i c s indus try , th e n

p o s i tive le ar n in g curv e e f f e c ts w i l l be h ar de r to o b t a in on a mor e pe rman ent

b as i s .

A f ina l p ro b l em w i th ap p lyi n g th e l e arn in g cur ve con c ep t wo u ld b e

wi th in extr a c t ive ind u s tr i e s whe re a n atur a l r e s ou rc e i s b e in g de p l e t ed to

th e ex ten t tha t f ur th er p r odu c ti on r e qu i r e s th a t o ne go a f te r r e s e rv e s th a t

a r e mo re di f f i cu l t an d exp en s ive to r e a c h th an th e o ld e r r e s e rv e s . Thus ,

c os t p e r uni t m i g ht j ump pp as pr o du c t io n in c r eas e s . We c an p r o b a b ly

r e ad i ly f ind examp l e s of th i s wi th i n the oi l and g a s exp lo r a t i on indus try

i t may f o r in s tan ce b e come ne ce s s a ry to c ar ry ou t mor e e x p en s ive d e e p — w a te r

o f f s h o re exp lo ra ti o n , or in th e ur anium indu s try i t may b e come ne c e s s a ry

 3 - 14

to e r e c t de ep e r mine s ha f ts to re a ch the on ly ava i l ab l e unexp lo r e d d epo s i t s .

Th e r e wi l l of cour s e be O pp o r tun i t i e s fo r po s i tiv e le a rn in g cu rv e e f f e c ts

to coun te r ac t th e ne ga tiv e e f f e c t j u s t d i s cu s s ed in th e s e ins tan ce s t oo ; at

e ach new "

s t a ge of mo r e e x p e ns iv e exp lo ra t i on th er e w i l l b e a l e a rn in g

cu rve e f f e c t , s ay , f rom dr i l l in g ho l e s mo re e f f i c i en t ly f rom an o f f sho r e

s emi - s u b mer s i b l e r ig .

D e s p i te th e many qu e s tio n s tha t c an be ra i s ed a b o ut the exa c t na tu re

of the l ea rnin g curve e f f e c t , i t s e ems how eve r c l e ar th at in g en e r a l h i gh

ma r k e t s ha re an d vo lume w i l l y i e l d a t l e as t so me comp e t i t iv e adv anta ge .

'
Th u s , th e mar ke t shar e po s i tio n re l a t ive to one s comp e ti to r s i s no rma l l y a

s i gn i f i c ant as p e ct of th e s tr a te g i c aud i t of a b us in e s s . D i f f e re n t p l ann in g

ne e ds w i l l be c re ated dep e ndin g on th e r e l at iv e ma rk e t s h are po s i t io n . If

an SEU enj oy s a hi gh s ha r e , th en th e ta s k wi l l be to p lan so tha t th e

l e arning cu rv e e f f e c ts can i n f a c t be a ch i ev ed ; th ey do no t come au tomat i ca l ly !

I f in a l ow mar k e t s har e , th e tas k w i l l b e to p l an so as to ame l io ra t e some

of th e po ten ti a l ly ne ga t ive e f f e c ts f rom no t hav in g the s ame le arn in g cu rv e

'
p o te nt i a l a s on e s comp e ti to r — h i gh e f f i c i en cy , fo r in s tan c e , by sp e c ia l i z a ti on

"
on s e gme nts tha t can p rovi de some b a s i s f o r l e a rn in g curve e f f e c t s in th e

smal l

Let us now tu rn to th e que s ti on of the emp ir i c a l r e l evan c e O f th e

exp e ri e nc e curv e p r emi s e as a r e l evan t e l eme n t in ou r s tr at e g i c au di t

ana ly s i s of a b u s ine s s un i t . Th e r e i s a s tron g ac cumul a t ed emp ir i ca l

evi den c e tha t s u g ge s ts a po s i tive r e l a t io ns h ip b e twe en mar ke t s ha r e and

p ro f i tab i l i ty , i . e .
, tha t p ro f i ts ar e a func t ion of ma rke t s ha r e , du e to

3
e x p e r i en c e cu rve e f f e ct s . Th e s tud i e s f urthe r ind i c at e th at s eve ra l o th e r

fac tor s too ar e imp or tan t in p re d i ct in g the e conomi c p e r f o rma nc e of a

 8 . Co s t pus h inf luen c e

9 . Cu rr en t s tr a te gi c thru s t ; th e d i re c t io n of chan ge of th e va r i a b l e s .

A company mi gh t make us e of th e PI MS da ta b as e as a v e hi c le f or sh edd in g

l i ght on wh at shou ld b e a no rma l ROI fo r a b us ine s s wi th in a p a rt i cu l ar

in du s try and w i th a g iven s e t of s i tua t ional c ha ra c t e r i s t i c s . Th i s mi ght

p rov id e us e fu l inputs , s ay , f o r th e s e t t in g of t op - down e x p e c ta t ion s f or

va ri ous SBU '

s . Th e mod e l mi gh t a l so be us ed as a veh i c l e fo r s e a r ch in g fo r

'
h ow t o imp rov e a p a r ti cul a r SBU s s tr at e g i c po s i t i on .

Wh i l e the P I MS app roa ch she ds cons id e r ab l e emp ir i ca l l i gh t on th e

'
impo r tan ce of an SBU s s tr a te g i c p o s i tion a s the d e te rmi nant of p e r fo rman c e ,

and whi l e al s o i t mi g ht be us ed b y a p art i cul ar comp any a s one s p e c i f ic too l

in i ts p lanni n g p ro ce s s , th e r e ar e a l s o s ev er a l l imit a ti ons wi th th e ap p roa ch .

S ome of the s e l imi t a tion s r e f er to me thodo lo g i c al c on s tr ain t s of t he s tudy ;

it i s howeve r outs i de th e s c op e of thi s b oo k to d is cu s s th e s e he re . O th e r

l imi ta t io ns r e f e r to the way s the d a ta s ho u ld be us e d in th e p l ann in g p ro c e s s ,

howeve r , and th e s e me r i t b ri e f me n t io nin g . Th e maj o r dang e r i s to d ev e lo p

a n ove r ly me chani s ti c , e x tr apo l at iv e ap p ro a ch to s tr at e gy fo rmul a ti on a s a

r es u l t of the u s e of the d ata . I t shou l d be s tr e s s ed t ha t th e d a ta ar e

h i s tor i ca l and a ls o tha t th ey do no t me as ur e the qual i ty of s tra t e g i c ins i ght

on b e ha l f of man a gemen t . I t is th er e f or e imp o r tan t no t to a l l ow the da ta to

b e come mor e or le s s an un e s c ap a b le "

law f o r how one s '
b us i ne s s sho u ld do .

P o s i tive , c re a t ive th in k in g fo cu s ed around Op po rtun it ie s and th r e at s can

fa c i l i ta t e s tr ate gi c suc c e s s of the fu tur e , no t ex trapo la t ion s of th e p a s t .

Ano ther dan ge r , a lb e i t mu ch smal l e r , i s th e s tron g empha s i s on ROI a s th e

cr i t er i on fo r j ud g in g the s u c c e s s of an SBU s t r a te gy . No t onl y mi ght i t b e

 3- 17

th at o th e r f in an c i al var i ab l e s s u ch as n e t c as h f l ow ar e mo r e r e le van t a s

i nd i ca tor s of th e c re a tio n of s tr a t e g i c va lue s . Mo r e imp o rtan t l y , s tr a te g i c

p e r f o rman c e shou l d p ro b ab ly be j udg ed in te rms of va r i a b le s tha t emp ha s i z e

long e r te rm e f f e c ts in ad di t ion to ne ar - te rm RO I .

Th e r e i s an add i t ion a l imp o r tan t gen e r a l imp l emen ta t i on i s s u e wh i ch

r e l a te s no t o n ly to th e us e of P IMS b ut to a va s t numb e r of too l s and

t e ch n i q u e s th a t mi gh t be us ed in b us i ne s s s t r a te g i z in g , r e f er r i ng t o how

to app rop ria te ly po s i t ion su ch too l s as e l eme nt s of the ov e r a l l p l ann ing

p ro c e s s . We sh al l howev e r de l ay the d i s cu s s ion of th is un t i l th e e nd of

ou r d i s cu s s io n of s t r a te g i c po s i ti on ana ly s i s of SB U
'
s l at e r i n th i s ch ap t e r .

I ns te ad we sh a l l r e turn to th e o th e r phenomenon , in add i t ion to the l e a rn in g

cu rv e co nc ep t , whi c h i s a p r emi s e fo r ou r SBU s tr a te g i c po s i t ion ana ly s i s .

Th e s e co nd p r emi s e f o r ou r SEU s tr at e g i c aud i t an a ly s i s r e l at e s to

;
5
th e so- ca l le d p ro du c t l i f e — cy c l e con ce p t Th i s i s b a s ed on th e o b s e rv a ti on

th at p ro du c t s ten d to fo ll ow a l i f e - cy c l e p a t ter n of evo lu t ion o ver t ime .

Con s i de r fo r i ns t anc e the f o l l ow in g p rod u c t l i f e — cy c l e s c enar io : A p rodu c t

mi gh t be s t ar t i n g as no t mu c h mo r e than a s e t of un tr i ed ide as tha t wi l l

h ave to be r e f ine d t o go thro u gh a f i r s t emb ry on i c

"
s ta g e of c omme r c i a l

i za t i on , s ay , wi th h e avy emp h as is on g e tt in g a b e t te r f o cu s fo r wha t t he

mar k e t ni ch e mi gh t be , throu gh mar ke t ing , i ron ing ou t p rodu c t ion p ro b l ems ,

and so on . H avi ng s u c c e e d e d thr ou gh th i s f i rs t s t a g e ( mo s t p rodu c t ide a s

p ro b a b l y don t ) '
, th e p ro du c t , i f we l l con c e ive d , m i g ht ent e r in to a pe r i od

of growth . Th e em p ha s is dur in g th i s growth s ta g e w i l l p ro b ab l y be mo r e on

try ing to ge t th e p rod uc t p rodu c ed and di s tr ibut ed in o r de r to r e s pond to

an uns a tura t ed demand fo r thi s p rodu c t i de a , a tt emp t in g to r e ap b en e f i t s

f rom th e f a c t tha t the p r i c e s c an p rob ab ly s t i l l be ma in tai n ed a t a

 3- 18

r ea s on ab ly comfo rtab l e l eve l . A ma j o r con c e rn of cou r s e wi l l b e to a t t emp t

to re ach th e ma r ke t ah e ad of
'
one s c omp e ti to rs . As a p ro b ab l y in ev i tab le

mo re or l e s s g r adual s atu ra tion of t he ma rke t dema nd f or t he p roduc t i s

app roa ch in g , ano the r l i f e - cy c l e s ta ge i s b e in g r e a c hed , th e ma tu r e s t a ge .

Th e co n cern he re mi ght typ i c a l ly be mor e to ma k e th e p r oduc t av ai l a b le a t

a lowe r p ri c e , to empha s i z e l e arn in g— cu rv e e f f e c ts and p r o c e s s imp rov emen t s ,

att emp t in g to ta k e advan ta ge of e f f i c i en cy p r o grams in or de r to c ome up

wi th a comp e t i tive pr oduc t so tha t on e s '

own ma rg in s c an b e k ep t . Af t e r

s ome time a g ain , howeve r , anoth e r p e ri od of de c l ine in th e d emand f or the

p rodu c t mi gh t s e t in d ue to ob s o le s c en ce i n the f a ce of new p rodu c t

deve lopme nt s . The emp h as i s dur in g s u ch a de c l in e s ta g e w i l l p rob ab ly o f t en

sh i f t towards o r che s tra t in g a re as o nab l e r e tr e a t , g e tt in g a s mu ch c ash a s

po s s i b l e ou t of the p roj e ct b e fore i t die s ou t en t i r e ly .

F rom th e a b ove e x amp le we s e e tha t a p rodu c t mi ght go throu gh s ev er a l

di s tin c tive evo lu tiona ry s ta g e s as p a r t of a l i f e - cy c l e . To a l a r g e ex t en t

i t wi l l of cour s e be a ma tte r of tas te how ma ny d i s tin c t iv e g en er i c s tag e s

one s hou l d div id e a typ ic a l l i f e - cy c l e in to . Fo r th e pu rpo s e of ou r p re sen t

d i s c us s i on we s ha l l f ind tha t i t sh al l s uf f i c e wi th a ve ry s imp l e

c ate go r i z a tion b e twe en fou r d i s t i n c tive s ta ge s : the em b ryon i c or s t ar t - u p

s ta ge ; th e g r owth s t ag e ; the l eve l in g O f f or ma tur e s ta ge ; and the de c l in e

s ta g e .

Fr om ou r d e s c r ip tion of the s t a ge s of the p rodu c t l i f e- cy c l e , i t s e ems

n atur al to ex amin e wha t mi gh t b e funds - f low c o ns i de r a t i ons &a

s s o c i a t ed wi th

th i s . D u r in g the emb ryoni c an d growth s ta ge s th e "

i nv e s tmen t s "
in g e t t in g

the p rodu ct d eve l op e d , comme rc ia l i z ed and d is tr ibu ted on t he ma r k e t ar e

l i k e ly to o utwe i gh th e funds gen e r at ed f rom s a l e s . Du r in g th e l at e r s ta ge s ,

3- 4 . Th e ma r k e t s h ar e /m a r ke t growth gr i d

Th e ap p ro a c h of as s e s s in g th e s tra t e g i c po s i t io n of a SEU on a

tw o- dime ns iona l g ri d with r e l at ive mar k e t s har e and b us in e s s growth as

th e tw o dime ns ions was s p e arh ead e d by th e B o s t on Cons u l t in g G roup ( B C G )

unde r i ts pr es ident B ru ce He nde r son . Th i s d ev e lopment p r o b ab l y re p r e s e n ts

o ne of th e mo re , i f no t th e mo s t s i gn i f i c an t c on t r ibut i on to s tr at e g i c

p l anni n g ove r th e l as t tw o de cad e s . B y to day th i s a p p ro a ch , or e x ten s io ns

of i t , h as c om e to be cl o s e to hou s eho l d i tems in th e

"
too l - k i t of

mana ge r s w i th b us ine s s s tr ate g i z in g ta sks , v e ry po pu la r an d wi de ly us e d .

6
Exh i bit 3- 1 i l l us tr a te s th e b as i c B CG g r id .

B e fo r e d i s cus s in g th e s tra te g i c imp l i c a ti ons of b e in g po s i ti one d a t

va rious c e l l s i n th e gr i d , l e t u s f i rs t de f in e th e d im ens ion s of th e tw o

ax e s . At th e ho r i z ontal ax i s re la t ive marke t sh ar e is no rma l ly de f in ed a s

'
th e s a l e s of one s own S EU r e l at iv e to th e s a l e s of th e l arg e s t comp e t in g

SEU . I f th i s mea sure ta k e s on value s lar ge r than on e , the n on e s '

own SBU

i s the le ade r i n th i s b u s i ne s s ; if , fo r in s tan c e , the r e l ativ e mar k e t sha re

is tw o , the n th i s SEU i s tw i c e as l ar ge as i ts l ar ge s t comp e t i to r . I f the

me as ur e i s t ak in g on v al ue s l e s s than one , then the SBU i s sma l l e r th an th e

l ar ge s t comp e ti tor ; a va lue of on e h a l f , f or ins tan c e , ind i ca t e s tha t the

SEU is ha l f th e s i z e of th e la r ge s t comp e ti to r . R e l a t iv e ma r k et sha re h as

of cour s e b e e n cho s en ins t e ad of a b s o lut e mar k e t s har e b e c aus e i t g iv e s a

'
di re c t ind i c ati on of one s l e arn in g cu rv e advanta g e
own p o ten t i a l re l a t ive

to th e c omp e ti tion . On th e ve r ti c a l ax i s annu al c omp ound growt h O f th e

b us in e s s i s b e i n g me a sur ed . Th e growth r at e c an be meas ure d in s eve ra l

ways . Fo r ins t an c e , i n s ome bus ine s s e s wi th h i gh ly e r r at i c grow th tr a c ks ,

su ch as c e r tai n par ts of the e l e c tr on i c s comp on en t s b us ine s s e s ,

i t ma y ma ke
 3 -21

s e ns e to me as u re ave r ag e g rowth ov e r a p e r iod of s eve ra l ye a r s in o rde r to

l e s s e n the e f f e c t of s u ch ne ar - te rm f lu c tu a tio ns around a lon ge r - te rm g rowth

tr e nd . S imi l ar ly , f o r c e r t a in bu s ine s s e s th e gr owth wi l l be h i gh l y d e p enden t

C4 $H l 006

R 6
”
4
. v: M A R KE T es

Exh ib i t 3 - 1 .

on g en e ral movem en t s in th e e conomy ; in s uc h c a s e s on e mi g ht adj us t th e

g row th c a l cu l a tio n w ith some s o r t of g ro s s n a ti ona l p ro du c t mov eme n t s index

or ano th e r ind ex d e eme d me anin g fu l as an ind i c a to r for ge ne r a l e c onom i c

mo vemen ts adj us tmen ts . I t m i gh t a l s o be tha t th e g en e r al in f l at i on r a te

shou l d be comp e ns a te d fo r . Th e ke y is to app ly a me a sur emen t f o r b u s in e s s

g row th wh i c h i s us e f u l i n d i s tin gu i s h in g b e tw e en SB U
'
s tha t a r e in a hi gh

g row th mo de ve r s us tho s e w hi c h ar e l es s so in a p ar t i c u l ar bu s ine s s . Th e

me as uremen t cho s e n mus t of cour s e be c on s i s t en t ly ap p l i ed in the an al ys i s

'
of al l th e SBU s of th e f i rm . We s h al l r e tu rn to the i s s u e of d e f in ing mo r e
 3- 2 2

op e r a tio na l me a s ur ement s f o r th e tw o d imen s ion s of Exh i b it 3 - 1 a t th e e nd of

thi s s e c ti on , a f te r havin g d i s cu s s e d the imp a c t of th e s t r ate g i c po s i t ion in g

'
of SBU s w ithi n the ce l l s of the ma tr ix .

Le t us n ow d i s cus s th e s tr ate g i c imp l i c a t io n of b e in g po s i t ion e d in

e a ch of th e fo u r ce ll s of Exh ib i t 3 - 1 . Th e f ir s t c e l l we sha l l d is cu s s i s

th e o ne la b e l ed s tar "
. Th i s is a ve ry advan ta geo u s po s it ion , s tr a te g i ca l l y ,

i n th at one s '
own SB U is th e dominan t on e in the ma rk e t p l ac e , and a l s o tha t

th e b us ine s s on e i s invo lv ed in i s in a h i gh growth a re a . I n te rms of f und s

f low imp l i c a ti on s , h owev e r , the r e wi l l on the on e ha nd he a po ten t ia l po s i t iv e

e f f e c t from th e exp e r i enc e curv e adv anta ge th at the SEU i s l ik e l y to enj oy

r e la tiv e to i ts comp e ti tor s . On th e o the r hand , th e p r e s en c e in a h i gh

g rowth b us ine s s i s l ike ly to re qu i re co ns ide r ab l e inv e s tmen t in c ap a c ity

exp an s io n of p ro duc t i on and /o r d i s tr i b u t io n f ac i l i t i e s . I n to ta l , wh i l e

th e ov e ra l l funds f l ow b a l an c e i s l i k e ly to be mo r e or l e s s neu tr a l , i t i s

di f f i cu l t to p r ed i c t whe the r th e ne t po s i tion wi l l s how a sma l l n e ga t iv e or

po s i tive va lue .

The po s i ti on mar ked wi th h i gh mar k e t s har e but l ow g rowth ,

how eve r ,

i s l i k e ly to b e a ne t cont r ibu to r O f fund s ; the comp e ti t iv e exp e r i en c e cu rve

adva nta ge O f th is SEU po s i ti on i s g ood and the g rowth r ate i s l ow , c au s in g

th e SEU to e nj oy th e funds f low b e ne f i t s f rom i t s adv anta g eou s exp e r i en c e

curve p o s i tio n wh i l e no lon g e r hav in g to inv e s t he av i ly in su s ta in in g ah

-

ade q uat e p ro du c ti on and /o r d i s tri b u t i on f a c i l i ty , now th a t th e g rowth ha s

'
o ff
" "
fa ll e n . SBU s in th is p o s i tion wi l l typ i c al l y b e a c as h c ow , i . e .
,

p rov ide th e b a c kbone of di s cre t ionary fund s f o r con t inu ed exp an s i on in to

new p rodu c t ar e a s . Typ i c a l ly a SEU in th is po s i t ion wa s p r ev iou s ly in a

" "
s ta r p o s i t ion .
 3 - 24

l ine . Howeve r , th e r e mi gh t a l so be s eve ral s c ena r io s of a SBU '

s evo l u t io n

tha t wo u ld ind i c a te l e s s of a suc c es s . For in s t an c e , i t do e s no t s e em

" "
uncommon tha t an SEU r e ach e s th e do g p o s i t i on fr om an in i ti a l qu e s t ion

ma r k "
po s i ti on . Th i s is an ind i ca ti on of a s tr at e g i c fa i lu re ; mana geme nt

was una b l e to e s tab l i s h a s o l id marke t po s i t ion f or th i s SBU . We hav e

indi c ate d th i s evo lut ionary s c enar io b y a b ro k e n l in e in Exh i bit 3- 2 .

Ano th e r l es s de s irab l e but no t un c ommon p a tt e rn of evo lu t ion i s when a

"
SBU re ac he s the do g po s i t io n d ir e c t l y from a s tar po s i t ion . Th i s t oo

i s a n ind i ca t ion of a s tr a te g i c f a i l ur e ; ma na gement ha s b een unab l e to take

advan ta g e of th e f avor ab l e fund s f low p o ten ti a l wh i ch wo ul d hav e re su l t ed

i f i t h ad b e e n a b le to ma in ta i n i t s ma rke t sh ar e . Th i s i s ind i ca ted by a

do t ted l in e i n th e Exhib i t .

H IG H ( ST A R )
{ (Q U EST I ON M AR K)

B U S IN ESS

GR O W T H

R AT E

L ow
( CA S H co w ) i ( D oc )

H IG H

R E L A T I VE H A R KE T SH AR

'
fo r a S BU s Li f e C y c l e
—
. S o l id L i ne
 3 - 25

I n l i ne w i th th is , we c an id en ti fy fo ur ma j o r s tr at eg i c al t e rn a tiv e s

f or mana g in g a SBU wi th i n th i s ana ly ti c a l c on tex t . We m i g h t adop t a

s tra te g y wh i c h a tt emp ts to b ui ld ma rk e t s h ar e thr ou g h re l a t iv e l y he avy

'
i nve s tmen ts i n s tra te g i c p r og r ams . Typ i ca l ly we f i nd th i s f o r SBU s wh i c h

a re in th e q ue s tio n ma rk s e c to r , bu t wi th r ea so nab l e p ro s p e c ts f o r b e i ng
move d i nto the s ta r c a te go ry . S e c on d ly , we m ig h t f o l l ow a ho ld s tr a te gy ,

wh ic h imp l i e s th at enou g h mu s t be inv e s te d i n s tr a te g i c p r o g rams to ma i nta i n

the mar k e t s har e . A SEU in a s ta r "

po s i t ion or a "
c ow
"
p o s i tio n mi g ht f a l l

i nto th i s ca te g o ry . Ha rv e s t wi l l be a th ir d s t ra t e g i c al te rna tiv e f o r a

SB U , imp ly in g tha t the mar k e t s h ar e i s b e in g al l owed to d imin i s h . A SEU

in a "
c ow po s i ti on mi gh t be a c and ida t e f o r su c h a s t r a te g y , bu t onl y a f t e r

i t i s ev ide nt tha t th e p r od u c t l i f e - cy c l e p o s i t io n ind i c a te s a r e l a t ive l y

s ho r t and f ini te r ema ini n g u s e fu ln e s s . F in a l l y , a wi thdr aw s tr a t e g y mi gh t

be ap p rop r i ate wh e n a SEU o f f e r s l i tt l e or no po t e n t i al f o r fur th e r s tra te g i c

b ene f i t s . A "
dog
"
p o s i t i o n s hou ld be a b as i s f or c and ida c y f o r th i s s tr a te gy .

W e mi gh t add a f i f th s tra teg i c op t io n , ex p l o r e ( o r wa i t , ho l d ) , wh i c h wou l d

ap p ly to en ti r e ly new produ c t d eve lopme n ts a t th e pr e l iminary p r e — c om me r c i a l

i za t i on s tag e , b efore h av ing de c id ed to emb ar k on a bu i l d s tr a te gy or ,

a l te rna tive , to c an c e l th e p ro j e c t a t th i s e ar ly s ta g e .

Th e ap p r o a ch j us t ou tl ine d i n th e p r e c ed in g pa r ag r ap h s i s c on c ep tu al l y

a s imp l e and powe r fu l on e . I t p rov id e s a c l e ar p i c tu r e of wha t i s the

s tr a te g i c p o s i t i on of a SEU , and i t ha s an intu i t ive l y l o g i c and sou ld

ap p e a l to mo s t ex e cu t iv e s . At thi s p o i n t i n ou r d i s c u s s io n we n e e d to

r e c a l l , howev e r , th a t th e p ur po s e of ou r s tr a te g i c po s i t i on an a l y s i s i s to

de te rmine th e ne e ds f or p l an n in g tha t a p ar t icu l ar SEU wi l l f a c e , in t e rms

of a da pta tion a s we l l a s int e gr a tion . We r e c a l l tha t onl y a f te r h av ing

 3- 26

de te rmined th e s e ne e ds wi l l we b e a b l e to ta i lo rmak e th e p l ann i n g sy s tem

in su ch way s th a t i t wi l l b e p rov id e d w i th c a p ab i l i t i e s to me e t th e ne e ds .

I t s ho ul d al s o be p o inte d ou t at th i s po in t tha t the ba s ic SB U s tr at e g i c

p os i t ion ana ly s i s j u s t d i s cu s s ed o f te n mig h t n eed to b e mo d i f i e d in

imp o r tan t way s , now and the n e x t ens ive ly , in o r de r to b e c ome o pe r at io na l .

Thus , we nee d to d e l ine ate the s i tua ti ons i n wh i ch the app ro a c h i s va l id

a s out l ine d v er s us th os e s i tu a ti on s in wh i ch mo d i f ic a t io ns a re ne c e s s a ry .

Cons e qu ent ly , in the n ex t tw o s e c t ion s we s ha l l d i s cu s s th e s e i s s ue s ,

s tar t ing wi th an e x ten ti on of th e s tr at e g i c p o s i t ion ana l y s i s so tha t the

p l ann in g ne ed s th at would fo l l ow can be dedu c t ed , and fo l lowed by a

d i s cus s io n of us e fu l av enue s of mo d i f i c a t ion of th e b as i c app ro a ch .

3- 5 . Ad ap ta t ion and int e gr a ti on ne ed s of a SEU

L e t us r e co ns ide r th e two ba s i c d ime ns i o ns of ou r SB U s tra te g i c

po s i ti on ana ly s i s , name ly the bu s ine s s at tr a c tiv ene s s f a c tor and the

comp e ti tive s tr en g th f a c to r , and le t u s f or th e momen t as sume tha t th e

grow th rat e of th e b us ine s s and th e r e l at iv e mar k e t s har e ar e me an in g fu l

s ur ro ga t e s f or the s e tw o dimens ions . An SEU wh i c h i s f a c in g a r ap id

g row th ra t e in i ts indus try wi l l b e c on f r on ted wi th a numbe r of p l ann in g

is s ue s wh i ch wi l l b e pr ima r i ly ad ap t ation - o ri e nted in the i r n a tu re : how

to cap tur e a po s i ti on in the mar ke t b y deve l op in g mo r e e f f e c t iv e comp e t i t ive

s tr a te gi e s than o the r comp an i e s , how t o repo s i t ion on e s e l f to new con s ume r

tas tes , how t o e x p and into ano the r g e o g r ap hi c ma r ke t ,

and so on . I t s e ems

'
as if a maj o r s har e of th e p l ann in g n ee d s of SBU s tha t a re f a c in g a hi gh

indu s try growth gr a te wi l l be pr e dominan tl y ad ap t ive . The s e ne ed s wi l l

man i f e s t th ems e lves par t l y in t e rms O f hav in g to r e- e x am ine th e obj e c t ive s

 3- 2 8

At th i s p o int i t is e a s y to e x tend th e in i t i al gr id an al ys i s of

'
s tr a te gi c po s i ti oni n g O f SBU s to in cor po ra te the adap tiv e and in te gr at iv e

p lann in g ne eds . G iv en th at ad ap tat ion ne e ds wi l l be a fun ct ion Of b u s in e s s

g
rowth p r imar i l y an d that in t e gr a tio n n e ed s wi l l d ep en d on the r e l at iv e

ma r k e t sh ar e po s i tio n , we can e a s i l y s e e th e comb in ed ad ap t iv e and

in te gr a tiv e ne e ds th a t a SEU wi l l have wh en it i s lo c a ted in a p ar t i c u l ar

s tr a te g i c po s i t ion . S p e ci f i c a l ly , we h ave f our d i f f e r ent comb ina t io ns of

of
'
p lanni n g n e e ds f o r th e SBU s dep endi n g on wha t typ e SBU we a r e de a l i n g

wi t h , as i l lus tra t e d in Exh ib i t 3 - 3 .

AR K)
H IG H ( S T A R ) H

B US / N é SS
‘

H IG H A D A PTA T ON I H I G H A D A PT A U O AJ

S H AR E — P
‘
SH A R E fi
H IG H I N T EGZ A IIW
‘

L ow IN T E GR A T O NI

GR O W T H G QQ W T H —
y

L ow A D A P TA T I ON L ow A D A P TA D O A/

’
H l W E G Q 4 T/0U
‘

H IG L O W

( C A S H C ow d ( flo g )

72 5 4 fir m/5 H 8 R KE 7
‘

,
SH 4 2 5

B us ine s s Uni t .
 3 - 29

W e s e e f rom th e exh i b i t tha t a qu i t e d iver s e p att e rn O f p l ann in g i s

eme rg i n g

Fo r a SEU wh i ch i s in th e s t ar po s i tio n we s e e th a t th e r e i s a

r e l ative ly h i gh ne e d f o r b o th ad ap ta t io n and in te gra t io n p l ann in g .

R e f l e c ti ng on th i s f o r a mome n t we s e e th a t i t i s a deman din g ta s k

to s tra te g i c al ly mana ge a SEU in th i s po s iti on .

Fo r a ca s h - c ow " typ e SEU th e r e typ i c a l l y wi l l be a r e l at ive l y

l owe r ne ed f or adap ta t ion p lann in g , b ut th e s ame r e l at iv e l y h i gh

ne e d f or int e g ra t ion p l ann in g a s i s th e c as e f or a s ta r "

. Thu s ,

we s e e th a t the n e ed s fo cus p r ima r i l y on i n te g r a t io n , a nd th a t the

ta s k of ma n a gi n g a cas h c ow s hou ld be s omewha t s imp l e r th an tha t

"
o f mana gi n g a s tar g iv en th i s un i d imen s ion a l ne e d p a t t e rn .

For que s tio n mar k SBU

'
s we s e e th a t the r e wi l l be a r e l a t iv e ly

h i gh ne e d fo r adap t a tion p lann in g b ut a r e l at iv e ly l ow ne e d f o r

in te g r at i o n p l ann in g . A ga in , th e t as k to bu i l d up a n ew b us ine s s
i s a un i dime ns io na l on e , whe r e a c le a r adap tiv e f o cu s mu s t be kep t .

F inal ly , f or SB U '
s of th e s o- ca l led do g typ e th e r e wi l l be
r e l a t ive l y low ne e ds fo r b o th adap t a t i on and int e gr a ti o n p l ann in g .

Th i s i s a r e f l e ct i on of th e r e l a t ive ly un in t e re s t in g s tr a te gi c

p ro s p e ct s th a t s u c h a SBU s e tt i n g r e p re s en ts f o r a c omp any .

Co ns e que n tl y th e r e s ho u ld no t b e a wi l l in gn e s s to make l on g- te rm

commi tme n t to s tr a te g i c deve l opme n ts of s u c h a SBU . He n c e , we s e e

r e l at ive l y l ow adap t ive as we l l as in te g r a t iv e ne e d s .

I t i s wo r thwh i le to no t i c e a r e la t iv e ly eve n b a l an c e b e twe e n ad ap ta t i on

i nt e g ra ti on p l ann in g ne e ds fo r th e tw o SEU s tr a te gi c p o s i t io n typ o lo gi e s

 3- 3 0

whe r e the r e i s app roxima te fund s f l ow -

b a lan c e th e s tar
"
and do g

p o s i tio ns . Th e ab s o lu te l eve l of b o th typ e s of p lann in g ne eds i s how eve r

"
mu ch h i gh e r in the ca s e of a s tar th an a do g Fo r th e SEU typ e s wh e re

maj o r fund s - f low imb al an c e s can b e e x p e c te d , howeve r , the r e wi l l be an

imb a lanc e b e twe en the adap t iv e and i n te g r a t ive re l a tive p l ann in g ne ed s

'
the ne t funds g ene r a tin g SB U
— s wi l l h ave a r e l a t ive ly mu ch h i gh e r

in te g ra t ion p l ann in g ne ed th an adap ta ti on p l ann in g ne ed ; th e ne t fund s

'
cons umi n g SBU s que s ti on ma rks w i l l hav e a r e l a t iv el y mu ch h i gh e r

adap ta tio n p lann in g ne e d th an in t e gra t ion p l ann i n g ne ed . I n gen e r al , fund s

gene ra ti on cre a te s inte g r at ion p l ann in g ne eds ; fund s ut i l i z a t io n c r e ate s

ad ap ta t ion p lannin g ne ed s . As we sha l l s e e l ate r , th i s i s a p a r t i cul ar ly

us e f u l con c e p t to uti l i z e wh en i t come s to p o rt fo l io l eve l p l ann in g .

I t i s impo r tan t to no t i c e the e f f e c ts in te rm s of ch an g e s in the

p l ann in g ne e ds of a SEU wh en th e SEU evo lve s f rom one s tr a te g i c s ta te to

ano the r . G iven th at on e imp or tan t ta s k of p lann i n g i s to h e l p f a c i l i ta te

'
a de s i re d e vo lu t ion of a SBU s s tr ate g i c pos tu r e , as ind i c ate d in Exh ib i t

3- 2 , fo r in s tan c e , i t i s impo rtan t to an ti c i pa te wha t chan g es in p l ann i n g

ne e ds th a t s u ch an evo lu tiona ry pa tte rn s ho ul d l e ad to . For ins tan c e , wh en

inve s ti n g in a SEU to a tt emp t to inf luenc e a ch an ge in i ts s tr a te g i c p o s i tion

f rom a
"
que s tio n mar k to a
"
s t ar "
the r e wi l l be a ne e d , as an an t i c i p a t iv e

mov e , to s tren g th en in te gra tio n p l ann in g ab ove a l l , s in c e int e g ra t ion

p lann in g ne eds w il l b e e x pe c te d to b e come r e la t iv e ly mo r e impo rt an t . In

ou r exp e ri e nc e , f ai l ur e to re co gn i z e su c h a r e l ative s h i f t in n e ed s towards

a mo re even b a l an c e b e twe e n adap t a ti on and inte gr a tion i s a maj o r p ro b l em

'
in many new , ini t ia l l y s u c c es s f ul SBU s . W i th h i ghl y en tr e p rene uri a l
 3 -3 2

'
as we hav e s e en a p roxy f or or an ind ic a ti on of the SB U s compe t i tive
,

s tr en gth . Thus we ne e d to as k whe th e r the r e mi gh t be o th e r me as ur e s of

comp e ti tive s tr en gth tha t co u ld be e qu al l y or mo re re l evant . I n p ar t i cu l ar ,

we mi gh t wan t to e x p lore a l tern a t ive me asur e s of comp e ti t iv e s tr en gth in

c as e s whe re we do no t e x p e c t th a t th e l e arn in g cu rve ph e nomeno n mi gh t not

f ul l y ap p ly . On e s uc h a r e a mi gh t be w ith i n c e r tai n s e gme n ts of h i gh

te chno l o gy indu s tr ie s wh e r e new p rodu c ts deve l opme n t i s c r i t i c a l . I n su ch

in s tanc es R& D cap ab i l i ty , f o r in s t an c e , mi gh t b e a mor e r e l evan t me as ur e of

c ompe ti t iv e s tre n gth th an ma r k e t s h are . Th i s imp l ie s th at s ome me as u re

'
wou l d h ave to be deve l o p e d to as s e s s a SBU s s tr en gth a lon g th is d imens ion ,

'
r e l a ti ve to one s compe ti to r s . Ano th e r and r e la t e d a s p e c t of comp e ti t ive

s tr en gth mi gh t be o ne s a b i l i ty
'
to come up wi th un i qu e p a ten t p ro te c ti on

'
in one s R &D e f f o rts al s o a phe nomenon th at o ne wo uld ne e d to me a sur e

re la t iv e to
'
one s comp e ti to r s . Wi th a rap i dl y ch an g in g b u s ine s s env i ronme n t

v i s - a- vi s su ch non- e conomi c f ac tor s as th e l abo r f or c e , gove rnmen t re l a ti on s ,

etc .
, it b e come s an imp or tant c omp e ti tive s tr en gth f or tho s e f i r ms ab le to

ma in tain goo d and f l exi b l e l a b o r r e l at ion s , in cl ud in g h av i n g l oc a t ed

th ems e lves in s uch a w ay th at l ab o r c o s ts can b e ke p t at a comp e t i t iv e l ev el

Sim i ar l y , go od gov e rnme n t r e l a ti ons mi gh t b e a comp e ti t iv e advan ta ge . Thi s

would p ro b ab ly b e pa rti cu l ar ly true f o r l a b or in ten s ive an d /o r h i gh ly

re gu l ate d indu s tri e s , su ch a s fo r in s tan c e sh ipya rds . F inal l y , g iv en the

raw mater i al s s ho r ta ges tha t bus i ne s s e s now an d th en s e em to b e f a c in g , fo r

ins tan c e w i th i n the ene r gy ar e a , i t mi gh t be a comp e t i tiv e s tr en g th to be

ab l e to c arry ou t as en e r gy e f f i c i ent a bus in es s as po s s ib le . F or ins tan ce ,

w i th in h i gh e ne r gy co ns umin g indus tr i e s su ch as c eme nt or th e ai r l ine

b us ine s s a me as ur e of en e r gy e f f i c i e ncy re l a tive to comp e t i ti on mi gh t b e a

 3- 33

h i gh ly re l ev an t ind i c a to r of comp e t i tiv e s tr en g th . I n to t a l , wh a t we s e e

eme r g in g f rom th e s e e x amp l e s i s a n e ce s s i ty to ev a lua te i n e a ch c as e fo r

a pa r ti cu l ar SB U how i t s c omp e t i tive s tr en g th s hou ld b e me a sur e d . I n s ome

in s t an c e s we ma y have to mak e us e of a l te rn a tiv e me a s ur e s to ma r k e t sh ar e ,

in o th e r c as e s we may have to deve lo p a c omp os i te me a su r e of c omp e t i tive

s tr en g th , b as ed on mar ke t s h ar e a s we l l a s on o th e r me a s u re s .

Let us now tu rn to th e o the r d imen s ion in th e SEU s tra te g i c p o s i t ion

m a tr ix , name ly the growth d imen s ion , and as k wh e the r th i s i s a un i qu e p r oxy

fo r b u s ine s s at tr ac t i ven e s s . A l th ou g h growth us ed to be th e "

p ana c e a

the r e a r e p r e s en tl y ma ny que s t io ns b e in g r a i s ed as to wh e the r th i s i s th e

pply att ra c ti ve ne s s as p e c t
‘
of a b us in e s s . A ga in , we mi gh t f ind in s tanc es

wh e r e o th e r a t tr a c t iven e s s f a c tor s ar e p romi nen t wi th in ar e a s whe r e th e

unde r ly i n g p remi s e , th e p rodu c t l if e - cy c l e c on c e p t , doe s no t ho l d . On e

ex amp l e of an imp o r t an t addi t i on al b u s ine s s at tr a c tive n e s s is s ue i s to

a ttemp t to avo i d b u s ine s s e s w i th a h e avy e l emen t of i ndu c e d ob s o l e s c e n c e .

A f a i r ly s ta b l e and no t t oo rap i d r a te of te chno l o g i c a l chan ge i s th e r e f o r e

p ro b a b ly one in cr ea s in g ly impo r t an t addi t ion a l f a c to r of b us in e s s a ttr ac t ive

ne s s . Ano the r po ten t i al l y imp o r tan t a sp e c t of th i s i s th e na tur e of

comp e t i t ion i ts e l f . Fo r in s t an c e , wi th an indu s tr y whi ch en j oy s a mo r e

comf or t a b l e comp e ti t i ve s tru c tu r e the re i s l e s s l i k e l iho o d of th e c omp e t i tiv e

p r es s ur e indu c in g ex c e ed in g l y r ap id and exp e n s ive ch ang e s in to th e evo lu t ion

of the p rodu c t l i f e - cy c l e . Barrier s to en t ry , su ch as l ar ge inve s tmen t

hur d le s due to th e co s t of n ew p l ant s , s imi l ar ly s hou ld in cr e as e th e b u s in e s s

a ttr ac t iv en es s . I n al l the s e i n s tan ce s i t is ne c e s s ary to meas ur e bu s ine s s

a ttr a c t ivene s s in a di f f e r ent w ay th an me r e ly a c c o rd in g to gr owth .

 3-34

Th e ex amp l es of al te rn a tiv e me as ur e s of b us ine s s a t tr ac ti vene s s and

c omp e ti tiv e s tren g th are no t me an t to b e e x h au s tive . I ns te ad th ey are me an t

to i l lus tra t e th a t th e tw o dimens ion s ne e d to be me a sur e d i n s u ch a way

tha t they r e a l is t i ca l ly r e f l e c t the unde r l y in g ph enomena in e ac h in s tan c e .

As a lre ady a l lud e d to , a l i ke ly de ve l opmen t mi gh t be to devi s e inde xe s f o r

b us ine s s at tr a c tivene s s an d comp e t i t ive s tr en g th tha t in c orp o r ate s eve r a l

f a c to rs and wh i ch emp l oy s ome re a son a b l e we i gh tin g of th e f a c to r s .

"
L e t us now b r in g up tw o mo re te chn i c a l i s sue s re la tin g to th e

deve lopme nt of th e tw o s c a le s of me as ur ement of th e b us in e s s g r ow th /m a r k e t

shar e g r id . Th e f ir s t r e la te s to th e way wh i ch i s common ly p rop o s e d f o r

meas u rement of r el a tiv e mar k e t s har e , name l y to me as ur e the SBU

'
s ma r k e t
'

s ha re re l a tive to th e la r g e s t c omp e ti to r . Th i s me as ure d oe s , howeve r , no t

take in to ac c ount the de g re e of comp e t i t ive c on c en trat ion wi th in th e

b us ine s s . Fo r in s tan c e , in on e s e ttin g we mi g h t have a bus in e s s wh i ch i s

domi nated en ti r e ly by two comp an i e s , b o th b e in g app r ox ima t e ly e qu a l i n

ma r k e t s ha r e and , thus , th e SBU i n que s ti on mi gh t be h av in g a re l at ive

mar k e t sh are of app rox ima te l y one . I n ano th e r s i tua t ion a SEU mi gh t f a c e

a hand ful of c omp e ti to r s , e ac h b e in g r e l at ive l y e qual in s i z e , a ga in

p rodu cin g a re l a ti ve ma rk e t s har e of ap p rox ima te l y on e . I n a th ird

s i tua ti on a SEU mi gh t f ind i ts e l f w ith in a h i gh l y f r a gment ed indu s t ry wi th ,

s ay , mo re than 5 0 ide n ti fi ab l e comp e t i to rs . A SB U may be on e of th e '

ap p r oxima t ely do z en lar ge s t comp an i e s in th e bu s ine s s , none howeve r b e in g

s i gn i f i c an t ly l ar ge r th an th e o th e r s . A gai n , the r e l at iv e marke t s h ar e

wi l l be app rox imate l y on e . Th us , in al l thr ee in s t anc es the c omp e ti t iv e

s tr en g th po s i tion ap p e a rs to b e the s ame , w h en in f ac t th e b a s i s f o r

compe ti ti on i s e nti r e l y di f f e ren t ; in th e f i rs t ins tanc e we h ave a duopo li s t i c

 3— 3 6

p a tte rn . I t mi gh t , how eve r , b e us e fu l to con s ide r a p ar ti cu la r growth

ra te ran ge to re p r e s en t th e b o r de r l in es of a
"
b and th at mo r e or les s

d i s ti n gu i s he s th e s tar s f rom th e c ash cows . Th i s b and "

i s p ro b ab l y

as s o c ia te d w i th h i gh e r growth ra t e s wh en i t come s to s e rv i ce - re l a t ed and /o r

la b o r— in tens ive indu s tr i e s th a t do no t re qu i r e la r ge f o l l ow - u p inv es tmen ts

ve rs us lowe r g rowth r ate s wh en i t come s to c ap i t a l - in ten s ive indu s tr i e s

th a t mi gh t re qu i r e ma s s ive inve s tme n ts on a mor e or l e s s con tinuou s b as is

i n o rde r me r e l y to ma in ta in one s '
b u s i ne s s s tr en g th p o s i t ion . Thus , it

s eems cr i ti ca ll y impo r t an t to d e te rmine fo r e a ch par t i cu l ar indu s t ry of

conc e rn wh a t mi gh t b e a re as on ab l e gr owt h ra te f o r me an in g f ul ly d i s t in gu i s h

i ng b e twe en ne t funds us e ve rs us n e t fund s gene ra ti on . I t mi gh t , f or

in s tan c e , be j us t i f i e d to h and le a h i gh ly c ap i ta l in ten s ive in te g ra te d

a luminum pr odu c in g S BU wh i c h i s en j o y in g s ay onl y an e i gh t p e rce nt i ndu s try

growth rat e as a s tar wh i l e a l ow c ap it al in te ns i ty s e rvi c e - o r i e nte d S BU

fo r s pe c i a l i z e d produ c ti on of p r e c is i on c as ti n gs mi gh t be con s id e red a c as h

c ow , even tho u gh it s in dus try growth r a te may be 25K .

The i s s u e of interp r e tin g wh a t mi g h t co ns ti tu te me an in g fu l growth

r a te s in an ind us try - s p e c i f i c way i s of cou rs e p ar t i cul ar l y imp o rt an t wh e n

wi thin a g ive n comp any on e i s f a c ed w i th ma k in g po l i cy trad e o f f s b e twe e n

'
S BU s from en ti r e ly di f f e ren t indu s tr i e s , a s ex emp l i f i e d in the pr evi ous

p ar a graph . Th is is , how eve r , on ly on e of s ev e r a l imp o rtan t c on s ide r ati on s

th a t ne ed to be p a id a tte n ti on to when deve l op in g a s t r ate gi c as s e s sment of

'
a c l us t e r of SBU s . We s ha l l the re fo r e now turn to a di s cus s ion of th e

'
a gg re ga t ion of SB U s into a l ar ge r s tr a te gi c pi c tu r e , a s we typ i ca l ly wo ul d

f i nd i t wh en a mu l tip rodu c t ( an d mu l t i - SBU) d iv i s ion d eve lo p s a s tra t e gi c

p i c tur e of i ts e l f .
 '
3 7
- . Con s o l i da t i on of S eve ral SB U s

A d ivi s ion w i l l typ i c a l l y hav e s eve ra l SBU '

s un de r i ts d i s c re t i on .

'
Th e to ta l p a tte rn O f th e s tr at e gi c po s i t i on s of the s e S BU s mi gh t b e

po s i t i one d on a gr i d as ind i cat ed in Exh ib i t 3- 4 . Th i s wi l l g iv e an

i ndi c atio n of th e ove r al l cumu l a t ive na tu r e of th e b u s in es s e s of th e

d ivi s ion , wh e th e r i t i s h e av i ly b a s e d in the s tar s e gment i t i s th en

"
a typ i c a l g row th d ivi s ion ; or wh e the r i t i s c on c e ntr a te d in th e c ow

s e gm e n t i t i s th en a mo r e matur e d iv i s ion . Mo s t d ivi s i on s wi l l h av e

s ome SBU '

s i n p os i ti ons d i f f e re n t f rom th e m aj o r th ru s t of it s b u s in e s s .

'
Fo r i ns tan c e , a p re domi n an t ly ma tu r e d iv i s ion m i gh t h ave on e or a f ew SBU s

in the "
que s t ion mar k "
or
"
s t ar "
are as . Th i s mi ght re p re s en t an ind i ca t i on

of th e fu tur e d i r e c ti on th at th e div i s i o n wan ts to fo l low , in th a t fund s

mi gh t be chann e l e d f rom th e ma tu r e SB U '

s and into s u ch new deve l opmen t s .

Th e ar row in Exhi b i t 3 4 i nd i c a te s th e " "

-
na tu r al f low of fund s w i th i n a

d iv i s i on tha t a t temp t s to ke e p renew in g i ts e l f .

'
A d iv i s ion s p ur s uan c e of

p e rp e tu a te d g row th b a s ed on in te rna l ly de ve l op e d new SBU

'
s is , h owe ve r , a

c r i ti c al s tr ate g i c de c i s i on th a t s hou l d on ly be t aken in t he c on t ex t of

ov e ra l l p or t fo l i o c ons i de r a ti ons f or th e f i rm as a wh o l e . Th e i s s ue i s

whe the r f r om a co rp o r a t e po r tf o lio s tr ate gy p o in t of v i ew i t wo uld make

s ens e to al lo c a te d i s c r e ti o na ry s tr a te g i c fund s b ack in to new SBU

'
s wi th in

the s ame b us i ne s s or s omewh e r e e l s e w i th in the f i rm wh e r e th e g r owth

po t e n ti a l mi ght be eve n b e t te r , wh e r e th e r i s k c an be d imin i sh e d , and so on .

'
Wh e n th e SBU s of a d iv i s ion ar e s c a tt e re d al l ov e r in te rms O f

s tra te g i c p o s i t i on i n gs , th i s mi gh t b e in t e rp r e ted as a l ac k of s tr a te gi c

fo cu s fo r the di vi s i on . I t wo u ld be h ard to c l as s i f y a divi s i on in t e rms

of wh e th e r i t s ho u ld be a g rowth d iv i s ion or a d ivi s i on cha r t er ed w i th

 3- 3 8

b e c oming a ne t con tr ib uto r of fund s w i th in a co rp o ra t e p o r t f o l i o s tr a te gy .

Thus f rom a co rp or ate p or t fo l i o s tra te gy p o in t of vi ew a b u s ine s s w i l l

,

have s tr a te gi c val ue on ly i f funds even tua l ly c an b e come f r e ed u p fo r

r eemp l oymen t . I f we a s s ume tha t a comp an y i s ma na ge d in ac co rdan c e wi th

s uch an exp l i ci t co rp o ra te s trat e gy , we wou l d th e r e f o r e e x p e c t th at e ac h

'
d iv i s ion s p l ans wo uld p rov i de f o r mo r e c l e a r l y c lus te r e d s tr a te g i c f o c u s .

If, on th e o th er hand , we as s ume tha t th e re i s no co rp or a te p or t f o l i o

s tra te gy con c e p t in ex i s ten c e , and , ins te ad , '

tha t th e comp any s growth i s

a fun c t ion of wh a t e a ch divi s ion i s ab l e to gr ow , in a mo r e or l e s s l ai s s e z

f air e fas hion , th en we wou l d e x p e c t th e s t r at e gi c po s i t ion in g of a div is i on s '

SB U
'
s to be widel y s c a tte re d . Th i s la tt e r s i tu at ion i s p rob ab l y a qu i t e

a c cu ra te re f l e c t ion of r e a l i ty in many ca s e s .

I
H GH ( 31 mg ) ( O u ssnon H ARM )

B US I N E SS

G RO W T H

R AT E

LOW )
( CA S H co w

H GH I
RE L A T
“
I V E M fiz K E
r
’
T S I-
m rzs

Ex hi b i t

A c r i ti ca l i s su e wi l l b e how mu c h fund s a c omp an y wi l l be ab l e to

a c tua l ly fr e e u p from SBU

'
s in c as h - c ow po s i ti on s f o r r eemp lo yme n t in h i gh
 3 - 40

f i gur e . We s ha l l c al l thi s t he con so l idat i on dime n s i on . As a l l ude d to

ab ove , th e p l an ni ng ne e ds s temmin g f r om th i s d im en s ion wi l l p r ima r i l y be

of the in te gra t i on typ e .

S ev er a l fa c to rs mi g h t go in to th i s con s ol id a tio n d imens i on . Firs t ,

the r e mi gh t b e o th er asp e c ts to th e ev alu a tio n of the cas h - f low pa t te rn

'
f rom th e SBU s th an to fo cus so l e l y on the funds g ene r at ion - ut i l i z at ion

b al an ce . Fo r in s tanc e , how doe s th e c as h - f l ow of a SEU f i t i n w i th o th e r

c as h f l ows in te rms of cov ar ian ce ? Commo n unde r ly in g c y c l i cal i ty p a tt e rn s

wo ul d of cou rs e no rma l ly no t be an advan ta g e . Th e size of th e c ash — f l ow

o f o ne SEU re l a tive to th e O th e rs wo ul d be ano th e r i s s ue : I s th e r e one

'
mai n c ash f l ow sou r c e - or i s th e re a mo r e eve n d is tr ib ut ion amo n g the SBU s?

Th e l a tt e r wou ld pr e s umab ly b e mo re advan t a ge ous b e c au s e of l e s s re l ian c e

on one sou r c e . F ina l ly , an exp l i c i t as s e s sment of th e r i s k of wh e th e r th e re

i s a h i gh l i k e l ihoo d or no t th a t a p ar t i cu l a r le ve l of p l an ne d c as h - f low

wi l l a c c ru e i s ne c es s a ry . S uch an eva lu ati on s hou l d be c ar ri ed ou t fo r the

SEU in a b so l ute te rms as we l l as re l at ive to th e r i s ks as so c ia ted w i th th e

" '
r e l iab i l i ty of th e ca s h f l ow s -
of the o the r S BU s . Th e i s s u e of do ing a

'
me an in g ful as s e s sment of th e r i sk a s s o c i a ted wi th a SBU s fund s f low i s a

di f fi cul t one . We sh al l re turn to th i s la te r in th e ch ap te r when we d i s cus s

th e co rp or a te po r t fo l io s tra te gy ev al u at i on of th e s e t of b u s ine s s d iv i s i ons ,

ro b us tn e s s be
"
a t whi ch po in t th e of th e va r iou s f und s f low comp one nts wi l l

cr i ti c al .

Ano the r s e t of f ac to rs th a t s hou ld be b r o u gh t to b ear -

on th e anal y s i s

of th e con s o l ida ti on dimen s ion ar e th e s o- ca l l e d s yne r gy e f f e c ts . Th e s e

'
a c crue whe n a d ivis ion s func t iona l d ep ar t men ts a re ab l e to s e rv e al l th e

'
S BU s , t hu s avo idin g dup l i c atio n of e f f or ts . For ins tan ce , wi th in the
 3- 41

ma nuf a c tu r ing fun c ti on th e re mi ght b e amp l e Op po rtun i ty f or many of the

a c t ivi ti es to be c arr i ed ou t in a co o r dinat e d f as h i on wi t h in th e s c 0p e of

the div i s io n a s a who l e , in co ntr as t to a g re a t e r d e g r e e of i n de p end en t

manu f ac tu rin g f or e a c h SEU . I t is th e re fo r e an impo r t an t s e c ond a ry

d iv i s io n a l s tr a te gi z i n g i s s ue to f a c i l i t ate a S EU p a t te rn whi ch w i l l be
su ch th a t a n ov e ra l l syn e r gy c an b e dev e lop e d in manu f a c tur i ng . S imi lar ly ,

in mar k e ti ng the r e mi g ht a l s o be Op po r tun i ti e s fo r s yne r gy in th a t j o in t

SEU s al e s fo r ce s mi gh t be deve l op e d . W ith in R & D too mu ch syn e rg ie s mi g h t

be imp o r t an t .

'
Dur in g ou r di s cus s i on of th e s i gn i f i c an c e of a SBU s growth po s tu r e

e a r l i er in th i s ch ap te r we h av e al re ady p o inte d ou t th a t th e l i f e - cy c l e

p o s i tio n of one SEU re la tiv e to th e o th e r s wi l l be an imp o r tan t e l eme n t in

the ana ly s i s of th e b us ine s s '

s tra te gi c p o s i ti on , b e c au s e of th e fun ds f low

imp l i c a ti on s f rom th i s . Th e r e i s howev e r an ad d i ti ona l pr o b l em wh i ch a ri s e s

f rom th i s , and wh i c h mi gh t c r e a te int e g r a ti on p l ann i n g n e e ds . Th i s s tems

f rom the re c o gn i t ion th a t th e s tr at e g i c ma n a geme nt ta s k s is l i k e l y to differ

b e tw e en th e p ro duc t li f e cy c l e s , in t e rms of man a gemen t s ty l e to be

en co u ra ge d th rou gh p l ann in g , p ro du ct ve r s us p ro c e s s b al an ce in th e s t r ate gi c

p ro g r ams , the na tu r e of in c en t i ve s cheme s , and so on . To d ev e lo p a mana g e

men t te am w ith in a d ivi s i on , wh i ch mi gh t b e a b l e no t on ly to h an dl e th e

ma n a g eme n t of s u ch a dive rs e s e t of S BU
'
s b ut als o to c op e w ith ch an g es in

the b al an c e of SBU
'
s ov e r time , mi ght c a l l f or c on s i de r a b l e p l anni ng a l on g

th e ma na g em en t d ev e l opme n t d ime n s ion . Th i s i s ye t an o th e r c on s o l ida t io n

p la nn in g nee d . We s h al l r e tu rn t o how to ap p r oa ch t hi s in mo r e de ta i l in

Ch ap te r F ive , howev er
 3-4 2

I t i s imp o r tant to r e c o gn i ze , how eve r , th at add ed s i ze /c om p l exi ty of

'
a di vi s ion , man i f e s te d by an i n c re as e in the numb e r of S BU s , le ad s to a

re la tive in c re as e i n int e gra tio n p l anni ng ne eds , s temmin g f rom th e

req u i rements O f th e c ons o l id a ti on at tr ac tiven e s s d imen s ion . Thu s , b us ine s s

d ive r s i ty no rmal ly le ads to r e l a tiv e l y mo r e in te gr at io n p l ann ing .

I t is a l s o imp o r tan t to re co gn i z e th e p o te n t i a l e f f e c t of o r g an i z a

t i onal le a rn in g i n th i s r e s p e c t . O ne mig h t ex p e c t tha t l e ar n in g w i l l cut

down the fo rma l wo r k— load ne e d ed to be devo te d to p l ann in g . Wh eneve r

reo r gani z a ti ons in a d iv i s i on a r e ma de , s uc h a s r e de f inin g on e or mo re

i r i ng /di ve s t i ng
' '
SB U s ,
r eas s i gn in g SBU s f rom one d iv i s ion to an o the r , or ac qu

a SEU , the n the inte gr a ti on p l ann in g ne e d i s l ike ly t o go up . S imi l a r l y ,

mana gement job ro tat io ns , i f done f r e qu en tl y , mi gh t inc r e a s e th e in te g ra t ion

p l anni n g ne ed .

Th e re ar e tw o conc e rn s tha t shou ld b e ra is e d a t th i s p o in t , b o th

r e la tin g to the f ac t that in te gra tion p lann ing mi ght have a t end en cy to

"
s up p re s s "
adap ta ti on p l ann in g . Wh en th e comp lexi ty of a b us ine s s inc re as e s ,

c au s in g an i n c re as e in in te gr at i on p l a nn in g n e e ds , th en on e mi ght b e c ome

"
ov e rwhe lmed "
by th e wor k loa d imp l i ed by th e inte g ra tio n p l ann in g ne e d and

p ay ins u ff i c i en t a t te n ti on to th e ad ap ta ti on p l ann i n g ne e d s . Th i s s e ems to

b e a true dan ge r in lar ge and comp l ex b us i ne s s e s ; in t e gr at i on p lanni n g mi ght

e as i ly co n s u m e su > mu c h at ten t io n th a t adap tat ion p lanning i s l i k e l y to suf fer .

Th e typ i c a ll y r e l a tive ly s t ro n g e r fo rma l i ty an d numbe r s - o r i en tat i on of th e

in te gr a t ion a s p e c t of th e p l ann in g tend to r e in f o r c e th i s d an g er .

"
S imi lar l y , wh en a divi s io n go e s down th e l ea rnin g cu rve , an d i ts

ma n a gemen t b e comes m or e and m o re comfo r tab l e w i th ( in te g ra t io n ) p l ann in g ,

a

na tu ral and de s i rab l e redu c tio n of e f fo rt S p e nt on in te g ra t i on p l ann in g

 3 - 44

3- 8 .
Co r por a te S tra te gic P lann in g Ne ed As s e s sme nt : F inan c ia l P o s i t io n

We s hal l now tur n ou r a tten t ion to the a s s e s sm ent of ne ed s fo r p l ann ing

a t the corpo ra te por tf o l io l eve l . I n thi s ins tan c e , t oo , ou r app roa ch s ha l l

be to id ent i f y wh at mi gh t be c r i t i ca l s ou r c e s of s tr a te gi c p r e s s ur e s that

wou l d g ive r i s e to ne e ds f o r v ar io us s tra te g i c p l ann in g ap p ro ac he s . Th e

f ac to r s tha t w i l l be impor tan t wh e n i t come s to ide n ti f y in g th e ne ed s f o r

p lann in g a t the por tf o l io l eve l wi l l of c our s e be expe c t ed to be d i f f e rent

fr om th e f ac to rs r e levan t to id e nt i f y i n g th e p l anni ng n e ed s of a SBU or

d iv i s ion . I n tho s e ins tanc e s we f o cu s ed on the bu s ine s s a ttr a c t iven es s

comp e ti tive s tr en g th a nd con s o l id a t io n a ttra c t ive ne s s - p o s i ti o n s f o r

de te rmin in g p lann in g ne e ds , a s we r e c a l l f rom ou r d i s cus s ion in th e f i r s t

par t of th i s ch ap te r . Wh e n i t come s to a s s e s s in g th e ne e d s a t th e c o rpo ra t e

l ev e l we s ha l l p ropo s e tha t th e re a r e tw o o the r ma j o r c l a s s e s of f a c to r s

tha t a b ov e a l l wi l l be r e l evan t , c orp o ra te f inan c ia l pr e s sur e s and s truc tu ra l

por t f o l io p r e s s ur e s . Fi nan c ia l p r e s sur e s as a s our c e f or cr ea t in g co rpor a te

l ev e l pl annin g ne e d s s ha l l b e d i s cu s s e d in th i s s e c tio n . I n th e nex t s e c tion

we s ha l l di s cu s s th e ro l e of pr e s sur e s on the c orp or a tio n to chan g e it s

bas i c s truc tu re , c re ati n g ano th e r s e t of p l ann in g ne e ds . B e fo re p ro c e ed in g

i t s hou ld be no t i c ed tha t the s e s our c e s of p r e s sur e s t oo wi l l c r e a te

adap tive a s we l l a s i nte g ra tive p l anning ne ed s . Th e S p e c i f i c na tur e of

th es e ne ed s wi l l howeve r b e di f f e r en t .

P ro ce ed in g wi th ou r dis c us s ion of th e r e l eva nc e of the f i na nc ia l

po s i tio n of a f i rm , a f i r s t d i s ti nc t io n mi gh t b e to de te rmin e to wha t ex t ent

th e f inanc i al p o s i ti on o f the comp any a s a who l e mi gh t be char ac te r i z ed as

" " "
s tron g or we a k . I t is of cour s e di f f i cu l t to de f ine exa c t l y a s tr on g

or we a k f inan c i al p o s i tion , and f or ou r purpo s e an exa c t de f ini tion i s no t

 3-45

ne ed ed . Wha t i s n e e ded fo r ou r pu rp o s e mi ght howev e r be to fo cu s on th e

f o l low in g tw o in te rr e l a t ed i s s ue s . F ir s t , to c arry ou t an eva lu a t io n of

wha t m i gh t be th e f inan c ia l s tr e n g th of the f i rm r e l a t ive to wh a t wo u ld b e

"
no rma l f or comp an i e s of ap pr ox ima te ly th i s s i z e a nd pa tt e rn of d ive r s i ty .

Unu s e d d e b t c ap ac i ty i s p ro b a b ly an impor tan t e l eme nt i n su c h an a s s e s sme nt .

Eq ui ty is of cou r s e no rma l l y h i gh ly co rr e l at ed w i th unu s ed deb t c ap a c i ty ,

a nd mi ght be u s e d a s a p roxy fo r me as ur in g unu s e d d e b t c ap a c i ty . S eve ra l

9
mor e e la b o ra t e s c hem es for d e t e rmi n in g unu s e d d e b t c ap ac i ty a l so e x i s t .

Ano th er impo r tan t a s p e c t f or j ud g i ng th e f ina n c ia l po s i t ion of th e

f i rm wi l l be th e ne a r - te rm ov e r a l l f inan c ia l pe r f o rma nc e . Th i s i s the

"
f i r s t d er iva t iv e of th e f a c tor d i s cu s s ed in the pr ev io u s p ar a gr a p h i n

tha t i t wi l l imp a c t th e s tr e n gth of th e f in an c i a l po s i ti o n . Ne a r - t e rm

r ep o r t ed co r po r a t e f a c to r s s u c h as qu ar te rl y or y ea r ly pro f i t s , r etu rn on

inv e s tme n ts , e arn in g s p er shar e a nd g row th i n s a l e s mi g h t be imp o r tant

i nd i c a tor s of th i s . Al so re l a t ed to thi s wi l l be th e j u d gme nt of s ta b i l i ty

of s ho r t - te rm f i nan c i a l indi ca to r s ov e r time .

I n te rms of th e e f f e c t s of the s e f i nan c i a l po s i t io n f a c to r s in

c re a t in g p la nn in g ne eds th es e w il l p r i ma r i l y hav e e f f e c ts on in te g ra t io n .

Fo r in s t an c e , a we a k bas ic f in an c i al po s i t ion s hou ld c r e a t e a h i gh n ee d

f or int e gr a t i on p la nni ng a t the po r t f o l io l ev e l . Th i s i s b e c aus e th e

r e l a tiv e ly t i g ht and un f avo r a b l e unu s ed de b t capa c i ty c anno t pr ov id e a

b as is f or a mo r e a gg r e s s iv e exp an s io n . R ath e r , a we a k f in an c i a l po s i t ion

s ho u ld ca l l f o r a s t ron g emp h as i s on int e gr at io n p la nn in g to con s o l ida te

th e pr e s en t po s i tion ; th e r e al i ty of th e f inan c i a l s i tu a t io n do e s no t a l low

fo r a gg r e s s iv e a dap t iv e s tr a te g i c mov es . I t i s impo r tant to r e c o gn i z e th i s

adde d ne e d f or int e gr a ti o n tha t a we a k ov er a l l f inan c i a l p o s i t ion c r e a t e s .

 3 -46

A b e tte r inte gr at iv e c ap ab i l i ty is proba b ly the b e s t way fo r s u c h a compa ny

to p ro te c t i t s p o s i tio n and to r ea l i s ti ca l l y u t i l i z e th is comp e t i tive

adv anta ge . Unf or tuna t e l y , d e s p i t e a wea k f in an c ial po s i t ion , a f ew ne a r

te rm su c c es s e s mi gh t le ad some comp an ie s to a f a l s e s e ns e of comf o r t ,

ove r loo k in g th e ne ed f o r a con tinue d a gg re s s iv e int e gra t ive th ru s t .

Le t us now turn to th e ne ar - te rm f inan c i al pe r f orman c e a sp e c t s . As

i nd i c at ed , the s e shou ld a l s o inf lu en c e the ne ed s f or p o r tf o l io p lann in g .

I f th e n ea r - te rm f inan c ia l po s i t ion i s wo r s e n in g , th en t oo the re i s a n

ind ic ation tha t the r e i s a grow in g in te gr at ion p la nnin g ne e d ; the r e i s no t

enou gh i nt ernal e f f i c ien cy in the way th e f i rm i s Op e ra tin g . Wha t i s

ne e de d in su ch a s i tua t ion i s to imp rov e on the b as i s f o r th e in te rna l

O pe r at ion .

We s e e f rom the di s c us s ion th is f a r tha t the c o rp or ate f inan c i a l

po s i t ion p r imar i ly i s c au s i n g the u s e of int e gr a tive ne ed s , and that many

of th e s e p re s s ur es ma y be re l a tive l y n ea r te rm i n na tur e . I n f a ct , s ome

of the s e e f f e c ts , su ch as at temp t in g to ma inta i n a h i gh ly s ta b l e r ep o r te d

corp ora te ea rn i n gs f low , mi g h t b e s e e n by s ome as an t i s tra te g i c

- "
. In

o th e r wo rds , the r e mi ght be r e a s on f o r some to inte rp r e t the c o rpo ra t e

f inan c ia l p re s su re s as ne ar - term d e ter ren ts to s tr a t e g i c p l ann in g , so tha t

co ns e quently the s tra te gi c p la nn in g shou l d be de s i gned so as to c oun te ra c t

th e s e p r es s u re s , no t to comp ly wi th the s e p r e s su r e s . We do no t sha re thi s

vi ew , howev er , f or tw o re a s on s . F ir s t , we f e e l tha t the f inan c i a l

pe r f o rmanc e pr e s su re s a t th e c o rpor a te po r tf o l io l ev e l ar e r e a l ,
par t i cu l ar ly

as s e en by th e C E O
. . . Cons e quen tl y , we shou ld l e t th e a c tua l ne ed s d e te rmi ne

th e de s i gn of th e p lannin g s ys tem . A no r ma tive l y de s i gne d s ys tem d ive r t in g

s ig ni f i can tl y f rom wha t the us e r s p e rc e ive to b e th e r e l evan t ta s k s wi l l in

 3 -4 8

'
Th e s e can c a tal y z e cons i de rab l e upwar d or downwar d momen tum on a comp any s

s to ck p r i c e s and can al s o inf lu enc e th e ima g e and re s p e c ta b i l i ty of th e

c ompany a s a who le as we l l a s i t s C E O . . . A ma j o r pa r ame te r in th e j ud gment

'
of mo s t f inan ci a l an a ly s ts abou t a pa r ti cu l ar f i rm s p e r fo rma n c e po t ent ia l

wi l l be th e s ho r t- te rm p ro f i ts p i c tur e , in te rms of s ize , s t ab i l i ty and

g rowth . Th i s p ar ame te r i s p ar ti cu l ar ly re l evant to th e own e r s , eve n thou g h

as an indiv i dua l a sha reh o ld e r wou ld p ro b a b ly no t p ay mu ch a tt e nt io n to th i s

in h i s ow n s tr a t e g i c de c i s ion - ma k i n g , a s we s ha l l s e e b e l ow .

Ob s e rv ing a p e r so na l hou s eho ld or a sma l l , p r iva t e ly h e ld c o rpo r a t ion ,

the k ey f inan c ia l mea sur emen t de nomina to r wi l l be th e c a s h - f low po s i t ion .

S tr a te g i c d e c i s io ns a r e ty p i c a l l y ta k en almo s t so l e l y on th e bas is of wh e the r

the d e c i s io n s e ems to b e fe as ib l e f r om a c as h - f l ow po in t of v iew . W i th th e

eme r g e nc e of th e lar g e , pu b l i c ly h e ld co rp o ra t ion s th er e wi l l , howev e r , be

"
a ne ed f o r add i t iona l f i nan c i a l me a su r eme nt de nomina to r s ; wi th f lu i d

" "
own e r sh i p of a c omp any i t s va lu e to an own er i s th e p r i c e f or whi ch he can

sell or buy the s to c k . H e nc e , it b e come s impo r tan t wi th a me a s ur eme n t of

the va l ue of th e c orpo r a t ion as i t s e ems to be a t vi r tu a l l y p py po in t in

t ime . Th e f i el d of a c count in g h as come up wi th the con c e p t of p ro f i ts fo r

th i s . Th i s can be s e en an a t temp t a t a s s i gn in g a va lu e a s of th e pr e s e n t of

l i f e - time e x p e c t ed p e r f ormanc e
'
th e of
'

c om p a ny s . Thu s , a f r a c t ion exp e nd i tu r e s

and d e p re c i at io n cha rg e s ar e ( ar b i tra ri l y ) al lo ca t e d a s pa rt of th e ca l cu l a ti on

of th e p r es e n t p ro f i t . I t fo l l ows tha t a ma jo r c onc e rn of s en i or mana g eme nt ,

in a ttemp tin g t o b e come a c co un tab l e r e l a tiv e to th e owne r s , wi l l be to

p rovid e val ue f o r the s e as of tod ay thr ou gh showin g s p e c ta cu l ar sho r t - te r m

p ro f i ts p e rfo rma nc e . S ta te d a g a i n , a s ho rt - te r m p e r fo rman ce pr e s su r e on tO p

ma na gement wi l l b e re a l and s ho u ld b e r e co gn i z ed a s o ne d e te rminan t of

p lan ni ng ne eds . G iv e n th i s , howev er , it wil l b e come e x c e ed in g l y imp o rtan t

tha t r e la tive ly ne ar - te rm p l ann i n g co ns ide r a ti on s s h ould no t be a l l owe d to

p o ten t i a l ly b lu r mo r e lo n g- t e rm con c e rn ab ou t comin g up wi th v i a b l e s tr a te g i e s

'
f or imp rov in g on the s tr u c tur e of th e f i rm s po r t fo l io . Thu s , s tr a t e g i c

re s ou r c e a l lo c a tio n s s hou l d be ta ke n w i th i n a b al an c e of s ho rt - t e rm and

lo ng - te rm s tr a te gi c co n t ex t , a nd no t b e ing d i c ta ted by s hor t — t e rm p ro f i t s

p re s s ure only . I n th e ne xt s e c t ion we s ha l l d i s cu s s fu r th e r th e na tur e of

th e s e s t ruc tu r al p l ann in g ne ed s .

'
A t the ou ts e t of th i s s e c tio n l e t u s c l ar i f y wha t we m ean w i th a f i rm s

s tru c tur a l po s i t ion as a s ou r c e f o r d e te rmi n in g th e p l ann ing n e ed s a t the

p o r t f o l io l ev e l of a comp any . Wi th th i s we mea n an a s s e s sme n t of th e na tu r e

of th e s truc tu r e of th e p or t fo l io of b u s ine s s ac tiv i t i e s th a t the f irm i s in .

I s th i s a he a l thy po r t f o l i o s tru c tur e or cou ld i t b e imp r ov ed ? DO the funds

f low p r o j e c tio n s th a t ar e th e c on s e qu e nc e of p a r t ic u l a r b u s in e s s po r t fo l io

mi x s tru c tu re s y i e ld a cc e p ta b l e f i nan c ia l r e s u l t s "

down t he ro ad or no t ?

Ar e env i ro nmen tal o ppo r tun i t i e s to mo d i fy th e po rt f o l i o s tru c tur e b e in g

pur s ued , p ar t i cul ar ly wh e re j ud g ed in te rm s of de gr e e s of ch an g e s of th e

'
f i rm s own po r t f o l i o rel a t iv e to th e d e g r e e of cha n g e in th e p o r t fo l io of

ma j o r comp e t i t o r s ? I s th e ove r a l l r is k th a t th e comp a ny s e ems to be f a c in g

a s s o c i a ted w i th a pa r ti cu la r b u s ine s s p o rt f o l io s tru c tur e , a c c e p t ab l e , or

s hou ld t op ma na g emen t s e e k to mo d i f y th e s tru c tur e to d e c r e as e or inc r e as e

th e ove r a l l c o rp o ra t e ri s k po s tur e . I n l i n e wi th the abov e e x amp l e s we

s h al l d i s ti n gu i s h b e twe e n th e s e di f f e r e nt , but h i gh l y in te rr e l a t ed s ou rc e s

of p re s sur e s th a t w i l l b e p ar t of the p o rt f o l io s tru c tu r e p l an ni n g ne ed

a s s es smen t . Th e s e ar e th e p re s s ur e s s t emmin g f rom int e rn al l y d ev e l o p e d

fun ds f low con s id e ra tion s , th e p r e s su re s s t emmin g f r om comp ara t iv e s tra te g i c

'
ana l ys i s , and th e pr e s su r es s temmi n g f rom tO p mana geme n t s p e r c e p t ion of the

ov e ra l l co rpo ra te ri s k po s tu r e . We s ha l l d i s cu s s e ac h of the f o rme r tw o in

thi s s e c tion ,
whi l e wa i ti n g wi th t he d i s cu s s io n of r i s k un ti l l a te r , g iven

th at th i s l a tt e r a s p e c t w i l l b e tr e a t ed in th e b ro ad e r co ntex t of r e l a t in g

it t o S EU and div i s ional r i s k po s i t io n a s s e s sme n t in add i t io n to po rt fo l io

10
lev e l cons id er a tion s .

As a f i r s t s tep in th e d i r e c t i on of j ud g i n g th e lon g- te rm a ttr a c t iv en e s s

'
of a p ar ti cul a r co rp o ra ti on s po r t fo l io s tru c tu r e , we sh a l l d i s cu s s how th i s

can be gui ded by ca rry in g ou t a co rpo r a te fund s f l ow ana ly s i s , ex t e nd in g on

th e p atte r n of fund s f lows so ur c e s an d us e s tha t we h av e deve lo p e d f rom

'
ana ly z in g th e SBU s and th e div i s ion s . Th i s c o rpo r at e fund s f low an aly s i s

'
con s i s ts of d eve l op in g a p ic tu r e of th e f i rm s ove ra l l fund s f low p a tt e rn

s temmin g f rom it s s tru c tu r e , as evi d en c ed by th e pa t te rn of th e va r iou s

or g ani z a tiona l un i t s of th e f i rm . Th i s enab l e s mana geme n t to j ud ge the

fund s f low imp l i c at i ons of d if f e r e nt s trat e g i c cho ic e s and to s e e wh e th e r

a pa rt i cu la r s tr ate g i c ch o i c e i n f ac t i s fe a s ib l e fr om a fund s f l ow po in t

of vi ew . W e s hal l f i nd it wo r thwh i le to d i s cus s th e u s e of a fund s f low

ana ly s i s for the a s s e s smen t of the po r t fo l io s tru c tur e in some d e g r e e of

d e ta i l , no t o nly b e caus e the d at a fo r su ch an a l ys i s no rmal ly i s ava i l a b l e

or can qu it e re adi ly b e mad e so , bu t a b ove a l l b e c au s e th er e s e em s to be a

gene ral la c k of re c o gn i tion of th e fund s fl ow ana l y s i s too l as an e l eme nt

in the po r t f o l io l ev e l s tra te g i c p lannin g ne ed ana ly s i s .

I n o rd e r to p rovi de a fund s f low ana l y s i s wh i ch i s c ap a b l e of shedd in g

r e levant l i ght on th e s tra te g i c p rop e rt i es of the po r t fo l io s tru c tur e , tw o

as indi ca te d by th e th re e s e gment s of t he ex amp l e b e low : de t e rm ina t io n of

f und s f lows g e ne ra ted b y ex i s t ing op e r a t io ns , fund s u s e d in exp and in g th e

b us i ne s s , an d new ext e rna l f ina nc in g . Th e f i gu re s of th e anal ys i s f o r ou r

ima g i nary ex amp l e loo k a s fo l lows

1 . Fund s ge ne ra t ed b y e x i s tin g o p er a ti on s

a) S o ur c e s of f un d s

Pr o f i t s b e fo r e tax e s

Di vi s ion A

Div i s io n B

De p re c ia ti on

D iv i s ion A

Di vi s ion B

Dive s ti tur e of D iv i s ion C

Us e s of f und s

Re p la c ement of f ixe d as s e t s

Divi s ion A

D ivi s io n B

I nc r e as e in wo r k i n g c ap i tal

D ivi s ion A

Di vi s i on B

Tax e s p a id

D i v i s ion A

D ivi s ion B

D ivi d end s pa id
 3- 53

Funds ge ne ra ted b y ex i s ti n g Op e ra ti on s

Al te rna t ive ly ca l cu la ted

D iv i s ion A ( 2 0 a 7)

Div i s io n B ( 1 4 2 3)

Div es t i tur e , D iv i s ion C

D ivi de nds

Ge n e ra te d f rom e x i s t i n g op e r a tio n s

Fund s u s ed in e
gp and i ng the b us ine s s

F i xed a s s e t s pur cha s e d , D iv i s io n A

Ac q ui s i ti on , D iv i s io n D

To tal us e of fund s fo r e x p an s io n

To t al ou t f low b e fo re new ex t e rna l f i nan c i n g

New Ex te rn al F inan c i n g

3 ) Movemen t in i s s u ed e q u i ty and lon g te rm deb t

Equ i ty i s s ue d

I n c re a s e , l on g te rm de b t

b) Movemen t
'

in s h o r t - te rm f und s

I nc r e as e i n sh o rt - te rm deb t . 5

To t a l inf l o
w f rom n ew e x t e rn a l f inan c in g

I n te rp r e t i n g th e s e f i gu r e s we c an imme d ia te ly s e e th e r e l evan c e of th i s

typ e of ana ly s i s fo r the as s e s sme n t of the co rp o r a te l eve l p or t f o l i o s tra te gi c

p o s i tio n . We s e e tha t D iv i s io n A wh i c h is ex pan din g rap id l y i s no t g ene r a t in g

 3 - 54

e nou gh f unds to cove r i ts ow n exp ans ion ; co rpo ra t e ma na g eme n t ha s r e al lo c a te d

of corp o r a t e re s ou r ce s as a ne t inve s tmen t fo r the con t inu ed

op era tio n of th is e x p ans ive bu s ine s s . D iv i s ion B on th e o th e r hand ha s

con tr i b ut ed a ne t to t al of in fund s , wh i c h co rpo rat e mana geme n t ha s

e l e c ted no t to h av e r e i nv e s ted in t hi s ma tur e b us ine s s . I n s te ad co r po rat e

ma na g emen t ha s i nve s te d i n a ne w b u s in e s s , d iv i s io n D , wh i ch p re s umab ly c an

p rov ide an addi tio nal b as i s fo r co rpo ra te growth du r i n g y e ar s to come . Th e s e

'
mo d i f i ca tions in th e corp o r a t ion s po rt f o l i o hav e b een f i nan ced p ar tly by
ano the r po r t fo l io s tra te gy mod i f i ca ti on , name ly th e s a l e of the l a c k lu s te r

p e r fo rmin g d iv i s io n C an d p a r tl y th r ou gh ext e rn a l f inan c in g in o rde r to c ov e r

the nee ds be yo nd wha t was ma de av a i l ab l e thr ou gh th e in te rn a l ly gene r a te d

fund s . Thus , th e a b ov e s imp l e ex amp l e s i gn i f i e s s ev e ra l s i gn i f i c ant c han ge s

'
in the f i rm s p o r t f ol io : a re l a t iv e inc r e a s e in the emp ha s i s on the b u s ine s s
of d iv i s ion A , a r e la tive d e cre as e in the emp h as i s of d iv i s ion B s '
b u s ine s s ,

e x i t f r om an O ld b us in e s s th rou gh th e di ve s t i tur e of d iv i s io n C and en try

into a new b us ine s s th rou gh the a cqu i s i t io n of div i s io n D . Furt h e r , th e

unu s ed deb t cap a c i ty of the comp a ny h as been r e du c ed by wh i ch i s

s i gn i f i c ant i n te rms of co r po r a te ma na gemen t s f utu re f l e x i b i l i ty in c arry in g

'

ou t ex ter na l ly f inan c ed add i t io na l po rt fo l io mod i f i ca t i on s .

 3- 56

e x t rapo l at e wh a t th e funds f l ow cons e que n c e s mi gh t b e f rom con tinuin g to

p ur sue mo re o r le s s th e s am e po r t fo l i o s t ra te g y . S u ch an e x t rap o l a t ion

mi g h t h i gh l i gh t the ne ed s fo r s tru c tur a l po r t fo li o s h i f ts . F unds f l ow

p ro j e ct ion s o f th e a l te rn a tive po r t fo li o s t ra te g ie s th en in tu rn wi l l

have to be made .

