Module Name - TAFE NSW€¦ · Web viewModule Name and Number Strategic Management 9791B Topic Name...

Strategic Management Online

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Module Name and Number

Strategic Management 9791B

Topic Name Organisational Context

Buttery 2001 - Chapter 1

Mintzberg & Quinn (1996) suggest that the traditional strategic planning approach incorrectly assumes that an organisation's strategy is always the result of rational planning and ignores the fact that strategies can emerge from an organisation which has no formal plan. Take for example the often quoted music legend Madonna - did she sit down and plan her success years out from achieving it? The answer, of course, is no, however for those of us old enough to remember, we certainly saw her implement a number of market savvy strategies designed specifically to keep her in market contention on the way to achieving her goal - stardum. They did of course and the rest is history. Mintzberg & Quinn (1996) therefore propose that we should consider strategy more as a viewable and evolving pattern stemming from a stream of actions in reaction to an environment and in accordance with goals. While this is an interesting debate and you may have some comments on it, let's agree that some planning is needed. There are several major reasons:

1. Planning can assist companies to understand their business better. This is the result of research studies through the decades. A study carried out by Ansoff (1965) between 1946 and 1965 found that companies that engaged in strategic planning were superior in terms of all financial and sales measures to those companies that did not plan. Besides performing better, they were able to predict outcomes better. The PIMS project (1974) also concluded that strategic planning pays off. Thune & House (1970) matched 18 pairs of medium and large organisations in various industries over seven years and found that planners generally performed better than non-planners, and on no measure of success did planners under-perform compared to non-planners. More recently, and in Australia, Williams (1986) studied small business and suggested that planners consistently outperformed non-planners irrespective of which criterion was applied. This included, for example, turnover, profitability, and employee satisfaction.

2. Business conditions change rapidly. Organisations need to envision the future long before it happens, and develop broad


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skills to take advantage of broad opportunities. Being able to innovate in time to take advantage of these new opportunities and reduce risk because the organisation is capable of anticipating the future, and in some cases, of shaping the future, is a further major reason for planning. It is because of uncertainty that planning is so important.

3. Related to the previous point is the issue of base line comparison. When environmental changes do occur and management must make a decision on how to respond to these changes, existing plans can act as a comparative base line against which alternative options can be evaluated. Managers are better able to determine whether there is benefit in changing plans by making a direct comparison of the outcomes forecast. Comparisons are made from various scenario options against the existing planned outcomes, assuming the existing plans are still a relevant option.

4. Strategic planning provides employees, business partners and other stakeholders with a clear idea where the firm is heading. Most people perform better when they know what is expected of them.

However, the strategic plan should never be considered as set in ‘cast iron’ for the entire planning period. In turbulent times, assumptions may prove wrong, forecasts do not materialise, and unforeseen opportunities and threats emerge. It would be a mistake to assume that the strategic plan should permit managers to become complacent. The strategic plan must never stop managers responding to emerging situations.

The development of an organisational culture that embraces flexibility, and is positively responsive to change can in some respects be seen as an unexpected or contradictory benefit derived from a planned approach to managing; ie, flexibility derived from a structured process.

A similar paradox also needs to be kept in mind as you undertake the various strategic management planning activities. This is that organisational managers heavily involved in managing day to day operations can often fail to recognise important changes that are occurring in their industry because of the focus on managing the 'now'. At the same time they may overreact to changes they are having to implement. They may see these as evidence of a highly chaotic or turbulent environment and see little value in undertaking future planning when in fact such changes are nothing more than normal changes that are factored into the longer-term industry trends. A number of writers suggest we tend to overstress the rate of change within our business environment when retrospective


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analysis shows we have actually been in a relatively stable environment.

These issues reinforce the points made above that strategic management provides framework for managing in all business environments.

Who Plans?

