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OF THE
FEB 2
mr
Peter Lorange
WP 890-76
December
M.l.T.
LiBi:
JAN 2 11977
RECEIVlJ
j
I.
(M, M, M,
I).
financial commitments.
long-term financial predictions but which lacks the elements of strategic awareness vis-a-vis the environment may satisfy the integration
1.
2.
See Ansoff
See Lorange
3 ).
(
13
).
073C053 7
-2-
Conversely, a
For instance,
a company which has just completed several major acquisitions may desire
to consolidate its position for some time and need a planning thrust
which puts relatively more emphasis on integration planning and relatively less on adaptation.
climate for its products may want to shift its planning emphasis relatively more towards integration.
growth and increasing reserves and unused debt capacity may want to
shift towards a relatively higher emphasis on adaptation.
There is
expect, then, that this will lead to changes in the company's demand for
1.
See Glueck
-3-
we may want to assess the degree of fit between the needs of the company
for adaptation as well as integration planning emphasis in a given sit-
1. 2.
23
Herold
9 ),
(2
13
-4-
the degree of match between the balance of the adaptation and inte-
planning system.
It is the relevance of these four normative propositions that we intend to study in this research.
benefit from testing the validity of the planning approach just outlined.
We feel
and usefulness of a study that attempts to explore what might be relevant approaches for tailormaking adaptive-integrative planning systems
to different corporations'
situational settings.
-5-
about design and implementation of planning systems we feel that it might be more timely to state normatively how an adaptive/integrative planning
system should be structured, for then to test the relevance of our scheme with actual data from various company settings.
Our attempt thus,
this study.
company.
II.
A "Theory" for Strategic Planning Systems Design Our theory of strategic planning will be based on the premise
-6-
of senior management.
Company'
Senior Management
2-1
s
Adaptation/ Integration
Balance Needed
situational
setting
Willingness
Degree
of Match =
Effectiveness
i
Strategic
Adaptation/
Integration
Balance Capability
Planning
System
^
Strategies, Programs, Budgets,
Exhibit
1.
Dynamic System
-7-
dynamic one.
will actually be able to carry out its plans will of course be partly
outside its own control, in that unforeseen external and/or internal
events may occur; actual performance may differ from planned.
Whatever
may change senior management's outlook on goals and attitude towards risk.
Thus, the outcomes of the planning effort typically will contribute to
1.
factors:
-8-
a)
functional activities.
ance or mix of the "portfolio" of businesses at the corporate level. Thu we are dealing with a much more complex planning task in the
latter case.
essentially one adaptation/integration planning task the divisionalized corporation will have to sort out the adaptation/integration planning
task for each of its businesses as well as the overall corporate portfolio planning.
In the diversified firm we thus expect relatively more
While
the homogeneous firm will face one environment only, the heterogeneous
firm will face a separate environment for each of its divisions as well
as an overall corporate environment.
c)
A homogeneous
Alternatively,
1.
2.
(14>)
-9-
mature company, on the other hand, the opposite may be the case.
The
less hectic growth might call for relatively less integration planning
more complex.
1.
Boslon ConnnltlnK
U(,rmiiiii,
'
Group
i;,
i/ >.
'>r
l,',inny,-
(12).
-10-
meaningful set of strategic visions for where the company should go.
focusing planning around those goal factors that senior management want
to optimize and partly by recognizing the constraints set by these goals
boat").
b)
adding up to a corporate "portfolio" strategy with an explicit expectation of future profits or profit uncertainty.
The strategic planning
2.
-11-
A conser-
vative management will choose a different alternative than a more riskprone management.
Senior management's willingness to commit itself to
towards risk will be important for the design of the planning system
too, in that this will dictate the alternatives to plan for.
3.
Secondly,
porate level, each division and each activity-center within each division.
- it should provide for the identification of significant environ-
mental changes for the corporation as a whole, for each division and
for the functions.
- it should provide an orderly and coordinated way of " narrowing
1. 2.