I t shou l d be no ti ce d th a t th e ext rap o l a t ion o f fun ds f l ow a c ti vi ti e s

in th i s in s tan ce , as j us t di s cu s s e d , in no way con f li c t s wi th ou r s t rong

a dvo c a cy fo r the nee d fo r an O p e n - en de d , no n - e x tr ap o l a t ive , as s e s sme n t o f

Op po rtun i tie s an d th re a t s in p l anni n g . Th i s i s wh a t ne e ds to tak e p l a c e

when deve lop in g a ctua l a l te rna t ive po r t f o l io s t r ate g i e s . Th e funds f low

an a ly s e s me re l y p ro j e c t an as p e c t o f th e con s e qu en c e s o f th e s e po rt fo l io

s tra te g y al te rn a tive s .

Le t us howeve r now tu rn to ano th e r wa y o f an a ly s in g the lon g e r - te rm

s t ru c tu ral p re s s ure s on a p o rt fo l i o s t r ate g y , name ly by di re c t as s e s smen t

' '
o f s e l e ct e d c ri ti c al chan g e s in on e s ow n po rt fo li o re l at ive to on e s

ma j o r comp e ti to rs . Th i s an a ly s i s mi g ht s e rve a s a va luab l e comp l emen t to

th e fun ds f low an a l y s i s , a l tho ug h ty p i c a l l y b e in g p e r fo rme d le s s fr e que n tly

on an ad ho c ba s i s .

Th e ma jo r pu rp o s e o f an a s s e s smen t o f th e s tru c tura l p rop e rt i e s o f

a comp any s po rt fo l i o in th e con t ex t we s ha l l di s c us s he re i s to de te rmin e

'

th e e x t en t to whi ch th e s tru c tu re o f one s own po r t fo l i o s e ems to ch an g e '

favo rab ly o r i n f a vo r ab ly ove r t ime re l a tive to on e s ma j o r comp e ti to rs

'
.

It wi l l o f cour s e be vi rtua l l y impo s s ib l e to dev e lop ex a c t p a tte rn s o f

ch an g e f or one s k ey comp e ti to rs
' '
po rt fo li o s t ra te g i e s ; i t i s e qua l ly

di f f i cu l t to p inpo in t ex a ct s hi f ts
'

in trends o f ch an g e s of su ch po rt fo l i o

di re ct ion s . Howeve r , even thou gh comp a ra t ive s tr ate g i c po rt fo l i o s tru ctu re

an a l y s i s th e re fo re wi l l h ave to b e re l a t ive ly c ru de in te rms of de g re e o f

s pe c i fi ci ty , th e deve lopme n t of an app ro x ima te p i c tur e o f ma j o r co m p a ra t iv e

 3- 57

'
s t ra t e g i c p o rt fo l i o s h i f ts s ho ul d s u f f i ce to h i g hl i g h t wh e th e r on e s o wn

tO p man ag eme n t s hou l d b e in c re a s in g l y co n ce rne d wi th s t ru c tur a l chan g e s

in i t s own po r t fo l io .

Th e f i r s t s t e p in a comp a ra tive co rp o r a te s tra te g i c ana ly s i s s ho ul d

be to i den ti fy a s e t o f comp an i e s th a t s en io r man ag eme n t f e e l s i t wou l d b e

re l e van t an d us e ful to comp a r e on e s e l f wi th . I f a comp any f in ds i t s e l f

in p re domin an tly one we l l de f in e d bu s in e s s s e gmen t , th e lo g i c a l cho i c e o f

c omp an i e s wi l l p rob ab ly no t b e a l l th a t di f f i cu l t , n ame ly to fo c us on the

o the r on e s wi th in ap p rox ima te l y th e s ame b us ine s s e s . Fo r many comp an i e s

howe ve r , p a rt i cu l ar ly wh en b e in g re l a t ive l y h e avi l y di ve rs i f i e d , it

mi g ht be l e s s e a sy to s in g l e ou t a s e t o f c omp an i e s th a t i t w i l l b e ih

t u i t i ve ly l o g i ca l to c omp a r e one s e l f wi th . In su ch in s tan c e s on e mi g h t

s in g l e ou t comp an i e s th a t a re f e l t to be re l a tive ly s imi l a r , in te rms o f

p as t p e r f o rm an c e p a t te rn s , size , div e r s i ty , n atu re o f b us in e s s e s tha t th e y

a re i n , an d s o on . O th e r comp an i e s th a t mi gh t b e s in g l e d out fo r comp ar

i s on mi g h t be wh a t on e s s e n io r mana g eme n t c on s i de rs to b e p ar t i cul a r l y

'

s up e rb ly p e r fo rmi n g f i rms . Maybe , f i rm s tha t ar e g ene r a l l y f e l t to b e

we ak p e r f o rme r s s hou l d b e in c lude d , a s we l l . In th e s e ca s e s too , howe ve r ,

i t i s impo r tan t tha t th e comp an i e s a r e a t le as t mode r a te l y s imi l a r i n

'
s t ru ctu re to one s own .

A s imp l e app ro a ch to a comp a ra tiv e s tru c tu r al an aly s i s mi g h t b e to

co l l e c t su ch c omm o nl y ava i l ab l e e x te rn a l p er f o rman c e indi ca to rs a s p ro fi ts ,

s al e s , r ank p o s i tion o r F o rtun e '

s 5 00 list , etc . , p r e f e r ab l y ove r a re l

at i ve l y b ro ad t ime - s p an . As di s cu s s e d in th e p r evio us s e c t io n , su ch fa c

to rs wi l l typ i c a l l y b e clo s e ly a s s o i c a t ed wi th wha t we have de no t ed f in an

c i al p re s s u re s , an d wi l l ty p i ca l ly be rath e r ne ar — te rm in na tu re . T hu s ,

th e re wi l l s ti l l b e a n e e d fo r a mo re i n - de p th comp a r ati ve as s e s smen t o f

- '
th e lon g e r te rm t r ends in s h i f ts amon g comp an i e s po r t fo l io s , i n o rde r to
 3-58

'
un de rs tand th e p r e s s u r e s on e s o wn comp an y i s fa cin g f rom th e lo n g - te rm

po rt f o lio s t rat e gy move s o f one s comp e t i to rs '

.

As di s cus s e d the c ri t i ca l s t r ate g i c de c i s ion fa c in g co rpo ra te man ag e

ment i s how to a l lo ca te i ts s t ra te g i c re sou r ce s amo n g i ts va r iou s bu s i

ne s s e s . We h ave al so po in te d ou t th a t i t i s us e fu l to de f in e wh a t sh ou l d

be a s t rate g i c re s our ce in a s omewh a t b ro ade r wa y th an me r e ly fo cus s in g

on cap i tal inve s tmen ts . N o tab ly , al lo c a ti on p a t te rn s f o r di s cre t i ona ry

e x p e ndi tu re s as we l l as f o r as s i gn in g key p e rs onn e l wi l l a l s o b e imp o rt an t .

Thu s ,
ide al ly w e woul d wan t to me as ur e comp ar a tive ch an g e s in th e al lo c a

tion p atte rn s o f a l l the s e fa c to rs . Howe ve r , i t mi g h t b e come ex c e e d in g ly

di f f i cu l t to g a th e r th e n e ce s s ary da t a fo r thi s .

We sh al l th e re fo r e p ropo s e th a t the inve s tme n t in te ns i fy in s t ra te g i c

p ro g rams b e us e d as the me as u reme n t devi ce fo r th e comp a ra tiv e ana ly s i s .

Th i s wi l l h ave two comp on en ts . F i rs t , i t wi l l b e us e f u l to me as ur e th e

ab s o lu te leve l o f inv e s tm en t in s tr a te g i c p ro g rams re l a tive to th e com

p e t i to r s . Th i s wou ld g iv e an indi c a t io n o f re l a tiv e inve s tmen t agg r e s

iv en e s s amon g the f i rms . B o th c ap i tal inve s tme n ts as we l l a s s t ra te g i c

e x p endi tu re s shou l d go in to th i s f i gu re . I t mi g ht o f ten b e pa r t i cu l arl y

di f f i cu l t to de te rmi n e th e re l evan t s tr at e g i c e x p endi tu re s pendi n g s . On

th e o th e r h and , in s ome in dus tri e s th e mo s t s i gn i f i c an t f rac t ion o f th e

s tr ate g i c e x p endi tu re s mi g h t b e avai l ab le f rom pub l i c s ou r ce s , s u ch as

R D e xp e ndi tu re s fo r p ha rma ceu ti c al comp an i e s , adve rt i z in g e x p e ndi ture s

fo r tob a c co c omp an i e s , o r e x p l o ra ti on e x p e ndi tur e s f o r in te g ra te d o i l com

p an i e s . A us e fu l way o f me asu rin g re l ative inve s tmen t a gg re s s iven e s s , or

re la tive s t ra te g i c p ro g ram min g emp ha s i s , wou l d b e to ca l cu l a t e th e to tal

inve s tmen t ( cap i tal p lus s t rat e g i c e x p endi tu re s ) as a fr ac t ion o f to ta l

as s e ts , an d to s e e how th i s f ra cti on ch an g e s ove r t ime for a l l th e fi rm

be in g s tu di e d .
R e l ati ve I nve s tmen t
A gg re s s iven e s s
Re l a tiv e S t ra te g i c
P ro g ram min g Emp has i s

Low
Hi gh

P e r cen t I nve s te d in a P a rt i c ul a r P o r t
fo l io S e gme n t R e l ative to To ta l I n
ve s te d .

a S- Y e ar P e rio d . ! I ndi c a te s 197 1 P o s i t ion ; I ndi c ate s a 19 76 P o s i t ion .

We s e e from Ex h ib i t 3- 5 th a t C omp any A h as dr ama t i ca l ly i n c re as e d i ts

re la t ive emph a s i s on th i s bus in e s s s e g men t wh i l e C omp ani e s B an d C h ave

de c re as e d th e i rs . Howeve r , th e inve s tme n t a gg re s s ive ne s s has g on e up

mu ch mo re fo r th e l a t te r two .

Th i s k in d o f an aly s i s s houl d b e re p e ate d fo r e a ch re l e van t s e gmen t

in to whi ch the ove ral l s t r ate g i c p ro g ram mi n g a ct i vi ty ha s be en b ro ken

down dome s t i c vs . fo re i gn ; low t ar vs . h i g h tar ; up s t re am vs . down

s t re am ) . E a ch of the comp e t i to r s '

s t r ate gy wh en i t come s to e a ch p a r

t i c u la r as pe c t s of th e i r po rt fo l i o s t rate g y mi g h t th e re by be b e t t e r h i g h

l i g h te d . Th e eme rg in g pa t te rn of th i s wi l l b e to s e e i n wha t d i r e c t ion

th e var ious comp e t i to r s s e em to b e g o in g in te rms o f the a l l o c a t i on o f

th e i r s tr at e g i c fun ds . S eve r a l impo r t an t que s t ion s s ho ul d b e addr e s s e d

at thi s po in t . Fo r any comp an y on e mi g h t as k whe th e r p o rt fo l i o fo cu s

s e ems to be come mo re p ro l i fe ra te d , or w he th e r th e comp an y i s be c omi n g mo re

s p re ad ( and o ft en di lute d ) a cro s s a b ro ade r s p e c tru m O f di re c t io ns ? Is

'
one s own p lann in g e f fo rt inde e d r e su l tin g in a mo re de s i rab l e po r t fo l i o
 3 -61

bu s ine s s mi x , wh e n eva lua te d w i thi n th e con t ex t o f the comp e ti to r s '

mo ve s ?

I s th e de g re e o f agg re s s iven e s s in pu r su in g a po r t fo l i o s t ra t e g y ade qu a te

to k e e p up wi th th e comp e ti tion ?

Th e eme r g in g p i c tu r e o f th e evo l ut i on o f on e s '

o wn po r t fo l i o s t r at e gy

re l a tive to the comp e ti to r s , s e e n as fun c t i on s o f th e s tr a te g i c s p e ndin g

pa t te rn s ove r t ime , mi g h t y i e ld ano the r ind i c a ti on o f the na tur e o f th e

s tru c tu ra l po rt f o l io p r e s s ur e s tha t a pa r t i c ul a r s e n io r man a g eme n t g r oup

i s f a c in g . I t s hou l d b e no te d tha t the s e mo r e lon g - te rm s t ra te g i c p re s su re s

ar e j u s t a s re a l a s th e s ho r t e r te rm f i nan c i a l p o r t f o l io p r e s su re s tha t

mi g h t fa c e s e n io r mana g eme n t , a s di s c u s s e d in the p r ev ious s e c t i on . How

eve r , i t w i l l l a r g e ly b e a fun c t ion o f a a s p i ra t ion s an d s e ns e

o f de vo tion an d p ro f e s s iona l i sm wh e the r h e i n fa c t wi l l b e p a y in g s u f f i

c i e n t a tten t i on to th e s t ruc tur a l p o r t f o l i o n e e ds . G ive n th at th e r e wi l l

p r ima ri ly b e s e l f - g e ne r a te d p r e s s u r e ra th e r th an p r e s s ur e from o ut s i de

wh i ch w il l di c ta te th e as s e s sme n t o f th e s t ru c tu ra l n e e d s , th e re

wi l l a lway s b e a dan g e r th at th e s ho r t - t e rm f in an c i a l ne e ds mi g h t b e come

to o domin an t . In th i s a r e a , above a l l , i t ap p e ar s to b e a p a rt i cul ar ly

ch a l l en g i n g rol e to b e p lay e d fo r th e in c e n t ive - and comp e n s a t ion

s ch eme in o rde r to a tt emp t to coun te rba l an c e s u ch an e f fe ct .

3 - 10 . P o rt fo l io Le ve l P l ann in g N e e ds : S y n th e s i s .

H av i n g i den t i fi e d two b ro ad c l as s e s o f fa c to r s in th e p r ev io us two

s e c t ion s tha t s e em to c re a t e di f f e re n t s e ts o f p l ann in g n e e d s a t th e co r

po r at e po r t fo l i o leve l , le t us in th i s s e c t ion a tt emp t to s yn th e s i z e wha t

th e eme r g in g comb in e d p a tte rn o f adap ta tion and in te g r a t i on p l ann in g ta sk s

mi g h t be fo r th e co rp o ra t ion .

We re c a l l th a t th e f inan c i a l p re s su r e s we r e p re domin an tl y re l at i ve

s ho rt - te rm in na tu re and ca l l e d fo r re l a ti ve l y s tab l e , p re di c t ab l e f in an

ci al p er fo rman c e . I t fo l low s tha t th e emp ha s i s sho u l d be on in te g ra tiv e

p l ann in g above a l l a t th e co rp o ra te l eve l to f ac i l i ta te th i s . Near -
te rm

coo rdi n at ion o f e x p e ndi tur e p a tte rn s , o f t r imm i n g co s t s , o f mon i to r in g

inven to ry e f f i c ie n cy leve l s , e tc . wi l l be impo rtan t a t the co rp o ra te l eve l

to a chi eve th i s . Wh en i t come s to th e s tru c tu ra l p r e s su re s , on th e o th e r

han d , we re ca l l tha t th e s e wi l l be mo r e lon g — te rm in n atur e , an d th e s e

p re s su re s wi l l cre a te a n e e d fo r adap ta t ion a t th e co rp o r a te l ev e l , above

al l . Ab i l i ty to i de n t i fy new lon g - te rm bus in e s s o p po rtun i ti e s , in s i g h t

to de ve lop s t ra te g i c p ro g rams to mak e s h i f ts ha p p e n , fo re s i g h t to r e a l lo c a te

one ' s empha s i s in t ime , an d s o on , a re a l l c ri t i c a l adap tat ion p l ann in g

ne e ds }
J '

We se e , th en , tha t wh i l e a t th e co rpo rate l eve l in te g r at ive p l an

n in g ne eds ar e p r imari l y a fun c t io n o f th e f in an c i a l po s i tion , a dap tive

p lann in g ne e ds w i l l p rima r i ly be a fun c t ion o f the s tru c tur a l p r op e r ti e s

fi rm s p o r t fo l io We in the po s i tion to in di c a te th e
'
O f th e . ar e no w

mi x e s o f ada p t ive and in te g r at ive p l ann in g n e e d s tha t mi g h t b e fo und at

th e c o rpo ra te l eve l , as a fun c tion o f di f f e r e n t f in an c i a l an d s t ru c tu re

p re s su re s .

In Exh ib i t 3-6 we have indi c a te d how th i s ad ap t i v e / in t eg r at i ve

p l ann in g ne e ds p a t te rn mi g h t lo ok at th e co rp o r a te le ve l . We s e e from

th i s ex h ib i t th a t

Hi gh

Hi g h

F inan c i al P re s s u re
 3 -64

s t ru c ture o f the co rp o ra te po r t fo l i o ove r th e lon g e r te rm , wh i l e th e re

"
s t i l l i s time ,
"
i . e . re l at ive ly l i tt l e sh o rt - te rm f in an c i al p re s s u re s .

Fo r a comp any wh i ch i s lo c a te d i n th e bo t tom - l e f t ce l l o f E x h ib i t 3-6 ,

on the o th e r h an d , the ne e d wi l l b e to p l an fo r re l at ive l y s ho rt - te rm

finan c ia l imp rovemen ts o f the co rp o ra te p o r t f o l i o . Th e b as i c s t ru c tu re

o f th e po rt fo l io , on th e o th e r h an d , wi l l be he a l thy an d sh ou l d no t be

p l ann e d to be ch an g e d s i gn i fi c an tly . Th e th i rd di s e qui l ib r ium p o s i tion

w i l l b e fo r a comp any wh i ch f inds i t s e l f i n th e up p e r - l e ft p o s i tio n o f

Ex h ib i t 3- 6 . Thi s w i l l inde e d ty p i ca l l y b e a s e rious po r t fo l i o l o c a ti on

po s i tion , in tha t i t in di c ate s p re s s ur e s to p l an bo th fo r finan c i a l p e r

" "
f o r m an c e imp rovemen ts a s we l l as fo r up g radi n g th e lon g e r te rm - h e al th

o f th e s tru ctu re o f th e c o rp o rate p o r t fo l i o . S e ri ou s co rpo r at e l eve l

p l ann in g ne e ds e x i s t i n th i s ca s e . Con t r as t in g th i s s i tuati on wi th th e

‘
i de al "
bo ttom - r i gh t s tab le po s i ti on o f E xh ib i t 3- 6 we s e e th at wh i l e in

the fo rme r th e r e wi l l b e a ma j o r p re s s ure on th e co rp o ra t e le ve l to p l an

'
fo r ch ang e s in th e f i rm s po rt fo l i o , th e re wi l l be l i t tl e su ch p re s su re

in th e la t te r ca s e . Th us , wh i l e co rpo ra te l eve l p l ann in g ac tivi t i e s

mi g h t be e x p e c te d to be in ten s ive an d re s ul t i n fa r - r e a ch in g s ub s tan ti ve

ch an g e s in th e fo rme r cas e , th e p l ann in g a ct ivi ti e s wi l l p rob ab ly b e mu ch

m o re low k ey an d me re ly fo cus s e d on mon i to r in g tha t th e s tron g po r t fo li o

po s i tion i s b e in g ke p t in th e l a tte r cas e .

We s e e tha t the co rp o ra te p o rt f o l io le v
e l s s tra te g i c p l ann in g ne e ds '

do no t evo lve ove r time in an an al o g ous fas h io n to wha t we s aw fo r th e

p l ann in g ne e ds o f a SB U , ch an g in g in a c co rdan ce wi th a p l anne d s e que n c e

o f s t ag e s ( que s tio n - mar k ; s tar ; cas h - cow ; do g ) . Fo r th e co rp o ra te leve l

th e ne e ds , on the o the r han d , wi l l be to mai n ta in a s t ab l e an d h ea l th y

p o rt fo li o ba l an ce a s soon as imba l an ce s o c cu r th e p r e s su re s w i l l be to

re s to re th e e qu i l ib r i um . T hu s , wh i l e we are fa c in g bo th a dap t a ti on as
in te g ra t ion ne e ds fo r p l ann in g a t bo th th e bu s in e s s l eve l as we l l as th e

co rpo ra te l eve l , th e p l ann in g re s po ns e s to th e s e n e e ds w i l l be d i f f e re n t ,

re f l e c t in g th e di f fe re n t l eve l s o f s t r ate gy we are de a l in g wi th . Wh i l e

'
a t th e bus ine s s l eve l th e dyn ami c s o f th e bus ine s s chan g e ove r t ime wi l l

ca l l fo r th e ac ce p tan c e o f chan g e s ove r t ime in th e ab s o lut e l eve l s o f

p l ann in g ne e ds bo th fo r a da p ta t ion a s we l l a s fo r in te g ra t ion an d also

fo r the a c ce p tan c e ove r t ime i n the r e l a tive b a l an ce be twe en adap ta t io n

and in t e g ra t io n , a t th e co rpo rate le ve l a low ab s o lu te n e e d l e ve l fo r

ada p ta t ion and in te g ra t ion a s we l l as an eve n r e l a tive b a l an c e be twe en

a dap ta tion an d in te g r a t io n wi l l a lway s b e th e ide a l .

We have now comp l e te d our di s cus s ion o f th e s i gn i f i c an c e o f a f i rm 5

p ar t i cul a r s tr a te g i c s e ttin g as a de te rm i n an t fo r th e p a r t i c ul a r ne e d s

fo r p l ann in g th a t th e f i rm i s fa c in g , in te rms o f a dap ta t ion a s we l l a s

in te g r a t ion , a t th e bu s in e s s a s we l l as th e co rpo ra te s t r a t e g i c l e ve l s .

An an a ly s i s o f th e p l ann in g n e e ds a l on g th e s e l i n e s wi l l s e rve as th e

tak e - o f f po in t fo r de ve l op in g a c o rp o ra t e p l ann in g s y s t em wh i ch wi l l h ave

c apa b i l i ti e s de s i gn e d in to i t fo r ade qua te ly me e t in g th e s e ne e ds . B e fo re

in i ti a t in g ou r di s cus s i on o f s i tu a t iona l de s i g n o f s t r a te g i c p l ann in g

sy s tems , th e top i c fo r our n ext th r e e chap t e r s , i t i s howe ve r n e c e s s a ry

th a t we di s c us s on e addi t ion a l i s s ue wh i ch i s impo r tan t whe n a s s e s s in g .

th e p l ann in g ne e ds bo th a t th e bus in e s s a s we l l a s a t th e c o rp o r at e l eve l s ,

name ly to de te rmi n e th e na tu r e o f th e ri s k as s o c ia te d w i th any o f th e s e

s tra te g i c po s i t ion s . Th i s wi l l s e rve a s a devi c e to ma g n i fy th e impo r

tan c e o f th e n e e ds fo r p l ann i n g in tho s e s i tu a t i ons whe r e th e s t ra te g i c

po s i t ion i s h i g h l y ri s ky . Th e app ro a ch fo r r i s k a s s e s s m en t to b e di s cus s e d

in th e n ex t s e c t ion s ha l l be empha s i z in g th e r i s k in e s s o f a s t r a te gy a s

a fun c t ion o f i t s e x po s ur e to e nv i ronmen ta l f a c to rs . T hi s app l i e s e qua l ly

we l l to co rpo ra t e a s we l l a s bu s in e s s l eve l s t ra te g i e s . Hen c e , we s ha l l

di s cus s th e ri s k a ss e s smen t c on c e p t in on e s e p a ra te s e c t ion , th e r eby

 3 -66

avo i din g to do p l i c a t e th e di s cu s s i on by cove r in g i t a s p ar t o f bo th th e

bus in e s s an d co rpo ra te s tra te g y ne e d as s e s sme n t ana l y s e s .

3 - 11 . A s s e s sme n t o f R i s k E gp o s u r e Of S tra te g i c P o s i ti ons .

F ro m a co r p o ra te s tra te g i c p o in t o f V i ew a ke y i s s ue i n a s tr a te g i c

audi t i s whe th e r th e p o rt fo l i o p a t t e rn o f bu s in e s s a c t ivi ti e s re p r e s en t s

a s ati s f a cto ry b l en d in te rm s of e x p o s ure to envi ro nme n ta l th re a t s an d/ o r

Op po rt un i ti e s . T he k e y con ce rn i s wh e th e r th e r i s k/ r e t u r n p a tte rn de r iv in g

from one ' s pa rt i cu l ar b us ine s s p o r t fo l io i s a c ce p tab le . O ur tas k i n th i s

s e c t ion , thus , wi l l b e to ca r ry ou t a r i s k /r e tu r n an a ly s i s . S u ch an

an a lys i s mu s t ap p l y to th e SB U leve l , an d i t mu s t a l s o l en d i t s e l f to

a g g re g a tion in to an ove ra l l p i c tur e O f the po r t fo li o ri s k exp o s ur e . A

ma j o r re qu i r emen t mus t b e tha t ou r ana ly s i s mus t be me anin g fu l f rom a

s e n io r man ag emen t p o in t o f vi ew . Thi s s e ems to c al l fo r a di f f e re n t

an aly s i s than c l as s i c a l s ta t i s t i ca l me as u remen t o f ri s k , in tha t a s enio r

e x e cutive mus t b e ab l e to re l a te h i s ow n p e r c e p ti on o f ri s k p re f e r en c e to

the me as ure . We shal l p ropo s e a me asu re o f s t r ate g i c ri s k e x p o s u r e wh i ch

i s ba s e d on a dua l s e t o f fo c i : i t fo cus e s on th e f i rm s exp o s u re to

'

envi ronmen tal eve n ts wh i ch can b e p r e di c t e d wi th vary in g de g re e s o f ce r

tain ty , an d i t al s o as s e s s e s th e de g re e o f man a g e r i al f le x ib i l i ty th a t

i s ava i l ab l e in re s pon din g to a p art i cu l a r e ve n t . S u ch a p re di c t ab i l i ty /

re sp on s e con ce p t i s p a rti cu la rly us e fu l fo r s e n i o r man a g emen t in as s e s s in g

bus in e s s as we l l as po rt fo l io s t rate g y ri sk s , in th at i t c lo s e ly s e ems to

re s em b le mana g e rs '
C o gn i tive s tru c tur in g o f th e i r an a l y s i s o f su ch p rob
12
l ems .

A f i rs t s te p in su ch a ri s k as s e s smen t an a l y s i s wou l d be fo r e ach o f

th e 5 8 05 to de ve lop a li s t of envi ronmen ta l fa ctor s th a t mi g h t s i gn i f i

c an t l y chan g e the p ro j e ct ed fun ds f lows f rom the S BU

'
s an d thus th e l ik e

l iho o d O f a ch i evin g th e SBU s t r ate g i e s . Th e s e fa c to rs mi gh t re p re s en t

 3 -6 8

I t wi l l o f cour s e b e imp o s s ib l e to ide n ti fy a l l p o ten ti a l l y re levan t

env i ro nmen ta l fa c to rs . Thi s i s p ar ti cu l ar l y s o s in c e no bo dy i s ab l e to

outg ue s s th e fu tur e "

th roug h a c ry s ta l ba l l . Howeve r , g ive n th a t a l l

re a li z e tha t no li s t o f fa c to r s c an eve r be p e r f e c t bu t th a t a s e r io us

e f fo r t ha s g one in to deve lop in g th e l i s t , i t s ho ul d no t be que s t ion ab l e

to ba s e th e an al y s i s on wha t in fo rma t ion man a g eme n t c an p e r c e ive . F ur th e r ,

howe ve r ,
a ll envi ronmen ta l fa c to rs wi l l no t b e e qua l l y impo r tan t ; h enc e

a we i g h tin g o f th e fa c to r s mi g h t be ne c e s s a ry p o t en ti a l ly a comp l i

ca t in g s ub j e c tive s tep o f an a ly s i s . Le t us b r i e f l y di s cu s s e a ch o f th e s e

is s ue s .

I t i s o f cour s e a c ri ti ca l p rob l em to be un ab l e to come up wi th a

l i s t whi ch do e s no t c ap tu r e a s i gn i f i c an t sha r e o f th e r e l evan t fa c to rs .

Even th e mo s t S oph i s ti ca te d an d in s i g h t fu l man a g emen t wi l l be un ab l e to

deve lop a c omp l e t e vi ew o f th e fu tur e . Howe ve r , an an a l y s i s wh i ch i s

ba s e d on a re a s onab le s e t o f as s u mp tion s i s fa r b e t te r th a n no ana ly s i s

wi th in th e a re a o f s tra te g i c p l ann in g j u s t as wi th in an y o th e r a re a o f

mana g eme n t ana ly s i s we mus t ut i l i z e th e in fo rm a ti on we c an ge t a nd no t

a l low ou rs e lve s to ab an don an a l y s i s b e c aus e we c on c lude th a t th e i n f o r

ma tion i s in comp l e te .

The p rob l em o f ran kin g o f th e e nvi ronme n ta l fa c to rs sho ul d b e ap

p r o ach e d a s fo l l ows . F i rs t , th e f a c to r s sh ou l d b e so r t e d in to two s ub

gr oup s : tho s e tha t mi g h t have po ten ti a l l y p os i tive e f f e c t an d tho s e tha t

mi gh t have po ten tia l l y ne g a t ive e f f e c t on th e s t ra te g i c su c ce s s o f th e

bus in e s s . In e ac h of th e s e sub g roup s on e shou l d iden ti fy th e mo s t impo r

tan t fa c to r , if on e s u ch fa c to r s t an ds out ; o th e rwi s e o ne sho ul d i de n ti fy

th e two or thre e mo s t impo rt an t fa c to rs . Fo r th e r e s t O f th e fa c to rs

wi th in e a ch of th e two s ub g roup s i t s hou l d b e cons i de re d wh e the r the s e a r e

in de e d impo rtan t supp o rtin g envi ro nmen ta l fa c to rs . If no t th e s e fa c to rs

 3 -6 9

s houl d b e ab an done d from th e l i s t . The que s ti on s hou l d a lway s b e ra i s e d

whe th e r too many fa c to r s h ave b e e n in c lude d . O ft en th i s i s th e c as e ;

the ma r g in a l f a c to rs on th e l i s t wi l l no t ma tte r re l a t iv e l y tha t muc h a f te r

a l l , comp a re d wi th o th e r f a c to r s on th e l i s t . Th e i s s ue O f rank in g an d

e l imi n a t in g fa c to rs b e c ome s p a r ti cu l a r ly imp o r tan t a s we con s o l i da te th e

f a c to rs a t th e d ivi s iona l an d a t th e c o rp o ra t e le ve l s , in o rde r to ma in

ta i n a re as on ab l e fo cu s fo r wha t mana g e r s wi l l b e ab l e to p e r c e ive on

H avi ng de ve lo p e d th e l i s t s o f c ri ti c al p o s i tive a s we l l a s n e g a tiv e

envi ronme n tal f ac to r s fo r e a ch SB U , di vi s ion an d at th e co rp o ra t e l e ve l ,

the nex t que s t i on i s to as s e s s , fo r e a ch fa c to r on th e l i s t s , to wha t

ext e nt, i f a t a l l , e a ch envi ro nme n ta l p h enome no n c an be p re di c te d o r

fo re s e e n . E a ch SB U s hou l d de ve lop a s e ns e o f p r ed i c tab i l i ty fo r i t s own

l i s t o f fa c to rs . S im i l a r ly , e a ch d ivi s io n a s we l l a s th e c o rp o ra t e l ev e l

s ho u l d de te rmin e how to p r e di c t e a ch o f th e f a c t or s o n i t s l i s t . Fo r

p r e d i c t ion th e r e ar e two ap p roa ch e s tha t sho u l d b e exp lo re d , in c om b i

na t i o n if po s s ib l e , in o rde r to come u p wi th a f a c to r p re di c t io n . O ne
app ro a ch mi g h t b e to mak e us e o f time s e r i e s o f h i s to ri c a l da ta in o rde r

to Co me up wi th a p re di c t ion o f fu tur e deve l opme n ts b as e d on pas t exp e

r i en ce . Th i s ap p roa ch wi l l a lmo s t n eve r b e p e r f e c tl y ap p l i c ab l e in th a t

th e re typ i ca l ly wi l l b e a l a ck o f re l evan t h i s to ri c a l da ta fo r many o f th e

. .

Al s o
’

env r oi nmen ta l fa c to rs th a t a r e s tr a t e g i c a l ly s i gn i f i can t .

, many o f

t h e c ri t i ca l ph enome na wou l d typ i c a l l y be exp e c te d to tak e p l a c e a s di s

cr e e t un exp e c t ed even ts , su ch a s c r i s e s , an d c an thus O f t e n no t e a s i ly b e

de t e c t e d b y an a ly zin g tr en ds o f th e pa s t . Mo s t c r i t i ca l as a p o t e n ti a l .

p r ob l em wi th th i s ap p roa ch , howeve r , migh t b e i ts tende n cy to a l low too

m u ch em ph a s i s on th e hi s to ri ca l t re nds wi th re g a rds to th e s t ren g th s an d

weak n e s s e s fa c to rs fo r deve lop in g a p i c tur e o f th e futur e . In s t e ad , th e

opp o rt un i ti e s an d /o r th re a ts sh ou l d b e exp l o r e d re la ti ve ly un con s t rain e d

 3 -7 0

a t f i rs t , fo r th en may b e to b e re c on c i l e d wi th th e p r e s e n t s i tua t ion an d

hi s to ri ca l p a t te rn . A s e con d ap p ro a ch to as s i s t in g in the fa c to r fo re

cas t in g i s to at temp t to i de n ti fy so - c a l le d le ad in di ca to r s de ve lo pmen t s

wh i ch re l a te to envi ronmen tal a c t iv i t i e s th a t mi g h t b e s e en as indi c a to rs

fo r wh a t mi g h t h app e n wi th th e fa c to r re l e van t to on e s e l f . He re too in

g enu i t y an d de du c t ive in s i gh t i s p ro bab ly an imp o rt an t fa c to r . Le adi n g

indi ca to rs tha t ar e too ob vious t y p i ca l ly ten d to be g i vin g wa r n in g s i g na l s

t oo c lo s e in time to be us e ful . S eve ra l le a d in di c a to rs mi g h t o f t en be

co mb in e d in to some so r t o f s c e na r io . Ag a in , it i s c r i t i c a l tha t s u ch a

s c en ar io i s no t b e ing dev e lo p e d th roug h a p ro c e s s o f "

me n ta l e x t rapo l a

"
ti on , bu t ra th e r as th e re s ul t o f a mo re un con s t ra in e d e f fo r t .

De s p i te a l l th e r i g o r th a t on e mi g h t b e a t t emp t in g to ap p ly to de

ve lop fo re c a s t s fo r a p a r t i cul a r envi ronmen ta l ph enomenon , i t may s t i l l

we l l hap p e n fo r s ome f a c to rs th a t f ew o r no me an in g fu l fo re ca s ts c an be

a ch i eve d . Fo r o the r ph e nomen a a t l e a s t some us e f ul fo re c as t in g s up po r t

mi g h t be th e r e s ul t . O f t en '
to mana g eme n t s sur p r i s e an d de l i g h t s eve r a l

e nv i ronme n ta l p h enomena o f ten a c tu a l ly l end th ems e lve s qu i te we l l to b e

fo re ca s te d when be in g s ub j e c te d to ha rd and ri g o ro us an a ly s i s . Th e eme r g in g

re sul t o f th e fo re cas t in g an a ly s i s e f fo r t s i s tha t we s ha l l b e ab l e to

get a fe e l fo r e a ch o f th e envi ronme n ta l p h e no m e na e i n te rms o f wh e th e r

i t ha s a re l a t ive ly h i g h ve r sus a re l ative ly low de g re e o f p re di c tab i l i ty

po ten t i a l as s oc iate d wi th i ts e l f .

Le t us now turn to a th ir d s te p in our ana l y s i s , name ly to e xp lo re

wha t mi gh t b e po t en tia l mana g e ri a l re s po ns e op tion s to a p a rt ic u l a r en

vi r onm en ta l ph enomenon . Fo r e a ch c r i t i ca l fa c to r we mi g h t as k wh e th e r

the r e i s any th in g we c an do to tak e advan ta g e o f a p o te n ti a l ly po s i ti ve

deve lopmen t in th e e nvi ronmen t o f , al te rn a ti ve ly , to ame l i o r ate a p o t en

ti al ly n e g a tive envi ronmen ta l deve lopmen t . Thu s , fo r e a ch o f th e

 3 - 72

H igh

De g re e of P re di c t ab i l i ty
E xh ib i t 3- 7

Th i s e x h ib i t s ho ul d b e in te rp r e te d as fo l lows . On th e ho ri z on ta l ax i s we

h ave p lo tt e d th e de g re e o f p re di c tab i l i ty f rom h i gh to l ow . On th e

ve rti ca l axi s we have p lo t te d the de g re e o f di s c re ti ona ry re s po n s e p o ten

ti al from low to hi g h . Le t us , fo r ins tan ce , as s um e th a t th e mo s t impo r

tan t envi ronme n ta l r i sk f a ct o r f a l l s in to the up pe r - l e f t qu adr an t o f

xh ib i t
E 3- 7 , s o th a t we c an p r e di c t th i s f ac to r re as onab l y we l l an d als o

e nj oy a re l a t ive ly h i g h re s po ns e p o t en ti a l . Th i s wou l d me an tha t in ca s e

an envi ronmen ta l fa c to r s houl d de ve l op a dve r s e ly th e re wi l l b e a f ai r

ch an c e tha t we mi g h t be come aware o f th i s deve lopme n t in t ime , the reby

al s o be in g ab l e to res po nd s o th at we c an ame li o ra t e s ome o f th e adve rs e

e f f e c ts . A s s umi n g th a t th e o th e r env i ronme n ta l fa c to rs tha t mi g h t h ave

a ne g a tive e f f e c t als o g en e ral l y fa l l wi th in th e g e ne ra l ar e a o f th e

up p e r le ft quadr an t of th e ex h ib i t we mi gh t con c l ude tha t th e envi ronmen ta l

ri s k e xp o s ur e o f th e s tr a te gy of th i s S EU i s r e l a tive ly low . I f on th e

oth e r h an d ou r as s e s smen t lo ca te s a c ri t i ca l envi ro nme n ta l f a cto r in th e

lowe r ri gh t - han d co rne r of Ex h ib i t 3-7 , we ar e th en fa ci n g a s i tua t ion

whe re we have ne i th e r mu ch po s s ib i l i t y to p re di c t th e deve l opmen t o f an

envi ronmen tal fa c to r no r r e s p o nd tO C m ak e an y re s po n s ive move In th i s

'
'

.
 3 -7 3

s i tua t io n we h ave to con c lude th at th e S EU i s f a ce d wi th a h i ghl y r i s k y

envi ronmen ta l e x po s ur e . Th e two r ema in in g p o s i t ion s a t th e upp e r - r i g ht

an d l owe r - l e f t a re as o f E xh i b i t 3 - 12 re p r e s en t e nvi ronmen tal ri s k e x

po s u r e po s i t ion s th a t fa l l in b e twe e n th e low an d the hi gh - r i s k p o s i tio ns

j us t di s cus s e d . I f a ke y envi ronme n ta l fa c to r fa l l s w i th in th e upp e r

ri g h t - h an d a re a o f th e cha r t th en th e r e wi l l b e l i t t l e p re di c tab i l i t y

b u t s ti l l s i g n i f i c an t r e s pon s e p o te n ti al ; i f in th e lowe r l e f t - h an d a re a

th e re i s h i g h p r e di c t ab i l i ty b ut low re s po n s e p o ten ti a l . In s uc h a c as e

" "
we c an at l e as t mi n imi z e th e ri s k by g e tt in g ou t o f the bu s in e s s in

t ime wh en we exp e c t an a dv e r s e deve l opme n t .

To minimi z e env i ronme n ta l s t ra te g i c r i s k e x p o s ur e i s o f cou rs e no t

an ob j e c t ive i n i t s el f . Ri s k ex po su re s hou l d b e s e en i n r e la tion to

th e pa r t i c u l a r Op p o r tun i ty a t han d ; i f th e p o te n ti a l p ay o f f o f a SB U
'
s

s tra te g y i s h i g h th en i t mi g h t me r i t tak in g th e r i ak s . In o rde r to a s s e s s

,

th e po ten t ia l o f a S EU s tr ate g y we mu s t the r e fo re no t on ly con s i de r i ts

r i s k ex po su r e bu t al s o th e ab s o lu t e le v e l o f th e fun ds f l ow e x p e c te d to

"
re s ul t f rom th e s t r at e gy . Th i s w i l l g ive us a p e r c e p ti on o f th e b a re

po in t a t t ra ct ive ne s s o f th e s t ra te g y . I n addi t i on to th i s , howe ve r , we

mus t al s o con s i de r th e p o ten ti a l f rom be n e f i ts re s u l t in g f rom po s i t iv e

de ve lo pme n ts amon g o ur o th e r envi ro nme n ta l f a c to rs . Ag a in , i f th e k ey

po t en t i a l po s i tive envi ro nmen ta l e f fe c t i s a s s e s s e d to l i e wi th i n th e

upp e r l e f t - h an d co rne r , an d th e o th e r po s i t ive e nv i ronmen ta l fa c to r s a l s o

ten d to fa l l wi th in th i s s e c to r , th en th e r e i s a h i gh p o t en ti a l fo r fa

vo r ab l e g a in as a re s ul t o f e nv ironmen ta l fa c to rs .

By comp l e tin g e a ch SB U e l eme n t o f th e r i s k exp o s u re ana l y s i s we

w il l al s o h ave the da t a to ca r ry ou t th e div i s ion a l an d th e co rpo r a te

po r t fo l i o env i ronme n ta l ri s k ex po s u r e an a ly s i s . F rom a co rp o ra te p o in t

o f vi ew th e na tu r e o f th e f i t in te rm s o f ri s k e x po s u re cha ra ct e r i s t i c s
 3 -74

b e twe en th e divi s ions mu s t be cons i de re d . O ne que s ti on i s wh e th e r th e r e

s e ems to b e too mu ch ri s k e x p o su re i n g e ne r a l , wh i ch in c as e mi g h t je 0p

ar d i ze man a g emen t s v ie w
'
on wha t con s t i tute s p ru den t mana g emen t . An a l

t e r na t i v e que s tion mi gh t b e wh e th e r th e r mi g h t b e too l i tt le ove r a l l co r

p o r at e ri s k - tak in g . Th i s wou l d me an th a t th e comp an y wou l d s e em un ab le

to re emp lo y g en e rate d fun ds in an a g g re s s ive eno u gh wa y . B eyond the s e

c r i t i c a l que s t ion s abou t ove ra l l co rp o r at e e nvi ronme n tal r i s k e x p o s ur e

two l e s s obvious i s s ue s mus t b e ra i s e d . F i rs t , i s th e r e i ncon s i s t en cy in

ri s k - tak in g amon g th e div i s ions ? S e cond , wha t po te n ti al modi f i ca tio n s

mi g h t b e ma de on th e po rt f o li o s t ra te g y o f a co rp o r a t io n in o rde r fo r th e

envi ronmen ta l ri s k e x po s ur e to b e chan g e d in a de s i re d di r e c t io n ?

R e g a rdi n g th e is sue o f whe th e r th e r e i s cons i s ten cy in ri s k - taki n g

amon g th e div i s ion s th i s mi gh t b e e x p lo re d b y comp ar in g th e divi s ions in

te rms o f ri s k e x p o s u re re l at ive to a t tr ac t iven e s s o f th e i r b as e p l an s “

and al s o co ns i de rin g th e po ten ti a l fo r g a in f rom p o s i t ive envi ronmen tal

de ve lopmen ts . I t ma y tu rn ou t th at some bus in e s s e s o f f e r fa r to o much

r i s k e x p o s u re wi thou t p rovi di n g a re as on ab l e p e r fo rman c e p o te n t i a l . It

may a l s o be th at th e ri s k i s ve ry low fo r s ome bus ine s s e s but tha t th e

re turn p o ten tia l i s in ade qua te to o . Th e k ey wou l d b e to de ve lop an in

tima te s en s e of th e r i s k/ r e tu r n con fi gu r at ion fo r e ach bus ine s s e l ement

in th e co rpo ra te po rt fo l io . It wi l l u l tima te ly de pe n d on s enio r man a g e

'
men t s at t i tu de towards r i s k wha t r i s k/ r e tu r n l eve l wi l l b e a c ce p t ab l e .

E a ch bus ine s s shou l d i de a l ly f a l l on th e e f f i c i en t r i s k/ r e t u rn trade o f f

'
l ine g iven th i s s eni o r man ag emen t s ri s k p r e f e r en c e ; a hi gh e r r i s k /r e tu r n

woul d be too s pe cu la ti ve to be a c c e p tab l e , a lowe r r i s k/ r e tu r n unn e c e s s a r i l y

con s e rva t ive .

Th e i s sue o f ac hi evin g cons i s t en cy in env i ronme n ta l ri s k

ex p o s ur e amon g th e di vi s ion doe s cons e que n t ly no t imp ly that e a ch div i

s io n s houl d b e ex po s e d to the s ame l eve l o f envi ro nmen ta l ri s k bu t rath e r

 3 - 76

Th e an a l y s i s of
'
a co rp o ra ti on s ne e ds fo r p l ann in g p rovi de s a s ta ti c

view o f how th e c omp any an d i ts bus ine s s e s s tan d in te rms o f s t r a te g i c

IB
s t ren g th s an d we akn e s s e s a t on e p ar ti c ul a r p o in t in t im e . It i s us e ful

fo r man a g eme n t a t c e r ta in in terva l s to b e p r e s e n t ed wi th a re aso nab ly

comp l e te an d con s i s ten tly de ve lo p e d p i c tu r e o f th e p a r t i cu l ar s i tu ati ona l

s e tt in g a t h an d wh a t s t ra te g i c an d finan c i al con s t ra in ts th e r e a re a nd

wha t p a rt i cu l ar ne eds th e comp any h a s fo r p l annin g . I t i s e a s y to de

ve l op th e a r gume n t tha t su ch a s t ra t e g i c a s s e s smen t ana lys i s sh ou l d b e

ca rri e d ou t be fo re a fo rma l co rp o r ate s t r ate g i c p l ann in g s y s tem i s b e in g

in s ta lle d . Th i s wi l l p rovi de th e ne c e s s a ry di r e c ti on fo r wh at c ap ab i l i ti e s

to be de s i gn e d in to th e p l ann in g sy s tem .

As a p l ann in g sy s tem s ta rt s to fun c ti on a f te r i t ha s b e en p rop e r ly

tai lo rmade an d in s tal l e d , th e sy s t em i ts e l f wi l l p rovi de an up da te o f wh a t

wi l l b e eme r g in g new p l an nin g n e e ds

- . It wi l l cons e que n tly no t b e ne c e s s a ry

to car ry o ut a comp l e te new inde p e nd en t s t ra te g i c p l ann in g ne e d as s e s smen t

ana l y s i s on a c ont inu e d ba s i s

I t mi gh t b e us e fu l , howeve r , to c ar ry o u t ad ho c s t ra te g i c po s i ti on

audi ts o f p a rti cul a r di vi s ion s , p ar t i cul a rl y i f a p art i cul ar b us in e s s i s

fac in g e x ce p ti ona l ch an g e s in i ts bu s in e s s c l ima te as we l l as wh e n ma j or

s t ra te g i c s h i f ts a r e be in g con t emp la te d , su ch as a ma j o r e x p ans ion o r

wi thdr awa l . In s u ch in s tan c e s , i t mi g h t b e us e fu l wi th i n - de p th da ta on

an ad ho c b as i s , inde p e nde n tl y o f th e p l ann in g s che du l e . No t on l y w il l

th i s al low fo r e no u gh de tai l in th e da t a . Al s o , i t wi l l p reven t th e

ho l di n g up of th e
’
co rp o ra tion s en ti r e p l ann in g e f fo r t as a re su l t o f

a lmo s t in evi tab le de l ay s th a t mi gh t h ave be en caus e d i f a tt em p t in g to

p rovi de the da ta fo r th e s t rate g i c an a l y s i s o f th e e x c e p tiona l bus in e s s

 3 -7 7

s e t t in g th rou g h th e o rdin a ry p l ann in g cy c l e in i ts e n t i r e ty .

Wh en c an di da te s a re b e in g i de n ti f i e d fo r p o ten ti a l a c qu i s i t io n th e r e

i s al s o a ne e d fo r a s t ra te g i c audi t an a ly s i s o f th e n ew bus in e s s . Th e r e
wi l l o f cours e ty p i ca l l y b e p rob lems g a th e r in g p a rts o f th e da ta i n s uch

in s tan c e s , bu t i t wi l l ty p i ca l l y s t i l l be po s s ib l e to c ome up wi th a

us e fu l ana ly s i s . G i ve n tha t th e e f fo r ts invo lve d in c a rry in g o ut s u ch a

tho ro u gh ac qui s i t ion ana l ys is typ i c al ly wi l l b e con s i de rab l e , i t mi g h t b e

us e fu l to de ve lop a s te p - wi s e an a l y t i ca l s ch eme fo r a cq ui s i ti on ana l y s i s .

Thi s mi g h t h e lp we e din g ou t a t an e a r ly s t ag e a c qu i s i tion can d i da te s tha t

loo k re l a t ive ly unp romi s in g , s o tha t on l y the po te n ti al ly mo re a tt r a c t ive

c an di da te s wi l l p as s th e p r e l imin a ry s c re en in g s an d re c e ive a fu l l s t r a

t eg i c audi t t re a tme n t . We s h a l l di s c us s thi s fu r th e r in Ch ap t e r S ix in

"
conn e c t ion wi th how to avo i d ov e r l o a din g th e p l ann in g s y s tem .

At n
some i te rva l s , howe ve r , th e r e mi g h t be a n e ed to re p e a t a ful l

b lown s t ra te g i c audi t fo r th e en ti re comp any . Th i s may b e ne e de d as a

"
b a s i s fo r a ma j o r ove rh aul o f th e p l anni n g sy s t em wh i ch no w an d th en :

may b e n e c e s s a ry . We s e e wha t wi l l be eme r g in g n ew h ap p e n in g in man y

l ar g e co rp o ra t ion s . Th e r e s e ems , in fa ct , to b e a l i f e cy c l e
- "
fo r many

a c o rp o ra te p l ann in g s y s t em ; a f te r s ome y e ar s i n p la c e th e p re s e n t s y s

tem mi g h t b e ab an don e d an d a n ew sy s t em in s ta l l e d . T hi s mi gh t typ ic a l ly

happ e n in conn e c t ion wi th a ma j o r re o r g an i z a t i on an d/ o r mana g eme n t r e

s hu f f l e . The s tr a te g i c po s i ti on audi t i s of cour s e a u s e fu l too l a t

s uc h t ime s . O ne o f th e a r gu men ts th a t we sh a l l mak e i n th i s boo k , howe ve r ,

i s tha t i t wou l d no rmal l y b e mo r e i de a l to ha ve th e co rp o ra te p l ann in g

sy s t em s ub j e c t e d to a re l a t ive ly con t inuous p ro ce s s o f imp roveme n t an d

inc remen ta l up da t in g , th e re by mak in g i t l e s s n e c e s s a ry to p e r fo rm fre quen t

"
ma j o r ove rh au l s o f th e p l ann in g s y s t em . G i ve n th e typ i ca l ly h i g h co s ts

o f s u ch ma j o r ove rh aul s , no t on ly i n mon e y te rms bu t al s o in t e rm s o f th e

 3 -7 8

di s ru p t ion tha t thi s mi g h t c aus e on th e ma na g e ri a l s t ra te g i c p ro c e s s , we

s ha l l a r gu e tha t th e s e ty p i ca l ly wi l l be con s i de rab l e f rom a mana g i n g

the evo lu tion o f th e s y s tem ap p ro a ch . Th i s i s sue too wi l l be p ur s u e d

fur th e r in C h ap te r S ix .

Wh o shoul d ca rry out th e s t rate g i c p o s i tio n audi t s ? G i ven tha t a

s t rate g i c p o s i t ion audi t mi gh t t r i gg e r a s e t o f on e - sho t de c i s i o ns o f

po te n tia l ly fa r - re a chin g cons e quenc e s fo r the in divi dua l mana g e rs re g a rdin g

s u ch i s s ue s a s re de fin i tion o f s t r ate g i c bu s in e s s un i t s , re l a tive impo r

tan c e o f e ac h bus ine s s , e tc . , a c en tr a l invo lveme n t i n an a d ho c a c tiv i ty

o f th i s k ind mi gh t d i mi ni s h a co rp o r ate p l ann in g e x e cut ive s e f f e c t ive ne s s '

an d c re di b i l i ty as a p a rty in th e on g o in g con tin uo us co rp o ra te p l ann in g

p ro ce s s . Al s o , th e l in e e x e c uti ve s too wi l l ty p i c a l l y h ave s o mu ch p e r

s o na l l y a t s t ak e tha t they mi g h t no t b e e f f e c tive p a rt i c i p an ts i n thi s

p ro ce s s . In o rde r no t to lo s e c re dib i l i ty fo r th e on g o in g p l ann in g wo rk

tha t i s sup po s e d to fo l low f rom th e s tr ate g i c audi t , i t mi gh t th e r e fo re

b e us e fu l to dr aw on tempo rary e x p e r t i s e f rom o ut s i de th e ma in l i ne o f

th e o r g an i z ati on to c a r ry o ut th e s t r ate g i c audi t ana l y s i s e i the r an ih

hou s e cons ul tan t g roup o r ou ts i de cons ul tin g he l p . Th i s mi gh t g ive a

be tte r as s u ran ce o f an ob j e c t ive au di t an d p ro te c t a g ai ns t the dan g e r o f

bi a s th a t co ul d e n te r th e an a ly s i s i f i t i s ca r r i e d out by man a g e r s who

'

are di re c tl y invo lve d in th e bu s ine s s e s . We s hal l p u rs ue th i s i s su e fur

th e r in C hap te r S e ve n wh en we d i s cu s s th e ro l e s o f va ri ous s t ak e ho lde rs

in th e c o rp o ra te p lann in g p ro ce s s .

3 - 13 . S umm a ry

In th i s ch a p te r we h ave di s c us s e d how to de te rmine th e ne eds fo r p l an

nin g th a t di f f e re n t comp an i e s mi g h t have . Th e un de r l y in g p remi s e fo r th e

rat iona le o f th e app roa ch take n in th i s ch ap te r i s th at al l comp an i e s

as in te g ra tion ; a S EU in th e ca s h cow po s i ti on wi l l b e havin g re l a ti ve l y

hi gh ne eds fo r in te g rat io n an d re l a ti ve ly low ne e ds fo r ad ap ta ti on ; an d ,

" "
fi n al ly , a so - calle d do g wi l l h ave a low ne e d fo r bo th adap ta ti o n an d

in te g ra tion p l ann in g . Al s o , g i ve n tha t th e s t ra te g i c p o s i ti on o f a SB U

typ i ca l ly mi gh t ch an g e ove r time , due to p l an s as we l l as due to e vo l u

t i o nar y p re s su re s , s ay , from be in g a s t ar to be comi n g a ca s h - c ow , it

be come s imp o r tan t to re co gn i z e th e dy n ami c s o f ch an g i n g SBU p lann in g ne e ds .

S ec ondl y , th e con s o l i da tio n a tt ra cti ve ne s s o f ca r ry i n g ou t th e re l a te d

b us i ne s s a ct ivi ti e s o f th e SB Us wi th in one d ivi s ion we re ana l y z e d . We

po in te d ou t th at h eavy cons o l i da ti on ch a l l en g e s wo ul d le ad to an i n c re a s e d

ne e d fo r i n te g ration p l ann in g , above a l l

Th i rdly , we p rop o s e d a co rpo r ate l eve l p l ann i n g ne e ds an al y s i s wh i c h

a l s o wa s b e in g ba s e d on two dimen s ion s : A fi nan ci a l an a l y s i s wo u l d em

p h a s i ze what wou l d b e th e mo re nea r - te rm p re s su re s to s hows t ab l e ove ral l

p e r fo rman c e as s o ci at e d wi th a p ar t i cul a r co rp o ra t e s t r a te g i c s e t ti n g .

Th i s wo u l d p rovi de a p i c tu re o f the ne e ds fo r in te g r ati ve p l ann i n g a t th e

c o rp o ra te l eve l , above al l . I n addi t ion , th e co rp o ra te l eve l as s e s sme n t

s hou l d i n c lude an an aly s i s o f th e mo re lon g e r - te rm s tru c tu r al p o r t fo l i o

p re s s ur e s tha t th e comp any i s fa ci n g , as s e e n wh e n ex t rapo la tin g th e

fun ds flow p a tte rn s as we l l a s wh en un de rt ak in g a comp a ra tive ana ly s i s o f

s eve r al comp an i e s '

chan g e s i n p o r t fo l io s t ruc tur e . Th e s e lon g e r - te rm

s tr u c tu ral p re s su re ch a l le ng e s woul d le a d to in c re as e d a dap ta ti on p l an

nin g ne e ds ab ove al l a t th e co rp o ra te l eve l .

In addi t ion to th e ana l ys i s of th e p l ann in g ne e ds s temmin g f rom th e

s tr a te g i c po s i tion a t the var io us o r g an i z a t i ona l le ve l s we a ls o a dvo c a te d

the ne e d fo r as s e s s in g th e envi ronmen tal ri s k as so ci a te d wi th a s tra te g y

and ou tl in e d how su c h a r i s k /r e tu r n ana l y s i s sho ul d be ca rri e d ou t . Th i s

a t t emp ts to r e la te th e re turn p o ten ti a l s o f a bus in e s s ,
in c ludi n g th o s e

tha t mi g h t come thr ou g h f avo rab l e env ironmen ta l deve l opme n ts ,

to the
 3 - 81

ri s k s th a t a r e invo lve d due to po te n ti a l ly un favo rab l e dev e lo pme n ts i n

th e e nv i ronmen t . T he in ten tio n i s to come up w i th an a s s e s sme n t o f the

ove ra l l p a t te rn o f bu s in e s s e l emen ts o f th e co rpo ra te po r t fo l i o wh i c h

in di c a te whe th e r th e r i Sk / r e tu r n con f i gur a t ion a s so c i a t e d wi th e a c h SBU

i s con s i s ten t wi th the o th e r s an d in a c co r dan c e wi th the ap ti tu de towa r ds

ri s k - tak in g g e ne ra l l y a c c ep tab l e to mana g eme n t .

F in a l ly , we po in te d ou t th a t th e s t ra te g i c audi t ana l y s i s s ho ul d b e

s e e n a s an ac t iv i ty wh i ch i s ba s i c a l ly o f an a d h o c na ture . Thus , i n

vo lvem en t in th e exe cu tion o f a s t ra te g i c audi t ana ly s i s mi g h t c aus e a

s tra in on th e e f f e c tivene s s o f man a g e r s in th e on g o in g co rp o ra te p l ann in g

p ro c e s s . The r e fo re re s our c e p e r s on s o u ts i de th e on g o in g op e ra tin g l i ne

ac t ivi t i e s , s u ch a s fo r in s tan c e in te rn a l con s ul tan t s ta f fs o r e x te rn al

con s ul t an ts mi g h t , b e f ru i t fu l ly emp loy e d fo r s t r ate g i c audi t a s s e s smen ts .

In th e a pp e ndi x to thi s ch ap te r we h ave in c l ude d an e x am p l e wh i c h

i l lus t rate s how on e l a rg e , dive r s i fi e d co rp or a tion ap p roa ch e s th e an a l y s i s

o f th e a ttra c t iven e s s o f i ts ove ra l l p o r t f ol io o f bus ine s s e s in o rde r to

come up wi th a mo re fo c us s e d p i c tu r e o f th e va r i ous p lann in g n e e ds i t i s

f ac in g .
 3 - 82

Appe n di x : A P o rt f o l i o A ttr a ctive ne s s I nde x : An E xam

ple .

Th e i s su e o f g e ttin g an ove r a l l ove rv iew o f th e p o r t f o l io p l ann in g

ne e ds o f on e ' s comp any i s may be p ar t i cu l ar l y di f f i cu l t to g rap p l e wi th

wi th in a h i g hly d ive r s i f i e d co rp o ra t ion , non e th e l e a s t be caus e o f c o r

po r at e mana g eme n t s h e avy re l i an c e on a l ar g e numb e r o f s ubo rdin a te man

'

ag e r s '
inpu ts to th e p l annin g p ro c e s s a s we l l a s on th e i r ab i l i ty to im

p l eme n t the p l an s . G i v en th e a lmo s t impo s s ib l e ta s k fo r the co r po rate

man a g eme n t to di re c tly deve l op an i n - de p th fe e l fo r al l o f th e bu s in e s s e s ,

i t wi l l b e a touch task to un de rs tan d th e r e la t ive a tt ra c t iv en e s s o f on e

bus in e s s ve rs us ano th e r . O ne h i g h l y d ive r s i f i e d co rp o ra t ion wi th ann ua l

s a le s aroun d b i l l i on do l l ar s an d wi th mo re th an 40 Op e ra t in g div i

s ion s has s tren g th en e d i t s a ttemp t to comp r e he nd i ts p o r t fo l i o p lann in g

nee ds by deve l op in g an inde x fo r b us ine s s at tr a c tive n e s s ba s e d on da ta

co l le c te d from th e p l ann in g ou tp u t o f e a ch di vi s i on . Th i s i s p r i m a ri ly

in tende d as an ai d in eva lua tin g th e me r i ts o f e ach bus ine s s fo r i n tu rn

to s e t be tte r inve s tmen t p r io ri ti e s wi th in i ts po r t fo l io o f bus in e s s e s .

Th e a tt ra c tive ne s s inde x wa s de ve lop e d f rom a c omp o s i te me a s ure o f th e

a ttr a c ti ve ne s s o f e a ch bus in e s s , ba s e d on th e me a s ureme n t o f a to ta l o f

14 fa c to rs f al l in g wi thin thr e e ma j o r ar e a s . F ive di f fe re n t mark e t - re l a te d

fa c to rs fo rm a comp o s i te me asu r e o f the bus in e s s '

comp e ti t ive s t r en g th ,

five fa c to rs r e l a t in g to unde r ly in g as p e c ts o f th e comp e ti tion fo rm a

compo s i te me a s ure o f the a ttr a c t ive ne s s o f th e c omp e ti tive c l ima te an d ,

fin al ly , a comp o s i t e me a su re o f th e r is k in e s s o f th e bus in e s s i s dev e l o p e d ,

ba s e d on fo ur unde r ly in g ri s k fa c to r me a s u remen ts . A re l a tive we i g h in g

s ch eme wa s devi s e d , s o tha t in de x va lue s co re s cou l d b e de rive d fo r e a ch

bus in e s s . T he bus in e s s e s we re the n rank e d in t e rms o f th e i r a tt ra c t i ve ne s s .

Th e e l eme n ts of th e inde x an d th e we i g h tin g s o f th e s e fac to rs we r e

sk i l ls o f a l ar g e comp an y to b e a r ( 10% we i g h t )

R e l a tiv e mar k e t sha r e ; th e comp an y s marke t s ha r e wi th in th e

'

r e l evan t mark e t s eg men t div i ded b y th e c omb in e d s h ar e o f th e

thr e e l a r g e s t c omp e ti to r s . ( I f po s s ib l e , th e c omp any p r e f e r s

to mea sur e mark e t sha r e in te rms o f ph y s i ca l un i t s , ra the r th an

in te rms o f do l l ar s , b e c au s e i t f e e l s tha t th i s mi g h t gen

e r a l ly p rov i de more r e l i ab l e me a sur e s ; l o% we i g h t ) .

Co n s u m e r / c u s t om er indu s try fr an c h i s e ; an a s s e s sme n t o f th e

c omp any s de g r e e o f e s tab l i s he d s tr en g th and re co g n i tio n o f

'

br an d name s wi th in th e r e levan t mark e t ( 5 % we i gh t ) .

T ec hno l o gy / inno va t i o n le ade r sh ip ; an a s s e s sme n t o f th e com

’
s r e l a tive s tan din g wi th in th e r e l evan t ma rk e t in te rms
p any ,

o f te chno l o gy l e ade r s h i p an d p r oduc t innova t ion .

'
Qua l i ty ; an a s s e s smen t o f th e c omp any s r e la tive s tan din g

wi th in th e r e l evan t mark e t , in te rms o f i ts p roduc t s '

qua l i ty

P ro f i t va ri ab i l i ty ; a s t a ti s t i ca l me a s ur e o f th e va r ia t ion

ar ound a tre nd in p re ta x p ro f i ts p e r fo rman c e ove r th e la s t

f ive ye a r s ( l o% we i g h t ) .

O p e r a tin g l eve ra g e ; th e ra tio o f to ta l fi x e d cos ts an d ex

p ens e s to to ta l var i ab l e co s t s th e lowe r th e b re ak - e ven

p o in t the b e t te r , a s indi ca t e d b y th i s ra tio ( 5 % we i g h t ) .

Ne t as s e t in t en s i ty ; th e ra ti o o f n e t as s e ts emp l oy e d to

revenue s th e lowe r th e RO I t he be tte r . N

( o ti c e th a t th i s

rat io , in o rde r to p rovi de ba s i s fo r me an in gful rank in g be

"
twe en d ivi s io ns , as s ume s th a t th e a ge dis t r ibu t io n o f e a ch

divi s ion s a s s e ts i s r e l a tive l y s im i l ar fo r a l l div i s ion s

'
.
 3 - 85

E l s ewi s e , a di vi s ion wi th re l a t ive l y O l de r as s e ts wo ul d

"
au toma ti c a l ly re c e ive a hi g he r s co re th an a div i s ion '

wi th r e l a tive ly n ewe r a s s e ts ( 5 % we i g h t ) .

d . P r i ce l e ade r s hi p ; an as s e s sme n t O f th e p a t te rn wi th re g a r d

to whom g e ne r a l ly in i t i a te s p ri c e ch an g e s th e mo r e con

tr o l by th e comp an y th e be tte r ( 5 % we i g h t ) .

Th e c omp any mak e s us e O f th i s in dex to r ank th e a t t ra c t ive n e s s O f

e a c h o f i ts bu s ine s s e s . T he bus ine s s e s we re c lu s te re d in to th re e ma j o r

g roup s , e a ch wi th di f f e re n t p lann in g n e eds . The h i g h l y a tt ra c t ive c a t

e go r y O f bu s in e s s e s ar e i n ne e d fo r p l ann in g wh i ch w i l l e n ab l e them to

re c e ive co rp o ra te fun ds to th e ex ten t tha t th e y a re ab l e to exp an d an d

a c t ive l y pu r su e th e op po r tun i t i e s in h eren t in h i s bus in e s s . Th e somewh a t

a tt ra c t i ve c a te g o ry O f bu s in e s s e s a r e i n ne e d fo r p lann in g to p r ima r i ly

ma in ta in th e i r p r e s en t comp e t i tive s tr en g th po s i t ion , an d fo r thu s b e in g

p re p a r e d to re c e ive c o rp o r a te funds an d fo r p ur su in g s e l e c te d s t ra te g i c

p ro g rams in o rde r to s o l i di fy i ts p r e s e n t po s i ti on an d to re l a t ive l y im

p rove th e a tt rac t ive n e s s po s i tion O f i t s bus in e s s . F i na l ly , th e c a te g o ry

wi th wha t mi gh t b e l ab e l l e d una t tr a c t ive b us in e s s e s wi l l h ave p l ann in g

n e e ds p r ima r i ly w i th in th e ar e a O f imp rovin g th e i r e f f i c i en c y an d fo r

ca r ry in g o ut co s t re duc ti on s tra t e g i c p ro g r ams o n ly . Th e s e bus in e s s e s

wi l l a ls o h ave a p l ann in g n e e d fo r ma in ta in in g or imp rov in g i ts a t tr a e

t i ve ne s s as a d ive s ti tur e c an di da t e , s o th a t i t p o ten ti a l ly mi g h t be s pun

O ff . The r eby i t m i gh t p rovi de th e ba s i s fo r an e ven l a r g e r ne t fun ds con

tr i b u t i o n th an th ro ug h con tinue d Op e r a t ion . In to t a l , co rp o ra te man a g e

men t mak e s us e O f th i s ran k in g s ch eme in s h arp e nin g i ts p e r c e p tion O f the

p lann ing n e e ds O f e a ch O f th e bu s in e s s e s , in in te ra c t i n g wi th th e bus in e s s e s

an d ul t im a te l y in a l lo c at ing re so u r c e s wi th in wha t i t con s i de rs a mo re

fo cus s e d ove ra l l po rt fo li o c ont ex t . T hu s , i t e x p l i c i tly re co gn i z e s th a t

 3 -86

p rovi din g f or a c l e a re r s t a t eme n t o f th e s tr a te g i c s e t tin g O f e a ch bus i

ne s s wi l l a l l ow e a c h bus in e s s to fo c us o n wh a t sho u l d b e i t s p a r t i cu l ar

ma j o r s tra te g i c i s sue s . The reb y th e co rpo ra te man a g emen t wi l l h ave c re a ted

'
a s e t t in g in wh i c h re so ur c e al lo ca ti on s ro le a s th e too l in in f lue n c in g

th e s t ra te g i c p o s ture tha t i ts comp an y i s c an b e e x p lo i ted .

 3 - 88

A va s t bo dy of l i ter a tur e i s d ev el o pe d a ro und th e c aus e s of innova tion

" '
and it s ro l e a s a tr i gg e r in g me ch an i sm f or p rodu c t l i f e cy c l e

deve l opment . Fo r a summa ry of the ea r l i e r l i te ra tu re , s e e Ne l s on ,

R i chard R .
,
Th e Ra te and D i re c ti on of Inv en t ive A c t ivi ty : Ec onomi c

and S oc i a l Fac to rs ,
P r in c e ton Un ive rs i ty P re s s , P ri n c e ton , 1 96 2 . See

" "
a l s o , Le av i tt ,
Th eodo r e , Exp lo i t th e P r od uc t L i f e Cyc l e —
, H a rva rd

B us ines s R evi ew , Nov .

- Dec .
, 196 5 , Cox , W i l l i am E .
, Jr .
, P r oduc t L if e

Cy cl e s a s Ma rke tin g Mod e l s

"
, J ou rna l of Bu s i ne s s , O c tob e r , 1 96 7 ,

C l i f f ord , Dona ld R Jr M ana g in g th e P ro du c t L i f e Cy c l e Euro p e an

B us ine s s , Ju ly , 1 9 69 , Pol li , R o l ando and V i c to r Coo k , Va l i d i ty of th e

P ro du c t L i f e C yc l e J ourna l of Bus ine s s , O c to b e r , 1 9 69 , We l l s ,

" "
Lou is T Jr .
, Th e P ro du c t L i f e Cy c l e Ap p ro ac h , in We l l s , Lou i s T

( e di to r ) , Th e P roduc t L i f e C y c l e and I nt e rna ti ona l Trad e , D iv i s i on of

R e s e ar ch , Ha rvard Bu s ine s s S cho o l , B o s to n , 1 9 7 2 , and Wa s s on , C . R .

,

Qy p am i c Compe ti tive S tra te gy and P rodu c t Li f e C y c l e s , Ch a l l en g e B oo k s ,

St . Cha rl e s , 1 9 74 .

S e e Hen de r s on , B ruc e D Th e P rodu c t Po r tf o l i o P e r s pe c tive s , B o s t on

"
Con su l tin g G roup , Bo s ton , 1 9 70, H end e r son B ru c e D .
,
Ca sh Tr ap s

P e r s p ec t ive s , Bo s ton Con s ul tin g G r oup , Bo s ton , 1 9 70 , G e r s tn e r , Loui s V

Jr .
,
"
Can S tra te g i c P l ann in g P ay Of f ? "
B u s in e s s Ho r i z on s ,
D e c emb e r ,

19 7 2 , Ar thu r D . Li ttl e , Inc .

,
"
A S ys tem f or Mana g in g D ive r s i ty "
,

"
C amb rid g e , 19 7 4 , and H ax , A rno l do C . and N ic o la s S . Ma jl u f ,
A M e thod

o lo g i c a l App roach f or th e D eve lo p in g of S trat e g i c P l ann in g in D ive rs i fi ed

"
C o rp o ra ti on s , Te chn i cal R e po rt No . 3, S lo an S choo l of Man a g eme n t ,

Camb rid ge , 19 7 7 .
 3 - 89

7 . Fo r di s cu s s ion s of s eve ra l of th e p rob l ems ra i s ed in S e c t ion 3 — 6 , see

F r u h an , W i l l iam E .
,
"
P y rrh i c V i c tor i e s i n F i gh ts f or Ma r k e t Share

C l ay c amp , P l ann in g P rodu c t L ine S tra te gy : A M a tri x App roa ch

Jou rna l of M ar k e ti n g , Vol . 4 0, NO . 1, J anua ry , 19 7 6 , Day , G e o rge S

Mar k e t in g
"
D i a gno s ing th e P ro duc t Po r tf o l io J ou rna l of , Vol . 41 ,

No . 2, Ap ri l , 1 97 7 , and H amm e r m e s h , R . G .
, L . J . And e r so n , J r .
, and

J . E . Ha r r is , S tra t e g ie s f or L ow M a rk e t S ha re Bu s ine s s e s
"
,
Ha rv ard

B us in e s s R evi ew , M ay - Jun e , 19 78 .

S e e Lo rang e , P eter , D iv i s iona l P l ann in g : S e t tin g Ef f e c t iv e D i r e c t ion

S l o an M an a gement R evi ew , Fa l l , 19 7 5 .

S e e , fo r ins tanc e , D on al d s on , G o rdon , S tr a te gy fo r F inan c i a l Mob i l i ty ,

D iv i s i on of R e s e ar ch , H arv ard B u s in e s s S choo l , B o s ton , 19 6 9 , Mar ri s

Ro b in C .
, An I n t ro du c t i on to Th eo r i e s of Co rpor a t e Growth
"
, in

and I nn ova tive P o ten t ia l , M a cM i l l an , New Yo rk , 1 9 7 1 .

10 . Fo r s eve ra l wo r k s th a t mi gh t be in t erp r e ted so as to und e rs co r e th e

ex i s t en c e of a s et of s tru c tur a l p l ann in g n e ed s , see B au m o l , W i l l iam J

Ca p i tal i sm , M a cM i l l an , New Yo rk , 1 968 , S te i ne r , Ge o r g e A .

, Top M ana ge
men t P lann in g, M acM i l l an , New Y o rk , 19 69 , and Le ib en s t e in , Ha rv e y ,

Uni ve rs i ty P re s s , Cam b ri d ge , 19 7 6 .
 3 - 90

S e e S teven son ,
Howa rd H .
, D e f in in g Co rp o ra te S tren g th s and We akne s s e s

S l oan Man a gemen t Revi ew , S p r in g , 1 9 76 .

Fo r s eve ra l a rt i c l e s and bo ok s r e l evan t in o p e ra ti on al i z in g th e c on

cept of envi ronmen ta l r is k e x p o s ur e d i s cu s s ed in S e c tio n 3 - 1 1 , s e e

196 7 , Dun c an , R . B Ch ara c te r i s tic s of O r g an i za t ion a l Env i ronme nt s

and P e r c e ive d Env i ronmen ta l Un c e r ta in ty Admin i s t ra t ive S c i en c e

"
Qua rte rl
y ,
V ol . 17 , 19 72 , Denn in g , Ba s i l W S tra te g i c Env i ronmen ta l

App r a is a l "
,
Lon g R an ge P l ann in g , M ar c h , 19 7 3 , Rh e nm an , Eri c , O r gan i z a
t ion Th e o r y fo r L on g- Ran ge P lann in g, Wi l e y- In te r s c i en c e , New Yo rk ,

19 7 3 , Down ey , H . K .
, D . H e l l r ie g e l and J . W . S l o cum , Jr .
,
"
Envi ronmen ta l

"
Un c e rta in ty : Th e Con s tru c t and i t s App l ic a t ion , Admin i s t ra tive

S c ienc e Qu a r te r l y , Vo l . 2 0, 19 75 , Down ey , H . K . and J . W . S lo cum , Jr .

,

"
Un c e r ta i nty Me a s ur e s , R e s e a r ch , and S ou r c e s of V ar ia t ion Acad em y

of M anageme nt Jou rna l , Vo l . 18 , 19 75 , an d Me tc a l f e , Le s and Wi l l

"
M c Qu i ll an , Mana g in g Tu rbu l en c e in Ny s trom , P au l C . and Wi l l iam H .

S tarb u ck , ed i to rs , P r e s c r i pti v e Mode ls O f O r gan i z a t ion s , No r th - Ho l l and

Pu b li sh in g Co .
, Ams ter dam , 1 9 77 .

Ana lo gou s ide as to th e on e of c a rry in g ou t a s tra te g i c sy s tems aud i t

have b e en su gg e s ted b y Fe r gu s on ( s tra t eg i c c on c e p t audi t ) and

" "
by
"
Smi th ( s tra te g ic in f o rma t ion s e e Fe r gu s on , Cha r l e s R .
,

Me as u rin g Co rp o r a te S tra t e gy , D ow Jone s - I r w i n g ,

Homewood , 1 9 74 , and

Smi th , Th eodo re A .
, D yp am i c Bus ine s s S tra te gy : Th e Ar t o f P lann in g

fo r S uc c e s s , M c G r aw — Hi l l ,
New Yo rk , 1 9 7 7 .
 '
th a t i t mi gh t cont inue to b e O f us e fu lne s s ove r t ime as a fi rm s ne e ds

fo r p l an n in g mi g h t b e chan g in g .

We sh a l l addr e s s four te en common ly found g e ne ra l imp l eme n ta t i on

p rob lems an d i s s ue s i n thi s chap te r , an d di s cus s them a s the y re l a te to

th e imp l emen ta ti on o f e a ch O f th e f i ve cy c le s O f th e conc e p tua l s cheme

fo r p lann in g deve lop e d in Chap te r Two .

Th e re ar e f ive ty p e s O f p o ten ti a l imp l emen ta ti on p rob lems and p i t fa l l s

th at we h ave foun d to be p a rt i cul ar ly p e rt inen t to th e in i ti a l c y c le o f

th e co r p o fa
t e p l ann in g p ro c e s s th e ob j e c t ive s - s e tt in g s ta g e . The s e

ar e th e ne e d fo r th e fu l l invo lveme n t ; th e as s e s sme n t o f new Op

p or t u ni t i e s in th e bu s ine s s envi ronme n t by th e di vi s ion s ; th e na tu re O f

the p o rt fo l i o ap p roa ch towar ds co rp o ra te revi ew o f inpu ts fro m th e re s t

o f the o r g an i z a ti on ; th e in fo rma l n a ture O f th e invo lvemen t by th e s p e

c i al i z e d fun c t iona l de p a r tme n ts at th i s s t a g e ; an d th e n e e d fo r a fe e db a ck/

i te ra t ive me ch an i sm fo r r e- exami nin g an d r e vi s in g p a r t s O f th e p l annin g

outp uts s o th a t ove ra l l cons i s ten cy mi g h t b e re a che d amon g th e man y e l e

men ts th a t wi l l cons t i tu te th e outp u t O f th e ob j e ct i ve s - s e ttin g cy c l e .

We s ha l l di s cu s s e a ch Of th e s e i s s ue s i n turn .

1 . Th e C E O
. . . s hou l d i n i t i a t e th e pro ce s s .

Wh en i t come s to th e f i rs t i s s ue , th e na ture o f th e ih

vo l vem en t , i t i s p art i cul a r ly imp o rt an t th a t top man a g eme n t i s fu l ly

invo lve d . Th i s wou l d me an mo re th an a g e ne ra l le t te r O f endo rs eme n t

o f p l ann in g b y th e s ome g en e ra l ur g i n g th a t th e o r g an i z a t ion go

ou t an d p l an . Wh at i s ne e de d is th a t th e C E O
. . . ac t u a l l v s tar t th e

p ro ce s s : he shou l d s i g na l hi s ow n as p i ra ti ons , in ten tions an d p e r fo rm

an ce re qui reme n ts to th e divi s i on h eads as the f i r s t s t e p O f th e annua l

p lann i n g p ro ce s s . He shou l d be as s p e c i f i c a s he f e e l s h e c an r e al i s

ti c a l ly be , bu t s t re s s th a t h i s i de a s are ten ta tive a t thi s s ta g e . Th e

inpu ts shou l d s e rve as a ve h i c le fo r g i vin g a us e fu l an d s t im

u l a t i ng con te x t to p l ann in g ; i t wi l l con s e que n tl y b e na tu r al an d de s i r ab l e

tha t r ev i s ion s , mod i f i ca t ions an d imp rovemen ts a re l ik e ly to re s u l t f ro m

2
the p l ann in g p ro c e s s i t s e l f

C o rp o ra te as s ump t ions wi th re g a rd to in te r e s t i n f l a ti o n wa g e s

an d -
cur ren cy l eve l s s hou l d a l s o b e c ommun i c a te d a t th i s s t a g e . Th e s e

too sh ou l d b e ten ta t ive , in th a t i f a g ive n bu s ine s s h a s a p a r ti c u l a r

re as o n fo r no t fo l lowi n g th e com mon as s ump t i on s a s a re s u l t o f unus u a l

ci r cu ms tan ce s in i ts s e tt in g , th e n th e man a g eme n t o f th i s bus i ne s s

s hou l d b e e n cou ra g e d to s t a te th i s . E a ch b us i ne s s shou l d b e c onvi n c e d

th at th e g e ne ra l co rp o ra te as s ump ti on s a re v al i d in th e i r own s e tt in g ;

i f no t , i t s h ou l d b e up to th e div i s i on i ts e l f to r ai s e th e i s s ue .

I n ou r e xp e r i e n ce , i t O f te n h ap p e ns th a t th e C E O
. . . do e s no t come

ou t wi th an a de quat e s ta teme n t o f invo lveme n t a t th e ou t s e t O f th e p l an

n in g p ro c e s s . Th i s , in ou r e xp e r i e n c e , ha s de t rimen tal e f f e c t s on th e

s ub s e que n t p l ann in g e f fo rt , fo r s e ve ra l re as on s . F i rs t , th e C E O
. . . mi gh t

no t fe e l hims e l f re a l ly commi tte d to th e p l ann in g p ro ce s s ye t , in th a t

" "
h e h as no t p u t h i s own tho ug h t on th e b l o ck . Th i s imp l i e s th a t t ime

"
wi l l be was te d on un re a l i s t i c p l anni n g exe r c i s e s un t i l h e commi ts

h ims e l f . S e c ondly , th e ke y l in e ex e cu ti v e s wi l l he s i ta te to p u t e f fo r t s
-

"
in to th e p ro c e s s b e c aus e they f e e l th a t th e p ro c e s s i s u n re a l wi th ou t

t he invo l veme n t . Many may ho l d b a ck o n th e i r ow n po s i t i ons un ti l

the y ge t a b e tt e r fe e l fo r wh e re th e C E O. . . s t an ds an d wh a t di re c t io n h e

p re f e r s . T h i r dl y , l ack o f re a l i sm an d fo cus at th e Ob j e c tive s - s e ttin g

s t ag e wi l l a t be s t imp l y th a t mu ch mo re t ime wi l l h ave to be s pe n t b e fo r e

a me an i ng fu l de c i s ion - mak i n
g fo cu s c an be in s ti l l e d ; a t wo rs t , i t me an s
th a t co rp or ate p l annin g a s a s tra te g i c de c i s ion - mak ing p r o c e s s i s de ad ,

" "

g iv en the l a ck O f re a l i sm an d th e po l i ti ca l am b iva l en c e abo u t wh a t mi gh t

b e a us e ful s tra te g i c di re c t ion O f th e f i rm . I f th e C E O

. . . i s unw i l l in g

to commi t h ims e l f to th e p lann ing s y s t em a s a vi ab l e s tr at e g i c de c i s ion

mak ing too l , th e on e to lo s e i s ab ove a l l h ims e l f . H e i s de p r iv in g h ims e l f

Of a mana g eme n t too l wh i ch c an s i g n i f i c an tly in c r e as e h i s di s c re tiona ry

ab i l i ty to mana g e th e f i rm s tra te g i c a l ly , o r s ta te d di f f e r en tl y , shi ft

t he powe r b a l an ce o f th e f i rms mo re towards h im s e l f . ( Th i s s h i f t towar d

re l at ive l y mo re top - down emp h as i s mi g h t b e a s t ron g r e a son f o r r e s i s t in g

plann in g by th e l in e in m any c omp an i e s ; th e i r bo ttom— u p in f lue nc e mi g h t

be s e e n to b e thr e a tene d ) .