It is difficult to argue that the planning approach is likely to be successful where it doesn't have the full backing of decision-makers including external stakeholders, managers and their staff. Within this statement it is however recognised that different decision makers will have different roles and responsibilities within the strategic management processes. These include:

Board of Directors

The Board of Directors (where appropriate) is a group legally responsible to the shareholders. They direct the affairs of the company but do not manage them. They are responsible for the following duties:

Ensuring that there is continuity in management: hiring, firing and remuneration of managers including the CEO

Monitoring the process of defining the mission, setting objectives and formulating strategies and policies: being responsible for proper use of shareholders’ resources

Reviewing management's actions in the light of financial performance

Approving large financial and operational decisions within the company

Representing the company with other organisations

Maintaining, revising and enforcing the corporate charter under the Corporations Act - corporate governance

A typical board consists of a mix of directors from within the organisation and from outside. Both are required for the adequate functioning of the company. Insiders are needed to be able to pass on valuable information to the board. This information is necessary for the board to carry out the monitoring function. On the other hand outsiders are necessary to link the organisation to its external environment and to ensure that the interests of the shareholders are safeguarded. However, in recent Australian business history it is apparent that often boards don’t function quite as well as they


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should. Recent years have seen a change in the attitude of many board members due to the spate of legal action taken against board members by shareholders. Courts can hold board members personally liable for any negligence, if a director or a board fails to act with due care and as a result the company is harmed in some way. Mintzberg (1983) considered that boards also have a strategic role of decision making in relation to strategic change to help the organisation to adapt to turbulent environments. Potential conflict, however, is derived from the varying roles of a board. Larger, more diverse boards are able to dispense their governance obligations well, and it is argued also they have a role in relation to building links with the external environment.

Management

A second very important group in the strategic planning process is senior management. Not only are they important in underpinning the planning effort, they are credited also with having a direct effect on an organisation's performance through actions and statements (Zajac 1990). Senior managers are the chief operating officers who are charged with making decisions on behalf of the organisation in order to meet business goals and objectives. Senior managers can be both leaders and managers and are expected to perform in the following areas:

1. They are responsible for the future direction of the organisation in the short-, medium- and long-term, which reflects their planning responsibility.

2. They ensure that the organisation performs to deliver on plans and this represents their organising and controlling function.

3. They represent a high-level link with stakeholders, which makes them communicators and sometimes disturbance handlers.

In performing in these three important areas they are also required to be leaders and motivators, which necessitate them to have vision as well as a range of technical and social skills.

In Wrapp’s (1967) view, five characteristics are particularly important for strategic managers – to be:

1. Well informed

Good strategic managers must know about a wide-ranging set of decisions, including internal and external factors, and about assumptions that underpin their strategy. They must be able to select relevant information despite the information overload in some areas and the lack of information in others.


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2. Skilled at allocating their time and energy

Managers must know when to carry out the task themselves or when to delegate.

3. Good politicians

Good strategists appreciate that they are able to realise their goals sooner if they can build on consensus rather than by using their authority.

4. Experts at being imprecise

At times when change is ubiquitous, it pays to be imprecise. However this does not mean that the organisation should be without objectives, rather that objectives should be open-ended. This gives people room to manoeuvre and the flexibility to react to environmental changes. A prerequisite to being imprecise is that the organisation's stakeholders are well informed about the vision of the organisation.

5. Able to push through programs in a piecemeal fashion

Pushing the program through like this can reduce resistance to a strategic package. The programs will fall into place and appear to be co-incidental, although they are part of the hidden agenda.

This picture differs from that of the rational decision-maker, as strategists are often portrayed. The strategist, according to Wrapp (1967), is a skilled politician able to build consensus, and implement strategies, without major friction.

The ability to build consensus implies a consultation process with other stakeholders, such as employees, trade unions, customers, suppliers and banks who are also affected by the strategic process.

The question of aligning management and shareholder goals is dealt with next, followed by a consideration of how to determine stakeholder needs and power.

Organisational Theory

The purpose and objectives of the business are the driving force of the planning effort. Organisations typically base their operations on a theoretical model depending on the objectives they wish to pursue.


