Strategic Planning

Overview

In today's complex business world, strategic planning is indispensable to achieving superior management. George A. Steiner's classic work, known as the bible of business planning, provides practical advice for organizing the planning system, acquiring and using information, and translating strategic plans into decisive action. An invaluable resource for top and middle-level executives, Strategic Planning continues to be the foremost guide to this vital area of business ...

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Overview

In today's complex business world, strategic planning is indispensable to achieving superior management. George A. Steiner's classic work, known as the bible of business planning, provides practical advice for organizing the planning system, acquiring and using information, and translating strategic plans into decisive action. An invaluable resource for top and middle-level executives, Strategic Planning continues to be the foremost guide to this vital area of business management.

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Editorial Reviews

From the Publisher
Michael J. Kami President, Corporate Planning, INC. A useful, practical tool. Strategic Planning deals with "how-to," not theory; it has an immediate application, it helps, not just educates.

Journal of Business Education Sets forth functional information that every person in a management position ought to use as an aid to efficient growth and the accomplishment of responsible goals.

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Product Details

  • ISBN-13: 9780684832456
  • Publisher: Free Press
  • Publication date: 5/6/1997
  • Pages: 400
  • Sales rank: 679,401
  • Product dimensions: 6.12 (w) x 9.25 (h) x 1.10 (d)

Meet the Author

George A Steiner, Kunin Professor of Business and Society and Professor of Management at UCLA (emeritus), is the author of more than thirty books. He lives in Van Nuys, California.

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Read an Excerpt

Chapter 1

Strategic Management and Strategic Planning

Strategic planning is inextricably interwoven into the entire fabric of management; it is not something separate and distinct from the process of management. This point is underscored in this chapter. Also discussed is the shifting focus of management from operations to strategy. Finally, attention is given to the different fundamental approaches to strategic planning that can support management decisionmaking.

The Managerial Task and Planning

Years ago when my colleagues and I were "selling" what at that time was called long-range planning and what I now call strategic planning, we spoke of it as a valuable new tool for management, a major new technique to help managers. I no longer speak of it this way. Strategic planning is inextricably interwoven into the entire fabric of management.

Several years ago, The Conference Board interviewed intensively fifty chief executives about their roles in planning. The first overarching frame of reference most executives articulated was that "planning cannot be usefully distinguished from the rest of the management process....

The researchers summarized the view of the executives in this way: planning cannot be disentangled from such management functions as organizing, directing, motivating, and controlling.

Although it is acknowledged that each of these functions or elements can be formally defined and contrasted with one another, in terms of the chief executive's daily, weekly, even annual routine it is not realistic from his point of view to break up his job into parts and examine each as a discrete phenomenon. For his role as planner is meshed with his role as organizer, director, and so on, in a seamless web of management; for instance, the thought he devotes to what might be termed planning questions, and decisions he makes about them, have implications for his exercise of control; and vice versa. It is the whole of his job that must be looked at, the interaction of the elements of the management process rather than the individual elements.

The Conference Board survey was concerned with chief executive officers, but the conclusion is applicable to all managers. I believe that no manager is fully discharging his or her responsibility when strategic planning is neglected. Strategic planning is a function and responsibility of all managers at all levels in an organization. It is obvious, however, that the planning responsibilities of managers will vary significantly among types of organizations and different organizational levels.

Strategic Management, Operational Management, and Strategic Planning

To oversimplify, there are two types of management. That which is done at the top of an organizational structure is strategic management. Everything else is operational management.

Strategic planning is a backbone support to strategic management. It is not, of course, the entirety of strategic management but it is a major process in the conduct of strategic management. Everyone recognizes that strategic and operational management are tightly linked. Strategic management provides guidance, direction, and boundaries for operational management. Just as strategic management is vitally concerned with operational management so is strategic planning concerned with operations. But the focus and emphasis of strategic planning as with strategic management is on strategy more than operations.

Years ago the managerial emphasis in the typical corporation was on operations. A major question for management was how to use efficiently those scarce resources at its disposal in producing goods and services at prices consumers were willing to pay. If this task were done efficiently, it was believed, profits would be maximized. Today, efficient use of scarce resources is still a commanding concern of managements of all organizations, but today, because of a turbulent and rapidly changing environment, the ability of an organization to adapt properly to environment, internal and external, is becoming more critical in survival.