Le t u s i l l us t rat e fu r th e r th e imp o r tan c e O f th e invo lveme n t

in s ta rt in g th e p ro c e s s O ff by me an s O f two e x am p l e s . The f i r s t e x amp le

re fe r s to a con s ume r p rodu c t s fo od comp an y wi th annua l s a l e s o f ap p rox

ima t e ly hal f a b i l l i on do l l ars . An e l ab o ra te s e t o f co rp o r a te a s s ump tion s

a r e b e in g di s s emina te d to th e div i s ion s by th e c o rpo r at e p l anni n g de p ar t

me n t a t th e ou t s e t O f th e f i r s t p l ann in g cy c l e . Th e s e fa l l i n to th e

th r e e c a te go r i e s , summa r i z e d in a c ondens e d ve r s i on b e l ow

a) G ene ral a s sump ti on s : no un fo re s e en ma j o r e nv i ronme n tal even t

'
tha t woul d dr ama t i cal l y ch an g e th e comp any s e nv iro nme n t sh ou l d b e

p lann ed fo r .

b) Man ag e r i al a s sump ti on s : no fundame n ta l chan g e in o r g an i z a t ion al

s tru c tur e s hou l d be a s s ume d ; r ap i d ch an g e s in so c i e ty an d bu s in e s s

wi l l ca l l fo r a ne e d to revi ew cu rre n t comp e ti tive s i tua t ion s an d r e

eva lua te fu tur e bus in e s s p lan s ; cap i ta l wi l l c on t inue to be in

sho rt s up p ly ; co ns e que n tl y , re tur n on inve s tme n t c on c e p ts w i l l be

empha s i z e d .
draw abou t the in te n tions ma y eve n b e con f l i c t in g . Fo r i ns tan ce ,

un de r th e s e c ti on o f mana g e r ia l as s um p t i on s i t i s s tate d , on th e on e h and ,

th at rap i d envi ro nmen ta l chan g e s wi l l c a l l fo r a h i g h p l ann in g r e sp on

s i ve n e s s , i . e . a s tron g adap t ive th rus t . On th e o th e r h an d , th e sho rta g e

o f cap i ta l an d th e emp ha s i s on s tr i c t re turn o n inve s tme n t me a su re s i s

al s o s ta te d , i . e . a s tron g ly in te gr at ive . Thus , i t s e ems ne c e s s a ry th a t

th e C E O
. . . come s ou t wi th h i s as p i r a t ion s abo u t wh a t ge n e r a l di re c t i on he

wan t s th e f i rm to go , i n addi tion to the s ta teme n t O f c orp o ra te b a ck g r oun d

as s ump ti ons . F u r th e r , on e shou l d avo i d th e r i s k o f s ta ti ng s o many co r

p o r at e as sum p ti on s that the y b e c ome e n ti r e l y c on f l i c t in g , an d , thus , mo re

o r le s s me an in g l e s s , un l e s s a c are ful p r io r i ti z in g i s in tro duc e d amon g

the a s s ump t ion s .

Th e s e con d examp l e r e fe r s to th e Eu r O p e an ~ b as e d di ve rs i f i e d co rp o

rat ion di s cu s s e d in th e A p p endix of C h ap te r Two . Th e ma j o r bu s i n e s s in

vo l vem e n t s O f th i s comp any fa l l wi th in th e p h arma c e ut i c a l a re a . Co r

p o r at e man a g emen t has s ta te d th a t the emph as i s in th e fu tur e s ho ul d b e

s hi f te d re l at ive ly mo r e towar ds in te rna l g rowth , a sh i f t away f r om th e

r e l at ive ly p redomin an t mode o f g rowt h th rou gh a c qu i s i t ion s o f th e p a s t .

G ive n th i s i t wi l l be imp o rt an t to e nc our ag e a he avy invo lveme n t , by th e

bus in e s s es in o rde r to c ap i ta l i z e o n th e i r fami l i ar i ty wi th an d unde r

s tan di n g O f the i r bus i ne s s e s whe n i de n ti fy in g in te rn a l g rowth Op po r tun i t i e s .

Howeve r , a s e emin g ly a lm o s t to ta l l a ck O f top - down in i t i a l inpu t in to th e

p l ann in g p ro c e s s on be ha l f o f th e C E O
. . . c aus e s conc e rn an d an x i e ty am on g

l ine mana g e r s ab o u t the ro le o f th e p lann i n g s y s t em a s a vehi c l e fo r

pur s ui n g th e in te rn a l g rowth s t ra te g y . Ab ove all , th i s s e ems to caus e

e a ch of th e bus in e s s e s to deve lo p th e i r p l an s in mu ch o f a va cuum , an d

wi th a lo t o f cau ti on . Th e eme r g in g p l an s ge n e r a l l y s e em to be un ins p ir in g

an d con s e rvati ve . Th e C E O
. . . h as no t b e en ab l e to in s t i l l mu ch o f a s e ns e

o f di re c t i on and re l evan c e abou t wha t ar e r e as on ab le s t r a te g i e s f rom h i s

p o in t O f vi ew . By fo re g o in g th e O p p o r tun i ty to g ive th e o r g an i z a t ion

c le a r s i gna l s abo u t hi s amb i tion s an d de s i re s ab ou t wh e r e he ho p e s to

tak e the comp any a s we l l a s in di ca ti n g h i s b e l i e f i n p l ann i n g by mak i n g

c l e a r h i s re a d ine s s to p a r t i c i p a t e a t th i s lo g i c a l p o i n t in time , th e

C E O
. . . le ave s th e p l ann in g p ro c e s s in a s ta te o f amb iva le n c e an d de g ra da tion .

Th e p o te n ti al s e r i ou s ne s s O f t hi s de f i c i e n cy c an be s e en f rom e x ami n in g

'
de c i s ions r e l a t e d to th e comp any s en try in to new bus ine s s a re a s , wh i ch

as we have p o in te d ou t in th e p a s t have be e n la rg e ly b e e n f a c i l i ta te d by

P art i cu l ar ly th e Home P ro du c t s D ivi s i on was s t i l l a c ti ve howe ve r i n con

tin ni ng to at temp t to a c qu i re a r e l a tive ly l ar ge num b e r O f comp an i e s ove r

"
a q u i t e di ve r s e a re a o f a c ti vi t i e s . S uch di ve r s i f i c a ti on by s ubun i ts

m i gh t b e s e e n a s p o t en ti al ly a s e ri ous in di c a ti on O f la ck O f co rp o r a te

t op - down p o rt fo l i o di r e c t ion . Th e un de s i r ab l e imp l i c a t ion s o f th i s a re

p ar t i cu l ar ly ap p a re n t wh en i t come s to th e c om p any s ri s k - t ak i n g '

. A par

t i cu l a r di v i s i on i s l i k e ly to eva l ua te a g ive n di ve r s i f i c a tion p ropo s al

f rom th e po in t O f vi ew O f th e a c t ivi ty le ve l o f i ts own bus i n e s s , i . e .

mo r e o r le s s wh e th e r th e a cq ui s i tio n mak e s s e n s e ri s k - wi s e as i f th e di

vi s i on was ah i nde p ende n t comp any . Th e c omp any as a who l e , h owe ve r , is

in a p o s i t i on to tak e f a r l a r ge r s e l e c t ed r is k s , s imp ly by b e ne f i t in g f om r
m

be in g l ar ge r an d b e i n g de p e nde n t on a wi de r num b e r o f s ou r ce s o f f unds

flows th an a s in g l e di v i s ion . C ons e que n tl y , i t may s e em r i g h t a t th e

co rp o rat e l e ve l to a c qu i r e on e o r a few re l a tive ly l a r g e com p an i e s , mo ve s

th a t n eve r wou l d h ave b e en tak e n b y a di vi s i on on i t s own . Thus , de l e

"
g a t i on o f th e a cqu i s i t i on a s p e c t o f p o rt f o l i o p l ann in g imp l i e s tha t

th er e wi l l b e a l ik e l ih oo d o f th e c r e a ti on o f a too f ra gme n t e d an d
 cons e rva tive a cqu i s i tion p a tte rn , wi th to o man y sma l l e n ti ti e s . One O f

th e few advan ta g e s o f b e in g a re l a t ive ly l a r g e comp any i s the reby no t

b e in g p ur s ue d . Th us , l a ck O f a c le ar s t atemen t O f th e a s p i ra

ti ons , in c lu di n g th e na tur e o f ri s k - tak in g th a t h e mi g h t wan t to invo lve

th e comp any i n , s e ems to h ave l e d to a b re ak down O f top - down co rp o ra te

'
l e ade r shi p o f th e f i rm s di re c t i on - s e ttin g in th i s ca s e . A mus h r oomin g ,

ove r ly con s e rva tive b o ttom- u p di ve rs i f i ca ti on dr i ve s e ems to b e th e r e

s ul t .

I n summa ry , th en , i t i s c ri ti c a l th a t the C E
. . O . in i ti a te s th e p l an

nin g p ro c e s s . In our e xp e r i e nc e p ro b l ems wi th e f fe c t ive p l anni n g s y s t ems

c an qui te c ommonl y b e tr ac e d b a ck to a l a ck o f top man a g eme n t invo lveme nt

a t th e out s e t . As we have s e en , s eve ral dy s fun c t i ona l e f f e c ts f rom th i s

a re l ike ly to o c cur , le a din g to s i gn i fi can tly le s s us e fu l p l ann in g i n mo s t

ca s e s

ii . A s s e s sme n t O f bus in e s s O ppo rtun i ti e s an d thr e a t s .

A s e cond imp l eme n ta t ion p rob l em re l a t e s to e a ch div i s i on s bus in e s s '

O pp o rtun i ty as s e s sme n t , as p a r t O f the i r deve l opme n t o f Ob j e c ti ve s an d go a l s

" "
s t ateme n ts fo r wh e re th ey wan t to go wi th the i r r e s p e c ti ve bus ine s s e s ,

re s po ndin g to th e in i t i at i on o f p l ann in g th a t h as c ome f rom th e C E O

. .

I t i s c ri ti cal th at e a ch di vi s ion man a g eme n t te am , b e in g th e c lo s e s t to a

p ar ti cu l ar busin e s s env i ronmen t an d ima g ina t ive l y as s e s s th e

"

, s k i ll f u l ly

ma j o r Op po r tun i ti e s an d th re a ts th at a re f a c in g th e i r bus in e s s . The s e

ma n ag e rs sh ou l d no t on l y h ave th e b e s t in s i gh t in to th e Op po r tun i t i e s

the i r b u s in e s s envi ronmen t c an O f fe r . Th e y shou l d a l s o be in th e be s t

po s i tion to p e r ce ive how to tak e advan t a g e O f th e s e O p po r tun i t i e s in mo di

fy i ng th e Ob j e c t ive s an d go a l s O f th e i r bu s in e s s e s . I t i s o f c ri ti c al

”
imp o rt an ce tha t a c re a tive e l eme n t O f env i ronme n ta l awar e n e s s an d g uts y
 4 - 10

env i ronmen t .

I t i s thus im po rt an t tha t th e an al y s i s fo cu s o n i s s ue s i n th e bu s in e s s '

env ironmen t , no t inwa rd on th e p rob l ems O f bu s ine s s - as- us ua l . The fo c us

s houl d b e on th e s tra te gi c e f f e c t ivene s s o f th e bus in e s s , no t on s tr at e gi c

e f f i c i en
gy ; a re we in th e r i gh t b us ine s s , no t ar e we do in g th i s bus in e s s

ri gh t .
"
Th e ap p ro a ch deve lop e d i n Ch ap te r Th r e e fo r r i s k/ r e tu rn as s e s smen t

o f bu s i ne s s e s fa ce d wi th po t en t i a l po s i tive o r n e g a t ive imp ac t s f rom en

vi r o nm e nta l fa cto rs mi gh t b e u s e d by a di vi s ion mana g e r a s a ba s i s fo r

as s e s smen t o f h i s O p p o r tun i t i e s . Th e i s s ue fo r hi m i s to as s e s s th e po s i

tive a s we l l as ne g a t ive fa c to r s as we ll a s h i s own r e s p on s e po ten tia l .

" "
He mi gh t a l s o fo l low a s e t O f le adin g que s t ion s in o rde r to de te c t p e r

t i ne n t envi ronme nta l chan g e s : a re th e r e any di f fe r en c e s i n th e at t r ac

t i ve ne s s of th e bus ine s s ? , in ou r own comp e ti tive s tr en g th ? N ew O pp o r

'
t u ni t i es s houl d be di s cus s e d in te rms o f p o te n t i al imp a c t on th e bus in e s s

s tr ate g i c p o s i tion in a mo r e na rrow s e ns e as we l l a s in th e s e n s e o f th e

b ro ade r i s sue O f r i s k/ r e t u r n imp a c ts on the co rp or a te po r t f o l i o .

A ma j o r p rob l em in ma n y c as e s , th us , mi gh t be th at an exp l i c i t o r

im p l i c i t e x trap o l a t iv e th ink in g on th e p ar t O f th e bus in e s s man a g e r s mi g h t

p rev e n t a more me an in g fu l as s e s s me n t o f th e s tr ate g i c O p po rtun i t i e s an d

thr e a t s o f th e bus ine s s . Th e re s ul t i s O f t en cons p i cuou s l a ck O f n ew

an d innovat ive i de a s in the p l an s . Havin g mi s s e d out on th i s c r e at ive

inpu t to th e p l ann ing p ro c e s s th e r e s u l t i s O fte n th at the p l ann ing s te p s

sub s e que n tly to f ol low wi l l be mo re o r le s s me an in g l e s s too , i . a. th e

we l l known
-
g ar b a ge in -
g a rb a g e out "
s y n drome . Many comp an i e s e x p e r i e n c e d

th is dur in g th e f i rs t wave to unde r tak e l on g - ran g e p l ann in g ,

dur in g

th e mid to l a te s ix ti e s . Th e s e p lann in g e f fo r t s tende d to b e h e avi ly

num b e r s - or i e nted , wh i ch do e s no t ne c e s s a ri l y h ave to b e ba d , excep t ,

when th e numb e r s have be e n deve l op e d p r ima r i l y thr ou g h ex tr ap ol a t ion ,

p rovi d in g a mo r e o r l e s s us e l e s s p i c tu r e O f th e s tr at e g i c Op po r tun i t ie s

O f the fu tu r e . Wh en we h ave s u ch a h i g hl y numb e rs - o r i en te d p l ann in g

emph as i s th e temp ta t io n s e ems to be p ar t i cu l ar ly s t ron g th a t e x tr apo la t ion

r e p la c e s re a l an d har d th ink in g . N e e dl e s s to s ay , how e ve r ,

'

e ve n w i th ou t

" "
a he avy numb e r s emp ha s i s we mi g h t s t i l l have a ve rb a l e xt rap o l a tion

p lann in g exe r c i s e , a g a in j us t as us e l e s s .

Th e f a i l ure to have inno va tive and h i g h l y invo lve d di vi s io na l fu tur e s

O r i e nte d Op po rtun i ty as s e s sme n t , no t a l l owin g i t to b e c on s tr a in e d b y

'
one s p r e s en t bus i ne s s s i tu a t ion , re p re s e n t s a s e r iou s Ob s ta c l e to re al

i s t i c p l an n in g , p ar ti c u l a r ly s o fo r comp an i e s tha t b a s e th ems e lv e s p r i

ma r i ly o n an in te rna l l y g ene ra t e d c o rp or a te g rowt h th rus t . P a r t i cu l a r ly

fo r a comp any i n rap i dly c han g in g env i ro nme n ts th a t mi g h t be a ve ry

s e r i ous l imi ta t io n to e f f e c tive p l ann in g .

A th i r d imp leme n ta t ion p rob l em de a l s wi th the mo de th e C E O

. . . an d

hi s co rpo ra t e O f f i c e O f te n tends to b e fo l l owi n g i n r ev i ewi n g p l ann in g

input s g en e r a te d fur th e r down in th e o r g an i z a tion an d g ivin g fe e db ac k to

th e div i s io n s . We s ha l l di s c us s th i s i s s ue in r e l a t i on wi th th e O b j e c t i ve s

s e t ting s ta g e b e c aus e i t typ i c a l ly mi g h t f i r s t su r f a c e a s an im p l eme n ta

ti on p rob l em h e r e . Howeve r , an ap p rop r i a te mo de O f c o rpo ra te r e vi ew nd

a

int e ra c t i on wi th th e d iv i s ion s mi gh t tend to b e a s e r i ous imp l emen ta tio n

p ro b l em at any O f th e s ta g e s o f th e p lann in g p ro c e s s . We s h a l l di s cus s

two a s p e c t s O f th e i s s ue O f imp l eme n tin g a p r op e r mo de O f co rp o r a te l eve l

p l ann in g revi ews , name ly th e ne e d to fo l l ow a so - c a l l e d p o r t fo l i o re vi ew

ap p ro a ch as Op po s e d to wha t mi g h t b e c al l e d a s e qu e n tia l r ev i ew ap p ro ac h ,

an d the ne e d to in s ti l l a de g re e O f p ro c e dur al di s c i p l in e amon g the

par t i e s in th e r evi ew p ro ce s s . Le t us f i r s t turn to th e po r t f o l i o rev i ew

i s s ue .
 4 - 12

The c o rpo ra te l eve l s s tr ate g i c ta s k i s to be r e sp on s ib l e f o r th e

'

deve lopmen t o f a co rpo rat e po rt fo l i o s tr ate g y , as we have di s cu s s e d . Th i s ,

howe ve r , imp l i e s th at any rev i ew an d eva l ua ti on O f a p ar t i cu l ar p lann in g

in put f rom a bus ine s s s hou l d be c a r ri e d out to as s e s s th e r e l e van c e O f

th i s p ie c e o f in pu t wi th in th e con tex t O f th e ove r al l p o r t f o l io p a t te rn

o f the comp any . Thus , e a ch b us ine s s p l an sho u l d b e r ev iewe d in a way

wh i ch s t re s s e s th a t i ts me r i t ha s to be j ud g e d condi tiona l on th e o th e r

bus ine s s p lan s .

Un fo r tuna t e l y , howe ve r , co rp o r a te rev i ews o f di vi s i ona l p l ann in g

in puts O ften do no t fo l low th e p o r t fo l i o mo de th a t we have j u s t de s c r ib e d .

In s te a d , co rp o rat e mana g eme n t O f te n tend s to rev iew d iv i s ion s on e a t a

t ime , in a s e quen ti al fas h ion . Th i s , o f cou rs e , wi l l no t fa c i l i ta te the

deve lopmen t o f a co rp o rat e p or t f o l io s tr ate g y g i ve n th a t i t wi l l b e mo re

o r le s s co in c i den ta l wha t th e ap p r ove d bus in e s s inpu t s mi gh t add up to

as a co rp o ra te po rt fo l i o p a t te rn . TO un de r s c o re thi s wh e n a s e que n ti a l

corpo rate rev i ew mo de i s fo l lowe d , i t wi l l p rob ab l y ma t te r fo r a p a r ti cu l ar

bus ine s s wh e n i t i s be in g rev i ewe d r e l at ive to th e o th e r . Fo r i n s tan c e ,

whi l e th e fi rs t bus in e s s e s to be revi ewe d mi g h t re c e ive r e l a tive l y en

c o u r ag i ng co rp o ra te re s p on s e s fo r e x p an s ion po l i ci e s imp ly i n g comm i tmen t

o f s i gn i f i c an t funds , th e l a te r bus in e s s e s re v i ewe d mi g h t b e p e na l i z e d by

a s ho rta g e of di s c re tion a ry c o rp ora te funds , a c comp an i e d by a t i g h ten in g

up o f re s ou r ce a l l oc a tion c ri te r i a an d to ughe r c o rp o r at e r evi ew . Wh i l e

th i s s imp li fi e d e x amp l e i s p e rhap s e x a g g e r a te d , i t i s neve r th e l e s s c l e a r

tha t a s e que nti a l co rp o r at e r evi ew mak e s i t v ir tu al ly im p o s s ib l e to ap p ly

a con s i s t en t r i s k/ r e t u r n c r i te r ion fo r ap p rova l o f th e di vi s ion a l p l ann in g

in put p ropo s a l s , g ive n th a t th e c on tin g e n t na tur e O f th e po r t fo l i o in te r

de p endenc e b e twe en th e bu s in e s s inpu t s wi l l h ave be e n ove r looke d . It is

al s o c l e ar th at th e co rp o ra te revi ew p ro c e s s in p r in c i p l e c anno t be
 4 - 14

na tur e o f e a ch bus ine s s , g o in g a t gr e a t l en g th in i t s e f fo rt s to g ive

at ten tion to e ach bus ine s s , a s e que n ti a l p a tte rn o f rev i ew mi gh t s t i l l

p reva i l p reve nt in g an ap p r O p r i at e r i s k /r e tu r n tr ade o f f b e twe en th e bus i

ne s s .

L e t us now turn to th e o th e r as p e c t o f th e i s su e O f imp l eme n tin g

p ro p e r c orp o ra t e r ev i ew p ra c t i c e s . N e e dl e s s to s a y a p rop e r co rp o r at e

review p ro c e du re re qu i re s cons i de r ab l e di s c ip l in e on th e p ar ts o f th e

va r ious o rg an i z a ti onal un i t s invo l ve d . Fo r e a ch O f th e di vi s i on s , th e r e

wi l l be a r e qui r emen t tha t p l ann in g outpu t s a r e deve l op e d in s u ch a way

tha t th ey are re l a tive ly e as i l y comp a rab l e . Th ey have to r e s t o n a c omm o n

s e t o f con s is ten t p remi s e s , bo th in te rms o f da ta inp ut s , de f in i tion s an d

an a ly t i c al ap p ro a che s . F u r th e r , e a ch di v i s i on mu s t de l ive r i ts ou tp u t

on t ime ; i f one divi s ion f a i l s to come up wi th i ts p l an th e n th e en ti r e

co rp o ra te r evi ew p ro c e s s wi l l h ave to be de laye d be c aus e o f th e imp o s

.

s ib i l i ty to e s tab l i sh an ove ra l l c o rpo r a te po r t fo l i o con tex t un t i l a l l

bus in e s s e l eme n ts a re ava i l ab l e . The ro l e Of th e p l ann in g ca l e n da r i s

th e r e fo r e c r i ti ca l much mo re s o , o f co ur s e , fo r comp an i e s wh i ch r e co g

ni z e th e na tur e o f co rpo r at e p o r t fo l i o r ev i ews th an fo r comp an i e s tha t

fo l low a co rp o rate s e qu en t i a l re vi ew . Thus , adde d s tan dard i z a t ion O f th e

fo rma t O f bu s in e s s p l ann i n g as we l l as cut tin g down on th e f l e x ib i l i ty

o f e a ch bus in e s s in havin g to con fo rm to th e dea dl i n e s o f th e p l ann in g

ca l en da r s houl d b e s e en a s ne c e s s ary condi ti ons fo r p o r t f o l i o p l ann in g .

Thi s i s a con s ide ra t ion O f te n ove r lo oke d by exe c ut ive s who mi g h t be

c ri t i c i z in g s u ch a re l a ti ve ly r i g o rous p l ann in g sy s t em , f au l t e r i ng it

fo r be in g too much O f a s trai g h t - j a cke t on th e c re a t ive dr ive O f th e

bus in e s s e s .

Fo r th e co rp o ra te leve l th e r e w il l a l s o be an a dde d ne e d fo r d i s c i

p l in e , howe ve r . S en io r co rp o r ate mana g emen t o f a comp an y mi gh t typ i ca l l y

b e un de r vi r tua l l y cons tan t p re s s u re f rom th e Op e r a t in g di v i s ion s to g i ve

i t s o kay fo r va ri ous n ew p ro j e c ts . Howeve r , i t wi l l no t be en ou gh fo r

s en i o r ma n a g emen t to me r e ly convin c e i ts e l f ab ou t th e s oun dne s s O f a

p ro j e c t , e ven thou g h i t mi g h t be eva lua te d a s p a rt O f the s tr ate g i c

p ro g ram s th a t th e divi s i on i s in th e p ro c e s s o f ca r ry in g ou t i n o rde r to

imp l emen t i ts bus in e s s Ob j e c t ive s . Many p ro j e c t s , o f co urs e , ar e no t

eve n te s te d in te rm s o f s t r a te g i c p ro g ram fi t ; a l l th a t ma tt e r s i s th a t

'
the p ro j e c t s p ro j e c te d r e turn on a s s e ts i s s a t i s f a c to ry . It wi ll be

ne c e s s a ry fo r co rp o ra t e mana g eme n t to vi ew th e p ro j e c t in a p o r t fo l i o c on

text : do e s th e c omp any b en e f i t mo re f rom i nve s tin g in th i s bus i ne s s th an

in o th e r b us in e s s e s ? I t i s e x t reme l y di f f i cu l t to c ar ry ou t co rp o r a te

r evi ews o f di v i s io na l p rop o s al s wh i ch wi l l b e s tr a te g i ca l ly va l i d , g i ve n

tha t a p ro j e c t in f a c t w i l l h ave to b e eva lu a te d a lon g th r e e d ime n s i on s

its imp a c t on th e ove r a l l f i t o f th e e n ti re co rp o r ate p o rt fo l io s t ra te g y ;

an d , f in a l ly , th e ne ed fo r th e p r o j e c t to s a t i s fy a min imum f inan c i a l

hur dl e ra t e . I t wi l l as a p r a c t i ca l mat te r be come e x tr eme ly di f f i cul t

fo r s e ni o r man ag emen t to ap p rove ma j o r p ro j e c t s dur in g th e y e a r th a t a re

no t p ar t O f th e c o rp o r at e p l ann in g p ro c e s s . As we r e c a l l , th e p l ann in g

sy s t em i s i n te nde d p r e c i s e ly a s a de c i s i on - mak in g too l fo r re so ur ce al

lo ca t i on de c i s ion s s uc h a s the s e . C o rpo r ate man a g emen t wh i ch ap p ro ve s

ma j o r p ro j e c ts ou ts i de th e co nt ex t of th e p l ann in g cy c l e w il l th e r eby

j e op a rdi z e th e fu tur e e f f e c t i ven e s s O f co rp o r a te p lann in g . Th e r e mi g h t

be obvi ous dy s fun c t iona l mo t iva ti ona l e f f e c t s amo ng di vi s i on l in e m an

ag e r s i f the y deve l op th e p er c e p t ion th a t i t wi l l not be al l tha t di f

f i cu l t to ge t away wi th b re ak in g th e di s c i p l ine O f th e o rde r ly r e s our ce

a l l o ca ti on p ro ce s s by s u c c e e din g i n s e cu r in g fun ds on an a d ho c b a s i s .

An e ve n mo r e s e r io us an d fun dame n ta l un favo r ab l e e f f e c t fo r co rp o r a te

man a g eme n t i s th e po te n ti a l fo r di s to r tin g th e ove r a l l b a l an ce O f th e

co rp o ra te p o r t fo l io s tra te g y . Thus , th e re i s a he avy demand f o r di s c i

p l ine on th e pa r t o f co rp o ra te man a g eme n t a s p a rt O f man ag in g th e com

p any in a s t rate g i c mo de ; th e co rpo r a te p lannin g p ro c e s s in f a c t ti e s co r

"

p o r a t e an d divis iona l mana g eme n t to g e th e r i n a con tr a c t .

" "
We s aw th e c orpo ra te divi s ion al - di s c i p l in e p ro b l em be in g a ma j o r

obs ta c le to p ro g re s s o n s t rate g i c p l ann in g i n a E ur op e an - b as e d co rp o r at i on

wh i ch wa s e ng a ge d wi th in s eve r al bu s in e s s e s wi th in th e bui l d in g mat e r i a l s

an d cons t ruc tion f i e l ds . Th i s examp l e i s qu i te r eve al in g in te rms o f

s he ddin g l i gh t on th e g e ne r a l na tur e o f th i s p robl em an d me r i ts a b ri e f

dis cus s ion . O ne o f th e smal l e r div i s ion s o f th i s comp any manuf a c tur e d

re ady - mi x e d con cre te from a re l a t ive l y l ar g e num b e r O f sma l l p l an ts whi ch

ha d to b e lo ca te d ne a r th e i r e nd - u s e mark e ts . Th i s divi s i on wa s h owe ve r

con s i de rab ly l ar ge r than an y comp e ti to r in th e bus ine s s . The r e we r e a

l ar g e numb e r o f s m a ll i nde p ende n t lo c a l p ro duc e r s . Many o

f th e s e r ep r e

" "
s en te d temp t in g tak e ove r Op p o r tun i t i e s fo r th e c on c r e te divi s ion . Th e

di vi s ion man a g e r c ap i ta l i z e d on e x a c t ly th i s wh e n he wa s s tre s s in g th e

uni que a d h o c s t ra te g i c O pp o r tun i ty to t ak e ove r a c omp e t i to r an d p reve n t

anybo dy e l s e from do in g th i s whe n h e ap p ro a ch e d co rpo ra te mana g emen t fo r

funds to ca rry o ut an a c q ui s i t ion move . Th e s e ac qui s i t ion s howe ve r we r e

en ti r e ly ou t o f cont ext from h i s a g r e e d - up on s t r ate gy , wh i ch s ta t e d tha t

he shou l d con c en tr a te c on c en tr i ca l ly aro un d th e on e l ar g e s t mark e t . A f te r

s eve ra l e x t rao rdina ry "
re s our ce a l l o c a ti on s the o th e r div is ions to o

s ta rt e d to b r in g up e x tr ao r dina ry re que s t s . Only a s t ron g r e in fo r c eme n t

o f a po rt fo l i o - typ e ap p roa ch re s to re d th e ne c e s s a ry s t ra te g i c di s c i p l ine .

N e e dle s s to s ay , a comp an y mus t a c t on an O p p o r tun i ty wh en i t a rr i ve s , and

ty p i ca l ly c anno t fo re s e e o r p lan fo r su ch an exa c t hap p e n in g . Howe ve r ,

th e s tr ate g i e s shou l d have be en deve lop e d s o tha t th e y ar e avai l ab l e

when the Op po r tun i ty a rr ive s , s o tha t th e de c i s i on c an be tak e n wi th in a

s tr at e g i c con te xt . An a cqui s i tion , fo r exam p l e , th en b e come s me r e ly ano th er

d ir e c t io ns a g re e d up on .

I dea l ly , wh at th e planni ng s y s t em s ho u l d p ro vid e is enou gh

cu rta i li ng of de c i s io n — maki n g f l e x i b il i ty to be r i go rous , b ut ra r e ly

so mu ch cur ta i l in g a s to fo s te r ind e c i s iv ene s s . L in e mana g emen t s houl d

und er s tand tha t i t wi l l be r ar e tha t an en tir e l y new s tr a te g i c a l te rn a tive

sudd en ly eme r ge s ; in tho s e in s tan c e s the s i gn i f i c an t add i tio nal , ana ly t i c a l

wo r k lo ad to car ry ou t a p ro p e r po rt f o l io s tr a te gy r e a s s e s sme nt shou ld be

me t . On th e o th e r hand , the r e mi gh t be a d an g er tha t th e wi l l in gn es s and

a b i l i ty to r ea ch a d e c i s ion ge ts l o s t in a n a b und an c e of an a ly s i s and

f utu r e r evi s ions . Th e d e c i s io n - ma k in g f o cu s of s t ra te g i c p l ann in g mu s t

th e r e f o re alway s b e ke p t in mind .

iv . F un c t iona l de pa rtmen ts '

invo lvemen t in Ob j e c t ive s - s e tt in g .

A four th imp l eme n ta tio n i s sue in co nn e c t ion wi th th e o b j e c t ive s

s e tt ing s ta g e has to do wi th th e na tur e of th e f orma l invo lv eme nt of th e

ma n ag e r s a t low e r l eve l s in th e or gan i z a t io n th an th e d ivi s ion a l manag e r s

dur ing th e o b j e c tive s s e tt i n g s ta g e of th e p l ann in g p ro c e s s . I t s h oul d

be po in ted ou t tha t the n atu re of th e p lann in g p ro c e s s dur ing the

o b j e c t ive s - s e ttin g s ta g e i s d i f f er en t from the na tur e of th e p ro c e s s

dur ing su b s e qu en t s ta ge s , in tha t a gen e ra l m ana geme nt po in t of v i ew

sho ul d be dominan t : Th e is sue i s to de c ide on th e g en era l s tr a te g i c

di re c t ion of the f i rm ; wh i ch bus ine s s a c t iv it ie s sho uld be ex p an d ed ;

s hould g rowth of pr e s en t b u s i ne s s op e r at ion s be cur ta i l e d in o rd e r to

a cqu ir e new b u s ine s s e s ; s hou ld some of th e pr e s en t bu s in e s s a c t iv i ti e s

be div e s te d in o rde r to fr e e up fund s for r e emp lo ymen t in s ome of on e s'

o the r b us ine s s e s or in a c qu i s i tion s , so tha t on e mi ght a c h i eve a b e tt e r

 4 - 19

co rp o ra te p o r t f o l io b a lan c e ? C l e a rl y , a p r edomi nant l y gene ra l mana gemen t

po i nt of view is n e ed ed i n or de r to add re s s th e s e c r i ti c a l i s su es . We

sh a l l g ive thr e e r e a son s for th i s .

F ir s t , i t s e ems r e as on a b l e t
q as sume tha t on ly co rp o ra t e mana g emen t

wi l l be in po s s e s s io n of a su f f i c i e n t ly b r oa d set of cor por a te - wi de

inf o rmat ion . P r e s uma b ly a l s o , co rp o ra te l ev e l ma na ge r s ar e l i k e ly to be

in a b e t ter po s i t io n to ex e r c i s e mo r e of a "
h e a l thy emo t ion a l d e ta chmen t

f r om a p ar ti cu l a r b us in e s s tha n the d iv i s ion ma nag e rs so tha t th e y mi gh t

b ett e r Se e wh a t r e l ativ e b u s ine s s invo lv emen t b a l an c e wi l l be th e bes t

for th e c omp any as a who le . Th e g en e r a l manag e r s of th e d iv i s ion s sh o u ld

howeve r b e ab l e to ap p r e c ia te th e ge ne ra l na tu r e of eva lu a t in g a b u s ine s s

p r o b l em w i th i ts b ro ad e r po rt fo l i o con t ex t . By g ras p ing the s i gni f i c an c e

o f thi s , s hou l d be ab l e to con t r i b u te to th e d eve l opment of a po rtfo lio

b as e d set of co rp o r ate Ob j e c t ive s in a "

d i s c ip l in ed manne r , d e s p i te th e

o b v io us b el i e f th a t e a ch div i s ion ma na g er s ho u l d ha ve in f avo r of hi s own

b us in e s s .
'
Th e div i s ion ma na g er s r at iona l e s hou ld be tha t , ev en a f te r

hav ing a ttemp t ed to do h i s u tmo s t to convi n c e co rp o r at e manag emen t a b ou t

the v i a b i l i ty of his b us ine s s a s p ar t of

'
th e co rp or a ti on s p o r tf o l io ,

h avi ng b ee n g iven amp le O pp o r tun i ty to b r in g up h i s v i ewp o in ts an d to be

h ea r d by co rp o ra te mana gemen t , i f i t s ti l l tur n s ou t tha t o the r d iv i s i on s

c an p rov i d e b e tte r b u s ine s s o pp o r tun i t i e s f rom a po r t f o l io v i ewp o in t ,

then th e en ti r e "
co rp o r a te f ami l y "
is b e tte r of f th i s way . Th e l on g - te rm

op p o r tuni ti es of a mana g e r of a b us in e s s tha t i s b e in g c ur t a i l ed ar e

p ro b ab ly b e t te r s e rved th i s way t oo , in tha t th e c o r p or a t io n w i l l be ab l e

to cr e a te mo r e new re s o ur c e s and lon g- t e rm O pp o r t un i t i e s f or a l l .

 4- 2 0

Wh e n i t come s to the re s t of the mana g eme n t w i th in a d iv i s i on , s u ch

as func tion a l ma na ge rs , SEU mana g e rs or ar ea ma n ag e r s , on e shou ld no t

exp e c t a ge ne ral mana gemen t p o in t of vi ew to p r eva i l . I n fa c t , a ve ry

p a ro chi a l commi tme n t to one s sp e c ia l tas k i s th e

'
ke y i n gr ed i en t fo r

mana ge ri a l s u c ce s s a t th i s l ev e l . Thus , th e in pu ts f rom the s e mana ge r s

is no t c en tr al to the g ene ral d i r e c t io n — s e t ti n g man a gemen t d e c i s ion s of

th e o b j e c tive s - s e t ti n g cy cl e . Co ns e qu en tly , th e sp e c i a l ta s k man ag e r s

w i thi n th e div i s io ns shou l d no t be fo rma l ly invo lve d i n the p lann in g

p ro ce s s at th i s s tag e . We hav e of cour s e as sume d tha t th e gen e ra l

mana g e r of th e div i s ion is in tima t e ly f am i l i a r wi th h i s b u s in e s s , its

op p o rtuni t i e s and th r e a ts , i ts c ap a b il it i e s a nd l imi ta t ions , i t s s tr en gth s

and we a kn e s s e s . To th e ex ten t th a t he ne ed s to s tr e n g the n h is un de r

s tand i ng of th e b us ine s s he s hou l d of co u r s e be in in t im a te c on t ac t wi th

hi s S p e c i al i z ed lin e ma n a ge r s on is s ue s th a t wi l l hel p him f o rmu l a te h i s

g e ner al mana g ement j ud gmen ts . As s u ch th e s p e c i a l ta s k s mana g e r s wi th in

the d ivi s i on s ar e inf o rma l l y invo lv ed in the p lann in g p ro c es s dur in g th e

o b j e c t ive s - s e tt in g cy c l e , b e in g pa r t of th e mana gemen t te ams of th e

div i s ion g e ne ra l mana ge rs .

A s e c ond r e aso n f o r th e ne e d to o nl y h av e a l imi te d i nvo lv eme nt of

th e s p e c ial i z ed ma na ge r s wi thi n the d iv i s io ns du r in g th e obj ec t iv e s

s e tt ing s ta g e of th e p lanni n g pro c e s s r e l a t e s to a l a te n t an d p o t e n t i al ly

s e r iou s dys fun c t ional mo t iva tion al e f f e c t . B y f o rma l l y s o l i c i ti ng th e

f un c tion S EU and /o r a re a ma na ge r s- '

vi ewp o int s on obj ec t iv e s , go al s

and s tra te g i e s bu t the n hav in g to d i s r e gard or mo d i fy th e s e c on tr ibu tions

in o rde r to s a ti s fy a gene r al mana geme nt v i ewp o i n t to f i t w i th in a

 4- 2 2

'
c al lin g fo r th e o r g an i z a t io n s p a r ti c ip a t ion s en ior mana geme n t s e emed ,

howeve r , to ma ke l i ttl e d i s tin c ti o n b e twe en o b j e c t ive s -

s e t t in g and

tap th e o r gan i z a t ion s

" '
s tr a te g i c p ro gr ammin g . Wh i l e i ts d e s i r e to

ide as and c r e t a t i vi ty s e emed to hav e a l o t of mer i t whe n i t came to th e

s tra te gi c p ro g rammi n g s ta g e , wh i c h by de s i gn wo uld be h e av i l y b o t tom - u p

o r i e nte d th rou gh th e c r i ti c a l ro l e p l ay ed by th e func t io ns i n d ev e l op in g

p rog ram a l te rna tiv e s , t op ma na gemen t d id no t fu ll y r e a l i z e th e typ i c al l y

mo r e t op- down g ene ra l man a gemen t na tu re O f the pr e c ed ing o b j e c tiv e s

s e t tin g cy c l e . Th e tas k of s e tt i ng o b j e c t iv e s wa s thu s j u s t no t

s a ti s f a c tor i ly a c hi eve d ; th e fu nc tio nal inpu ts d id no t add up to g e ne r i c

s tr a te g i c s ta tement s of d i r e c t ion s . I n th i s in s tanc e , as we l l as in many

o the r c as e s wh en i t come s to th e d e s i gn of a p l ann in g s y s tem , i t is

b en e f i c i a l to a s k wh e th e r th e way a p ar t i cu l ar asp e c t of p lann in g i s

ex e cu ted ma k e s e x p l i c i t lo g i ca l s ens e , g iv en the na tur e of the as pe c t of

th e p l annin g ta s k on e a ttemp t s to a c hi ev e . An ex tr eme b o ttom -u

p ap p ro ac h

to a ta s k wh i c h i s e s s ent i a l ly mo r e t op - down i n i ts na tu r e shou ld thu s

no t be exp e c te d to wo rk .

v . Th e i te ra tive f e edb a c k loo p .

Dur in g ou r d i s cu s s io n of th e con c ep tu a l mo de l for co rpo r at e p l ann ing

i n Ch ap te r Tw o we po in ted ou t tha t ou r mo d e l p la c e s h e avy r e l ian c e on i ts

i te ra tiv e pr op e r ti e s , th e as sump tio n b e ing th a t goo d p l ans a r e mo s t l i k e l y

to be deve lop e d as a re s u l t of an in te rp l ay b ac k and f or th amon g

ma na ger s wi th d i f f e rent s tr a te g i c ou tlo o ks and r e sp ons i b i l i ti e s . S u c h an

in terp lay , howeve r , mi gh t ea s i ly end up h amp er i n g the p l ann in g p ro c e s s ,

unl e s s th e na tur e of the i nte rp l ay is s p e l l ed ou t in s om e de ta i l . Thu s ,

 4- 2 3

we ne ed to e s ta b l is h a s e t of ru l e s to gu id e th e f e ed b a c k p ro c e s s . We

sh al l di s cus s thi s imp leme n ta t i on ph e nomeno n a t thi s po in t b e cau s e it

f ir s t app e a r s du r i ng the o b j e c t iv es - s e t t in g s t a g e ; howev e r , j us t a s wa s

th e ca s e f or th e co rp o r at e po r t f o l io - typ e r ev i ew r equ i r emen t , th i s i s s u e

is of r e levan c e dur i n g a l l of th e s ta ge s of th e p l ann i n g p ro c e s s .

W e r e ca l l tha t dur i ng th e o b j e c t ive s - s e tt in g s ta ge th e r e we r e th r e e

d i s ti nc tiv e s t ep s of th e p l a nni n g p ro c e s s ( S e e Exh i b i t 2 name l y an

in i ti a l s ta temen t of te n ta tiv e o b j e c t iv e s and ex p e c t a tio ns by the

an a s s e s smen t of th e b u s ine s s op p o r tun i t i e s by e a ch of the d iv i s ions , an d

a co rp o ra t e po r tf o l i o co ns o l i dat ion of th e s e b u s i ne s s ob j e c tiv e s . Th e

p a tte rn of o r g an i z a tio n in te ra c t io n i s thu s c l e ar a t o p - d own in i ti a t ion

and a b o t tom -
u p r e s p ons e . Howeve r , th er e i s an add i t ional e l emen t of

" "
c lo s in g th e loo p ; wh e n the C E O . . . c omp ar e s th e co ns o l id a ted ou tpu t of

the th i rd s te p of th e p r o c e s s wi th hi s ini ti a l ex p e c ta t io n s ta t e d i n th e

f i r s t s t ep th er e m i gh t be a d i s c r ep an c y , i n f ac t , th i s woul d p ro b a b l y be
th e no rma l . We r e c al l f r om Chap t e r Tw o tha t we hav e ca l l ed su c h a

d i s c r ep an cy a p l an nin g gap . Th e way su ch a p l ann in g g ap i s e s tab l i sh ed ,

ana l y z e d in te rms of O p t i ons f or c lo s i n g i t , and f ina l l y b e in g c l o s ed

b efore p ro c e e d in g to th e ne xt cy c l e of th e p l ann i n g p ro c e s s i s a c r i ti c a l

imp lemen ta tio n i s s ue f or th e e f f e c t iv ene s s of th e p l a nni n g p r o c e s s .

Du r i n g th e o b j e c t ive s - s e tt i n g s t a ge th e p l ann i n g g ap wi l l be d e f in ed

by comp ar i n g th e r i s k /r e tu rn cha ra c te r i s t i cs of the exp e c ted funds f low

p a t te rn th a t eme r g e s f rom th e po r t f o l io s tra t e gy of whe r e th e c omp any

a ttemp ts to w an t t o go ( S t ep 3 , E x h ib i t 2 - 6) wi th the in i t i a l l y s ta t ed

exp e c ta t ion s of the C E . . O . ( S tep I f the r e i s a d i s c r ep ancy , i . e .

, a
 4-24

p lanning gap , th e n th i s wi l l have to be c l o s ed in a c c o rd anc e wi th o ne or

mo re of the f o l l owin g four ap p r oa ch e s

a lower ing of th e i ni ti a l ex p e c ta t i ons , i . e. , a

r ea l i z a ti on tha t the i ni ti a l
"
pu sh j u s t s e eme d to be t oo

amb i tio us . A downwa r d r ev i s io n of h is a s p i r a t i ons wi l l th en

be n ee d ed in o r de r to o b tai n a mo re r e a l i s t i c f o cu s for th e

su b s equent p lann i ng .

a corpo ra t e d ema nd on o ne or mo r e of th e d iv i s io ns to d ev e lop

mor e a ggr es s iv e b u s ine s s p lans . To s ome ex t e nt th is o p t io n

mi gh t be ava i l ab l e b e cau s e of the ex i s t e nc e of s lack

"
i n the

b us ine s s o r gan i z a ti on s in fact, s ome of the mo re pu b l i c i z ed

b ene f i t s f rom p lann ing hav e b een w i th r e s p e c t t o how th e C E O

. . .

h as us e d th e p l ann ing sy s tem i n pu s h in g fo r mo re a gg r e s s ive ,

a ch i eveme nt - o r i en t ed d iv i s iona l p e r fo rman c e .

a co rp o ra t e d e ci s ion to sh i f t the r e l a t ive emph a s i s amo ng the

b us i ne s s e s . Th e C E O . . . wo ul d th e n a tt emp t to r e al lo c a te

d i s c re tionary r e s ou r c e s away fr om s ome bu s ine s s e s and in the

d ir e c ti on of o the r bus ine s s e s , so tha t the comm i tm en t to

b us i ne s s e s wi th h i gh e r f utu re p ro s p e c t s ge t in c r ea s ed a nd l e s s

a t tr a c t ive b us in es s ge t d e — emp has i z ed . Th i s cha n ge of empha s i s

in th e b a lanc e amon g th e d iv i s i ons r e qu i r e s an ab i l i t y on th e

p ar t of the C E O
. . . to ma ke s tra te g i c p r io r i t ie s and a wi l l in gn e s s

to r ea l lo c a t e r e s ou r c e s a c co rd in g ly . Th i s i s th e e s s en c e of

co rp o ra te po r tf o li o s tra te g i c man a gemen t , the ov e rr id in g the

 4- 2 6

in th a t upp e r mana g emen t fa i l s to demo ns tr a t e i ts wil l ing n e s s to commi t

i ts e l f to s p e c i f i c s tr a te g i c cho i c e d e c is io ns .

A s e co nd r e as on f o r th e imp or t an c e of cl o s in g a p l ann in g g ap i s due

to th e d e s i r a b i l i ty to p rovi de a gr adua l s h arp en in g of th e fo cu s of the

s tr a te g i c d i re c tio n a s the p l annin g p ro c es s p ro c ee d s . R e s o lu t ion of

s tra te g i c de c i s io ns wi t h re s p e c t to how t o f i l l a p l ann in g g ap w i l l

p rov id e a n e ce s s ary r equ ir eme nt f or mo r e t a rg e te d a nd r e l evan t an a l ys i s

at th e s u b s e qu en t r ema ini n g s te p s of the p l ann ing p ro c e s s . I f , f or

ins tanc e , amb i gu i ty s ti l l exi s t s w i t h r e s p e c t to s t ra te g i c cho i c e s tha t

hav e b e en le f t unr e so lv ed duri n g th e O b j e c t iv e s - s e t t in g s ta ge by no t

c lo s i n g th e p lannin g gap , th en th e su b s e qu e n t s tra te g i c p ro gr am m in g ta s k

wi l l have to be c arr i ed ou t w ith in a muc h w ide r and l e s s d e f in ed fo cu s .

A l i k e ly r e s u l t w i l l be tha t the qu a l i ty of the p ro g r am ming p ro c e s s mi gh t

s uf f e r .

We r e c a l l f rom Exh ib i t 2- 7 tha t th e c o rp o ra t e l ev e l wi l l be f a c ed

wi th th e cha l len ge of c lo s ing of thr e e d i s t in c tiv e p l ann in g gap s , name ly

a t th e o b j e c tive s - s e tti n g s ta g e , th e s t rate g i c p ro gr ammin g s t a ge and a t

th e b ud ge tin g s ta ge . Th e sp e c i f i c f o cu s of th e s tr ate g i c d e c i s io ns to

be ta k en i n cl os i ng ea ch of th e s e gap s wi l l of cou r s e be d i f f i cu l t . Th e

gen e ra l na tur e of thes e de c i s ion s w il l howev e r be fundame nta l l y th e s ame ,

i n th a t th ey a l l a f f e c t th e co r po r at e po r tf o l i o s tr ate gy , and in tha t

e a ch p l ann in g gap wi l l have to c lo s e in ac co rdanc e wi th on e or a

comb inati o n of th e four ap p ro a che s j u s t ou t l ine d . At th e b u s ine s s l ev e l ,

the d ivi s io n mana ge r wi l l be f a c ed w i th c lo s in g on l y tw o p l ann in g gap s ,

as we can s e e f r om E x hib i t 2- 7 . Th e ta s k of c l o s in g th es e p l ann in g gap s

 4- 2 7

wi ll be fundament al ly d i f f e re nt f rom the c lo s in g of the co rpo ra t e g ap s ,

in tha t th e s tr a te g i c d e c is i ons tha t ne ed to be ta k e n w i l l af f e c t a

pa r ti cu l ar b u s in es s s tr a te gy . Th e r e wi l l bas ically b e on ly tw o ways of

c lo s i n
g the pl ann ing g ap s a t th e b u s in e s s s tr a te g ic p l ann in g l eve l , in

con t r a s t to the f ou r al te rna tive s th a t ap p ly to the c orp o ra te po rt f o l io

l eve l

one w i l l re l a te to t he ext en t to wh i c h i nv e s tm ent s wi l l be

ma de in ma r ke t s har e fo r a p a rt i cu l a r SEU . R e s ou r c e s may be

p u t i n to a p rodu c t in o rde r to
"
b u i ld a p ar t i cu l ar b u s i ne s s
"
s tr eng th , or , to a l e s s e r ex te n t , to ho l d a p a r t i cu l ar

b us i ne s s po s it io n . R e s o ur c e s mi gh t on th e o th e r h and b e

r e l e a s e d f rom a p r odu c t wh ic h i s a ll owe d to s l i p in mar ke t

" "
s ha r e a h a rv e s t po s i tio n . Th e tr an s f e r of fund s among

'
SB U s tha t h av e p rodu c t s a t d i f f e rent s tag e s of th e p r odu c t

l i f e cy c l e and i n s u c h a w ay tha t e a c h of th e p r odu c ts a r e

m a na g ed a long a d e l i b e r a te evo lu tiona ry s e que n c e of s tr a t e g i c

p os i t io ns , as i nd i c a te d by th e s o l id l in e in E x h ib i t 3— 2 , is

" "
cr i t i c a l to a go o d c lo s in g of the p l ann ing g ap a t th e

d ivi s io n l ev e l .

th e dev e lopmen t of n ew p roduc ts , in th e q u e s t io n ma r k

c at e go ry , wh i ch c an p rov ide the b as i s f o r fu tu re g rowth and

dev e l opme nt of po s i ti o n s of fu tur e s tr en g th . Fo r th is , fund s

ne e d to be trans f e rr ed f r om SB U '
s tha t ar e p r e s e n t ly in the

ma tur e p rodu c t s ta ge to n ew p roduc t d ev e lo pme n t , as ind i c a ted

by th e ar row in Exhi b i t 3 - 3 .
 4- 2 8

Fo r th e p lanni n g g ap s a t th e b u s i ne s s p l ann ing l ev e l i t is j u s t a s

c r i t i ca l tha t th ey ge t cl os ed b e for e p l ann ing p ro c e e d s to the ne x t cy cl e ,

fo r th e same tw o r e as o ns as a lr e ady i ndi ca ted , en f o r c eme nt of str a te gi c

d e c i s ion- mak i n g emp ha s i s an d a s harp as po s s i b l e s tr a te g i c fo c us .

W e have now comp le ted ou r d i s cus s i o n of f iv e imp lemen ta t ion i s sue s

th a t tend to o c c ur d ur in g the exe cu t io n of the O b j e c t iv e s - s e t ting p l ann in g

s tag e , an d s ha l l p ro c eed to a d i s cu s s i on of imp lemen ta t ion a l i s su e s a t th e

nex t s t ag e s t rate gi c p ro g rammin g . Howev e r , a s a lr e ady no t i c ed , s ev e ra l

of th e imp l emen ta ti on i s sue s di s cu ss e d w i th in th e o b j e c t iv e s - s e t t in g

c on tex t a ls o ap p ly wh en i t come s to o th er p lann in g s ta ge s , no ta b ly the

r e q u i remen t fo r a po r t fo l io mod e of c orp or a te rev i ew as we l l a s the n e ed

for the c lo s in g of p lann in g g ap s ap p ly at all of the thr e e f i rs t s t ag e s .

Dur i n g th e s e cond s ta g e of th e s tr ate g i c p l ann in g p ro c e s s , s tr a te g i c

pr o g rammin g , we sh al l dis cu s s tw o f a ir ly common imp l eme nta t io n p ro b l ems .

Th es e re l a te to how t o enhan c e a p redominan tly cro s s - sp e c i a l i z a t ion na tu r e of

s tra te gi c p ro gr a
m min g f o r the re b y to avo i d fun c t io na l comp a r tmen ta l i z a t ion ,

and th e is su e of a ggr e g a tin g s tr a te g i c p ro gr ams in to p a c k a ge s "

tha t a re

cons is t en t w i th th e b us ine s s s tr ate gy tha t the p ro gr ams ar e in t end e d to

e nh an c e . Le t u s d i s cus s e a ch of t he s e i s s u e s in turn .

vi . Cr o s s f u n c t i o na l natur e of s t r ate gi c pr o gr am m in g .

The s tr a te g i c p ro gr ammin g a c tivi ty i s cr i t i c a l f or a me an in g fu l

co rp o ra te p lannin g s y s t em in tha t i t i s p r ima r i l y dur in g th i s s ta g e tha t

th e f ound a t ion wi l l hav e to be la id f o r imp leme n t in g a p ar t i cu l a r s e t of

 4- 3 0

wi th in th e context of th e o b j e c t ive s an d goa l s . Th is i s in con tr as t to

th e tr ad i t io na l al lo c at ion of r e s o ur c e s to sp e c i f i c inv e s tme nt p ro j e c t s

and to the or g an i z a tional s ub un it s '

ex p end i tu re bud ge ts . Thus , th e var ious

fun c tion s wi l l have to d ev e lop p r o gr am p ro po s a l s to ge th e r , be j o in tl y

'
s ubj e c te d to th e div i s ion h ead s gene ra l mana gemen t r ev i ew of s tr a te g i c

p ro g rams , and s ha re the r e sp ons i b i l i ty fo r s ub s e q uen t exe cu t i on of the s e

p rog r ams . Th u s , th e n atu r e of th e p ro grammin g ta s k i ts e l f m i ght r e in f or c e

the n e ed fo r i nt er fu nc t i on a l coo p e ra t io n .

An add i t io nal "

p re cau t ion "
tha t mi gh t be f o l lowed in o rd e r to

s tr en g then th e c ro s s - fun c ti ona l f la i r i s f or the d iv i si on mana ge r to

encou ra ge the es ta b l i shmen t

"
of a mi l e s to n e sum ma ry of e a ch s tr a t e g i c

p ro g r am p ropo sa l th at is b e ing a c c ep ted . Th i s i s a way of summa r i z in g

wh a t s hou ld be a ch ieved a t given time s and w ho s hou ld be r e s pon s i b l e .

S u ch a s umma ry h e l p s p in- po in t th e i nt erdep end e nc e of th e o rg an i z a t i ona l

su b uni ts i n a p roj e ct s d eve lo pmen t '

. Ab ove a l l i t mi g ht cr e a t e a s t ro ng e r

s e ns e of s ha re d r e s pon s i b i l i ty amon g th e func t ion s ; al thou gh a t one s ta ge

of d eve lop ment one p ar ti cu l ar fun c tion mi gh t b e mo s t d i r e c tl y invo lv ed ,

ano th er fun c tion wi l l have to c a rry on when a p ar ti cu l a r p o in t of p ro gr e s s

has b ee n re a ch ed .

A s tep re l a ted to th i s i s to s p e c i fy in con s id er a b le d e t a i l a s p ar t

"
of a s tra te g i c p ro gram p rop o s a l the na tu re of th e int er ac t ion po in t s

b e twe e n th e fun c tions . Fo r ins tan c e , a s tr a te g i c pro g ram f o r d eve lop in g

a new ph arma c eu t i c a l p rodu c t from re s e a r ch in t o fu l l commer c i a l i z a tion

mi gh t be "
planned
"
in su ch a way tha t wh en a pa r t i cu l a r fun c ti on ha s

comp l eted i ts tas k and is s che du l ed to p as s th e p ro j e c t on to the n ext

 4 -3 1

func tion , a rev i ew of

'
th e pro g r am s p ro g r e s s wou ld be ma d e w i th the

p ar t i c ipa t ion of al l r ema in ing fun c ti ons wh i ch ar e exp e c te d to be invo lve d

in th e p r o gram . Thus , wh at mi g ht s e em to b e a s a ti s f a c to ry comp l e tion of

a p a r ti cu l a r fun c ti on s inp u t '

to a s tr a te g i c p r o gr am fr om a na rr ow po in t

of vi ew mi g h t tu rn ou t no t to be s a t i s f a c to ry f r om th e v i ewp o in t of o the r

func ti o ns . I t i s impo r tant tha t th e f unc t i ons wi l l have a chan ce to

j oi n t ly r ev i ew th e p r o g r e s s a t a v er y ea r ly s ta g e so tha t d e s i r a b l e

modi f i ca t io ns c an be de f in e d in a b ro ad enou gh c on te x t to imp rov e th e

ch an c e s of a f i na l com me r ci a l s u c c e s s .

Th is b r ing s us to ye t ano th e r as p e c t of en su r i ng p ro p er s tr a t e g i c

fo cus of th e pr o g r amming a c tiv i t i e s . Fo r e a ch o r gan i z a t ion a l sub un i t , in

i t s invo lveme n t w i th th e d eve l opme nt of a s t ra t e g i c p ro g r am , one m i ght

d ev e lop a ch e c k l i s t to e n s ur e th a t th e f unc t io na l ac tiv i ty s e ems to be

yi e ld ing s tr a te gi c f i t . As w e r e ca l l , s u ch an a pp r oa c h wa s d i s cu s s e d in

S e c t ion of Ch ap te r Tw o . I t was su gg e s te d t he r e th a t e a ch f un c t ion

mi g h t ap p r oa ch th i s by dev e l op i n g an inde x w i th thr e e c l a s s e s O f f a cto r s ;

an as s e s smen t of th e te c hn o lo g i ca l p o s s i b i l i ty of ca rry in g ou t th e

f un c t io n i s thi s a d i f f i cu l t or e a sy p ro b l em g ive n th e s t a t e — o f - the - ar t

of th i s func ti o na l b ody of knowl ed ge ? ; an as s e s sment of t he l i k e l ihood of

th e p r o j e c t le ad i ng towa rd s a s tr ate g i c a l ly attr a c t ive c omme rc i al i z a t i on

do e s thi s r e s e ar ch po in t towards ap p l i c a ti ons tha t mi g ht f al l wi th i n

h i gh- g r owth s a l es a re a s ? ; an as s e s sme nt of the d e gr e e of fit of th e

'
co mme r c i a l i z e d ou tp ut wi th one s own c omp e ti tiv e s tr en gt h and r e l a t ion to

on e s o ther p roduc ts
'
doe s th e r e s e a r c h p o in t towards a comme r c i al i z a t ion

th a t c an be b r ou g ht to y i e ld a h i gh mar ke t s har e ; ar e ou r inhous e s tr en gth s

 4- 3 2

and s ki l l s a de q uat e f o r th i s ; doe s th e p rodu c t comp lement ou r o th e r

p roduc ts ?

Ty p i ca l ly , ma ny di vis ion ma na ge r s wi l l f e e l tha t th e r e m i ght b e a

"
ne e d f or deve lopme nt and an a ly s i s of s e p a ra te func t ion al p l an s S u ch

p lans s ho ul d how eve r no t fail to as s e s s th e ex ten t to wh i ch th e fun c t io n

i s tuned in w i th an d cont ri b u te s to the s tr a te g i c p ro gr amming a c t ivi t i es

of th e f i rm , to ame l io ra te ap p ar en t dy s fun c t iona l ac t iv i t i e s , and to

s tr eng the n the s tr a te gi c fo cus of e a ch fun c t ion . I t s e ems th e mo s t

howeve r , a s a s e q ue l
"
p ra c ti ca l to deve lop su c h fun c t ional p l ans , to th e

"
s tr a te gi c p ro grams , as a p o s t f a c to s ummar y of th e rol es tha t ea ch g ive n

fun c tio n would be exp e c ted to p l ay i n the ove r a l l p a ckag e of p ro gr ams to

be pur s u ed . Many comp an i e s , unf or tun at e l y , s ta r t ou t the s tr a t eg i c

pro g rammi ng p ro c e s s in r eve rs e o rde r , f i r s t dev e lo p in g fun ct i on a l p lan s ,

th e n (ma y b e ) a t temp tin g to r e con c i l e th e s e in te rms of the s tr a te g i c

pr o g r am a c t iv i ti es they imp ly . Un fo r tuna t e l y , the s tr a t e g i c pr o gr ams

th at eme r ge fr om s u ch a s e que n c e of even t s e a s i ly e nd up b e ing th e r e s u lt s

of comp romi ses b e twe en fun c ti ona l po s i t i on s . Th e v i ta l l y imp o r tant ,

ima gi na tive ly d ev e lop e d s tr a te gi c p ro g rams th a t ar e b as ed on a mo r e

un cons tr ai ned ou tl oo k of op p o r tun i ti e s and /o r th r e a t s wi l l p ro b a b l y no t

eme r ge .

vi i . Con s o l ida tion of s tr ate gi c p ro gr ams .

L e t us now mov e to ano th e r imp leme n ta ti on p rob l em tha t common l y

o c cur s dur i n g th e s tra te gi c p ro grammin g s ta g e , name l y the i s su e of

a chi ev i n g app rop r i a te cho i c e s amon g s tr ate g ic p ro g ram a l t e rn a tive s so

th at th e y
"
ad d up
"
to th e be s t p ro gr am "
pa c ka ge s "
f or p r o gr e s s in g toward s
 4- 34

co rp o r a te p or t f o l i o o b j e c t ive s . Th e l a c k O f p rop e r imp l eme ntat ion of

dir e ct ion tha t eme r ge s thu s af f e c ts no t o n l y th e b u s ine s s s t r at e gy of the

d iv i s ion i ts e lf but may al s o ho l d up th e imp l eme nta tio n of th e co rp or a te

p or t f o l io s tr a te gy as we l l as po te nt ia l ly c au s in g a ne e d f o r mo d i f i ca tion

of o th e r b us ine s s e s '
s tra te g i c p r o gr ams , th e r e b y f ru s tr a t in g th e

imp leme nta tio n of d ir e c t i on h e r e t oo .

Th e re mi gh t be at l e as t th r e e d i f f e r ent typ e s of r e as o ns why su ch

l ac k of cons i s te ncy mi gh t emer g e . On e re as on mi gh t be lac k of emp ha s i s

of the cru c i a l in te rdep end enc e b e twe e n th e two cy c l e s . Th e o r g an i z a t iona l

un i ts may s imp ly never b e ch a l l en ged to come up w it h p ro grams th at ar e

cons is te nt w ith th e o b j e c tiv e s in the d i r e c t ion s of th e i r s tra te g i c

imp e tus . An impo r tan t imp l i c a tion of th i s i s th a t th e o b j e c t iv e s - s e tt ing

cy cl e can be s e en a s b e in g r edu c ed to mo re of a b ra in s to rm in g ex e r c i s e

b ut wi th the r e a l i s ti c de ci s ion - ma k in g emp has i s g one . S ub s e qu e n t s tr a te g i c

p ro gr ams wi l l be deve lo p e d w i thout b en e f i t in g f rom ad e qua te s tr a te g i c

con text .

Ano the r r e a son mi gh t be th a t a d iv i s io n l a c k s c r i t i c a l fun c t i ona l

p ro fe s s iona l ism and c ap ab i l i ti e s tha t wi l l be n e ed ed to

"
d e l ive r "
an

ade qua te s e t of s tr ate g i c p r og rams . Typ i c a l ly th er e wi l l be on e or a f ew

fun ction s th a t tu rn ou t to be the b o tt l ene c k I n l ine wi th th i s th e re

mi gh t al s o be c e r tain f un c ti ons th a t ar e ve ry s tron g bu t ar e no t u t i l i z ed

to the i r fu l l po t en ti al . I n a s ens e th i s re p r e s ent s an op po rtun i ty l o s s

'
in tha t the div i s i ons m an a geme nt mi ght h av e po ten t i a l l y mi s j ud ged wh a t

cap a b i l i t ie s i t mi gh t n eed to ex e cu te a p ar t i cu l ar s e t of s tr a t e gi c

p r o gr am s as we l l as al s o p o ten ti al ly wha t c apa b i l i ti e s i t po s s e s s e s . An

 4- 3 5

un re al i s t i c al l y l ar g e g ap b e twe en ne e d s a nd cap ab i l i ti e s fo r sp e c i al i z ed

func tional s ki l l s mi gh t c au s e s e r iou s imp l eme nta ti on p rob l ems fo r the

s tr a te g i c p ro g ramm in g e f f o r ts . Al thou gh to som e ex t e nt the in t e rn a l

fun c ti on al r e s our c e s c an be mad e ava i lab l e throu gh ad ho c a c t ion s , it

typ i c a l ly ta k e s time to dev e lop in te rn al fun c t io na l p ro f e s s ion a l

cap ab i l i t i e s . H e n ce , a p l an shou ld be ma d e to b r ing the func t io n a l

cap a b i l i t i e s up to th e s tand a rd s ne e ded to f u l f i l l th e ex p e c t ed r e qu i r e

men ts tha t the ex e cu t ion of th e s t r a t e gi c p r o gr ams wi l l p os e . To the

ext en t th a t th i s do e s no t s e em r e a s ona b ly f e a s i b l e wi th in a g iv en p e riod

of t im e the s tr at e g i c p r o g r ams th ems e lv e s b e come unwo r k a b l e and mus t be

mod i f i e d . W e ar e i n f ac t h er e po t en t ia l ly f a c ed w i th a d i l emma in ou r

p lanning app ro a ch . We r e c a l l tha t a ma j or p rem i s e f o r the co n c e p tua l

f r amewo r k th at we h av e d ev e lo p e d i s th e emph as i s on s e ar ch i ng f o r n ew

envi ronmen tal opp o rtuni t i e s and /o r thr e a ts a s th e dr iv in g f o r c e f o r

'
di cta t ing th e f i rm s di r e c t ion . We a l s o s t r e s s e d the s har p c on tr a s t

b e twe en th i s ap p ro a ch and "

ext r ap o l a ti on b as ed on
'
on e s p r e s en t s tr en g ths

and /o r we a k n e s s e s . How eve r , th e pur s uan c e of ne w opp o r tun i t i e s and /o r

thr e a ts c ann o t be c arr i e d ou t wi thou t ta k in g in to a c c ount the in t ern a l

s t ren g th s and /o r we akne s s e s a s con s tr a in ts . Thu s , a r e con c i l i a tion wi l l

h av e to ta k e p l ac e b e twe e n wh a t woul d s e em to be a mo r e op en - e nd ed

de te rmi na ti on of wha t op por tun i t i e s and /or thre a t s to f o ll ow , as d e te rmined

i n cy c l e on e , w i th wha t wou ld a ctu al ly be f e a s i b l e , g iv en on e s '

own

i n t e rna l s tr e n g ths and /o r we a kn e s s e s as sur f ac in g dur in g th e s t r at e g i c

pr o gr ammin g s ta ge . Th i s imp o r t an t mod i f i ca t io n ac t iv ity i s an e s s en t i a l

p ar t of the s tr a te gi c p ro gr am con s o l idat ion . Th e cha l l eng e , of c our s e ,

is to ta k e max imum adv an ta g e of i nt e rna l s tr en gth s a nd a t temp t to

 4 - 36

ame l io r a te the e f f e c ts f rom i nt ern a l we a kn e s s e s a s mu ch a s p o s s i b l e . In

th i s way the s tr a te g i c p ro gr ammin g p r o c e s s c an s o l id i f y and b oo s t the

intend e d s tra te g i c d ir e c t ion s e t du r ing th e o b j e c t iv e s - s e t tin g s t a ge ,

no t damp e n th e pur s uan c e of cr e a tiv e and op p o r tun i s t i c d ir e c ti on - s e tt ing .

Th i s b r in gs us to a re la ted i s su e wi th r e s p e c t to the pr o b l em of

s e ttin g d i r e c tiona l con grue nc e b e twe en s tr a te gi c pr o g rams and o b j e c t ive s ,

name ly th a t of de al in g wi th unr e a l i s t i c ( t o o o p t imi s t i c or t oo p e s s im i s t i c )

mana g er ia l j ud gmen t s . For ins tanc e . a set of o b j e c t ive s m ay be so fa r ou t

and i l l con c e iv ed tha t ex e cu t in g a s tr a te g i c thru s t throu g h con cr e te

p ro g rams mi g h t no t be f eas ib l e . I n su ch ins tan c e s . i f th e d ev i a t i ons and

unr e al i sm a r e g rea t enou gh it mi gh t b e ne c e s s ar v to r edo th e en t i r e

o b j e c tive s - s e tt in g cy cl e , no t on ly fo r the d iv i s ion in qu e s t i on , b ut

b e c au s e Of the i r p o r tfo l io inte rd ep end en c i e s , al l th e b u s ine s s p l a ns . It

is of cou rs e e q ua l ly und e s i r ab l e , and qu i t e c ommo n , that som e d iv i s ion s

u n der s t r e t c h
"
the ir b us ine s s p o ten ti a l du r in g th e O b j ec tiv e s - s e tti n g

cy c le , so tha t th e r e i s l i tt l e ch a l l en ge to a tta in wha t mi ght be s ee n as

" "
a s af e s tr ate g i c p ro gr ammin g ta s ks du ri n g th e n ex t s t a g e .

Th e p ote nt ia l p rob l em of lack of co ns i s te n c e b e twe e n th e s tr a te g i c

th rus ts of th e o b j e c tive s - s e t ting and th e s t r at e g i c p r o gramm in g c y c l e s

mi gh t to a cons i de rab l e e x ten t be ame l io r at ed throu gh emp ha s i z in g an

impo rtant cons e qu enc e of th e d e c i s i o n- ma k in g na tur e of the p l ann in g pro c e s s ,

n ame ly , tha t ev e ry ma nage r wi l l be exp e c ted to l iv e wi th wha t h e ha s

com mi t t ed h i s o r gan i z a tion un i t and h ims e l f to . R e a l i sm , whe n i t come s

to ob je ct ive s - s e tt in g as we l l as s tr a te g i c p ro grammin g ,
i s thus e s s en t ia l ,

r ath er than un re a l is ti c ob j e ct ive s f o l lowe d by un ima g ina t iv e s tr a te g i c

 4- 3 8

vari ous fun c tion s when fo rmin g a to t a l s t r a t e gi c p ro g r am . Thu s , ran k in g

of s tra te g i c p ro gr ams mus t b e don e f rom th e g e ne ra l mana gemen t po in t of

vi ew , i . e. ,
by the div i s ion h e ad , an d no t be l e f t in t he hands O f e a c h

fun c t ion . I t fo l lows from th i s t ha t th e s t r at eg i c d i re c t i on d e te rm in e d

for a b u s ine s s dur i n g th e o b j e c tive s — s e tt i ng s t ag e i s pa r t i cu l ar ly u s e fu l

f or -
the g en e r al mana ge r in pu tt in g a ne c e s s a ry fo cu s to s tr a t e g i c p r o

gramming . Wi thou t th i s a s tr ai g h tfo rward z er o - b a s e b udg e t in g ag g r eg at ion /

ran k ing ap p roa ch wou ld no t n e c e s s ar i ly l e ad to an ap p r op r i a t e s tr a t eg i c

d i r e ct io n .

L e t us now turn to imp l eme nta ti on p i tf a l l s and p ro b l ems th at t end to ap p e a r

du rin g the b udg e t in g s ta ge . Th e r e ar e a t l e as t th re e co nc e rn s tha t common ly

mi ght be r ai s ed in th i s r e s p e c t , n ame ly d i f f i cu l ty in a c tu a ll y al lo c a t in g th e

ne ce s s ary s trate g i c r e s our c e s to th e de c ide d- up on s tr at e gi c p ro gr ams b e c au s e

of con f l i cts w ith t rad i ti on al re s our c e a l lo ca tion mech an i sms in the f irm wh ic h

tend to pu t s tr on g p re s sur e s on al lo ca tion to depa r tmen t s and /or inve s tment

p ropo s al s ; b e caus e of in ade qua t e re co gn i tion of th e ne ed f or b u i ld in g th e

b ud ge t ar ound kp y var i a b l e s , of th e do l l ar a s we l l as non- do l l a r typ es ; an d

fa i lur e of pr ovi d in g a me chan i s m fo r p e r s on a l i z in g e l emen t s of the b ud ge t b y

th e var i ous re l evan t manag e rs th rou ghout the o r g an i z at ion a l h i e ra r c hy ,

ma n a gemen t by o b j e c tive s
"
-
b e in g an in te g r a l ap p r oa ch f or f a c i l i ta ting th i s .

We s hal l d i s cus s e a ch of the s e thr e e i s s ue s in tu rn .

p ro po s a l s .

As al r e ady di s cus s ed , the adv en t of a co rp o ra t e p l ann in g ap p ro a ch

b r in gs alon g an impo rtan t imp l i ca ti on i n t e rms of a sh i f t in th e re s ou rc e

 4- 3 9

5
al l o c a tio n mod e . M aj or s tr a te g i c re s o ur ce a l l o c a t ion s wi l l be de c ided on

du rin g th e s tr a te g i c p ro gr ammin g cy c l e a s a r e f l e c t i on of how t o a ch i eve

the o b j e c tive s and s tr a te g i e s of th e f i r s t p l ann in g cy c l e . Th i s t hu s c a l l s

fo r r ev i s ed an d s c a le d down ro l e f or tr ad i t ion a l c ap i tal bud ge t in g in th e

-
a

r e s o u rc e al lo c a tio n p ro c e s s . In comp an i e s w i th no c or p o r at e p lann in g

pr o c e d ure s i n p l a c e as a s tr ate g i c d e c i s ion ma k in g to o l the r e so ur c e —

a l lo c atio n p ro c e s s wi l l be h e av i l y f o cus e d ar ound the c ap i t a l b ud g e t in g

pro c e s s and th e ap p rova l of exp end i tu re b ud ge ts . C ap i t a l b u dge t i n g '

s

ro l e in s uch a s i tua ti on wo u ld be as th e c en tra l ve h i c l e f o r th e a l lo c at i on

of fun d s to i nv e s tmen ts in p l ant s and mach ine ry . Th e c or e un i t to be

ev a lua ted wou ld be e ac h c ap i t a l r e qu e s t p rop o s a l s ay , a p ro j e c t wh i c h

i nvo lv es a new p lan t or a new ma c h ine . Tr ad i t ion a l an aly t i c a l too l s f rom

th e cap i ta l b udg e t in g b o dy of knowl ed g e we r e b ro u gh t to b e ar in o r de r to

j udg e th e d es i r a b i l i ty of th e p ro j e c t . P romi n ent te c hn i qu e s in c lude t im e

a d j us t e d hur d l e r ate s of r e tur n on i nv e s tme nt su c h a s ne t - p r e s en t - va lu e or

in te rna l - ra t e - o f - r e tu rn , a s we l l as th e s imp l er p ay - b ac k me thod . The s e

rat i n gs may be fur th e r adj us te d for th e r i s k ine s s of the p ro j e c t . Th ey

may al s o be c l as s i f i ed in t e rms of s ize , i . e. , wh e th er the y ex c e e d th e

l imi ts of mana ge ri al di s cr e tio n a s s o c i a t ed wi t h t he mana ge r w ho i s d e c id in g

on the p r oj e c t . F in a ll y , an inve s tmen t wh i c h , fo r ins tan c e , i s an e s s en t ia l

r ep l a c emen t of a p ar t in a la r g e con ti nuous p r o c e s s ma ch ine ry mi ght b e _

tre a ted d i f f e r en tl y than an inv e s tme nt wh i ch f a l l s w i th in an en ti re l y n ew

a r ea . Th e e xp e nd i tu r e b udg e t '
s ro le in a s i tu at io n w i th no s tra te g ic

p lann ing wou l d b e to p rovid e c e r ta in l imi t s fo r th e l eve l s of d i s c r e t iona ry

exp e nd i tu r e s of var iou s k ind s th at e a ch de p ar tmen t mi ght s p e nd e a c h ye a r .

 4-4 0

A va s t numb e r of mo re or le s s e l ab o ra te te c hn i que s ex i s t f or th e d ev e l o pmen t

of exp end i tur e b ud ge ts t oo . Typ i c a l ly , how eve r , l e s s an a l y ti c a l e f f o r t ten d

to go in to th e re so ur c e al lo c ati on s of di s c r e t i on a ry exp e nd i tu r es than wha t

i s th e typ ic a l ca s e fo r c ap it a l b ud ge tin g d e c i s ion s . With out e l a b o r a t in g

fur the r i t i s c le a r that th e r e ex i s ts a we l l e s t a b l i s h ed and wi de l y ac ce p ted

b od y of tradi tiona l me thod s f o r a id in g in th e r e so ur c e a l lo c a ti on de c i s ion s

w ithin the f irm .

'
Wi th the advent of re s ou r c e a l lo c a t ion s ro l e a s corpo ra t e man ag e

'
men t s maj o r d ev i c e fo r in f l ue nc i n g and r e s hap in g th e s tr a te g i c d ir e c ti on

of the f i rm , we have ar gu ed tha t th e ro l es of c ap it a l b ud g e t in g and th e

exp e ns e b ud ge t sho uld be s e en in a d i f f e re n t l i ght . Howev e r , eve n thou gh

a comp any may have ado p te d co rp o ra te p l ann in g and in p r in c i p l e i s a l lo cat in g

r e s ou r ce s to ma j or s tra te g i c p ro g r ams , it ma y be e as i e r s a id th an don e to

mo di fy ac cord in g ly the t rad i tion al we l l e s t a b l i sh ed sy s t ems fo r a l l o c a t in g

cap i ta l inve s tmen ts an d di s c r e tion ary exp end i tur e s . Thu s , i t i s con ce iva b l e

tha t a s tr a te g i c pro gram wh i c h h as been ap p roved th rou gh th e p l an n in g

p ro ce s s mi gh t b e f rus tra te d or even h a l ted i n th e fur th e r imp l emen tati on

du e to de lay s in th e app ro p r ia t ion of p a r t i cu l ar p r oj e c t s wh i ch ar e vi ta l

p a r ts of th e s tr a te gi c p r o g ram but wh i ch do no t y i e ld th e ne c e s s ary hurdl e

ra t ewh en t a k en ou t of i ts s trat e gi c con te x t f o r app r o p r i at ion a c c o rd i n g

to the c l as s i ca l p ro c edur e s . S imi la r ly , ne c e s s a ry a l lo ca t ion s to so me

ca p i ta l e xp end i tu re bud ge ts ma y be
'
fun ct ions insu f f i c i ent f o r the fun c ti on s

to c ar ry ou t the i r in tended s tr a t e g i c ro l e s . Ne edl e s s to s ay , s e r iou s

di s turb an ce s in the i mp leme n ta t ion of s tr a t e g i c d ir e c t ion mi ght r e su l t fr om

th e p he onom e non tha t e l eme nt s of a s tr ate g i c p ro g r am , b e i t exp en s e - e l ement s

 4- 4 2

evo lu ti o n of sy s tems in Ch ap te r S ix ) . On e d i f f i cu l t i s s u e in man a g ing

" "
th e mana geme nt sy s tem i s to r e c on c i l e how to run th e old and th e n ew

r e s o ur c e a l lo ca tion s ys tems "

i n p ar a l l e l "
un t i l th e n ew s y s t em ha s b een
"
de b u gged "
and i s fun c ti onin g w it h a r e as o nab l e r e l i a b i l i ty . A s e cond

de te rmine e x a c tl y wha t the mod i f i ed r o l e

"
is s u e i s to of th e o ld r e sour c e

al lo ca tio n s ys tem s hou l d be . Bo t h i s s u e s m e r i t some f ur th er d is cu s s ion .

I t i s cl e ar ly a comp l i c a ted and f ar - re a ch in g d e c i s io n to a tt emp t to

im p lement a corpo r at e p l anning sy s t em . S u ch a s ys t em c ann o t b e e x p e c te d

to o p e r a ti ona l ly func ti on ove r ni ght . No t o n l y w i l l the re be a la r g e

numb e r of f o rma t s , r ou t ine s and commun i c a t ion ch ann e l s th at wi l l h av e to

be deve lop e d . A he avy b urde n mig ht a l s o f a l l on th e op e r at in g man ag e r s

in l ea rn in g and in te rn a l i z in g how to a c tua l ly wo r k wi th in su ch a s y s t em .

I t is no t l i k e l y tha t eve ry as p e c t of the s y s tem c an be o p e ra t io na l i z ed

at on ce nor tha t a l l ma n ag e r s invo lv ed know how to u s e th e s y s tem

immed i a te l y . Thus , a p e r i od of l e arn ing and f in e - tu n in g wi l l be no rma l .

Th er e wi ll typ i c al ly a l s o be co ns id er a b le l e arn in g as so c i a ted wi th th e

gradual ly in c re a s ed exp l i c i t re co gn i t i on of th e s t r at e gi c po s i t ion of th e

comp a ny and i ts pa r t s ; to go th rou gh th e p l ann in g ex e r c i s e wi l l p r o b ab ly

he i gh ten the s tr ate gi c und e r s tand in g an d a l l ow f or th i s b e in g s ta ted in

mor e exp l i c i t O pe r at ion a l t e rms . Th e r e wi l l of cour s e alway s b e th i s

l ea rni n g e f f e ct in te rms of imp rov ed S tra te g i c und e r s tand in g , a maj o r

reas on f o r p lann in g , b u t th i s e f f e c t wi l l p rob a b ly b e mo s t d rama t i c du r in g

th e f ir s t y ear s of p lann ing . Giv en th e s e c ons i de r a tio n s i t s e ems n e c e s s ar y

t o ma
,
int a in the trad i tional r e sour c e a l l oc a ti on s y s t ems in i ts o r i g ina l

fo rm fo r s ome time in p ar al l e l w i th th e s tr a t e gi c pl ann in g sy s t em . Ef fo r t s

 4- 43

s ho u l d howeve r be ma de du ri n g th e e x e cu t i on of c ap i ta l b ud ge t in g to

re c on c i l e th e eme r gin g r e s ou r c e a l l o c a t ion de ci s io n s wi th th e s tr a te g i c

p ro g r ammin g e f f o rt s . I f f or ins t an c e a cap ita l b ud ge t ing p roj e c t i s b e i ng

p ropo s ed wh i c h i s no t p ar t of a s tr at e g i c p ro gram a t a l l , th en th i s s hou ld

b e r es o lv ed on an ad ho c b as i s . S im i l ar ly , i f th e n e c e s s a ry c ap i ta l f o r

a n inv e s tmen t wh i c h is an in te gra l e l ement of a s tr a te g i c p ro g r am i s

t u rn ed down th rou gh th e cap i t a l b ud ge t in g p ro c e s s , th en th is s hou ld a l s o

be r e s o lve d on an ad ho c b as i s . An ana lo gou s ar gument c an be made wi th

r e g ard to th e a l lo c a ti on of d i s c r e ti on a ry exp e nd i tu r e s . Th e cr i t i c a l

i s sue s is to fo r ce r e co n c i l i a t i on b e twe en th e
"
O ld "
and tjm z
"
new
"
r e s ou r c e

a l lo cat ion p r o ce dur e s , so tha t the imp o rtan c e of co r po r a t e p l ann in g i s

u n de rs co r ed e ar l y . Eve n tho u gh p lann in g mi gh t s t i l l be in it s in f an cy

eve ry attemp t s ho uld be mad e to s tr e s s th at i t i s g o in g to have e f f e ct s

on h ow s tr a te g i c r e so ur c e s ar e b e in g u se d wi th in the comp any .