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Economist Theory

The economist theory suggests that organisations be in business to seek and maximise profit for the owners. The problem with the theory is twofold:

1. There is conflict between long- and short-term demand on resources – are we concerned with maximizing profitability in the short- or long-term for in many cases, implementing a longer term strategy demands more resource inputs and costs at the early stages.

2. There is a problem with the term maximization. Firms may not even be aware after they declare profits if they have maximized profit or not, and in any case, most managers according to Simon (1959) would be happy to make decisions that ‘satisfize’. Managers would according to Simon (1959) stop considering new ways of doing business, once they have found a route that would, in their opinion, achieve a satisfactory level of profit.

Stockholder Theory

Drucker (1958) broke the maximization tradition when he suggested that organisations pursue 'adequate profitability' as the central purpose of the organisation is not profitability but survival. Drucker advocates that if a benefit is gained however, it must be allocated to the prime beneficiaries, which in his view are the stockholders. After all, he argues, this group of people carries the entire burden of risk, so they should reap the rewards.

Stakeholder Theory

Abrams (1954) speaks of the organisation's responsibility to maintain an equitable and working balance among the claims of the various stakeholders. The organisation has a responsibility to them and must give each a measure of satisfaction.

Concensus Theory

Cyert and March (1963) argued that organisations do not have objectives, only people do. Therefore, the objectives of the firm are, in reality, a negotiated consensus of all influential stakeholders. Unlike the stakeholder theory, the resolution of conflicting aims is not undertaken by management, but is negotiated by all participants and depends on the power that negotiators bring to the negotiation table. In a country with an extreme climate, if it is summer and the coal stocks are high, the trade unions, for example, have less negotiation power than in


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winter with low coal stocks. Stakeholders may use their power to influence the strategic decisions and priority. Power can be derived from a variety of sources:

Sources of Power Within the organization For external stakeholders

Hierarchy (formal power) such as autocratic decision-making

Control of any part of the factors of production

Influence (informal power) through for example charismatic leadership

Involved in downstream operations for example as agent or distributor

Control of strategic resources e.g. strategic products such as coal

Possession of capabilities and knowledge eg supplier, sub-contractor

Possession of knowledge/skills e.g information systems

Linkage to the internal system through informal influence

Control of environment, e.g. negotiation skills

Involvement in implementation and through the ability to exercise discretion.

(Source: Adapted from Johnston & Scholes 1993)

Argenti (1974) revisits the stockholder theory and he suggests that the stockholders may be the intended beneficiaries of the firm and that their claims would therefore be given priority. The true position is that the shareholder is, and always has been, the residual legatee, that is to say, a firm is set up to benefit shareholders but no benefit accrues to them until the firm has discharged all obligations to all the other groups of persons and organisations it recognises as legitimate.

Stakeholder Mapping

The question that needs answering before satisfaction to shareholders can be allocated, is which groups of persons, or sets of stakeholders, have legitimate claims that the firm is obliged to consider? Stakeholders can be divided into internal and external claimants. Internal claimants include shareholders and employees including the managers of the firm. External claimants typically comprise customers, suppliers, bankers, competitors, governments, trade unions, alliance partners, communities and the general public. They will seek to influence the firm often through their links with internal stakeholders. Thus a firm of suppliers may pressurise the


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production or purchasing manager to represent their interests in the firm.

All stakeholders expect that the firm will satisfy their particular demands. Pearce, documented in Hill & Jones (1992) has noted, stockholders provide the enterprise with the capital and expect an appropriate return on their investment in exchange. Employees provide labor and skills. In exchange they expect commensurate income and job satisfaction. Customers want value for money. Suppliers seek dependable buyers. Governments insist on adherence to legislative regulations. Unions demand benefits for their members in proportion to their contributions to the company. Rivals seek fair competition. Local communities want companies that are responsible citizens. The general public seeks some assurance that the quality of life will be improved as a result of the company’s existence.

Clearly, some of these expectations conflict. In seeking to satisfy the stockholders, managers may have to keep down wages, which conflicts with employee expectations. They may increase their dependence on technology, again possibly to the detriment of employment and the environment; they may reduce the quality of the product, which conflicts with customer expectations. In satisfying the demands of trade unions, Governments may regret having to keep a lid on wage rises.