General Robert E. Wood, when chief executive of Sears, Roebuck and Company, succinctly captured this thought when he said: "Business is like a war in one respect, if its grand strategy is correct, any number of tactical errors can be made and yet the enterprise proves successful." A company may overcome inefficient internal resource use if its basic strategy is brilliant, but it is not likely to overcome the wrong strategies even with excellent production and distribution performance. The ideal situation, of course, is for an organization to design brilliant strategies and to implement them efficiently and effectively.

In a growing number of companies, particularly the larger organizations, the framework for formulating and implementing strategies is the formal strategic planning system. Strategy can be formulated without a formal system, however, as will be discussed later. But either way, the processes of strategic planning are intertwined with management.

Tasks of Top Management

This is a book about strategic planning and not about the tasks of top management. It is useful, however, to comment a bit more on a point already made, namely, that strategic planning is a central concern of strategic management but not the entirety of the top management job.

In a recapitulation of his monumental book on management Peter Drucker summarized the tasks of top management as follows: First is the formulation and implementation of strategy. Drucker explained this prime task as

the task of thinking through the mission of the business, that is, of asking the question "what is our business and what should it be?" This leads to the setting of objectives, the development of strategies and plans, and the making of today's decisions for tomorrow's results. This clearly can be done only by an organ of the business that can see the entire business; that can make decisions that affect the entire business; that can balance objectives and the needs of today against the needs of tomorrow; and that can allocate resources of men and money to key results.

That, of course, is the strategic planning process.

The other tasks of top management according to this eminent observer of management and managers are as follows: standard setting, for example, for the conscience functions; building and maintaining the human organization; fulfilling responsibilities concerning relationships that only the people at the top of an organization can establish and maintain, such as with major customers, very important suppliers, or bankers; performing ceremonial duties, such as at civic events; and being the "standby" organ for major crises.

There is, of course, no idealized or single way for top managers to discharge their responsibilities. For some managers the strategic planning process is a much larger part of the total job than for others. But for all it is of central importance in performing properly the top management function.

Planning Responsibilities of All Managers

It was said previously that strategic planning is a function of all managers at all levels of an organization. This point has been amplified by Marvin Bower, who for several decades was managing director of McKinsey and Company, a well-known, worldwide management consulting firm. In a superb book that summarized the lessons of experience of effective managers over a long period of time Bower concluded that there are

fourteen basic and well-known management processes [that] make up the components from which a management system for any business can be fashioned....Fashioning these fourteen components into a tailor-made management system is the building job of every chief executive and every general executive. To support, follow, and enforce the system is a vital part of every top manager's operating job — and of managers and supervisors at every level.

What are these fourteen processes? They are, Bower says, the following:

1. Setting objectives: Deciding on the business or businesses in which the company or division should engage and on other fundamentals that shall guide and characterize the business, such as continuous growth. An objective is typically enduring and timeless.

2. Planning strategy: Developing concepts, ideas, and plans for achieving objectives successfully, and for meeting and beating competition. Strategic planning is part of the total planning process that includes management and operational planning.

3. Establishing goals: Deciding on achievement targets shorter in time range or narrower in scope than the objectives, but designed as specific sub-objectives in making operational plans for carrying out strategy.

4. Developing a company philosophy; Establishing the beliefs, values, attitudes, and unwritten guidelines that add up to "the way we do things around here."

5. Establishing policies: Deciding on plans of action to guide the performance of all major activities in carrying out strategy in accordance with company philosophy.

6. Planning the organization structure: Developing the plan of organization — the "harness" that helps people pull together in performing activities in accordance with strategy, philosophy, and policies.

7. Providing personnel: Recruiting, selecting, and developing people — including an adequate proportion of high-caliber talent — to fill the positions provided for in the organization plan.

8. Establishing procedures: Determining and prescribing how all important and recurrent activities shall be carried out.

9. Providing facilities: Providing the plant, equipment, and other physical facilities required to carry on the business.

10. Providing capital: Making sure the business has the money and credit needed for physical facilities and working capital.

11. Setting standards: Establishing measures of performance that will best enable the business to achieve its long-term objectives successfully.

12. Establishing management programs and operational plans: Developing programs and plans governing activities and the use of resources which — when carried out in accordance with established strategy, policies, procedures, and standards — will enable people to achieve particular goals. These are phases of the total planning process that includes strategic planning.