Th e mod i f i e d r ol es of th e c ap i t a l b ud g e t in g sys tem and th e d i s cr e t ion

ary exp e ndi tur e b ud ge t s hou l d be s e en a s ve h i c l e s for "

f ine tun in g
- "
of

t he maj o r re s our c e a l l o ca ti on th rus t s d e c ide d upon in pr in c i p l e duri n g

th e s tr a t eg i c pr o g ramming s t a g e . S u b s e qu e nt to th i s the re s o lu t ion of

many sma l l er r es our c e al l o c a tion i s su e s typ i c a l l y wi l l r ema in . An o th e r

imp o r tan t ro l e wo ul d be as a "

s af e ty - me chan i sm to d e t e c t un re a l i s t i c

as s ump ti ons b e h i nd s tr a t e g i c p ro g r am de c is ion s . Mo d i f i c a t ions and

re a s s e s sme nt of a s tr a te g i c pr o gr am mi ght be app ro p r i ate i f it tu rn s ou t

th roug h th e s ub s e q ue n t mor e de ta il ed cap i ta l b ud ge tin g p ro c e s s th a t , fo r

in s tan ce , th e as s ume d g ene r a l l e ve l f o r th e c o s t e s t ima te d oe s no t ho ld .

Ne e dl e s s to s ay , w i th th e mo di f i e d ro l e s of the c ap i t al b udg e t in g an d th e
 6- 4 4

d i s cre tionary exp end i tur e b ud ge t ,

'
s en i o r man a gement s time invo lv ement

w ith the s e tas k s s hou ld d imini s h sub s t an tia l l y , and in s t e ad s h i f t toward s

the s tr a te g i c pr o g r am min g d e c i s ion — makin g p ro c e s s a s t hi s b e come s th e

ma j o r re sour c e al lo ca tion v eh i c l e , r ep la c in g th e tr ad i t ional p ro cedur e s .

ix . Ch o ic e of k ey var i ab le s in b ud ge t .

Le t us now tur n to a s e c ond imp l emen ta t ion i s su e du r in g th e b ud ge t ing

s ta ge , name ly the one of choo s i ng app ro p r iat e and re l evant var i a b le s fo r

deve lop ing b ud g e ts , s o— ca l l ed k ey v ar iab l es . S uch a s e t of var i a b l e s mi gh t

ea s i ly be qui te d i f f e r en t f rom th e tr ad i tiona l a l l - do l l ar s e t of var i a b l e s

6
com mo nly f ound in b ud ge ts .

An Op er a t in g b ud g e t wi l l ty p ic a l ly b e b r o k en down f o r e a ch de p a rtmen t .

S u ch a dep ar tme nt i s l a b e l ed a r e s p on s ib i l i ty c ent e r ; a fun c t i on a l d e p ar t

ment mi gh t e i th er be cos t re venue or p ro f i t - c ent e rs , an SEU and /o r ar e a

o r gan i z a t ional un i t mi gh t typ i ca l ly be a r ev enue pro f i t or inv e s tm en t

cen te r . I t wi l l b e advan ta ge ous f o r c ontr o l pu rpo s e s to s tru c tur e th e

b u d ge t a c co rd i n g to thi s b r e akdown . Typ i ca l l y do l l ar va r i a b l e s wi l l

p redomina t e in su c h b ud g e ts , now an d the n s up p l emen t ed by n on - do l l a r

va r i a b l e s wh i c h me as ur e th e phy s i c al a c t iv i ty lev e l s tha t p rovide the

bas is f or th e b ud ge t . I t wi l l howev e r a ls o be u s e f ul to re con c i l e t he

dep ar tmen ta l b ud ge ts into pr o g ram bud ge t s , r e f l e c t in g the na tu re of the

s tra te gi c p ro gr am p a tt er n wh i c h th e Op e ra tin g b ud ge ts a r e s uppo s ed to

re pr es en t , s e e E xh ib i t 2- 5 . Th i s wi l l en a b l e mana gemen t to ide n ti f y the

'
fun c tion of e a ch dep ar tment s ac tiv i ty in tend ed fo r e a c h of th e s tr ate g i c

p ro grams . Al l de pa rtme ntal Op e r at in g bud ge t it ems w i l l of co ur s e no t be

r e c on c il i a b l e as p ar t of s tra t e gi c p ro grams , s in c e a s i gn i f i c an t p ro por t io n

 4-4 6

L e t us f in a l ly d i s cu s s how the o p e ra t in g b ud ge t al s o m i gh t be ut i l i z e d

on e s p r o g r e s s toward s o b j e c t iv e s
'
fo r s e rv in g a s a s hor ter te rm ind i c a tor
- of

L e t us as an examp l e con s id e r a p ar t i cu la r b u s i ne s s divi s i on

'

an d go al s . .

For th e div i s io n ma na gemen t i t woul d be ne c e s s ary to con s i de r and in te rp r e t

f inan c i a l dat a in th e l i ght of wha t i s h ap p e nin g wi th th e s tr ate g i c

po s i tio n of th e b us ine s s . For in s tan c e , a p ar t i cul ar s e t of ope r a t ing

b ud ge t f i gur e s mi gh t be r e ason ab l e enou gh whe n th e b u s in e s s a tt r a c t iv en e s s

l ev e l f o r thi s bus ine s s i s a s sumed to s t ay th e s ame . Howeve r , i f the

b us in e s s at tr a ct ivene s s c an be as s ume d to in c r eas e s i gn i f i c ant ly , say ,

as th e re su l t of a g ene r al in c r ea s ed tr end of g rowth in s al e s of the

p roduc ts of th i s b us in es s , th e n the Op e ra tin g b ud ge t f i gur e s mi g h t be

inte rpr e ted i n a le s s f avo r a b l e l i gh t . Or , a l terna t iv e l y , i f th e ge ne ra l

g rowt h rate i s exp e c te d to s low down , then th e o p e ra tin g b ud g e t mi gh t be

s e e n as qu i te f avo r ab l e , given the s e adve r s e c i r cums t an c e s . Thus , i t i s

ne c e s s ary to i nte rp re t b ud ge ta ry p e r f orma n c e f i gu r e s a c c o rd i n g to ch an ge s

in the l eve l s of b u s ine s s a ttr ac tiv en e s s . He nc e ,

a r e l evan t me as ur e of

b us ine s s att r a c t ive ne s s shoul d be part of th e b ud ge t . O ne su ch me asu r e

mi ght be the r a te of gr owth of th e b u s i ne s s ; i f on e as sume s a c e r t ai n

growth ra te , th en the op e r a ti n g b ud ge t shou l d be exp e ct ed to ta k e on

ce r ta in val ue s .

S imi lar ly , th e comp e ti tive s tr eng th of th e b u s in e s s i ts e l f sho uld be

sp e c i f i e d in ord e r to s ta te a me an in g fu l s e t of e x p e c ted bud ge t p e r fo rman c e

l eve ls . For ins tan ce , the marke t sh are of o ne s'

own b u s ine s s mi gh t b e

'
in cre as in g in an e f f o rt to imp rove on e s ow n c omp e ti t ive s tr en gth . Th i s

mi gh t b e exp e c ted to b e re f l e c ted in a r ea s on a b l y mod e ra t e b ud ge t in g

 4- 4 7

'
op e r at in g r e su l t . I f on e s ma r ke t s h a re i s a ll owe d to fall , on the o the r

hand , then th e O pe r a tin g b ud ge t s hou ld b e in t e rp re t ed in th i s l i gh t , wi th

a n exp e c ted re l a tiv e ly s t ron g n e ar - t e rm b ud ge ted p e r f o rman c e . F i gu r es

f or chan g e s in -
o ne s '
ow n b u s ine s s '
comp e t i t ive s tr eng th s hould th e r e fo re

b e p ar t of the b ud ge t in orde r to peg th e b ud g e t to a p ar t i cul a r l eve l

o f compe ti t ive s tr en g th po s i t i on . O th e r no n- do l l ar me as ur e s of c omp e t i t ive

s tr e ng th l eve l th an mar k e t s ha r e mi gh t of cour s e be r e l evant , s u ch a s f o r

ins tan ce p r odu c t iv i ty me as ur e s ( a ga i n r e la t iv e to p a r ti cu l ar comp e t i to r s ,

howeve r ) .

F in a l ly the b ud ge t of a b u s ine s s s ho uld be j ud g e d re l a tiv e to ch an ge s

dn
~
th e r e l a tio n s h ip s w i th o th e r o r g an i z a t ion al un i ts , so tha t i t c an be

d e te rmine d wh e th e r th e l ev e l of c o ns o l i d at ion at tra c t iv e ne s s tha t th e

b us ine s s i s enj o y in g i s th e s ame or c han g in g . I f , for ins t an c e , ove rhe ad

bu rd e n s i gn i f i c an t ly ch an g e s du e to lar ge chang e s in t he a c t iv i ty l eve l s

of o th er b us ine s s un i t s , th en th i s sh o u ld be r e f l e c t e d in th e b ud ge t .

S ome b us i ne s s e s inc l ud e ad j us tme n ts fo r in f l a t ion an d cur r e n cy ch an ge s

i n th e i r b ud ge ts . F rom a s tr a te gi c man a gemen t po in t of ve iw the r e ar e tw o

as p e c ts of th is . F i r s t , th e re i s th e i s sue of comp a ra b i l it y ov e r time .

Wh en s u ch comp a ra b il i ty i s ne e de d f o r th e d eve l o pme n t of s tr a te g i c p la ns

th en th e adj us tmen t s shou ld be made ; howeve r , th i s i s no rma l ly no t a ma j o r

i s s u e wh en i t come s to corp o ra te p l an ning . Howev e r , when in f l a t i on and /o r

cu rr en cy ch an g e s have s tr ate g i c e f f e c ts then th e s e sh ou ld be in c lud ed .

Fo r ins t an ce , deva luat i on of an e x p o r t o ri en t ed c omp any s home curr en cy

- '

mi gh t s i gni f i can tl y imp rov e th e comp e t i tiv e po s i t io n of the c omp an y . We

s ha l l d i s c us s th e i s s ue of mod i f y in g th e p l anni n g sy s t em to e nc omp a s s a

mul t in at ion a l s i tu a ti ona l s e t ti n g in Ch ap te r S ix .

 4-4 8

I n s ummary , the imp l emen tat ion p ro b l em s e ems to be th a t the O pe r a tin g

b ud ge t O f te n i s b ui l t up e x clu s iv e l y aroun d tra di t io nal int e rna l l y — o ri e n ted

var ia b le s ,
ex c l udi n g non- do l la r var i ab l e s fo r a ct iv i ty l eve l me asu r emen ts ;

and tha t non- do l lar var i a b l e s fo r r e l at in g s p end ing to th e pr o g r e s s of

"
s t rate g i c p ro gr ams an d fo r no rma l i z ing the Op e ra t in g b ud ge t f o r ch an g e s

in b u s ine s s a ttra c tive ne s s po s i ti on , own c omp e ti tive s t ren g th and con s ol i

da ti on attr a c t ive ne s s ch an g e s are mi s s in g . Th e b ud g e t '

s ro l e i s th e ti p

of the i ce b e r g in te rm s of wha t c an be done to imp l eme nt th e s tr ate g i c

p ro gr ams dur in g the comi ng y e a r to p roc ee d towa rds a ch i ev in g o ne s o b j e c t ive s '

an d go a l s . As s uc h th e b ud g e t '
s ro l e i s p r ima r i ly to f a c i l i t a t e int e gr a tion ;

coo rdinati on of the o r g ani z a t i ona l a c t iv i ti e s w i th a c l e ar in t e rn al fo cu s .

Howeve r , th e va r i ab le s cho s e n mus t h av e th e b ro ade r re l evanc e to e nsu re

tha t the b ud ge t b e come s th e cu lminat ion of the n ar rowin g down of s tr a te g i c

O p tions , i . e. , i s cons i s te nt w ith the b ro ad er c on textu al l imi t s g iven

th rou gh th e o b j e c tive s an d s tr a te g i c p ro g r ams .

x . Ac coun tab i l i ty fo r b ud ge t s .

Le t us now c han g e ou r di s cus s io n to a th i rd imp l ementa t ion i s su e

as s o ci at ed w ith the b ud ge ting s ta g e , wh i ch m i gh t be ana ly z ed to g e th e r

w i th the in te g r a ti on of the s o- ca l l ed M ana g eme n t By O b j e c t iv e s app ro a c h

(MB O ) in th e c o rp o ra te p l ann in g p ro c e s s . O ne imp o rtan t as p e c t of the

b udg e ti n g p ro c e s s i s tha t e a ch manag e r sho u l d be in a p o s i t ion to i dent i fy

cl e ar ly th e tas ks tha t wi l l fal l to h im a s a con s e qu en ce of c ar ry in g ou t

th e b ud ge t . A r e la ted re qu ir eme nt i s that e a ch mana ge r inte rna l i z e and

'
a s o c i a te h ims e l f w ith th e r e l ev ant p ar t
s of th e bud g e t ; n ext y ear s

Ope r a tion shoul d make s en s e to him to th e ext e n t tha t h e is ind e ed

 4- 5 0

On e imp lement ati on p ro b l em wi th r e sp e c t to the a b ov e i s tha t th e

b ud ge t in g p ro c e s s may no t emp h as i z e en ou gh the a c t io n - o r i en t ed t a s k

imp l i c a tions for e a ch ma na ge r . I t is no t on l y ne ce s s a ry tha t the b ud g e t

has b e en deve l op ed w i th enou gh d e ta i l to f a c i l i t a t e th i s , bu t al s o that

ne a r - te rm a c tion - re s p on s ib i l ity on the pa r t of a man a g e r can be r e c on c il ed

w it h lon ge r - te rm p r o gram r e s p ons ib i l i ty . Fa i lur e to d eve lo p th i s d e gr e e

of s p e c i f i c i ty in th e b udg e ts i s o f te n an ind i c a t io n th a t the en t ir e

c orp o r a te p lanni ng p ro c e s s i s no t fun c t ion in g as e x p e c ted , and to

ame l i or a te th i s a tten tio n s hou ld be f o cus e d on cy c l e s on e a nd two of th e

pr o ce s s wi th re sp e c t to whether th e ou tpu ts of th e s e cy c le s a r e s p e c i f i c

e noug h to be us e ful as we l l as to whe the r p re l imina ry p a t te rn s of man a g e

me nt a cco unta b i l i ty h ave b e en e s t a b l i s hed . To addr e s s th e a b ov e que s t ion

i s a c r i t i ca l che c k
u of whe th er th e co rp o r at e p l ann in g p ro c e s s ha s b e en
fun c t ioni n g so far , i . e. , tha t the s ta g e s of th e pr o c e s s wh i ch a r e

con ce rne d wi th id en t i f i c at i on and na r rowi n g down of s tr a te g i c op po rtun i t i es

ar e Op e ra t iona l .

A sma l l er and mu ch e as i e r imp lement at ion p r o b lem to hand l e s t ems

f rom th e f a c t tha t th e man a gemen t by obj e c tive s ap p ro a c h o f te n t ends to

be de ta ch e d f r om the s tr at e g i c p lann in g e f f o rt . Th i s mi gh t a c tua l ly

r es u l t in dy s fun c ti on un l e s s mod i f ie d to be con s i s t en t w i th th e r e s t of

th e s tr a te g i c man a geme nt p ro c e s s . An examp l e of a p r ob l em of th i s k ind

mi ght s t em f rom th e f a c t th at mana gement by Obj e c t ive s mi g ht al r e ady hav e

been in troduc ed we l l b e fo re p l ann in g , to c r e ate mor e of an a c t ion - o r i e n te d

ta s k- emphas i s to th e tr adi tiona l bud ge t in g . As su c h , man a g emen t by

o b j e c tiv e s woul d have a h i ghl y bo ttom- u p domina t ed na tu r e , w i th lowe r - l eve l
 4— 5 1

ma na g e rs p lay in g maj o r ro l e s of wha t th ey s e e a s r e l ev an t as p e c t s of th e i r

job , a nd wi th h e avy emp ha si s on b e havi o r a l /jo b eva lua t i on a s p e c ts . Of

co u rs e , i t c ou l d no t b e e x p e c ted tha t th e mana g eme nt b y o b j e c t iv e s p ro c e s s

wou l d b r ing ou t an ad e q ua te g en e r al mana gement s tr at e g i c con tex t f or s u ch

tas k - id e n ti f i c a t i on W i th th e adv en t of co rpo r a te p l ann ing app r oa ch

'

. a

wh a t i s ne e ded i s the mod i f i c at ion of t he man a geme n t b y o b j e c t iv e s ap p ro a ch

so th a t i t can be exe cu t ed w i th in the n e c e s s a ry s tr a te g i c c on tex t and

the r e b y b e come a us e fu l r e e n fo rc eme nt of t he s t ra te g i c man a gemen t p r o c e s s .

W e h av e by now d i s cu s s e d a to t a l of te n imp l eme n ta t ion i s s u e s tha t

re l a te to th e thr e e f ir s t s ta ge s of th e s tr a te g i c p l an nin g p ro c e s s . It

s houl d be no t i c e d tha t a l l th e s e i s su e s ar e c onc e rn ed wi th a s p e c t s of how

to es ta b l i s h s t r a te g i c d i r e c t io n f or th e comp any and /o r i t s p ar ts . Thu s

they d e al w i th how a comp any mi gh t pr e p ar e i t s e l f to imp rov e th e p a t te rn

'

of s tra t e g i c r e s ou rc e a l l oc a t i on b efore i t a ctua l l y w i l l hav e to a ct . We

s ha l l now ch ang e f o cu s and di s cu s s fou r add i t i ona l imp leme n tat i on i s s ue s ,

fundame nt al ly d i f f er ent in na tu r e f rom th e f orme r in tha t they d e a l wi th

as p e c t s of cy c l e s fou r and f iv e of th e p l ann in g p ro c e s s , i . e .

, p o s t f a c to

c onc e r ns

W e sh al l di s cu s s tw o imp l ementa t i on p rob l ems th a t s e em to be common wh e n

come s to an e f f e c tiv e moni t or i n g of p ro g r e s s towards th e fu l f i l lme n t of th e

s tr a te g i e s d e c ided up on dur i n g th e p r ev i ou s th r e e cy c l e s of the co r p or a te

p l ann i n g p ro c e s s . Th e s e i s su e s r e la t e to ta ki n g a me chan i s t i c ap p ro ac h

toward s mon i to ri n g a ctua l r e s u l t s r e l a tiv e to p l ans , wi thou t p ro p e r r e f l e c t ion

on the s p e c i f i c na tur e of th e p he nomeno n b e in g mon i to r ed ; i ts p r ed i c ta b i l i ty ;

 4- 5 2

the s tra te gi c r e sp ons e p o ten tia l a t hand ; and the re l at iv e impo r tan c e of th e

ph enome non in a r i s k /r e tu rn s e ns e . A s e cond imp l eme nta ti on c onc e rn i s that

th e moni to r in g te nds to emp ha s i z e s ho r t - te rm p ro gre s s , wi th l i tt l e or no

re gard fo r the mon i to r in g of p r og re s s toward s l on g- te rm o b j e c t ive s . We sha l l

7
d i s cus s e a ch of the s e i s s ue s in tu rn .

xi . Tai lo rmad e mon i to r in g to th e ph enome non a t ha nd .

We r e c al l f rom ou r d i s cu s s i on of th e c o nc e p t of r i s k /r e tu r n a s pa r t

of the corpo r a te po r tfo l io an aly s i s in Ch ap te r Th r e e tha t i t i s me an in g fu l

to cons ider th e de gr e e to wh i ch we ar e a b l e to p re d i ct a p ar ti cul ar

p he nomenon as we l l a s the ex te nt to wh ic h we a re a b l e to r e s p on d i n a

d is c re tionary f as hi on to th e phenom enon . We i s o l at ed four env i ronmen ta l

f a c tor a r che typ e s , f rom th i s , a cc o r ding to d i f f e ren c e s a lon g th e a b ov e

two d imens ion s , e a ch f a c to r hav in g a d i f f e r ent d e gr e e of r i s k a s s o c i a ted

w ith i t . Howeve r , the d imi n i she d r is k as so c iated wi th a s tr ate gy whi ch i s

he av i ly domi na te d by an env ir onme ntal f a c tor tha t c an be r e a s onab ly we l l

p r edi c ted and wh i c h al s o c an be r e s pond ed to wi l l no t automa t i c a l l y be

enj oye d ; we hav e to c ar ry ou t an ad e qu a te mon i to r in g in o rd e r to b e ab l e

to pr e d ic t the f a c tor an d we a l so h ave to p r ep a r e th e f o rm of ame l io r a tin g

r es pons e we mi gh t wan t to ta k e . Thus , the app ro ach th a t i s take n to

mo ni to r pe r fo r ma nc e i s cr i t i c al in con tain in g s tr a te g i c r i s ks to th e

l eve l s we as s umed wh en we deve lop e d and ap p roved th e s tr a te gy . G iven the

d i f f e ren t envi r onme nt al ar che typ e s we s ha l l b en e f i t f rom emp loy in g a

s i tua tional m on i t o r i ng /con t r o l sy s tems ap p ro a c h , c on t in gent on the d e gr e e

of p re d i c tab i l i ty and the de gr e e of d i s c r e t ion a ry re sp on se po te n t i a l . It

s ha l l thus be a ma j o r re qu i remen t to the su c c e s s fu l imp l emen t a t i on of th e

 4- 5 4

r es p ons e i s d ev e lop ed . Th e moni tor in g func tio n the n c ons i s ts of o b s e rv in g

when a ch an ge a c tua l ly take s p l a c e , and a s r ap id ly a s po s s ib l e ex e cu t in g

th e ap pro p ria te p r e de te rmined re s pon s e p a ttern . A s tr a t e gy wh ic h re l i e s

on th i s typ e of e nv i ronme nta l phe nome no n i s mor e r i s ky th an one th a t

r e l ie s on a mo r e p r ed i c tab l e phe nome no n ; howev e r , a c on t i n g e ncy co ntro l

moni to r in g ap pr o ach wh i ch l ay s ou t pr e pa r ed r e s p o ns e p a t te rn s b e f or e ha nd
c an a t l e as t s i g ni f i c a nt ly re duc e th e r is k .

We may a l s o be in a po s i ti on wh e r e th e r e is l i tt l e we c an d o to

r e s pond to a d ev e l opme nt of a p ar ti cu l a r e nv i ronme n t al ph enome no n ; ev en

thou gh we mi gh t be ab l e to pr ed i c t th e d ev el o pme nt of an e nv ir onme nt a l

fa c tor th er e i s l i t tl e we c an do in te rms of c o r r e c t iv e ac t io ns a f te r we

hav e c ommi tted our s e lv es to the p ar t i cu l ar s tr at eg y . We sh al l ap p ly an

anti ci pa tiv e gO - no go c on tro l app roa ch in mo ni to r i n g th i s c l as s of

env iro nmen ta l phe nomena . Th i s imp l i e s th a t we mi gh t b e a b l e to s c a le

the s tr a te g i c p ro g ram ac tiv i ty up or down , or a b andon th e pr og ram

a l tog e the r ; ho weve r , we mi gh t b e a b l e to r edu c e the cons e qu e nc e s of an

adver s e d ev e lopme nt ( o r i nc r e as e the po te nt ia l f or be ne f i tin g f rom a

po s i tiv e dev e l o pme nt ) i f we ta k e adv an ta g e of th e ea r l y warn i n g "

tha t

th e r e la tiv e ly h i gh de gre e of pr ed i c ta b i l i ty c a n g iv e u s . Thu s , thi s

mon i to r in g appro ac h imp l i e s tha t amp l e a tten tio n s hou ld b e pu t on

fo r ec as ti ng a nd tha t th e ne c e s s a ry r ea c tiv e mana g er ia l c o ns e qu e nc e s f o r

th e s tr a te g i c p ro g ram i n qu e s tio n s hou ld b e fa c ed u p to a t o nc e .

Th e f i nal Si tu a tio na l s e t ti n g imp l ie s tha t the key e nv i r onm e ntal

ph enomenon in f lu e nc in g a s tra te gy can ne i th er b e we l l p r ed i c ted no r

ea s i ly re s p onde d to . I n su ch an ins tanc e we mi gh t ad op t a po s t - fa c to

.

g no
-
o
go con tro l app ro ac h . G iven tha t the r e i s l i t tl e we c an do throu gh
 4- 5 5

mon i to rin g in te rms of ta k in g co rr e c t iv e a c t ion s to conta in th e r i s k

a s s o c i a t ed w i th a s tr a te gy , th e r e i s no t th e s ame comp e l l in g r e a s on fo r

a l l oc a ti n g t ime and mo ne y to th e mo ni to r i n g func t ion in th i s c a s e . We

mi gh t th e r e f or e conc lud e tha t mon i tor i ng shou ld b e k ep t to a mi n imum or

a b ando ne d if no t f or th e f o l low in g tw o s e co nd a r y b ene f i t s . Firs t , to

r e g i s te r thro u gh mon i to r in g th at an e nv i ronme nt al ev en t ha s ta k e n p l a c e

whi ch i s d i f f e r ent f rom tha t a s sume d i n th e p l an s wi l l a l low f or

'
re a s s e s sme nt of th e corp o rat io n s po r t f o l i o s t ra t e gy in c a s e th e e f f e c t s
0

ar e s e r io us e nou gh . S e co nd ly , th rou gh c ar e f u l mon i to r in g we mi g h t be

ab l e to l ea rn , and imp rov e ou r j ud gme n t so tha t we c an ma k e s ound e r

s tra te g i c cho i c e s nex t t ime ar ound .

A -
r ela t ed b e ne f i t f rom the f a c t th a t we hav e b e e n ab l e to d e s i gn a t e

d i f f e r ent mod e s of mon i tor i n g f or p h enomena w i th d i f f er e n t r i sk s i s tha t

we al s o may ma k e u s e of th i s as a v e h i c l e f or s e t t in g gu ide l ine s f o r

whe n to p as s on inf o rma t i on and de c i s ion r e s pon s ib i l i ty u pwards in th e

—

o r gan i za tio n ve r s us wh e n to c ar ry ou t co rr e c t ive a c t io n s a t th e d e c e m

t r al i ze d lev e l . A s tr a te g y wh i ch m i ght b e mon i to r ed p r ima r i l y throu gh

a p rop er ly d eve l op ed s te e r i n g contro l ap p ro a ch c an b e l e f t in th e h and s

of su b or d ina t e man ag emen t in t e rms of d i s c r e t ionary r e s po ns ib i l i ty f o r

ex e c u ti on to a mu ch l a r g e r e x t e n t th an a mo r e r i s ky s tr a t e gy . Thu s , th e

b o t tom -u
p f l ow of moni tor in g s i gn a l s i n cy c l e fou r s hould a l s o be ta i lor e d

to th e na tur e of th e mon i tor in g ta s k .

Th e con t i n gen cy ap p r o a ch toward s mo n i to r ing j us t d i s c u s s ed s e ems

un f or tuna t e ly to be f ar f rom the s t a t e — O f - the - ar t of imp l eme n ta t ion of

the mon i to r in g func tion . I n s t e a d , mu c h of th e mo n i to r in g t e nd s to be

s ta nd ard i z ed a c co rd i ng to p r in c ip le s tha t do no t sub s tant i al l y al low f o r
 4- 5 6

di f f e ren tia tio n b e twe en the mon i to r in g ta s k s at hand , and n e i th e r f or a

ta i lo r in g of c en tr a l i z e d ve rs u s de c en tr a l i z ed re s p o ns e to mon i tor in g da t a .

Th i s emph as i s r e f l e c ts a trad i t ion of maki n g u s e of th e b ud ge t s as

s imp l i f i ed too l s of mea s ur i n g by the e nd of a g ive n p e r iod whe th er an

o r gan i z a tiona l subun i t ha s ac tua l ly a ch i ev ed i t s b ud g e t or no t . Th i s

"
s ti c k and c arro t app ro a ch c l e ar ly pu t s t oo l i t tl e emph a s i s on d ev e lop in g

innova tive s t rate gy - b as ed mon i tor i n g ta i lo rmade to va r iou s su b un i t s of

th e o r gan iz a tio n . An e f f e c tiv e mo ni to r in g ap p ro a ch r e p r e s e nt s an e s s en ti al

e l emen t in the imp lemen ta t ion of s tr ate gi e s , p rov id i n g an O p po r tuni ty to

mod i f y s tra te g i c pro gr ams in t ime , and t he r e b y r e emph a s i z i n g a n e lemen t

of re s pons ivene s s and a l e rtn e s s to c r i t i c a l f a c to r s ou t s ide th e f i rm in

o rde r to r e duc e and con ta in r i s k . I t i s a s e r iou s imp l emen ta ti on p ro b l em

that th e mo ni tor in g func tio n tend s to be so de f i c i e nt as an e l eme n t in ou r

s tra te g i c d e c i s io n- ma k in g c ontext , p ar t i cu l a r ly in th a t op po r tun i s t i c

re s pon s ive ne s s ge t s qua s h ed and unne c e s s ar i l y h i g h ri s k - ta k in g w i l l be

th e r e s u l t .

xi i . Ne a r - te rm moni torin g onl y .

Le t u s now tu rn to a s e cond and h i gh ly r e l a ted imp l eme nt a ti on i s su e

wh i ch ha s p ar ti cul a r r e l evan ce to th e mon i to r in g s t a ge , name ly th e ne ed

to moni to r no t on ly shor t - t e rm p e r fo rma n c e bu t a l s o lo n ge r - te rm p e rf o rmanc e .

We r e c al l tha t th e b ud ge t s hou ld rep r e s en t the "

t ip of th e i c e b e rg "
in

nex t y ear s ac ti on p lan towa rd s th e fu l f i l lmen t

'
te rms of of ag r e ed upon

-
lo n ge r te rm obj e c tive s , go a l s an d s tr a te g i c p ro g ram s . Howeve r ,
a s we

al s o d i s c us s ed , bud g e ts ar e no t comp le t e mapp in g s of s tr ate gi c p ro gr ams

or ob j e c tive s , none the l e a s t b e c au s e the y onl y r ep r e s e n t ne ar - t e rm a s p e c t s

 4- 5 8

p e r fo rman ce - d ev i at ion pr ob l ems , g oin g f r om o ne f i r e f i g ht in g s i tua t ion

to ano the r . Fo r la ck of t ime ( o r me nta l ene r gy ) r e l a t ive l y l i t tl e or no

a ttenti on w il l be p aid to mon i t o rin g s i gn a l s tha t ind i ca te mor e fund ame n ta l

we akn e s s e s wi th the g ene r a l s t ra te g i c p a th . Al s o , p r e s s u re s t oward sh owin g

c ons is t en t s ho r t - te rm p e r fo rma nc e , a f e atu re wh ich te nd s to be h i gh l y

app re c ia te d by th e s to c k ma r k e t
'
, mi gh t d imin is h s en io r mana g eme nt s

re la t ive a t ten ti on to lon g— te rm co r r e c t iv e a c t io n s . We ar e of c our s e no t

cl a imin g he re tha t s hor t— t e r m p e r f o rma nc e s hou ld no t be a tt end e d to .

Ra the r . ou r p o s i ti o n is tha t mon i to r i ng of bo th l on g - t e rm and sh or t - te rm

r es ul t s shou ld be a tt emp te d . Th e is su e of how mu ch r e l a tiv e emph a s i s

sh oul d be put on s ho r t- te rm ve r su s lon g - te rm p e r f o rmanc e fu l f i l lmen t

a ttent ion is h owev e r a ques ti on tha t wi l l d ep end on

'
a comp any s p ar t i cu l a r

s i tua tion , and we sh al l d i s cu s s th is fur th e r in the ne x t ch ap te r on

ta i l orma kin g of the corp o r a te p lann in g sy s t em s de s i gn '

.

Le t us now d i s cu s s tw o imp l eme nta ti on p rob l ems tha t r e l a t e to th e f i f th

and f ina l s ta ge of th e corpor at e p l ann in g p ro c e s s , the d e te rmi na ti on of

mana gement inc e ntive s . Th e f ir s t imp l eme n ta tion i s su e he r e is tha t the

grant in g of mana gemen t i ncen t iv e s s hou ld r e f l e c t the na tu r e of the s t r ate g i c

ta s ks a t h and . I f a p ar ti cul ar s t r ate g i c s u c c e s s i s du e la r ge ly to env iron

men t al e f f e c ts o uts ide the con tro l of a mana ge r th en he s hou ld no t r e c e ive

add i t iona l c omp ens a tion f or th i s ; if , on th e o th e r ha nd th e su c ce s s wa s

lar ge ly a ttr ibu tab l e to

'
the mana ge r s s trate gi c ins i gh t , th en th is s hou ld be

r e f l e c ted in the way h e i s comp e ns a ted . Th e s e co nd imp leme n ta tion i s su e in

 4- 5 9

conne c t io n wi th th e f in al cy c l e i s to p ay a t te nt i on no t onl y to inc e nt ive s

tha t ho no r s hor t - t e rm p e r fo rman c e ex c e l l e nc e b ut to s tr i k e a b a l an c e b e twe en

th e s e and th os e tha t h ono r lon g- te rm p e r fo rman c e e x c e l l en c e . Le t u s d i s cu s s

e a ch of th e s e tw o i s s u es in tu rn .

xi i i . S tr ate gi c fo cus on ma na ge r i a l inc en ti ve s .

Th e na tur e of th e s tra te g ic ta s k a t ha nd sh ou l d be r e f l e c ted in

th e i n c en tive s y s t em , so tha t mana ge r s can be mo t iv a te d in a way wh i ch

f a c i l i ta te s co n gr ue n c e b e twe e n th e s tr a te g i e s to be pu r s ued by th e

'
o r g ani z a t ional un i t and the mana ge r s p e r s on a l g o al s . L e t us i l lu s tr a te

th i s i s s ue by co ns id e rin g how to mo t iva t e th e man a g e r of an SEU a s an

examp l e . Th e natur e of th e s tr at e g i c ta s k f a c in g the mana ge r mi gh t f o r

t h e SB U s
'
in s tanc e vary s i gn i f i c an tl y w i th th e typ e of l i f e cy c l e th a t

b u s in e s s i s in . For i ns t anc e , th e ma j o r d e te rmin an t s to su c c e s s f o r an

SB U whi c h i s i n i t s e ar l y growth s t a ge ar e p ro b a b ly ada p t ive en tr e pr e n eu r i a l

mov e s to d eve lo p an e f f e c ti ve ni c he i n th e mar k e t p l a c e ; b r e ad th and typ e

of sp an of p ro du c ts , channe l s of d i s t r i b ut ion ; p r i c in g and f inan c in g

po l i ci e s , and so on . To a l a r g e e x ten t th e suc ce s s on th i s i s l i k e ly to

dep e nd on the mana g e r i n ch ar ge of th e SEU . He mi gh t b e i n c en t i va t e d

toward s th i s b y re c e iv in g a r e l at iv e ly lar g e s h ar e of h i s c omp en s a t ion

as a va ri a b l e f un c tion of
'
h i s o r gan i z a tion s p e r fo rman c e . Th e empha s i s

on the k ey r o le of th i s mana ge r a s a n ind iv idua l may fu r th e r b e und e r

s cor e d by g ivi n g the maj or p a r t of th e in c en t iv e to h im a s an ind iv idua l

an d no t th e b ro ad er group of man a ge rs in the SBU . If on the o the r h and

we h ave an SEU whi c h i s po s i t ione d wi th i n a bu s ine s s wh ic h i s con s id e r ab ly

mo r e matur e , th e k eys to s t ra te g i c su c c es s wi l l prob ab l y be d i f f e re n t than

 4- 60

in ou r rowth - b us ine s s S B U examp l e Now the su c c e s s i s mo r e l ik e ly to

g .

of
'
hing e on ou tp e r fo rmi n g one s comp e t i to rs in t e rms co s t e f f i c i en cy ; a

smoo th p rodu c tio n and d i s tr i b ut ion p ro c e s s ; l e an p o l i c i e s f o r pu r ch as in g

and i nven to r ie s ; ma in tenan c e of s tab l e l ev e l s of p roduc t qua l i ty , and so

on . I n th i s c a s e th e te am of mana g e rs a s a n ove r al l te am r a th e r than

ind iv idua l i s t i c p e r fo rman c e is li ke l y to be cr i tic al . Thu s , in c en t ives

sho uld be f o cu s ed mo re on th e p e r fo rman c e of the mana geme nt te am a s a

of
gr oup . H oweve r , a re l a tiv e ly l ar g e r numb e r f ac tor s out s ide con tr o l

of the mana gemen t te am wi l l p rob a b ly a l so d i c tat e th e p e r f o rman ce in th i s

'
c as e tha n in ou r e ar li e r examp le , abo ve a l l th e SBU s b u i l t - u p p o s i t ion

of b us ine s s s tr en gth ove r p a s t ye a rs . Thu s , a lar g e r f r a ct io n of th e

ex e cu t ive s '
comp ens a ti on sh ou ld p rob ab l y be c on s ide re d a s f ix ed ; th e

inc ent ive s s ho uld p ro b a b ly only ap p ly to a r e l a t iv e l y sma l l p o r p or t i on

of th e ove ra l l comp e ns a ti on . I n l ine wi th thi s , a s t r at e g i c emph a s i s on

ma na ge ri a l i n c entive s mi gh t invo lv e a t ai lo rmak in g towar d s the g iv e n

s i tua tion ; ind ividua l ve rs u s gr oup in c e nt iv e s as we l l as re l at ive ly h i gh

empha s is on f ixe d comp e ns at io n v er su s on comp en s a ti on var i a b l e wi th

pe r fo rm a nc e .

Howeve r , we s ee tha t in c e nt ive s s hou l d r el fe c t th e na tu re of th e

s tr ate gi c tas k of a pa rt i cu l ar b us i ne s s , de p e nd in g on th e l i f e — cy c l e s ta g e

tha t th e bus i ne s s i s in . Th e r e wi l l typ i c a l l y be a n addi t io na l co ns id e r a

ti on th at mi g ht fur th e r mod i fy th e na tu re of the s tr a te g i c ta s k , name l y

the ex te n t to whi c h th e ma na gemen t of a b u s ine s s is in a po s i t ion to

p red i c t and re s p ond to th e deve l opmen t of ke y env ironme n ta l f ac to r s . If

a mana ge r has l i ttl e or no Op po rtun i ty to p r ed i c t s i gn i f i c ant d eve l o pmen t s

in th e env iro nmen t tha t mi g ht dr amat i c al l y i nf luen c e h is s tr a te g i c

 4- 6 2

mo t iva tio n a c tu al ly mi ght be c o u n t e r s t r a t e gi c , thu s p rov id in g ev e n mor e

s e riou s mo men tum a gai ns t the imp lemen ta t io n of p lann ed s tr at e gi c d i r e c ti on .

Th is b r ing s us to ano the r imp l eme n ta ti on p ro b lem , name l y tha t

inc ent ive s cheme s do no t tend to r e a ch a r e a so na b l e b a l an c e b e twe e n

mo tiva tin g towards s hor t — te rm ve rs u s long - te rm p e r fo rman c e . Un f or tun a te ly ,

in mos t cas e s th e emph as i s s e ems to be h e av i l y s k ewed towa rd s ap p re c i a t io n

of s ho r t - te rm p e r fo rman c e in th e in c en t iv e s s cheme s . For in s tan ce , ye ar

e nd p ro f i t p er fo rma nc e , pa r ti cu l a r ly wh en i t ex c e ed s th e b ud ge t , te nd s to

c oun t he avi ly . Th i s is l ike ly to in tro du c e a s ho r t - te rm p e r f o rman c e

max imi z in g b i as i nto a comp any , wi th po s s i b i l i t i e s of d an g e rou s non

s tr a te gi c su b O p t i m i za t i on s th at mi gh t e rod e the po t e nt i al fo r lon g- t e rm

su c c e s s . On e of th e o b j e c t i on s to i nc lud in g lon g- te rm p e r f o rmanc e

'
fu l f i l lmen t c r i ter i a in mana g emen t s in c ent ive s ch eme s i s t ha t the s e

s ch eme s mus t b e b as e d on r ea s ona b l y ob j e c tive me a s ure s and tha t i t

g en er a l ly i s t oo su b j e c t ive to as s e s s a mana ger s cont r i b ut i on tow a rd s

'

-
lon g te rm p e r f o rmanc e . Howev er , wi th th e adv en t of the s e t of va r ia b l es

an d me as ur e s th a t have b e en devi s ed dur i n g th e p rev iou s fou r cy c l e s of

th e s tr a te gi c p lannin g s cheme , the re i s a mu ch be t te r b as is fo r c ar ry in g

ou t as s e s sme nts of l ong e r — te rm p e r fo rmanc e ; he nc e , th i s con c e rn s houl d no

lon ge r be s e en as a ma j or o b j e c tion
.
.

Ano the r f a c tor wh i ch t rad i t iona l ly ha s de tra c ted from emph a s i z in g

lon g - t er m .
p e r f o r ma n c e a s a c ri t er ion in the in c en tiv e s c heme s is b as ed on

th e o b s e rva t ion th at the fr e qu en c y of jo b ro ta ti on s amon g mana ge r s i s so

h i gh tha t i t w i l l be v i r tu al l y impo s s ib l e to ho l d a ma na ge r a c co un ta b l e

for lon ge r - te rm p e r fo rma n c e . Th i s is a va l i d O b j e c t ion , ind e e d a

 4 - 63

fu ndamen ta l po t e nt i a l ob s ta c l e to the imp l emen ta ti o n of a s tr at e g i c mode

of ma n a g i n g th e f i r m . O ne ap p ro a ch to r edu c in g th is p r ob lem wou ld b e to

cu t down on the f r e que n cy of mana ge r i a l jo b ro tat io ns . Ex c e s s iv e job

ro ta tion s may i n many comp an ie s ind ic a t e a l a c k of tho rou gh p l ann in g of

k ey mana geme nt r e s o ur c e s , and may al s o be s e en a s a s ymp tom of und e r

e s t ima tion of th i s o b s t a c l e s r o l e a s a b a rr i e r
'
to th e imp l eme nta t ion of

s t ra te gi c p l anni n g . Th e e p i tome of thi s may be a rap id a s s i gnme n t of a

suc c es s ion of ma na ge rs to try to turn a round a tr ou b l e d b us i ne s s , i ns te ad

of a tt emp ti n g to come to g r i p s di r e c t ly w i th th e basic s tr a te g i c p ro b l ems

fa c in g th i s b us ine s s . I n any c as e , r ap i d jo b ro ta t ion s e ems to have

b e come a p ar t of th e mana gemen t s ty l e of some c ompan i e s , p r ob ab ly w i th

mo re n e ga tive than p o s i t iv e b ene f i t s . ( A con s c i ous a t t emp t to r edu c e th e

f r e q uen cy of job r o ta t io n of cour s e do e s no t me an tha t on e s hou ld have to

go to th e o th e r extreme ) .

S ome comp an i es s y s temat i ca l l y r e a s s e s s mana ge r s key s tr a te g i c

de c i s ions even a f te r th e r e s p on s i b il i ty f o r a man a ge r s bu s in e s s domai n '

has b een tr ans f e rr ed to hi s s uc ces sor . S uc h a "

do s s i e r of a man a ge r s '

b a ck h is to ry of su b s tan tive inpu t on s tr at e g i c de c i s ion s an d p l an s mi g h t

be a us e ful to o l i n ame l i o r at in g s ome of th e dy s fun c t iona l e f f e c t s of

job ro ta t io n by r e s e rvi n g a s e n s e of lon g- te rm a c c oun tab il i ty f or s tr a t e gy

"
fu l f i l lme nt . Th e admi ni s tra t io n of s u c h a f i l e wou ld of cou r s e have to

d on e c ar e fu l ly , bo th in te rms
'

he of w ho s hou l d hav e ac c e s s to i t and th e

r i gh t of e a ch mana ge r con c e rn e d to in c lud e hi s po in t of v i e w in the f i le .

P ro b a b ly th e mo s t us e f ul pur po s e of suc h a f i l e s y s tem i s to have on

re co r d th e b a c k gr ound s fo r th e bu s in e s s su c c e s s e s ; cre d i t i s ve ry e a s i ly

g iv en to th e ma n a ge r w ho hap p en ed to b e at th e h e lm a t th e time wh e n a
 4 64
r

b us i ne s s e xp er i enc ed a s u c c e s s fu l b re ak , and no t to the mana ge r s who l a id

th e f ound a tio n thro u gh lon g- te rm s tra te g i c i ns i gh ts .

La c k of p rop e r b al anc e b e twe e n lon ge r te rm and s ho r te r t erm

— -

cr i te r i a f or p er fo rmanc e as th e b as i s fo r mana g e r i a l in c en t iv e s cheme s

p rovi de s an imp or tan t imp l emen ta t ion b a rr i e r to s tr a t e g i c p l ann in g , abov e

al l b e c aus e of the de c l ine of an imp o rtan t o ppo r tun i ty to bo l s t e r p lann ed

s tra te gi c d ir e c tion tha t thi s r e p re s en t s . Wh i l e thi s imp l ement a ti o n

p rob l em , as we l l as th e oth e r o ne d i s cu s s e d in th e con tex t of th e f inal

cy cl e of the p lanni n g s y s t em may be s e en a s r e l at iv e ly ind i r e c t b a rr i e r s

to the imp lementa ti on of c o rpo ra te p l ann in g , the y are s ti l l impo r tan t .

P r op e r i nte gr ati on of mana gement i nc e nt ive s w i th th e r e s t of th e p l ann in g

sys tem can provi de a s i gn i f i c ant re i n f or c ement of th e i ndended s t r at e g i c

thrus t .

4- 7 . S u mm a gy

Th i s chap te r has l ai d ou t th e in i t i a l i s su e s in ou r d i s cus s io n of how t o

imp lement corpo ra te p lanni ng sy s tems . R a the r than emb ar kin g a t a c on tin ge ncy

b as ed d is cus s ion a t th i s p o int we found i t u s e f u l to d i s cu s s fou rt e e n d i f f e rent

gen er al typ es of imp lementa t ion p i t f a l l s and p ro b l ems tha t tend to b e common

wh en adop t in g the th re e- b y - f ive con c e p tu a l ap p ro a ch to co rp o r at e p l ann in g .

" "
Th e is s ue s r ai s ed h er e shou ld s e rve a s a f i r s t ch e c k l i s t fo r t he imp l eme n ta

t ion of co rp o ra te p la nnin g ; w i thou t a t l ea s t b e in g awa r e of , or , eve n b e t te r ,

havin g a t temp t ed to re s o lve th e s e is s ue s i t is mo r e or l e s s fut i l e to exp e c t

p l annin g to be e f f e c tive . H av in g tac k l e d th e prob l em s out l in ed in th i s c ha p t e r

do e s no t , howeve r , guaran te e su c c e s s in th e c orp o r at e p lann in g fun c t io n ;

add i tio nal ta i l o rma kin g of the sy s tem to th e p ar t i c ula r s i tua t iona l s e tt in g

a t h and wi l l have to b e done th e to p i c f or th e ne x t chap t e r .

 4- 66

wi t h the ob j e c tive s s e t dur in g th e p r evi ou s s tag e . Dur in g th e b ud g e t in g

s ta ge we r ai s e d thr e e are a s of imp l eme n ta t i on co nc e rn : tha t s tr a te g i c

re s ou rc e s s ho ul d be al l o c a te d to th e s tr a te gi c p ro grams and no t to the

pr opo s al s of the cap i tal b ud ge t in g proce s s no r to the de p a r tme nt s '

dis

c r e ti onary exp end i tu r e b ud ge ts ; th at th e b ud ge t s hou l d be s e en as an a c ti on

of
'
p lan r e f l e c t in g nex t y e ar s int ende d p ro g re s s towa rds th e fu l f i l lmen t

s tr a te gi c p ro gr ams ,
o b j e c t ive s an d go a l s , and h en c e s ho uld b e buil t up

aroun d k ey va ri a b le s ; and tha t th e b ud ge t s h ou ld a s s i gn c le ar r es p on s i b i l i ty

f or ex e cu tion to th e re levant man a ge r s , c on s i s t en t wi th th e und e r l y in g

O b j e c tive s , goa l s an d s tr a te g i c p r o gr ams . Du r in g th e mon i tor in g s ta ge

th er e we re tw o is sue s of p ar ti cu la r conc e rn : tha t th e mon i to r in g ta s k

sho ul d b e s tr a te g i c in ou tloo k , i . a. , hav e a f o cu s on the f or e c a s t in g of

a g iv en env i ronme nta l ph enomenon a s we l l a s th e s t r a te g i c r e spon s e p o ten t i a l ;

al s o , the moni to r in g ta s k s hou ld re a ch a b al an c e b e twe en a lon g- te rm p rima ry

exte rn al fo cus an d a shor te r - te rm p r imary in te rn al fo cu s . F in al ly , dur in g

the mana gemen t i nc en tive s e tti n g s ta g e we r a i s e d the i s su e tha t the sp e c i f i c

natur e of th e s tra te gi c tas k shou l d be re f l e c t e d in th e man a g emen t in c en tiv e

s y s tem s e x e cu ti on ; an d tha t th e in c en t ive s s houl d rea ch a b a l an c e b e twe e n

'

emph as i z in g sh o r ter - t erm and lon g e r - te rm p er f o rman c e fu l f i l lment .

H avin g by n ow c omp le ted ou r ta s k of iden ti fy in g an d d i s cu s s in g a s e t

of g ene r al p lann i n g imp lement a tion and p i t f a l l is sue s , wh i ch s e em to be

mo re or l e s s r e levant to al l co rp o ra t e p lann in g s e tt ing s , ou r nex t s t e p

s hal l b e to d is cus s how to app roa c h th e t ai lo rma k in g of a p l ann in g sy s tem

so th at it mi ght p o s s e s s an app ro p r ia te s e t of c ap a b i l i ti e s to me e t th e

p arti cu l ar ne e ds f or p lann in g t hat a g iven comp any m i gh t f a c e . We sha l l

ds i c u ss th is in Chap te r F ive .
Ch a p te r Fou r Foo tnot e s

1 . Th i s cha p te r fo l l ow s a s truc tu re wh ic h in mo s t in s tan c e s i s s i mi l ar

"
to th a t re po r ted in Lo ran ge , P e te r , Imp lemen ta t ion of S tr a te g i c

P l ann ing S y s tems in H ax , Arn o l do C . ( e d i to r ) , Adv an c e s in O pe ra t i on s

M ana gem en No r th— Ho l l and P u b l i s h in g , Ams te r dam , 1 97 8 . Fo r o th e r

d is cu s s i on s of p i tf a l l s and pro b l ems , s e e War ren , E . Ki rb y , Lon g- R an ge

P l ann in g : Th e Ex e c u tive V i ey p o i n t , P ren ti c e - Ha ll , En g lewood Cl i ff s ,

G i l b e r t , ! av i e r and P e t e r Lo ran g e ,
"
1 966 , F ive P i l l ar s f o r Y our

"
P l ann in g , Eur o pe an Bu s in e s s , Fa l l , 1 9 7 4 ,
El i a s s o n , Gunn ar , B u s in e s s

Ec onomi c P l an n in g , J ohn Wil e y S on s ( a l so , S we di sh Indu s tr i al P ub l i

ca tions ) , N ew Y o rk , 19 7 6 , Koon t z , H "

M ak i n g S t r ate g i c P lann in g Wo rk , B u s ine

Ho r i z on s , Ap ri l , 197 6 , and S te i ne r , Ge o r g e A .
, S t ra t e gi c M ana ge r i al
P l ann in g , P lann in g R e s e ar ch I n s t i tu te , Ox f ord , 1 9 77 .

2 .
-
S e e Koo nt z , H M a k in g S tra te g i c P lann in g Wo rk Bu s in e s s Ho r i z on s ,

Ap ri l , 19 76 , Qu inn , J ame s B ri an , S tr ate g i c Go a l s : P ro c e s s and

Politics S lo an M ana gemen t R ev i ew , F al l , 197 7 .

3. S ee An s o f f , H . I go r an d J ohn M . S tewa rt , S t rate g i e s f o r a Te chno lo gy

B as e d B us in e s s ,
H a rvar d B us i ne s s R ev i ew , N ov D e c .
-
. 1 96 7 , an d V an c i l ,

R i dh ar d F . ,
"
B e tte r Man ag emen t o f C o rp o rate D eve l o p me n t , H a rvard

Bu s in e s s R evi ew , S ep .
- Oct .
, 1 97 2 .

4 . S e e Ca r t e r , E . E Th e B ehav i o ra l Th eo ry of th e F i rm and Top — Lev e l

Co rp o ra te D e c i s ions Adm in i s tr at ive S c i en c e Qu a rte r l y , Vol . 16 , 1 971 ,

 4 - 68

Eva lua t in g E pe n s e s x ,
Jo hn W i l ey S on s , New Yo r k , 1 9 7 3 , S ton i ch , P au l J .
,

Z e ro - B a s e P l ann in g and Bud ge tin g , D ow J one s — I r w i ng , Homewood , 1 9 7 7 , an d

An and , S u de e p , Re sou r c e Al l o c a tion a t th e Co rpo ra te L ev e l of th e F i rm :

M an a ge r s fo r Eva lua t ion of I nv e s tme n ts , Unpub l is he d Ph D. . Th e s i s ,

Camb r id g e , 1 9 7 7 .

S e e B e rg , Norman A .
,
Th e Al l o c a tio n of S tra te gi c Fund s in a La r ge

D ive r si f ied Com pan y , Un pu b l i s he d Do c to r a l D i s s e r ta t ion , Ha rv ard Bu s ine s s

S choo l ,
Bo s ton , 1 963 , Ack erman , R . W .
, O r gan i z a t ion and th e I nve s tm en t

P roc e s s : A Compa ra tiv e S tud y , Unpu b l i sh ed D B A . . . Th e s i s , H arv ard

Unive rs i ty , Bo s ton , 1 96 8 , B ow e r , J o se ph L .
, Mana gin g the R e so ur c e

D ivi s ion of R e s e ar ch , H arva rd Bu s in e s s S choo l , Bo s to n , 1 9 70, Ca r te r ,

E . Eug ene , Po rt fo l i o As pe c t s of Co rp o ra te C a p i ta l Bud ge tin g , D . C .

Inve s tm en ts , Unpub l i shed Ph D . . Th e s i s , Camb r idg e , 1 97 7 .

S e e S ch i f f , M . and A . Y . Lewin ,
"
Wh e re Trad i t iona l B ud g e t in g Fa i l s

in S c h i f f ,
.
M . and A Y . . Lew in , ( e d i to r s ) , B e h av i o r A s pe c ts of

Ac coun tin g , P ren tic e - Ha l l , En g l ewo od C l i f f s , 1 9 74 , and Ca r te r , E . E

"
De s i gn in g -
th e Cap i t a l Bud g e ti n g P r oc e s s in Ny s trom , P aul C . and

W i l l i am H . S tarb uck , ( e di to rs ) , Pr e s c ri p tive Mo de l s o f O r gan i z at i ons

No rth - Ho l l and P ub l i sh in g Co .
, Am s te rdam , 1 9 77 .
CH AP T ER F I VE
Tai lo rmak in g th e C o gpo r a t e P l ann in g S y s t em '
s De s i
gp .

5- 1 . I n tro du c t i on

We have deve lo p e d a con c e p tua l s c heme fo r co rpo r a te p l ann in g ( C hap te r

bu t s e en tha t th e su c ce s s fu l imp l eme n ta t ion o f s u ch a con c e p tua l s ch eme

"
fo r p l ann in g wi l l no t on ly de p end o n th e avo i dan c e o f a num b e r o f p it

fal l s of imp l emen ta tio n ( C h ap te r F ou r ) bu t a l s o an d e qua l ly imp o r tan t ,

th a t we ar e ab l e to ta i l o rmak e th e p l ann in g sy s te m s c ap ab i l i t i e s to '

r e

f l e c t the nee ds o f th e s i tua t iona l s e tt in g o f th e f i rm . Th e s tr a te g i c

po s i t ion o f th e f i rm ( Ch ap te r Thr e e ) was th e mo s t impo r tan t s o ur c e o f

de te rmi na tio n fo r p l ann in g ne e ds . In th i s chap te r we s h a l l a t temp t to

'
deve l op an ap p roa ch towa rds ta i lo rmak in g th e de s i gn o f a f i rm s p lann in g
1
s ys t em in o rde r to me e t th e n e e ds re qu i r eme n ts a t h an d . We sh a l l do th i s

by i d en t i fy in g a s e t o f va r i ab l e s re la t in g to the d e s i gn o f a p l ann in g
’

sy s t em . Th e s e va ri ab l e s wi l l be un de r ou r di s c re t ion ary c on tro l an d c an

" "
be man i p ul ate d in su ch a way th a t th e co rp o ra te p l ann in g sy s tem wi l l

a ch i eve de s i re d c ap ab i l i ti e s fo r ma t ch in g th e p l ann in g ne e ds . It is clear

tha t th i s wi l l b e an imp o r tan t s te p o f s ha rp e ne d fo cus be y on d th e mo r e

g ene r a l imp leme n ta ti on i s s ue s di s c us s e d i n th e p r evious ch ap te r . Howe ve r ,

we s aw th a t th e s e is s u e s wou l d s e em to h ave r e l evan c e fo r a l l co rp o ra te

p l ann in g s y s t ems , an d th e r e fo re r e p r e s e n te d a ne c e s s a ry s t e p o f c l ar ifi

c at io n of th e con c e p tua l s ch eme .

We s h a l l s t ar t o ur di s cus s ion o f s i tu a ti on a l de s i gn o f th e p l ann in g

sy s tem b y .
app r o a ch i n g how to ta i lo rmak e tho s e as p e c t s o f th e p l ann in g sy s

tem th a t ap p l y to th e SB U s in p a r t i cu l a r . We sh a l l s e e how the p l ann in g

sy s t em mi g h t fa c i l i ta t e th e s e t tin g o f an app ro p r i a te s t r a te g i c di r e c ti on

of a SB U , in t e rms o f th i s b e in g a re fl e c t i on o f i ts ne e ds fo r adap ta tion

and in te g ra t ion . Th e p l ann in g s y s tems de s i gn i s su e s tha t wi l l h e l p us

fa c i li ta t in g th i s s ha l l con s i s t o f thr e e c l as s e s o f che ck l i s t fa c t or s to

fac i l i ta te th e de s i re d s t ra te g i c th ru s t . Th e fi rs t dimen s i on o f th e SBU

p l annin g s y s tem wi l l de a l wi th th e cho i ce o f s p e c i fi c s t ra te g i c di r e c t ion ;

shou l d i t be an a tte m p t to en t e r , bui l d , h o l d , h arve s t o r e x i t a bus ine s s ?

" "
Th e se cond dimen s ion de a l s wi th wha t wou l d b e a na tural typ e o f s t ra te g i c

'
p ro g rammin g e f for t to re in fo r ce th e SBU s de s i re d s tra te g i c di re c t ion ;

shou l d the s tra te g i c p ro g ram min g emph as i s be on in i ti a l ma rk e t de ve lo pmen t

fo r en try , on mark e t p en e tra tion , on ma rk e t ma in tenan c e , on ve r t i c al i n

t e g r a t i on , on deve lopmen t o f fo re i g n bus in e s s , on rat i ona l i z a tion , on

e f fi c i ency imp rov em en ts o r , on un i t ab andonme n t an d e xi t ? Th e th i rd di

m en s i on de a l s w i th th e re in fo r c emen t o f the s t r ate g i c d i r e c tion o f a

S BU , as e s tab l i s he d th rou g h th e cho i c e s r e l a te d to th e p r evi ous two di

m e n s i on s , in te rm o f s e l e c tin g a p a rti cul ar comp e ti tive mo de fo r s t ra te g i c

"
ni c h e p uri fi c a tion . S ome o f th e fa c to rs h e r e , s u ch a s emph as i s on

qua l i ty o r ima g e , w il l t end to re in fo r c e th e a da p tive th ru s t . O th e r fa c

to rs mi g h t p r ima r i ly s t ren g th e n th e in te g ra t ive s i de , s u ch a s ch o i c e o f

po l i ci e s fo r p ri ce , s e rvi c e and de l iv e ry re l i an ce .

Wh en i t come s to th e de s i gn o f th e p ar t o f the p l ann in g s y s tem whi ch

i s in tende d to fa c i l i ta t e th e deve lo pmen t o f S EU s t r ate g i e s in a na rrow

s en s e , ou r app ro a ch s ha l l thu s b e on e o f su gg e s tin g a s t ati c ,

ch e ck l i s t

de s i gn , fo cu s s in g on s e ttin g s tr a te g i c di r e c ti on , choo s in g an ap p rop r i a te

s tra te g i c p ro g ram th ru s t an d re in fo r c in g th i s wi th p a rt i cul ar comp e ti t ive

mo de po l i cy cho i ce s . S e en in i so l a ti on , s u ch a s ta ti c p l ann in g s y s t em

de s i gn wo ul d no t app e ar to be a l l th a t us e ful , in th a t i t mi gh t s e em too

me ch an is ti c an d un in s p i rin g . Howe ve r , we sh a l l su gg e s t tha t th i s com

po nen t of th e p l ann in g s y s t em s hou l d be us e d p r im a ri l y fo r p rovi din g im

p rove d SBU s t rate g i c fo cu s . T hu s , i t s ha l l be in ten de d p r ima r i l y to

th e bus ine s s a t t r a c t i ve n e s s / c om p e t i t i ve s t re n g th ma t ri x . Thus , a so

c al le d "
que s ti on - ma rk "
p o s i tio n wou l d imp ly a h i g h ne e d fo r adap t at ion bu t

"
a re l ative ly l ow ne e d fo r in te g rat ion ; a s ta r po s i t io n imp l i e s a h i g h

"
ne ed fo r bo th adap ta tion as we l l a s in te g r at i on ; a c as h cow-
p o s i tion i m

p lie s a re l ative ly h i gh e r ne e d fo r in t e g r ati on than fo r adap ta ti o n ; an d

a "
dog
"
p o s i t ion imp l i e s a re l a tive l y low ne e d fo r bo th a dap ta t i on an d in

t e g r a t i on . We a ls o re ca l l tha t to evo lve a SBU f rom a que s t ion - ma rk to

a s tar “ po s i tio n wi l l re q ui re an ino rdina t e emp ha s i s on bo th ad ap ta tion

as we l l as on in te g ra ti on , but th a t th e in te g r a ti on di me ns ion i s th e on e

th at w i l l have to b e s t ren g th ene d re l a tive ly th e mo s t . Wh en evo lvin g f rom

a "
s tar to a c as h cow
- "
we re ca l l th a t the a dap tive ne e ds a c tua l l y wi l l

dimi n i s h somewha t re l a tive to in t e g r a tion . Th e ch a l l e n g e fo r a S BU

'
s p l an

n in g sy s tem i s to f a c i l i ta te th e cho i c e o f a s t ra te g i c di re c t i on th a t

a c tual ly p rovi de s the a dap t i v e / in t e g r at i ve th ru s t to me e t th e s e i den t i f ie d

2
ne e ds .

The p l ann in g s y s tem fo r a SBU s h a l l f a c i l i ta te th e e x e cut io n o f s t ra

t eg i c di re c ti on . As a l re ady in di c a te d we s ha l l p ropo s e th re e s e ts o f

ch e ck l i s t fa c to rs whi ch s houl d fac i l i ta te th e p rop e r fo cus on th e e x

e cu t i on e f fo r t . T he s e ch e ck l i s t s re l a te to th e cho i ce o f b as i c s t rate g i c

di re c t ion , th e cho i ce o f s tra te g i c p ro g ram th ru s t an d the cho i ce o f com

p e t i t i ve mo de r e in fo r c in g p o l i c i e s . T he c on tin g e n cy - bas e d de s i g n ap p roa ch

o f p l ann in g s y s tems fo r 8 8 05 imp l i e s that the ac tua l s p an o f e a ch o f th es e

cho i ce s wi l l inde e d be re l ative ly n ar row , g iven th a t th e r e wi l l b e a few

"
n atura l s tra te g i e s th a t mo s t p r O p o e r ly wi l l p rovi de th e de s i re d a dap t ive

an d in te g rat ive thru s t fo r a p art i cu l ar SB U . Thus , th e ma j o r p u rp o s e o f

th e de s i gn of th e SB U
‘
s p lann in g s y s t em i s to en s ure th at th e re l evan t

"
ch e ck l i s t fa c to rs are b e in g chos e n wh i ch a l l ow s u ch a n a tu ral s tr ate g y

e x e cu tion to be fo l lowe d . cons i s t en t wi th th e SBU

‘
s ne e ds . Th e sy s tem
shou l d be a too l fo r th e S BU mana g e r fo r h i s own p l ann in g o f hi s s t ra te g i c

di re c t i on . Le t us in tur n di s cu s s th e th r e e c l as s e s o f ch e ck - l i s t s y s

tems de s i g n cho i c e fa c to rs fo r a SBU

'
s s tr ate g i c p l ann in g s y s tems mo du l e .

Wh en i t come s to th e fi rs t s e t o f fa cto rs , name ly to che ck wh a t s hou l d

"
b e th e b a s i c di re c t ion o f wh e r e to go , or , i n o th e r wo rds , to ch e ck wh a t

shoul d b e th e b a s i c di re c t i on comi n g ou t o f th e SBU

'
s ob j e ct ive s th e r e

s e em to b e f ive b ro a d di re c ti on al a l te rn a t ive s

To e n te r i n t o .

a bu s i ne s s , typ i c a l l y c re atin g a n ew SBU wi th i n the

" "
que s t ion ma rk a re a
- .

ii) To bui l d a s t r a te g i c p o s i ti on . Th i s wi l l typ i ca l ly im p ly th e

de ve lopme n t o f comp e ti tive s t re n g th , s a y by in c re as in g o ne s '

mark e t s h are .

iii ) To
'
ho l d o ne s s t r at e g i c p o s i t ion . Th i s imp l i e s t he em b ark in g on
'
a s t r a te gy tha t at t emp ts to ma in ta i n on e s c omp e ti t ive s t re n g th

p o s tur e wi thou t ma j o r s h i f t s i n , s ay , mark e t s ha re

iv ) To h arve s t , wh i ch wi l l imp ly th a t on e s s t ra te g i c '

p o s i t io n wi l l

g ra dua l l y b e al low e d to b e we ak e n e d ; th e r e wi l l p rob ab ly b e mo re

re sour ce s ex t r a c te d f rom a S BU th an wha t i s re inve s t e d to ma in

ta in i t s comp e ti tive s t ren g th .

v) To exi t . Th i s im p l i e s wi th dr awi n g f rom th e bu s i n e s s by di ve s t in g

o f th e S EU o r cl o s i n g down i ts a c tiv i t i e s .

We re cal l f rom Ch ap te r Two th a t th e o b j e c t i ve s - s e tt in g s t a g e o f the

s tr a te g y - fo rm u l a tio n p ro c e s s i s p a r t i cu l ar ly imp o rt an t fo r in f l ue n c in g

th e adap ti ve th ru s t o f a s t r a te g i c di re c t i o n . C on s i de rin g the ab ove di

r ec tio na l al te rn a ti ve s in th i s l i g h t we mi g h t s ay th a t th e e n try "

an d

"
bui l d "
di re c tio n cho i c e s typ i cal ly wi l l be imp l y a ra th e r h i gh l y adap t i ve

th rus t . A "
ho l d "
di re c t i on wi l l p ro b ab l y im p ly a l e s s in ten s iv e a dap t a ti o n

th rus t . Th i s i s l i k e ly to b e ev en mo re s o fo r a h a rve s t s e tt in g , wh e r e

th e b as i c di r e c ti ona l p o s tu re h as lo n g s in ce b e e n e s t ab l i sh e d . F i nal ly ,
to "
exi t no ac ti ve adap ta ti on th ru s t is imp l i e d .

Le t u s now move to th e s e con d c l as s of ch e ck l i s t fa c to rs fo r th e e x

e cu t i o n of a p rop e r s t ra te g i c di re c t ion fo r a S EU , n ame l y wha t mi g h t b e

th e Eypg of s t ra te g i c p ro g r am th at mo s t app ro p ri a te ly s hou l d be cho s e n

_

fo r "
how to ge t th er e I
"
We sh al l i de n ti fy e i gh t ma j o r c l as s e s o f s t rate g i c

"
p ro g ram di re c tions , a l l s i g ni fy in g a l te rna t ive way s o f how to ge t th e r e ,

bu t e a ch be in g th e na tur a l cho i ce in a di f f e ren t S EU di re c t ion ne e d

s i tu ati on

i) Initial e nt
gy in to a bu s in e s s by me an s o f ini ti a l new ma rk e t and

n ew p ro du c t deve lopmen t .

ii ) Ma rk e t pene tra tion . Th i s imp l i e s th e exe cu tion o f s t ra te g i c

p ro g rams , e i th e r fo r p e n e tr a tin g n ew marke ts wi th on e s e x i s t in g

p ro du c ts , fo r p e ne tra t in g on e s e x i s t i n g ma rk e ts wi th n ew p ro d
'

u ct s , o r fo r p en e tr atin g n ew ma rke ts wi th n ew p rodu c ts .

iii) Mark e t ma in tenan c e . A s tra te g i c p ro g rammi n g e f fo r t o f th i s typ e

imp l i e s th a t th e p re s en t ma rke ts an d p ro du c ts ar e b e in g ma in t a in e d .

iv ) V e rti c al in te gra tion . S u ch s tra te g i c p ro g ram s wi l l a tt emp t to

fa ci l i tat e e i th e r b a ckwa rd in t e g rati on o r / an d fo rw a rd in te g r at i on .

v) Exp an di n g in to fo re i g n bus ine s s e s . S t rate g i c p ro g rams to fa c i l

i t at e th i s mi g h t in c lude move s to e x p o r t one s s ame p ro du c ts '

, at

temp ts to ar ran g e fo r li cen s in g ab ro a d , de ve l opme n t o f ove rs e a s

fa c i li ti e s to ca rr y ou t , s ay , s ome Of th e SBU
'
s manuf a c tu ri n g

di s t ribution an d/ o r ma rk e tin g - a c t ivi t i e s , o r de ve lopmen t o f

mo re o r le s s comp le te s p in o f f - S B Us
"
ab ro a d .

vi) R a ti on al i z at ion . S tr ate g i c p ro g rams o f thi s k in d mi g h t in c lude

mak in g move s to tr im e x c e s s cap a c i t y , attemp t in g to c a r ry out

mark e t rationa l i z a tio ns , di s tr ib ut io n ra tio na l i z a ti on s , p ro duc t

 ho ri z on ta l ax i s a c co rdin g to i ts a dap ta tion - o ri e n ta tio n .
Al on g th e ve r

ti ca l ax i s we have ranke d the s eve n f i rs t s t ra te g i c p ro g ram a l te rna tive s

ac co r di n g to the i r in te g ra tive o ri e nta tion . We have indi c ate d w i th che c k

" "
ma rks wh at ap p e a r to be re l e van t n a tur a l s tra te g y comb ina t io o f the s e

ob j e c t ive s an d s tra te g i c p ro g ram th rus t s . Fo r in s t an c e ,

En t gy Bu i ld Ho l d

I n i t i al En try

‘
Ma rke t M a i nt an an c e

Ve rti ca l I n te g ra ti on

F o re i gn B us ine s s Exp an s .

R a ti ona l i z a tion

E ff i ci en c y Imp rovem .

T e rmin al Ex i t .
i f th e bas i c di r e c ti on o f th e ob j e c t ive i s e n t ry , th en on e typ e o f

s tr a te g i c p ro g ram wi l l f i t lo g i c al ly wi th th i s , n ame ly "

in i ti al e n t ry .

I f we tak e any o f th e o th e r s t ra te g i c p ro g ram th ru s ts , su ch as fo r ins t an c e

" "
ve rt i c a l in t e g ra t ion or r a ti on a l i z ati on , none o f th e s e wi l l b le n d

”
wi th th e en t ry O b j e c t ive in to a n a tu r a l s t r ate gy . I f we t ak e th e

“ "
bu i l d ba s i c ob j e c t ive , on th e o t h er
‘

h and , we s e e th a t the re a r e th re e

"
a l te rna t ive s t r ate g i c p ro g r am typ e s th a t fi t wi th th i s , n ame ly marke t

p ene tra t io n , " "

mark e t ma in te nan c e "
and/ o r "
ve r ti c a l i n te g ra t io n .
"
O ne
o r a comb in at io n o f th e s e s t ra te g i c p ro g ram s wi l l fo rm ano the r n a tu r a l

s t ra te gy "
whe n conn e c te d w i th th e "
b ui l d "
ob j e c ti ve . Simi l a r ly , f rom

Exh ib i t S- l we c an s e e in an an a lo g ous mann e r wh a t th e o th e r n a tu ra l

s tra te gy a l te rn a t i ve s mi gh t b e .

F rom th e v ert i c a l an d ho ri z on t a l axe s o f E xh i b i t 5- 1 we c an de te rmin e

th e n a tu re o f th e adap t a tion an d in te g rat ion cap ab i l i ti e s o f th e va ri ou s

"
n atu ral s t rate g i e s .
"
Fo r in s tan ce , a "
n a tu r a l s t r ate g y "
of "
bu i l d by

"
me ans o f mark e t p ene t ra tio n wi l l imp ly a re l ati ve l y h i gh ada p ti ve bu t

low in te g ra tive th ru s t . A h arve s t b y me an s o f e f fi c i e n cy imp r ovemen t

s t rate gy , on th e o th e r h an d , wi l l im p ly a low adap tive b ut h i gh in te g ra t ive

"
em p h as i s . G ive n th a t we th e r e fo re c an c l as s i fy al l th e n atu r a l s t ra t

"
eg i e s in te rms o f a dap t a t i o n/ i n t e g r a t i o n cap ab i l i t i e s i t fo l lows th at

s p e c i f i c s e ts o f th e s e s t ra t e g i e s wi l l p rovi de th e mo s t a de qu a te re s po n s e

to di f fe re n t SB U p lann in g n e e ds . S p e c i f i c a l ly fo r a SB U wh i ch i s i n a

"
que s t i on - ma rk s t ra te g i c po s i ti on an d thus i s f a c in g re la t ive ly h i gh

adap ti ve n e e ds b u t re l at i ve ly low in t e g r ati ve n e e ds , we have in di c ate d

th at two a l te rn a tive n atu r al s t r ate g i e s "

mi g h t be re l evan t . Thes e are

lo c a te d in s i de th e a r e a ma rk e d I an d are e i th e r en t ry b y me a s o f in i n

"
ti al ma rk e t de ve lo pmen t or bui l d by me an s o f marke t p e n e tr at i on . Le t

" "
us s imi l ar ly a l s o c ons i de r wh a t wo ul d b e th e na tu r a l s tra te g i e s th a t
 5 - 10

woul d ful f i l l th e ne e ds o f a SBU in a s t ar p o s i tion . Th e s e have b e e n

en c i r c le d wi th in th e a re a ma rk e d II on E xh ib i t 5- 1 . We s e e th a t th e re a re

fou r po ten ti a l s t ra te g i e s th a t woul d h ave th e ap p rop ri a te c ap ab i l i ti e s

in th i s in s tan ce , nam e l y to "

b ui l d by me an s o f ma rk e t p o s i ti o n ma in te

"
nanc e ,
" "
bui l d by me ans o f ve rt i ca l in te g ra tion , ho l d by me ans o f ma r

" " "

ke t po s i tion main tenan c e or ho l d by m e an s o f ve r t i c a l in te g ra t ion
'

I n a s imi l ar fas hi on we c an s e e f rom E x h ib i t S- l wha t wi l l be th e "

na tu

" "
ral s t rate g i e s fo r S B US in th e c as h cow or do g p o s i ti on s .

"
We ca n a l s o s e e f rom Exh ib i t 5- 1 wh a t wi l l be th e n a tu r al s tr a t

eg i e s o f p rimary re le van ce to con s i de r fo r a man a g eme n t wh i ch in tends to

evo lve i ts S BU f rom a "

que s t i on mark -
to a s tar "
p o s i t i on . Th i s is

in di c a te d by ar row A on Exh ib i t 5- l . C l e a r ly th e b as i c di re c t i o n o f the

" "
s t rate g i e s to fo l low in th i s c as e woul d b e to bui l d . In l in e wi th thi s

th e ar row fa l l s wi th in th e "
bu i l d co lumn in i ts e n ti re ty . We s ee , how

eve r , th at th e re are th re e na tur a l s t rate g i e s that a re ap p l i cab le i n

" " "

th i s c as e , name ly to bu i l d by me an s o f ma rke t p e ne t ra ti on , bu i l d by

me ans o f mark e t main te nan ce , an d / o r b ui l d by me ans o f ve r t i c al i n te g r a

tion . In a s imi l ar fas h i on we c an s e e wh a t wou l d b e th e re le van t s t r at

eg i e s
"
fo r a S BU whi ch i s to b e e vo lve d f rom s ta r to "
c as h cow , see

ar row B on E xh ib i t S- l .

F rom th e di s cu s s i on o f the p re c ee di n g p ar ag raph s we s e e th a t th e

ch e ck l i s t ap p ro a ch to th e de s i gn o f a p l ann in g s y s tem mo dul e f o r th e

SBU le ve l le ads to th e de ve l opmen t o f a too l wh i ch h e lp s th e S BU man a

g e rs to de ve lop s t rate g i e s re l e van t fo cu s s o as to re s pon d to th e ne e ds

fo r p l ann in g i de n ti fi e d . We sh a l l now i n tro du ce the th i r d c l as s o f

"
ch e ck l i s t f a cto rs wh i ch s h al l be in te nde d as h e l p in g de vi ce s to s h a rp e n

the s trate g i c cap ab i l i ti e s eve n fur th e r . As in di ca te d , the thi r d cla s s

o f fa c to rs re l a te to how to re in fo r ce an ap p rop ri ate comp e ti t ive n i ch e

 5 - 12

on g en e ral s t rate g i c th ru s ts tha t fa l l i n - be twe e n th e two e x am p l e s c i te d ,

" " " "

s u ch .
as app ly in g i n p a rt i cu l ar to bui l d an d hold s t r ate g i c di re c t io ns

re sp e c t ive l y . Thus , we s e e th at th e comp e ti t ive n i c he re in fo r ce me n t

fa c to rs i ) i v ) s e em to ap p ly alon g th e up p e r - l e f t to bo ttom- ri gh t con

t inu u m indi c a te d as th e evo lu ti ona ry s ta ge s o f a SBU i n Exh ib i t 5 - 1 .

Cons e que n tly ,

th i s th i rd s e t o f ch e ck li s t fa c to rs con tr ibu te s to an ev en

‘
fur the r sharp en in g of th e s t ra te g i c cap ab i l i ti e s in re s p ons e to a SBU s

p a rt i cu l ar p l ann in g ne e ds .

Be fo re con c ludi n g our di s cus s i on o f how to t ai l o rmak e th e s e t o f

che ck - l i s t fa cto rs to di f fe r en t s i tu a ti ona l s e tt in g s in o rde r to come up

wi th us e fu l p l ann in g s y s tem compon en ts at th e SB U leve l , le t us b r i e f l y

tou ch on th e p a rti cu l ar p rob lems con ce rn in g th e an al ys i s o f th e p l ann in g

ne eds an d cap ab i l i ti e s a s s o c i a te d w i th th e e x i t de ci s i on s . We h ave s e en

tha t wh i le i t has b e en re l a tive ly e asy to come up wi th a con ce p t fo r how

to ma t ch th e p lannin g sy s tems c ap ab i l i ti e s wi th th e p art i cul a r ne e ds fo r

p l ann in g wh en we a re de al in g wi th SB Us wh i ch fin d th ems e lve s in va riou s

on go in g op e rat i ons s e tt in g s , i t i s di f f i cu l t to e x te n d th i s an al ys i s to

an ex i t de ci s ion s e tt in g , g ive n tha t th i s im p l i e s th e di s con tinu an ce o f

th i s O pe ration . In s uch c as e s th e in ten de d mo de o f e x i t wi l l de t e rmi ne

the ne e ds fo r p lannin g an d the co r re s p on din g p l ann i ng s y s t em supp o r t .

' " "

If , fo r in s tan ce , mana g eme n t s de ci s ion i s to p h as e ou t a do g SBU s l ow ly

as i ts ne t fun ds g ene ra tin g cap ab i l i ti e s dwin dle ,

the n th e fu ture bu s i

ne s s po te n ti a l o f th e SBU wi l l inde e d be s o low th a t i t w i l l no t b e we l l

j us ti fi e d to s p e nd e x tens i ve man a g emen t re s o ur ce s on revi ta l i z e d adap ta ti on

an d/ o r int e g rat ion di re cti on s . As s u ch , we mi g h t s ta te th a t th e re l evan t ,

op po rtun i ty wei gh te d ne e ds fo r p l ann in g wou l d be l ow

-
, bo th wi th re s p e c t

to adap ta t ion an d in te g ra ti on . Th e p l ann in g s y s tem s ho ul d re f l e c t th i s .

If , on the o th e r h an d . man ag eme n t i s at temp tin g to di ve s t o f th e SBU ,

 5-13

th e n di f fe ren t p lann in g ne e ds wi l l be c re ate d . Th e re mi g h t be a ne e d to

" "
dre s s up th e SB U i ts e l f , c a l l i n g fo r the pu rs uan ce o f va ri ous a dap ti ve

an d/ o r in te g ra t ive p l ann in g move s a t th e S EU le ve l . In addi ti on , th e

ne e d to s ea r ch fo r di ve s ti tu re can di da te s wi l l typ i c a l ly c re a te adde d

adap t ati on p l ann i n g n e e ds a t th e co rp o ra te l eve l

-
. We s h a l l no t p urs ue

the i s sue o f modi fy i n g fur th e r th e ap p ro a ch p rop o s e d i n th i s bo o k fo r

ma t ch in g ne e ds an d c ap ab i l i t i e s wh en i t come s to SEU exi t s i tua ti ons ,

g i ven th e hi gh ly a typ i c a l an t u r e o f th e s e s i tu a t ions .

We have now conc l ude d th e fi rs t p a rt o f ou r an a ly s i s o f how to ap

p ro a ch the tas k o f t ai l o rmak i n g th e de s i gn o f a p l ann in g s y s t em s o a s

'
to re fl e c t a p ar t i cul a r s i tu a ti ona l s e t tin g s ne e ds . S p e c i f i c a l ly we

h ave s e e n how a t th e bu s in e s s l e ve l a SBU wi th a p ar t i cu l a r s e t of p l an

n ing ne e ds mi gh t b e e q u i pp e d wi th a p l anni n g s y s t em wh i ch fa c i l i t a te s

th e de ve lopme n t o f a fo cus s e d bus in e s s s t r ate g y , re l e van t to th e s e tt in g

o f the SB U at h an d . Th e de s i g n o f th e SBU- re l a te d p l ann in g s y s t em took

p l a c e by choo s in g gu i de l in e f a c to rs fo r f a c i l i ta tin g th e e s tab l i s hme n t o f

th e re l e van t b as i c di re c ti on as re fl e c t e d by p ro p e r cho i ce o f ob j e c ti ve s ,

by choo s i n g f a c to rs to gui de th e de ve lopmen t o f an ap p rop ri a te s t ra te g i c

p rog ram m i n g th ru s t , as we l l as by choo s i n g f a c to rs fo r de ve lop in g an ap

'
p r o p r i at e co mp e ti t ive mo de to s t re n g then th e SBU s comp e ti ti ve ni ch e .

Thus , th e p l ann in g s y s tem fo r th e S BU le ve l cons i s ts o f th re e s e ts o f

’
s tr a te gy fo rm u l at i o n gu i de l ine p a r am e t e r s , f or e a ch o f wh i ch we h ave

ch o s en a re la tive l y n a r row s e t o f p a rame te r va lue s to re f l e c t a g ive n

s i tu a t io na l s e t ti n g .

I t s ho u ld b e c l e a r , how eve r , th a t wh i l e th i s ap p ro a ch h a s th e po te n

ti a l -
of p rovi din g a us e fu l g u i dan c e to th e deve lopme n t o f mo re fo cus s e d

p l ans a t the SE U l eve l , the ap p ro a ch mi gh t e as i l y l e ad to th e de ve lopme n t

of too me ch an i s t i c an d s t a ti c SB U p l an s i f be in g u s e d as th e on l y p l ann i n g
s ys tem too l . Wh en in te g ra te d as p a r t o f a la r g e r , ove r al l c o rpo ra te -w i de

s tra te g i c p l ann in g s y s t em , howeve r , th e S B U - le ve l ap p ro a ch g ai ns th e po

t en t i a l o f b e comi n g h i g h l y u s e ful . We re ca l l from Ch ap te r Two th a t ou r

con ce p tual f ramewo rk i s he avi l y b as e d on in te r a c ti on , i te r at ion s an d in

fo rma ti on - e x ch an g e . It i s a s a veh i c le to s h arp en th i s g roup de c i s io n

mak in g p ro ce s s that th e SB U p l ann in g app ro a ch be come s us e fu l .