It is also worthwhile remembering that allegiances can change over time and depend on circumstances. Suppose a University or Government attempted to hike the charges for education fees. Clearly, this would unite students in the institution, irrespective of which faculty they studied in, to protest against the proposed strategy. But suppose a University withdrew its support from an artistic venture such as a small theatre or orchestra, then only those students interested in art would be likely to protest. Now consider what would happen if the University management indicated that increased student fees would have to be supplemented by earnings from outside ventures. At this stage, new alliances would be likely to spring up between students and university staff, a combination hitherto not considered overly cohesive. It is therefore important to identify the stakeholders in relation to every individual action a firm proposes, as their size and alliances can change depending on the strategy envisaged.

It is quite clear that firms cannot satisfy all the expectations of every group of stakeholders, partly because of conflicts, but also because the resources may not be available. Thus managers must make choices. In order to make the best choices, managers should identify and outline the expectations of each group. In this respect,


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a useful technique is to map stakeholders or carry out ‘stakeholder mapping’.

According to Johnson & Scholes (1993) there are three issues to consider when undertaking stakeholder mapping:

1. Likelihood of the stakeholder group impressing their expectations on the firm

2. The power of each stakeholder group

3. The impact of 1 and 2 on strategies

To reflect (1) and (2) above the authors draw on Mendelow (1991) who suggests a mapping of stakeholders on power/predictability and power/interest dimensions, see figures 2.1 and 2.2.

(Source: Adapted from Mendelow 1991) Figure 2.1 Stakeholder Mapping: Power/Dynamism Matrix

The implications of figure 2.1 are that new strategies need to be tested on stakeholders in segment D, whilst stakeholders in segment C are likely to be influential in the strategy formation stage. The stakeholders in segments A and B, although less powerful, still make good allies and support should be sought from these groups.

In terms of managerial tactics vis-à-vis each group of stakeholders, figure 2.2 identifies clearly the implications for each group of stakeholders.


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(Source: Adapted from Mendelow 1991) Figure 2.2 Stakeholder Mapping: Power/Interest Matrix

Process and Tasks of Strategic Management

Formulation of goals If firms are to be successful in the future they must have a vision of what the future looks like, perhaps even determine how to shape the future. Formal organisations are designed to accomplish specific purposes. In the case of the business organisation the primary purpose is to provide value to shareholders, but at the same time decision-makers must consider the expectations of other stakeholders. The broad statement that encompasses these requirements represents the mission of the organisation, ie, what it must do to be recognised as successful. Goals arise out of a gap analysis that in effect compares the capabilities and resources of an organisation with the ideal combination of capabilities and resources required for achieving a firm’s mission statement. Each goal may therefore take a different time scale to fully achieve. The organisation, however, must schedule its activities for a fiscal year, and so it sets objectives that either fully reflect, say, a one-year goal or represent one year’s work towards another goal. This is why a strategic plan must take into account a longer period than a year even if subsequent years are only dealt with briefly to reflect the goals the firm has decided to pursue. This means that only when a goal commences at the start of the year and is completed by the end of the year will objectives be in line with goals.

Strategy formulation and choice Following the appraisal stage, decision makers generate a reasonable number of strategic alternatives that will fill the gap (the difference between what needs to be achieved, based on the firm’s goals and what can be achieved based on current strategies). Decision-makers can select from four grand strategies: growth, stability, decline and combination strategy


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as well as the diverse sub-strategies that are variations of the grand strategies. Having formulated the strategies, management must select the most appropriate strategies, and that involves selecting those strategies most capable of meeting the firm’s objectives. The choice will involve selection of criteria and evaluating the strategies against these. A host of techniques are available to assist the decision-maker in the process.

Strategy implementation This is the process by which managers are assured that the strategic choice is communicated to the firm. Implementation involves aligning organisational structure, systems, reward systems, resources including human resources, and organisational culture with the strategy. Strategy evaluation: This is the final phase of the strategic process. Decision-makers need to determine whether their strategic choice in its implemented form is meeting the objectives of the firm.