13. Providing control information: Supplying facts and figures to help people follow the strategy, policies, procedures, and programs; to keep alert to forces at work inside and outside the business; and to measure their own performance against established plans and standards.

14. Activating people: Commanding and motivating people up and down the line to act in accordance with philosophy, policies, procedures, and standards in carrying out the plans of the company.

All these processes, without exception, are in one way or another embodied in a comprehensive formal strategic planning process. But again, managerial responsibilities and actions for some of the processes extend beyond the planning process. For instance, activating people (item 14) is a requirement that is more pervasive than planning. The point of this discussion is that dominant management processes, according to a management observer whose word commands respect, are elements of or rely heavily upon strategic planning.

Intuitive-Anticipatory versus Formal Strategic Planning

There are two fundamentally different ways for a manager to formulate strategic plans for the future. The first is to meet each day as it arrives and make strategic decisions only on that basis. I assume that managers who prefer this "Mickey Finn" approach will not be reading this book. Those managers who think much about the future and devise strategies to help them meet the future in ways they want may take one of two alternative approaches.

The first, the intuitive-anticipatory approach, has several major characteristics. Generally it is done in the brain of one person. It may or may not, but often does not, result in a written set of plans. It generally has a comparatively short time horizon and reaction time. It is based upon the past experience, the "gut" feel, the judgment, and the reflective thinking of a manager. It is very important and must not be underestimated. Some managers have extraordinary capabilities in intuitively devising brilliant strategies and methods to carry them out. For instance, in speaking of Will Durant (the man who put together the companies upon which General Motors Corporation was built), Alfred Sloan (whose leadership built General Motors Corporation) said: "He was a man who would proceed on a course of action guided solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged to make an engineering hunt for the facts. Yet at times he was astoundingly correct in his judgment."

Albert Einstein acknowledged the significance of intuition from a different angle in these words:

I believe in intuition and inspiration...at times I feel certain that I am right while not knowing the reason....Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution. It is, strictly speaking, a real factor in scientific research.

If an organization is managed by intuitive geniuses there is no need for formal strategic planning. But how many organizations are so blessed? And, if they are, how many times are intuitives correct in their judgments?

In contrast, the formal planning system is organized and developed on the basis of a set of procedures. It is explicit in the sense that people know what is going on. Frequently, manuals of instruction are prepared to explain who is going to do what and when and what will happen with the information. It is research based. It involves the participation of many people. Support for the decisionmaking in the process is frequently documented and the result of the entire endeavor is a written set of plans.

It is not at all unusual to find in organizations a clash between these two approaches to strategic decisionmaking. A manager who has been successful with his intuitive judgments is not likely to accept completely or readily the constraints of a formal planning system. Such a manager may be uneasy with some of the new language and methods used by sophisticated staff in a formal planning system. Or, the manager may feel a challenge to his authority as those participating in the system engage in the decisionmaking process. The thought processes of these managers may conflict with the requirements of formal planning.

For such reasons, and because of cognitive differences between intuitive and systematic thinkers, there are some who argue that with the intuitive thinker there can be no formal planning. This either-or conclusion is not correct. Limited empirical observation will show that the two approaches are indeed meshed in many organizations. There is often conflict, to be sure, but each can be and often is adapted to the requirements of the other. They can and should complement one another. A formal system can and should help managers sharpen their intuitive-anticipatory inputs into the planning process. At the very least, a formal system can and should give managers more time for reflective thinking.

In a fundamental sense, formal strategic planning is an effort to duplicate what goes on in the mind of a brilliant intuitive planner. But formal planning cannot be really effective unless managers at all levels inject their judgments and intuition into the planning process. Nor, on the other hand, will formal planning be effective if top managers reject it in favor of their own intuition.

Managers do indeed follow different thought processes in decisionmaking. The design of a formal planning system must understand and reflect these differences if the system is to function successfully. I shall return to this point in several subsequent chapters.

Summary

There are two different types of management. One, which is done at the top of the corporate organization, is called strategic management. Everything else is operational management. Strategic planning is central to helping managers discharge their strategic management responsibilities. The central focus of both is on strategy. But, just as strategic management is concerned with operational management, so strategic planning is interrelated with operational planning. For managers at all levels strategic planning is interrelated with the management process. Strategic planning is not something separate and distinct from management.