L e t us th e re fo re now tu rn to a di s cu s s ion o f how th e ove ral l co rp o

ra te p lann in g sy s tem i ts e l f mi gh t b e ta i lo rma de s o as to b e t te r re f l e c t

a p art i cu l ar co rp o ra te s e t tin g . Th e task at h and , th en , wi l l b e to de

ve l O p g ui de l ine s fo r how to tai lo rmak e th e con cep tu a l f ramewo rk fo r co r

po r at e p l annin g tha t we deve lop e d i n Ch ap te r Two to th e p a rt i c ul ar ne e ds

fo r p l ann in g tha t a comp any fa c e d , as s e en f rom th e co rp o ra te l e ve l . Thus ,

th e co rp o r ate p l ann i n g s y s t em s de s i g n s ho u l d re f l e c t th e co rp o ra te p o r t
'

fo li o ne e ds fo r p l anni n g , a s de te rmi ne d i n Ch ap te r Th re e .

We sh al l di s cus s f ive s i tua ti ona l de s i g n i s sue s th a t re l a te to th e

co rpo rate p l ann in g sy s tem , name ly th e ex ten t to wh i ch th e re i s a top

"
do wn ve rsus a bo t tom -
u p ge ne ra l emph as i s i n th e commun i c a ti on an d in te r

a c tion p ro ce s s ; th e e x te n t to wh i ch th e fo cu s i s con ce n t r ate d on the

ea rl i e r pa rt ve rs us th e l ate r p a r ts o f th e p l ann in g p ro ce s s ; th e natu re

" "
o f th e li nk ag e s b e twe en th e va ri ou s cy c l e s o f th e p l anni n g p ro ce s s i n

" "
te rms o f whi ch l i nk a g e s s houl d b e ti gh t "
an d wh i ch one s s ho ul d b e l oos e ;

the cho i ce o f wh i ch i s s ue s to emph as i z e he av i l y an d whi ch to tre a t mo re

l i gh t ly i n th e p e r fo rman c e mon i to rin g ; an d , fi na l l y , th e ch o i ce o f man

agem e n t in cen tive s to hono r s tr ate g i c re l ati ve to ne ar - te rm p e r fo rman ce

fu l f i l lme n t .
 5 - 16

pu t in p l a ce to c on tr ibu te towar ds th e l e s s e nin g o f th e p re s s u re s th a t

app ly to the co rp o ra te l eve l ove r th e l on g e r run . E a ch o f th e f i ve

c las s e s o f de s i g n f a c to rs th a t sh al l b e d i s cus s e d in th e nex t s e c ti on s

ar e thus p rima r i l y in tende d fo r ta i l o rmaki n g th e ove ra l l c ap ab i l i ti e s o f

th e co rp o ra te p l ann in g sy s tem in a c co r dan c e wi th wha t we j u s t h ave di s

cus s e d . The f ive ta i lo rmak in g de s i g n con s ide r a tio n s to b e di s cu s s e d

th e de g re e o f top - down ve r su s bo t tom- u p emph a s i s in th e p l an

nin g p ro c e s s .

th e de g re e o f con ce n tra tion o n th e f ron t e nd ve rs us th e l a te r

s ta g e s o f th e p lann in g p ro c e s s .

th e na tur e o f l ink a g e o f e a ch o f th e s ta g e s o f the p l ann in g p ro

ce s s to th e mon i to r in g and mana g eme n t inc en tive cy c l e s .

th e emphas i s o f th e p e r fo rm an c e mo ni to r in g p r o c e s s on ob j e c t ive s

ful f i l lme n t ve r s us on fu l f i l lme n t o f mo re n e ar - te rm p e r f o rm an c e .

th e empha s i s o f th e mana g eme n t in ce n t ive s p ro c e s s on r ewar din g

ob j e c ti ve s ful f i l lme n t ve r s us rewa rd in g mo re ne ar - te rm p e r fo rman c e

fu l fi l lme n t .

Le t us f i rs t di s cu s s th e p lann in g s y s t em de s i gn i s s ue wh i ch re l a te s

"
to th e na ture o f the top -
u p b a l an ce whi ch shoul d b e at

" " "

temp te d fo r va rio us s i tua tiona l s e ttin g s . Top down
— an d bo ttom -u
p a re

e x p r e s s ions wh ich ar e e x amp l e s Of th e un f o r tuna te tenden cy towa rds j a r g on

whi ch so o f ten tends to c re e p up wi th in th e f i e l d o f p l ann in g ; a di g re s s ion

fo r a c l ar i f i c a t ion o f th e i r me an in g i s con s e quen tly in o rde r . T op - down "

i s us ed as a l ab e l fo r th e in i ti a tive an d di r e c t ion th a t to p man a g eme n t

g ive s to th e p l ann in g p ro c e s s . Th i s wi l l o f cour s e ty p i ca l ly b e p ar t i c

u l ar l y as s o c i ate d wi th po r t fo l io p l annin g ; a top - down emp ha s i s mi gh t be

s e e n as a lmo s t a p r e re qu i s i te in o rde r to a ch i eve a de l ib e ra te s h i f t in

s tr a te g i c di re c tion th ro ug h in f lue nc in g th e re s ou r c e a l l o c a ti on p a tte rn .

S uch top - down emp ha s i s wi l l thu s b e man i f e s t e d th rou g h th e r e s ou r ce al

l o c a ti on de c i s ion s by th e de l ib e ra te tr an s f e r of fun ds f rom one bu s in e s s

to ano th e r , a s we l l as de l ib e ra te cur ta i l in g o f s ome bus ine s s invo lveme n ts

thr ou gh di ve s ti tur e an d /o r e x p an s i on in to o the r a re as throu g h a c qui s i ti on .

The k ey to ach i evin g s u ch s tr a te g i c s h i f ts i s a s tro n g co rp o ra te l eve l

in te gra tive fo cus on th e fun ds f l ow p a tt e rn s wi th in th e co m p any , s o tha t

it wi l l b e qu i te e x p l i c i t wh i ch wi l l b e th e s ou r ce s o f s tr a te g i c re s ou r ce s

an d wh i ch wi l l b e th e us e r s . - Throu gh an in t e g ra t ive fo cus th e c o rp o r a te

ma n ag eme n t dimi n i s he s th e l i k e l ihoo d o f s u rp r i s e s "

an d un e x p ec t e d ch an g e s

in th e s e p l ann e d s h i f ts o f i ts s tr at e g i c re so ur c e s , th e reby avo i din g th a t

th e in tende d s h i f t in p o r t f ol io s tr a te gy wi l l be f ru s tra te d .

A no th e r as p e c t o f th e top - down /b o t t om - u p b a l an ce emp h as i s , howe ve r ,

re l a te s to th e re l a t ive im p a c t th a t s e n io r man a gemen t mi g h t h ave on p l an

ni n g wi th i n th e di vi s i on s th rou g h i ts g u i dan ce o r invo l vemen t in th e

s e ttin g o f as s ump t ion s an d p r emi s e s fo r div i s ion a l p l an s as we l l as

thro u gh r evi ews , di s cus s i ons an d ap p rova l o f th e s e p l an s . Le t us s e e ,

"
fo r in s t an ce , wha t e f fe c t a h i g h ly bo t tom- u p o r i e n tat i on mi g h t have

wi th re s p e c t to th e p l ann in g a c t i vi ti e s o f th e bus in e s s e s , p ar t i c u l ar ly

in te rms o f p l ann in g fo r th e on g o in g su c ce s s o f e ac h o f th e bu s in e s s e s .

S uch a h e avy b o t tom up emp ha s i s w i l l p ut a s t ron g p r e s s ur e on th e mana g e

men t o f e a ch of th e bu s in e s s e s to show i n i t i a tive in comi n g up wi th i h

te rn a l g rowth o p po r tun i ti e s o f i ts bus in e s s an d in a t t emp t in g to ta ck l e

po ten ti a l th r e ats fa c in g i ts b us in e s s a s we l l . Thus , a bo t tom- u p o r ie n

ta t i o n wi l l a l s o be ne c e s s ary to a ch i eve e f f e c tive adap ta ti on o f th e bus i

ne s s l eve l to p urs u e in te rn a l g rowth . In th i s wa y i t wi l l b e p o s s ib l e

fo r th e co rpo ra te l e ve l to re c e ive mo re re l e van t inpu ts ab ou t th e po ten

ti al s o f e a ch bus in e s s . I t s e ems th a t a bo ttom - u p emph a s i s i s l ik e ly to

 5-18

y i e l d s tro n g bus in e s s l eve l ada p ta tio n p lann in g domi n an c e . On th e o th e r

han d ,
a h e avy t op — down emph as i s i s l i k e ly to yi e l d s tron g in te g r a t ion

p l ann in g domi nan c e a t th e bu s ine s s le ve l , in th a t th e bus in e s s e s wi l l

h ave re ce ive d much mo re s p e c i f i c inpu ts f rom the to p wi th r e s p e c t to wh e r e

th ey a re e x p e c ted to go , an d how to uti l i z e th e i r i n te rn a l s tre n g th s .

We thu s s e e tha t a re l a t ive ly h e avy bo t tom- u p emp h as i s mi g h t tend to

'
s tren g th en th e o r g an i z a t ion s cap ab i l i ti e s fo r in te rna l g rowth th ro u gh

adap tive move s o f i ts own bu s in e s s e s . A re l a ti ve ly h e avy top - down em

ph as i s , on th e o th e r h an d , wi l l h ave as an e f f e c t th e s tr en g th e n in g o f

'
th e in te g ra tive p lann in g c ap ab i l i ti e s wi th re s p e c t to th e f i rm s on g o in g

bus ine s s e s . Th e s i gn i fi can c e o f th i s wi l l b e th at s tra te g i c re s ou r c e s

mo re e as i ly mi gh t be fr e e d up fo r re de p loyme n t by th e co rp o r ate l eve l ,

e i th e r b y me an s o f s i gn i f i can t s hi f ts i n emph as i s amon g th e comp any s in '

e rn a l bus in e s s e s o r by me an s o f a c qui s i ti on s Th i s imp l i e s th a t th e

p , .

co rp o ra te l eve l mus t h ave an adap tive p l anni n g c ap ab i l i ty to o r ch e s t ra te

the s e po rt fo l io s tra te g y s hi f ts . I t i s impo rt an t , howev e r , to r e co g n i z e

th a t th i s i s a di f fe r en t p l ann in g cap ab i l i ty f rom th e p l ann in g c ap ab i l i ty

" "
whi ch wi l l b e c re ate d th ro u gh th e top -
dow n /b o t t o m —u
p de s i g n cho i ce .

Th e l at te r i s a ddre s s in g th e p l ann in g cap ab i l i t i e s n e c e s s a ry to p u rs ue

in a de s i re d di re c tion wi th th e on g o in g Op e r a tion s . In addi t ion a s e pa r at e

co rp o ra te l eve l c ap ab i l i ty i s n e e de d wh en on e wan ts to ch an ge th e b as i c

ba l an c e o f th e mi x o f th e on go in g Op e r a ti on s . T yp i c a l ly o ne mi g h t pur sue

to deve l op su ch a s tr on g p o r t fo l io ch an g e a dap ti ve cap ab i l i ty in com b in a

tion wi th a s t r ong
"
tO p -
down “
co rp o r a te in te g r a t io n cap ab i l i t y w i th re s p e c t

to th e on g o in g bu s ine s s e s .

I t may we l l be th a t n e i th e r an e x treme top - down no r an ex t reme

bo ttom- u p app ro a ch wi l l b e app rop ri ate in mo s t re a l - l i f e s i tua ti on s .

A re as on ab l e ba l an ce b e twe en th e two i s o f ten mo re in l i ne wi th wh a t is

 5- 2 0

ea ch o f th e o rg an i z atio nal sub - un i ts wi th in th e f i rm . S ome 8 8 05 o r di vi

"
s ion s ,
fo r i ns tan ce , may b e p r ima ri ly in to th e cas h cow-
s t r ate g i c mo de ,

wi th he avy n e e d fo r in te g ra t ion . Th e man a g emen t o f th e s e un i ts s ho ul d

s pe nd th e i r e f fo rt s m o re h e avi ly on th e b a ck en d o f th e p ro ce s s . Fo r an

SB U wh i ch i s h e avi ly in to a g row th mo de , o n th e o th e r h an d , s u ch a s a

s tar " o r a que s ti on - ma rk , i ts mana g eme n t shoul d s p end re l a t ive ly mo re

e f fo r ts on th e f ron t end p ro c e s s i s su e s . Th e co rp o ra te man a geme n t ma y

h ave to s p end re l a tive ly mo re e f fo r ts in te ra c t in g wi th th e in te rn a l g rowth

bus ine s s un i ts wh i l e s p e ndi n g re l a ti ve ly le s s f ron t e nd e f fo r ts on th e

ma tur e bus in e s s e s by me re ly s tat in g re l ative ly c le a r to p — down gu i de l in e s

fo r the s e . L ate r in th e p ro ce s s , howeve r , re l a tive ly mo re top man a g emen t

e f fo rt s mi gh t b e s p en t wi th th e de ta i l e d s trat e g i c p ro g rams an d bu d g e ts

o f th e ma ture bus ine s s e s . Th e g row th bus i n e s s e s , on th e o th e r h an d , woul d

ne e d re l ative ly l e s s co rpo ra te a tte n tion a t th i s p o in t , g iven th a t th e

ob j e c t ive s al re ady chos en wi l l mo re o r le s s di c t a te wha t typ e s o f p ro g rams

an d b udg e ts tha t ne ed to fo l low .

A re l ative l y s imp l e , b ut s tr ai gh t fo rwa rd de vi ce to in f lu en c e th e

adap t a t i o n/ in t e g r at i o n cap ab i l i t i e s , a s we have s e en , i s to man ip ul a te th e

e f fo r t — s p endi n g p a tte rn t at man a g e rs fo l l ow when i t come s to th e i r i h

h
vo l ve m e n t in p l ann in g . W i th re l ative ly mo re e f f o rt s b e in g s p en t on th e

fron t - en d p lann in g a c ti vi ti e s th an th e b a ck - end a c t ivi ti e s , th e mo re re

l at ive emph as i s wi l l be g ive n to adap ta tio n , an d vi c e ve rs a . One de s i gn

as p e c t o f th e fo rmal p l ann in g s y s tem whi ch th e re fo r e i s impo r tan t i s th e

-
lay o ut o f the s o- ca l l e d pl ann in g ca l e nda r . Th i s s p e l l s o ut th e de a dl in e s

fo r th e va rious inputs , p re s en ta tions an d re vi ews th a t h ave to tak e p l a c e ,

a c co rdi n g to s ome t ime s e que n ce . A cri t i ca l cons t rain t on th e l ay — ou t

de s i gn of th e p l ann in g ca lenda r mus t b e th a t i t s e que n c e s th e va r i ous

p lann in g a c tivi ti e s in a way whi ch wi l l h ave to be cons i s ten t wi th th e

 b -é l

con c e p tua l p l an n in g f ramewo rk th a t we have ou t l in e d . B e yon d th i s , how

eve r , th e re i s ty p i c al l y am p l e f l e x ib i l i ty to de s i g n the p l ann in g ca le nda r

s o as to g ive re l a tive ly c l e a r s u gg e s ti on a s to th e g en e ra l t ime l imi t s

th a t va ri ous l i ne e x e cu ti ve s s hou l d s p e nd on th e di f f e r e n t a s p e c ts o f

p lanni n g . Thu s , th e p l ann in g ca l en dar i s a s imp l e an d imp o r tan t de vi c e fo r

in f lue n c in g th e t ime - s p end in g p a t te rn . T oo o f te n , u n f o r t u an t e l y , th e

de s i g n o f th e p lann i n g c a le nda r i s done wi thou t k e e p in g s u f f i c i e n tly i n

mi nd th a t we h e re h ave a u s e fu l s ou r ce fo r i n f lue n c i n g th e p l ann in g cap a

At a c a re le s s l y de s i gn e d p lann in g ca l en da r
'

b i l i t i es . wo rs t , c an a c tu a l ly

in f lu e n c e th e p lann in g c ap ab i l i ti e s in un in ten de d di re c t i ons .

Th e r e wi l l o f c ou rs e b e c o ni s d e r ab le f l exib i l i t y in de t e rmi n in g th e

a c tu a l t ime - s p en din g p a tte rn wi th i n th e r e l a tive ly b ro ad l imi t s s e t by

th e p l ann in g ca l e n da r . Howeve r , g ive n th e ne e ds to h ave th e en ti re s e t

o f th e b usin e s s e s '
p l ann in g inpu ts avai l ab l e a t th e co rp o r a te l eve l in

o rde r to mak e po r t fo l i o con s i de rat i on s , an d fa c i l i ta te th e c l o s i ng of

e a ch p a rti cu l ar p l ann in g cy c l e , i t i s a l s o imp o r t an t th a t th e p l ann in g

c a l e nda r i s b e in g s tr i c t ly adh e re d to . F ai l ur e o f on e SEU to de l ive r

i ts p l ann in g inp u t on time w i l l de l ay th e p rog re s s o f th e en t i re co rp o

r ate p l ann in g e f for t .

As i h th e f ron t - e n d ve rs u s b a ck - en d de s i g n i s s ue di s cus s e d i n th e

p revio us s e c t ion , s en i o r man a g eme n t wi l l h ave a con s i de r ab l e imp a c t on

thi s f in a l de te rmi n at i on o f p lann in g t ime - s p e ndi n g . I f th e C E O

. . . th ro u gh

h i s own ex amp l e s hows h i s de te rmi na t i on to in f l uen c e th e p lann in g e f for t

"
in th e way n e e de d , th en th e r e s t o f the o r g an i z a t ion wi l l p i ck up th e

“
s i gna l . Un fo rt un a te ly , howeve r , p l ann in g tak e s t ime an d i t mi gh t b e

temp tin g fo r th e C E O
. . . no t to s p end th e time ne e de d , p a rt i cu l a r ly on

mo re f ar - re a chi n g a dap t at ion p l ann in g i s sue s ; th e re s t o f th e o r g an i z a

ti on wi l l b e qu i ck to cu t down on i ts own ti m e - s p end in g too . Th us , wha t

mi g h t at fi rs t h ave lo o ke d l ik e fa i rly in s i g n i f i c an t c on c e s s ion s to

 5- 2 2

sho rt - te rm p re s su re s by th e C E O
. . . in te rms o f po s tpo nin g p l ann in g ,

mi gh t in th e en d h ave s e r ious a dve rs e e f fe c ts fo r p l ann in g as a s t rate g i c

de ci s ion - mak in g to o l . Th e p l ann in g c al e nda r i s th e re fo re an imp o rt an t

to o l fo r th e C E O
. . . in s i gn al i n g to th e re s t o f th e o r g an i z a ti on how h e

ex p e cts th em to s p e nd th e i r i nvo lveme n t in p l ann in g .

Ano th e r us e ful p l ann i n g s y s t em s ta i lo rmak in g devi s e i s th e n a tu re

4
o f th e l ink a g e be twe e n th e f ive s ta g e e l eme n ts o f th e p l annin g s y s tem ;

" "
To cons i de r wh at we me an by th e l inka g e con ce p t we may re c a l l tha t

th e re wi l l be a s e t o f ou tpu t s f rom e a ch o f th e th re e p l ann in g c y cl e s

re l a tin g to th e ide n ti fi ca t ion an d na rrowin g down o f s t rate g i c O p t ion s .

O ne cy c le s outpu t wi l l thus con s t rai n th e e x e cu ti o n o f th e p l ann in g

'

fun c t ion th at has to be un de rtak en by th e ne x t s tag e in th e p l ann in g

p ro ce s s . I f th e ou tp ut f rom on e p l ann in g s t ag e h eavi l y con s t ra in s th e

s p an o f th e n ex t cy c l e s p l ann in g a c tivi t i e s
'
, th e n we s ha l l s ay th a t

th e re i s ti gh t l inka g e be twe e n th e c y c le s . If, on th e o th e r h an d , th e

ou tp ut o f a p ri o r p l ann in g c y c le to a cons i de r ab ly le s s e r e x ten t co n

s trains th e p l ann in g a c t ivi t i e s o f th e ne x t p l ann in g cy c l e , th en we a re

de a l in g wi th a "
l oo s e r "
li nk ag e . A ti g h t l i nk a g e imp l i e s a rap i d na r

rowing down o f s trate g i c O p tion s ; a loo s e l ink a g e imp l i e s a s low na r

rowin g down . E xh ib i t 5-2 indi c ate s th e di f fe ren c e be twe en a rap i d n ar

row in g down o f th e a l te rna ti ve s tr ate g i c o p tion s , i . e . , a ti g h t l inkag e

be twe en th e cy cl e s ( do tte d l ine ) , ve rs us a s l ow na r rowin g down o f th e

s tr a te g i c al te rn a tive s , i . e . , a l oo s e l i nk a g e b e twe e n th e cy c le s (s o l i d

line ) .
 5 -2 4

outp ut of o ne p lann in g cy c l e wh i ch the n wi l l b e th e b as i s fo r th e re s

o l u t i on of the s ub s tan tive p lann in g i s sue s i n th e ne x t p l ann in g c y c l e .

Fo r in s tan ce , a t th e c o rp o ra te l eve l i t ma y b e de c i de d th a t th e di s c r e

t i o n ar y fun ds f low re s our ce s o f a ce r ta in m a gn i tu de mi g h t b e ch anne l l e d

in to a n ew bus in e s s are a , p rima ri l y th rou g h in te rna l deve l opmen t s wi th in

a n ew di r e c tion . T he s e i s s ue s have be en ide n ti f i e d an d re s o lve d in p r in

ci p le dur in g th e ob j e c tive s - s e ttin g cy c l e . Thus , imp o r tan t l imi ta ti on s

wi l l the reb y h ave be en s e t fo r wha t th e s ub s tan tive con te x t o f th e s ub

s e quen t s tra te g i c p ro g r am s wi l l b e l i k e .

Ano th e r ty p e o f l inka g e s ha l l b e l ab e l l e d o r gan i z a ti ona l l ink a ge .

Th i s re fe rs to th e e x ten t to whi ch th e s ame mana g e r s a re ce n t ra l ly invo lve d

in th e ex e cu tion o f or wi th th e re s pon s ib i l i ty fo r p l ann in g a l l th e way

throu gh the five p l ann in g c y c l e s ( t i g h t l i nk ag e ) , ve rs us th a t di f f e r en t

ma na g e rs may b e havin g b as i c re s p on s ib i l i ty fo r th e di f fe r en t cy c l e s o f

th e p l ann in g p ro ce s s ( loo s e l ink a g e ) . We mi g h t , fo r in s tan c e , h ave th e

co rpo r ate an d divi s ion a l p l ann in g de p a r tme n ts he avi l y invo lve d in th e

ex e cut ion of th e O jb e c t i v e s —
s e ttin g a nd s tr a te g i c p ro g r am m i n g cy c l e s

wh i l e th e con trol le r s de p a r tme n t mi g h t b e cen tr al l y invo lve d w i th th e

'

ex e cu tion Of th e budg e tin g an d m o n i to rin g cy c l e s . F u r th e r , a h uman

re s our ce s de p a rt men t mi gh t b e re s po n s ib l e fo r adm i n i s te r in g th e m an

a g em e n t inc en tive s c y c l e . T hus , in th i s c a s e we h ave a s i tua tion whe r e

th re e di f fe r e n t co rp o ra te man a g emen t s ta f f g roup s a re invo lve d i n va r io us

as pe c t s o f th e p l ann in g p ro ce s s wha t we wo ul d con s i de r a loo s e o r g an i

za t i o n a l l inka g e . If, for th e momen t on th e o th e r h an d we are as s umi n g

, ,

th a t th e th re e g roup s a re re p o r t in g to a common s en io r v i c e p re s i den t fo r

admin i s tra tion , then we wou l d have a ti gh te r o r g an i z a t iona l l ink a g e . If ,

a t th e ex tr e m e , on e man a g e r i s di r e c tl y in cha r g e o f th e s ta f f a c tivi ti e s

re l a t in g to a l l fi ve cy cl e s , th en we h ave a ti gh t o r g an i z a tiona l l inkag e .

 Th e th i rd t y p e o f l in ka g e mi gh t b e l ab e l e d timi n g l inka g e , re l a tin g

to wh e th e r o r no t th e a c tiv i ti e s on the p l ann in g c al e n da r fo l low e a ch o the r

in s u ch a rap i d s e que nc e tha t th e r e a re f ew o r no va c an t p e r i ods b e twe en

th e a c tiv i t i e s to co mp l e te th e va r i ous c y c l e s ( t i gh t l ink a g e ) , o r th a t

th e re i s con s i de rab l e unus e d t ime be twe en two cy c le s th a t thu s i s no t

b e in g s p e n t on p l ann i n g a c t ivi ti e s ( l oo s e l i nk a g e ) . We h ave al re ady di s

cus s e d th e ro l e o f th e p l ann in g c a l e nda r? wh e th e r we have ti gh t o r l oo s e

timi n g l inka g e b e twe e n two cy c l e s can b e s e en f rom th i s .

Exh ib i t 5- 3 s hows th e va ri o us l i nk a g e p o s s ib i l i ti e s amon g th e f iv e

e l emen ts o f th e p l ann in g s y s t em . As we s e en we have a to ta l o f e i gh t di f

f er e n t l inka g e ty p e s . Fi rs t , we have two l ink a g e ty p e s wh i ch a r e di re c tl y

as s o c i ate d wi th th e in te rr e l a t ion s h i p b e twe en th e thr e e e l eme n ts th a t

r ep re s en t th e n ar rowi n g down p ro c e du re o f th e p l ann in g p ro c e s s . Th e s e

a re l ab e l l e d typ e s 1 an d 2 on Ex h ib i t 5- 3 . Th e n we have th r e e l ink a g e

typ e s as s o c i a te d wi th th e in te r re l a t ion s h i p b e twe en th e mon i to r in g cy c l e

and e a c h o f th e th r e e cy c l e s th a t p e r fo rm o f th e na rrowin g down p a r t o f

p l ann in g , ma rk e d as T yp e s 3, 4 an d 5 on th e e x h ib i t . Finally , we have

th r e e l ink a g e s typ e s b e twe e n th e mana g eme n t c omp en s a t ion cy c l e an d th e

thre e na r row in g down cy c l e s , in di c a t e d a s T yp e s 6, 7 an d 8 on E xh ib i t

5— 3 .
 5 -2 6

Link a g e T yp e 1 . B e twe e n th e ob j e c t ive s - s e ttin g an d s tr a te g i c

p ro g rammi n g c y c l e s
Link a g e T yp e 2 : B e twe en s t r a te g i c p ro g rammi n g an d b ud g e tin g .

L ink a g e T yp e 3 B e twe en p e r fo rman c e me as ur emen t an d bud g e tin g .

Linka g e Typ e 4 : B e twe e n p e r f o rman c e me as u remen t an d s t r ate g i c

p ro g r ammi n g .

Link ag e Ty p e 5 : B e twe e n p e r fo rm an c e me asu reme n t an d Ob j e c tive

s e ttin g .

Link ag e Typ e 6 : B e twe en th e man a g eme n t in c en tive s ch eme an d

budg e tin g .

L ink a g e Ty p e 7: B e twe e n th e mana g eme n t in c en tiv e s ch eme an d

s tra te g i c p ro g rammi n g .

L ink a g e Typ e 8: B e twe en th e mana g eme n t in c en tive s ch eme an d

ob j e c tive s s e ttin g .

Le t us now con s i de r how th e l ink a g e c on c e p t c an be u ti l i z e d as a

de s i g n too l to in f l uen c e th e a dap ta tion an d in te g r ati on cap ab i l i t i e s o f

p lann in g . L e t us fi r s t as s ume th a t we in t end to s t re n gt h e n th e a dap ta

" "
tion cap ab i l i ti e s . Hen ce , we wan t to emph as i z e th e f ron t end ob j e c t ive s

s e tt in g re l ate d as p e c ts o f th e o ve r al l p l ann in g e f fo rt . Th i s me an s th a t

we wo ul d at temp t to mak e linka g e s Ty pe s 1, 5 an d 8 ti gh t . In a ti g h t

link a g e o f Ty p e 1, th e ob j e c t ive s an d go a ls wo ul d b e fai r l y e x p l i c i tl y

deve lop e d , s o th a t th e y p rovi de a re l a tive ly na rrow s e t o f con s t rain ts fo r

th e s tr ate g i c p ro g ram mi n g a c tiv i ty , i . e . , th e Ob j e c t ive s an d go a l s wo ul d

 5 -2 8

in s t re n g thenin g a part i cu l a r adap t ive o r in te g ra tive c ap ab i l i ty tru s t .

Fo r in s tan ce ,
b y mon i to rin g an d mo t iva tin g p ro g re s s o f the s t ra te g i c

p ro g ram s di re c t l y as p a r t o f an a ttemp t to s t ren g th en in te g r a tion ti g h t

l ink ag e s of Ty p e s 4 an d 7 s houl d fa ci l i t a te th i s . An e x ami n a t i on o f th e

s pe c i f i c natu re o f the s tra te g i c p ro g r am s , wh e th e r th e y a re p rimar i l y

ada p ta t ion - o ri en te d o r in t e g r ati on — o ri en te d , woul d , howeve r , b e ne c e s s a ry

in e a ch s u ch c as e .

Le t us now cons i de r th e in te rp l ay b e twe e n th e l inka g e typ e s tha t

p r ima r i ly f a c i l i tate adap ta t ion and tho s e tha t p rima ri ly fa c i l i t a te i n

t e g r a t i on . To s ome ex t en t we mi g h t b e ab l e to s t ren g th en adap ta tion fu r

th e r by l o s s en i n g up s omewh a t on th e l ink a g e typ e s a s s o c i a te d wi th in te

gr a t i on , Ty p e s 2 , 3 an d 6, in a ddi t i on to th e ti g h te n in g o f the adap tive

l ink a g e Typ e s 1, S an d 8 . C onve rs e ly , i f s t r en g th en e d in te g rat ion wa s

th e in ten tion , th en we mi g h t have im p l emen ted e x a c t ly o p po s i te l ink a g e

ti g ht en in g an d l oo s enin g p ro c e dur e s . I t i s n e c e s s a ry in th i s con te x t to

remi nd o ur s e lve s th a t bo th a dap tation an d in te g r a tion c ap ab i l i ti e s a re

ne e de d in any p l ann in g sy s t em ; wh a t we wan t to do when re de s i gn in g a sy s

tem i s to ch an g e th e r e l a tive empha s i s on th e on e ve rs us th e o th e r as p e c t

o f p l ann in g , but wi th in l imi ts . We mus t th e re fo re b e p a rt i cu l a r ly ca re ful

not to di cho tomi z e be twe en a dap ta ti on an d in t e g ra t ion b y ove remp has i z in g

o ne as p e c t O f p l ann in g to s u ch an ex tr eme th a t th e ne c e s s a ry ab s o lute

minimum cap ab i l i ty leve l o f th e o th e r dimen s ion i s b e in g v io l a te d .

5-6 . The Mon i to rin g S y s tem .

As al re ady i m p l i ed in th e p r evious s e c ti on , th e mo n i to r in g s y s tem

typ i c al ly mi g ht p l a y a s i g n i f i can t ro l e in a f fe c t in g th e adap ta tion /

in te g r at ion ba l an c e o f th e p l ann in g c ap ab i l i ti e s o f a p l ann in g s y s t em ,

de pen din g on how th e mon i to r in g s t a g e i s l ink e d to th e o th e r cy c le s o f

 5- 2 9

th e p l ann in g s y s tem . As s u ch , we do no t ne e d to di s cu s s th i s fu r th e r .

Th er e a r e , howev e r , add i tion a l as p e c ts o f th e mon i to r in g cy c le s in te r '

6
p lay wi th th e re s t o f th e s y s t em th a t n e e d to b e pu r su e d . A ma j o r c on

c e rn i s th e a lmo s t g ene r i c tendency o f th e mon i to r in g cy c l e to o f te n r e

in fo r c e s tron g e r in te g r at ion th an a c tu a l ly i n tende d and th e r e by o f te n to

we ake n the adap ta ti on emph as i s in di r e c t ly . Th i s i s p ro bab ly due in p ar t

to th e na tur e o f the tr a di t iona l ro l e o f th e c on tro l s y s tem a s a k e y too l

f or man ag in g comp an i e s th a t do no t have a p lann in g s y s tem . The empha s i s

in s u ch ca s e s te nds to be mo re fo c us s e d o n mo re n ea r - te rm , o f te n somewha t

c r i s i s- l a de n i s su e s , r a the r th an o n , s y s t em a ti c a l l y pu r su in g a lo n g — te rm

s trat e g i c di r e c t io n . T hu s , eve n tho u g h a f i rm s s en io r man a g eme n t ma y

'

have p a r t i c i pa ted who l e h e ar t ed l y al l th e way th ro ug h th e imp l eme n ta tion

o f a p l ann ing p ro c e s s , th e r e i s a lway s th e dan g er tha t wh en an a dve r s e

qua r te r l y p e r fo rman c e r e p o r t h i ts th e de s k o f th e C . E O
. h e may ove r re a c t .

Hi s o l d wo rk in g hab i ts c a l l f o r h i s invo lveme n t in th e de ta i l s o f s o r tin g

o u t a p rob l em , in c l udi n g pu t tin g h e avy imme d i a te p r e s s ur e o n th e sub

ord in a te mana g e r s i h que s t ion to ame l io ra te th e p ro b l em , bu t o f t en wi th

l i ttl e o r no r e g ar d fo r th e unde r ly in g s tra te g i e s p r ev i ous l y de c i de d up on .

Th i s i s , howe ve r , e x a c t l y th e kind o f s i tu a t io n i n whi c h th e homewo rk

don e dur in g th e p l ann in g p ro c e s s s ho ul d p ay o f f to avo i d ha s t i l y p e r c e iv e d

an d ex e c u te d r e a c t io n s , whi c h mi g h t b e l ik e l y to v io l a te the s tr a te g i c

th ru s t a g r e e d upon fo r th e bu s in e s s . Th e in vo lveme n t o f s en io r man a g e

men t in nea r - te rm f ir e - f i g h tin g to a con s i de r ab l e e x te n t ma y e a s i ly have

*
a s om ew ha t .
over p ow e r i ng e f f e c t on th e subo r dina te man a g e r s who s houl d be

p r ima r i l y ac coun tab l e fo r th e s tra te g i c s u c c e s s . E ro s ion o f di s c i p l in e

in co nn e c tion wi th r e a c tin g to mon i to r in g ou tpu ts mi g h t th us re p r e s en t a

s er iou s p rob l em .

Th e na tur e o f s up e r i o r man a g eme n t s invo lveme n t in in te r p r e t in g and

'
 5 - 30

re a c t in g to mon i to r in g fe edb ac k i s a fun c tio n o f th e de g r e e an d na tur e

o f autonomy tha t sub o rdina te o r g an i za ti ona l un i ts may b e en j o y in g . W ha t

con s t i tu te s an ap prop r ia te l eve l o f de l e g a tion i s a comp l ex i s s u e wh i ch

we s hal l on l y b e ab l e to tou c h up on in pa r t , an d b r i e f l y , i n the ne x t

pa ra g raph s . O ur g en e ra l po s i tion i s tha t th e pa tte rn o f de l e g a ti on , i . e . ,

th e de g re e of de c en tr a l i za tio n i s an i s s u e tha t s hou l d no t b e de c i de d on

as an ove ra l l g e ne ra l po l i c y , bu t shou l d re f l e c t the s tr a te g i c i s s ue s o f

th e g ive n co rpo ra tion a t hand . We c an i l lu s tr a te on e a s p e c t o f th i s b y

ex te ndi n g on our ana ly s i s fo r a s s e s s in g th e r i s k in e s s o f a bus in e s s s tra t

egy whe n s tr a te g i c r i s k i s s e e n a s a fun c t io n o f th e na tur e o f th e s tr a t

egy
'
s ex po sur e towa rds the environme n t . We re c a l l tha t we mi g h t b e ab l e

to p o s i t ion e a ch envi ronmen ta l fa c to r c r i t i ca l fo r th e su c c e s s o f a p ar

t i cu l a r s tr ate gy in te rms o f th e p o ten ti a l de g r e e o f p re di c tab i l i ty o f

thi s fa c to r a s we l l as in te rms o f th e o r g an i z a t i on s '

own o p tion s fo r

mak in g a di s cre tiona ry re s po ns e to s u ch a pa r t i cul a r de ve lo pmen t in th e

env i ronmen t . We a rgue d tha t th e r i s kin e s s o f a s t ra te gy was h i gh i f i ts

l ink s to th e envi ronme n t we r e mo re he avi ly do min a te d by f a c to rs tha t mi g h t

ne i th e r b e ea s il y p r e di c tab l e no r o f f e r mu ch r e s p on s e f l e x i b i l i ty . Con
ve r s e l y , th e s tra te g y wa s domi na te d by mo re e as i l y p re di c t ab l e fa c to rs

tha t a ls o o f fe r mu ch re s pons e f l e x ib il i ty , th e ri sk wou l d b e lowe r . As

s u m i ng fo r now tha t th e env i ronmen ta l fa c to r s wh i ch we have i den ti fi e d to

be o f po ten ti a ll y ma j o r s i gn i fi c an c e i n te rms o f the i r imp a c t on a s tra t

eg y g ene ra l ly fa l l w i thi n th e no p r e di c tab i l i ty an d no re s po n s e po ten ti a l

ca te g o ry , we mi g h t p r e sume tha t mana g eme n t woul d b e le s s in c l in e d to de l

e ga t e e x ten s ive autonomy to re s pond , g i ven th e h i g h r i s k o f s uc h a s t ra t

egy .
Wh en on the o th e r han d th e ri s k in e s s i s l e s s ,
s a y wh en key envi ron

men ta l fa c to rs g ene ral ly fa l l wi th in th e h i g h p redi c tab i l i ty an d h i gh

re s pons e po ten tia l ca t e g o ry , we wou l d e x p e c t th a t s en i o r mana g emen t woul d

 5—32

ex po s ur e .
T h e re fo re ,
whi l e th e mana g emen t o f th i s SB U mi g h t en j o y a h i gh

de g re e of mon i to r in g autonomy i n g ene ra l , th e mon i to rin g o f th i s ex c ep

t io n a l envi ronmen ta l fa c to r mi g h t invo lve a h i g he r de g re e o f s en io r m an

ag em e n t invo lvemen t .

S e condly , i n g ene ra l o ne mi gh t e x p e c t th a t th e fr e
qu en
gy o f de c i s i ons

tends to b e h i ghe r an d th e ma g n i tude o f e a ch s in g le de c i s i on te nds to be

le s s wh en i t come s to co r re c ti ve r e s pon s e to p h eno m e nae th a t fa l l wi th in

th e lowe r r i s k s e gme n t o f E xh ib i t 5- 4 . Th e no rma l mo de o f c o rre c t ive

a c tion h er e w i l l typ i c al ly b e re la tive ly sma l l i nc remen ta l s te p s , o ft en

in s harp contr as t to mo re fun damen ta l ch an g e s th a t may h ave to b e tak en

as one move towa rds th e "

bo ttom- ri g h t s i de o f th e e x hi b i t . Thus , whi l e

su ch m a j o r de c i s ions mi gh t b e re s e rve d fo r s e n io r mana g eme n t , th e mo re

in c remen ta l de c i s i ons c an mo re e a s i ly b e de l e g a te d . Ag ai n , we s e e th e

ne e d fo r a ta i lo r ma de mon i to rin g and con tro l ap p roa ch .

Le t us con clu de th i s s e c t ion wi th a c ave a t : I t s hou l d b e o bvi o us

from th e di s cus s ion o f th e p l ann in g ap p r oa c h a dvo c a te d h e re , th a t a s t ra

t egi c mo de , as Op po s e d to an ad h o c mo de , o f in te rp r e tin g p e r fo rman c e

evi den c e from th e mon i to r in g cy cl e , doe s no t imp l y th a t mana g eme n t woul d

h ave to be in s ens i tive to s i gn i f i can t ch an g e s an d fa i l ro mak e d e c i s i on s .

It wi l l in fa c t b e an indi ca ti on th a t th e co rp o ra te p l annin g sy s t em i s

no t e f fe c tive as a s tr a te g i c de c i s i on - mak in g too l i f th e p l ann in g ex e r

ci s e con tribute s to in de c i s ivene s s . All tha t i s re qui re d i s to mak e us e

o f th e "
homewo rk al ready done th rou g h th e p l ann in g p ro ce s s when in t e r

pr e t i ng mon i to ri n g fe e db a ck fo r mak in g a co r re c tive s t r a te g i c de c i s ion

Envi ronmen tal a l t er t n e s s i s e s s en ti a l ; Ne e d l e s s to s ay , th e p l ann in g p ro

" "
c e s s wi l l no t g ive us th e r i gh t an swe r abo ut wh a t th e fu tur e wi l l loo k

l ik e , an d i t wi l l no t re du c e th e un c e r ta in ty i n o ur bus in e s s envi ronmen t .

Wh a t me an in g ful mon i to r in g o f p ro g re s s towa rds p l an s fu l fi l lmen t c an do

 '
i s to imp rove a f i rm s ab i l i ty to cop e wi th th i s un ce rta i n ty , so th a t th e

r is ks in bus ine s s p o l i cy de c i s ion - mak in g ca n be con ta in e d at an a c c e p tab l e

l eve l .

As wa s ap pa re n t f rom S e c ti on 5 o f th i s ch ap te r , th e mana g eme n t i n

c e n t i ve cy cl e a l s o o f fe r s un i que O p po r tun i ty to in f l ue n c e th e ada p ta t ion

an d/o r in te g r at ion c ap ab i l i t i e s o f th e p l annin g s y s tem . S p e c i f i c a l ly ,

wh en we p u t r e l a t ive ly mo re emph as i s on mo t iva t in g mana g e r i a l p e r fo rman c e

wh i ch con t ribu te s towa r ds th e fu l f i l lme n t o f ob j e c t ive s an d go a l s as we l l

a s s t ra t e g ic p ro g rams , a s op po s e d to mo r e n e a r - te rm bud g e t - fu l f i l l in g

be hav io r , th en we s t r en g th en th e adap tive cap ab i l i t i e s o f th e s y s t em . In

o rde r to c re a t e mo r e g o a l con g ru e n c e be twe en l on g te rm p e r fo rman c e fu l

—

'

f i l lm e n t
'
and man a g e rs in divi dua l go a l s , thus , th e r e wi l l h ave to b e ti g h t

l ink ag e s b e twe e n th e ob j e c ti ve s - s e t t in g c y c l e an d bo th th e mo ni to r in g an d

th e mana g emen t in c e n tive s cy c l e s ( L inka g e Ty p e s 5 an d 8 in E x h ib i t 5- 3)

Imp l i ci t fr om th i s fo l lows th a t th e mon i to rin g c y c le a l s o mus t b e l inke d

to th e th r e e f i rs t cy c le s i n an ana l o g ous way . In cas e we wan t to s t ren g th en

th e in t e g ra t ion c ap ab i l i ty , an ana l o g o us ar gume n t c an b e ma de fo r th i s ,

by s tren g th e nin g l ink a g e typ e s 3 a nd 6 .

As we have di s cus s e d th e ma j o r l eve ra g e p o in ts fo r f a c i l i t a t in g ad

"
ap t a t i o n typ i ca l ly l ay wi th in th e f ro n t en d o f th e p l ann in g p ro c e s s ,

p a r t i cul a r ly dur i n g th e ob j e c t ive s - s e t tin g s tag e . We re c a l l th a t th e

numb e r o f ex e cu tive s p art i c i pa t in g durin g th i s s ta g e typ i c a l l y i s re l a

ti ve l y l ow , bas i c a l ly th e C E O
. . . an d th e d ivi s ion h e ads o n l y . As p ro g re s s

i s b e in g made in i den ti f y in g th e s tr a te g i c O p t ion s an d in na rrowi n g th e s e

down , howeve r , a g radua l s h i f t tends to tak e p l a c e towa r ds invo lvin g

mo r e an d mo re ex e c ut ive s . T hu s , by th e t ime o r g an i z a t i on a l c ons e ns us ha s

b e e n re a ch e d fo r n ex t ye a r s bud g e t a la r g e numb e r o f e x e cu t ive s w i l l

'
 5-34

h ave be e n inve rt ed . T hey mu s t h ave de l in e a te d fo r them th e i r ro le s i n

th e fu l fi l lme n t o f th e ne a r - te rm , p r imar i l y in te g ra ti ve , tas k s by th i s

po in t .
Th e im p l i ca tion o f th i s fo r th e ta i l o rmak in g o f in c e n t ive s s ch eme s

wou l d b e th a t in c en tive s fo r th e in divi dua l e x e cu t iv e s mi g h t be re l a t ive l y

mo re app l i cab le whe n i t come s to in duc in g adap tive b e havi o r , wh i l e g roup

o r te am in c en tive s , on th e o th e r h an d , may b e re l a tive ly be tte r s ui te d

fo r induc in g in te g rative b ehavio r . T hu s , we woul d f in d re l a tiv e ly mo re

indivi dual i n cen tive s t i e d in wi th the ful f i l lme n t o f ob j e c ti ve s , an d

rel a tive ly mo re g roup in c en tive s whe n i t come s to ne ar - te rm p e r fo rman c e

fu l fi l lmen t .

I t has b e en po s tu l a te d th a t whe n i t come s to th e man ag eme n t o f S B Us

in di f fe r en t s tra te g i c po s i t ion s di s tin c t ive ly s e p ara te e x e cutive s ty l e s

mi g h t be ap p rop ri a te . Fo r in s tan c e , a S BU i n a s tar t - u p p o s i t io n wou l d

bene fi t from mo re o f an en tr e p r eneur i a l ty p e man a g e r , wh i l e a SB U i n the

cash cow p o s i t ion mi g h t b e tte r be man a g e d by a mana g e r who h as a s t ron g

ap ti tude towa rds co s t e f f i c i en cy an d p e r f o rman c e de ta i l . Th e imp l i c a t ion

o f th i s fo r th e de s i gn o f in c en tive s ch eme wou l d be th a t man ag e r o f the

fo rme r ty p e s o f $ 8 05 , wi th th e i r r e l a t iv e ly h i g h adap tive cha l l e n g e s ,

woul d re ce ive p redomi n an tly indiv i dua l in c en tive s whi l e th e mana g e rs o f

the l a tte r typ e o f 8 3 05 wou l d re c e ive r e l a ti ve l y m o re g roup in ce n ti ve s ,

g ive n th e i r in te g rative ta s ks .

T he re i s howe ve r ano th e r in c en t ive s t ai l o rmak in g di me ns io n i n ad

di t ion to the indi v

i dua l ve rs us g ro up in c e n tive tr ade o f f . Th i s s t ems f rom

the fa c t that th e a c tua l de g re e of s uc ce s s in th e fu l fi l lme n t o f adap tiv e

ta r g e ts typ i cal l y ten ds to b e lowe r th an wh en i t come s to the s u c ce ss

ra te fo r th e ful f i l lm en t of in t e g ra t ive ta r g e ts . Th e re as on s fo r th i s

mi gh t b e s eve ra l : l on g e r te rm ve rs us s ho rt e r te rm time ho ri z on : l e s s ve r s us

mo re hi gh l y s tru c tu re d mana g e r i a l tas ks ; th e inh e r en t de g re e o f ri s k

 5 - 36

to a di vi s iona l s tru c ture . P re s en tl y th e r e a re four g roup s , mo re th an

twen ty div i s ion s , an d c lo s e to s even ty $ 8 05 . Th e r e c en t r eo r g an i z a t ion

cal l e d fo r a re l a t ive l y h i g h e r empha s i s on in te g ra ti on du r in g th e ye a r s

j us t a f te r the r e o rg an i za tion , s o tha t tr an s i t io na l in e f fi c i e n c i e s a s

so c i a t ed wi th th e in s ti tu ti on a l i z a t ion o f th e new man a g eme n t ta s k s mi g h t

mo re rap i dly b e so r te d out .

Th e C E O. . . h as adop te d a ph i l o s op h y o f h i g h p e r fo rman c e a s p i ra t ion s ,

in c ludi n g , a s no te d , wi th h eavy empha s i s on g rowth th ro ug h a c qui s i t i on s .

Th e dive rs i ty o f th e c omp any i s th e r e fo r e rap i dly in c re a s in g . One con

s e q u en ce is th a t s e n io r mana g emen t c an less an d le s s comfo r tab l y know a l l

th e bus ine s s e s wi th s ome re as onab l e de g re e o f de ta i l . Senior ma na g emen t

thus in c re a s in g l y r e a li z e s th a t i t wi l l h ave to re l y on th e mo re s p e c i a l

i ze d bus in e s s know l e dg e o f th e va r i ou s divi s ion man a g eme n ts . Th e po r t

"
f o l i o /b u s ines s di vi s i on o f l abo r wi th re s p e c t to th e s tr ate g i c p l ann in g

ta s k s o f th e f i rm in ach ie vin g i ts s tra te g y O f g row th ha s thus o n ly r e

ce n t l y be e n pro l i f e ra te d .

In te rms o f th e p l annin g ne eds fa c in g th e comp any a t th i s p o in t in

t ime th e con t inue d a cqu i s i tion dr ive mi g h t ca l l fo r s t re n g th enin g o f th e

adap ti ve p lann i n g ca p ab i l i ti e s a t co rp o ra t e in o rde r to i den ti fy , an a ly z e

an d c on summa te a c qui s i tion s . Al s o , howeve r , a s t ren g th en in g O f th e in

t eg r a t i ve p l ann in g ca pab i l i ti e s wh en i t come s to th e on g o in g O p e ra t ion s o f

th e comp an y s e ems in o rde r , s o tha t dy s fun c ti ona l e f fi c i en cy p rob l ems due

to th e re c en t reo r g ani z a tion mi gh t b e ove r come . Th i s wo ul d ap p l y to th e

ex i s t in g O p e r at ion s a t th e d i v i s i ona l /b u s in e s s l eve l , bu t woul d a l s o b e

re fl e c te d in th e co rp o r ate mana g emen t s mo de o f in te r a c t ion wi th

'
th e div i

s ions . We thu s s e em to have a di f f e ren t a d a p t a t i on/ i n t e g r a t i o n b a l an c e

ne e d fo r the p l annin g a t th e co rpo ra te le ve l an d a t th e divi s io na l le ve l ;

in th e fo rme r i t s e ems ap p ro p r i a te wi th re l a tive l y mo re emph a s i s on

 5- 3 7

adap tati on , wh i le in th e l a tt e r , re l a tive l y mo re emph as i s on in te g ra t ion

s ho ul d p rob ab ly th e ca s e . Of cours e , i f a t s ome l a te r s ta g e th e emph as i s

on in te rn a l g rowth th rou g h the e x i s t in g bus in e s s e s is to b e s t re s s e d , th en

the adap ta tio n cap ab i l i ti e s a t th e d i v i s i o n /b u s ines s l eve l n e e d to b e

S t r eng th ened r e l a t iv e l y mo re a t th a t t ime

“

The k ey imp l i c a ti on in te rms o f d es i g n i n g th e l inka g e s o f th e p l annin g

sy s t em , howeve r , i s th a t th e ne eds fo r l inkag e mi g h t be d i f f e ren t a t va r

-
i ou S
'

or g ani za t i o n a l l e ve l s r e l a t ive ti g h t l inka g e s o f Ty p e s 1, 5 and

8 (s ee Exh ib i t 5 - 3 ) at co rpo ra te l eve l re l at ive ly ti g h t l ink a g e s o f Ty p e s

"

2 , 3 -
and 6 a t di v i s i ona l le ve ls I Als o , we s e e tha t chan g e s i n l i nk a g e

p a t te rn s mi g h t b e ap p rop r i a t e a t a p ar t i cu l ar le ve l a t a g iven p o in t in

time wh en th e a dap t i v e / i n t eg r a t i ve b a l an ce o f a s ub s e t o f o r g an i z a t ion a l

s ub un i ts mi g h t ch an g e . I n in s t an c e s o f th i s k in d l i nka g e chan g e s a c ro s s

th e en t i r e o r g an i z a t ion wou l d be inap p ro p r i a te a p o ten ti a l lo o s en in g o f

'

l in ka g e Typ e s 2 , 3 an d 6 an d ti g h ten in g o f l ink a g e Typ e s 1, 5 an d 8 wou l d

be a p p rop r i a te f o r tho s e s di vi s i on s a t th e bu s i ne s s l e ve l wh e re mo r e ih

te rna l g rowth g r adua l ly wo ul d b e p ur s u e d .

'
-
Th e in c r e as e d div e r s i ty o f th e comp any p rovi de s th e comp any s s en io r

" "
man ag emen t wi th th e O p p o rtun i ty to de ve lo p a co rp o ra te p o r t fo l i o s t ra t

eg y th a t empha s i z e s th e ba l an c e b e twe en ne t f un ds g en e r a tin g bu s in e s s di

vi s ion s an d fun ds “
c on s um i n g "
g rowth div i s ion s , as we h ave s e en . Th i s
adde d di ve rs i ty c al l s fo r in c re as e d re a l i sm wi th re s p e c t to adap ta t io n n e e ds

an d cap ab i l i t i e s amon g th e h i g h g row th di v i s ions , s o th a t th e co rp o r a te

l eve l c an b e ful l y awa r e o f e a ch b us in e s s '

g row th po ten ti a l s . Al s o , th e r e

i s a ne e d fo r in cr e a s e d in t e g ra t ion n e e ds an d c ap ab i l i ty re a l i sm , par

t i cu l ar l y amon g th e ne t funds g e ne r a t in g di vi s i on s , to fa c i l i ta te th e

g aug i ng o f th e di s c re t ion a ry fun ds f l ow g e n e ra ti on . Th i s i s n e c e s s ary to

 5-38

e s tima te re inve s tme n t cap ac i t y fo r g o in g i n to o th e r bus ine s s s e gmen ts ,

how dr ama ti c a co rpo rat e po r t fo l i o s tr a te g y chan g e th a t c an b e pur s ue d .

Thus ,
adde d di ve rs i ty t y p i ca l ly c al l s fo r in c re as e d adap ta tion emph a s i s

a t th e co rp o ra t e l eve l so th a t ap p ro p r i a t e reb a l an cin g o f th e po r t fo l io

ca n be c a rri e d ou t . G i ven th e i r di f f e r en t ro l e s in th e p o r t fo l i o s tr at

eg y ,
th e na tur e of th e l ink a g e mi g h t be di f fe re n t amon g di f f e r en t div i

s ion s ,
as we h ave s e en wi th re la tive ly ti gh t l ink a g e o f th e Typ e s 1, 5

an d 8 amon g th e g row th di vi s ion s an d re la ti ve ly ti g h t l inka g e o f th e

Typ e s 2 , 3 an d 6 amon g the ne t fun ds g e ne r a t in g di vi s io n s . T h i s a g a in

un de rs co re s th e ne e d to ta i l o rmak e p l ann in g amon g div is ions wi th in a com

p any too in f le x ib l e fo rmal i z e d p l ann in g ru l e s ap p l i e d to a l l di vi s i on s

fo r th e comp an y as a who l e ma y b e dy s fun c t i on a l . T hus , we s e e an adde d

dimens ion to th e ri chne s s o f th e l i nk ag e p rob l em i n th a t th e na tur e O f

l inka g e p robab ly shoul d b e e x p e c te d to di f f e r de p end in g on th e l i f e - cy c l e /

7
comp e ti tive s treng th po s tur e o f th e div is ion . I n g en e r al , we s e e th at

'
th e ma tur i ty o f th e s y s t em , th e na tu re o f th e comp any s g rowth s t ra te gy

an d th e char ac te r is t i c s o f i ts p or t fo l io p a t te rn o f dive rs i ty a r e f a c to r s

tha t typ i c a l l y wi l l b e o f re l evan c e in di ct a t in g th e ne eds fo r ta il o rm a kin g

O f th e l inka g e a s p e c ts o f th e p l ann in g s y s tem .

As we h ave s e e n to b e th e no rma l , th e emph a s i s on pur s uin g a co rp o

ra te o r bus in e s s s tra te gy i s l ik e l y to ch an g e ove r t ime in mo s t re a l - l i f e

s e tt in g s , s o tha t th e r e la tive ne e d fo r adap ta tio n ve rs u s in te g ra ti on

ch an g e s due to s tra t e g i c s h i f ts . I t wi l l th e r e fo re be a no rma l p ro c e dur e

th at th e re la tive emphas i s on th e di f f e r en t l ink a g e typ e s shou l d ch an g e .

" "
Th i s mana g emen t of th e sh i f ts in l ink a g e emp ha s i s i s p rob ab ly o ne of

the mos t impo r tan t p l an fo r p l a nn in g "

tas ks . We s ha l l pur s ue th i s fur

th e r in Chap te r S ix . At th i s po in t , howev e r , l e t us g ive ano th e r ex amp l e

wh i ch de s c ribe s how s u ch s h i f ts a c tu al l y mi g ht come ab ou t .

 5 - 40

th e a c tivi ty a re a s ,
pa r t i cul a r ly wi th in p e r s onne l , an d a dr ama ti c re du c t io n

o f di s c re tiona ry e x p en di ture s . W i th in th e cons ume r bu s in e s s e nd , an eve n

mo re cons e rv a tive , h eavi l y cont in g e n cy - o r i e n te d p l an th an b e fo re , was

adop te d . Th e re s ul t o f thi s reo r i e n ta ti on towa rds mo re in t e g rat ion wa s a

'
s tab i l i z a t ion of th e p e r fo rman c e o f th e c omp any s p e r fo rman ce , a s i n di c a te d

by a mo re s tab l e ROE .

Th e le ve l of th e mo re s t ab i l i z e d RO E t ren d wa s , howe ve r , fa r b e low th e

p e r fo rman c e l eve l s o f wha t comp a r ab l e comp e ting co rp o r a ti on s e eme d to b e

ab l e to come up wi th . Thus , in o rde r to a tt emp t to imp ro ve on lon g - te rm

p er fo rman ce p ros p e c ts bey on d th e g ain s from s t ab i l i z at ion a ch i eve d th rou gh

th e in te g ra tion — domi na te d e f fo rts , in c re as e d em ph as i s wa s b e in g p u t on al

lo ca tion O f re s ou r ce s , di s c r e tion a ry de ve l opmen t exp endi tu re s an d ch ann e l in g

o f cap i ta l to new p ro fi t l in e s j ud g e d to h ave h i gh e r lon g e r te rm s tra te g i c

p oten tia l s . S oon i t wa s fur th e r f e l t th at th e mo re o r l e s s eve n a p p ro a ch

towa rds co s t cu t t in g ac ros s th e comp any a l s o ne e de d to b e ad j us t e d , so

th a t co s ts we re no t cu t as h a rd in in s tan ce s wh e re th i s wou l d c l e a rl y

fru s tr ate th e a t t emp ts a t n ew s tr ate g y de ve lopmen t . Th i s wa s , in fa c t , an

ap p roa ch ve ry c lo s e to z e ro - b as e bu d g e tin g . In o rde r fo r th e s e ni o r m an

ag em en t o f th e h i g h - t e chno lo gy g rou p to b e tt e r s e e wh e r e to a l l o c a te di s

c re ti ona ry re sou r ce s an d whe r e to ou t f re e re s ou r ce s , th e y mo re an d mo re

fe l t a n e e d fo r con ce rn wi th lon g e r - te rm p r io r i t y — s e t tin g . In fa c t , wha t

was tak in g p l a ce was a re l a t ive in c r e as e i n th e adap ta ti on emp has i s . Thus ,

” "
th e p endul um was sw in g in g ba ck ag ai n fo r th e hi g h - te chno lo g y p a r t o f th e

comp an y , aw ay f ro m a o ne - s i de d in te g ra t i on emp h a s i s an d towa rds a mo re

bal an c e d a d ap t a t i o n/ in t e g r a t i o n p lann in g th ru s t . Fo r th e ma tur e c ons ume r

p ro duc ts p ar t of th e comp an y , howeve r , th e p r e domin an tl y in t e g r at i ve em

phas i s la r g e l y remain ed .
 Th e ma j o r le s s on f rom th i s e x amp l e i s tha t i t to ok th e to p mana g eme n t

o f th e comp any a lon g t ime an d a lo t o f f ru s tr a t ion an d a g on y to re a l i z e

th a t s hi f ts in th e comp any s di r e c tion mi g h t mo re f ru i t fu l l y b e p ur s ue d

'

in a les s g r an d -
sca l e and swe e p in g way . I t was n e i th e r ne c e s s a ry no r

b ene f i ci al to en c ou ra g e c ro s s - comp an y chan g e s o f s u ch a ma g n i tu de . Be

'

l at edl y , th e s en io r man a g eme n t c ame to th e c onc lu s i on th a t ta i l o rmak in g

o f th e plann in g s y s tem wa s n e c e s s a ry wi thi n th e c omp an y i t s e l f . No t on l y

shoul d th e l inka g e de s i g n b e mo re "

f ron t - e nd o ri e n te d f o r th e p a r t o f

th e p l an nin g sy s t em th a t ap p l i e d to th e h i gh - te chno lo g y p a r t o f th e com

p any ve rs us mo re -" b a ck - e n
d
"
o r ien te d fo r th e con s ume r p rodu c ts p a r t .

Al s o , th e o th e r ta i lo rmak in g de s i gn f e a tu re s sh ou l d be ap p l i e d di f f e r en t l y

Thu s , in h an dl in g th e ta s k o f mana g emen t o f th e evo l ut ion o f a p l annin g

s y s t em , o ne mus t typ i c a l ly r e co g ni z e th e ne e d to al low di f f e r en t p a rt s

Of th e o r g ani z a t i on to re c e ive th e typ e s o f p l ann in g sup p o r t tha t th e y

ne e d , wh i l e o f cou rs e a l s o k e e p in g an ove r a l l c o rp o r a te fo cus i n min d .

As a way o f summa ri z in g the ma j o r s ys t em s de s i g n O p t ions ava i l ab le

fo r i n f lue n c i n g th e c ap ab i l i ti e s o f th e co rp o ra te p l ann in g s y s t em l e t us

con s i de r E x h ib i t 5- 5 . We r e ca l l f rom C h ap te r Th r e e tha t th e ove ra l l co r

po r at e p l ann in g n e eds g ene r a l l y we r e fo cus s e d on b r in g in g th e co rp o ra te

p lann in g s y s t em b a c k to an e qu i l ib r ium p o s i t ion in te rm s o f i ts a dap ta ti on

an d i n te g ra t ion c ap ab i l i ti e s , by r e de s i gn in g th e co rp o r a te p l ann in g s y s tem

s o as to e i th e r imp rovin g on i ts ada p ti ve o r th e in te g ra tive ca p ab i l i ti e s ,

O r b o th . We have i de n ti f i e d a to ta l o f fi ve sy s tems de s i g n va ri ab l e s ,

comb i na ti on s o f wh i c h mi g h t b e emp lo ye d to f a c i l i ta te s uc h tai lo rma de

de s i gn . Th e cho i c e o f va lue s fo r th e s e de s i g n va r i ab l e s wi l l th us de p e nd

on th e di r e c t i on towa r ds wh i ch we wi s h to ch an g e th e p l ann in g s y s t em , as

in di c at e d i n th e e xh ib i t .
 F ron t end ve rs us B a ck end B a ck en d F ron t en d

Linka g e s To B a ck end To F ron t end

P e rfo rman ce Mon i to rin g Of B udg e ts F u l fi l lme n t O f O b j e c t ive s Fu l f i l lm

Man ag emen t I n c en ti ve s Ti ed to B udg e ts Ti e d to O b j e c ti ve s

I n th i s ch ap te r we h ave att emp te d to di s cus s app ro a ch e s tow ar ds

tai lo rmak in g th e s tr a te g i c p lann in g sy s tem s o th a t th e c ap ab i l i ti e s o f

the p l ann in g sy s tem c an b e deve lop e d in s u ch way s th a t th ey me e t th e p a r

t i cu l ar ne e ds fo r p l ann in g th a t di f f e ren t comp an i e s h ave , in ac co rd an ce

wi th th e adap tive an d in te g r ati ve p l annin g n e e ds p a tte rn s i de n ti f i e d in

Chap te r Th re e . We ap p roa ch e d th i s ta sk a t di f fe ren t o r g an i z atio n al l eve l s .

Fo r th e bus in e s s p l ann in g l e ve l we s aw how th e adap tive ve rs us i n

t e g r at i ve tas k s wo u ld c al l fo r di f fe re n t s e ts o f s t ra te g i c gu i de l i n e s

fo r th e deve lopmen t of th e de s i r e d s t ra te g i c th rus ts . We i de n t i f i e d

s eve ra l as p e c ts of s u ch g u i de l in e s .

We th en e x ami ne d s eve ra l co rp o ra te s y s tems de s i g n fa c to rs th a t th e

p l ann e r to a g re a te r or le s s e r de g re e mi gh t con tro l , in o rde r to ach i eve

th e ne e de d a dap t a t i o n/ i nt e g r a t i o n fo cu s o f t he p l ann in g sy s tem . Th e s e

" "
ta i l o rmak in g fa c to rs we re : re l a ti ve emph as i s on to p down - ve rs us "
bo ttom

”
u p inp uts in t h e p l ann in g p ro ce s s ; re l ati ve e m phas i s on
"
fron t end

” "
ve rs u s con clu di n g e nd of th e s t rate g y O p p o r tun i ty i de nt i fi c a t i on an d

na r rowin g down s ta g e s ; th e na tur e o f th e l inka g e amon g e a ch o f th e fi ve

c y c l e s i s th e p l annin g p ro c e s s ti g h t "
ve rs us loo s e ; "
th e p a t te rn o f

ex e cutive invo lvemen t an d ti m e — s p endin g p a tte rn s ; th e fo cus o f th e co n tro l

 5 -4 4

In th i s app e ndi x we s ha l l de s c rib e how one comp an y ha s ap p ro a ch e d

th e ta s k o f ta i lo rmak in g i ts p lann in g s y s t em a t th e bus in e s s lev e l to

th e s tr a te g i c ne e ds o f va ri ous typ e s o f i ts bu s in e s s e s . Th e comp an y i s

hi g hly dive rs i f i e d , wi th mo r e th an 1 5 0 S B Us , b ut a l l th e bus in e s s e s fa l l

in to wh a t one mi g ht ch a ra cte ri z e as t he h i g h te c hno l o gy fi e l d . N one of

th e bus in e s s e s fa l l wi th i n th e c ons um e r p ro du c ts ar e a . Th e comp any h as

p la ce d h e avy re l i an ce on p l ann in g as a k ey to o l fo r man a g in g a h i gh ly di

ve rs i f i e d , hi g h g rowth comp any . P e r fo rman ce re s ul t s in g en e ra l h ave be en

ve ry go o d . Th e p re s en t p l ann in g s y s tem h as b e en in e ffe c t s ince 19 71 ,

an d i s con s i de re d h i g h l y us e fu l amon g mo s t o f i ts S BU man a g e rs .

I n o rde r to de ve lo p an d co mmun i ca te a SBU s tr a te g y th e comp any ha s

i den ti fi e d th re e c l as s e s o f cho i c e s th a t n e ed to b e re s o lve d

Wha t type o f s t ra te g y to fo l low ; ch o i c e O f how to comp e te in t e rms

o f ma rke t s har e ta r ge t and co rre s po nd in g inve s tmen t po l i cy .

Wha t s t ra te g i c di re c ti on to a t temp t to f o l low ; cho i c e o f wh a t

typ e s o f p ro du c ts an d ma rk e ts to emp ha s i z e .

Wh a t comp e ti tive po s tu re to pu r sue r e la tive to o ne s ma j o r com '

p e t i to r s ; cho i ce o f p ri cin g an d qua l i ty p o l i c i e s

In te rm s o f cho i c e o f type _
of s t ra te g y , i . e .
go a l s fo r mark e t s ha r e

as we l l as co rr e s p on di n g inve s tmen t po l i cy th e comp any ha s i den ti f i e d

five a l te rna tive mo de s

a) B ui l d ex p an d mark e t s ha re .

b) Ho l d main tain mark e t s har e ove r th e l on g e r ru n .

c) Harve s t main ta in marke t s har e in th e ne a r te rm , b ut do no t

inve s t fo r lon g te rm p o s i tion in th e ma rke t .

d) W i thdr aw .
 e) Exp lo re ( Th i s s tr a te gy typ e i s l imi te d to 6 mon th s b e fo re hav in g

to be re c l as s i f i e d in to on e o f th e o the r ty p e s ) .

I n te rms o f cho i ce s o f di re c t i on O f s tra te g y , i . e . wh a t ty p e s o f

p ro du c ts o r s e rvi ce s as we l l a s wh a t ma rke t s e g me n ts to emph as i z e th e

y ha s i de n t i f i e d f ive di f fe r en t Op ti on s o f s t ra te g i c di re c t io n

'

a) B as e th i s imp l i e s th a t th e s t r at egi c di re c t i on s ho ul d b e mai n

t a i ne d a s p re s en t , i . e . no ch an g e i n wh a t p ro du c ts an d ma rk e ts

to b e p ur s ue d .

sue d wi l l b e s e gmen ted s o tha t on ly a l i m i te d s ub s e t o f p ar t i c

u l ar ly a t t r a c t i ve mark e ts w i l l b e pu r su e d .

c) Ma rk e t de ve l o pmen t th i s imp l i e s th a t a b ro ade r s e t o f ma rke ts

wi ll b e p urs u e d ; i . e . th e op po s i te o f mark e t s e g me n ta t i on .

d) O utp ut di f fe r e n ti a ti on th i s imp l i e s th a t a mo re s p e c i a l i z e d

s e t o f p ro du c ts o r s e rv i ce s wi l l b e de ve l o p e d .

e) O u tpu t de ve l opmen t th i s imp l i e s th a t th e S EU w i l l a t temp t to

de ve lop a mo re comp l e te l in e o f p ro du c ts o r s e rvi ce s , i . e . th e

O p po s i te o f o u tp u t di f f e re n ti a ti on .

'
Th e th i rd a s p e c t o f de te rmin in g a SB U s s t r ate g y i s to de c i de on a

po s tu re fo r wh a t k in d o f comp e t i ti ve po s i t i on to b e tak en r e l a tive

' '
to th e S BU s ma j o r di re c t c omp e ti to r , wh en i t come s to on e s p r i c in g p o l i cy

'
a s we l l a s one s po l i cy wi th re g ards to th e qu a l i ty o f on e s p ro du c t o r
'

s e rvi ce . A SB U
'
s own p ri c in g p o l i c y p o s tu re i s de fin e d i n a s t r ai gh t

'
fo r war d manne r : wh e th e r on e s ow n re l a ti ve p ri c e i s h i g he r , ave rag in g o r

lowe r th an th e ma j o r co m p e ti to r s '
. Th e p ro du c t o r s e rv i ce qua l i t y po s tur e

i s de f in e d as an in dus t r y - s p e c i f i c comp o s i t e me a s ur e , on th e o th e r h an d .

A k e e n un de rs tan din g o f wh a t qu al i ty value th e cus tome r s ar e l o ok in g fo r

i s e s s en ti al i n comi n g up wi th a me an in g ful me as u r e o f re l at ive p e r fo rman c e .

 5 -4 6

The le ade r is de f in e d to h ave an ave r ag e r e l a ti ve p r i c in g p o s tur e as we l l

as an ave rag e re l a t ive p e r fo rman ce po s tu r e . A to ta l o f s eve n p o s tu re

mo de s are th en i de n ti f i e d

Le ade r Th e com p any ' s ow n S BU i s th e ma j o r fo r ce i n th e bus in e s s .

b) Me too Th e S BU i s adop tin g a s imi l a r p r i c in g an d qu a l i ty

p o s tu re to th e l e ade r .

c) "
P re s ti e "
Th e S BU i s ado p ti n g a h i g h e r p ri c in g p o l i cy p o s tu re

th an the l e ade r , wh i le th e p ro du c t qu a l i ty p o l i c y

'
po s tu re remain s mo re o r le s s s imi l a r to th e l e a de r s .

d) P e r fo rman ce Th e S EU i s p urs ui n g a s e t o f comp e ti tive p o l i c i e s

wh i ch ca l l fo r b o th tak i n g a re l a tive l y h i g h e r

p r i c e as we l l a s p rovi di n g a re l a tive ly h i g h e r

qua l i ty th an th e ma j o r comp e ti to r .

e) "
V al ue Th e S EU o f fe rs an ou tp u t wi th a re l a tive l y h i g h e r

qu ali ty th an th e ma j o r comp e ti to r , wh i l e ch ar g i n g a

p ri ce wh i ch i s mo re o r l e s s on th e s ame l eve l as the

com p e ti to r .

f) P ri ce Th i s comp e t i ti ve po s tur e imp l i e s tha t on e s '

S EU is

ch a r g i n g a re l a tiv e l y lowe r p ri c e th an th e ma j o r com

p e ti to r , wh i l e main ta in in g mo re o r le s s th e s ame ou t

pu t qua li ty po l i cy as th e l e ade r .

" "
g) E conom
y In th i s cas e th e SBU adop ts a comp e ti t ive p o s tu re

wh i ch im p l i e s bo th re l ati ve ly lowe r p ri ce as we l l as

re l a ti ve ly lowe r qu al i ty th an th e ma j o r comp e ti to r .

Th e e x p e ri en c e o f th e comp any i s th a t th e two mo s t p ro fi tab le an d

th e reb y mo s t advan ta g eous po s tu re s a re e i th e r a le ade r o r a p e r fo rman c e

compe ti to r .
Al l th e o th e r po s tur e po s i tion s s e em to re q ui r e mu ch mo re

s pe c i al e f fo r ts in o rde r to re tur n a re as onab l e p ro f i ts . Fo r in s tan ce ,

Mark e t S ha re C a te go ri e s .

M arke t S ha re C a t e go gy S al e s Con t ribu t ion P ro fi ts Co ntr ibu ti on

0- 2 0% 35 % 26%
2 0- 4 0% 23% 2 4%
4 0- 6 0% 3 0% 33%
6 0- 8 0% 6% 9%
8 0- l oo% 6% 8%
1 00% 1 00%

Tab le 5— 3 .
Ty p e s o f P o s tu re s , R e l a ti ve F re que n c i e s .

R e l a ti ve F re qu
Ty p e en
gy

" "
Le ade r 5 1%
"
P e rfo rman ce 17%
“
P re s ti g e "
0%
"
V al u e l 8%
“
Me too 1 0%
"
P ri ce "
4%
0%
"
E conomy
1 00%
Cha p te r F ive F oo tno te s

1 . Th e c on ti n g ency ap p roa ch or s i tu a tiona l de s i gn ap p ro a c h to th e de s i gn

of manag eme n t sy s tem s unde r l ine s th i s cha p te r . Amon g th e mor e

in f l uenti a l a rt i c l e s and b oo k s tha t hav e re l evan c e w i th in th e con t ex t

of c o rpo r a te p l ann in g a r e Ch and l e r , Al f re d D .

, Jr .
, S t r a te gy and

Stru c tu r e , M . I T
. . P re s s , C am b ri d g e , 19 63 , Thom p son , J ame s

i za t i on s in Ac ti o n , M cG r aw - H i l l , New Yo rk , 1 96 7 , Newman , W i l l i am H .
,

"
S tra te gy an d Man a g em e nt S tru c tu r e , J ou rn al of B u s in e s s P o l i c y ,

Wi n te r, 1 9 7 1- 7 2 , Lor s c h , J ay w . and Al l en , S te ph en A . 111 , M an a gin g

d iv i s iona l F irm s , D iv is ion of R e s e ar ch , H a rv a rd B u s in e s s S c hoo l ,

Bo s to n , 19 7 3 , News tr om , J ohn W .
, Wi l l i am E . Re i f and R ob e r t M . M on c z ka ,

A C on tin gen c y App ro ac h to Man a gemen t : R e ad in gs ,

M c G r aw — H i l l , New Y o rk ,

19 75 , a nd Lo ran ge , P e te r and R i cha rd F . V an c i l , S tra t e gi c P l ann in g

S y s tem s , P r en t ic e — Ha l l , En g l ewood C l i f f s , 1 9 77 , P a r t Tw o .

Th e f o ll owin g a r t i c l e s or b oo k s add r e s s im po r tan t as p e c t s of how t o

dev e lo p s i tu a ti on al ly ta il o rmad e p rodu c t ma rke t s tra t e g i e s -

: Ma rq u i s ,

" "
Donal d G .
, Th e An a tomy of S u c c e s s fu l Innova tio n s , I nnova t i on ,

"
Novembe r , 1 9 69 , Ho f e r ,
Cha rl e s W .
, S o m e P re l im ina ry R e s e a rc h on

P a tt e rn s of S tr ate g i c B e hav io r Ac adem y of M an a gemen t P ro c e ed in g s ,

"
Aug us t , 19 7 3 , Ar thu r D . L i tt l e , I nc .
, A S y s t em f o r Man a g in g D ive r s i ty

C am b ri dg e , 1 9 74 , S ch ende l , D an E .
, R i ch a rd P at ton and J ame s R i gg s ,

"
Co rp o ra te Tu rn a round S tr at e g ie s , Wor kin g P ap e r , P u rdue Un ive r s i ty ,

We s t La f ay e tte , 1 9 74 , W a s son , C . R .
, D yp am i c Com pe t i t ive S t r a t e gv and
 5- 5 0

P rodu c t s L if e C y c le s ,
C h al l en g e Boo k s , St . Cha r l e s , 1 9 7 4 , and Ho f e r ,

of
"
Char le s W .
,
Towa rd s a Con tin gency Th eo ry Bu s in e s s S t ra te gy

A c ad emy of Man a gem en t J ourna l , 19 7 5 .

S e e Lo ran g e ,
P e te r and R i c hard F . Van c i l , H ow to De s i gn a S tra t e g i c

P l annin g S y s tem "

,
H a rva rd B u s ine s s R ev i ew , Sep t .
- Oc t .
, 1 976 .

S e e Shank , John K Edwa r d G . N ib lo c k , and W i l l i am T . S anda l l s , Jr .

,

" "
B a lanc e C r ea tiv i ty and P rac ti cal i ty in F o rma l P l ann ing , Ha rva rd

Bu s ine s s R ev iew , Jan .

- F eb .
, 1 97 3 , and Hob b s , J . M . an d D . F . He any ,

Coup l ing S tra te gy to O pe ra t in g P l an s H arva rd Bu s in e s s R e vi ew ,

M ay - June , 19 7 7 .

S e e Lo ran g e , P e te r an d R i cha rd F . Van c i l , H ow to D e s i gn a S tra te g i c

P lann in g S ys tem "

, Harv a rd Bu s i ne s s R ev i ew , Sep t .
-
Oct .
, 19 7 6 , Exh i b it 2 .

S e e Ans o f f , H . I go r , Man ag in g S urp r i s e and D i s c on t inu i ty S tra te g i c

We a k S i gnal s M
"
R e s pons e t o , Work in g P ap e r NO . 75- 2 1 , EI S A , B ru s s e l s ,

1 9 75 , Newman , Wi l l iam H .
, Con s tru c tive Con tro l ,
P ren ti c e H al l -
,

Eng l ewood C l if f s , 1 9 75 , An s ar i , S . I .
,
An I nte g ra te d Ap p ro a ch to

Con tr ol Sy s tem De s i gn Ac coun t in g ,

O r gan i z a ti on s and S o c ie t y , 19 77 ,

M e tcal f e , Le s and W il l M c Qu i l l an ,
"
Ma na g in g Turb ul en c e
"
,
in Ny s trom ,

P au l C . and W i l li am H . S tar bu ck , ( e di to r s ) , P re s c ri pti ve Mo de l s o f

O r gan i za tion s , No r th— Ho ll and Pub l i sh ing Co .

, Am s te rdam , 197 7 , Ou ch i ,

W il l iam G .
,
”
Th e R e l a tion s h ip B e twe en O r g an i z a t ion a l S truc tu re and

O r gan i z a tion al Contro l

"
, Admin i s tra tiv e S c i en c e Qua r te r l y ,
M ar ch , 19 7 7 ,

V anc i l , Ri cha rd F .
, D e c en tr al i z a t ion : Man age r ia l Amb i gu i ty by D e s i gn ,
CH APT E R S I!

Man a gin g th e E vo lu tio n o f th e Co gp o r a t e P l ann in g S y s tem

6- 1 . In tro du c ti on

I n th e p revi ous chap te r we di s cus s e d th e ne e ds fo r , an d ap p ro a ch e s

to , tai l o rmak in g a co rp o ra te p l ann in g s y s t em to th e p a r ti c ul a r n e e ds o f

a g i ve n c o rp o ra ti on , s o th a t th e c ap ab i l i ti e s o f th e p lannin g s y s tem mi gh t

be de ve lop e d i n a us e fu l di re c ti on . Th e p ar ti cul a r p l annin g ne e ds w i l l ,

howeve r , s e l dom b e con s tan t , bu t ra th e r k e e p ch an g in g . P a rt ly , th i s w i l l

'
b e due to ch an g e s i n th e f i rm s envi ro nme n t , the re by c re a t in g new s tr a

t eg i c p r e s su re s on th e co rp o ra t ion . Al s o , howe ve r , revi s e d p l ann in g

ne e ds mi g h t s tem f rom ch an g e s i n th e s tr a te g i c p o s i ti on wi th in th e f i rm

i ts e l f .

I n th i s ch ap te r we s h a l l fi rs t di s cu s s how on e mi gh t ap p ro a ch th i s

i s s ue i n g e n e r al o f h ow to mo di fy th e p l ann in g s y s tem s o th at i t may s tay

"
cu r re n t ove r a lon g e r p e ri o d o f time . Our ap p ro a ch s ha l l b e tha t th e

tas k o f man a g i n g th e e vo l uti on o f th e p l annin g s y s tem s ho ul d b e b as e d

on an an ti ci p a ti on o f th e na tur e o f up comi n g p l ann in g ne e ds , no t a r e

a c t ive p ro c e s s . We s ha l l take an ove ra l l mana g emen t s y s tems po i n t o f

vi ew on th e ch al l en g e to c a r ry ou t s u ch an evo lu ti on , in th at we wou l d

wan t i t to be cons i s te n cy amon g th e va rious e l eme n ts o f th e man a g eme n t

s y s t em ; thus , the five s y s tems e l eme n ts p ro po s e d in ou r con ce p tual s ch eme

ne e d to b e man a g e d as a who le .

H av in g e s t ab l i s h e d a g ene r al f r amewo rk fo r how to man ag e th e evo

1u t i on o f th e s t r a te g i c p l ann in g s y s t em we a re in a mu ch be tt e r po s i tion

to a pp ro ach a numb e r o f s p e c i f i c e vo lu ti ona ry i s s ue s tha t a l s o n e e d to b e

ta ck l e d . S p e c i fi c a ll y , we s ha l l be fo cu s s in g on s even i s s ue s re l a tin g to

imp l eme n tin g th i s "

mana g i n g o f th e p l ann in g s y s t em ap p ro a ch .
"
Th e s e wi l l

" “
be how to cop e w i th ove rlo a din g o f th e p l ann in g s y s tem ; th e i s s ue o f
ho w to mi n imi ze po ten tia l dy s f u n c t i o n a l i t i e s wi th the h i e r a r ch i c a l str u c

" ' “
tu re of th e f i rm ,
s o tha t an a dde d g roup le ve l do e s no t be come a fi l te r

in th e s tra te g i c p ro ce s s ; how to as s e s s whe th e r a p a rt i cu l ar S EU p a tte rn

s ti l l re mains re as onab l e or wh e th e r fu rthe r de l in e a ti on o f o rg an i z a t ion a l

bo un da ri e s be twe en SB U
'
s s hou l d b e un de r t ak en ; th e i s su e o f how to mo di fy

th e p l ann in g s y s tem s o tha t i t mi gh t be wo rk ab le wi th in a so- c a l l e d ma tri x

o r g an i za ti on s tru c tu re ; how to c op e wi th di f fe re nc e s in e x e cu tive s '

per

s onal a tti tude s towa rds r i s k in p l ann in g in o rde r to f a c i l i ta te a re l a

t i ve l y cons i s ten t pa tte rn of ri s k - tak in g ove r t ime ; th e i s s ue of how to

attemp t to main ta in vi ta li ty as a ce n tra l in g re di en t o f p l anni n g as th e

p ro ce s s b e c ome s o l de r ; an d , fi n al ly , how to i nco rpo ra te c ons i de ra ti ons

fo r p art i cul a r s t rate g i c p rob l ems o f p l ann in g wi th in th e mul tina t i on a l

co rp o ra te s cene , no t onl y as a comp any g rows ab ro ad , b ut a l s o as

th e mul tina tion a l s ce ne b e come s mo re comp l e x .