The authors have departed in this model from many writers on the subject who consider both the environmental analysis and the firm analysis should be conducted before aims are formulated. The latter is the case if one believes in matching the organisation's resources and capabilities to environmental opportunities and threats. But there is a developing school, stimulated by proponents of the resource-based view of the firm, eg, Hamel & Prahalad (1994), who believe that managers should ‘stretch’ their goals beyond those capable of achievement with existing capabilities and resources.

The Strategic Process


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The Cultural ViewWhilst businesses in the same situation with access to similar planning tools and techniques should have responded with similar strategies, this has not always been the case. The reason for the differences, according to Chaffe (1985), is the set of beliefs and assumptions which managers in an organisation share but one which is different to other firms within that industry. The set of beliefs and assumptions which Hamel & Prahalad (1995) term ‘genetic coding’ includes such factors as ‘the way we do things around here’ and the industry recipe, ie what will work in this industry, our views on customers, markets, risk, quality, products. Thus different strategies emerge from firms in similar strategic circumstances.

The Visionary ViewStrategic development can be explained in terms of the visionary leader who is likely to come to the fore in times of crisis, when the leader is also the founder of the firm, and if the leader has considerable charisma. Hurst et al. (1989) observed that strategic management has emphasized too much the analytical (formal planning) or experimentation side and relied too little on the role of intuition. Under this paradigm, the leader envisions rather than plans the future because the intuitive capacity allows the decision-maker to relate more to new ideas and less so to detailed implementation. Visionary management more often comes from outside the industry and company, thus not sharing the genetic coding, and is considered of great importance in turnaround situations.

The Natural Selection ViewThe proponents of the rational planning approach to strategy firmly believe in strategic choice, ie that organisations have available to them a number of options from which to choose. But Aldrich (1979) contends that, for some organisations, environments are so dominant that they are not afforded any real strategic choice. All they are able to do is react to, or screen themselves from, environmental impacts. If strategy development exists, it does so under the Darwinist concept of natural selection. Variations occur naturally, for example in the existence of supporting infra structure, and these variations result in different performances in the industry. Once a variation occurs, the enterprise can build upon the advantage and so improve its standing vis-à-vis other firms.

Further, it could be argued that the natural selection view could apply to, for example, Government organisations or those that manage commodities which do not lend themselves to differentiation or value-adding activities.


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The Power Behavioural ViewStrategies can be seen as the outcome of power behaviour within the firm. As firms are political entities, powerful groups as already previously discussed, will want to impact on the decision-making process. Strategies therefore are the result of lengthy negotiation and bargaining processes, with powerful groups able to determine the key issues and the way strategic choice is being made. Shortcomings of this body of literature, according to Quinn & Voyer (1994) are that it has typically been far removed from strategy making; it has ignored the contributions of useful analytical approaches, and it has offered few practical recommendations for the strategist.

Strategy-as-Revolution ViewIn contrast to Mintzberg, Hamel (1996) thinks that companies are reaching limits to incrementalism. When rivals reinvent their business, he likens incrementalism to fiddling whilst Rome is burning. In industry there are three kinds of firms:

Rule makers - those that build the industry, Coke, IBM are examples, they are the creators and protectors of industry orthodoxy.

Rule takers - those that pay homage to rule makers, US Air, Fujitsu are examples; their life is very hard.

Rule breakers - those that are neither shackled by convention nor do they have respect for the rule makers. IKEA, Dell Computers and the Body Shop are examples of rule breakers.

There are enabling forces that encourage the rule breakers such as de-regulation, globalization, technological upheaval and social change. However, the planning process itself may advance the strategic revolution by inviting new people to the strategic planning process, by encouraging a new perspective, by helping to synthesize unconventional strategic options.