Strategic management and strategic planning are vital to the success of corporations today. This is so because the wrong strategy can lead to serious difficulties, no matter how internally efficient a company may be. Conversely, a company may be inefficient internally but successful if it has the right strategies. Good marks in both, of course, is the preferred position.

Although strategic planning is of commanding significance in strategic management it is not the whole of strategic management. Top managers have responsibilities other than planning.

There are two ways to help top managers discharge their strategic planning responsibilities: intuitive-anticipatory planning and formal systematic planning. Both are important and must not be underestimated. In many corporations there are conflicts between the two approaches because different thought processes are involved in them. However, formal planning cannot be done without management intuition. If the formal planning system is correctly tailored to managerial characteristics it can help managers improve their intuition.

Copyright © 1979 by The Free Press

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Table of Contents

Preface

Notes

I. Nature and Importance of Strategic Planning

1. Strategic Management and Strategic Planning

2. What Is Strategic Planning?

3. Why Systematic Strategic Planning Pays Off

II. Organizing for Strategic Planning

4. Organizing the Strategic Planning Process

5. The Chief Executive Officer and Strategic Planning

6. Overcoming Antiplanning Biases

III. Key Considerations in Doing Planning

7. Alternative Planning Postures, Cognitive Styles, and Values

8. The Situation Audit

9. Developing Basic Business Purposes and Missions

10. Developing Long-Range Planning Objectives

11. Formulating Program Strategies

12. Medium-Range Functional Programming

13. Translating Strategic Plans into Current Decisions

14. Contingency Planning and Alternative Futures Explorations

15. The Executive View of Analytical Techniques for Planning

IV. Implementing Plans

16. The Nature and Design of Control Systems

17. The Human Dimension in Implementation

V. Evaluating and Reenergizing the System

18. Dangers to Avoid in Strategic Planning

19. Evaluating the Planning System and Maintaining a High Payoff

VI. Applicability of Business Planning Experience in Other Areas

20. Personal Lifetime Planning

21. What the Private Sector Can Teach the Not-for-Profit Sector

VII. Concluding Observations

22. The Current State of the Art and Future Trends Notes

Index

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First Chapter

Chapter 3 Why Systematic Strategic Planning Pays Off

It is rare to find a large corporation anywhere in the world that does not have some type of systematic strategic planning system. This approach is also being adopted increasingly by smaller companies. A few of the more important reasons why this is so are discussed in this chapter.

Essential to Discharging Top Management Responsibility

For those top managers who do not feel that the exercise of their own intuition is the only way to make decisions, formal strategic planning must become an integral part of their managerial activities, as noted in Chapter 1. This is especially so for the larger, multiproduct company. Robert C. Gunness, when president of Standard Oil Company (Indiana), validated this point for himself in these words: "There is no doubt whatever in my mind that we simply cannot do without it -- particularly in an undertaking as complex and far-flung as ours." Many other top managers have given similar testimony.

Enough has been said on this point, especially in Chapter 1, but ir might be added that some companies that have job descriptions for their chief executive officer explicitly identify that official as the leading architect of the firm's future and therefore the principal planner. Whether or not there are job descriptions of the chief executive officer, most chief executives recognize this responsibility. A recent survey of chief executives of the 500 largest industrial and the 50 largest banking, diversified financial, life insurance, retailing, transportation, and utility companies, as ranked by Fortune, accumulated 342 replies to different questions. One question asked respondents was what their most important responsibilities were as chief executives. Planning/strategy ranked first in all companies over management selection/development, capital allocation/profits, policy decisions, and maintaining morale, in that order. Among all companies 62 percent ranked planning/strategy first with a range up to 70 percent for companies with sales over $2 billion.

Asks and Answers Questions of Importance to a Company

For top managers as well as for all other managers in a company, formal strategic planning asks and answers some key questions in ah orderly way, with a scale of priority and urgency. Such questions as the following come to mind: What is our basic line of business? What are our underlying philosophies and purposes? What are the company's long- and short-range objectives? Are they in balance? What products are going to be obsolete? How and when shall we replace the obsolete products? What will be our cash flow over the next few years? What and where are our markets? What share of the markets do we wish to get? How will we get the shares we desire? Who are our major competitors and what are they likely to do of disadvantage to us? What major changes are taking place in our environment that will affect us? What opportunities or threats exist in the years ahead that we should exploit or avoid?