E xh ib i t 6 - l g ive s ou r vi ew o f th e dy n ami c n atu re o f th e tas k o f m an

a g in g th e evo lu ti on the co rp o rate p l ann i n g sy s tem ~ Le t u s fi rs t

of .
g ive

a b rie f g e ne ra l de s c rip tion o f th e na tu re o f th i s mana g emen t tas k , by

ex p l ainin g th e ove ral l ra tion al e o f th e p ro ce s s imp l i e d by the e x hi b i t .

S ub s eque ntl y we sha l l e l abo rate as ne e de d on s eve ra l as p e c ts o f th e

l
p roce s s . S tar tin g wi th th e top bo x o f th e di ag ram o f E xh ib i t 6- 1 , we
the comp an y ' s ne e ds . On s e con d thou g h t we wi l l , howe ve r , p rob ab ly re a l i z e

tha t the eme rg in g s t ra te g i c de ci s ions in turn wi l l in f l i c t chan g e s o n th e

p re vious s t ra te g i c s i tu a ti ona l p o s i tion o f th e fi rm , an d th e reby c aus e

ch an g e s i n i ts p l ann in g n e e ds . E nvi ronme nt a l f a c to rs a re al s o l ik e l y

to in f l i ct ch an ge s on
'
th e fi rm s s t r ate g i c p o s i tion . We h ave in di c a te d

th i s on E xh ib i t 6- l b y me ans of th e two a rrows wh i ch re s p e c t ive ly i den t i fy

inte rna l ly an d e x te rn a l l y g en e r ate d chan g e s in

'
th e fi rm s s t ra te g i c po s

i t i on . Thus , th e comp any ' s p l ann in g ne e ds wi l l b e e x p e c t e d to ch an g e

ove r t ime , p a rt l y b e c au s e o f e nvi ronmen tal fa c to rs ou ts i de th e co n tro l

'
o f the fi rm , b ut pa r tly al s o a s a re s ul t o f the fi rm s ow n di s c re t ionary

de ci s ion s . R evi s i ons wi l l cons e que n tl y h av e to b e in co rp o r at e d i n th e

de s i gn o f th e p lann in g sy s tem , in o rde r to p rovi de fo r th e mo di f i e d cap a

b il i t ies tha t now wi l l be ca l le d fo r by th e n ew ne e ds . Re co gn i z in g th a t

we have a c lo s e d- loop sy s tem a t h an d , a mo re o r l e s s co n tinuo us up da ti n g

o f th e p l ann in g s y s tem wi l l the re fo re no rma l ly be re qui re d i n o r de r fo r

th e s y s tem to mai n tain i ts e f f e c t ivene s s . If no t , th e p l ann in g s y s tem

wi l l con tr ib ute to i ts ow n obs o le s ce n ce b y de s t ru c tin g i ts e l f .

As indi c ate d on E xh i bi t 6- 1 we c an in fa c t deve lop a con ce p t o f p l an

'
nin g s e f fe ctivene s s as a fun c t ion o f th e de g re e o f ma t ch b e twe en th e

p l ann in g ne e ds an d the s y s tem s c ap ab i li ti e s to me e t the s e ne e ds

'
. Di s
cu s s i o n of th e p re ce e din g p a ra g raph shou l d mak e us re al i z e th at e f f e c t ive

p l annin g is a f ra g i l e "
ph enome non an d m i g h t e as i l y de te ri o ra te un l e s s

one a lmo s t co nt inuous l y wo rk s a t i t .

Havin g no w c omp l e te d th e di s cus s i on o f th e bas i c d y n ami c i s sue s ap

p ly in g to the evo lution of p l ann in g s ys t ems l et us a ttemp t to ge t a

be tte r pe r ce p tion of ho w thi s evo lu ti on ary p ro ce s s mi g h t wo rk in actua l

li f e . We sh a l l s t ar t on th i s by g ivin g some e x amp le s o f s t r a te g i c de

c i s i o ns an d see ho w th e y mi g h t a f fe c t th e comp an y ' s s t ra te g i c p o s i tion .

Cons i de rin g a SBU , fo r i n s tan ce , th e s e mi g h t be s tra te g i c de c i s ion s th a t

" "
re l a te to ch an g i n g i ts s t ra te g i c di re c t io n s u ch as to i nve s t to b ui l d

" "
a s t ron g e r comp e ti ti ve s tre n g th po s i tio n , al te rn a ti ve ly to h a rve s t by

al lowin g th e co mp e ti t i ve s tre n g th p o s i ti o n to be come we ak e n e d . Fo r a

'
di vi s i on we mi gh t h ave de c i s io ns th at re l ate to de ve l op i n g new S BU s

as we l l as ph as in g ou t o l de r on e s . Fo r th e co rp o ra te l eve l we mi gh t have

s tr a te g i c de c i s ion s th a t a f fe c t a re l ati ve s h i f t i n emp h as i s on c e r ta in

bus in e s s e s a t th e exp e ns e o f o th e rs , in th at p a r ti cu l a r b us i ne s s e s w i l l

b e a l lo c a te d a re l a t iv e ly l ar ge r s h are o f di s c re ti onary re s ou r ce s th an

o th e r s . O th e r examp l e s o f p o r t fo l i o le ve l s t ra te g i c de c i s ions are ao

qu i s i t i o ns an d/ o r di ve s t i tur e s . In a l l th e s e in s t an c e s we s e e tha t th e

in te rna l s i tu a tio na l s e tti n g O f th e f i rm wi l l ch an g e a s a re s ul t : em p h a

s is on n ew p ro du c t l in e s de emp has i s o n o th e r s ; e x p an s ion in to n ew ge o

g raph i c a re as ; inve s tme n ts i n new p l an ts ; en try in to new bus ine s s e s

di ve s t i ture f rom o th e rs , an d s o on . C l e a r ly , th e p l ann i n g n e e ds o f th e

fi rm w i l l chan g e a s a cons e que n c e o f th i s . Th e re fo re , un le s s th e p l an

ni n g s y s tem i s mo di f i e d to re f l e c t th e evo lvin g p l annin g n e e ds , th e s y s

tem wi l l l e s s an d le s s re f l e c t th e n e e ds di ct ate d by th e s i tu a ti o na l

s e ttin g . As al re a dy s t ate d , th e p l ann in g s ys tem w i l l co n tr ib ute to i ts

own de s t ru c ti on .

Th e o th e r ma j o r e l emen t to in f l uen c e th s s i tu a t ion al s e t ti n g wi l l

'
o f cour s e be h an g e s i n th e fi rm s re l e van t envi ronme n t S ome c omp ani e s
* ‘

c .

ar e s u ch domi na ti n g fa c to rs i n the i r bus i n e s s s e t t in g s th a t th e y ca n s ig

nif i c ant l y a f fe ct th e i r envi ronmen ts th ems e lve s th roug h th e i r ow n a c t ions .

Typ i ca l l y , howe ve r , s u ch comp ani e s a re re l a ti ve l y f ew . Mo s t comp an i e s wi l l

no t b e i n a po s i t i on to s i g n i fi c an t ly imp a c t on th e ma j o r f ac to rs o f th e i r

e nvi ro nme n ts , a t le as t no t fo r an ex t ende d p e r io d o f time . T h us , mo s t

'
fi rms e nv i ronme n t s w i l l c h an g e l a r g e ly du e to fa c to rs ou ts i de the con

tr o l o f the fi rm .
 I t i s impo rtan t to mak e a di s t in c tion b e twe e n ch an g e s in th e p l an

nin g ne e ds th a t s tem f rom in te rn a l l y g en e r at e d de c i s ion s ve rs us tho s e tha t

s tem from e x te rna l , e nv i ro nmen ta l p re s s ure s . T he s e l a tt e r fa c to rs a re

pa rt i cu l ar ly s i gn i f i can t , no t o n l y b e caus e th e y too mi g h t imp a c t th e ne e d

fo r p lann in g , but b ec aus e th e y are l a r g e ly ou ts i de th e con tro l o f th e

fi rm s man a g emen t
'
an d c anno t e as i l y b e we l l an t i c i p a te d in mo s t ca s e s .

'
Th i s i s in con tras t to th e e f f e c ts f rom th e fi rm s s t rat e g i c de c i s i ons

on i ts ow n in te rn al s i tu a ti ona l s e t tin g , wh i c h at l e a s t in th eo ry shoul d

len d thems e lve s to be an t i ci p ate d r e a s o nab l y we l l , the reby f a c i l i t a t in g

mo di f i ca tion o f th e p l ann in g sy s t em in t ime . The envi ro nmen ta l fa c to rs

a re o f ten much h arde r to an ti c ip a t e , an d i t sh ou ld b e a ma j o r ta s k in

th e e f fo rt to man a g e th e p l ann in g s y s tem s evo lu t ion to p a y at te n t ion to

'

th i s , s o tha t th e re a ct ive e l emen t o f th e mo de o f evo luti o n o f th e p l an

nin g s y s tem mi gh t b e kep t to a mi nimum .

" "
Wh en an a l y z i n g th e h i s to ry o f many re al — l i fe p l ann in g sy s tems i n

the l i gh t o f th e dy nami c evo l utio na ry mo de l fo r a p l ann in g sy s tem s de s i g n '

th at ha s j us t b e e n deve lop e d , we fe e l th a t man y commo nl y foun d p l ann i n g

"
g rowth -
p ain p rob l ems c an b e b e tte r un de r s too d . F i rs t , i t mak e s us

re a l i z e tha t th e p l ann in g s y s tem is i n a s en s e c lo s e to a tempo r a ry

man a g emen t s y s tem , in th a t i t wi l l onl y h ave ap p l i cab i l i ty in a p ar t i cu l a r

fo rm o f de s i gn con f i gu ra tion fo r a re l at i ve l y sh o r t p e rio d o f time . Th us ,

i t w il l b e im po rtan t th a t th e s y s t em re l a t ive ly e ar l y shou l d be b roug h t

enou gh up to s p e e d to fun c tion in su ch a way th a t i t mi gh t con tr ib ute

us e fu l l y to at l e as t ce rta in as p e c ts o f s t ra te g i c de c i s i on — mak in g . Many

co rp o rations , un f o rtun a te l y , tak e s uch a lon g - te rm app ro a ch to the ih

s t a l l at i o n o f a p l ann in g s y s tem tha t i t mi gh t we l l b e p ar t l y ob s o le te by

"
of
mana ge rs ,
who shou l d be eas i l y i de n ti f i ab l e . Th e man ag e r who i s

th e "
p rime cus tome r "
of th i s tempo ra ry s y s tem wi l l be the C E O
. . . ab ove

al l . As s uch h e is al s o th e o ne u l t ima te ly re s p ons ib le fo r s e e in g to i t

th e p l ann in g s y s t em i s be in g man a g e d . He wi l l o f c ou rs e h ave to dr aw on

a lo t o f s ta f f as s i s tan ce in havi n g th i s t as k ca r ri e d ou t . Howe ve r , he

s ho ul d no t de l e g ate th e man a gemen t o f th e s y s tem to a s ta f f p lanne r to

th e e x tent th a t he lo s e s th e touch o f fami l i a ri ty wi th th e s y s t em wh i ch

is ne ce s s a ry fo r h im to h ave i n o rde r fo r h im to j u d ge wh e th e r th e s ys tem

i s fundame n ta l l y e f fe c t ive . S u ch fami l i a ri ty i s a re qu i r eme n t fo r b ui l di n g

con fi de n c e in th e p lann in g sy s tem . Al s o , i t wi l l Op e n th e po s s i b i l i ty fo r

th e C E O
. . . to con tro l th e way he wan ts th e p l ann in g s y s t em to evo lve i n

o rde r fo r i t to h e lp re in fo r cin g th e s t ra te g i c ch an g e s h e i s pu rs ui n g .

Le t us s tre s s a s a p re l imina ry con c lus i on th en th at i t s ho u l d b e

cle a r th a t th e re typ i ca l l y wi l l be a s t ron g n e e d fo r m ana g in g th e evo l

u t io n o f a p lann in g s y s t em , due to th e fa c t tha t the s i tu a ti on al s e ttin g ,

an d th e reb y th e p l an nin g ne e ds , wi l l b e a lmo s t con s tan tl y ch an g in g . It

i s cons e que n tl y us e fu l to c on i s d e r a p l anni n g s y s tem as be in g ana lo g ous

to a tempo r ary mana g emen t sy s tem , s tre s s in g f l e x ib i l i ty ove r fo rmal i ty ,

re qui rin g a re l a tive l y i m me di ate p a y - o f f i n t e rms o f re s u l ts f rom the

s y s te m , an d re qu i rin g th e invo lvemen t i n th e sy s t em s de s i gn i n '

h i s cap a ci ty as i ts ke y us e r . Be y ond e s tab l i s h i n g the n e e d fo r man a gi n g

th e co rp o ra te p l annin g s y s tem i n g e ne ral , as we have do ne i n th i s s e c t i on ,

the re w i l l howe v e r be s eve ra l c ri ti cal i s s ue s th a t re l a t e to how to ca r ry

ou t s p e c i fi c as p e c ts of thi s ta s k . Th e re s t o f th i s ch ap te r wi l l in

fa ct be de vo te d to pur s uin g th i s . One c ri ti ca l i s s ue in th i s re s p e c t i s

to p ro vi de fo r a con tinue d s ens e o f cons i s ten cy amon g th e va ri o us e l emen ts

o f a p l ann in g s y s t em as th e sy s tem evo lve s ove r t ime . Th i s top i c s h al l

be di s cus s e d in th e nex t s e c t ion .

The key i s s ue wh en di s cus s i n g how to a ch i eve an ove ra l l s t ra te g i c

man a geme n t po in t o f v iew fo r th e de s i g n an d imp l eme n t at i on o f th e co r

p o r at e p l ann i n g s y s t em i s the ne e d to remi nd ou r s e lve s , in ac co rdan c e wi th

our con ce p tu al s ch eme fo r p l ann i n g di s cu s s e d i n C h ap te r Two , th a t th e re

a re fi ve cy c l e s o r s ub - sy s t ems i n ou r s t ra te g i c man a g eme n t s y s t em , name ly

th e ob j e c t ive s - s e t t in g sy s tem , th e s t ra te g i c p ro g r ammin g s y s tem , th e b ud

g e ti n g s y s tem , th e mon i to rin g sy s t em an d th e man a g e me n t in c en ti ve s s y s t em .

Fo r e ach o f the s e sub s y s t ems th e re wi l l b e th e s ame n e e d to ta i l o rmak e i t

to th e si tua tio n al s e t ti n g a t h an d . N e e dle s s to s a y , th e s ame g e ne ra l

s i tu a tio nal s e t tin g ap p l i e s to al l o f th e s e s ub s y s t ems as th e t a i l o rm aki n g

bas e . Th i s , th e re fo re imp o s e s a re q ui reme n t fo r con s i s te n cy amo n g th e

2
sub s y s te m s i n t e rm s o f th e i r de s i gn an d c ap ab i l i ti e s . E xh i b i t 6- 2 il

lus tr a te s th e n e e d fo r a ta i l o rma de de s i g n o f e a ch o f th e e l emen ts o f th e

s t ra te g i c sy s t em s o as to a l s o un de rs co re th a t th e e l emen t s wi l l h ave to

b e cons i s t en t wi th e a ch o th e r . Th e e f f e ct ive ne s s o f th e s t r ate g i c s y s

'
tem , th en , i s a fu n c t ion o f the mat ch i n g o f e a ch s y s tem e l eme n t s de s i gn

to th e p a rt i cul ar ne e ds o f th e s i tua ti on a l s e t ti n g . A s s umi n g th at an

ap p rop ri a te mat chi n g o f n e e ds an d c ap ab i l i ti e s h as tak e n p l a ce , th i s

"
automa ti c al ly i m p l i e s th a t int e rn al cons i s ten c y i n de s i gn i s en s ur e d

amo n g th e e l eme n ts o f th e s tr a te g i c s y s t em .
 EN V I Z O A/H Q N T

E xh ib i t 6 e a ch E l em e n t O
 6 - 12

'
Ob j e ct ive s s e ttin g
-
an d s t rate g i c p ro g ramm i n g , a co rp o ra te con tro l l e r s

de p a rtmen t ma y h ave ma j o r re s p ons ib i l i ty fo r th e bu d g e tin g an d mon i to ri n g

s ta g e s , an d a human de ve l opmen t fun c ti on mi gh t b e p rima r i ly i nvo lve d in

th e mana g e ri a l in cen tive s s ta g e . Th e s e e x e cutive s wi l l ap p ro ach th e as

s e s s m e nt of wh a t wi l l be th e ne eds fo r s y s t em s upp o rt b a s e d on th e i r ow n

f rame o f re fe re n c e . T hus , un l e s s co o rdi na te d , man a g e me n t re s po n s ib i l i ty

s e gmentatio n , an d p o ten ti a l ly al s o an e leme n t o f p a ro ch i a l i sm , mi gh t b e

l ike ly to h am p e r the a ttemp t to a ch i e ve ove ra l l cons i s te n cy . F i n a l ly , it

mi g h t be th a t mana g eme n t o f a c o rpo ra ti on i s s imp ly no t s u f fi ci e n tl y awa re

o f th e i s s ue o f p o te nti a l s ub s y s tems in con s i s ten c y , p os s i b ly abo ve al l

be caus e th e y a re no t us e d to s e e in g th e f ive va ri ou s e l eme nts a s p a r t

o f one ove ral l s trate g i c s y s tem .

Wh at mi gh t b e th e cons e que n ce s o f l a ck o f con s i s ten cy amon g th e e l e

me nts wi th in th e s trate g i c sy s tem ? We h ave s e e n i n ou r di s cus s i o n o f h ow

an in te g ra te d ove ral l s tr ate g i c mana geme n t sy s tem i s s upp o s e d to wo rk ,

th at e a ch e l emen t o f th i s s y s tem i s de p enden t on th e o th e rs . T h us , th e

b en e fi ts as a s t ra te g i c de ci s ion — mak in g too l wi l l no t a c c rue un l e s s the r e

" "
is a ti gh t lo g i ca l l ink ag e amon g a l l th e e l em t n s . Th e re wi l l b e s eve r al

sp e c i fi c cons e qu en ce s wh e n s u ch l a ck o f ove r a l l con s i s te nc y i s th e ca s e ,

and we shal l di s cus s e a ch o f th e s e .

F i rs t , le t u s cons i de r th e co ns i s ten cy re qui r eme n t s ; amon g th e

ob j e c tive s - s e ttin g , s t ra te g i c p ro g rammi n g an d b ud g e tin g s t a ge s . If , fo r

in s tan ce , th e s tr ate g i c p ro g rammi n g a c tivi ty i s no t done wi th in th e con

te x t of th e fo cus s e t by the ob j e c tiv e s - s e tt i n g s ta g e th e e f fe c t wi l l

p rob ab ly be th at a m uch l a r g e r num b e r of s tr a te g i c p ro g r am al te rn at ive s

wi l l have to be p re p are d an d ana l y ze d in o rde r to come up wi th e no u gh

vi ab l e cho i ce s to be a b le to s e l e c t a re as onab l y g oo d p a ck a g e o f s t ra

tegi c p ro g rams . No p ri o r fo cus wi l l h ave b e en p rovi de d to limi t th e

 6- 13

ar e a s o f s e ar ch fo r s t ra te g i c p ro g r am s , th e mo s t l ik e ly cons e que nc e be in g

th a t a lo t o f addi ti ona l e f fo rts wi l l h ave to be s p e n t on th e s t rate g i c

p rog rammin g asp e c ts . Th i s i s o f cou rs e no rm al ly no t de s i r ab l e at a l l ,

g ive n th e h eavy wo rk lo a d i nvo lve d i n p re p a ri n g an d ana ly z i n g a ty p i c a l

s tr ate g i c p ro g ram . A we ake n in g o f th e qua l i ty o f th e s t ra te g i c p ro g ram s

to b e fo l lowe d i s l ik e l y to re s ul t , g ive n tha t mana g eme n t a t te n tion almo s t

inev i tab ly wi l l h ave to be mor e th inl y s pr e ad on a l a r g e r s e t o f l e s s

fo cus s e d s tra te g i c p ro g rams . Thus , in con s i s te n cy b e twe e n th e s ta g e s i s

l ik e ly to le ad to bo th a he av i e r wo rk loa d and an in f la te d qu a l i ty "

of

th e mana g e ri a l inp u ts in to th e p ro c e s s . S imi l a r l y ,

wi th in con s i s t en c i e s

be twe e n th e s tra t e g i c p ro g r am min g an d th e bud g e tin g s ta g e s th e r e wi l l be

an an a lo g ous s e t o f p rob l ems , in th a t th e s tr a te g i c op t ion s wi l l no t h ave

be en s ub s t an t ia l l y na r r owe d down be fo r e han d . We re ca l l th a t th e la c k o f

nar row in g down p ro b l em wa s a l s o di s cus s ed i n C hap te r Two , an d i l l us tra te d

in E x h ib i t 2-4 .

I t shou l d b e no te d th a t th e ne c e s s a r y na rrowin g down p r io r to th e

bud g e tin g p ro c e s s mi g h t b e hamp e re d even i f we have a re as on ab l e c on s i s

t en cy b e twe en th e s ta g e s o f th e p ro c e s s , n ame l y a s we have tou ch ed up on

s eve ra l time s , b e c au s e o f mana g eme n t s l ac k o f wi l l i n g n e s s to e x e c u te th e

'

n e c e s sa ry de c i s ion - mak in g di s c i p l in e dur in g the ea r l i e r s ta g e s . Un l e s s

mana g eme n t i s wi l l in g to r e s o lve wh i ch s tra te g i c ch o i c e to mak e amon g

s eve ra l po te n t ia l di re c tion s to go , i . e .
, c ommi t tin g to a p a r t i cu l a r set

o f O b j e c t ive s , i t wi l l be n e x t to impo s s ib l e to ca r ry o u t a mo re fo cus e d

s t r at eg i c _
p r o g r amm i ng . S imi l a r ly , un l e s s de c i s io n s a re ma de con c e rn in g

wh i c h o f th e many po ten tia l p ro g rams to fo l l ow th e bud g e tin g p ro c e s s wil l

b e o ut o f fo cus

R e tu rn in g to an o th e r r e l a te d i s sue tha t wa s a l re ad y tou ch e d upon

dur in g our di s c us s ion r e l a t in g to Exh ib i t 2-4 of Ch ap te r Two , we s e e

 6- 14

th at th e di s t ribu ti on of th e time s p e n t on p l ann in g th ro u g h th e y ea r

al so i s c ri ti ca l , in te rms of re gu l a tin g th e wo rk l oad fo r re a ch in g th e

"
b e s t po s s ib l e "
s t ra te g i c di re c tion . W i th g radua l narrowin g down o f

s t rate g i c o p tion s we s e e tha t th e wo rk l o ad c an b e s p r e ad ou t re as on ab ly

we l l ove r th e yea r . Howeve r , w i thou t th e p r io r n a r r ow n i ng down mana g eme n t

'

wil l be fa ce d wi th th e s ame b ro ad s et of s t ra te g i c op t in s dur in g th e much

sho rte r bud g e tin g p e r io d . Th i s p ro bab l y me an s an ex trao rd ina ry p e ak wo rk

load fo r the mana g emen t te am , a g ain l ik e ly to re su l t in re duc e d qua l i ty

of th e s tra te g i c de c is ion - mak in g e f fo r ts . G iven tha t s u ch a wo rkl oa d

p rob lem ty p i ca l ly w il l cre a t e a na tu r al an d p rob ab ly n e c e s s a ry t enden c y

towa rds mo re ad ho c e l imina ti on o f c e rta in O p ti on s . Thu s , th e re wi l l b e

"
a re al dan g e r tha t th e t ru n c a te d n a r rowi n g down tha t tak e s p l a c e wi l l

b e ou t o f l ine w i th wha t wo ul d s e em to b e O p tima l ha d th e fu l l r an g e o f

re l evan t O p t ion s b e e n con s i de re d . A l e s s than i de a l f in a l a c t io n p ro g ram

p a cka g e mi g h t b e th e r e s ul t .

We have a r gue d th at la ck o f con s i s ten cy b e twe e n th e f i r s t thr e e

s ta g e s o f the s tra te g i c p ro ce s s mi g h t l e ad to s e ri ous di s to rt ion s in th e

s t ra te g i c de c i s ion - mak in g du e to dy s fun c t ion a l e f f e c ts on th e na rrowin g

down p ro ce s s . Be y ond the a r g ume n ts in th i s r e s p e c t di s cu s s e d in the

p re vious p a ra g rap hs a mo re fundamen ta l un de r ly in g p ro b l em wi l l b e th a t

th e a dap ta t i o n / i n t e g r a t i on ba l an c e in th e s tra te g i c de c i s ion - mak in g p ro c e s s

mi ght ge t di s to rte d . Th i s , howeve r , c an mo re ea s i l y be d is cu s s ed in c on

ne c t io n wi th in con s i s t enc i e s re l a tin g to th e in te r re l a ti on sh i p s wi th th e

rema in in g tw o fa c to rs , th e mon i to rin g an d th e mana g eme n t in c en tive s c om

p onent s . We s ha l l pur s ue th i s in th e ne x t p a ra g raph s .

Cons i de r in g p rob l em s th a t m i g ht ari s e due to in con s i s t enc i e s b e twe en

the moni to r in g fun c t ion an d th e o th e r s t a g e s , a ba s i c re qu i r eme n t wi l l b e

th at th e moni to rin g s y s t em mu s t be s t ru c tur e d in s u ch a wa y tha t i t ac tua l l y

b onus and s to ck Op tio n p l an s . Mo s t o f te n , howe v e r , th e s e a r e no t

sp e ci f i c a l l y ti e d c on tr i b u t in g toward s
'
to e a ch exe cu tive s pe r fo rmanc e in

th e fu l f i l lment of the outp ut tar ge ts of e a c h O f t he th r e e cy cl e s . In

cas e s wh er e ex p l i c i t ru l e s ex i s t f o r th e d i s tr i b u t ion of bo nu s e s and

op t ions ,
th e s e typ i cal l y tend to h e av i ly r e i nf o r c e sh o r t - te rm b ud g e t
fu l f i llmen t p e r f o rmanc e . Fo r no n- mone ta ry inc e nt ive s to o , the re o f te n

s e ems to b e a l a ck o f exp l i c i t t i e
-
in w i th s tra te g i c p e r fo rman c e . Fo r

in s tanc e ,
th e p romo ti on and r e as s i gnmen t of k ey ex e cu t iv e s i s O f te n no t

sy s tema ti c a l ly ti ed to e xp l i c i t p e r f o rman c e as s e s sment s .

Th e p rob lem of th e inc ent ive s sy s tem o f ten no t b e in g e x p l i c i tl y

coo rdi na te d w ith the o th er e l emen ts of th e s tra t e g i c s ys tem may f r e que nt ly

be re in fo r c e d du e to the common p ra c ti c e of a s s i gn in g th e tas k of

admini s ter in g the mana g ement inc en t iv e s s ys t em to s ta f f exe cu t iv e s w ho

are no t d i r e c tly invo lve d i n th e p l ann in g and con t ro l fun c ti ons . Even

mo re c ri ti ca l ly , th e s e e x e cu tiv e s may typ i ca l ly no t b e v e ry f am i l i ar w i th

the maj o r s tra te gi c d e c i s i on- ma k i n g sh i f ts tha t l ine man a g ement may b e

attemp tin g . Thus , by s e gmen tin g s ta f f tas k s withou t b e in g e x p l i c i tly

con ce rn ed ab o ut th e sy s t em co ns i s ten c y is su e , a comp any m i gh t no t only

b e denyin g i ts e l f th e be n e f i t from th i s sou r c e of re in f o r ceme nt of th e

s tr a te gi c d i re c tion . Ev en wo rs e , howev e r , thi s mi gh t cr ea t e p r e s s u re s

th a t mi gh t s p e c i f i ca l ly counte ra c t the imp l eme nt a tio n of th e s tr a te g i c

p la ns .

I t s hou ld b e po inte d ou t tha t to b r in g the inc entive s s y s tem in

li ne wi th th e othe r e l ement s of th e s tra te g i c s ys tem wi l l d e p e nd c r i t i ca l ly

on th e ava i lab il i ty of r e l evant in fo rma ti o n ab ou t s tr a te g i c p e r fo rma nc e

ful f i l lme n t .
Thus , th e in te nt i on to empha s i z e bo th lon g- t er m . an d sho r t - te rm
 6 — 17

s tr a te g i c b eh av io r w i th the mana gem en t in c en t ive s p re sup po s e s tha t th e

mo ni tor i n g s y s tem h as b e e n dev e l op ed s u f f i c i e n tly to a l l ow fo r a us e fu l

as s e s sme nt of mana ge rs I
lon ge r - te rm p e r f o r man c e . W i thou t th i s b e in g
r e a l i s ti c th e b as i s f or c r ed i b i l i ty wo ul d b e gone .

G ive n th e impor tan c e of co ns i s ten cy amo n g th e e l eme nt s of the

s tr a te g i c s y s tem , l e t us d i s cus s a f ew ap p ro a ch es tha t mana g eme nt mi gh t

ta k e in f a c i l i ta ti n g th at th i s mi gh t ta k e p l a c e . A f ir s t s t e p mi gh t be
to car ry ou t wha t mi gh t be l a b e l ed a c on s i s t enc y aud i t a t c er ta in r e gu l ar

i nt e rv a ls , s ay , eve ry th i rd or four th y e a r . Th e ta s k he r e s imp l y s ho u ld

be to d e te rmi ne wh e th e r e a ch of th e e l eme n t s of th e s t ra te g i c s ys t em

b ro ad ly s e ems to re f l e c t b a s i c al ly the s ame c om mo n s i tu a t ion a l s e tt ing .

Th is co ns i s t e n cy aud i t a pp ro a ch i s us e fu l b e c aus e i t ex p li c i t l y c r e a te s

an o pp o r tun i ty to fo cu s on th i s ov e ra l l c on s i s te n c y i s su e i n l ar ge ,

comp le x or gani z a t io ns wh e r e th e l a c k of an ov e r a l l commo n v i ewp o in t s e em s

to be t he no rmal .

A s e co nd a pp ro a ch f o r ame l i o r a ti n g i nco ns i s te n cy is to r e co gn i z e th e

ma n ag eme nt ta s k co ns e q ue n c e of th e ove ra l l in t e gr a ted s tr at e g i c app roa ch ,

name ly th at i t w i l l be o ne tas k to man a ge the de s i gn an d evo lu t ion of th i s

sy s t em . Cons e qu en tly , the r e s hou ld b e on e man a ge r wh o ha s th e ov e r al l

re s po ns i b i l i ty for th i s tas k ; th i s l e ad e r s h i p wi l l f a c i l i tat e co op era t i on

b e twe e n ,
'
s ay , a corp o r a te p lanne r s d ep ar tmen t , a con tro l l e r s d e p a r tm en t '

and a human r es our ce s de pa r tmen t . G iv e n th e c r i t i c a l imp o r t an ce of th e

s tr a te g i c sy s t e m a s a ve hi c l e f or a c h ievi n g s tr a te g i c d ir e c t i on in a l ar ge ,

comp l ex or gan i z a ti on , i t i s ne c e s s ary tha t th e ex e cu t ive r e s p o n s ib l e f or

th e ov er al l sy s tem i s su f f i c i e nt ly cl o s e to s e nio r mana gemen t to be ab l e to

i nte rna l i z e a r e a l i s t i c s e ns e of d i re c t io n as to the s tr a t e g i c d i r e c tio n

 6- 18

"
th a t the c omp any wi l l go . Th us , i t wi l l no t su f f i c e w i th a r emo t e s ta f f

ex e cu tive in th i s pos i t ion ; su ch a p e r s o n wou ld no t hav e th e s tr a te g i c

ins i gh t to b e ab l e to l i n e up th e s tra te g i c s y s t em b eh ind th e de s i red

s tr a te g i c thru s t .

Th i rdly , and p rob a b ly e qu a ll y imp o r tant , by re co gn i z i n g th e comp l ex i ty

of th e tas k of ma na g in g th e s tr a te g i c sy s tem so tha t i t s t ays r e l ev ant and

" "
r ema in s inte rna ll y c ons i s te nt , a comp any shou ld deve lo p a p lan f o r p l ann in g

Th i s shou l d cons i s t of an exp l i c i t l y s p e l l ed ou t con c e p tu al f r amewo r k f o r

th e s ys tem , ident i fy in g i ts componen t s , h ow th e s e a re int end ed to func t ion ,

and th e i r in te r re l at io ns h ips . On e examp l e of a us e fu l con c ep tu a l s cheme i s

the o ne p rop o s e d in Chap t er Tw o of th i s boo k and summa ri z ed i n Exh ib i t 2—6 .

H av in g pu t down , communi c a t e d and in te rna l i z ed s u ch a con c ep tua l f ramewo r k

fo r p l ann ing , th is s hou ld s e rv e a s a "

b e n chma rk "
f or any d ev e l opmen t and

imp roveme nt of as p e c ts of th e sy s tem , ens u rin g tha t imp rovement s an d

mod i f i ca tions wi l l co n tr ibu te i n a c om mo n d ir e c ti on . El s ew i s e i t mi gh t

e as i ly be tha t ene r gy ge ts was te d in d ev el o p in g as p e c ts of a p l anni n g s y s tem

th a t eventua lly wi l l no t f i t into a common s cheme . Thu s , an in te g ra l p ar t

of the p l an f o r p l a nni n g wi l l be to s p e c i fy wh en to c han ge wh a t in th e

p lanni ng sy s tem , and how as we l l a s why s u ch ch an ge s mi gh t be d e eme d

de s i rab l e . W i thou t s uc h an ex p l i c i t p l an f o r p l ann in g i t i s v e ry c ommon

th at the p lanni n g sys tem i s s ub j e c te d to s h i f t s in d i re c t ion ,

mod i f i c a t io ns

an d addi tions tha t do no t c onso l i date into a commo n s tr at e g i c d e c i s ion

maki n g th ru s t . Li tt l e b y l i tt l e the s y s tem m i ght b e c om e ’

so d i f fu s e ,

i l lo g i c a l and comp li c a te d tha t it s e f f e c t ive ne s s as a mana g eme n t too l is

d imi ni she d .
A common f ee li n g amon g the u s e r s in s uch s i tua t ion s i s tha t

th e s tra te gi c p lannin g s y s tem h as b e en ov e r loa ded "

,
an i s su e we s ha ll

d i s cu s s i n mo re d e ta i l in th e nex t s e c tion .
 6- 2 0

re a l p rob l em ,
howeve r ,
i s tha t wh i l e mana gemen t te nd s to add new rou tine s

to the p l ann in g sy s tem ,

us ual ly in r e s p o ns e to a p a r t i cu l a r p re s s ur e

e ner gy s ho r t a ge l ead i n g to a ne e d f or th e p l ann in g of ene r gy so ur c i n g ,

c onver s ion and cons e rv a tion ; tha t s oa r in g l ab o r wa ge s , s o c i a l c o s t s , a nd

l e gi s la tiv e l abor re s tri c tio ns wi l l tr i gge r O f f a c o rp o ra te r e s p on s e in the

fo rm of a ma npower p l an ; and so on ) . Wh i l e su ch ad ho c add i ti o ns mi gh t be

ne c e s s ary and le g i timat e giv e n th e c i rcums tanc e s , th er e i s , howeve r , no t a

s imi l ar te nd e nc y to de l e te tho s e p a rt s of th e sy s tem th at mi gh t h ave b e come

l e s s r e l evant ; he nc e , th e s y s tem tend s to grow .

We sh al l o f f e r th re e s u gg es t ions f or de a l in g w i th th i s p rob l em of

ke e pin g the l ine s time commi tmen t wi thin re as ona b l e l imi ts

'
. Th e f ir s t

wi l l be to adop t a "
z e ro - b as e "
aud i t ap p ro a ch to the p l annin g sy s tem . At

ce r ta in time in te rval s , typ i c a l ly no t t oo f r e qu entl y , an in t e rn a l aud i t

mi gh t a t temp t to ra is e th e que s tion of y py _

ea c h par t i cu l ar e l eme n t O f the

p l ann in g sy s tem i s j us t i f i ed , in te rms of th e b e ne f it s it y i e ld s r e l a t iv e

e xp e ndi n g mana gement t ime e x e cu tin g th i s a s p e c t

"
to th e co s ts of on of th e

sy s tem . Es s en ti a l ly , the p l ann in g s y s tem w i l l be exam ined a s i f i t we re

red e s i gn ed f rom s c ra tch . I t wou ld b e na tur al to p e r fo rm th i s ty p e of aud i t

in conj un c tion w it h the cons i s ten cy aud i t d i s cu s s ed in the p r ev iou s s e ct ion .

A s e cond ap p ro a ch would b e to rely on ad ho c o n e— s ho t s tud i e s of

var ious k ind s to a lar g e r e x te n t in the p l ann in g p r oc e s s . Fo r ins ta nc e ,

a

sp e c ia l p urpo s e tas k fo r c e mi gh t b e c re at ed to come up wi th s tr at e g i e s f or

how to app ro a ch e ach of the p ar ti cu lar i s su e s , s u c h a s en e r gy or l ab o r ,

re f err ed to b e fo re . I n l ine wi th th i s , it s hou ld mo r e com mo nly b e e x p l i c i t l y

s ta te d th at ce r tain of the p l anni n g p ro c edure s tha t ar e b e in g introdu ced

ar e i n tended to h ave a ve ry sp e c i f i c an d d e f ini t e l i f e t ime on l y ‘

 6- 2 1

Th e r e i s ano th e r ad ho c a s pe c t of p l ann in g wh i ch invo lv e s s en io r

mana gemen t p r ima ri ly , a nd h a s p rov en to b e ve ry u s e fu l i n s eve r a l comp an i e s .

Th rou gh thi s , s e nior man a g emen t w i l l ge t invo lve d in an i n— d e pth s t r ate g i c

aud i t rev i ew of a f ew of th e O p e r a t in g uni ts e a c h y ea r , ou ts ide O f th e

re cu rr e nt r evi ews and i nte ra c t ion s tha t ar e p a r t of th e annu a l s tr a te g i c

p la nn i n g cy c l e . Th i s mi gh t g iv e s e n io r ma na gem en t an O p po r tun i ty to l e arn

mo re in tima te ly a b o u t th e su b t l e t i e s of th e par t i cu l a r b u s in e s s , and g iv in g

th e ma n age rs of th e p a r ti cu l ar b u s ine s s an O pp o r tun i ty to b e t te r und e r s tand

'
s e nio r ma na geme n t s p o i n t of v i ew a s we l l . I n— d ep th s tr at e g i c in te r ch an g e s

of th i s k i nd '
mi gh t s tr e n g th e n s en io r mana g eme nt s in s i ght and f e e l f or th e

b us i ne s s , th i s b e in g e s s en t i a l f o r g iv in g th e r e cu rr in g annua l p l ann in g

p ro c e s s co rp o ra te r ev iews a s en s e of r e al i sm ra the r th a n a lo o fn e s s . Al s o

i t mi gh t O p e n up a mo r e f r e e - f lowi n g commun i c at io n w ith in th e o r g an i z a t ion a l

h i e r a r chy . I nc i dents s u ch a s a co rpo ra te mana geme n t v i s i t to a n Op e r a t in g

uni t , f o r examp l e , i n conne c t io n w i th a n i n— d ep th s t rate g i c r ev i ew , mi gh t

hav e d r ama ti c ef f e c ts on c r ea t in g a s e ns e of s har e d commi tmen t to th e

'
com p any s s tr a t e g i c d i r e c ti on .

Th is mor e i n— de p th b us i ne s s unde r s tandi n g on b eha lf o f s en io r

mana geme n t s e ems e s s e nt i a l no t o n ly f o r e f f i c i en t p lann in g , in th at it wi l l

p av e th e way f o r a mo r e fo c us e d , q ui c k e r , c o rp o ra te — d iv i s io n a l p a t t e r n of

int e ra c tion f o r narrowi n g down s tr a te g i c o p t io ns , bu t mo r e impo r t an tl y , it

ma y p rov ide a n imp e tu s fo r b e t te r s tr a te g i c de c i s i o ns i ts e l f . As a l r e ady

s ta te d , th e co rp o r a te - d ivi s iona l p lann in g r ev i ew p roc e s s mi g h t t oo O f ten

de te ri or a te in to an ove r ly fo rma l i s t i c , inte l le c tu a l ly unch a l l e n gin g

ex e r c i s e ,
ov e rl y f i nanc i a l l y domi na t ed . I ns te ad of pu r su in g p l ann in g wi th

su c h an unr e a l to u ch , a so un d s eni or ma na g eme nt b u s in e s s und e r s tand in g and

 6- 2 2

j ud gme nt w i l l b e tter e na b l e th e c orp o ra t e and th e b u s ine s s s tr ate g i c l ev e l s

to work to ge th e r to imp rov e th e s tr ate g i c d e c i s ion s . Th e r e c o gn i t ion of

th e need f or app rop ri a t el y cho s en and ins i gh t fu l t op manag emen t con tr ibu t io n

to th e bus ines s p l ans i s e s s e nt ia l ; no t op- down c o ntr i b u t ion shou l d c r ea te

" "
a f e e l in g of animo s i ty a t th e bus in e s s l ev e l ; ar t i f i c i a l or sh al l ow

t op - down contr ib u tion mi gh t m o r e th an mo s t f a c to r s l e ad to th e d e t e r io ra t io n

of the e f fe c tive ne s s of th e p la nn i n g p ro c e s s .

A f i na l su gges t io n f o r k e ep in g th e ove r lo ad in g p r e s sur e of p la nn in g

unde r contro l r e l a te s to th e r e l at i on s h i p b e twe e n the c orp o r a te p l ann in g

s ta f f and the l ine . I t is no t ent i r e l y un commo n to s e e c o rp o r a te p l ann in g

s ta f f s th at canno t r e s i s t th e temp t a ti on to p roj e c t them s e lv e s as wh i z — k id s

r el a tive to th e l ine , or eve n d ev e l op in g an ima g e of s l ig ht d i s r e s p e c t f o r

the l i ne . The dan ge r of them b e comin g a l i tt l e t oo clos e to p l ann in g mi ght

e as i ly l e ad them to unde res t ima te th e t ime imp l i c a t ion s f o r th e l ine of

va rious s u gge s tion s they may come up wi th f or p l ann in g sy s t ems improvemen t s

An e f f e c tive co rpo ra te p la nnin g s taf f , on th e o th e r ha nd , w i l l typ ic a l ly put

mu ch emphas i s on wo rk in g cl o s e ly wi th the l ine to e s t a b l i s h a l in e - s ta f f

cons e ns us about th e ne ed to add to or to mod i f y th e p lann in g s y s tem . It

mi gh t b e adv i s ab l e , fo r in s tanc e , to try ou t th e f o rma t of any s y s tems

a ddi t ions or mod i f i ca ti on s on a p i lo t s ub s e t of th e d iv i s ion s . I t s houl d

b e a de f ini te r eq ui r emen t tha t a par t i cu la r p l a nnin g p ro c e dur e ha s b e en

deb u g g ed . By ac t ive ly invo lv in g th e l ine in the imp l emen ta t ion

"
tho rou gh ly

of mo d i f i c a tions i n th e p lannin g pro ce s s , the l ik e l iho od of the l in e s '

a c ce p tanc e of th e modi f i ca ti ons w i l l be inc re a s ed . Equ al ly impo rt an t ,

th e

qual i ty of th e c han ge s thems e lve s w i l l p ro b ab ly imp rove .

 6- 2 4

Ano the r p ot e n ti a l a re a f o r s e ni or ma na g emen t time - s av i n g can be fo und

whe n i t come s to invo lveme n t in the r ev i ew and a pp rova l of c ap i ta l bud ge t in g

p ro po s al s and e x p endi tur e p ro p o s a l s . W i th p r i o r p l annin g and th e r eby an

e s tab l i s he d s tra te g i c d i re c tio n a s s ta ted in a s e t of O b j e c t iv e s and goa l s

as we l l as a fo c us e d s e t of s tr a t e g i c p ro grams , th e na tu r e of th e inv e s tm ent

p ropo s a l a nd exp e nd i tur e r evi ew and app rov a l p ro c e s s shou ld g e t s i gn i f i c antl y

chang e d . G iv en tha t i nve s tmen t s and e x p end i tur e s of cou r s e are p a r ts of

p ar ti cu l ar s tra te gi c p ro gr ams , th e maj o r r ev i ew and ap p rova l e f f o r t f rom a

r es ou r ce a l lo ca tion v iewp o i nt s ho uld ta k e p l a c e a t th e s ta ge wh e n s c ru t in i z in g

th e s tr a te gi c p ro g rams . Any i nve s tment of exp end i tur e p ro po s al s hou l d

th er e for e b e eva luat ed i n th i s con tex t , i . e .

, as way s f o r f in e - tun in g th e

pa r t i cu l ar s trate gi c p ro g r ams and f o r che c k ing th e ir con t i nu e d v a l id i ty .

Cap i ta l b ud ge ti n g and e xp e nd i tur e bud ge t in g shou ld c on s e qu e nt ly no t b e s e en

as a p r ima ry de ci s io n- mak in g too l f o r s tr a te g i c r e s o ur c e a l lo c a t ion s as

such . G ive n th e co ns i de ra b l e s en io r mana g emen t t ime invo lveme n t th at th e

tra di ti on al c ap i tal bud g e t i n g and exp endi tu re rev i ew and ap p rova l p ro c edur e s

typ i c al ly re qu i re , p l ann in g mi gh t p rov ide an O pp o rtun i ty to f r e e up

cons id e rab l e t ime . Ev en mo re impo r t ant tha n th e a c tu a l time s aved , howev e r ,

i s p rob a b ly s enio r mana geme n t s incr ea s e d s ens e

'
of f e e l in g th at i t c an

'
ex e r ci s e a mo re di re c t inf l ue n ce on th e f i rm s d ir e c t ion th r ou gh th e

re so ur c e a l lo c a t ion p ro c e s s , as O pp o s e d to po s t f a c to
-
"
ru bb e r - s tamp in g of

inve s tment s and e x p en di tur e p ro po s a l s .

Le t u s f i na ll y d i s cus s an ap p ro ac h f o r ke e p in g a po t ent ia l ly v e ry

of
-
time consumi ng as p e c t p lann in g w ith in mo r e re as onab l e p rop o r t ions .

Thi s r e la te s to su gg e s ti ng a mo r e e f f i c i en t way of c ar ry in g ou t th e ana l ys i s

and evalua tion of new p roduc t l ea ds as we l l a s po te nt ia l a c qu i s it io n l e ads .

 6- 2 5

I t s e ems c l ea r th at a f i rm s ho u ld s tr ive to r e c e iv e a sub s tan t ia l l y l ar g e r

numb e r of s uch l eads th an wha t e nd s u p b e i n g a c tual l y d e c id e d to p o si t ive l y

" "
go ah e ad w i th . S uch an i nte nt iona l ove r f l owin g of a l t e rn a t ive s wi l l

p ro b ab ly be a s i gn i f i c ant f a c to r fo r inc r e a s in g th e b a tt i n g ave ra g e of

th e a cqui s i t ion s and /o r new p roduc t l e ads tha t tu rn ou t to b e su c c e s s fu l .

"
I n te rms of r e duc i n g po t en tia l ove rl oad ing of the p lann i n g s ys tem , then ,

it _ s e em s b e ne f i c ia l to dev e lo p a s e qu e nt ia l app r oa ch f or s c r e en in g of n ew

p rodu c t or ac qu i s i ti on p rop o s al s , w i th e a ch p ro po s a l hav in g to pa s s

in cr e a s ing ly mo re e l a b o r a t e an a ly s e s . A min imum of time mi ght th er e b y b e

exp en d e d on p r op o s a l s th a t a re qu i t e l i k e ly to be l e s s at tr a c t ive . I n s t e ad ,

e f f o r ts mi gh t be conc e ntr a te d on ana ly z in g the mo r e s er iou s c on te nde r s .

P r evi ous ly , w e h av e d i s cu s s ed ap p roa ch e s f o r eva lu a t i n g R &D p r oj e c t s

as p a rt of a b u s ine s s s tr a te gy as we l l a s f o r dev e lo p in g a bu s in e s s

a t tr a c tiv ene s s and p l annin g ne ed i nd ex f o r dev e l op in g th e i r f i t s a s p a r t of

a c o rp o ra te p o r t f o l i o . As we re c a l l , the s e ap p ro a c h e s we re b as ed on

deve lo p in g ove r a l l me as u r e s of a ttra c t ive ne s s b a s e d on a compo s i t e numb e r

of r e l evant unde r ly in g f a c tor s . A s imi l ar typ e of ap p ro a ch mi ght b e

deve l o p ed as th e b as i s f o r a s c re e nin g p ro c edu r e f or a c qu i s i t io n s . Wh en

dev e lo p i n g s u ch an ind ex - b as e d s e qu ent ia l s cr ee ni n g pr o c edu r e it i s impo rt an t

"
to a tt emp t to f ind th e r igh t l eve l of d i s c r imi na t io n . I f the pr e - s c r e e n in g
-

is too h e avy th e n on e runs th e r i s k of tu rn in g down p r opo s a l s tha t i n

r e tro s p e c t p rov ed ve ry advanta g eou s . If , on th e o the r ha nd , the pr e

s cr e en in g i s to o l i gh t , the n th e p ro b l em of ove rl oa di ng in th e p l ann in g

sy s t em w i l l s t i ll r ema i n .

Th e re ar e tw o addi tio nal s e ts of is s u e s th a t sh ou l d b e ta ken into

co n s id e ra ti on wh e n ins t i tu tin g p r e — s cr e en in g p ro c edur e s f or the hand l i ng of

 6- 2 6

new produ c t and /o r a cqu i s i tio n pr op o s a l s i n p l ann i n g . F i r s t , i t shou ld be

kep t i n mi nd tha t th e sp e c i al i z e d know- how r e l evan t f o r the ev a lua t io n of a

new p rodu c t and /o r a cq u is i t io n typ i ca l l y wi l l hav e to b e c o l l e c te d f rom a

re la t iv e ly wi de numb e r of exe cu t ive s w i th i n the f i rm , s ta f f s p e c ia l i s ts ,

var iou s func t ional r ep re s en ta tive s , l in e man a g e r s p rov id in g a b u s ine s s

s tra te gy p e rs p e c tive an d s en io r mana gemen t p rov id in g a po r t f o l io s tra t e g y

vi ewp o int . I t i s the re fo r e e s s en ti al tha t a f o rma l i z ed and s t anda rd

i nf or m a t i o n /i n t e r a c t i on f low g e ts e s tab l is h ed amon g th e r e l evant ex e cu t iv e s ,

so tha t i t b e come s c l ea r w ho s hou ld ev alua te wha t p a r ti cu l a r a s p e c ts of a

new p ro du c t and /or a c qui s i t i on p ro po s a l a s we l l as whe n th i s s hou ld be don e .

S u ch unamb i guous as s i gnmen t of tas k s p rov i de s ac cou nta b i l i ty in th e time

s avi n g tha t th is is l i k e ly to l ead to on the an a lys i s ano the r c r i t i c a l

fa c to r fo r ano the r re a s on t oo in th a t i n many in s tan ce s th e a b i l i ty to ma k e

a qu i c k de c i s ion wi l l b e p ar amo un t i n or d e r no t to lo s e an O ppo rtun i ty .

" "
I n con cl udin g ou r d i s cu s s io n on th e p r ob l em s of ove rlo ad in g the

p l annin g sy s tem s temmi n g f rom th e ex c e e d in g ly s i gni f i c ant c a l l s f or t ime

and e f f or ts th at p l annin g mi gh t r equ i re th e po te nt i a l dy s fun c t ion al e f f e c ts

on s t ra te g i c de ci s ion— maki n g mi gh t inde ed be s e r iou s . Howev e r , i t wi l l of

" "
cours e b e o the r f a c to r s in add it ion to ov e r load in g tha t mi gh t l e ad to a

d imi ni sh in g of th e de c i s io n - ma kin g f o cus . W i th the la r ge n u m b e r of

exe cu tive s tha t typ i ca l ly w i l l b e invo lve d i n a s pe c ts of s tr a te g i c ana ly s i s ,

th e p re s s ur e to de c ide mi gh t ea s i ly b e come di f fu s ed . P l ann in g mi g h t e a s i ly

b e sy nonymous w i th the s i tua ti on wh er e i t wi l l b e no b o dy s r e spon s ib il i ty '

to pu ll th e s ny t h e s is to ge the r and ma ke a d e c i s i on ! I n th e nex t s e c tion

we sha l l dis cus s how th e de c i s ion - makin g f o cu s of p l ann in g mi gh t b e c ome

b lurr ed due to e lemen t s of i na pp r O p r i a t e ne s s in th e way s th e o r gan i z a t ional

subuni ts in te ra c t throu gh th e p l anni n g p ro c e s s . Wh a t w e sh a l l iden t if y a s

 6- 2 8

'
for c op in g w i th the f i rm s cha l l en ge s and th r e at s a t g iv en po in ts in t ime ,

th e o r gan i z a t ion wi l l al r ea dy hav e a to o l i n p la c e to r e s p ond to th e s e

'
emer gi n g ch al len ge s w ithout h av in g to r e o r gan i z e the f i rm s s t ru c tu re .

To re s po nd by me ans of reo r gan i z a t ion i s of cour s e v e ry e x p e n s iv e , giv en

di s rup tio ns i n communi c a tion — and . l e ar ni ng— pa t te rn s . I f th e u s e of an

evo lvi n g p l anni n g sy s t em c an cu t down somewha t on th e n e ed f or and f r e qu e ncy

of maj or reo r gan i za ti ons , th e b en e f i ts f rom th i s mi g h t i n fa c t pu t th e

3
cos ts of p l annin g in to a new p e r s p e c tiv e .

I t s e ems re as onab l e , the re f o re , tha t c orpo r a te p l annin g s h ou l d adop t

th e pr emi s e th at o ne maj o r p u rp o s e of p l ann in g i s to ke e p r eo r gani z a t ions

to a mi n imum . Thus , e x treme c ar e s ho uld be take n by th e co rp o r a te p l anni n g

exe cu tive s to r e s i s t th e temp tat i on to su g g e s t swe e p in g r eo r g ani z at ions as

" ’
a way ou t w he neve r t he p l annin g s y s te m i s no t func t ion in g a s th ey w is h .

Tenden c i es in th is di r e c tio n ar e howeve r no t e nt i re ly un common . Th i s m i gh t

ind i c ate no t on l y th at the co rpo ra te p l ann ing exe cu t iv es mi gh t b e unre a l i s ti c

i n te rms of wha t s hou ld b e the r an ge of var iab le s und e r th e i r d i r e c t i on ,

b ut , mo re impo r tan tly , th a t the c orp o ra te p l anne rs h av e f a i l ed to reali ze

tha t a ma j o r b e ne f i t f rom p l ann in g w i l l be to ke e p maj o r r eo r gan i z at ion s

at a r ea s onab l e l eV e l .

Le t us n ow turn to a di s cu s s ion of th re e sp e c i f i c typ e s of s tr at e g i c

f i l te rs . Th e s e te nd to be s urp r i s in g ly common , and we s h a l l d i s cu s s

ap p roa che s b o th fo r i dent i fy i n g and f or mod i f y in g the p l ann in g s y s tem to

b e ab l e to cop e w i t h th e s e .

Th e f i rs t typ e of s tr a te gi c f i l te r c an o c ca s i ona ll y b e i dent i f i ed in

conne c ti on wi th the s o- ca l l e d grou p o r g ani z a t i on s tru c tu r e com mon ly fo und

in lar ge r an d mo re comp l ex or gan i z a tion s . Th e gr oup s tru c tu re ty p i c al l y

 6- 29

mi gh t eme r ge in one of tw o a l te rn a t ive way s . O ne s c en ar io ta k e s p l a c e wh en

a comp any grows in s i z e and /o r div e r s i ty a nd as a r e su l t th e wo r k l oad f rom

day - t o- day O p e ra t io n pr e s s ur e s mi gh t gradu a l l y b e come so gr e a t f o r th e C . E O

. .

th at h e f e e ls unab le to ad e qua te ly int e ra c t d i re c tl y w i th a l l of th e

b u s ine s s e s . A r e s p on s e to thi s i s to c re a t e s e t s of group s of bu s ine s s e s ,

s o tha t e ach of th e b u s i ne s s e s may r e p o r t to on e ou t of s eve ra l g r oup v i c e

p r e s i d e nts . Th e g roup mana g ement wi l l in tur n r epor t to th e c h i e f ex e cu t iv e .

Th i s typ e of g roup s tru c tur e f orma tio n i s thu s c re a ted p r ima r i l y to ame l ior a te

p r e s s u re s on th e C . E O
. . Th e r o l e s of th e group v i c e p r e s id e nt s s hou ld

th er e f o re be s e e n a s ex te ns i ons of th e co rpo r a te o f f i c e of th e ch i e f

exe cu t ive , i . e. , as o ne s of s h ar i n g in th e r e s pon s i b i l i ty to d ev e lo p a

po r t fo l io s tr a t e gy . As an a l te rn a tiv e s c enar i o , group s mi gh t al s o be

cr e a te d wh en a c omp any exp ands w i th i n the same bu s in e s s throu gh s eve ra l

ch ann e l s , s u c h a s a c qu i ri n g and /o r d ev e lo p in g s ev e ra l o r g an i z a t io na l

e n t i ti e s tha t w il l tend to o p e ra te e s se nt ia l l y w i thi n th e s am e bu s ines s .

O ne ex amp l e of th i s was a h i gh l y d iv e rs i f i ed c orp o r at io n wh i c h a c qu i r ed

s eve r a l c omp an i e s th at we r e in th e p l e as ur e b o a t b us ine s s . I ns t e ad of

i n te gr at ing th e s e in to o ne div i s ion , no n e the l e as t of c o rp o r a te mana gemen t s

con c e rn s b e in g to avo id d i s rup ti on s in th e op e ra t ion s of each of the

o rg ani z a tions b y b r e ak i ng up th e we l l e s ta b l i s h e d pa t te rn s of fun c t i ona l

i n te ra c t ion , a p l e a s ur e b o a t gro up wa s f o rme d . I n th i s c a s e a gro up

'
s tru c tu r e mi gh t b e s e e n a s a veh i c l e to coo rd ina t e th e r e l a ted or ga ni z a t i o n s

e f fo r ts wi th i n e s s en t ia l ly th e s ame b u s ine s s ar e a . Th e group s t ru c tu re h e r e

b e come s the veh i c l e f o r s t i l l b e in g ab l e to dev e l op a c oo rd ina t ed bu s ine s s

s tr at e gy . I n th e i ns tan c e s of b o th typ e s of gr ou p s tru c tu r e s , howev e r ,

the s e mi ght c r e a t e p rob lems f o r ma i nta i ni n g a p ro p e r s tr a te g i c d i r e c t ion

 6— 3 0

of th e p l annin g pr oc es s . I n the ne x t p a ra graphs we s ha l l d i s cus s th e s e

i s s ue s in turn .

Wh e n a numb e r of b us ine s s d iv i s io ns r e po r t to a g roup e x e c u t ive w ho

in tu rn re po r ts to th e co rpo ra t e ch i e f e x e cu t ive , i t s e ems at the ou ts e t

as i f we mi gh t hav e c r e a t ed a four - l eve l s tr a te g i c hi e ra r c hy , add i n g th e

tas k of d eve l o p in g s tra te g i c d i r e c tio n f o r th e grou p s . I n many c omp an i e s

th i s i s in f ac t ex ac tly wha t i s h app en i n g ; th e gr oup v i c e p r e s i dent

att emp ts to deve lop a min i p o r tf o l i o s tr a t e gy f or hi s sub — group of

bus ine s s e s w i th a s tra te gi c b a lanc e b e twe en th e b u s i ne s s e s tha t th i s

imp l i e s . The group p lan wh i ch i s in turn p r e s ent ed to th e c o r po ra te

ma na geme nt wi l l ,
to g e th er with th e inp uts b a s ed on th e o th e r grou p s s e rv e

a s th e b as i s fo r the deve lopme nt of a co rp o r a te po r t fo l io s tra t e gy . Th e

c orpor a te s tr a te gy , th e n , wi l l h ave as a p fim a r y fo cu s th e b a l anc e amon g

the g roup s . B y d ecompo s i n g th e po rt f o l i o s tra t e g i z in g ta s k into tw o

s ta ge s , wh i ch i s imp l i e d b y th e s c ena r io j us t d e s c r i b ed , th e re wi l l b e a

p os s ib il i ty tha t s er ious d y s func t ions may o c cu r . F i rs t , e a ch of the group

ex e cutive s wi l l s e e on ly a s ub s e t of s tra te g i c bus in e s s opp o rtun i t i e s and

thre a ts , name l y tho s e that o c cu r wi t h in h i s ow n b u s ine s s s ph e r e . The re

may cons e q ue n tl y b e b e tt er s tr a te gi c Op p or tun i t i e s in o th e r p a r t s of th e

f i rm th a t conc e ivab l y may no t r e c e ive s u f f i c i ent r e s o ur c e s . Fo r ins t an c e ,

sup po s e th a t o ne of the g roup s i s f a i r ly he av i ly domina t ed by re l a t iv e l y

funds - ri ch , s low growth ca s h- c ow typ e b us ine s s e s . I n s te ad of p lann in g

to make the s e fund s ava i l ab l e fo r a h i gh - g rowth bus i ne s s wi t h p rov en

po tenti al w i t hin ano t h er gr oup , the re wi l l b e a na tur a l t end en cy wi th in

th e group p lan to a t t emp t to d ev e lo p i ts ow n gr owth O p po r tun i ti e s ,

wh i ch

of co ur s e w i l l b e l ar ge ly unp roven . On th e o th er ha nd ,
a gr oup wh ic h f a c e s
 6- 3 2

a who l e . Thus ,
ov e rly s tr on g co ns e rva ti sm mi gh t cr e ep into th e s tr a te g i z in g

p i c tu re .
Th i s i s inde ed a s e r io us p rob l em in c as e , in tha t i t mi gh t p r even t

a l ar g e f i rm from go i n g a f t e r and c ap i tal i z i n g on on e of i t s m aj o r

advan ta g e s ov e r smal l e r f irms , name ly tha t i t typ i c a l ly wi l l be in a

po s i tion whe re i t mi ght b e t te r b e ab l e to t ak e on a f ew s e l e c ted p roj e c t s

w i th h i gh r i sks and cor re s p ond in gly h i gh r e tu rn po te ntia l s . A c l e ar

co rp o rat e po r t fo li o s tr at e gy fo c us i s e s s en t i a l f o r a ch i evi n g t h i s . Th e

ro up s tru c tur e thus mi ght add to th e di f f i cu l t p rob l em of h ow t o add re s s

g

th e i s s ue of r i sk - hand l in g in p lann in g .

A common no ti on in th e p l annin g e f for t s of many compa ni e s is th a t r i s ky

" "
al ter na t ive s are b ad and tha t a maj or p u rpo s e of p lannin g shou l d be to

co ntr i b ute toward s th e r ed uc tion of r i s ks . A mo r e r e l evan t ap p ro a ch wou ld

prob a b ly be tha t s e l e c t ed h i gh r i s k s /h i gh r e tu rn O p po r tuni t i e s shou ld be

s o u gh t ou t so tha t th e ove r a l l ri s k — takin g p o te nt i a l of the f i rm c an b e

taken advanta ge of . To p u rsu e th i s , howev e r , i t i s imp o r t an t to e s tab l i s h

an exp l i c i t vi ew of th e a c tua l a s we l l a s d e s i re d ove r a l l r i s k— exp o s ure of

th e f i rm . If no t , i t mi gh t e a s i l y b e l ed into a t oo con s e rv at iv e p a th ,
s u ch

as j u s t d e s c rib ed . Al t e rnative ly , th e f i rm mi gh t b e unawar e of ma j o r

envi ro nme ntal chan ge s wh i ch may a c tu al ly l e ad to in c r e a s ed r i s k e x po s ur e .

S o cio - po l i t i c a l deve l opment s , for ins tanc e , ma y h av e su c h e f f e c t s . We s ha l l ,

howeve r , no t p urs ue th e is sue of how to c ond uc t s u ch a r i s k a s s e s smen t for

a co rp o ra tion fur th e r he r e , bu t wi l l r e turn to th i s l at e r in th i s chap te r

'
wh en we d i s cus s ma na ge r s pe rson a l r i s k p r e f er enc e pa t t e r n s as s tr a te g i c

f i l te rs . I ns te ad , l et us d i s c us s app ro a che s f o r mod i fy in g th e p l ann in g

s y s tem to cop e wi th th e o th er p l anni ng dys func t i on is su e s ra i s ed i n

connec tion w i th the group s tru c tu r e .

 6- 3 3

As a s ta r ti n g p o i n t l e t us a s k our s e lve s tw o qu e s t ion s : Wh i c h as p e c t s

of the p l ann ing c apab i l i t i es mi ght po t e ntia l ly be we a ken e d t he mo s t b y

de co mp os in g th e po r t fo l i o s tr a t e g i z in g t as k i nto tw o l ev e l s ? Fur the r , we

ne ed to q ue s ti on f o r e a ch g ive n s i tua t i on wh i ch of th e tw o ma j o r r a ti ona l e s

fo r th e in troduc ti o n of th e grou p l ev e l wi l l b e th e c lo s e s t to a ctua l ity .

Th e an swe r s to th e s e tw o qu e s ti o ns mi gh t p rov ide us wi th a u s e fu l way of

d e li ne a tin g th e ro l e of th e g roup s in th e p l ann ing p ro c e s s in s u c h way s

tha t s eve r a l of the f i l te r p rob lems c an b e min imi z ed . I n te rms of the

fir s t q u e s t ion i t s e ems to b e a p a r t i cu l ar ly s e r ious co ns e qu en c e th a t

co rp o ra te ma na g emen t mi gh t be ob s t ru c t e d in i t s v i ew of the ov e ra l l , r e l evan t

p o r tf o l i o p i c ture , pa r t i c ul ar ly wh e n i t come s to th e ada p ta t i on p l anni n g

ta s k . S u c c e s s f ul p o r t f o l i o adap ta t ion de p end s , a s we know , on a r e al i s t i c

ov e ra l l co r p o ra t e po r tf o l io ou t loo k ab ov e al l . As su ch i t wi l l b e e s s en t i a l to

ta k e t he c om p l e t e
_. p i c tu r e of Op p o r tun i t i e s , th r e a t s , r i s k s and e nv i ronmen tal

e xp o s u r e s s temmi n g j o in tly f rom a l l th e b us i ne s s e s in to a c c oun t .

'
Tu rn i ng n ow to th e s e co nd qu e s t ion of wha t wa s the na tur e of the gr oup s

ro l e s , we r e c a l l tha t in on e i ns t an c e th e group s we r e i ns t i tu te d i n o rde r

to r e l i ev e corp o ra te mana g ement f rom s ome of th e d ay — t o- day b ur den of c op in g

w i t h an e x c e e d i ng ly wi d e s p e c trum of b us in e s s e s . Thu s , the p l ann in g ta s k

tr ans f e rr ed to th e g ro up s in conne c t i on w i th thi s de c e n tr a l i z a t ion mov e

wo u l d f al l p r imar i ly w i th in the in t e gr at i on ar e a . Wha t the re f o r e eme r g e s

is t he fo l low in g : Th e ch i e f ex e c ut iv e and h i s c lo s e co rp o r a t e l eve l a id e s

s ho ul d e l e ct to be de a l i n g d i r e c t l y wi th th e bus ine s s e s whe n i t come s to

the o b j e c t iv e s - s e t tin g s ta ge , wh e r e th e maj o r imp a c t of ad ap ta t ion p lann i n g

on the p o r tf o l i o s ho ul d b e c ent e r e d . Ea c h re s p e c t ive group e x e cu t iv e s hou ld

of c our s e a l s o tak e pa r t i n th i s i nte ra c t ion , but p r ima r i l y as adv i s or s to

 6- 3 4

the C . E O . . Th us , wh en i t come s to obj e c t ive s - s e tt in g th ey s hou ld a c t a s

te am— ma te s of th e b e in g exte ns ion s of th e co rp o ra te o f f i c e .

Co rp o rat e ma n a g eme nt shou ld ma ke ev e ry e f fo r t to s tre s s tha t the r e e x i s t s

no g roup s t ru c ture wh en i t c ome s to e s tab l i s h in g a c orp o ra te p o r tf o l io

O b j e c tive cons i s ti n g of a set of b us ine s s ob j e c t iv es a s th e b u i ld i n g

b lo c k s "
. Th e re i s no sho r t cu t a ro und th e ne e d f or th e C . E O . . to be

d i re ctly invo lve d i n the d eve lo pme nt of th e ad ap t iv e adj us tme nt s of th e

ove ra l l c orp o ra te po rt f o l io , de s p i te th e f a c t tha t th is mi gh t re qu i r e a

s i gn i f i can t f r ac tion of the t ime .

I n ce r ta in ins tan c e s o ne mi gh t of cou r s e exp e c t tha t s ome gr ou p vi c e

pr e s i den ts mi gh t r e s i s t th i s r ede f in i ti on of th e i r ro l es and v i ew i t a s i f

th e i r imp o r tan ce i s b e in g down - p l aye d . Howeve r , wh en i t come s to the

pl ann in g fo r the imp lemen tat i on of thi s s tr a te g i c p i c tu r e , th e g r ou p

ma na geme nts shou l d p lay a mu ch mo r e a c t iv e rol e . Th e d eve lopme nt of

s tra te g i c p ro g rams as we l l a s th e sub s e que n t dev e l opme nt of bud g e ts s ho u ld

be coo rdina ted by the group exe cu t ive s . Th i s p redominan tly in te gr a tiv e

p l ann in g ta s k c an us e f ul ly b e c ar r i e d ou t w i th in th e group s tru c tu r e .

Th e co rpo rate l eve l C E O

. . . wi l l of cour s e b e invo lved in the s e p l ann in g

s ta ge s t oo , i n revi ewin g the gro up s '

s tr a t e g i c p ro gr am su gg e s t io n s a s we l l

a s the i r b ud get s . Cons ide r ab l e time w i l l be f r e ed up fo r the C . E O

. . by
re ly in g on th e group mana g eme nt s truc tu re in the s tr a t e g i c p l a nnin g p ro c e s s

in th i s way . At th e s ame t ime th e po t en t ia l dy s fun c t i on of we ak e nin g th e

po rtf o l i o adap ta ti on c ap ab i l i ty as s o c i a te d wi th a tw o — l ev e l p o r t f ol io

p l ann in g ap p roa ch c an b e contro ll ed .

Le t us n ow tu rn to a di s cus s i on of the p l ann in g imp l i c at ions a s s o c i ate d

wi th th e fa c i n g of th e s e c o nd ty p e of group s tru c tur e c rea t i on ,

name ly when
 6- 3 6

'
fr om a c ti on s tak en w ith in th e s tra te gi c doma in of o th e r SBU s . We sh a l l

d i s cus s how to mo di f y th e p l ann in g sy s tem to ame l io r at e some of th e

p rob lems s temm i n g f r om th i s in th e nex t s e c tion .

6- 6 . I l l o gi c al SEU P a tte rns

Th e ma j o r pr ob lem wi th re s p e c t to th e s tru c tur e of th e SB U p a tt e rn ,

s e e n f rom a p lann in g s y s tems de s i gn and evo lu t i on po int of v i ew , i s tha t

th e o rg ani za t io nal s tru ctur e mi gh t no t be a r a h i gh eno u gh de gr e e of

r e semb l an ce to wh a t mi gh t be th e mo s t lo g i c a l pa tt e rn to r e in f or c e th e

s tra te gi e s tha t th e bu s ine s s e s are b e in g in te nd ed to p l an f o r . As an

ex amp le , we mi gh t have a s i tua ti on wi th a r ap i d evo lu t io n of a f i rm s '

p roduc t mix , imp ly in g tha t some b us in e s s e s tha t mi ght have be e n add ed

w i thi n a par ti cul a r SBU mi gh t b e come inc r e as in g l y impo rtant , wh i l e s ome

of th e tradi tio nal b us ine s s e s mi gh t h ave b e c om e r e la t iv e ly ins i gn i f i can t .

A p ar ti cu l ar SB U mi ght eve n gradua l ly s ta rt to r e s embl e a sma l l e r s c a l e

p o rtf o l io of bus in e s s e s on its ow n , me r e ly th rou gh an evo lut io na ry p ro c e s s

" "
of mus h roomi n g . Howeve r , wh i l e th e n atu ral tende nc y f o r mo s t c omp an i e s

to evo lve in t erms of empha s i s on d i f f e re nt b us ine s s e s ove r t ime m i gh t be

qu it e p ro f ound , a co rre s pondin g mo di f i c a tion of th e fo rma l or gan i z a t ion al

s tru ctu re mi gh t o f te n b e l a gg in g and h en c e no t ade qua te ly re f l e c t whe re

th e a c tua l b us in es s s tra te gi z in g p r e s s ure s a r e .

Th e s tru c tur al f i t mi gh t be fu r the r d i f fu s ed wh e n ex tens ive a c qu i s i t i on

a ct ivi t ie s are go i n g on . I t us ua l ly wi l l be imp o s s ib l e the n f rom a p r a c t i ca l

po int of vi ew to di sman tl e a c qu ir ed f i rms s tru c tur al ly a

nd to
"
p arc e l ou t
"

i ts bu s i nes s e s in te rms of f i t wi th a l ready e x i s tin g SB U

'
s ,
n ew SB U
'
s onl y

b e in g e s tab l i s h ed in c as e s wh e re the p aren t i s no t a lr e ady ac t ive l y invo lve d .

 6- 3 7

N e edl e s s to s ay , r e as o ns s uc h a s conc e r n fo r emp loye e mo ra l e , h e s i tan cy to

" " "

down grad e c e r t a in s tron g mana ge r s , de s ire to r e a c h f or know how —
r e s e r ve s ,

and r e lu c tan c e to c aus e too s i gn i f i c an t immed ia te chan g e s in the fund s f low

p a t te rns a s so c i a te d w i th an a c qu i r e d comp any a l l m i gh t c a l l f o r advan c in g

car e f u l ly w i th th e tas k of int e gra t in g n ewly a c qu i red SB U '

s in to i t s

e x i s tin g f o rm a l o r gani z a tio na l s tr u c tur e . Th e co n s eq u en c e a g a in , howev e r ,

wo ul d te nd to imp ly an in c re a s e d d i s c r e p an cy b e twe en wh e r e th e de f ac to

b u s ine s s s tr a te g i z ing p re s s u r e s and ch a l l en ge s are and t he fo rma l o r g an i z a

ti on p a t te rn .

Wh y i s i t tha t f rom a p l ann i n g sy s t ems p o in t of v i ew th at we p r op o s e

th a t th e fo rma l o r gan i z a ti on al s tru c tur e s h ou l d r e f l e c t the a c tua l b us in e s s

s t ra te g i z in g a c tiv i ti e s i n a r e l a t iv e ly a c c ura t e manne r ? S eve r a l s tud i e s

h ave shown th at s tr a te gy and s tru c tu re s e em to be hi gh ly in t e rr e l a ted . No t

on l y i s the o r g an i z a tio nal s tru c tu r e i ts e l f an e s s ent ia l man a gemen t to o l

f or f a c i l i ta tin g th e d eve lopment and imp l eme ntat i on of s t ra te g i c d i r e c t ion .

Even mo r e , i t s e ems as i f comp ani e s wi th an exp l i c i t ma t ch be twe e n i ts

i nt end ed s tr a te g i e s and o r g an i z at iona l s tru c tu r e tend to p e r f o rm b ette r

than comp an i e s with l e s s of a ma t c h . Th i s p rob l em p ro b ab ly come s abou t i n

p ar ti c ul a r b e c aus e Of l a ck of b e in g ab l e to tak e advan ta ge of th e

in f orma ti on - h andl in g c ap a b i l i t i e s as s o c ia te d w i th a f o r ma l or gani z at ion a l

s t ru c tur e . Th e p a tt e rn of c ommun i c a ti on i s n o rma l l y l ar g e ly in f lue n c ed

th rou g h th e fo rmal o r gan i z a ti ona l s t ru c tur e ; thus , i f th i s p a t te rn r e f l e c t s

th e s tr ate g i c communi c a ti on ne e ds i t mi gh t b e a de f i n i t e advan t a ge wh en i t

come s to th e imp l emen t at ion of s tr ate g i c p l ann in g . If no t , the p l ann in g

"
sy s tem i ts e l f wi l l have to op e n up t he r e l evan t chann e l s of co m mun i c at ion .
 Ano th e r p l ann in g imp lem en ta ti on p rob l em mi ght ar i s e wh en th e

o r gani z a t ion s tru ctur e i s i l lo gi c a l in te rms of man a g e r ia l p ra c t i c al i ty .

'
Th is mi gh t happ e n wh en th e s i z e s of th e var ious SBU s i n a co rpo rat e

po rtfo l i o a re d r amat i c al l y d i f f e rent . Fo r i ns t a n ce , wh en a c omp an y i s

fa c ed w ith a po r t fo l io s tr a te g i z i n g s e t t in g wh e re th e r e i s on e or a few

'
of
'
l ar ge SBU s wh i ch con tr ib ute the b ul k th e f i rm s s a l e s and r evenu e s ,

'
and , in add i ti on ,
a r e l at ive ly l a r ge numb e r of sma l l e r S BU s , we s t i l l

are f ac e d w ith the r equ i r emen t tha t l a r ge and sma l l SBU

'
s s hou ld b oth b e
"
rep o rt in g to th e C . E O
. . in a p rop e r p or tf o l io mo de . I n p ra c t i c e , howeve r ,

the po t en t ia l p ro b l em th a t th e f i rm s c r i t i c a l b u s ine s s e s
'
th i s mi gh t le ad to

mi ght re ce ive re l a tive ly t oo l i ttl e an d inade q ua te t o p - down inpu t in i t s

" "
s t r at e gi z in g p ro c e s s , giv e n tha t th e C . E O
. . e as i ly mi ght b e d i s t ra c te d

by the s tr ate gi c p ro b l ems of the sma l l e r b u s ine s s e s . Th is m igh t b e a

d i l emma , given th a t in narrow bu s in e s s s tr a te g i z in g s en s e a sma l l e r

b us ines s t oo mi gh t j us ti f i ab l y n e ed much t O p- do wn in te r f ac e . M an a ge ri a l
'
time and e f for ts s p en t on a bus ine s s s tr at e gy fo rmu la t i on and imp l eme nta t ion

wi l l no t be a p ropor tionat e func ti o n of bu s i ne s s s i z e . A sma l l b u s in e s s in

a s tra te gi c turn - aro und s i tu a tion mi gh t re qu ir e as mu c h or ev en mo r e of t op

'
m ana gemen t s time than a lar ge r bu s ine s s . Howeve r , th e c o gn i t iv e c ap ab il ity

of th e C . E O . . and h is clo s e s t as s o c ia t e s mi gh t b e a b o ttl en e c k wh en it c ome s

' '
to d ea l in g wi th thes e sma l l SB U s wh il e s t i l l g iv in g the la r ge r SBU s th e

requ ir ed a tten tion , given th e over a l l imp o rtan c e of the la tt er fo r the

ov er a ll corp o ra te su c ce s s .

We s ha l l d i s cus s tw o app ro a ch e s f or mod i f y in g the de s i gn of th e fo rma l

p lann in g s y s tem so as to ame l io r ate the o f ten s e r iou s p r ob l ems s temmin g

fr om s tra te g i c ove r l ap s or ex c es s iv e s i z e di f f e re n ti a l s amo n g bu s ine s s e s ,

 6- 40

as we l l as th e e x i s ten c e of amp le a t tr ac t ive inve s tme nt O ppor tuni t i e s

wi th in the trad i t iona l b u s ine s s e s mi gh t f urthe r comp l i ca te a v i ab l e

d ive rs if i c at ion drive . To ame l ior a te th i s , th e oil c ompany e s t ab l i she d

a s ep ara te n ew ven tur e or ga ni z at ion as a ve ry au tonomo u s g roup . Th i s

"
"
mi s ce l lane ous ve ntur e s group s oon r e s emb l ed a sma l l c on glome ra t e in many

re s p e c ts . Th i s new ve ntur e g ro up ap p r oa c h p rov ed to b e q ui te s uc c e s s fu l

in tha t i t gave th e comp any a veh i c le f or a cqu i r in g n ew ven tu r e c omp an ie s

as we l l as p ur suin g fur the r new int e rna l d ev e lopme nt s . G iven th e sma l l

s i ze of
'
th e group s a c tivi t i e s re l a t ive to th e maj o r b us in e s s a c t ivi ti e s

of th e f i rm , i t would h av e re p r e s en ted a cl o s e to un ac ce p t ab l e to l l on

'
s e nio r mana g ement s a tte n tion to tr e a t th e new un i t s in the p l ann in g p ro c e s s

on a b as i s mor e s imi lar to th e lar g e r e l eme nt s of

'
the c omp any s por t f ol i o .

Th e po ten tia l p rob lem of ov e r al l po r t fo l io pa t te rn d i s tor t i on h as n ot been

s e rious thus f ar , du e to the sma l l s i z e of the new a c tiv i ti e s . Howeve r ,

as th e new ven tur e group grows th e i s s u e of po rt f o l io s t r ate gy d i s to r ti on

s ho uld be of in cre as in g c onc e rn and the a u tonomou s mod e of p l annin g wi th in

the "
m i ni c on g l om e r a t e
"
ma y hav e to be mod i f i e d .

Th e ap p roac h f or ame l iora ti n g the po ten ti a l s tra te gi c f i l te r p rob l em

as s o c ia ted w ith s tra te gi ca l ly i l lo g i c a l fo rmal o r gan i z a ti o n s t ru c tu re

p a tte rns , s temmin g f rom evo lut ion of th e bus ine s s mix s h i f t , me r g e r s and /o r

SBU s i z e d i s tr i b ution imb alan c e s , s hou ld pa r t ly be to c r ea te an al e rtne s s

towards the ne ed f o r und e rta k in g a r e as ona b l e de gre e of r eo r gan i z a t ion

ch an ge s fo cus ed s p e c if i c a lly on c on tain in g thi s p r ob l em . Th e o th e r pa r t

of th e ame l ior at ion app ro ach , the n , wi l l b e to spe c i f i ca ll y fo cus th e d e s i gn

and /o r evo l ut iona ry imp rov eme n t on me e tin g the s e p ro b l em a re a s , so tha t

commu ni c ation ch anne l s mi ght b e O pen ed to d eve l op re l evan t s t ra te gi e s

 6- 41

de s p i te of mi sma t ch w i th the fo rma l or gan i z a tion s tru c tur e , so th a t

r e cen tly me r g ed uni t s c an be gr adu a l ly b roug h t into the

"
ma in s tr e am

s tr a te g i c p la nni n g s ys tem of th e f irm , and so tha t a re as o nab l e

d i f f e re n ti a ti on c an be re a che d whe n i t come s to exp end in g man a g eme nt

r e s our c e s on th e p la nn in g of l a r ge r , h i gh l y c ri t i c a l b u s ine s s e le ment s

ve r s us on sma l l e r , le s s impo r t an t bu s ine s s e s . Thu s , to r e s t a te ou r

p o s i tio n , a ce r ta in amo unt of re o r gani z at ion of th e fo rma l o r gan i z a ti ona l

s t ru c tur e mi gh t be ne c e s s ary eve n b e fo re th e in trodu c t ion of a ta i lo rmad e

co rpo ra t e p la nn in g a tt emp t . Howev e r , i t w i l l be a de l i c a te j ud g eme nt to

de c i d e how ex t en s iv e a r eo r gan i z a ti on wo ul d be app ro p r ia te . On th e o ne

h and , as p r ev ious ly exp l a i ne d th a t th e s c o p e of the o rg an i z a t ion a l c han g e s

mus t b e k ep t und e r c on t ro l . On th e o th e r hand , i f th e fo rma l i z ed

or gan i z a ti on a l s t ru c t ur e i s no t mod i f i e d to ma ke i t somewha t e a s i e r to

h av e i t r e f l e c t th e a c tua l s tra te g i c t as k s , th e r e m i gh t no t be e nou gh of

a f o rma l f r amewo r k to b u i ld o i n o r de r to imp l ement a me an in g f u l p l ann in g

p
sy s tem .