There are paths that planners may tread on their way to an industry revolution. They may radically improve the value creation, IKEA for example has made fashionable and comfortable home furnishings affordable through flat packaging. They may separate function from form - that is separate the core-benefit from ways in which this function is currently embodied. They may achieve joy of use, a firm that can turn a mundane product into fun is on a winner. They may re-scale the industry, we have seen national industries move towards globalization and local industries such as hairdressers and office cleaners that move towards becoming national chains. Other revolutionaries manage to blur the boundary between industries, for


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example GM has been involved in credit card provision and supermarkets into banking and prepared foods.

Hamel (1996) provides a set of principles that may guide businesses to become more revolutionary.

Move backward from the future. This will allow the firm to look at uncontested market space. Under the traditional planning model, firms work from today forward. This is reductionism and assumes that the future will be more or less the same as the past or present.

Be subversive - revolutions challenge the status quo, they must cast away the current industrial paradigm.

Understand that the defenders of traditional orthodoxy are often in senior positions in the firm.

Revolutionaries exist in all firms but all too often they are not heard. Remember that new ideas cannot be suppressed. Eventually, a paradigm challenge will come, often from outside.

Be democratic in your strategy making - there is capacity to create strategy by casting a wide net to all levels, functions, locations of the business. Being elitist creates often no more than compliance. Top down (planning at the senior level and pushing ideas down the ranks) or bottom up ( the ranks in organisations generate ideas which flow up to senior management for organisational adoption) models are no real alternative; to achieve unity of purpose and diversity of perspective, companies must combine the purpose that comes from hierarchy and the diversity of perspective that comes from the ranks.

The Logical Incrementalism ViewStrategy change processes in well-managed major organisations rarely resemble the rational-analytical system touted in the literature. Instead, strategic change processes are typically fragmented, evolutionary and intuitive. In fact a longitudinal study by Mintzberg (1978) observed that transformational changes were a rare occurrence in corporate life. More often strategies were of the incremental or piecemeal type. Real strategy evolves as internal decisions and external events flow together to create a new, widely-shared consensus for action (Quinn and Voyer 1994). The underlying reason for the logical incrementalism view emanates from the many forces which management, despite its best effort, is unable to predict. Therefore logic dictates that the firm should proceed flexibly and experimentally from broad ideas towards specific commitments. By delaying the commitments as far ahead as


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feasible means that the firm narrows the band of uncertainty, and allows managers to make decisions on the best possible set of data. The firm stimulates creativity and reduces the resistance to change as strategies are implemented in small doses. The process of logical incrementalism, as the authors named it, is not muddling through, it is conscious, active, purposeful, good management.

Johnson (1988) has an alternative explanation of piecemeal change. The author, like Chaffe (1985) considers genetic coding might be an explanation of piecemeal change. When management is faced with problems in their organisation, they are likely to attempt to solve these initially by drawing on their existing paradigm, or the accumulated wisdom and experience collected over the years. In some situations, and given time, the organisation may in fact drift away from the environmental forces it must align itself with, (see stage 2 of figure 1.4.). Performance is negatively affected at this stage, the system is likely to go into a state of flux. Management is not sure what to do at this stage, and at stage 3 it is forced to effect transformational change or die.

(Source: Adapted from Johnson & Scholes 1993) Figure 1.4 – The Risk of Strategic Drift

Formal Strategic Planning ViewThe formal strategic planning view is the customary way of looking at the strategic planning process. Large organisations typically have separate strategic planning departments, headed by a senior manager, charged with the job of continuously monitoring internal and external environments. Strategic planners set objectives for the enterprise, apply prescribed tools and techniques, and subsequently align opportunities and threats to the capabilities and resources of the firm to arrive at the firm’s strategies. Only the implementation stage is left to functional managers. In recent times there has been a movement away from considering strategic planning as a ‘matching process’: matching opportunities and threats in the environment with the strengths and weaknesses of the firm to a ‘stretching process’: accepting that a firm can stretch its capabilities and stretch its resources. An inside learning process


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achieves sometimes 'stretching', sometimes by the acquisition of new skills and resources and increasingly, these days, by the use of strategic alliances. The challenge is to leverage one’s capabilities and resources to the full whilst aligning the organisation to achieve its vision for the future.