These questions, especially for a larger company, are becoming increasingly difficult to answer but answers are becoming more urgent as bases for correct decisions. Changing environment is a major factor influencing the introduction of formal strategic planning in many companies. Everyone knows that for most companies the environment is changing rapidly. It offers great threats as well as great opportunities. This point hardly needs elaboration but a few illustrations may serve to reinforce it.

In the product area the typical life cycle is shrinking rapidly but the average research and development time is lengthening and the costs to prototype are increasing. At the same time technological threats to products are growing in numbers and coming from areas other than the industry to which they are related. Government regulations concerning products and their distribution have proliferated and changing social attitudes about products will bring even more regulations in the future. Legal liabilities are expanding for products as well as managerial practices. There is great change taking place in the population mix. Domestic as well as international competition is increasing, and the patterns of competition are changing in ways not easily foreseen. Material shortages, international political and economic problems, domestic inflation, and changing societal attitudes toward business in general create great uncertainty for business. In a sense it can be said, in light of the changing environment, that the times demand systematic strategic planning, especially for the larger corporation, simply to give managers a better understanding of the complex world in which they must operate.

Introduces a New Set of Decision Forces in a Business

Formal strategic planning introduces into an organization a new set of decisionmaking forces and tools. The more important ones are discussed in this section.

SIMULATES THE FUTURE

One of the great advantages of strategic planning is that it simulates the future -- on paper. If the simulation does not result in the desired picture the exercise can be erased and started all over again. Simulation choices are reversible; not so brick and mortar decisions made without careful examination of future circumstances.

Simulation has other advantages. It encourages and permits the manager to see, evaluate, and accept or discard a far greater number of alternative courses of action than he might otherwise consider. Although identification of the "right" course of action is far more significant than generating numbers of alternatives, the fact that more alternatives are brought forth for review may produce ideas that a lesser effort would not.

The fact that simulation allows experimentation without actually committing resources encourages managers to try different courses of action -- again, on paper. Computers have enormously facilitated such experimentation.

Continuous simulation should make managers better planners. This claim is difficult to substantiate quantitatively, but I agree with Piet Hein's poem "The Road to Wisdom."

The road to wisdom? -- well, it's plain and simple to express:

Err
and err
and err again
but less
and less
and less.

APPLIES THE SYSTEMS APPROACH

Strategic planning looks at a company as a system composed of many subsystems. It permits the top management of the company to look at the enterprise as a whole and the interrelationship of pans, rather than deal with each separate part alone and without reference to the others. The sum of the best solutions to individual parts of a problem is never equivalent to the best solution of the whole. The Aswân High Dam in Egypt, for example, is a magnificent engineering triumph, which in truth has harnessed the Nile. But its designers did not consider (or ignored) its impact on other parts of the country. The dam has obstructed the natural flow of silt that enriched the soil of farms along the Nile. It has therefore necessitated the use of much more fertilizer. The organic matter in the silt has deprived sardines and shrimp of an adequate food supply at the river's mouth and these seafoods have virtually disappeared. In addition, the natural flooding of the Nile reduced the rodent population and served as a sewage system for towns bordering the river. To make one final point, the drainage of rich farmland below the dam is now insufficient and the soil is becoming increasingly saline. The result is a drastic decline in agricultural productivity. Try selecting the best components from various automobiles and then try to build with them the "best" automobile. The parts will not fit. The fact is that in large, complex systems the best solutions to each of the parts do not fit together to form a desired whole. Therefore, we must learn to look at the whole.

Strategic planning provides a mechanism for the interrelated parts of an organization to be coordinated, thereby avoiding suboptimization of parts at the expense of the whole. It also permits management, in doing this, to focus attention on the major issues relevant to the survival of the enterprise.

FORCES THE SETTING OF OBJECTIVES

A strategic planning process will not get very far if at some point specific objectives are not set for such things as sales, profits, and market share. There is no doubt that individuals in organizations will generally strive hard to achieve clear objectives that are set for their organizations. They will strive harder if they themselves have had a hand in setting the objectives. Quite obviously, long-range objectives are more likely to be met if plans are carefully prepared to reach them. In this light the objective setting requirement in strategic planning is a powerful force in organizations.