We th us n e e d to r e con ci le th e l ine s of ar gumen t g ive n wi th r e sp e c t to

re o r gan i z i n g to ame l i o ra te an i l l o gi ca l SEU s tru c t u r e a s a po ten tia l

s tr a te g i c f i l te r wi th ou r b a s i c p r emi s e tha t a s tr ate g i c p l ann in g sy s tem

wh i ch i s ma na ge d in an evo lu ti on ary s en s e s h ou ld f a c i l i t a te a r educ t ion

in th e f r eque n cy and d e gr e e of r eo r gan i z a ti on s . I n th i s r e s p e c t we sh a l l

f ind i t us e f u l to i n tro du c e a d i s t inc tion b e twe e n tw o typ e s of reo r gan i z at i on

s tep s . On the o ne h and , in i ti a l re o r g an i z a t ion s te p s may h av e to b e ta k e n

in o r de r to b ri n g the o rg a ni z a t io na l s tru c tu r e in to s u ch a sha pe tha t it

a l lows f or a min imum d e g re e of com muna l i ty w i th th e d e f ac to s tr at e g i c

ta s k s . Th i s s ho u ld be do ne b e for e s tr a te g i c p l ann in g i s pu r su e d , and

s hou ld be s e en a s a one - s ho t r e o r gan i z a t i on und e rt ak i n g . On th e o ther ha nd ,

'
a f i rm s mana g eme nt i s f a c ed wi th th e s tr a t e g i c r e s p ons e s th a t the c ompany

ha s to ma k e toward s i t s env ir onme n tal O ppo r tun i ti e s and /o r thr e a ts on a mo re

or le s s on go in g b a s is . Th e c o rpo ra t e p la nn i n g s y s tem s hou l d p l an an

impo r tant ro le in f ac i l i ta t i ng th e re s po ns e s to the s e p r e s su r e s . P l ann in g

s ho uld b e a maj or veh i c l e fo r al low in g adj u s tme n ts or s h i f ts in the

or gani za tion s capab i l i ty

'
to me e t chan g in g ne ed s . Fo r in s tanc e , when th e

e nv i ronme nt s e ems to O p en up f or a mo r e a g g r e s s ive pu rs u i t of n ew

oppo r tuni t ie s ,
th e need f o r ada p ta ti on wi l l in c r ea s e r e l a t iv e ly . Th e

p lannin g sy s tem s hou l d b e mo d i f i ed a c c o rd in gl y in o rd e r to r e s p ond to the s e

ne e ds . S imi l ar ly , in cas e s wh e r e th e e conomi c c l ima te s e ems to b e c ome

ha rd er , a re la tive s h i f t towar ds mo r e in te gr a t io n ne ed s i s tak in g p l a c e .

Ag ai n ,
the p l ann in g s y s tem s c ap a b i l i ti e s s hou ld
'
be mod i f i e d in th i s

d i re c tion a s a cons eq uen c e .

Tradi t i onal ly , a ma j o r e l emen t of or g an i z a t io na l r e s po ns e to ma j o r

env i ronmen tal pr e s sur es , a s the on e s j us t i nd ic at ed in the p r ev iou s

par a graph ,
has b e en th r ou gh r e or g ani z a ti on . Fo r ins tan c e , in o rd er to

s tr en gth en a dap tat i on a comp a ny mi g h t

"
b r ea k o ff fr om tr ad i ti ona l d iv i s i ons

s eve ral l ine s of b us in e s s tha t i t con s ider s p a r t i cu la rl y p romi s ing in te rms

of g rowth O ppo r tuni ti e s and c r ea t e new d ivi s io ns ou t of th e s e . Al t e rnat ive ly ,

to s tren gth en int e gr atio n it mi gh t a tt em p t to c om b in e d iv i s ion s to imp rove

e f f i c i ency b y e l imi nat in g d up l i ca t io n of , s ay , s al e s for c e s and /o r

dis tr i b u ti on ch anne l s . Ty p ic al ly , howev e r , g ive n th e re l a tiv e ly s ta t i c

na tur e of an or gani z a ti ona l s tru c tur e , to ad j us t th i s way wou ld me an a

"
pa ttern of s to p and go in te rms of impa c ts on the o r gan i z a t ion . Th u s ,

th i s mod e of r e s pons e o f f er s r e l ativ e ly l it t l e o p por tun i ty to c a rry ou t

in cr eme nta l re spo ns e s on a mo r e c on t inuou s b as i s . Wi th the eme rg enc e of

an evo lv in g p l annin g sy s tem , th i s wi l l re p r e s en t a comp l ement ary too l to

th e mor e fa r swe e p in g or gan i za t ion re s po ns e rou te

-
. Th e r e f o r e , we s ho uld

have mu ch l e s s ne ed f o r , and be mu c h mo r e c ar e f u l abou t in i t i a t in g lar ge

an d u s ua l ly di s rup tive re o r gani za t ion s . Howeve r , al thou gh the f r e qu e ncy

of u sin g r eo r gani z at ion a s a re s po ns e env i ronme n ta l c han ge s the r eb y

to

s ho uld go down , th is shou ld of c ou r s e no t e l imina t e e nt i re l y th e n e ed f o r

ad ho c or gani z a tiona l s tr uc ture "

ove rh au l s
"
a t l e s s f r e quen t int erva l s .
 6 - 44

Le t us b r i e f ly tou ch upon a th i r d a re a o f p o te n ti a l o r g an i z a ti on

s tru c tur e - re l ate d s t ra te g i c f i l te r s in conn e c t ion wi th th e evo lu ti on o f

4
e f fe c tive s tr a te g i c p l an n in g s y s tems . Th i s mi g h t o c cur i n conne c tion

wi th th e eme r g enc e of a s o- c a l l e d ma tr i x - s tru c tur e foun d i n s ome o r g an i

za t i on s . Th i s typ e of s tru c tur e ha s come ab ou t p r ima r i ly as a re s po ns e

to the ne e d to re c o gn i z e in te rde p e nde nc e amon g man y S BU

'
s . Fo r in s tan ce ,

whe n i t come s to bu s in e s s e s whi ch s ha re a commo n ( typ i c a l ly p ro c e s s

o ri en ted ) in te rme d ia ry p ro duc ti on fa c i l i ty , b u t wh i ch mi g h t b e s o l d

thro ugh di s t in c t ive mark e tin g ch ann e l s , a ma tr i x s t ru c tu re mi g h t b e ve ry

us e fu l , s o th at dup l i ca tion o f p ro duc t ion e f fo rt s c an b e avo i de d . Ce r

ta in sp e c ia l ty ch em c i a l co rp o ra t io ns mi g h t fal l in to th i s ca t e g o ry .

S imi l ar ly , wh en i t come s to h i g h — te c hn o lo gy comp an i e s tha t a re a c t ive i n

s eve ra l b us in e s s e s bu t ba s e d on p r e domi n an tly th e s ame te chno l o g i c a l

as e , a ma t ri x s t ru c tur e mi g h t b e ap p li cab l e . Th e im p l i ca ti on o f s uch a

s tru c tu r e is tha t an ex p l i c i t s e t o f in te rde p e ndenc i e s wi l l b e c r e a ted

be twe en , s ay , a fun c t iona l a c ti vi ty an d s eve ra l bu s ine s s - re l a te d ac t iv

i ti e s . Thus , a p a tte rn O f
"
two bo s s e s g e ts c re a te d . A manu f a c tu rin g

m ana g e r , fo r in s tan ce , wi l l no t on l y b e re s po n s ib l e to th e vi c e p r e s i de n t

o f manu fac tur in g b ut a l so to th e man a g e r o f th e pa r ti cu l ar bus in e s s fo r

whom he a ttemp ts to p rovi de hi s manu f a c tur in g o u tpu t . We c an i de n t i fy

thr e e c las se s of d imen s i on s tha t mi g h t in a ma t r i x mo d e

‘

be in t e r r e l a t ed ,

th e bus ine s s dimen s ion , th e g e o g rap h i ca l a re a d ime ns ion an d th e fun c t ion a l

dimen s ion . We shal l no t di s cus s how to de s i g n an d imp l eme n t s uch a ma

tr i x s t ru c tu re h ere , no r as s e s s i ts app ro p r i a ten e s s . Th i s i s amp ly ah

a ly ze d e ls ewhe re an d i s ou ts ide th e s co p e of th i s book . O ur c on ce rn s

re l a te to th e po t en tial s tr ate g i c fi l te r p rob lems s temmin g from a ma tr ix

s tru c tur e as pa r t of the p l ann in g p ro ce s s .

 Wh i l e a ma tr i x s t ru c tur e c e r ta in ly wi l l h a ve impo rt an t ben e f i ts i n

s e l e c t e d ap p l i c a t ion s the r e a r e a l s o s eve ra l p rob l ems th a t mi g h t ar i s e

wh en i t come s to p l ann in g in s u ch a s tru c tur e . Fo r ins t an c e , i t may

b e come in cr e a s in g l y t ime - con s um in g an d bu rde n s ome to c a r ry o u t th e i h

t er a c t i on s amon g man a g eme n t wh i ch typ i c a l l y are so e s s e n ti a l to the de

ve l op m en t of g oo d p l an s . G ive n th e dua l l in e s of a r e s p o n s ib i l i ty p a tte rn s

tha t p re domin a te bo th th e f re qu en cy an d s i z e o f p l ann in g me e tin g s mi g h t

in c r e as e . A mo re fun damen ta l p rob l em mi g h t e a s i ly a r i s e wh en i t come s

to c a r ry in g out ma j o r a dap ta ti on — re l a te d s t r ate g i c move s wi th in a s t ru e

tu r e o f th i s k ind . I t sh oul d b e k ep t in mi nd tha t an un de r ly i n g r a t i ona l e

fo r de ve lo p in g a ma tr ix s tru c tu re i s the s ha r in g o f s e l e c te d fun c t ion s

and fa c i l i ti e s , th e re by d im in i s h in g dup l i ca t ion s o f e f fo rt s . Thu s , a

in te g ra t ion o ri en te d con c e rn i s b e in g a dh e r e d to
—
. P ar t ly b e cau s e o f th e

" "
ti l t in g o f th e ba l an c e towa rds i n t eg r a i t on , but p a r tly al s o due to th e

f ac t tha t e x tens ive comp romi s in g b e twe en re la tive ly la r g e r numb e r o f e x

e cu t i ve s wh en i t c ome s to s e t t in g s tra te g i c di r e c tion , as we wi l l h ave in

a ma trix s t ru c tu re , mi gh t mak e i t di f f i cul t to come up wi th ma j o r de vi

at i o ns f rom the p r e s en t di re ct i on , i t i s O f ten d i f f i cu l t f o r ma tr ix

s t ru c tur e s to adap t e f f e c tiv e ly .

O ne way o f a t l e a s t p a r t i a l l y ame l i o ra t in g th i s p ro b l em i s to de

ve l op a s omewha t c l e a r e r divi s ion o f l ab o r amo n g th e ma t r ix dime ns i on s

in th e p l ann in g p ro c e s s . I f we fo r in s tan c e c on s i de r a man u fa c tur e r o f

s p e c ia l ty ch emi c als th e ma tr i x o r g an i z a t ion mi g h t con s i s t o f a s e t o f

two dime ns ion s , th e fun c ti ona l a c t iv i ti e s s u c h as manu fa c tur in g , ma rk e tin g ,

di s tr ib u ti on an d R D , as we l l as t he bus in e s s a c tivi t i e s wh i ch wi l l c on

s i s t o f s eve ra l di s tin c t ive p ro du c t - ma rk e ts . Wh en i t come s to ca r ry in g

ou t th e p l ann in g ta s ks wi th in g th i s pa r t i cu l a r ma t r i x s t ru c tur e we mi g h t

as k wh i ch o f th e two dime ns ions tha t p r i ma r i ly wo ul d b e ch ar t e r e d wi th

 6 -4 6

th e in te g ra tive p l ann in g tas k s , an d wh i ch dime ns ion th a t wou l d p r ima r i l y

have to be fo cus s ed on adap ta tion . We s e e tha t in th i s ex amp le th e

fun c tion s c an b e cha ra c te r i z e d a s th e in te gra tiv e dime ns ion wh i l e th e

bus in e s s c an be s e e n a s th e ada p ti ve d imen s ion . Wh i l e th e e f f i c i en c y

o f th i s ma tr ix o r g an i z ation s s t ra t eg y p r ima r i l y de p e nds

'
on how we l l th e

fun c t ions are p e r fo rm i n g th e i r ta s ks ; th e s tr ate g i c e f fe c tiven e s s wi l l

ab ove a l l de p end on how s u c ce s s fu l th e o rg an i z a t ion wi l l b e in deve lo p in g

an d ma in ta inin g a goo d b us in e s s p ro du c t mi x . We thus s e e tha t the re i s

a na tura l di vi s ion of l abo r b e twe e n th e two ma tr ix dimen s io ns , o ne b e in g

fo cus s ed p rimar i ly on th e adap ta tion p la nn in g ta s k s , th e o th e r o n in te

gr at ion p l ann in g ta s ks .

I t o f ten tends to b e th e c a s e th a t we c an i den t i fy s u ch a du al i ty in

th e p l ann in g ta s ks amon g th e dimen s ion s in a mat r ix o r g an i z a ti on . It is

howeve r ne ce s s ary to de te rmi ne wh i ch wi l l b e th e a dap tive an d whi ch wi l l

be th e in te g ra tive dimen s ion in ea ch c as e we do no t ne c e s s a r i l y have a

s imi la r di vi s ion o f labo r to th e ex amp l e i n th e p r ev io us p a r a g rap h in

o th e r s e tt in g s . A fa ci li ta t in g fa c to r in the ta s k o f i s o l at in g th e adap

tive an d in te g rative d imens ions s t ems f rom th e fa c t tha t ma tr i x s t ru c tur e s

wi th mo re th an two dimen s i on s tend to b e rare . In mo s t ca s e s a comb ina t ion

o f onl y two of th e fun c tion al , bu s in e s s o r a re a di mens ion s te n ds to b e a t

wo rk . T hus , we c an no rma l l y wo rk wi th on e adap tive an d one in te g r ati ve

dimen s ion .

We re ca l l tha t th e O b j e c t ive s - s e tt in g s t a g e woul d p l ay a ma j o r ro l e

in fa c i l i tat in g th e deve lo pme n t of an adap t ive s tra te g y . Conve rs e ly ,

th e

budg e t in g s ta g e tends to b e cen tra l in th e dev e lopmen t o f th e in t e g ra ti ve

as pe c t s of a s tr ate gy . Th i s , howeve r , imp l i e s tha t th e adap t ive d ime h

s ion an d th e mana g e rs a s so c i a ted wi th th i s s hou l d b e cen t ra l ly invo lve d

 6-4 8

p l ann in g down to re as onab l e p rop o r ti on s . E ve n mo re impo r tan tl y , th e a dap

ti ve as we l l a s in te g ra tive p o in ts o f fo cus w i l l h ave be en s t re n g th en ed .

The r eby a po ten ti a l l y s e r ious b ar r i e r to s t r ate g i c p l anni n g wi th in ma tri x

o rg an i z a tions wi l l have b e en re du c e d .

N e e dl e s s to s ay th e f i e l d o f mu l tina ti on a l man a g eme n t i s e x c ep tiona l ly

b ro ad an d comp l i ca te d . I t wo ul d no t o n ly r e qu i r e an ino rdi na te ly ex ten s ive

di s cus s ion to cove r al l s ub s tan tive a s p e c ts o f th i s f i e l d th a t mi g h t po

t en t i a ll y be re l evan t fo r s tra t e g i c de c i s i on - mak in g in th e mu l t in a t iona l

fi rm , but th i s wou l d c l e ar ly al s o be ou ts i de th e s cop e o f th i s bo ok g i ve n

th a t ou r con ce rn c en te rs a roun d th e de s i g n o f th e p l anni n g p ro c e s s , no t

th e de ve lo pment of a mu l t in a tiona l s t ra te gy . Wh a t do e s f a l l wi th in th e

s co p e o f thi s bo ok , howeve r , i s to i den ti fy a f ew c r i ti c a l a s p e c ts o f th e

mu l tina t ional p l ann in g s e ttin g th a t typ i c a l l y ne e d to b e cons i de re d i n

o rde r to avo i d ba rr i e rs to th e imp l emen ta tio n o f a p l an nin g p ro c e s s in

such comp an i es . Th e ba s i c con c e p tua l s ch eme fo r p l ann in g ap p l i e s to th e

mul t ina tion a l f i rm as we l l . A few p lann in g p ro c e s s c ap ab i l i ty i s s ue s

5
ne e d to b e con s i de re d in addi t ion .

S p e c i f i c al ly , we s ha l l de a l wi th fo ur c r i t i ca l p l ann in g i s s ue s un i que

to th e mul tina ti ona l f i rm . Two o f th e s e ap p ly mo s t di re c tl y to th e p o rt

fo l i o le ve l p l ann in g tas k . Th e s e a r e th e in c re as in g l a ck o f fl e x ib i l i ty

in mak in g s i g n i f i can t ch an g e s in a comp any s p o r t f o l io due to s o c i o

'

po l i t i c a l p re s s u re s o uts i de th e con tro l of th e f i rm , a s we l l as th e adde d

comp l e x i t i e s in de ve lo p in g th e fun ds t ran s f e r as p e ct o f a po rt fo l i o p l an

due to cu r ren cy va lua tion chan g e s . At th e bus in e s s p l ann in g l eve l a

th ir d fa c to r to tak e in to a c coun t a re po t en tia l p a tte rn s o f di f fe ren c e s

wh en i t come s to th e a t tr a c t ive ne s s an d comp e t i tive s t ren g th fo r a bus in e s s

 6 -4 9

f rom on e coun try to ano th e r . A f i na l fa c to r re l a te s to th e cul tu re of

s t ra te g i c mana g emen t in di f f e r e n t coun tr i e s , whe r e s eve ra l o f th e f ive

s ta g e s o f th e p l annin g p ro c e s s p lay a mo re l imi te d ro l e than p re s ume d in

th e di s cu s s ion thus fa r in th i s bo ok , p a r t i cu l a r ly when i t come s to th e

ro l e s o f in cen tive s , mon i to r in g an d bud g e t in g . We s ha l l di s c us s e a c h

fo ur c l as s e s o f fa c to r s in turn .

The r e s e ems to b e a g rowin g s e n s e o f in c r e as i n g l a ck o f fl e x ib i l i ty

amon g many mu l tina t iona l co rp o ra ti ons wh en i t come s to s i g n i f i c an tly b e in g

ab l e to mo di fy th e i r p o r t fo l io s . Th e p ro b l em i s no t o n l y th a t to inve s t

to in c re a s e th e a c t iv i ty l eve l in a p a r t i cul a r coun try may b e c ome in c r e a s

"
i ng l y di f fi cu l t in th a t th e r e wi l l typ i c a l ly b e a g rowi n g num b e r o f s tr in g s

a t ta ch e d to s u ch i nve s tmen ts . P o te n ti a l l y mu ch mo r e s e r i ou s i s th e l a ck

o f f l e x ib i l i ty to s c al e down o r ch an g e th e na tur e o f a p a r t i cu l a r Op e r a t ion .

I n mo s t o f th e E urop e an coun tr i e s as we l l a s i n s u ch de ve lo p in g coun tr i e s

as V e ne zue l a , fo r i n s tan c e , tou gh l abo r l aws mak e i t n e x t to imp o s s ib l e

to fi r e p a r t o f th e wo rk fo r ce , th e r eby mak in g i t v e ry di f fi c u l t to s ca l e

down unp ro f i tab l e O p e r a ti on s . Po l i ti cal an d un ion p re s s ur e s a l s o ten d to

s ti f l e s u ch re l a ti ve ly n e ar - te rm p o r t fo l i o a dj us tmen ts . Le avin g th e sub

s t rat e g i c cho i c e que s tion as i de as to whe th e r i t i n f a c t wi l l

'

s t an t i ve be

a ttra c t ive to h ave a p re s en c e i n a p a r t i cu l ar coun t ry a t a l l , th e p rob l em

ca l l s f o r .
s e ver a l mo di f i c a t ions o f th e p lan nin g p ro c e s s . . Fi rst , e ve n

mo r e e l abo ra t e p r io r ana ly s e s wou l d p rob ab ly h ave to be ca r ri e d o ut b e fo re

s ou r c e s ar e commi tt e d to a p ar t i c u l a r p ro j e c t . Th i s i s a s e l f — e v i de n t

co ns e que n ce o f th e l a ck o f f l ex ib i l i ty o f sub s e quen t co r re c t i ve r e s p on s e

po s s ib i l it i e s , an d do e s no t n e ed to b e e l ab o ra t e d on fu r th e r . S e condl y ,

s en io r man a g eme n t mus t p ay p ar t i cul a r ly c a re ful a t t en t ion to s i g n s o f po

t en t i a l de te r io ra t ion o f any o f i ts bu s in e s s e s lo c a te d in su c h re s t r ic t iv e

na ti ona l s e tt in g s . I f a we ak en in g o f th e po s i ti on o f a p a r t i cu l a r b us ine s s
 6 -5 0

i s de te c ted a lon g — te rm s tra te g i c p ro g ram o f in te rna l deve l opmen t fo r r e

po s i tion in g th i s bus in e s s s ho ul d b e in i ti a te d . By v i g o rous l y p u rs u in g

s tru c tu ral ch an g e c ha l len g e s b e fo re they b e come a c ri s i s th e chan g e s wi l l

be so much hi ghe r th a t a p rob l em s i tua t ion c an b e avo i de d . G ive n th a t

inte rna l ly g en era te d deve lopmen t p ro j e c t s fo r re s t ru c tu r in g typ i c a l l y

take lon g time be f or e r ea ch in g f ru i ti on i t i s imp or tan t to s ta r t a s e ar ly

a s po s s ib le . O ne Europ e an company ha s e x tende d on th i s ph i l o s op hy in i ts

p l ann in g e f f or ts by hav in g deve lop ed a l te rna tiv e us a g e p a tte rn p l an s f or

e ac h o f i ts phy s i ca l fa c i l i ti e s an d a l s o pu r s u in g an e x tens ive c en tr a l de

ve l O p m en t p ro g r am in t ende d for comin g up wi th new a c t iv i ty O p tio n s tha t

mi g h t b e tr ans f er r e d to e x i s t in g p l an ts in ne e d fo r r e s tru c tur in g . A

th i r d are a o f modi f i ca tio n in th e co rp or a te p lann in g a p p roa c h wi l l b e th e

in c re as e d empha s i s o f di re c t co r po r a te - g ove rnme n t c on ta c t typ i c a l ly tak in g

p l a c e to re s o lve ma j o r s tru c tura l p o r t f o l io i s sue s . Th e g ove rnme n t typ

i ca l ly p lay s a mo re a c t ive ro l e in many c oun tr i e s i n in f lu en c in g co rpo

'
ra tion s p o r t fo l io cho i c e s . I t i s impo r tan t to a t temp t to p rovi de a s

ac cur a te g ove rnme n t inpu ts a s po s s ib l e in to th e po r t fo l i o p lan s o f c om

p ani e s in such s e ttin g s .

A s eco nd ma j o r a re a of modi f i ca t io n o f th e p l ann in g sy s t em o f a

mul tina t ional co rp o ra tion wi l l b e wi th re s p e c t to th e p lann in g o f th e

po r tfo li o l eve l fu nds f low p a tte rn s , so tha t po ten ti a l di s turb an c e s due

to cur renc y f l uc tua t ions c an b e de a l t wi th . Aga i n , i t wi l l b e b eyond

th e s co p e o f th i s boo k to di s c us s i s sue s o f in te rna tiona l f in an c e . Wh a t

howeve r s e ems impo rtan t i s tha t a comp any ex p l i c i tl y a ddr e s s e s th e r i s k in e s s

of i ts p l anne d in te rna tiona l funds f l ow tran s f e r s . G ive n tha t an a dde d

e l emen t of u n c e r ta in ty th e r eb y has be en adde d to th e po r tfo l i o s t ra te g i z in g

ta s k one woul d e x p e c t tha t p l ann in g rou t ine s s ho ul d ge t deve lop e d fo r p ro

y i din g th e a pp ro pr ia te in fo rma t ion wi th r e s p e c t to th i s a s p e c t o f th e

 6- 52

ne eds f rom r e l a tiv e l y low a dap tive ne e d s in th e ma tur e US ma rk e t to

hi g h ly adap tive ne eds i n th e deve lo p in g e c onomi e s .

The re mi g h t al s o b e impo r tan t di f fe r e nc e s from c dhn t r y to coun try wh en

i t come s to a comp an y s comp e ti tive s tre ng th

'
. We r e c a l l a g a in f rom ou r

di s cus s ion in C ha p te r Thr e e th a t ma rk e t s har e typ i c a l ly w i l l b e a ma j o r

de te rminan t of c omp e ti t ive s tr en g th , an d th a t e x p e r i e nc e c urve a dvan ta g e s

ar e l ik el y to be ne f i t th e c omp any th e mo s t wh i ch en j o y s th e h i g h e s t ma rke t

share . We al s o re c a l l , howeve r , tha t exp e r i en c e cur ve advan ta g e s do no t

tend to come automa ti cal ly , bu t on ly wh e n a c ti ve ly be in g p ur s ue d thro ug h

an in t er a c tion p l ann ing e f fo r t . An impo r tan t i s s ue wh i ch fo l l ow s i s to

de te rmin e th e e x ten t to wh i ch an d , in case , fo r wha t r eas on s th e ex p e r i enc e

curve b ene f i ts mi g h t di f f e r f rom co un try to coun try . O ne de te rminan t w i l l

b e th e ab so lut e s i z e o f the marke t . W i th l ar g e p ro du c t io n run s th e ex

p er ie nc e curve e f fe c t i s e x p e c ted to b e g r e a te r . Ano th e r de te rm inan t

"
whi ch wi l l be l e s s obv io us bu t p o t en ti al l y mo r e impo r tan t i s th e s lo p e

o f th e e x p e r i en c e curve , as foun d w i th r e s p e c t to th e s ame p ro duc t in

di f f e r en t c oun tr i e s . A coun try wh i ch ha s a h i gh ly l e arn i n g - o r i en te d wo rk

for c e wi l l have th e s te e p e s t e x p er i en c e curve an d e n j oy th e b i g g e s t b en e

fi t . F ac to rs to de te rmin e thi s ar e p r ob ab ly no t on l y the g e ne ra l e duc a

ti ona l l eve l o f th e wo rk fo rc e , bu t a l s o su ch fa c to rs a s the r e l evan c e

o f the wo rk fo r ce s tra in in g an d e x p e r i enc e , de g r e e o f ab s e n te e i sm , at

t i tu d e towar d s innova t ion s , f l e x ib i l i ty o f lab o r l aws an d un i on a tt i tude s ,

and s o on . F ur th e r , c ros s — co un tr y e x p e r i en c e cu rv e comp ar i s on s wou ld p r o

bab ly have to be don e on an in dus try - sp e c i f i c ba s i s , in th a t fo r s ome in

du str i es o the r c oun tr i e s mi g h t l ead . F ina l l y , a c oun tr y s comp ar a tive e x

'

p e r i e nc e curv e advan ta g e m i g h t chan g e ove r time r e l a t iv e to o th e r co un tr i e s .

We s e e th a t a comp l e x an d cha l l en g in g wo rl dwi de bu s in e s s s tr a te g i z in g

pi c tur e eme r g e s from th e g loba l bus ine s s a ttra c t iven e s s - comp e ti tive s tr e n g th
 6-53

an a l y s i s . Th i s wi l l p rob ab l y have s i g n i f i c an t con s e que n c e s fo r wh e r e to

"
inve s t in new p ro duc t io n cap a c i ty , wh e r e to a t temp t to deve lo p n ew s ta r

po s i t ion s , wh e r e o n e s ' "

ca s h - c ows i de a l l y s hou l d b e lo ca te d , as we l l as

f rom wh i ch a r e a s to wi th dr aw . O nl y th r ou gh a c are ful p l ann in g n e e d

cap ab i l i ty ana ly s i s , in l in e wi th wha t we have ou tl in e d in th i s bo ok ,

mi ght we exp e c t tha t p lann in g c an b e c ar r i e d ou t i n a r e l evan t mann e r

to fac i l i ta te a wo r l dwi de bu s ine s s s tr a te g y a c ro s s a l a r g e num b e r o f

co un tri e s .

L e t us f ina l ly turn to ou r four th ma j o r con s i de ra tion wi th re g a rd to

mo d i fy in g a comp any s p l ann i n g s y s t em to f i t mul t ina t iona l s e ttin g

'
. Th i s
' "
ha s to do w i th p l ann in g s a c ce p tan c e a s a man a g emen t to o l in d i f f e r en t

bus in e s s c ul tu re s . As s eve r a l mul tina ti on a l co rp o ra tion s mi g h t te s ti fy

th e r e mi g h t b e eve n qu i te s tron g re s i s tan c e to p l ann in g wi th in th e i r s ub

s i d i ar i es in c e r ta in co un tr i e s . Wh i l e th e r e a s on s f or th i s ma y b e nume r

ou s an d i n fa c t no t ne c e s s a r i l y mu c h di f f e r e n t than fo r wh e n i t come s to

re s i s tan c e to p l ann in g in g e ne ra l , we s ha l l p o in t ou t thr e e f a c to r s tha t

ma y be mo r e o r le s s un i qu e to the mu l tina t i ona l s . Th e f i r s t re a s on fo r

re s i s tin g p l ann in g mi g h t b e du e to th e fa c t th a t m any o f th e o r g an i z a t ion s

in conc e rn mi g h t h ave b e e n f am i l ia r w i th a re la t ive l y l imi te d num b e r o f

fo rma l man a g eme n t s y s t ems b e fo r e han d . Thus , e x po s ur e to p l ann in g e a s i ly

be come s a "
cu l tur e s ho ck , no t a me an in g fu l evo lu t i ona ry s te p . Wh e n ,

s ay , an o r gan i z a tio n ha s j u s t s ta r te d i ts s t ru gg l e to imp l eme n t bud g e t i ng ,

i t b e c ome s wi thou t doub t a s e r io us p rob l em , to b e ab l e to imp l emen t a p l an

n in g sy s t em on top o f th i s . Th e r e i s no de f i n i te so lu t i on to th i s p rob

lem . Th e ma j o r i s s ue wi l l b e to s tr e s s th e ove r al l lo g i c o f th e p lann in g

ap p ro ach , wh i ch in i ts s im p l i c i ty s houl d b e bo th app e al in g as we l l a s mo re

or l e s s re con c i l i ab l e wi th th e i r in tu i t i ve wa y s o f man a g in g . P a rado x i ca l ly

enou g h i t ma y a c tu a l ly tu rn ou t to b e an a dvan ta g e no t to h ave b e en to o
 6 -54

much in g ra in e d w i th an ove r l y in te g ra t ion b i a s e d bud g e t in g cu l tur e

-
.

Th e s e cond re as on fo r re s i s tan ce to p l ann in g i s mo r e fun dame n ta l .

Th e no ti on of ho l din g s in g l e e x e c ut ive s a c c oun tab l e fo r s t ra te g i c p e r

f o r m an c e , an d th e reby no t on ly e x p l i c i t ly a s s o c i a tin g h im wi th me a s ur e s

o f s tra te g i c p ro g re s s but a l s o inc e n t i va t i ng h im b a s e d on h i s in div i dua l

p e r fo rman c e mi gh t be re s i s te d in many bus in e s s cu l tur e s . Th i s i s l a r g e ly

due to th e empha s i s on g roup cu l ture s an d g roup s u c ce s s ra th e r th an on th e

indivi dua l i n th e s e bu s ine s s s e ttin g s . To s ome e x ten t too th e p e rs ona l

in come tax a t ion sy s tem may be su ch tha t f in an c i a l in c en tive s a t l e a s t

me an l i ttle to an e x e cu tive . Th e r e i s l i t tl e one c an do to ge t ar oun d

va lue no rms l ike the s e . To b e ex p l i c i tly awa r e o f th em w i l l a t l e a s t

s ave a comp any f rom p rob l ems a ri s in g from a t temp tin g to s imp ly tran s p l an t

th e i r o ri g in al p l annin g s y s t em .

The f ina l re a son fo r re s i s tan c e th a t we s ha l l di s cus s i s du e to an

in c re as in g re s is tan c e to cen tra l i z e d de c i s ion - mak in g i n man y coun tr i e s

' '
Th e no tion o f lowe r l eve l s pa r ti c ip a tion in a f i rm s s t ra te g i c de c i s ion

mak in g ha s b e en winn in g g roun d wi de ly . We see no ne c e s s a ry con f l i c t be

twe en th i s an d fo l l ow in g a p l ann in g app roa ch a s out l in e d in th i s bo ok .

In fa ct , the s tron g emp ha s i s on dev e l op in g in te ra c tive co m mun i ca t ion

chann e l s tha t is a k e y e l eme n t o f th e p l ann in g app ro a ch ou tl in e d h e r e

sho ul d p ro vi de a s tron g imp e tu s to mo re p a r ti c ip a tive man a g emen t . I t may

the re fo re l ar g e ly b e du e to t radi tiona l p r e con c e p ti on s th a t p l ann in g me an s

cen tr al i z a tion tha t th i s k ind o f re s i s tan c e e x i s t s .

We have now con c lu de d ou r di s cus s ion o f ba r ri e rs to imp l emen t in g p l an

nin g in mul t ina tiona l co rp o rat i ons . G iven th a t we re s t r i c te d ou rs e lve s

to i s sue s re l ate d to th e p l ann in g p ro c e s s an d di d no t de a l wi th ke y sub

s t an t i ve s trate g i c cho i c e s tha t mi g h t fa c e th e mu l tin a t ion al our di s

,

cu s s i o n has be en in ten tiona l ly b r i e f . Wh i l e a b ro ade r tre atme n t o f th e s e

 6- 56

may be to o ris ky fo r ano the r .

We re c al l th a t we h ave deve lop e d an app ro a ch fo r as s e s s in g a s t r at

e gy
'
s envi ronmen ta l e x po su re by a ttemp tin g to i den ti f y a s e t o f c r i t i c al

envi ro nmen tal fa c to rs tha t mi gh t in f lu en c e a s tr a te gy s imp l eme n ta t ion '

,

by a tt emp tin g to e s tab l i s h to wha t e x ten t an d in wha t wa y e a ch o f th e s e

c ri ti ca l fa c to rs mi g h t be p redi c t e d , an d b y e x p lo rin g wh a t po ten ti a l r e

s po n s e Op po rtun i t ie s th at th e f i rm re a l i s ti c a l ly mi g h t pu r s ue . We al s o

'
s aw how one s ap p ro ach to mo ni to rin g an d con tro l woul d ne e d to b e tai lo re d

s o as to re f le c t di f fe re nt pr e d i c t ab i l i ty / r es p o n s e comb ina t ion s e ttin g s .

Bu t i t al s o fo l lows th a t di f f e ren t pr e d i c t ab i l i ty / r e s p ons e comb in a ti ons

imp ly di f fe ren t e x po su re s to ri s k . In s e e in g th i s l e t us cons i de r Ex

h ib i t 6 — 4 . By be in g ab l e to b o th p re di ct a c r i ti ca l e nv i ronmen ta l p he

no m e no n rathe r we l l , as we l l as b e in g i n a po s i t ion to have th e d i s cr e

t i on ar y f re e dom to re s p ond s o as to ame l i o ra te an adve r s e e f fe c t o r

cap i ta l i z e on an Op po r tun i ty , we ma y con c lude tha t th e r i s k to a s t r ate g y

by b e ing e x po s ed to th i s p a r ti cu l ar e nv i ro nmen ta l fa c to r wi l l b e re la t ive ly

l imi te d . On th e o th e r e x tr eme , wh e n th e d e g r e e o f pr e di c t ab i l i ty o f an

env i ronmen tal fa c to r i s qui te l ow an d on e s re sp ons e po ten ti a l i s l ack i n g

'

as we l l , th e n the ri sk in e s s o f the s tr ate gy wi l l be re l a t ive l y h i gh due

to th e e x po sure to th i s envi ronme n tal fa c to r . We h ave in di c a te d di f fe re n t

de g re e s of ri sk e x po su re in E xh ib i t 6- 4 s temmin g f rom vari a t ion s in th e

p r e d i c t ab i l i t y / r e s p o ns e po s tu re s .
 6- 57

D e gre e of P re di c t ab i l i t y
Low

-
I h a ttemp ti n g to ev a l ua te the ri s ki ne s s o f a s t ra te g y th e na tu re o f

th e e xp o s u r e f rom e ach c ri ti c a l e nv i ronme n ta l fa c to r wi l l h ave to be as

s es sed . Th e man a g e r wi l l th e n s ub j e c ti ve ly h ave to we i g h t th e var ious

as p ec t s o f th e ri s k e x po s u re wh i ch th e re by eme r g e s . Th e app ro a ch s hou l d

o f c ou rs e b e s e en a s a re l ative l y c rude in s t rumen t f o r f a c i l i ta t in g ri s k

re turn cons i de ra ti on s i n re s ou r ce al lo ca t io n . W h at i s imp o r tan t , howeve r ,

i s th a t th e app ro a ch i n tu i t ive l y mak e s s en s e to mo s t de ci s i on - mak e r s . Th i s

i s O f ten c l o s e r to th e i r o p e r a ti ona l ne e ds than S op h i s t i c a te d s t a ti s t i c al

te chn i que s . Al s o , th e ap p ro a ch lends i ts e l f ve ry we l l to in c lu s i on in

p l ann in g do cumen ts , p rovi din g a b a s i s f o r di s cus s i on o f r i s k ex po s u re

con s i de ra t ion s in th e p l ann in g revi ews . Th i s i s o f cou rs e imp o r tan t ,

g iven th a t d i s cu s s ion s of r i s k e x po su re e l s ewi s e e as i ly mi gh t b e come uh

re al i s ti c .

H avi n g now e s tab l i s h e d a p ra gma t i c me as u reme n t o f r i s k as s e s sme n t

l e t us di s cu s s how th i s mi g h t b e us e d to coun te ra c t the te nde n c y towa rds

too mu c h ri s k - ave rs io n o f ten foun d in l ar g e , h i e r ar ch i ca l o r g an i z a t ion s .

Le t us fi rs t , howe ve r , i l lus t r at e why r i s k ave r s ion mi g h t be come a p rob

l em . Wh en an o r g an i z a t ion i s con s i de r in g tak in g a ri s k i t wi l l e valu a te

wh e th e r i t i s s t ron g eno u g h o r no t to pu rs ue th i s e x po s u re . Th i s wi l l
 6- 5 8

lar ge l y de pend on how much di s cre tionary res e rve s the o r g an i z ation wi ll

have a t its di s po sa l . T hu
s , what mi g ht s e em to be an ove r ly h i g h ri s k

fo r a mana g e r at the SBU leve l , g iven hi s l imi te d re sou rce s a s we l l as

ty p ic all y an in comp l e te pe r cep tion of the re s ou rce s o f th e comp an y as a

who le , may s e em a reasonab le an d ap p rop riate r is k to tak e when s e en from

an ove rall co rpo rate p ersp e c tive . T hu s , th e re may be a natu ral tendency

towards mo re an d mo re ris k ave rs ion the fur the r do wn o ne de s cends amon g

th e g ene ra l manag emen t l eve ls in the o rg an i za t ion .

The re are par ti cul arl y two as p e c ts o f the de s i gn o f a s t rate g i c p lan

ning tha t mi gh t fa c il i ta te th e coun teraction of su ch bo ttom- u p ri s k

ave rs ion . As di s cus s ed in ear l i er p ar ag raphs of th i s s e c tion an ex p l i c i t

s tatemen t of ri s k e x po sur e mi gh t fac il i tate th e revi ew o f p lan s a t h i ghe r

o r gani za tional l evel s f rom a ri s k - tak in g pe rsp e c tive . It mi g h t th er eb y

be uppe r leve l man a g ement to both ge t a mo re comp le te vi ew o f th e ran g e

of ri s k - re turn s tra te g i c a lte rna tive s tha t ex i s t , no t onl y th e mo re con

s er va t ive one s , as wel l as to endo rs e ri s k - tak ing on a s e l e c tive ba s i s .

S e condl y , a po rt fo l io s trateg y po in t of view i s e s s en tia l when i t come s

to the co rpora te l eve l s ri sk - re tu rn as s e s smen ts

'
. E a ch ma j o r re s our ce

al lo cation de ci s ion wil l have to b e eva luated in th e con te x t of th e nature

of the risk exp o s ure that th e fi rm al re ady ha s b e en commi tted to . O nl y

b y tak in g such a c o r p o r a t ew i d e vi ew c an the f i rm ' s re sourc e cap a ci ty to

be exp os ed to ri s k s b e ma tched wi th i ts a c tual r i s k/ r e tu r n c ommi tmen ts .

Le t us now turn to th e ro le of the in divi dual de c i s ion - mak e r s '

p re

fe ren ce towards ri s k - tak in g in p l ann in g . We re ca l l that an individual s '

atti tude to wards ris k i s in fa c t p art of th i s pe r son s p e rsonal i ty

'
. Wh il e
th e re are wa y s to de te rmine ex e cutive s r is k p re feren c e fun c t ion s we do

no t fee l that i t w il l b e ne c e s s a r y in m o s t cas e s to go throu gh s u ch p ro

c e du r e s . I ns tead , i t typ i cal l y s uf fi ce s to deve lop some b road c las s i f i ca tion

 6 - 60

tak en in te rn al l y mi g h t al s o im p a c t th e f i rm s '
ow n s e tt in g . T hus , th e

de s i gn o f a p l annin g sy s tem wou l d b e i n n e ed o f fr e quen t up da t in g in o rde r

to f a ci l i ta te th e de ve lo pmen t of new p l ann in g c ap ab i l i t i e s to me e t th e

eme r g in g ne e ds .

We al s o s tre s s e d th e n e ed to mana g e no t on ly th e evo l ut io n o f a

p l ann in g s y s tem in a na r row s en s e bu t to r e co g n i z e th a t an imp o rtan t a s

peot of th i s mana g emen t ta s k wi l l b e to en su re cons i s tenc y amo n g the e l e

men ts o f th e b ro ade r s tra te g i c man a g eme n t s y s t em . G i ve n th a t th e ch an g in g

'
s i tu a tiona l s e t tin g an d th e f i rm s evo l vin g n e e ds thu s w i l l b e th e b as i s

"
fo r th e ta i lo rmak in g o f a l l the s ub sy s t ems i t i s p e rt in en t to ru n a con

"
s i s ten cy ch e ck o f ho w th e de s i gn o f th e va r ious sub s y s t ems f i t to g e th e r .

G iven tha t th e re s po ns ib i l i ty to ma in tain th e va r io us sub s ys tems ty p i ca l l y

re s t wi th d i f f e ren t p eop l e i n th e o r g an i z a tion , s ay , th e p l ann in g s ys t em

wi th th e co rpo ra te p l ann e r , th e bu dg e t in g s y s t em w i th th e co rp o ra te co n

tr o l le r , an d so on , i t e as i l y b e c ome s a di f f i cu l t i s s u e to ma in ta in an

ade qua te c ro s s - s e c t iona l sy s tems con s i s t enc y .

In th e remain in g s ix s e c t ion s o f th e chap te r we th e n di s cu s s e d a

numb e r o f i s s ue s tha t mi gh t b e come ba rr i e r s to th e imp l eme n ta tio n o f ef

f e c t i ve p l a nn ing s y s t ems . A comm o n p rob lem c an be foun d wh en th e p l ann in g

sy s tem b e come s s o de ta i l e d , e l abo ra te an d in f l e x ib l e tha t i t s imp l y re p

re s ents t oo h i g h a bu rden on l in e man a g emen t s time '

an d e n e rgy . We di s

cu s s e d s eve ral way s of cut tin g down s uch "

o ve rl o a di n g "
o f th e p l ann in g

sy s t em an d al s o p o in te d o ut th a t th e deve lopme n t o f a mo re fo cu s s e d s t ra

t eg i c di re c t ion a c tua l l y mi g h t al low s en io r man ag eme n t to f re e up s ome

o f th e t ime tha t e l s ewi s e p robab l y wo ul d h ave to be s p en t on ne ar - te rm

di re c tion s e ttin g .

We al s o di s cus s e d va rious s tra te g i c f i l te rs , no tab l y a g ro up

s tru c tu re s tenden cy to le a d to s ub op t ima l po r t fo li o s t ra te g i e s as we l l

'
— '
 6- 6 1

as th e p ro b l ems th at mi g h t a r i s e i n d eve lo p in g s oun d bu s i n e s s p l an s wh en

th e de f in i tion o f SBU p a tte rn s was i l l o g i c al . I n bo th the s e ca s e s we co ul d

‘
s e e tha t th e o r g an i z a t ion s s tru c tu re mi g h t b e s u ch tha t th e de ve lo pmen t

an d imp l emen ta t ion o f s oun d s t ra t e g i e s wou ld b e hamp e re d .

Th e so- ca l le d ma tr ix o r g an i z a t iona l s tru c tu re wh i ch i s o f te n found

in comp l e x o r g an i z a t i on s c re a t e s s p e c i a l p rob lems fo r p l ann in g , above a l l

b e caus e o f th e e x c e s s ive t ime - invo lvemen t no rma l ly re qu i re d by man a g emen t

"
fo r c a r ry i n g o u t p l ann i ng in su ch a s e ttin g . We di s cu s s e d how a d i vi s ion

"
o f l ab o r b e twe e n an adap tive and an in te g ra t ive d imen s ion mi g h t f a c i l i ta te

k e ep in g th i s p l ann in g tas k w i th in a mo re re as onab l e con te x t .

F in al ly , we di s cus s ed how th e con c e p t o f r i s k ne e de d to b e ex p l i c i tly

de al t w i th in th e p l ann in g p ro c e s s , no t on l y in o rde r to f a c i l i ta te a

co rpo ra t e - w i de r i s k - re turn s tr ate g i c re s ou r ce a l l o c a tio n s tra te g y , bu t

a l s o to a t ta i n a p rop e r de g r e e o f r i s k - ave r s en e s s wi th i n an o rg an i z a t io n .

F i n a l ly , th e r i s k p re fe ren c e s o f k e y ind iv i du a l e x e cu tive s wou l d h ave to

be taken in to a c coun t wh e n re vi ewin g p lann in g p ro po s a l s .

Cha p te r S ix Foo tno te s

1 . Th e fo l l owin g a r ti cl e s and boo k s addr e s s impo r tan t a s p e c t s of th e ta sk

of ma na g in g the evo lu ti on of th e s tra t e g i c p l ann in g s y s t em : Newma n ,

" "
Wi ll iam H S tra te gy and Mana g emen t S tru c tur e , J ou rn al of Bu s in e s s

"
Po l ic y ,
W in te r , 1 9 7 1 7 2 , G re in e r -
, La r ry E .
, Evo lu t io n and R evo lu t ion

An so f f ,
H . I gor , R og er t P . De c l e r ck and R ob e rt L . Haye s , F rom S tr ate g i c

P l annin g to S tr ate g i c Man ag eme n t ,

"
in An s o f f , H . I go r , et . al . , ( e di to rs ) ,

F rom S trate gi c P lann in g to S tra te gi c Mana gem en t , Wi l ey I nt e r s c i en c e ,

N ew Y o rk , 19 7 6 , J an ts ch , E ri ch an d Con r ad H . Waddi n g ton , ( e di to rs ) ,

We s l ey , 19 7 6 , He db e r g , Bo L . T .
, P au l C . Ny s tr om and Wi l l i am H . S tar b uc k ,

De s i gn in g O r gan i z a tion s to Ma tc h Tomo rrow

"
, in Ny s trom , P au l C . and

Wi l li am H . S tarbu ck , ( e di to rs ) , P re s c ri p t ive Mo de l s o f O rgan i z a t i on s ,

No rth - Ho l l and P ub l i sh in g Co .
, Am s te rd am , 1 97 7 , Ma lm , Al l an T .
,

“
Ap p roa ch e s to S o ci a l S y s tems De s i g n ,
"
i n B e nn i ng s o n , Lawre n ce H .
, ( e di to r ) ,

Ma n a gem en t S tud i e s , S tude n t l i t t e r a t u r , Lund ( S we den ) , 1 97 7 , S c he in ,

Ed ga r H .
,
"
I nc re a s in g O r gani z a tiona l Ef f e c tiven e s s th rou gh Be tt e r

Human R e s our ce P lann in g and D eve l opm en t S lo an M ana gemen t R evi ew ,

Fa l l , 1 9 7 7 , and Z a l tm a n , G era ld and Ro

be rt T . Dun c an , S tra te gi e s fo r

P lanned Chan ge , W il ey I nte r s c i e nc e ,

New Yo rk , 19 7 7 .

'
S eve ra l au tho r s have a dd re s s ed th e i s s ue of con s i s ten cy amon g a f i rm s

int e rnal s truc tur e an d ex te rnal envi ron m en t and /o r amon g su b s y s tem s

wi th in th e in t e rn al st ru c tu r e , see , fo r in s tanc e ,
Chandl e r ,
Al f re d D .
, Jr .
,
 6- 64

S e e S c hw e nd im an ,
Jo hn S I n te rna t iona l S t ra te g i c P lann in g : S til l

in i ts In f an cy "
,
Wor l dw ide P I P l ann in g , S ep t .
-
Oc t .
, 19 7 1 , Ri ngb akk ,

K . A .
,
Th e Co rpo ra te P l ann in g L i f e Cy c l e An I n t e r n a t i ona l P o i n t
'

of

Vi ew Lon g R an ge P l ann in g, S e p t emb e r , 197 2 , We l l s , Loui s T .

, ed i to r ,

Th e P roduc t L i f e C y c l e and In te rn a tiona l Trad e , D ivi s ion of R e s e a r ch ,

"
H arva rd B us ine s s S cho o l , B o s ton , 1 972 , L o ran g e ,
Pe t e r , La P ro c edu r e

de P l ani f i ca tion dan s le s E nt re p ri s e s Mu l tin a ti on al e s , R e vue E c o no

"
m i gue et S oc ia l e , Mar c h , 19 7 3 , L oran ge , P e te r , Fo rma l P l ann in g in

Mul tina t io na l Co rpora ti on s C olumb ia Jour na l of Wo r l d B us ine s s ,

"
S umme r , 1 97 3 , Ma z zo l in i , R Euro pe an Co rp or a te S tra te g i e s , C o lum b i a

Jou rna l of Wo rld Bu s in e s s , S p r in g , 1 97 5 , S te i ne r , G eo r g e A . and

S cho llhamm e r , Han s ,

"
P i tf a l l s in Mu l tina tion al Lon g R an g e P lann in g

"
Lon g R an ge P lann in g , Ap r i l , 19 7 5 , and Lo r an g e , P e t e r , A F r amewo rk

fo r S tra te g i c P l ann in g in M ul t ina t iona l Co rp o r a t ion s

"
, Lon g R an ge

P lann in g , June , 1976 .

D ru cke r P e te r F ,
"
Lon g - R an g e P lann in g Me an s Ri s k - T ak ing , i n Ewin g ,

David W e d i to r , Lon g R an ge P l ann in g for Man a ge m e nt ,

M c G r aw — H i ll ,

New Yo rk , 1 97 2 , and B al l , B en C . and P e te r Lo ran g e ,

"
M ana g in g You r

S trate g i c R e s po ns iv ene s s t o the Env i ronmen t

"
,
S lo an S cho o l of Man a g e

m ent Wo rk in g P ape r , Camb r id g e , 1 9 78 .

CHAPT ER S EV EN

'
Exe cut ive s Ro l e s in P lann in g

7— 1 . I n tr odu c ti on

As s tr e s s ed th rou ghou t th i s bo o k , the p l ann in g p r o c e s s i s a s tr a t e g i c

de c i s ion - mak in g p roc e s s . Th us , i t wi l l be o nly through p r op e r invo lvement

f rom r e a l - l i f e exe cu tiv e s th a t th e s tr a te g i c p ro c e s s w i l l wor k . It is

th er e fo r e ne c e s s ary to d i s cu s s wh a t m i gh t be ap p ro p r i a te ro l e s of va r i ou s

g roup s of ex e cu t ive s in th e p l ann in g p ro c e s s . Th er e wi l l of c ou r s e nev e r

be on e
"
best "
ro l e mo d e l th a t wo ul d be e qu a l l y app l i c ab l e to a l l s i tua t ion s .

H e r e ag a in we sh a l l fa c e a c on t in gen cy - ap p r o a ch i s s ue . Fo r s ome c o rp o r at e

s e t ti ng s , w i th p a r ti cu la r ne ed s f o r p l ann in g , wh a t m i gh t b e app r op r i a t e

ro l e mo de l s f o r exe cu t ive s
- '
invo lv eme nt in th e p l ann ing p r o c e s s mi gh t b e

s ub s tan t ia l l y di f f e r e nt f rom wh a t wou ld con s ti tu te wo r k ab l e mod e s of

i nvo lv emen t i n o th e r s i tu a t i on s . Thu s , a l thou g h i t obv iou s l y wou ld b e

i nap p ro p r i a te to co ns i de r e x e cu tive s '

s ty l e s a s f a c to r s th a t c an b e

c on t ro l l e d a s part of the p l ann in g sy s tems d e s i gn p ro c e s s , we ar e s t i l l

facing a s e t of i s su e s an alo go us to th e on e s d i s cu s s e d in th e pr ev i ous

th r e e c hap t e r s , name ly th at th e ap p ro p r ia t en e s s of di f f er ent mana ge r i al

s ty l e s f or invo lv eme n t in p l ann i n g w i l l d ep end on th e g iv en s i tu a t iona l

s e tt ing . Th e purp o s e of th i s cha p te r , th en , i s to po in t ou t wh a t mi ght

be maj or ro l e cho i c e s fo r v ar i ous exe cu t iv e po s i ti ons an d in d i f f e r en t

s i tua t iona l s e t ti n g s , so tha t the va r i ous ex e cu t ive t e am memb e r s c an

s tr iv e a t s e l f - d e ve l o pmen t of ap p rop r i a t e s ty l e s of invo lv eme nt .

As a p re c lud e to ou r ana ly s i s , we s ha l l s t ar t wi th a fu r the r d e l ine a

ti on of s ome of th e b eh avi o r a l a s p e c ts of p l anni n g . F ir s t th e n , we s ha l l

d is cu s s the s p e c i f i c ro l e a l te rn a t ive s f ac i n g th e C E . . O . a s we l l a s th e
 7- 2

s enio r l ine e x e c utive s ,

s uch a s group or d ivi s ion h ead s . The n , we s ha l l

fo cus on the d if f er e nt po te nt i al r o l e s th a t the c o rpo ra te p l anne r mi gh t

have .
He mi ght b e invo lved wi th th e de s i gn or imp rovem ent of th e p l ann in g

p
ro c e s s i ts e l f ,
on th e on e h and . On the o the r hand , he mi ght b e o f f er in g

sub s ta nt ive adv i c e to th e l ine on wha t s tr a te g i c d e c i s i ons to t ake a s we l l .

To conc lud e th e chap te r we s h a l l d is cus s b r i e f ly th e ro l e s of th e bo ard

of d i r e c tor s a s we l l a s outs id e cons u l t ant s in the p l ann in g p ro c e s s .

A B ehavio ra l Pro c e s s

As we h ave s e e n throu gho ut th i s bo o k , the d ive r s e s e t of b us i ne s s

a c t iv i ti e s b e in g purs u ed wi th in a lar ge co rp or a ti o n w il l be c a l l in g f or

s pe c ial i z e d input f rom tho s e w ho ar e c lo s e s t to th e bu s ine s s . At th e s ame

t ime th er e wi l l be a ne ed f o r co o rd inat ion of th i s p o t ent i a l l y d ive r s e s e t

of ac tions so tha t th e comp any ca n mov e in th e mo s t f avo ra b l e d i re c tio n .

A maj or purpo s e of a co rpo rat e p l annin g s y s tem i s to s e rv e as a f a c i l i ta to r

of th e s e tti n g of s uc h a s en s e of common d i r e c t ion s e tt in g wi th in a d iv e r s e

—

or gan i za t ion . W ithou t s ome me ch an i sm f o r d ev e lop i n g a s en s e of d i r e c t ion

fo r a comp any wi th i ts many powe r cons ti tu en c ie s and f a c t ion s , i t wi l l be

dif f i cul t f o r an o r gan i z a ti on to move s ub s tan t i a l l y in a d e s i r ed s tr a te g i c
1
d ir e c tion . Wi thou t a commo n fo cus wh i ch i s a t l e a s t und e r s too d and s har ed

amo n g the mana gement te am to s ome de gr e e ,

a s e ns e of fa c t iona l i sm i s l ik e l y

to deve lop . We l l - intend ed o r gani z at i ona l ta l en t and ene r gy mi gh t b e s p en t

pu l l in g i n Op po s i te d ir ec t ion s . Even th e mo s t b r i l l ian t , i ns i gh t fu l and

p e rs ua s ive C E O
. . . canno t un i l a ter al l y su c c e ed in s e t t in g the s tr at e g i c

d i re c t ion tha t hi s c omp any s h ould b e go i n g in . He w i l l hav e to de p e nd on

s ome s e ns e of s hare d a gr e eme n t and und e rs tand in g of thi s cour s e amon g h i s

 7- 4

comp le x na tu r e of s tra te gy f o r mu la t i on and imp l ementa t io n ta s k , it is ,

of cou rs e ,
un l i ke ly th a t th e v ar iou s p ar t i c ipan ts in the p l ann in g p ro c e s s

s ho uld b e ab l e to come up wi th the i r f ina l i z e d inpu t s a s th e r e su l t of

th e ir f ir s t a ttemp t . F ew , i f any , i s ab l e to s e e the u l tima t e s tr at e g i c

"
of
"
so lut ion in a c ry s ta l b al l . A mo r e l ike l y s e t ev ent s wi l l b e th at

p lans ar e d eve lop ed th rou gh a s er i e s of i te r at ion s , b a c k a nd fo r th amon g

th e ma na g er s of th e p l ann i n g p ro c e s s . Th i s can o nl y b e a ch i ev ed throu gh

a re l a tiv e ly op e n tw o — w a y commun i c at io n channe l .

A s i gni f i c ant r eq ui r eme n t to a l l e f f e c t iv e s y s tems f o r c ommun i ca t ion

i s that th e var ious commun i ca ti o n tas k s a r e c l e a r l y id e nt i f i ed and

de l i ne a ted ; wh i ch mana ge rs s hou ld be invo lv ed , wha t s ho ul d b e d i s cu s s e d ,

?
whe n du ri n g the p ro ce s s shou l d th i s b e Th e c onc e p tua l p l ann in g s ch eme

tha t ha s b e e n deve lop ed p rov i de s exa c tly th i s typ e of fo cu s . I t spec ifi es

wh e n obj e c t iv e s , s tra t e gi c p ro gram or b ud ge t —

r e l a t ed i s su e s s houl d b e

di s cus s ed and wha t q u es ti ons e a ch group of mana g er s s hou ld b e con c e rned

w i th at e a ch s ta ge . Th i s s ho uld f a c i l ita t e a c l e ar e r s en s e of ro l e

ide nti f i c a ti on amon g th e ma na g e rs in th e p lann in g p ro c e s s .

S imi l ar ly , by p rovi d in g a s e t of ru l e s fo r c ommun i ca t ion , th e

p lannin g s y s tem w i l l p rovi de a s af e gua rd me ch an i sm so tha t th e v a r iou s

mana g er s wi l l have a ve hi cl e to b e h e a rd about con ce rns whe n ap p ro pr ia te .

Th i s i s par ti cula r ly imp or tan t i n a l ar g e co rp or a t io n , wh er e i t o f t e n

mi ght b e d i f f i cu l t f o r mana g er s down the l ine to ra i s e a con c e rn a s p ar t

wa y
" "
of the no r ma l of O pe ra ti on . I t is of c our s e mu ch e a s i e r fo r a

subord ina t e ma na ge r to p re s en t h i s po ints of v i ew a s p ar t of the rout in e

y ea r ly p l anni n g c y c l e th an i f he ha s to tak e the in i ti a tiv e to ra i s e an

ad ho c s tra te gic is sue on his own on an ex c e p t ion b as i s . Thu s , the

 7- 5

p lann i ng sy s tem p rovid e s an imp o r tan t veh i c l e fo r f o rma l i z e d b o ttom —

u p

commun i ca ti on me chani sm . A s imi lar top— down commun i ca t i on me chan i sm i s

of c our s e a l s o c r i ti c a l , but th i s typ i c a l l y co ns t i tu t e s le s s of a b o tt le

ne c k in tha t s e n io r mana gemen t ty p i c a l ly c an f e e l mor e f r e e to commun i c a t e

wi t h s ub o rd ina te mana ge r s .

A re l a t ive l y op e n tw o - way p ro ce s s of deve l op in g a c our s e f o r the

s tr a te g i c d i r e ct io n of th e f i r m w i l l mo s t l i k e l y add to th e e f f e c t O f

ins t i l l i ng a s e ns e of c ommi tmen t to th e a tta inme n t O f th i s s e t of p l an s

on b eh al f of ma nag eme nt . No t o nly wi l l i t b e mo r e d i f f i cu l t f o r a mana ge r

to d ep a r t f r om a wid e ly commun i c a t ed p r evi ou s l y a gr e ed upon d i r e c t io n in

i ts e l f . I n addi ti on , th e r e wi l l be c on s id e rab l e g rou p p r e s s ur e on ea ch

" "
exe cu t ive to de l iv e r . A S EU man a g e r , f or ins tan c e , wi l l know tha t

fu l f il lme n t of h i s par t of th e ov e r a l l c o rp or a te p lan wi l l b e e s s en t ia l

to th e ov e r al l corp o r a t e s uc ce s s , and tha t a s l ip mi ght hav e b ro ad

r e p e r cu s s i o ns throu ghou t the o r g ani z a t ion . A d i s c ip l in ed te am s p i r i t

f or s tr a te gy fu l f i llmen t a c coun tab i l i ty mi g ht eme r g e .

I n ou r exp e r i en c e th e d i s c ip l i na ry p re s su r e of hav in g to s ti ck to

a commi t te d di r e c tion mi gh t f re qu en tl y p rov i de a pa r t i cu l ar ly sombe r in g

e xp e r i en c e f o r th e C . E O . . an d h i s s en io r mana g eme nt . Th i s w i l l me an tha t

h e wi l l no t be a s fr e e to imp o s e un i l a te r a l ad ho c s h i f t s i n th e s t r at e gi c

d ir ec t ion i n j eop a rd y of the p lans . I n many c a s e s t hi s m i gh t r e p r e s e nt

a d e f i ni t e p o t en t i al f or s tr e n g th e ni ng th e qual i ty of d e c i s ion mak in g

-
,

in tha t s p ur - O f - the - mome n t d e c i s i on s tha t w i l l b re a k w i th a sy s t ema t i c a l l y

e s t ab l i s he d p r i o r s tr a te gy mi ght l e s s e as ily b e tak en . Eve n tho u gh some

lo s s of f l e xib i l i ty m i ght b e the r e s ul t , i t O f ten pay s O f f to take time to

as s e s s wh y the O l d s tr a te gy wou ld b e inva l id . Ad ho c sup e r imp o s ed s tr a te g i c

 7- 6

ch an ge s b y the s e n i or mana geme n t wi l l f r e qu e nt ly be s e en a s b r e a ch of

'
the p lann i n g con tr a c t b y th e r e s t O f th e c omp any s mana gemen t . S u ch

de c i s ions wi l l typ i ca l ly b e r e s i s te d b y th e o r gani z a ti on and mi ght b e

di f f i cul t to imp l emen t i rr e s p e c t ive of the i r me r i t . Ne ed l e s s to s ay ,

su ch un i la te ra l t op - down s pu r — o f- th e - mome n t s tra t e g i c de c i s io n makin g —

taken o ut s ide the co nte x t of the p l annin g s ys tem te nd s to be the s a f e s t

way to unde rmine the e f f e c tive ne s s of th e p l ann in g s y s tem a s a de f a c to

s tra te g i c de c is ion maki ng v eh i c l e

—
. I ro ni ca l ly , th e C E O
. . . wi l l p ro b ab l y

be th e one to lo s e th e mo s t on th i s .

B e in g fundamental ly a b e hav io ra l p ro c e s s , p lanni n g i s l i k e ly to

'
a f f e c t ma na gement s s ty l e i n s e ve r al way s . Firs t , th e typ i c a l e f f e c t ive

mana ge r w i th in the Op e ra ti n g con t ex t of a s t ra te g i c p l ann in g f r amewo r k ,

wi l l p rob ab ly b e th e o ne w ho po s s e s s e s su ch p er s onal qua l i ti e s as fl e xi

b i l i ty ,
Op en - mindedne s s , ab il i ty to l i s ten and to le r an ce . L e s s f l ex i b l e

ma n a gement typ e s ar e l e s s l ik e ly to s uc c e ed with in a p lann in g con tex t .

S e co ndly , p a ti en c e and d i s cip l i ne are n e c e s s a ry s ty l e in gr ed i en ts f o r

ma na gin g w i th in a p lannin g co nte x t . O f ten it tu rn s ou t to b e p ar t i cu l ar ly

di f f i cul t fo r a c tion — o r i e n ted l i ne e x e cu t ive s to r e con c i l e th ems e lve s to

the f a c t that o rde r ly s tra te g i c d e c i s ion - mak in g typ i c a l ly tak e s t ime

Fi nal ly , i t sh ou l d b e s tr e s s e d tha t good p lannin g me an s ha r d wo r k . It is

no rmal ly an i n tens iv e e f f o r t ; t ime consumi n g p ro c e s s —

to go thr ou gh th e

p lanni n g p ro c e s s . P ar ti c i pa tin g i n r evi ew me e ti n gs and und e rtak in g

rev i s ions mi gh t s e em a s a neve r — e ndin g e f f o r t , b e fo re f i na l ly r e a ch in g

an a gre emen t on a s tra te g i c d i re c ti o n to fo l l ow . O nl y whe n th e mana ge rs

are re a l i s ti c abo ut the amount of time tha t p l ann in g wi l l take ,

b e in g

wi l lin g to commi t s u f f i c i en t time and in t e l l e c tua l invo lv eme n t , w il l th e r e

b e a r e al i s ti c po s s ib i l i ty th a t e f fe c t ive p l a nn in g mi gh t ma ter ia l i z e .
 7- 8

mi gh t be the ca re e r pa tte rn of the h i s amb i t ion on b e ha l f of his

company ,
p re s sur e s f rom ou ts ide inte r e s t and powe r group s , and so on .

L e t us fo r in s tan ce cons ide r th e fo l low in g tw o h yp o the t i c a l and

s ee h ow the ir mana geme n t s ty l e s ar e l i ke ly to b e d i f f e r ent . On th e one

hand we mi gh t h ave a C E O
. . . w ho ha s ris en to th e t op s po t of a l arg e ,

c ap i ta l - inte ns ive c orp o ra tion th rou gh a s e r i e s of inte r na l pr omo tio ns .

He may be a ro und 60 wh e n h e t ak e s ove r as and th e mand ato ry

r e ti reme n t a ge may b e 65 . Th e f inan c i a l s i tua t ion of the comp any i s

comf or tab le . Th e b oard of d i re c to rs i s r e l a tive ly pa s s ive and the r e i s

no on e s i n gl e la r ge s to ckho l der . A C E . . O . in th i s po s i t ion mi ght we l l

adop t an out lo ok of
"
no t r o c kin g th e b o a t Hi s ma j o r conc e rn i s p ro b ab ly

to p re s ide ove r a f i rm wh i ch i s con t i nu i n g i n i t s s te ady s u c c e s s and b asi c

be i n a po s it ion
"
mod e of O p er a tion of th e pa s t and to to hand ove r the

h e lm of a s ound s h ip to th e ne x t C . E O
. . whe n ma nd a to ry re ti r ement o c cu r s .

Th ere wi l l be l i t tl e p r es su re fo r cha n g e s f rom the pr edomi nan tl y inb re d

or g ani z atio n ( o f wh i ch th e C . E O . . i s a typ i c a l r e p r e s e nta t ive ) . S imi l ar l y ,

the C . E O
. . s e e s l i ttl e r e a s on to t ake maj or lo n g te rm ri s ks th at mi gh t
—

p a y O f f a lon g time af te r h i s r e ti reme nt . On the con trary , ab ou t th e on l y

rea l p r e s sure th e C E O
. . . o c c as io nal ly mi gh t f e e l i s f rom f inanc i a l ana ly s ts

and the s to ck marke t : no s ho r t - te rm su rp r i s e s , s te ady qua r te r l y p e r fo rman c e .

Th e b as i c outl o ok of th i s C E O
. . . i s th e re f o re re l at ive ly s ho r t - run . He

wi l l fe e l mo re c omf o rtab l e wi th a p lann in g sy s te m w hi ch emph a s i z e s in te gr a

tio n ra ther th a n adap ta tio n . He ty p i ca l l y do e s no t s e e mu ch O f a ne ed f o r

a p l annin g s y s tem th a t wo uld put e x p l i c i t emphas i s on su r f a c in g and

ame l i orati n g s tru c tura l and /o r f inan c i a l po rt f o l i o p re s sur e s .

 Th e co ntr a s t mi ght b e a C E O
. . . wh o ta k e s ove r th e t op s po t at a

re l a tive ly youn g age , so tha t h e ha s , s ay , ab ou t 2 0 ye a r s of t e nu r e ahe ad

in the job . Fur th er , h e mi gh t h ave b e e n b rou gh t in f r om th e ou t s ide some

years a go a nd ha s h ad e x te ns iv e e xp er i e nc e runn in g s eve r a l d i f f e re nt

b us i ne s s e s as a SB U and a d iv i s io n mana ge r . Th e comp any may b e f a i r ly

d iver s e , and b e caus e of a h i gh de gr e e of growth thro u gh a c qu i s i t ion the r e

may no t be o ne di s ti nc t i nte rna l co rpo ra te s ty le of mana gemen t . Th e

comp an y ha s sh own a s tro n g f inan c ia l pe r f o rman c e i n th e p a s t ; howeve r ,

du r ing th e re c en t f ew y ea r s i ts pe r f o rman c e ha s s la c ke ne d somewh at wh e n

comp ared wi th a s e le c te d numb e r of o th e r r e l a tive l y s imi l a r c omp an i e s .

Th i s C E O
. . . i s h avi n g s tro n g am b i t ions f o r h is c omp any , pu t t i n g p r e s su r e

on the co rp o ra ti o n f or h i ghe r p e r f o rmanc e and b e in g w i l l ing to ma k e l on g

te rm commi tmen ts th a t mi gh t ta k e th e f i rm in to qu i te d i f f e r en t s tr a te g i c

d ir e c t ions . Th e p l ann i n g s y s tem th a t th i s C . E O

. . woul d f ind u s e f u l and

be com fo r ta b l e w i th w o uld p ro b ab ly emph as i z e r e l a t ive ly mo r e ad ap t a t ion .

I t m igh t f a ci l i ta te th e put ti n g of pr e s s u re f o r l on g e r - t e rm s tr a te g i c

i ts d iv i s ions , a c ce ntu a ted b y e x p l i c i t

"
p e r fo rmanc e ex c e l l e n c e on c om

"
pe ti tion amon g th e di vi s io ns fo r th e ava i l ab l e co rp o r a te re s ou r c e s f o r

th e i r exp ans ion . Th e sy s tem mi gh t fu rth er emp ha s i z e s tru c tu r a l po rt fo l i o

r e ad j us tmen t p re s s u re s b y s up po r t in g th e e f fo rts in o c c a s iona l

ch an ne l in g of fu nd s to a cqu i s i t io ns .

Th e a b ove examp le s a r e me r e ly int end ed to su g ge s t th at the

s ty le and as p i ra t io ns f o r th e comp any and h ims e l f w i l l be c r i t i cal when

i t come s to wh a t w i l l b e a us e f ul de s i gn of a p l a nn in g s y s tem . Amon g th e

f a c to rs th a t mi gh t a f f e c t th e de s i gn of the s tr a te g i c p l ann in g s y s tem

th r ou gh imp a c t in g the s ty le mi gh t b e , as s u gg e s t e d in th e examp l e s ,

 7- 1 0
'

the l en gth of rema inin g te nu re in th e po s i t io n and whe the r th e

"
C E O
. .
is inb red or no t . Wha t i s ne c e s s ary i n e ach p ar t i cu l ar c o rpo ra te

s i tuati on i s to c are ful ly at temp t to de l ine ate wha t mi gh t b e c r i t i ca l

e l ements of th a t p a rt i cu la r s ty le and p re co nc ep t ions .

L e t us now move to th e s e cond i s s ue r e l at in g to th e ro l e in

p lanni n g , con ce rn i n g how f o r h im to in te gra te p lann in g in to h i s de c i s io n

mak in g s ty l e . W e s hal l c l a im th at a s a p re re qu i s i te f o r th a t to s i gn i

f i c an t l y take p la c e , th e C E O
. . . mu s t a c c e p t tha t he wi l l onl y ge t as mu ch

ou t of the sys tem as h e pu ts into i t . Thu s , if no t wi l l in g to in te rj e c t

h ims e l f a c tive ly into the p ro c e s s , b u t r at he r ta k in g a mo r e or l e s s n e u tr al

or a lo o f ro le ,
c ri ti ca l t o p- down i nput s w i l l then b e mi s s in g f rom th e

p lann in g p ro c es s . I n add i t ion to the r eby b i as in g th e de c i s io n - mak in g

p ro ce s s i ts e l f , the re mi gh t als o b e adve r s e p s y cho lo g i c a l e f f e c ts on his

o r ga ni z at io n th ro u gh th i s fo r m of p lannin g b eh av io r . Con s id e r f o r ins tan c e ,

a C . E O
. . w ho h as announ ced to h i s o r g an i z a t ion hi s int e nt i on to s tr eng then

s tra te gic de c i s i on- mak i n g th rou gh p romo ti n g a s tr a te g i c p l ann in g s y s tem .

Wh en th e a c tu al wo rk on th e p l ann in g cy c l e take s p la c e , howeve r , i t turn s

ou t th a t the C E O
. . . t ak e s a re la t iv e ly l ow - key po s i t io n wh en i t come s to

p rov idi n g inp uts to and r ev i ew of th e s ub s tan tive ma tte r s of th e obj e c t ive s

s e ttin g a nd s t ra t e gi c p ro gr ammi n g c y c l es . I n c ontr as t , wh en th e cu lm ina t in g

s tep in th e narr ow in g d own pr o ce s s th e b ud ge t i s b e in g p r e s e nte d ,

th e

C E O
. . . come s on h e avi ly w i th swe e p in g s u gg e s t ion s f o r chan ge . Th i s c au s e s

mo di fi cat ions no t o nly of th e b ud ge t i ts e l f , but al s o of s e ve ra l s tr ate g i c

p ro gr ams and i t rai s e s doub t abou t the fundame n ta l r e l ev an c e of some of

the ob j e c tive s . Th e s tron g , ind ir e c t s i gn a l to th e o r gan i z a t ion in th i s

ca s e is p rob ab l y c l ea r . D e s p i te h is l ip - s e rv i c e commi tme nt to s tra te g i c

 7 - 12

an ex c ee din g ly e l ab o r o u s and cumb e r some b ud ge t in g pro c e s s . I n ano the r

comp an y th e C E O
. . . was ab le to fr e e up cons i de rab l e time p rev io us ly d evo te d

to c ap i ta l b u d ge t in g ap p rova l as p e c t of b ud ge t in g a s h e wa s ab l e to sh i f t

h i s emph as is f rom a de ta i l ed r ev i ew and app r ova l /r e je c t i on of e a ch p ar t i

cu lar inve s tme n t p ro j e c t p ropo s al to a revi ew of th e s tr a te g i c p ro gr ams .

G iv en tha t an inve s tme n t wou ld b e pa r t of an a l r eady ap p rove d p ro gram and

th a t th e s tra te gi c re l evan c e of the i nve s tme nt the r e b y wou ld hav e b e en

e s tab l is he d ,
th e C E O
. . . b e came in a p o s i t io n to t re a t the ind iv i dua l

propo s a l s i n le s s d e ta i l . Thus , a con s id e r ab l e p ar t of th e t ime

wa s f re e d up , give n th e s hi f t in p ro p o s a l r evi ew pu rp o s e to b e come f ine

"
tun in g and a s af e ty me ch ani sm .

An e f fe c tive s trat e g i c p l ann in g sy s tem i s a b ove a l l th e n a to o l f o r

the intende d to as s is t h im i n do in g a b e t te r jo b in h i s ove r a l l

s tr a te gi c de c is ion - maki n g tas k . I t f o l lows tha t th e C . E O . . th e r e f o re wi l l

h ave p ar ti cul ar ly s tron g i nc e nt ive s fo r con tr ibu t in g to ma k in g p lann in g

wo rk . If no t wi l l in g to l e t h i s s tra te g i c de c i s ions un fo ld w i th in th e

f r amework e s tab l is he d b y the p l ann in g s y s t em , the C E O

. . . i s h and i c ap p i ng

h i ms e l f ab ove al l . S imi l ar ly , if no t w i l l in g to c ommi t th e ne c e s s ary

amounts of h i s time and h i s inte l l e c tua l i nvo lveme nt , the C . E O

. . h a nd i c ap s

h ims e l f a gain .

Le t us now turn to th e th i rd i s s ue r a i s e d in r e l a tion s h ip w i th th e

ro l e s of th e C E O.
. . i n th e p lan nin g pr o c e s s , name ly wha t s hou ld be his

invo lveme nt , i f an y , in the de s i gn of th e s tr a te g i c p l ann in g sy s tem .

Fur t he r , to wha t ex ten t s hou ld he h av e a know l ed g e of the de ta i l ed

func t io nin g of th i s s ys tem ? Mo s t w i l l p ro b ab l y s ta t e tha t the

de s i gn of th e s tr a te gi c p l ann in g s y s tem a s we l l a s th e mo n i tor i n g of th i s

 7 — 13

sy s tem is a tas k th a t b e l on g s to th e c o rp o r a te p l anne r and h i s d e p ar tm ent .

G ive n the la ck of time th a t typ i c a l l y p l a gue s a th i s i s a ve r y

unde rs t andab l e po s i t ion . Howeve r , th e d e s i gn of the s t ra te g i c p l ann in g

s y s tem and th e way i t i s ma na ge d w il l h av e a v i ta l imp ac t on h ow s tr a te g i c

p lannin g mi gh t fun c ti on , a s we hav e s e e n th rou gh ou t th i s b oo k . Con s e qu en t ly ,

i t i s n e c e s s a ry tha t th e C . E O
. . be r e as on ab ly c e r t a in th a t th e p l anni n g

s ys tem i s de s i gn e d and mana g ed i n a way th a t f a c i l i ta te s a p l ann in g

emph as i s c o ns i s t ent w i th h i s i n ten t ions . Th er e a r e tw o c on c e rn s th at n e e d

to be ra i s e d in o rd e r to f a c i l i ta te th i s .

F i rs t , i t s e ems n e c e s s a ry tha t th e C . E O
. . mu s t know enou gh ab ou t th e

g e ne r al a s p e c ts of p l an ni n g so th a t h e c an f e e l r e as onab ly c om fo r ta b l e

a b ou t how th e pro c e s s in f a c t b road l y s e ems to wo rk w i th in h i s comp any .

W i thou t th is pit of th e s toma ch

"
f e e l i n g ab ou t wha t h a s b een go in g on in

o rd e r fo r th e p l anni n g ou tput s to h av e b e en d eve lop e d , i t wi l l be d i f f i cu l t

f or h im to f e e l e n ti r e ly c omf o r ta b l e abo u t tak in g a po s i t ion w i th r e s p e c t

to th e s u b s tan tiv e s tr a te g i c i s s u e s h e w i l l hav e to d e c i de on th rou gh th e

p ro c e s s . I n p a r ti cu l ar , h e wi l l h av e to hav e a r e a s ona b ly go od p e r c e p ti on

a b ou t the amoun ts of e f fo r ts , de gr e e of p ro f e s s iona l i sm and s in c e r i ty of

c omm i tmen t to th e p l ans th a t ha s gone in to th e p l anni n g d o cum e nts h e

r e c e iv e s . By unde r s tand in g th e fun c ti on in g of th e p ro c e s s th e C . E O

. . c an

b e t te r ca l ib r a te wh a t emp ha s i s to pu t on th e v ari ou s p l ann in g ou tpu t s as

b as i s f or h i s s tr a te g i c de c i s ions .

S e cond ly , i t fo l lows tha t th e p owe r to c on tr o l th e ac tua l d e s i gn

and exe cu ti on of th e s tr a te g i c p l ann i n g sy s tem i s an impo r tan t on e , s inc e

i nf lu e nc i ng th e p l ann in g s y s tem mi ght b e an e f f e c t ive i f ind i r e c t way of

p romo tin g s tr a te gi c d i re c tio n . H en c e , th e C E O

. . . s hou ld ma in ta i n th e
 7 - 14
'

b road res pons ib il i ty f o r th i s tas k in h i s ow n doma in . Th i s wou ld me an

tha t he s hou ld s tr e s s tha t th e co rpo ra te p l ann in g de p a r tme n t , wh i c h o f ten

ha s th e tas k of d e s i gnin g and mana gi n g th e p l annin g s y s t em , i s o p e r a tin g

s tr i c t ly a s an ex tens ion of his own o f f i ce . Chan ge s in th e p l anni n g

p roc e s s sho uld have the c l ou t of b e i n g s po ns o r e d b y th e a l tho u gh

p rep ared th rou gh th e s ta f f s up po r t of the co rp o r ate p lann in g d e p ar tme n t .

"
Thus , the C E O. . . s hould r e ta in owne r s h i p of th e s tr a te g i c p l ann in g sys tem .

Ne i the r of th e ab ov e tw o i s su e s s hou l d s i gn i f i can tly tax th e

tim e . The cr i ti c a l i s su e i s mo re a ma tte r of s en s i t iv i ty to th e s e i s su e s

on th e p ar t of the C . E O
. . and of d e l e ga t in g ta s k s to th e s tr a te g i c p lannin g

d ep ar tme nt cons i s tent ly w i th th i s . S ome howeve r , mi gh t no t feel

content w i th tak in g su ch a p as s ive ro l e of minimum a cc e p ta b l e invo lveme nt

in th e deve lopment and mana gemen t of the p l annin g sy s tem . The s e

h ave found th at the de s i gn of th e p l ann in g sy s t em h a s th e p o ten ti a l to

o f f e r su ch an e f f e ct ive ind ir e c t too l f o r chan g in g the s tr a te g i c d i r e c t i on

of a comp any tha t th ey wan t to k ee p th ems e lve s d i r e c tly invo lve d in th i s

func tion . I f f or ins tanc e a comp any i s f ac in g an in c r e as i n g ly c omp l e x

envi ro nme nt , s ay , b e caus e of a c qu i s i tion s or b e c au s e of inc r e as in g l y

turb ul e n t bus i ne s s su rround i n gs , th e C . E O

. . mi gh t ap p ro a ch th e i s su e of

how to take advan ta g e of th i s ind i r e c tl y by mod i f y in g th e p l ann in g s y s t em

so tha t i t m o re ade qua t el y mi gh t co p e wi th th e ne w s e tt ing . O ne mov e in

th i s d i re c t ion wou ld f or ins tanc e b e to in s ti tu te mo re sh ar p ly t ar g e ted

fo rmal i z e d e nv i ronmental s c anni n g p ro c edur e s . I n c r e as in gly , we have

examp l e s of w ho ac tiv e ly and de l ib e r a te ly ar e mod i fy in g th e

s tr uc ture of the s tr a te g i c p l anni n g s ys t em in o rde r to ac h i ev e a chan g e

i n the s tra te gy tha t the y wan t th e i r f i rm to fo l low .

 7- 1 6

Th e ro le of the s t ra te g i c p l annin g s y s tem , th en , wou ld be to fu r th e r

" "
fa c i l i ta te o p e r a t i o na l i za t i o n and f ine tun in g
-
of the b a s i c robu s t

s tr a te g i c th ru s t by p rov i di n g th e me chan i sm f o r r ea s s e s s i n g th e r a t iona l e

'
for one s s tr a te g ie s throu gh the annua ll y r e cu rr in g ad ap ta t io n and

inte g ra tio n- r e l a ted s ta g e s of th e p lann in g cy c l e . G iv en th i s , the r e

sho uld ne no doub t tha t the de s i gn of the s tru c tu re of th e s t rate g i c

p l ann i n g s ys tem mu s t be ta i l orma de to th e b as i c robu s t s t r a t e gy a t hand ,

i . e. ,
tha t s tru c tur e s hou l d fo l low s t ra te gy .