The stretching process is entirely in line with the strategic planning model that is based on systems ideas. Systems ideas recognise that the organisation exists within the environment and is separated from the environment by its boundary. The environment contains uncontrollable elements that can impact on the organisation. Contained within the boundary are sub-systems that can be controlled or at least significantly influenced by managers of the organisation. The boundary is permeable allowing raw materials, partly finished goods, people and information to flow into the organisation and allowing products and services, people, waste and information to flow out of the organisation. The business organisation is multi-goal seeking, aiming to adapt to its environment through the use of feedback and control mechanism. Feedback in turn keeps management apprised of what is happening within the environment and allows it to change internal strategies and structures to exist in a dynamic equilibrium with its environment. The organisation is made up of sub-systems that interface and are integrated by strategic management. The organisation is capable of growing towards achieving its multi-goals by a process of envisioning a conceptual model of what its sub-systems, and therefore what the whole system should be if it is to achieve its aims. It then measures the current state of its subsystems and notes the gap between the current situation and the conceptual model.

To close the gap it generates goals and chooses feasible strategic alternatives that move it towards its goals while all the time maintaining its dynamic equilibrium with the environment. By this means it is able to support itself and extend itself indefinitely.

However, in systems terms there are natural forces of destruction that tend to run any system down to its basic elements. These forces are called ‘forces of entropy ’, and it is the manager’s task to ensure that ideas, system changes, new resources and ideas maintain a state of negative entropy, [the main ways of preventing entropy from being effective] which allows the organisation to thrive whilst it is not being neglected.

Until the 1980s, strategic planning enjoyed a positive image around global boardrooms. Companies had set up substantial planning departments, devised sophisticated strategies, and yet corporate performance did not drastically change, leading to a general disenchantment with the planning function.


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The problems with planning, according to Wilson (1994), relate to what the author calls the deadly sins of strategic planning

Planning as a staff function

Organizations which set up dedicated corporate planning departments, and who expect executives to rubber stamp the strategic plan, rather than allowing executives to own the plans, can expect this to lead to major problems in planning. Clearly, planning can never be a staff function.

Process is more important than the strategic thinking

When staff members spend considerable time and effort on analysis and rely on sophisticated methodologies, often single methodologies, and not much on strategic insights, planning becomes ineffective. Indeed, Porter (1987) considers that the need for strategic thinking is gaining in importance. ‘Strategic planning in most companies has not contributed to strategic thinking. The answer, however, is not to abandon planning… Instead, strategic thinking needs to be rethought and recast… What have been under attack are the techniques and organisational processes, which companies use’.

Misconception of methodologies

The era of uncertainty and restructuring demands more from planners than a single point forecast. It is unrealistic to assume that there is a single corporate future, often based on extrapolations of past trends.

Planners neglect implementation

A major problem relates to the failure of planners to tie strategic planning with the operational level of the organisation. If planners neglect the human resource and cultural needs of the company and focus solely on the environmental issues of the company, then this happens at the expense of implementation.

Clearly, the formal planning school has suffered considerably in image as a result of the errors that were made in the 1970s and 1980s. However, these errors in no way detract from the valid principles of the process that underpin the approach.

The components of the formal planning approach together with the discipline of the planning process provide the building blocks in developing organisational strategy. Whilst the series emphasises the


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rational, logical, quantitative factors, the reader should never lose sight of the many qualitative, humanistic, power factors which contribute also to the planning process.This eclectic characteristic may lead some to suggest that the planning process is unique to a company and the businesses within. It is not generic, but must be tailored to the needs of each business, the skills, the insight and experience of its senior people. Mature, growth and start-up firms have different planning needs. Planning needs may be a function of the industry a company competes in, and different CEOs have different insights into what is achievable and how to add value. Even though planning systems may be individualised, Campbell (1999) suggests they share common features:

A good planning process is clear about the value a firm is trying to create

A good planning process has well-defined objectives built around the insight of senior people

A good planning process achieves commitment of the SPU (strategic planning unit) to the plan

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