REVEALS AND CLARIFIES FUTURE OPPORTUNITIES AND THREATS

An important consequence of the situation audit, noted in Chapter 2, is the identification of opportunities and threats. The importance of this result cannot be overestimated. Here is where the intuition of managers and the systematic collection and evaluation of data should mesh to sharpen managerial intuition.

FRAMEWORK FOR DECISIONMAKING THROUGHOUT A COMPANY

One of the more important attributes of an effective planning program is that it gives guidance to managers throughout a business in making decisions that are in line with the aims and strategies of upper management levels. When a company has developed overall objectives, strategies, and policies, managers down the line have a basis for making both major and minor decisions in conformance with top management wishes. No planning program can or should try to foresee all decisions that managers must make in their day-to-day operations. As a result, there are thousands of decisions managers make that both individually and cumulatively strongly affect the short- and the long-range success of a business. Without an organized planning program it is much more difficult for lower level managers to make decisions in a direction determined by top management.

By participating in and making decisions on the basis of an integrated planning framework, managers are better able to spend their time on activities that pay off. Their efforts are focused on meaningful actions in line with their own and company interests.

BASIS FOR OTHER MANAGEMENT FUNCTIONS

Planning both precedes and is inextricably intermeshed with other management functions. For example, planning is obviously essential to effective control. If the purpose of organized effort is not specified and understood, how can resources be controlled effectively? Resources are used most effectively when the objective of their use is known. Specification of objectives and courses of action designed to achieve them are essential to an adequate measurement of accomplishment. Clearly, measurement of efficiency with which a production program is conducted depends upon volume, cost, and quality objectives that have been set for it.

Planning is closely related to other managerial functions; for example, to coordinating the various elements of an enterprise, to staffing, to leading, and to innovation. This is not to say that planning always is the first in time or always is dominant. There is no doubt that managerial charisma is of outstanding importance in many firms. But other managerial functions are more easily and suitably performed if a planning program of proper scope is conducted.

PERFORMANCE MEASUREMENT

A comprehensive plan provides a basis for measuring performance. Management has available standards of both a quantitative and a qualitative nature in a strategic plan. The performance of a business should not be measured solely in quantitative financial terms, as so many companies try to do. Certainly, financial results are of great importance in gauging success or failure, but nonquantitative characteristics of a business are also of high importance. Creativity, innovation, imagination, motivation, and knowledge, for example, may be reflected in financial results. But if they are not fostered, measured, and appraised by top management, a current financial success can easily disappear. A well-conceived planning program can make it possible for managers at ali levels to appraise these attributes in managers under their authority.

FLUSHING UP STRATEGIC ISSUES

It was noted in Chapter 2 that an effective planning system will function to flush up to higher levels of management strategic issues with which they should be concerned. In this way management's attention is focused on key issues and not diverted to lesser concerns. This is, of course, a valuable force for better decisionmaking.

Behavioral Benefits of Strategic Planning

All of the preceding forces may be considered substantive, that is, essential, direct, and important results that should be expected from an effective planning system. Beyond such substantive results are values that are more behavioral in nature. Some of the more important ones are considered on the following pages.

CHANNEL OF COMMUNICATION

A well-organized planning system is an extremely useful communications network. The planning process is a means for communications among all levels of management about objectives, strategies, and detailed operational plans, as noted previously. As plans approach completion, common understanding is generated among all levels of management about opportunities and problems important to individual managers and to the company. The choices made in the planning process are discussed in a common language and the issues are understood (or should be) by ali those participating in decisionmaking. Once plans are completed and written there should be a permanent and clear record of decisions made, who is going to implement them, and how they should be carried out. Such a communications system is a valuable asset to any organization.

MANAGERIAL TRAINING

A number of companies have understood that the strategic planning system is a management training process. This is not at all surprising for, as noted earlier, the system forces managers to ask and answer the very types of questions that managers must deal with. Furthermore, as also noted, the planning system establishes a framework within which, presumably, better decisions are made throughout an organization in conformance with top management wishes.

SENSE OF PARTICIPATION

Improved manager motivation and morale should accompany strategic planning. By helping to formulate plans managers should have a sense of satisfaction in at least a partial creation of their own destiny. They know what is expected of them, which when achieved brings a sense of satisfaction. A feeling of personal security may also be enhanced and confidence built. People in organizations today, at ali levels, are interested in participating in the decisionmaking process, contributing their knowledge to the organization, and finding opportunities to be creative. A strategic planning process is one in which these desires may be fulfilled. All of the above should make people more adaptable to change, a valuable attribute in organizations.