Howeve r , a t s ome po int down th e evo lu t ion ary pa th of imp l emen ta tio n

of the robus t s tr a t e gy , th e r e mi gh t b e a p e r c e p t ion of a ne ed to mod i f y

the b as i c s tr ate gi c th ru s t , b ey ond th e inc r eme nta l f ine tun in g tha t wi l l —

be th e re sul t of the comp l e tion of

'
ea ch y ea r s p l anni n g cy c l e . I t wil l

be i n s u ch ins tan c e s th a t th e C E O. . . may wan t to modi f y th e s t ru c tu r e of

the p lann in g sys tem in o rd e r to ind i re c t ly have an imp a c t on c ha ng in g th e

ro b us t s tra te gy . Th us , wh en s e e n in s u ch an evo lu ti onar y con tex t we mi gh t

s ay th at s tru c tur al chan g e s mi gh t p re c ed e s tr a te g i c c ha n g e s in o rder to

fa c i l i tate ma j or bu t r e l a t iv e ly r ar e s tra t e g i c r e o r i e n ta t ion s .

To s umma r i z e ou r p o s i tion w i th r e sp e c t to th e ro l e , th en ,

we ge ne ra l ly f ind i t us e f ul tha t th e C . E O . . ac t iv e l y inf lu en c e s the d e s i gn

and evo lu tio n of th e s tra te gi c p l anni n g s y s t em in s uch a way th a t i t

re f l e c ts th e s itua tiona l re a l i ty , and tha t h e a l so ma ke s us e of his

l eve r a ge to ma ke modi f i ca tion s in the s tr a te gi c s y s tem at d i s c r e t e

inte rva ls in t i me in orde r to indu ce maj or s tr ate gi c chan ge s .

7 4
- .
Th e Li ne Man a gem e n t '
s Ro l e s in the P l ann in g P ro c e s s

Le t us now tu rn to a di s cu s s io n of the ro l e s of the o th e r l ine

ma na gemen t gr oup s i n p lann in g , e x c lu di n g of cour s e th e C E O

. . . tha t we
 7- 17

d i s c us s ed i n th e p rev io us s e c t ion . We s h al l f ind i t u s e fu l to d i s t i n gu i s h

b e twe e n th e ro l e of l i ne g ene ra l mana g e r s , su ch as tho s e w ho h e ad a

d iv is ion or a SB U , and l i ne man a g e rs w ho re p r e s e n t a p a rt i cul ar func t ion .

A l in e gene ra l mana g e r , s u ch a s a d ivi s ion or SEU he ad , sh ou l d

no rma l ly be i n a po s i tion w i th l i ttl e or no amb i gu i ty in te rms of th e

ro l e tha t h e i s exp e c te d to p l ay i n p l ann in g p ro c e s s . G ive n th a t th e

ove ra l l p a t te rn of th e p l annin g p ro c e s s ha s b e en e s ta b l i s hed f rom th e

c o rp or a te l ev e l , i t w i l l s oo n b e c ome app ar e n t to th e co rp o r a te l ev e l as

part of the t o p — down /b o t t om up in te r a c tio n i f a d iv i s i on mana g e r i s ou t

of p h as e wi th h i s p l ann i n g a t temp ts . The l in e ge ne ra l mana ge r wi l l f a c e

a s tr i c t s ch edu l e f o r wh e n to p r e p ar e wh a t a s p e c ts of his b u s ine s s p lan .

Th e e f f e c ts of b e i ng ou t of ph as e t ime and qua l i ty wi s e m i gh t

-
be two f o l d ,

and mi gh t h av e qu i t e s e r i ou s co ns e que nc e s . F i r s t , th e co rp or a t e l ev e l

wi l l have to make por tfo l i o s tr a te g i z in g and re so ur c e a l lo c a t ion de c i s ion s

b as ed on a p a t te rn of bu s ine s s Op po r tuni ty d a ta wh i ch in fa c t w il l no t be
c omp a ra b le a cro s s a l l th e b us i nes s e s , g ive n th a t th e qu al i ty and

re l i a b i l i ty of th e inpu ts wi l l va ry f rom d ivi s i on to d iv i s i on . Th i s

mi gh t caus e s e r iou s dy s fu n c t i on a l i t i e s in th e po rt f o l io s t ra t e g i z in g .

S e c ond l y , a d iv i s io n wi th i ns uf f i c i en t q ua l i ty of i ts p lann in g th ru s t

mi gh t end up s ho r tch an g e d i n th e in t e rd iv i s io na l c omp e t i ti on fo r f und s .

I t i s the r e fo r e impo r tan t tha t a d iv i s ion manag e r b e ab l e to d eve l o p

r e l a tive ly ac cu r a te and r e l evant p l ans , and tha t he ap p roa che s th e tas k

of p lanni n g in a p ro f e s s i on a l manne r . His c h a l l e n ge i s to p e r c e iv e the

k ey adap tiv e and in te gra t iv e s tr a te gi c i s sue s f a c in g h i s b u s ine s s a s we l l

a s po s s ib l e and fr om a ge ne r al ma na geme n t po in t of v i ew .
 '

7- 1 8

'
G ive n th a t the e f f e c tive n e s s of th e comp any s p l annin g p ro c e s s a s a

who l e mi gh t s uf f e r whe n on e d ivi s ion mana g e r doe s no t c a rr y ou t his

p lannin g tas k ,
i t i s ind e ed p e r tine n t to try to p r ev en t th i s f rom tak in g

p lac e . We sha ll look a t tw o typ e s of c aus e s fo r po ten t i a l l a c k lu s te r

d iv i s ional p lan ni n g a nd a l s o indi c a te wha t mi gh t b e ap prop r i a t e s e n io r

ma n a gemen t a c tio n f o r ame l io ra ti n g th i s p rob lem . O ne r e a s o n m i gh t be a

re s i s tanc e b y th e d iv i s ion ma na ge r to ad e qu a te l y C oo p e ra t e in the p lann in g

e f fort . S uch a s i tua t ion i s no t e n ti re ly unc ommo n , pa r t i cu l ar ly dur in g

the ini ti a l s tar t- u p pe r i od s of p l anni n g . Th i s mi gh t b e c au s e d b y su ch

emo tions as " '

I ve b e en su c c e s s fu l in th i s b u s in e s s for a lon g time wh y

sho uld I do i t d i f f er en tl y "

,
"
I do no t h av e t ime f o r th i s , b e c au s e s omeone

"
ha s to run th e bu s ine s s , or th i s i s j u s t ano th e r of c o rpo r at e mana geme nt 5

fads ; ne x t y ear the re wi l l b e s ome th i n g e ls e ! "

Al te rn at iv e ly , th e

r e s i s tanc e mi ght b e a mo r e c al cu l a ted on e , b as ed on the p er c e p t io n tha t

p la nnin g mi gh t d imi ni sh the powe r of th e d iv i s ion mana g e r . A s trong

d ivi s ion mana g e r , fo r in s tanc e , mi gh t f e e l tha t a l e s s e x p l i c i t r e s ou r c e

a l lo ca t ion p ro c e s s ba s e d on a on e - t o— on e , no t a po r t fo l io — ty p e ,
d iv i s ion a l

co r po rate i nte rac tion mi gh t p rov id e h im wi th mor e l e eway . Th e c o rpo r a te

l eve l c an of cour s e no t to l e ra te s uc h f o rms of r e s i s tanc e . Th e C . E O . .

mi gh t par tl y communi ca te th i s to th e d iv i s io n mana ge r d ir e c tl y ,

s ay ,

dur ing the c o rp o ra te r evi ew p e r iod . Th i s wi l l imp l y th a t re s i s tan t

d iv i s ions wi l l b e r eque s ted to go back to th e dr awin g b oa rd "

and come

b ac k ad equa te ly p re p ar ed . P ar tly t oo th e po i nt mi gh t be commun i c a te d

ind ir e c tly by p e na l i z in g tho s e d iv is ions in th e fund s a l l o c a t io n d iv i s ion s

tha t have no t sa ti s f a c to r il y do cume nted how th e fund s a r e int end ed to be

s p en t s tr a t e gi ca l ly .
S uch an ap p roa ch mi gh t b e e x p ens iv e ,
howeve r ,
and
 7- 2 0

I n summa ry ,
th en ,
a d iv i s i on mana g e r do e s no t hav e to be c onc e rned

abou t th e i s s ue s of how t o de s i gn and ma na g e th e p l anni n g s y s t em , p e r s e ;

thi s tas k has b e en tak e n ca re of a t th e co rpo ra te l eve l . Howev e r , the

d iv is ion ma na ge r mus t b e ab l e to und e r s tand th e r a ti ona l e f or th e de s i gn

of the p lannin g s y s tem we ll e nou gh to b e ab l e to p rovi de tho s e sub s tant iv e

p l annin g inp uts tha t the sy s tem r e qu i r e s . Wh e n i t come s to p a rt i c ip a t ion

wi thin th e sy s tem h e w i l l h ave no cho i c e o the r than fu l l C oo p e r at io n , in

o rde r to e x c e l s ub s tant iv e ly .

Le t us now ,
tu r n to the f un c t iona l l i ne exe cut ive s and d i s cus s the i r

ro l e s in p l anni n g . As po i nted ou t e ar l i er , th e fun c tio na l de p ar tmen ts

wi l l typ i ca ll y b e p l ay in g a ra the r in fo rma l ro l e dur i n g th e ob j e c t ive s

s e t tin g s ta ge . Dur i n g th e s tra te g i c p ro gr ammin g s ta ge , howev e r , th ey w i l l

p lay a key ro l e in b r in g in g to th e p ro c e s s s p e c i a l i z e d fun c t i on a l s k i l l s ,

hop e fu l ly of an ou ts tand i n g qu a l i ty . Th e y e ar ly pr o gr ammin g c y c l e w i l l

pr ima r i ly s e rve as a veh i cl e fo r s um min g up th e s t a tu s of a mo r e or les s

cont inuo us and pr imar i l y i nt e r f u n c t i o n a l s et of uns t ru c tu r ed or s emi

s truc tured a c t ivi t i es . Th i s i s intende d to co nc e iv e of new p ro grams , as

we l l as improve and imp l eme nt e x i s t in g on e s . Th e f o cu s or g ene ra l

dir e c tion f or the comp any to take i s mo r e or les s g iven ; the i s su e f o r

th e func t iona l e x e cu tive s i s how to come up wi th p ro g r am s u gg e s ti ons to

mak e th i s h a pp en . Th i s p ro c e s s typ i ca ll y ca l l s on h i gh ly c r e a t ive in pu t s .

Th i s i s gene r a l ly no t e as y , none th e l e a s t b e c aus e i t wi l l gene r a l ly be

d i f f i cu l t to p re s cr ib e a commo n s tru c tur e in te rms of s t ep s to f o l low in

thi s p ar t O f the p ro c e s s . Th us ,
the fun c t ion a l e x e cu t ive s '
ro l e s in

p la nni n g te nd to b e gene ral ly l e s s fo r ma l and qu i te amb i guou s a s we l l .

"
Th e inter f ac e b e twe en the f unc t ions and the annua l f o rma l p l an
'

can a t t ime s b e a trauma t i c and f rus tr a t in g e x p e ri e n c e f o r the func t io na l

 7- 2 1

mana g e r s . Th i s p l ann in g s tr e s s mi gh t b e b r ou gh t on th em p ar t l y b e c aus e

of th e typ i ca l ly h i gh re qu ir eme nt fo r com mun i c a t i o n and coo rd ina t ion a l on g

i ntu i tiv e and di f fu s e p at te rns a cro s s cl e a rl y de f ined func t iona l b ound ar i e s ,

p ar t ly b e c aus e the tem po r ary na tur e of s tr a t e g i c pr o g r ams pr ev e nts th e

d eve l opment of mo r e lo n g- t e rm and p e rm anen t inte r p e r s onal ti e s , and pa r t l y

b e c aus e of the d i f f i cu l ty i n s e e in g th e ov e r al l s t ra t e g i c ra t i ona l e f rom

a na rrow , func t io na l p e r s p e c t u a l b a s i s .

The Ro l e of th e P l ann e r

In ou r di s cu s s i on of the rol e of the p l ann e r , we s ha l l f i nd i t us e fu l

to d i s t i n gu i s h b e twe en th e c or po r a te l eve l p l anni n g ex e cu tiv e and pl anne r s

3
a t th e d iv i s ion and f un c t ional l ev e l s . Th i s is i n l in e wi th wha t wa s

p rop o s e d dur i n g ou r di s cu s s ion of th e r o l e s of th e C E O. . . and the l ine in

th e p l anni n g p ro c e s s . We d i s t i n gu i s hed th e r e b e twe en th e tas k of d ev e lo p in g

a s t r at e g i c p l ann ing s y s tem tha t wou ld f a l l p r ima r il y unde r th e

j ur i s di c t io n ve rs us the ta s ks of op e r a tin g w i th in th e s y s tem by p rov id in g

th e s ub s tan t iv e inp ut s to th e p la nnin g p ro c e s s , to be p e r fo r me d by th e l ine .

We s ha l l d i s cu s s the ro l e s of th e co rpo r a te l ev e l p la nner f ir s t .

We s h a l l po i nt ou t tw o maj o r group s of ta s k s tha t mi gh t be c on c e ived

of fo r th e co rp o ra te l ev e l p l anne r . Th e r e wi l l of c our s e b e a ne ed to

c ontr ib ute to th e v ari ou s sub s tan t iv e s t ra t e gic de c i s io ns tha t w i l l h a ve

to be ta k e n a t th i s l ev e l t oo . Ex amp l e s mi ght be to a s s i s t in a c qu i s i t ion

s tu d i e s , or to give adv i c e to th e C . E O
. . on the r el a t iv e me r i t s of the

p lann i n g do cumen t s submi tte d b y e a ch d iv i s i o n . We s h al l howeve r de lay

'
ou r d i s cus s io n of th e co rpo ra te p l ann e r s ro l e in sub s t an t ive s tr at e g i c

d e c i s i on - ma k in g , and ins te ad i ni t i a l l y fo c us on th e o th e r ma j o r g r oup of

 7- 2 2

ta sks , name l y to p lay th e ins t rume ntal ro l e in th e de s i gn and imp l eme nta t ion

of the s tra te g i c p lann in g s y s tem a s we l l as to admini s te r or mana ge th e

p l annin g p ro c e ss . Th i s tas k i s i n e s s en c e a t the c e nte r of wh a t th i s b o ok

i s a l l ab ou t . I s sue s in th i s cont ex t wo uld be to f a c i l i t at e the d es i gn of

a s trate g ic p l anni n g s ys tem th rou g h cho i c e of an app ro p ri a te conc e p tua l

s cheme f o r s tr ate g i c p lanni n g and throu g h ta i lo rmak i ng th i s s ch eme to th e

par ti cu la r s i tuat ional s e tt i n g a t h and . O the r c e nt r al i s su e s wou ld be to

f a c i l i ta te the imp l ementa tio n of th e p l ann in g sy s t em by d i s cu s s in g it wi th

the l ine exe cu tive s and as s i s t in g th e l ine in ma k in g us e of th e s y s t em .

Th i s l e ads to a th i rd s e t of i s su e s , name l y to b e re s p on s ib l e f o r th e

imp roveme nt of th e sy s tem , s u ch a s mo d i f i c a t i ons , ex te ns ion s of s cop e , or

chan g es in empha s i s . F ina l ly , we hav e th e ta s k of phy s i c a l ly co o rd inat in g

the o f te n v as t numb e r of d ive r s e a c tiv i t ie s as s o c ia te d w i th a comp any go in g

throu gh a p lannin g cy c l e , s u ch a s the p r e p ar at io n of an up dat ed p l annin g

ma nual , di s s emi na ti on of a p l ann in g c a l e ndar , d i s t r u b u t i on o f common b a ck

ground as s ump tions to th e l in e su c h a s common e co nomi c a s sump t ion s ,

co l le c t in g d iv i s iona l o u tp ut dra f ts a t e a ch p l ann in g s t a g e , a r ran g in g fo r

time , p la c e and a genda f o r p l annin g r ev i ew me e tin g s , and so on . Th e job

of runn in g th e p lann in g func tio n i s exhau s t ive and cha l l e n gin g .

Mayb e th e b i gge s t cha ll e n g e wi th re s p e c t to the p lanne r s job '

of

ma na gin g th e s y s tem s tems f rom ou r eme r g in g r e co gn i tio n tha t r athe r th an

deal in g w ith a p lannin g func tio n in th e n arrow s en s e ,

p lannin g s hou l d

ra the r be s een as o ne of s eve ra l cr i t i c a l e l eme nt s of an ov e r a l l s tr a te g i c

d e ci s ion maki n g s y s tem

—
. Th i s , as we h av e s ee n , att emp t s to en comp as s in

a coordina te d an c cons i s ten t f as h ion t he t as ks of id en t i f i ca t i on of

s tra te g i c Op tions of nar row in g down th e s e op tion s , of mon i to r in g ro r e s s

,
p g
 7— 2 4

chan g e wi th i n th e comp any . I t i s inc re a s in gly comp l e x b e c au s e of th e f a c t

th at w e ar e de al i n g wi th on e ove ra l l s tr at e g i c sy s t em tha t ne e d s to s tay

cons is te nt and curr en t , no t a set of s ep a rab l e , mo re or l e s s inde p end ent

s ub sy s tems .
I t mi gh t b e r e as onab l e to s p e cu l a te , th en , th at the p o s i t ion

of b e in g r e s pons i b l e f o r th e ove ra ll s tra te gi c co rp o ra te p l ann i n g p ro c e s s

s hou ld b e h e ld b y a s enio r s taf f e x e cut iv e . Th i s p e r son s hou ld b e wo rkin g

in c lo s e coo p e ra t ion w i th th e in o rde r to b e a b le to mana g e th e

th ru s t of the s y s tem in a di re c tion th a t co rr e s po nd s wi th th e

s tr a te gi c o ut loo k . G iven th at th e i nc r e as in g imp o r tanc e of s u ch an ov e ra l l

s tr at e g i c de c i s ion- mak in g sy s tem is l i ke ly to b e come r e co gn i z e d by a wid e r

s tr ata of mana ger s ,

i t i s al s o to b e e x p e c t e d th a t s ome of th e ap p r ehens ion

th a t l ine typ i c al l y mi ght h ave f o r the c o rpo r at e p l anne r mi ght be we ake ne d .

Le t us now tu rn to th e o th e r ma j o r ta s k of th e co rpo r a te p l anne r ,

name ly to b e invo lve d in anal y z in g and ev en i n de c id i n g on p a r ts of th e

sub s tantive i s sue s tha t ar e b r ou gh t up throu gh th e p l anni n g pro c e s s . Th e r e

mi gh t be s eve ra l as p e c ts of thi s tha t mi gh t ra i s e con c e rn , ou t of wh i ch we

sha l l po int ou t th r e e . One '

is the corpo r a te p lanne r s ro l e in p r ov id in g

common b a c kgr ound a s s ump ti ons on ce r t a i n f a c to rs s u ch as the ove ral l

e co nomi c ou tloo k as we l l a s wha t common f i gur e s mi gh t b e r e l ev ant to use

fo r wa ge ra te s , i nte r e s t ra te s , cur r e nc y ra t e s , and so on . A s e c ond i s

'
the p l anne r s ro l e in cons o l id at in g sub s t an tive p l annin g i np ut s f r om th e

"
div i s i ons , c he c kin g fo r me chani ca l typ e e r ro r s su ch a s in the a ri thme t i c s ,

as we l l a s p e rf o rmi ng a g ene ra l ana l y s i s of t he ef f e ct s of th e pr op o s ed

p lan nin g i npu ts , wi th p ar t i cu lar emp ha s i s on fu nds f l ow f e a s ib i l i ty f rom

of
'
a c o rpo rate p o in t vi ew . A th i rd ro l e wou ld b e th e p l ann e r s r e s p on

s ib i l i ty to p as s j ud gm e nt on the app rop r ia tene s s of var iou s sub s tan t ive

 7- 2 5

s tr ate gi c d e c i s io n a l te rn a tive s . Th e na tur e of th e f i r s t of the s e ro l e s

i s s uch th a t i t s hou ld b e s e e n in is o l at ion f rom the o th e r tw o , in tha t by

c a l l i n g fo r ma ki n g ava i l ab l e b a ck g round in f o rma t ion to th e p l ann ing p r o c e s s

i n a uni f i ed mann e r th i s func tio n do e s no t r e p re s e nt a dir e c t invo lvement

i n th e s tr ate g i c de c i s ion - ma k i n g p ro c e s s as s u ch . Th i s i s in c o ntr a s t to

th e l a tte r tw o ro l e s wh ich i n te rv en e mo r e d i r e c t l y in the fun c t io n in g of

the s tr a te g i c de c i s io n - ma k i n g p roc e s s e s th ems e lv e s . Wh i l e the s e cond ro l e

r e f e rs to th e fun c tio nin g of the mana gemen t p ro ce s s , and the th i rd ro l e

re f e r s to th e su b s tan t iv e s tr a te g i c cho i c e s th at w i l l hav e to b e ma d e ,

th e re i s room f o r con fu s io n w ith r e s p e c t to the s e tw o inte rr e l a te d ro l e s ,

a s we s h al l s e e b e low .

Th e dynami c and i ndus tr iou s co rp o ra t e p lann e r wi l l of c our s e a tt emp t

to p l ay a dua l r o l e , emp h as i z in g an invo lveme nt in the mana g eme nt of th e

p lanning p ro c e s s a s we l l as a t temp t in g to h av e an imp a c t on th e s ub s ta nt ive

s tr a te g i c i s s ue s tha t wi l l have to be de c i de d on as p ar t of the p l ann in g

ta s k . Unfo r tuna te ly , how ev er , th i s dua l ta s k invo lvement p a t te rn mi gh t

caus e f r i ct ion w i th in th e o r gan i z a ti on , and u l t ima tel y mi ght d imin i s h th e

'
co rp o r at e p la nne r s ab i l i ty to c ar ry ou t b o th h i s p r o c e s s r e l a t ed and h i s
-

s u b s tan c e - re la t ed tas k s . We sh a l l s e e th a t the r e ar e s ev e r a l r e as on s why

i t mi gh t b e d i f f i cul t f or the co rpo ra t e p l ann e r to fu l f i l l th e tw o ty pe s

of tas k s . F ir s t , th e p ro c e s s of ide n ti f y ing r e l evant s tr at e gi c o p t io n

and de c i din g wh i ch of th e s e Op t ion s to p ur su e and in wha t way s , i s a ta s k

wh i c h mi gh t po te n ti a l ly s i gni f i c an t ly ch an g e the s tra t e g i c d i r e c t ion of

th e f i rm . Th e l i ne wi l l h ave to b e the ve h i c l e to c a rry ou t th e s e c h an ge s .

I t wou ld th ere f o r e al s o be app ro p r ia t e to p l a c e a s i gn i f i cant pa r t of th e

r e s p o ns ib il i ty fo r fu l f i l lme n t of s tr a te g i c p e r fo rman c e s quar e ly on the

 7- 2 6

l ine . Th e l ine e x e cu t ive s , wh o a re th e o ne s w ho sub s e quen tl y wi l l h ave

to l ive w ith th e p lans ,

s hou ld al s o f e e l tha t th ey ar e d e a l in g w i th th e i r

Co ns e quen tl y a c coun ta b i l i ty f o r on e s s ta te d s tr ate gi c

" '
ow n p lans . ,

"
po s i tions i s p robab ly an inte gr a l e lemen t of th e in te r a c t iv e n ar rowin g

"
down p lannin g p ro c e s s . L ine e xe cut ive s wi l l be l ike ly to r e s i s t th e

no t ion that s t af f exe cut ive s have a maj o r inf lu enc e on c r i ti ca l s tr a te gi c

cho i ce s . Th e typ i c al f e e l in g p reva i l in g woul d b e tha t th e s e exe cu tiv e s

wi l l no t b e as c lo s e a s the l ine to th e b us in e s s e s and al so tha t the s t a f f

Th e l i k e l ihood
" "
mo r e e as i ly mi gh t wa lk away f rom th e i r d e c i s io n s . of

su ch l ine r e s i s tan ce to inpu ts from th e co rpo ra t e p l ann e r i s p ro b ab ly

p ar ti cu la r ly h i gh whe n the co rp ora te p l anne r i s n ew to th e comp an y , as

we ll a s wh en h e do e s no t hav e a l ine b a c kground fr om w it h i n on e or mo r e

of th e company s '
b us in es s e s .

A s e con d and re l a te d r e as on why th e c o rpo rat e p l ann e r mi gh t run in to

r e s i s tanc e i f a ttemp t i n g to h av e an imp ac t on the sub s tant ive s tr ate g i c

di rec t ion - s e tt in g s tems f rom th e in t e rr e l a tion s h i p wi th h i s o th e r ta s k ,

mana g ing th e p lannin g p ro ce s s . We have al r e ady d i s cus s e d h ow mod i f i c a ti on

'
of the s truc t ur e of th e p la nn in g s y s tem mi ght a f f e c t th e f i rm s s tr at e g i c

di re ct ion . Th us , th e c o rpo ra te p la nn e r m i ght hav e an ind ir e c t imp a c t on

th e su b s tan tiv e s tr ate gi c cou r s e tha t th e f i rm ta ke s . To c arry ou t

rat iona l and p ra gma ti c mo di f i ca tio n s of th e p lann in g sy s tem i s of cour s e

wi th i n th e doma in of th e c orp o rat e p lanne r s ta s k '

,
and sh ou ld no t be
ch al l en ge d b y th e l ine . I f , howeve r , th e co r po ra te p l ann e r a l so te nd s to

ge t he avi ly invo lved in subs tan tiv e i s su e s , th en a f e e l in g mi gh t e as i ly

deve lo p amo n g th e li ne th a t th e cor po rate p l anne r i s a tt emp t i n g to b o th

" "
of
0
"
s e t the rul e s th e g ame and i s a p l ay e r in th e game as we l l . Th e
conf l ic t by addin g a s ub s tant iv e s tra te g i z in g ta s k e l eme nt to th e

corpo ra te p lann e r s re s po ns ib i l i t ie s H i s k ey p rio r i ty sho ul d b e

'
. to

imp rove th e p lann in g s y s tem s e f f e c tivene s s

'
.

Th e tas k of couns e l in g the C E O. . . on s ub s tant iv e s tr a te g i z in g

ma tte r s s hou ld r e s t w i th on e or s eve ra l co rpo r a te s ta f f as s i s t an ts to th e

pre s iden t . Th e s e sh oul d b e e x e cut ive s whom th e C E O

. . . f e e l s comf o r t ab l e

with , bo th in te rms of re s p e c t in g the i r j ud gme nt a s we l l a s in h av in g no

doub t ab o u t th e i r loya l ty . I de a l l y , su c h e x e cu t iv e s s hou ld have s tron g

b a ck gr ound s in th e o p er a tio ns of th e comp any , and th ey wi l l no rma l l y ho ld

qui te s en io r ti tl e s . To ge th e r w i th th e C . E O . . th ey fo r m th e s en io r

ma na geme nt te am .

Le t us i l lu s t ra te b y me ans of an ex amp le h ow th e d i l emma of th e

'
dua l i ty of th e corp o ra te p l ann e r s ro l e was ta ckl e d wi th i n a l a r ge oil

and ene r gy r e la ted comp any . I n th i s f i rm th e tw o typ e s of ta s k s we re

de l ine ated i n cons ide r ab l e de ta i l , p rov id in g f or a c l ea r s p l i t b e twe e n

the tw o pu rp o s e s . Th i s was done by l e t t in g th e corp o ra te p l ann i n g gro up

cons is t of no t tw o bu t f ive di s t inc tiv e s ubuni ts . A un i t c a l l e d p l ann i n g

p ro ces s admini s trat ion ov e rs aw th e fun ct io n in g of the p l annin g p r o c e s s ,

and was the o n ly p ro c e s s - o r i en ted un i t . Th e o the r four emph a s i z e d a s p e c ts

of s ub s tan t ive p l annin g . No tab ly , th er e wa s on e group fo r s tr a te gi c

ana ly s i s of th e submi t ted b us ine s s p l an s . Ano th e r gro up c a l l e d "

c orp o r a te

"
s tra te gy ana ly s i s and de ve lopm e nt f o cus e d on s tr a te g i c a s p e c t s of th e

'
co rpo rat e po rt fo l io s p ro p er ti es . Th i rdly , an a c qu i s i t i o n /di v e s t i t u r e

analy s i s an d coord ina t ion g roup fo cus e d on a s s i s t in g in the imp l emen t at ion

of su ch tas ks . Fi nal ly , a group was char ge d w i t h mac ro - e conom i c ana lys i s

and comp i la tion of s p e c i al - purpo s e ba c k gr ound s t ati s t i c s , pr imar i l y f o r

 7- 2 9

'
s erv in g as commo n inpu ts to the l ine s p l annin g p ro c e s s . Th i s c omp any

s e ems to have b e en qu i t e su c c e s s f ul in de l ine a t in g b e twe e n th e p ro c e s s

r e la ted and th e s u b s tan c e - re l a te d tas ks so th a t the s e do no t we aken ea c h

o th e r . Al s o , th e re s e em to h ave b e e n b ene f i t s from in s t i l l in g a mo de of

s p e c i al i z a tion i n te rms of w ho s hou ld b e c ar ry in g ou t d i f f e r e nt a s p e c ts

of th e s u b s tanc e - r e la ted tas ks . G ive n th e f o rmid ab l e wo r k - l o ad typ i c a l l y

a t h a nd wh e n i t comes to su b s t an t iv e p l ann in g i s su e s '

anal ys i s and

re s o lu tio n i n c omp anie s of th i s s i z e , th i s de g r e e of de l in e a t i on mi ght

be a sh e e r ne c e s s i ty t oo .

I n p ra c ti ce , th er e unf o r tuna te l y te nd to be at leas t tw o commo n typ e s

of fo r c e s th a t tend to j e op a rd i z e th e c l e ar d iv i s i on of l a b o r tha t we h av e

'
re comme nd e d f o r ac h i evin g e f f e c t ive ro l e de f in i t io ns of th e p l a nne r s

ta s ks . F i r s t , a c or po r a t e p l anne r , e nt ru s t e d w i th th e mana geme n t of th e

p lanni ng p ro ce s s mi gh t f ind i t ex c ee d i n gl y d i f f i cu l t to di s c i p l ine h ims e l f

s ti c k by b e c omin g
" "
to to h i s l ow p ro f i l e h and s O f f
-
ro l e no t ex c e s s iv e ly

i nvo lved i n s ub s ta n tive s tr a te g i c i s su e s . Th e r e mi ght b e a na tur al

t e nd enc y f o r h im to a t temp t to bu i l d up h i s i nf lu e nc e on sub s t an t iv e

ma tt e r s a s h e p er ce iv e s tha t he i s p ro g re s s in g in mana g in g th e p l ann ing

p roc es s to th e e x te nt tha t h e i s in a po s i t ion of r ea s on ab ly f i rm c ont ro l

of th i s . I t mi gh t ind e ed b e me n ta l ly hard fo r th e s u c c e s s fu l c o rpo r at e

p lanne r to s t ay away f rom a g radu al ly inc r e a s in g i nv o lv eme nt i n sub s tan t iv e

is s ue s as he ma tur e s in th e p ro c e s s jo b . H e mi ght ev en s e e th i s a s the

onl y di r e c t i on lu a can go in o rd e r to c ont inu e a s a ti s f a c tory p ro f e s s iona l

d e ve lo pme nt . Unf o r tuna te ly , s uc h a mi s con c e p t ion mi ght e as i ly be the

"
f i r s t s te p towa rds th e downf a l l of th e p l anne r . I n s te ad , he shou l d

pu rs u e h i s p ro f e s s iona l d eve l o pmen t w i thi n th e p l ann i n g pr o c e s s a r e a , by

ta k i n g on g r ea te r re s po n s ib i l i t y f o r d ev e lop ing a b e t te r ov e r a l l

inte gra te d s tr at e g i c s y s tem .

An o the r po ten t ia l typ e of p rob l em s tems from th e commo n tend e ncy

amo n g co rpo ra te p lanne rs to a l low th ems e lve s t o ge t tempo r ar i ly invo lve d

in a f i re f i gh ti n g cap ac i ty du r i n g the p e r iod of s ta rt - u p of s tr ate g i c

p l ann i n g to do a l ar ge p a r t of the p lann in g th ems e lve s . I t may s e em

evi de nt to th e c o rp ora te p l ann in g group and b e pa r t i cu l ar l y f rus tr at in g

th a t the l ine e x e cu t ive s are f el t to be s t i l l so f ar away f rom th ink in g

and a c t in g s tr a te g i ca l l y . I n the i r f ru s t ra t ion a b out wha t the y p e r c e iv e

as s low p ro gr es s toward s th e dev e lo pmen t of mo r e invo lv ed s tra t e gi e s , th e

co rp o rate p lanne r s may no t b e ab l e to re s i s t the t emp ta t io n to s te p in

"
and h e lp the l ine in th e deve l opmen t of the i r p l ans . Th i s may hap p en

even thou gh th e corpo ra te p lanne r mi gh t b e p er f e c t ly c l e ar a b o u t th e f a c t

tha t p l ann i n g shou ld b e a func t ion of th e l ine . Howev e r , the p l anne r wi l l

"
j us ti fy h i s t emp o ra ry s ub s tantive invo lveme nt as o nl y in te nd e d to ge t

"
th in gs s tar ted so th a t p ro gr e s s c an b e mad e f a s te r . Unf o r tuna t e ly , th e

e f f e c ts f rom thi s typ e of we l l - me an t bu t l e s s we l l co n c e ived in te rv en t ion

by th e cor po ra te p l anning group s a r e a lmo s t un iv e r s a l ly ne g at iv e . Th e

l i ne wi l l ty p i cal ly f a i l to a c c ep t th e p l an s that ar e b e ing deve l o p e d f or

them . They wi l l t yp ic a l ly f e e l a l e s s ened p re s su re f o r deve l o p in g

s tr ate gi c th inki n g on th e i r ow n . Th e co rp o ra te p l anni n g s ta f f wi l l b e

p e r c e ive d as min g l in g in su b s tant iv e matt e r s , and may b e s e en by th e l i ne

'
as a th re a t . Th e re i s a l s o th e dan ge r tha t th e p l anne r s own p e r c e p t io n

of the imp or tanc e of a s tr i c t p ro c e s s invo lvemen t po s tu re mi gh t be c om

p romi s ed a s time goe s On. I n s ho r t ,

th e en t ir e b as is f o r ma k i n g a

s a ti s f ac to ry pro g r es s w ith p lannin g throu gh evo lu t ion mi gh t e a s i l y b e

 7- 3 2

p lanne r ' s ro l e .
Th e s uc c e s s of h i s t as k wil l de p e nd on wh e th er h e i s

ab l e to d eve lo p a h i gh ly pe r s o nal i z ed re l a t io ns h ip wi th h i s d iv i s ion

g ene r a l b us i ne s s man a g e r . Th i s w i l l lar ge ly b e d i c ta te d b y whe the r th e

divi s io n ma na g e r f ind s h im u s e fu l i n th e ana l ys i s and adv i c e on sub s tan tive

s tr a te gi c a l te rna t ive s .

Le t us tu rn f ina l ly to a b r i e f di s cu s s io n of th e ro l e s of p l anne r s

a t th e fun c tiona l leve l . As s tr e s s e d b e fo r e , th e s tr a te g i c ro l e of th e

va r iou s func tio nal dep a r tmen ts o cc ur s p r imar i ly th rou gh th e i r p a r t i c ip at ion

in the s tr a te gi c pro gr ammi n g a c tiv i ti e s , wh e r e th e emph a s i s i s h e av i l y on

i n t e r f u n c t i on a l coo pe ra ti on . Thu s , at the fun c t ional l ev e l i t mi gh t be

us e ful to as s i gn a p lann in g e x e cu t iv e the re s p on s ib il i ty f or th e p l ann i n g

of a par ti cu la rly impo r tan t s t ra t e g i c p ro gr am . A maj o r f o cus f o r s u c h

p l ann in g wou l d be to fa c i l i ta te b e t t e r c ro s s - fun c t i on al in te gr a tion . A

uni que f e a tu re of the s e s tr a te g i c pro g ram p l anne r s '

t as ks wou ld be the

t em po r a na ture of th e i r p l ann in g m i s s ion s As s oon as a p ar t i cu l a r

py .

s tra te gi c p ro g ram ha s come to comp l e ti on , th e p lannin g ta s k wi l l be

f in i she d . I t s e ems es s ent i a l tha t the p la nne r s in que s t ion r e c o gn i z e th e

temp o ra ry na tur e of th e ir r o l e s . To o o f t e n a p l ann in g o r gan i z a t ion mi gh t

add s ome s e ns e of p e rma nen c e to th e mana gemen t of a s t r ate gi c p ro gr am ,

ther eby di s tr ac ti n g f rom mor e re al i s ti c mana geme n t a c t ions to ke e p the

p ro grams movi n g .

In m a ny o r gani z a tion s we f ind eve n l ar ge s ta f f exe cu tive g rou p s

ca rry in g ou t marke tin g p l ann i n g , p rodu c tio n p l ann in g , R& D p l an ni n g , and

so on . G iven the po in t of vi ew tak en in th i s book re g a rdin g th e s tra

t eg i c ro le s of th e va ri ous fun c t ion s , we do no t s e e a n e e d fo r fun c t iona l

p l ann e r s a s su ch . R athe r , th e p l an ner s s houl d be a s s i gn e d to s tra te g i c

 7- 3 3

p ro g rams , as di s cu s s e d ab ove . O f te n , howeve r , l abe l s su ch a s p ro du c t ion

p l ann in g o r ma rk e tin g p l ann in g a r e qu i te mi s l e ad in g ; the s e tas ks O f t en

re fe r to qu i te we l l - de f in e d , ne ar - te rm t as ks th a t wi l l h ave to b e c ar r i e d

ou t wi th in s tr at e g i c p ro g ram con te x ts . A ma j o r p a rt o f th e s e a c t ivi t i e s

may b e re la t e d to th e de ve l opme n t o f in pu t s fo r th e Op e r a tin g bud g e t ,

an d to th e ex e cu tion o f the s e "

a c t ion p ro g ram s
- "
as we l l . Le t us , how

eve r , s tre s s th a t lo n g - te rm fun c t ion a l p l ann i ng in i s o l a t io n f rom th e

o th e r fun c t io ns , per se , s e ems to h ave l i t tl e me ri t .

As a way o f summ a r i z in g th e s p an o f ro l e a l te rna t ive s fo r p l ann in g

exe cu t ive s i t i s u s e fu l to con s i de r E xh ib i t 7- 1 . As c an be seen , we have

"
C a t aly s t "
An al y s t S tr a te g i s t
“

S U B S TAN E C F UL F I LLME NT DO MA I N

P RO CES S F UL F I LLMENT DOMA I N

Exh ib i t 7- 1 . T ra deo f f B e tw e en P ro ce s s E f f e c t ive n e s s an d C on ten t Ef

" "
indi c a te d th re e ro l e a l t e rn a t ive s fo r th e p l ann e r , c a t a ly s t , a n aly s t

or "
s t ra te g i s t . Al s o we h ave in di c a te d two ma j o r typ e s o f tas k s fo r

th e p l ann e r . H e may cont r ibu te mo re o r le s s e f f e c t ive l y towa rds th e

ful f i l lme n t o f a b e tt e r fun c ti on in g o f th e p l ann i n g p ro ce s s . Al s o , he

may b e mo re o r l e s s e f f e c t ive i n enhan c in g s oun d , s ub s tan t iv e s t ra te g i c

de c i s ions . As we have ar g ue d , th e co rp o ra t e p l ann e r mi gh t f in d h ims e l f

in a t rade o f f p o s i t io n i f h e tr i e s to do an e f f e c t iv e j ob al on g bo th

"
dime n s i on s . I t i s no t e as y to we ar two h a ts in a s a ti s f a c to ry mann e r .

Thus , we a l s o a r g ue d th a t th e p r i ma ry tas k doma in to b e p r io ri t i z e d by

th e co rp o ra te p l ann e r s hou l d b e p ro c e s s e f f e c tivene s s . He nc e , th e mo s t

 7- 3 4

ap p rop ri a te a s we l l as no rma l l y th e mo s t s a fe ro le p ro fi l e fo r h im

woul d b e to ac t as a "
c ata l y s t . O n ly rare ly wi l l h e su c ce e d i n mai n

ta in in g hi s p ro ce s s invo lvemen t e f fe c t ive ne s s wh i l e a t temp tin g to in c re as e

hi s ro le in s ub s tan tive s t ra te g i c de c i s ion - mak in g . The co rp o

rate l eve l p l ann in g as s i s tan ts , on th e o th e r h an d , s ho ul d b e e x p e c te d to

provi din g a dvi c e an d

"
emp has i z e th e ro l e o f s tra te g i s t , re comme nda t ions

on s trate g i c de ci s ion s th a t are to be tak en . Thus , we s e e th a t wh en i t

come s to th e ro le s o f th e co rp o ra t e p l ann e r s at the co rp o r a te l eve l th e r e

s e ems to be a di cho tomy b e twe en p ro ce s s an d s ub s tan ce , an d i t may i n

fa c t b e un r e a l i s t i c to a t temp t to comb ine th e two ro l e s . E x h ib i t 7- l '

s

co nt inuous tr ade - o f f p i c tu re may , th e r e fo re , no t b e re a l i s ti c . To mak e

ou r sum mary comp le te , l e t us f in a l ly s t re s s a g a in tha t p l ann e r s a t l owe r

leve l s in th e o rg an i z a t ions wi l l be p r im a r i ly co n ce rn e d wi th s ub s tan t ive

i s s ue s , an d wi l l con s e quen tly no t f a c e a s imi l a r ro l e t radeo f f di l emma

as i s the c as e a t th e co rp o ra te l eve l .

Le t u s now tu r n to a b ri e f di s c us s ion o f th e ro l e o f th e bo a rd o f

di re cto rs in th e p l ann in g p ro c e s s , as s umi n g in th e ensu in g th a t th e

bo ar d i s comp o s e d p r im ar i ly O f ou ts i de di re c to rs . (Th e ins i de di re c to rs

wi l l p re sum ab l y p lay the ro l e s l ai d ou t fo r th e C E O

. . . an d th e s en io r

l in e o f fi c e rs a l re ady di s cus s e d in s e c t i on s th re e an d fou r o f th i s

ch ap te r ) . We s e e two di s t in c t ro l e s fo r th e bo ard . O ne mi gh t b e on

in f luen cin g ce rt ain ty p e s o f s tr ate g i c de c i s ions , by f a c i l i ta t in g th e

re co gn i tion o f co rp o ra te - l eve l ne e ds fo r ch an g in g th e p o r t f o l i o - di re c t ion

due to fin an c i al p re s su re s as we l l as , ab ove al l , due to s t ru c tu r al

p re s su re s . In fu l f i l l in g th i s ro l e th e bo a rd me m b e rs ty p i c a l ly wo ul d b e

b en e f i tin g f rom s ome un de rs tan din g of how th e ru dime n ts o f th e s tra te g i c

 7- 36

a c ce p tab i l i ty of even ts th a t are tak en ou t O f th e i r s t r a te g i c con te x t

mi gh t m o re e a s i l y l e ad to b i as e d j ud gmen ts . T hus , th e bo a rd ne e ds to

unde rs tan d th e rudi m en ts of th e ove ra l l s t r a te g i c di re c t ion i n o rde r

to be t te r b e ab l e to ca rry ou t i ts ro l e when i t come s to s o c i al a c coun t

ab i l i t y .

A s e cond us e fu l are a o f con tr ib ut i on fo r th e bo a r d me m b e rs mi g h t b e

in p rovi din g th e comp any a c ce s s to in fo rma t i on abo u t a wide r s e t O f Op

p or tu ni t i es . Th i s mi g h t b e p a r ti cul ar l y va lu ab l e when fi l l i n g th e co r

p o r at e l eve l p l ann in g g ap . He r e , op po rtun i ti e s fo r a c qu i s i t io n s and/or

di ve s ti tu re s in pa r ti cul a r mi gh t b e brou g h t up by memb e rs o f th e bo ard .

Th e re i s ano th e r im po r tan t fun c t ion to b e p l aye d fo r th e bo a r d wh en

i t come s to p lann in g , name l y th e one o f ove r look in g th a t th e p r o fe s

s io n al i sm o f s tr ate g i c de c i s ion - mak in g i s b e in g ma in ta i ne d in th e co r

po r at i on . As s u ch , bo a r d memb e rs mi g h t fo r in s tan ce as k th ems e l ve s

whe th e r i ts man ag emen t in f a ct mana g e s s t ra te g i c al ly an d po s s e s s e s a

s u f fi c i en t s ens e o f s t riv e fo r ex ce l l e n c e . S u ch p rob i n g b y th e bo a rd

shoul d h e l p ke e p a l ive th e i s su e o f wh e th e r th e as p i ra tion s o f th e s eni or

manag emen t fo r th e comp any ar e s a ti s f a c to ry . I t i s above a l l w i th in th e

con tex t of th e p rob in g in to th e f i rm s p l ann in g a c t ivi ti e s

'
an d th e r e

vi ew of th e p l an s tha t th e bo ar d typ i ca l l y wi l l have i ts p r ima ry c han c e

of addi n g a mo re l on g te rm v i ew to s eni o r
- m ana g emen t s a s p i ra tion s
'
.

I t fo l l ows f rom th e ab ov e tha t i t wi l l b e de s i r ab l e th a t bo a r d mem

b e r s no rm a l l y shoul d have a min imum de g r e e o f un de r s tan din g of h ow th e

p lann in g s y s tem fun c t ion s in o rde r to b e ab l e to p e r fo rm th e ta s ks di s

cus s ed . O ne app roach tha t wa s tak e n to th i s b y on e comp an y , wi th s a l e s

o f thr e e b i l l ion do ll a r s an d a c tive wi th in th e h i g h te chn o l o g y bus in e s s ,

was to hol d a wo rk sho p wi th th e boar d an d s en io r man a g emen t in a t tendan c e

to di s c us s th e s truc tur e an d the fun c tion in g o f th e p l ann in g s y s tem .

 7-3 7

Th e bo a r d memb e r s fe l t tha t wi thou t s uc h a ba ck g roun d un de r s tan din g o f

how th e s tr a te g i c p r o ce s s e s wo rk i t was b e comi n g ne x t to impo s s ib l e fo r

th em to p ro vi de a po s i tive c on tr ibu tio n to th e s tra te g i c di r e c ti on

s e ttin g .

7- 7 . Th e Ro l e of O ut s i de C on s u l tan ts
No t un e x p e c te dl y , th e a r e a o f s tra te g i c p l ann in g and ana ly s i s h as

b e come a th r ivin g f i e ld o f mana g eme n t con s u l ti n g . I n our op in io n th e r e

i s qui te a s p an o f po te n ti a l ro l e s fo r c on s ul tan ts to p l ay in th i s a re a .

C on fus i on ab ou t th e s e ro l e s mi g h t b e dy s fun c tio na l . Le t us th e r e fo r e

de l i n e a te a t l e a s t th re e di s tin c t i ve ar e a s o f c on s u l tin g ta s ks th a t

4
s hou l d c a l l fo r di f fe r en t mo d e s o f invo lveme n t by th e ou ts i de con s ul tan t .

F i rs t , we mi g h t have th e ta s k o f c a r ry in g ou t an a s s e s sme n t o f o n e s '

'
s tra te g i c s tr a te g ic s e ttin g in o rde r to upda te on e s ne ed s fo r p lann in g

e i ther a t th e bu s ine s s l eve l , th e c o rpo r a te l eve l , o r a t bo th . We re c a l l

th a t s uch a s s e s smen ts t y p i ca l ly wil l no t b e c a r r i e d o u t eve ry y e ar , an d

th a t th ey o f ten r e qu i r e th e f ami l i ar i ty wi th s p e c i al i z ed an a lyt i ca l

te c hn i que s ( a s s e en in C hap te r T h r e e ) . An a l o g o us to a "

me di c a l ch e c k

"
up s uch an ana l y s i s , i f c omin g up wi th p ro b l ems , mi gh t f re que n tl y tou ch

upon i s sue s tha t wo ul d b e h i g hl y s en s i ti ve to th e man a g eme n t invo lve d .

Al l th e s e con s i de ra t ion s shoul d s u g g e s t tha t i t mi g h t b e b ene f i c i al to

mak e us e o f o uts i de c on s ul tan t s to e nsur e an ob j e c t ive app roa ch wh en

c ar ry in g out th e s tra te g i c a s s e s smen t ana ly s i s . I t wi l l O f co ur s e b e

ne c e s s a ry f o r th e c on s u l tan ts to e s t ab l i s h c lo s e co op e r a tion wi th th e

f i rm s '
ow n mana g eme n t in s u ch ins tan c e s , in o rde r to en sur e a r e a l i s t i c

inpu t o f comp any - S p e c i f i c ba c k g ro un d in f o rma ti on .

A s e con d a re a wh e r e o u t s i de con s ul tan ts mi g h t p l ay a u s e ful ro l e

woul d be wh en i t c ome s to ca r ry in g ou t s p e c i f i c , one - s ho t , an a l y s e s o f

 7- 3 8

s ubs t an tive s t ra te g i c cho i c e s . He re th e con s ul tan ts wo ul d wo rk i n a

cap ac i ty s imi l ar to th e s ta f f a s s i s tan ts fo r ana ly s i s an d r e

commenda ti on of sub s tan tive s tra te g i c i s sue s . H e wi l l in fa c t b e in a

wo rk in g cap a c i ty qu i te s imi l ar to th e s tra te g i c s ub s tan c e o r i e n te d co rp o

ra te or di vi s ion l eve l p lanne r .

Wh e n i t come s to b rin g in g i n ou tsi de c on s u l tin g a s s i s tan c e to

fa c i l i ta te imp rovemen ts in th e fun c t i on in g o f th e s tra te g i c p lannin g s y s

'
tem ,
howeve r , o ur po s i tion i s tha t cons u l tan ts ro le typ i ca l ly mi g h t b e

mo re l imi te d . In o rde r to b e us e fu l in s uch in s tan c e s a c ar e fu l ro l e

an d ta sk de l ine a t ion s hou l d b e un de r tak e n . Th e on ly wa y to o p e r a tiona l i z e

th e imp l eme n ta tion o f a p l ann in g p ro ce s s wi thin a comp any imp l i e s th a t

th i s s trate g i c wa y o f th inki n g mus t b e ado p te d by th e l ine mana g eme n t .

Thus , we a re de a l in g w i th th e ta s k p r ima r i l y o f ch an g in g a s ty le , or a

p ro ce s s no t a tas k o f s e rc h in g fo r s ome s p e c i f i c s o lu ti on to a p rob l em

,
a ,

as we had in th e two p r ev io us s i tua t ion s . Fo r s uch a ch an g e to d eve l op

th e r e s e ems to b e no way a roun d imp re s s in g on th e l in e tha t i t mu s t h e lp

i ts e l f thro u g h l e arn in g b y tr i al an d e rro r . Thu s , th e r e wi l l b e no s ho r t

cut or sub s ti tu te to havin g th e l in e , in c l udin g s en i o r mana g eme n t , to b e

"
in tima te ly invo l ved in th e e s tab l i s hin g o f th e p l ann in g cu l tur e th em

s e lve s . A cons ul tan t mi g h t howe ve r p l a y a u s e fu l ro l e as a f a c i l i ta to r

of th i s he lp to s e l f h e l p —
ap p ro ac h . S p e c i f i ca l l y , he c an b e o f as s i s

tan ce in s ug g e s tin g th e de s i gn o f as p e c ts o f th e p ro c e s s , k e e p in g in mi nd

" "
however th e c ave a t tha t th e de s i gn o f th e sy s tem shou l d b e do ne un de r

the aus p i ce s of th e C E O
. . . an d th e l in e . I s sue s tha t mi g h t f al l in to th i s

ca te g o ry mi gh t b e re la t in g to th e p r e par a ti on o f p l ann in g in s t ru c t io n s

( O f ten l ab e ll e d th e p lann in g manua l ) , th e e s tab l i s hme n t o f a p l ann in g

ca l en da r , as we l l a s de l i ne a ti on of how to mo di f y th e bud g e tin g , mon i

to rin g , an d in c en tive s y s tems in o rde r to be come c on s i s ten t wi th th e

 7- 40

I t i s hard to j u s t i fy th e co s ts o f deve l op in g a p l ann i n g sy s t em un l e s s

th e C E O
. . . in tends to mak e u s e o f the s y s t em fo r s ub s t an ti ve de c i s ion

mak in g di re c tl y a s we l l a s fo r in f l ue n c in g s t r a te g i c di re c tion throu g h

evo l vi n g th e s y s tem . S e con dl y , th e lin e p l ay s a ke y ro l e in th e deve l

'
O p m en t o f p l an s . Th e p lann in g do cume n ts s houl d re p re s en t th e l in e s

vi ews o f th e i r s tr ate g i c p os i tio ns an d tas ks , an d a s s u ch s hou l d b e

deve lop e d by the l in e i ts e l f . Wh i l e a c o rpo ra t e p l ann e r s hou l d b e r e

s po n s ib l e fo r th e mana g eme n t o f th e s tr ate g i c p l ann in g p ro c e s s , h e s ho ul d

l e ave i t to th e l in e to ge t invo lve d i n th e sub s t an t ive s tr a te g i c de c i s ion

mak in g . I f no t , h i s e f f e c t ive ne s s a s cus to di an o f th e s tra te g i c p l ann in g

sy s t em i s l ik e ly to dimin i sh rap i dl y . Howeve r , wh i l e th e sub s tan tive

p lann ing i s s ue s a t th e co rp o r a te l eve l thus s hou l d b e de a l t wi th b y th e

C E O
. . . an d h i s te am o f top man ag emen t a dv i s o rs , p l ann e r s a t th e div i

s i ona l l eve l s ho u l d b e s e en as a s s i s tan t to he d ivi s io n man a g e r on

an
p
sub s tan t ive ma t te rs .

'
Th e bo a rd o f di r e c to r s ro l e in p l ann in g wa s s e en a s one o f a tt emp ti n g

to un de r s tan d th e p l ann in g p ro ce s s e no u gh t s o th a t th ey mi gh t b e i n a

"
b e tte r po s i t i on to s i gn o f f the f i rm s s tr a te g i c di re c ti on in
'
on , c on

tr as t to a mo re o r l e s s commo n "
rubb e rs tamp in g "
o f c ap i ta l e x p end i tur e

p ro j e c ts an d th e annua l bud g e t . Al s o , th e bo ar d mi g h t p l ay a ro l e in

fa ci l i ta tin g th e ne c e s s ary de g r e e o f p ro f e s s ion a l i sm i n s tr a te g i c m an

ag em e n t . O ut s i de cons ul tan ts '

ro le s we re s e e n as p o ten ti a l ly us e ful i n

ca rry in g ou t s tra te g i c po s i ti on audi ts a s we l l as in do in g s p e c i f i c

s tra t e g i c i s s ue sub s tan c e an a ly s e s . Howeve r , th e ou ts i de con s u l tan t s '

ro l e wa s s e en as m o re l imi te d in di re c tl y ca rry in g o ut th e p l ann in g p ro

c e s s i ts e l f .

Re tu rn in g to th e ro l e of th e co rp o ra te p l anne r , i t wa s s tr e s s ed tha t

h i s ro l e mi gh t b e ex p e c ted to in c re as e i n impo r tan c e w i th th e g row in g

 7-4l

re co gn i t ion i s imp or tan t fo r two re as ons : p ar t l y be c aus e th e p l ann in g

s y s t em ne e ds to b e s e e n a s pa r t o f a b roa de r s e t o f sy s tems , p r e s en t in g

a mo re cha l l en g in g mana g i n g ta s k ; an d p ar t ly b e c aus e o f th e impo r tan c e

o f man a g in g and man ip ul a t in g th e s tr a teg i c s y s tem as an indi re c t way

fo r a ch i evin g s tr at e g i c ch an g e .
Cha p te r S eve n Foo tno te s

1 .
See Mo rrow , A .
,
D . B ow e rs , and S . S e a s ho r e , . e di t or s l Man a gemen t and

P ar ti c i pa tion ,
Ha rp e r R ow ,
New Y o rk , 1 96 7 , Be c ka r d , R . D .
, O r gan i z a
ti on D evel o pment : S tra te gie s and Mod e l s , Add i s on — We s l ey , R e ad in g ,

1 969 , and B e nn is ,
W . G .
, O r gan i z a ti onal D ev e l O pm e n t : I t s Na tur e ,

O r i gin s ,
and P ro s pe c t s , Add i son — We s l ey , 1 9 6 9 .

2 . S e e Tannenb aum , R . and F . Mas s a r i k , Le ad e r s h i p an d O r gan i z a t ion ,

M cG r aw- H i l l , New Yo rk , 1 96 1 , F ie dl e r , F r ed E .
, A Th eo r y of Le ade rsh i p

Ef f e c tivene s s , M c G r aw — H il l , New Yo rk , 1 9 66 , and Ne u s ch e l , R ob e r t F .

,

Co rpora te S tra te gy : Th e C E O
. . . a s Kin g p in M c Ki n s ey Qua r t e rl y ,

S umme r , 1 97 7 .

3 . S e e S ch e in , E . H .
, P ro c e s s Con sul ta t ion : I ts Ro l e in O r gan i z a ti on
D evel o pmen t , Addi son We s l ey -
, 1 9 69 , S te ine r , Ge o r g e A .
,
"
Ri s e of th e

Co r po ra te P l ann e r
"
, Ha rva rd Bu s in e s s R evi ew , Sept .
- Oc t .
, 1 9 70, and

Ac k e rman x e c ut ive
"
, R ob e r t W Ro l e of th e Co rp o ra te P lann in g E in

Lo ran ge , P e te r and R i c ha rd F . V anc i l , S tr a te gic P lann in g S y s tems ,

P r en ti c e — Ha l l ,
En gl ewo o d C l i f f s , 1 97 7 .

4 . S e e S ch e in , E . H . , P ro c e s s Con s ul t a ti on : I ts Ro le in O r gan i za ti on
D e s i gn , Add i so n We s l ey , 1 96 9
—
, and Ko l b , D av i d A . an d Al a n L . F rohman ,

R ev i ew , Fal l , 1 96 8 .
8- 2 . A R a tional e fo r C o gp o r a t e P l ann in g
The re s hou l d b e a numb e r of impo r tan t b ene f i ts to a co rp o ra t ion from

in s ti tutin g a s tra te g i c p l ann in g ap p ro a ch . Th e r e a l te s t a s to wh e the r

p l ann in g i s wo rth i ts e f for ts , of cou r s e , wi l l be wh e the r p lann in g wi l l

' "
con tribu te to th e imp rovemen t and s tab i l i z a t ion o f th e f i rm s b o t tom l in e

re su l ts o ve r an e x tende d p e r io d of t ime . It i s fo r a l l p r a c ti ca l purp o s e s

impo s s ib l e to me a su re the be ne f i ts o f p l ann in g in su ch a di r e c t wa y , an d

we have no t even a tt emp ted to come up wi th a di r e c t b e ne f i t s / c o s t me a su re

in thi s b oo k .

On e mi gh t in s te ad att emp t to dev e lo p an indi r e c t me as ur e o f th e ben

ef its from p l ann in g , p a rtl y b y s p e c i f y in g wha t mi g h t be a s e t o f us e ful

outputs from th e pro c e s s on s ub s tan tive s tra te g i c de c i s ion — mak in g , an d

p a r tl y by indi c a tin g wha t woul d b e th e na tu re o f (hop e ful ly ) p o s i t ive

'
chan g e s i n th e f i rm s man a g e r i a l de c i s ion - mak in g p ro ce s s f rom ado p t in g

p l ann in g as a to o l . A l tho ug h we have no t a ttemp te d to deve lop su ch an in

di re c t b en e f i ts analy s i s e i th e r , we s ha l l b r i e f l y l i s t wh a t we f e e l mi gh t

be a k ey l is t o f b ene f i t fa c to rs f or imp rove d sub s tan tiv e s tra te g i c de

c i s i o ns a s we l l as fo r an imp rove d s tr a te g i c de c i s ion - mak in g p ro c e s s .

I n te rms O f po s i tive imp a c t on s tra te g i c de c i s ion - ta kin g th e p l an

nin g app roa ch shoul d p rovi de a b e tt e r s e ns e o f s tra te g i c di re c t io n o f

an o rg an i z a tion , no t on ly in te rms of mo r e s t ra te g i c a l l y f o c us s e d de

c i s i on s a t th e bu s in e s s l eve l s tem min g f rom a be tt e r un de rs tan din g of

the bus ine s s e s , bu t a l s o in te rms o f p rov i din g a co rpo ra te po r t fo l i o

c on te x t a l lowin g for a mo r e di r e c te d al l o c a tion o f s tra te g i c re s our ce s

in o rde r to a c tiv e l y in f luen c e th e l on g — te rm ove ra l l di re c tion an d s tr u c

ture of the f i rm . In addi tion to deve l op in g a be tte r s e n s e of di r e c tion

wi th in th e compan y p l ann in g wi l l a l s o ty p i ca l l y p rovi de an ea rl y s en s i

t i v i ty of prob l em a re a s . Th e s tr a te g i c de c i s ion s tha t thu s a re b e in g

tak e n s hou ld no t on ly b e mo r e s tr a te g i ca l ly fo cu s s e d i n g ene r a l , bu t a ls o

le nd thems e lve s to tr an s l a ti on in to r e s our c e s ne e de d , tas k s imp l i ed and

by whom , me as ur e s o f p r og re s s , a s we l l a s t ime - s p e c i f i c s ch edu l e s o f p ro g

re s s .

'
I n te rms o f po s i tive imp a c ts on a f i rm s de c i s i on - mak in g p ro c e s s , in

g en e ra l , we s ha l l indi c a te four , a l tho u g h the r e c e r ta in l y wi l l b e s eve r al

o th e rs . F irs t , th e pr o c e s s mi g h t s i g n i f i can tl y a s s i s t a t ar r iv in g a t a

p ro pe r s tra te g y . Th i s i s o f cour s e exc e e d in g ly impo r tan t in tha t tho s e

" "
o l d s a l ts te nd to b e v e ry f ew who a r e ab l e to d eve l o p s up e rb s tra te g i e s a s

a na tur a l , in fo rma l an d h i g hl y p e r so na l i z e d p ro c e s s . S e condl y , a b en e f i t

sho ul d b e th a t mo r e exp l i c i tl y un de r s to o d s tra te g i c di r e c ti on fo r th e

company i s l ik e l y to eme r g e . T hi rdly , a p l an n in g a pp ro a c h mi g h t p rov ide

th e di s c ip l in e fo r p e r io d i c s tr a te g i c r evi ew a c t ion s to ame l io ra te po

t en t i a l s t ra te g i c p rob l ems typ i ca l ly do no t ea s ily ge t in i ti a te d , in

con tra s t to f i r e f i g h tin g "

a c t i on s to ta ckl e da y - to — da y p rob l ems . F ina l l y ,

a p l ann in g p ro c e s s s houl d p rovi de a b a s i s for a mo r e e x p l i c i t "

di vi s ion

o f l ab o r "
amon g mana g emen t a t va r io us or g an i z a t iona l le ve l s , th e r eby a l so

p rovi di n g a ba s i s f or a g r e a te r de c en tra l i z a ti on o f op e r a tin g de c i s ion s .

Th e be ne f i ts f rom p l ann in g l i s te d in th e two p r e c e e din g p a r a g rap h s

shou l d b e r e l a tive ly p l aus ib l e to a c ce p t a t th i s s ta g e . We have s e en ,

thro ug ho u t th e boo k , how th e s e an d o th e r b e ne fi ts ar e l ik e ly to eme r g e

from p l ann in g . We have howe ve r no t a t temp t e d to come up wi th s ome e x

p li c i t b ene fi t me a sur e s in th i s ins tan c e e i th e r . G iven th e va s t dive r s i ty

o f co rpo ra te s e t t in g s an d s ty l e s we f e e l tha t i t wou ld b e di f f i cu l t a t

be s t , an d p rob ab l y q ui te us e l e s s to a tt emp t to me as ur e th e e f f e c t iven e s s

"
o f p l ann in g th i s way . I n s tea d , a t t emp tin g to de ve l o p a p roo f fo r why

p l a nn i n g i s g o od , we h av e in s te ad as s um e d tha t thi s i s s o in th i s boo k .

B a s e d on th e p r emi s e tha t p l ann in g ma k e s s e ns e i n g en e ra l , we h ave in s te ad

advo ca te d an a p p ro a ch to p l ann in g wh i ch s ta te s th a t th e ma x imum b en e f i t

a g iven fi rm mi g h t get from p l ann in g de p e nds on how we l l th e p l annin g

s y s te m s cap ab i l i t ie s wil l ma tch thi s comp any s p ar t i cu l a r ne e ds fo r

' '

p l annin g . T hus , ou r p o s i ti on i s th a t to me as ur e th e e f f e c t iven e s s o f

p l ann in g in an ab s o l ute s e ns e ha s re l a tive l y l i ttl e me an in g , g ive n tha t

some comp an i e s wi l l b e in b e tt e r po s i tion s th an o th e rs whe n i t come s to

a ch i evin g s uch bene f i ts . Ra the r , we have ar gu e d , a mo re me an in g fu l me a

sure of p l ann in g e f fe c t iven e s s wou ld b e to as s e s s how w e l l a g iven f i rm

i s do in g in me e tin g ipg p ar t i c ul ar po ten ti a l s , i . e . how we l l i t i s ab l e

to mat ch i ts p l ann in g c ap ab i l i ti e s wi th i t s p l ann in g n e e ds .

B o th o f th e con ce p ts o f n e e ds fo r p lann in g a s we l l a s p l ann in g cap a

b ilities we re op e rat ional i z e d b y me an s of me as ur in g a dap tat ion an d in te

gr at i o n . A dap tat ion , a s we re c al l , re fe r s to the i de n t i f i c ation an d

'
pur suan c e of op po r tun i ti e s an d/o r thr e a ts in th e f i rm s env i ronmen t . Ih

t eg r at i o n , on th e o th e r h an d , re fe r s to th e purs uan c e of th e lon g te rm -

in te rn al , on g o in g a c t iv i ty p at te rn s o f th e f i rm in s u ch a way th a t i h

te rna l s tr en g ths ar e be i n g tak en a dvan ta g e o f an d deve l op e d wh i l e in

te rnal we akne s s e s a re b e ing ame l io rate d . Th e n e e ds fo r p l ann in g , bo th

adap tive a s we l l a s in te g ra tiv e , s t em f rom th e p ar ti cul a r s tra te g i c s e ttin g

of th e fi rm , as we have s e en . Th e adap tive an d in t e g r a tive cap ab i l i ti e s

to me e t th e s e ne eds dep e nd on th e pa r ti cu l a r de s i gn an d s t ru c tu re bui l t

in to th e p l ann in g s y s t em . A ma j o r p urp o s e o f th i s bo ok , th en , h as b e en

to come up wi th an O p e r at iona l ap p roa ch to how to de te rmin e an o r g ani z a

'
tion s nee ds fo r p l ann in g , as we l l as fo r how to de s i gn a p l ann in g sy s tem

in s uch a way th a t i ts cap ab i l i ti e s b e come as re l evan t as po s s ib l e . A

s e cond ma j o r p urpo s e of th i s book has be e n to deve lo p the ar g ume n t for

th e n ec e s s i ty to m ain ta in a p lan n i n g s y s t em i . e . to man ag e i ts evo lu tio n

s trate g y c an be re a ch e d .

At th e divi s ion l eve l th e s t ra te g i c emph a s i s wi l l be on su c ce e din g

comp e ti t ive ly wi th i n a pa r t i c ul ar bu s in e s s . Th e ke y s t ra te g i c i s sue h e re

too is re s our ce a l lo c ation , bu t th e fo cus o f s tr ate g i c cho i ce s wi l l b e

fundamen tal ly di f fe ren t ; in wh a t as p e c ts o f th e bus i ne s s s hal l we inve s t

in th e c rea tio n of comp e ti tive s tren g th , s ay bu i l din g ma rk e t s h are ? A

s uc ce s s fu l comp an y canno t be invo lve d i n eve ry th in g ; s tr a te g i c mana g eme n t

imp l ie s mak in g s tr ate g i c cho i c e s an d a s h a rp en e d s t rate g i c fo cus .

Th e th i rd leve l o f s t rate gy invo lve s th e fun c t ion a l dep a rtme n ts . Th e

tas k he re i s to deve lop s tra t e g i c p ro g r ams fo r i m p lemen t in g a p a r t i cul ar

bus in e s s s trate g y . Th e s e s t r ate g i c p ro g rams wi l l typ i c a l ly b e i nt e r fu n c

t i o na l . Thi s l eve l o f s tra te g i z in g , thus , di f fe rs f rom th e o th e r two

l eve l s in a t l e a s t thr e e impo rt an t re s p e c ts . F irs t , s t ra te g i z in g a t the

co rp o ra te an d di vi s ion l ev e l s imp l i e s a ge n e r a l man ag emen t p o in t o f vi ew ,

bu t s p e c i al i z e d , fun c t iona l vi ewp o in ts a re th e b as e s fo r s t r ate g i c p ro

g rammi n g , b rou gh t to g e th e r un de r th e aus p i ce s o f a bus in e s s s t r a te g y

"
um b re l l a . S e condl y , al th ou gh th e tas ks o f po rt fo li o an d bus in e s s s tra

t eg i zi n g a re p e rmanen t , a fun ct iona l s t rat e g i c p ro g ram wi l l b e mu ch mo re

temp o ra ry i n na ture . T h i r dl y , th i s s t rat e g i c p ro g rammi n g wi l l h ave a key

"
ro le in de te rmin in g how to i mp l emen t a s tra te g i c di re c ti on s e t at h i g h e r

leve l s , bu t wi l l no t b e fun dame n ta l ly con ce rn ed wi th "

whe re "
to go .

Th e th i rd e l emen t of th e con cep tua l s ch eme i s th e no tio n o f a be hav

i o r al p ro ce s s , w i th emphas i s on l e arn in g an d in fo rma tion - h an dl i n g . T hus ,

th e s ch eme acknowl e d g e s th e ne c e s s i ty to b r in g a re l a t ive l y l ar g e num b e r

of man a g e rs in to th e p l annin g p ro ce s s , to s ha re re s pon s ib i l i ty fo r an d

commi tmen t to a p a rti cu l ar di r e c tion fo r th e fi rm . I n o rde r to a ch i eve

th i s th e s y s t em mus t p rov ide an O p p o rt un i ty fo r e a ch r e l evan t man a g e r to

s e t fo rth h i s ar g um e nts an d fo r an o rde rl y p a tte rn of in te r a c t ion . G ive n

th e o ften h e avy ne e d fo r cons i de r ab l e i te r at ions i t i s c r i ti ca l tha t the

p l ann in g s y s t em p rov i de an e f f e c tive commun i c a tion pa t te rn amon g man a g e rs .

I t i s a l s o c ri ti c al tha t th e s y s tem al lows fo r th e a c cumu l a ti on o f us e ful

man ag e ri a l e x p e r i en c e amon g i ts p ar t i c ip an ts . I t i s no t a t ri vi a l tas k

to de ve lop an d ma in ta in a g oo d s t ra te g i c po s tu re ; on ly th rou gh l e a rn in g

and imp roveme n ts ove r t ime c an th i s b e don e .

"
f ive b y th r e e " ‘

Th e co mm u n i c a t i o n fr am e w o r k fo r s t rate g i c p l ann in g

shou l d p rovi de th e b as i s to pur sue p lann in g . G i vin g an ove ra l l l o g i c a l

cons i s te n t fo cu s i t p e rmi t s th e va r io us as p e c ts o f p l ann in g to b e ad

dre s s e d s e p a rate ly at di f fe ren t p o in ts i n t ime , wh i l e s ti l l enab l in g al l

o f i t to fi t in to an ove ra l l s t ra te g i c tru s t . H avin g thus de ve lo p e d a

"
s c e l e t on fo r a s t rat e g i c p l ann in g s y s t em th e ne x t ta s k i s to d i s cus s

how th i s s ch eme mi gh t b e imp l emen tab l e i n su ch a way th a t th e s y s tem mi g h t

r e s po n d to th e n e eds o f the f i rm tod ay .

8- 4 . R e s pondi n g to Tod ay s '

N e e ds
A l tho ugh th e re mi g h t b e an un fo rtuna te tenden cy amon g man a g eme n t to

cl a im th a t th e p ro b l ems o ne i s fa c in g to d ay are mo re comp l e x th an e ve r

an d tha t th e f u tu re i s mo re un c e rt ain th an eve r , th e re i s s t i l l a t ruth

in th e fa c t th a t a few bas i c e nvi ronmen ta l sh i f t s s e em to h ave tak en p l a ce .

l9 7o
'
The g rowth fo reve r s yn d r ome o f th e de c ade s u p un t i l th e e a r ly s

ce rt a in l y s e ems to b e g on e . Th e cu lmi n at ion o f th i s po in t mi gh t h ave b e en

l ab e l l e d g rowth w i th ou t p ro f i t s .
"
S imi l ar l y , e ne r gy s ho r ta g e s may in

f l i ct mo re s t ru c tu ra l ch an g e s on th e bu s i n e s s envi ro nme nt th an w e h ave

y e t s e en . C e rt ai n l y , th e n e e d to k e e p up wi th an d re s po nd to th e envi ron

men t s e ems to h ave in c re as e d . S imi l arl y , comp e ti t ive p re s s u re s s e em to

b e as s tron g as eve r in c a l l in g fo r e f f i ci en t m o de s o f o p e ra t io n to day

mo re th an e ve r th e re s e ems to b e a s u rvi va l of th e f i t t e s t . As a c on

s eq ue n ce , tod ay s p l ann in g cha l l en g e shou l d b e s e e n in a du a l p e r s p e c tive

'
I t s houl d en ab l e th e comp any to adap t be tte r to envi ronme n ta l O pp o r tun i t i e s

an d/o r th re ats . Also , howe ve r , i t shou l d fa ci l i ta te th e handl in g o f th e

in te g r ative ch al l e n g e s f a c in g th e fi rm . In a g i ven s i tu a t ion to s t rike

a p ro p e r b al an ce be twe en th e adap ta ti on and the in te g ra tion emph as i s o f

p l ann in g th u s b e come s c ri t i cal .

T he re a re s eve ra l i s s ue s wh i ch eme r g e wh i ch are impo rt an t i n in

f lu e n c i ng th e a d ap t i ve / i n t e g r a t i ve p l ann in g cap ab i l i t y b a l an ce v i ewpo in t ;

we s ha l l p o in t ou t f ive e x amp l e s o f s u ch i s s ue s th at we s e e a s p ar t i c

u l ar l y p e rtinen t to to da y s s e ttin g '

.

F i rs t , th e re i s a ne e d to emph as i z e an ap p rop r i ate to p - down p a rt i c i

p a t i on b y s enio r man a g eme n t in

"
s ta rt in g o f f "
th e p l ann in g p ro ce s s s o

tha t a re al i s ti c p i c tu re c an eme rg e o f th e e x p e c ta tions fo r th e

fi rm an d h i s p re con ce p tion s as to how f ar and i n wh at di re c t ion th e f i rm

mi gh t go . S e condl y , th e re i s a ne e d fo r re s pons e s b y th e div i s ions to

th e in i ti ativ e by as s e s s in g th e na ture o f O p p o rtun i ti e s an d/ o r

th re a ts w i th in on e p ar t i c ul a r bus ine s s . Th i s wou ld invo lve an an a ly s i s

o f how to p re di c t an d re s p ond to a p art i cul a r e nvi ronmen ta l fa c to r to

whi ch a bus ine s s s tra te gy mi g h t b e ex po s e d . T h i rdl y , a co rp o rat e re vi ew

o f the bus ine s s O p po rtun i ty a s s e s smen ts s ho ul d b e ca r ri e d ou t w i thin th e

co n te x t o f a po rt fo l io s t ra te g i z in g tas k , i . e . , a revi ew o f al l div i s ions

in pu ts to an ove ra l l po rt fo l i o p a tt e rn as we l l as re s p on s e to an d in t e r

a c t ion wi th e a ch divi s ion con tin g e n t on th e o th e r in pu ts . Thus , a se

qu en t i al c o rpo r a te revi ew o f th e div i s ion s woul d no t b e s a ti s f a c to ry .

F ou r th , th e attemp t to fo rmul a te a s e t o f O b j e c t i ve s s ho ul d be ke p t i n a

de ci s ion o rien ted fo cus

—
, in th a t i t wi l l b e n e c e s s ary to ch oo s e wh i ch

bus ine s s e s to em ph as i z e re la tive to o th e rs . Th e ex p e c t e d e f f e c ts from

s uch s h i fts in emphas i s w i th in th e po r t fo l i o wi l l b e to c lo s e th e p l an n in g

g ap be twe en the in i ti al e x p e c ta tion s and th e e x p e c te d p e r fo rm an ce

 8- 10

ar t i cul ar di re c t ion towards a mo re ap p rop r i a t e ad ap t a t i o n/ i n t e g r a t i o n

p ,

bal an ce ,
as we l l as ou r ab i l i t y to S p e c i fy in Op e ra t iona l te rms th e na tu re

of th e p ar ti cula r ne e ds fo r p l an nin g .

8— 5 . Em e r gin g T re nd s an d Ch a l l e n g e s
Ab out th e p re s sure s f a ci n g th e fi rm du ri n g th e ye a rs to come we c an

of cours e only s p e cu l at e . Howeve r , i t s e ems re a s on ab l e to e x p e c t th a t

th e n e e d to b e ab l e to s t rate g i z e wi l l b e come even s t ron g e r dur in g th e

ye ar s to come . Thu s , a co rp o ra te p l ann in g s y s t em wi l l in c re a s in g ly be

come a too l fo r s en io r man a g emen t to in f l ue n c e th e s tr at e g i c di re c ti on

of the f i rm . In th i s re s p e c t th re e cons ide rat ion s s houl d b e made . Th e

fi rs t re in fo r ce s th e ne e d to ma na g e th e evo lu t ion o f a s t r a te g i c p lann in g

sy s tem in o rder fo r i t to r ema in s u f f i c i en tl y u p

- to - dat e to s tay e f fe c t ive ,

'
as wo ul d b e r e qu i red g iven th e p l ann in g s ys t em s ro l e as a c r i t i ca l s tra

t eg i c to o l . Th e s e con d de a l s w i th th e n e e d to man a g e th e p l ann in g s y s tem

to an ti c i pa te s tra te g i c sh i f ts tha t man ag eme n t wan ts to c a r ry ou t , i . e .

,

as a ve h i c le to f a c i l i ta te an d re in fo rc e s t ra te g i c ch an g e . The th i rd

de a l s wi th th e n ew an d imp o r tan t ro l e o f th e co rp o r ate p l ann e r a s a cu s

t o d i an man ag in g th e p l ann in g s y s tem in th i s con tex t .

Th e ne e d to man ag e th e evo lu ti on of th e p l ann in g sy s t em w i l l p rob ab ly

b e come i n c re as in g ly imp o r tan t du e to a comb in a tion o f two fo r ce s . F i rs t ,

a s t rate g i c p lann in g sy s tem wh i ch i s re as onab ly e f f e c t iv e in th e fi rs t

p l ace wi l l h ave an imp a c t on the a c tual s t r a te g i c cho i ce s an d de c i s i ons

th at are b e in g tak en . Th e s e s tr at e g i c de c i s ions wi l l i n tu rn ch an g e th e

s i tua tiona l s e tt i n g o f th e fi rm . Th i s , howe ve r , wi l l p rob ab l y imp l y ch an g e s

in th e ne e ds fo r p lann in g , i . e .
, a ne e d to r ev i s e th e p l ann in g s y s tem too .

Thus , th e s y s tem ne e ds to be up date d in o rde r no t to de s t ru c t i ts e l f .

E qu al l y imp o rtan t in th i s re s p e c t wi l l be th e re a l i z a ti o n th a t th e p l ann in g

 8 - 11

sy s tem no lon g e r c an b e s e e n a s a re la tive ly b ro ad -

g aug e d , c ru de to o l but

as an in c re as in g ly p r e c i s e , mu l ti f a ce te d ve h i c l e . Hen c e , the ne e d fo r a

mo re con tinuous up dat in g e f fo rt eme r g e s , wh e r e le s s f re qu e n t rev i s ions o f

th e p l ann ing s y s tem p revi ou s ly mi g h t have s u f fi ce d .

Th e is sue o f mak in g us e o f th e p l ann in g sy s t em as a veh i c l e fo r r e

in fo r c in g s tr a te g i c ch an g e s i s an impo r tan t o ne . I n c re as in g ly th e re s e ems

to b e a re al i z a t io n th at s t ra te g i c chan g e s e l dom o c cu rs as a con s e que n ce o f

"
di c ta te by s en io r man a g eme n t when i t come s to th e s ub s t an t ive a s p e c ts

o f a de c i s i on , b ut rath e r as a fun c tio n o f s en io r man a g eme n t s man ip ul a '

ti on o f th e admin i s tra t ive s y s t ems o f th e f i rm . P a r t i cu l a rl y , o r g an i z a

t i ona l ch an g e s h ave b e en u s e d by s en io r mana g eme n t as a veh i c l e fo r i h

du c i ng n ew s t ra te g i c di re c ti on . I ns t e ad o f us in g s uch a swe e p in g too l

ex c lu s ive ly , th e p lann in g s y s tem mi g h t eme r g e as ano th e r u s e ful ve h i c l e

fo r th e C E O. . . to s e t s tr a te g i c di re c t i on . P ar t i c u l a r ly imp o rtan t i s

th e op po r tun i ty th a t th i s o f fe r s to chan g e th e p l ann i n g s y s tem i n advan ce

to e n s u re mo re imme di a t e an d fo cus e d s t ra te g i c s h i f ts .

Th i s br in g s us to th e ro l e o f th e co rp o ra te p l ann e r . Th e co rp o r ate

p l ann e r sho ul d con tinue to fo cus on m ain ta i n in g th e s y s tem an d no t b e come

mo re invo lve d in th e s ub s t an ce o f s t ra t e g i c de ci s ion - mak in g . Howeve r ,

h i s tas k o f mana g i n g th e p l annin g s y s tem i s l ik e l y to b e come in c r e as in g l y

imp o rt an t . In o rde r to do an ade qu ate j o b on th i s h e wi l l ne e d to h ave

a go o d s ens e of th e s tra te g i c di re c ti on wh i ch s en io r mana g eme n t i s pur

s ui n g . Thus , th e co rp o ra t e p l ann e r mi g h t b e s e en as a memb e r o f th e

s en io r man ag emen t t e am , c lo s e to th e C E O
. . .

In summa ry , i t s e ems re as o nab le to p r e di c t th a t a s t ra te g i c p l annin g

s y s tem mi g h t b e come a di s ti n c ti ve comp e t i t iv e advan t ag e to tho s e comp ani e s

ab le to de ve lo p e f fe c t ive s y s t ems . Th i s , howeve r , wi l l re qu i r e an in

c re a s in g emph a s i s on k e e p in g th e s y s tem s evo lu ti on un de r c lo s e s c ru t in y

'
an d con tro l , a s we l l as ens ur in g th a t th e s y s tem s fo cu s i s con s i s t en t
'

wi th th e s trate g i c di re c ti on a cu a l ly comtemp l a te d by s enio r man ag eme n t .

8- 6 . S umma

We h ave pu t fo rwar d i n th i s boo k a di s cu s s ion o f s t ra te g i c p l ann in g

as a de c is ion - mak in g to o l wh i ch c an b e s u mma ri z e d from th re e an g l e s . F rom

"
a re tros p e c tive po in t o f vi ew th e b i ts an d p ieces o f e l emen ts o f p l an

n ing th a t have b e en in tro duc e d mi gh t be sum mar i z e d in to a un i f i e d con

c ep tu a l s ch eme wh i ch in te g rate s th r e e di s tin c t ive s t r ate g i c l e ve l s , f ive

di s t in ct ive s tag e s of tas k s , an d o ne in te r ac t ive a s we l l as i te r at ive

commun i c ation p ro ce s s . F rom a p e rs p e c tive p o in t of vi ew th e s y s t em c an

b e s e en as a ve hi cl e fo r re s pondin g to p a r t i cu l a r p l ann in g ne e ds tha t

have be en i den ti f i e d , no tab ly th e in c re a s e d ne ed to p a y at ten t ion to a

p rop e r a da p t at i o n/ i n t e g r a t i o n th a t c ommon l y fa ce to day s f i rms '

. F rom a

p ro s p e c tive po in t of vi ew we c an e x p e c t a p l ann in g s y s tem to b e c ome mo re

an d mo re th e c en tr al too l fo r fa ci l i ta tin g s t ra te g i c ch an g e .