Formal Strategic Planning Pays Off

A number of quantitative studies have been made in recent years that give concrete evidence that strategic planning pays off in producing good performance in such areas as sales, profit, market share, return on stockholder's equity, operating ratios, and price/earning ratios of stock. It should be noted that superior performance of an organization is not the direct result of formal strategic planning but is the product of the entire range of managerial capabilities in a company. In general terms, however, superior managements know how to develop planning systems to suit their needs. When this is done the entire process of management is strengthened and better results should be achieved than in comparable enterprises without formal planning.

An Assessment

Many of the benefits of planning that I have identified are ideals. Some companies do not achieve these results but it is possible to get them with an appropriately designed and implemented system. Either the substantive or the behavioral values discussed in this chapter should be sufficient to convince management of the value of strategic planning. When both are considered it is easy to see why formal strategic planning has been introduced into so many companies.

Of course, whereas plans are crucial in producing certain types of results, the planning process is important in other ways. Which outweighs the other is not clear but more and more managers agree with the old military saying that "Plans sometimes may be useless but the planning process is always indispensable."

Plans may indeed be poorly drawn or they may be copied by competitors. But managerial planning skills are not so easily lost or copied by competitors when they are well developed. This asset is expressed in Kipling's "The 'Mary Gloster'":

They copied all they could follow,
But they couldn't copy my mind,
And I left 'em sweating and stealing
A year and a half behind.

Success without Formal Planning

There is no question about the fact that many companies have been very successful without formal planning. As was said earlier, if there is an intuitive genius at the helm no formal planning is needed. Even among companies not so blessed, success has been achieved without formal planning. For instance, a company may be lucky. The general run of managers may be of good quality in a nonplanning company and managerial differences may not be dramatic in the short run between such companies and those doing formal planning. In the long run, however, the companies doing planning should, for the reasons noted in this chapter, perform better than those not doing formal planning.

Some Limitations of Formal Strategic Planning

Planning of course has its limitations. It is not the answer to all managerial problems. Some critical shortcomings are reviewed in this section.

ENVIRONMENT MAY PROVE DIFFERENT FROM THAT EXPECTED

Forecasting is not an exact science and plans that are based upon predictions that prove incorrect may fail. Unexpected events in government action such as a contract cancellation, a change in labor union activities, a decline in economic activity, or a sudden price discount by a major competitor -- all are uncertainties that make planning difficult.

INTERNAL RESISTANCE

In many companies the introduction of a formal planning system raises antiplanning biases that can prevent effective planning. In larger organizations, old ways of doing things, old rules, and old methods may be so entrenched that it is difficult to change them. The larger companies become, the greater the amount of such debris one finds. Much more will be said about this phenomenon of resistance in Chapter 4.

PLANNING IS EXPENSIVE

In a typical corporate planning effort of even a medium-sized company a significant effort is required to do effective planning. The time of many people is occupied and costs are incurred for special studies and information. Planning is expensive and managers throughout the planning process must continuously apply a cost-benefit gauge. It is not possible to apply this equation quantitatively to corporate planning, but the idea should be kept in mind for it is not difficult to incur costs that exceed potential benefits.

CURRENT CRISES

Formal strategic planning is not designed to get a company out of a sudden current crisis. If a company is on the road to bankruptcy the time that would be spent on strategic planning probably should be devoted to dealing with short-range problems. If, however, a company is in a current crisis and is likely to surmount it, strategic planning should be continued to avoid comparable future crises.

PLANNING IS DIFFICULT

Planning is hard work. It requires a high level of imagination, analytical ability, creativity, and fortitude to choose and become committed to a course of action. Planning involves a different type of mental process from that generally employed in dealing with day-to-day operating problems. The talents required for first-rate planning are not plentiful in most corporations and managements must find ways to improve planning capabilities. One way is to exert pressure on people to meet the intellectual requirements for effective planning. If talents are not available and management does not demand excellence in planning, the introduction of formal strategic planning may wind up as a boondoggle instead of a boon.

PLANS WHEN COMPLETED LIMIT CHOICE

Plans are commitments, or should be, and thus they limit choice. They tend to reduce initiative in a range of alternatives beyond the plans. This should not be a serious limitation but should be noted.

IMPOSED LIMITATIONS

Besides the intrinsic limitations of strategic planning, there are imposed limitations that deserve note. Planning systems will probably not be effective when they are excessively ritualistic and formal, when line managers try to delegate the task to staff, when managers give lip service to planning but make their decisions without reference to plans, or when managers devote all their attention to short-range problems and neglect thinking about the future. There are a great many other pitfalls in planning that will be discussed in later chapters, particularly Chapter 18, that must be avoided if effective planning is to be achieved.

Why Some Companies Do Not Have Formal Strategic Planning Systems

Despite the advantages of planning noted in this chapter there are many companies that do not have formal strategic planning systems. Some have no need but others do have a need that is not recognized. If there are no or only weak competitive pressures on a company whose environment is characterized by low uncertainty, there may well be no formal planning done. Extremely small companies struggling to survive may have no formal planning simply because all the talents of the entrepreneur must be devoted to selling the product or service. Companies with comparatively simple organizations and production arrangements such as selling a patented component to an assembler of a finished product (as in the automobile industry) may have no formal planning because it is so easy to get long-range demands for the product from the assembler.

Some companies have no formal planning because managers have a misconception about what it is and reject it. In the Balkans there is a method of music making called "singing with book" in which the performer puts a volume on his lap, places a hand over it, and proceeds to sing, totally disregarding the book, which he cannot read anyway. This analogy cannot be carried too far, but I frequently have found managers who do no formal planning because they do not know or ignore what is known about making the process operate effectively. Some managers may have a good conceptual understanding of strategic planning but put off this task for many reasons -- it is difficult, it may turn out to be a threat to some managers, it may be too difficult to "sell" to other managers, and so on. A company with brilliant intuitive managers, as said repeatedly, needs no formal planning.

Summary

This chapter explained some of the more significant reasons why formal strategic planning is vital to most organizations.

1. Strategic planning is indispensable to top management's effectively discharging its responsibilities.

2. Strategic planning forces managers to ask and answer questions that are of the highest importance to a company and that skilled managers should address.

3. Planning can simulate the future on paper, a practice that not only is comparatively inexpensive but also permits a company to make better decisions about what to do now about future opportunities and threats than waiting until events just happen. Planning itself clarifies the opportunities and threats that lie ahead for a company.

4. Strategic planning is an effective way to look at a business as a system and thereby prevent suboptimization of the parts of the system at the expense of the whole organization.

5. Planning stimulates the development of appropriate company aims, which in turn are powerful motivators of people.

6. Planning provides a framework for decisionmaking throughout the entire company and thereby makes it more likely that lower level managers will make decisions in conformance with top management's desires.

7. Planning is necessary for the better exercise of most other managerial functions.

8. Planning provides a basis for measuring the performance of the entire company and its major parts.

9. Strategic planning flushes up to top management key issues and helps to establish appropriate priorities for dealing with them.

10. Strategic planning systems are superb channels of communication by means of which people throughout an organization converse in a common language about problems of central importance to them and to the organization.

11. Strategic planning helps train managers as managers. It also helps build a managerial and staff capability that facilitates quick and proper response to new events.

12. Strategic planning systems provide an opportunity for people in organizations to contribute their talents to the decisionmaking process, thereby giving employees a sense of participation and satisfaction not otherwise easily achieved.

13. Scholarly surveys show that strategic planning pays off. Those companies that do it have outperformed those that do not.

14. It is quite possible for a company to be successful without formal planning but for most companies success is more likely with formal strategic planning than without it.

15. Strategic planning is not without limitations. Forecasts on which it is based may not occur; internal resistance may thwart its effectiveness; it is expensive and difficult; it requires a certain type of talent that may not exist in a company; it cannot get a company out of a current crisis; and there are many pitfalls that it must avoid.

16. Strategic planning is not for everybody. There are some valid reasons, but not many, why a company may choose not to have a formal planning system.

17. Strategic planning will not guarantee success but, all things considered, managers in most companies will probably be better off with it than without it. To assure this result it will be necessary to tailor the strategic planning system to the unique characteristics of each company introducing it. This is the subject of Chapter 4.

Copyright © 1979 by The Free Press

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