See Myers
16
24
-13-
(oIlL'ii
cnlli'iJ
hud^;i'Ls)
i'nu't>;i'.
it
interactions
Exhibit
further here how this framework functions, as this is discussed extensively elsewhere.
b)
'-
Adaptation/integration tallormaking.
3.
We see
lative phasis
-14-
typically result from the reviews and quality and degree of probing in
questions raised?
iii)
1.
take place?
iv)
interfunctional?
the functions provided with enough time to carry out elaborate programming?
1.
2. 3.
(14
(2l).
See Lorange
12
-15-
v)
Environmental scanning.
ities linked to the "3 x 3" scheme so that the scanning activities are
task specified by level and cycle?
or implicit?
What type of
that the chief executive is willing and able to make changes in the
viii)
cess
.
How does the chief executive judge that the rest of the organization How does a division head judge that these
1.
2.
25
-16-
A.
It is extremely difficult
even though
For instance, this does not have to be the result of a good planning system.
Also, even though the planning system might have been very appropriately
designed and implemented, the substantive strategy judgments of management might have been well-conceived so that bad decisions were taken
We shall,
Are
these down through a series of three cycles, each cycle committing the
-17-
Consequently, de-
Given that the planning system provides the basis for decisions, it
becomes important to monitor actual performance in terms of fulfillment
of the budget, fulfillment of the program,
tives
i)
Budget fulfillments.
Several objec-
-18-
The role
successful will positively influence the product base of the company and
thereby its situational setting.
Conversely, if the product had failed
this would also have influenced the situational setting in that the
will in real life probably not influence the situational setting very
much.
the other hand, will probably not significantly change senior management's
outlook.
1.
2.
See C after
15
-19-
A company's
planning system will be the degree of "match" between needs and capabilities.
III.
study.
We
We shall
1.
-20-
It should be stressed at
increase or it may be that the relative emphasis of one will be hypothesized to increase in relationship to the other.
we shall follow the same numbering as in Exhibit
section.
1.
In our discussion
H^
The narrower base for the company's business should make it more
scarce funds.
H
o
1.
Hypotheses H.and H
J
primarily in the growth stage of the product life cycle that were high sales
-21-
Company's diversity.
Exhibit 4.
A Company's Diversity
Lorange
H)
-22-
b)
information in Exhibit
High
Market
Growth
Low
Hieh
Market Share
Exhibit
5.
Also the net funds flow position for each division as well as for the
company as a whole will be recorded.
c)
Volatility of environment.
and
2.
The more ambitious the C.E.O. is about moving the company, the
The more ambitious the C.E.O. is about moving the company, the
The more risk-averse the C.E.O., the less need for adaptation.
The more risk-averse the C.E.O., the less need for integration.
u
10:
index which will rate various executives' perceptions about the C.E.O. 's
We will attempt to
's
becomes critical that the indices only get to be used for broad classifications, say, into two or three groupings of C.E.O. archetypes.
3.
-24-
a)
us to determine the extent to which the process differs from our model
expressed in Exhibit
2.
Stage Level
-25-
We
first year of the plan and the budget; degree of reconciliation between
the contents of the plans developed this year and the plans developed in
the past for the same years; the nature of the responsibility for the
what are the roles of the planners vs. the controllers); and the timing
patterns of the various activities over the year.
ii.
the C.E.O. is heavily involved during the early stages of the planning
ment by the C.E.O. during the later stages will strengthen integration. We shall measure this by means of an index which will be based on the
following factors:
amount of time spent on different types of review;
and revisions.
iii.
1.
chief executive comes out with very explicit assumptions about this year's
planning, and these assumptions differ little from the objectives followed
in the past, then we shall expect that there will be little room for
adaptation.
-26-
even
aloof) attitude, then the basis for meaningful adaptation will have gone.
and the degree to which this statement differs from objectives in the
past.
iv.
2.
along the functions we shall assume that the adaptation capabilities will
be rather weak.
If on the other hand strategic programs are being carried
capability is higher.
Environmental scanning.
We shall measure
dimensions about how incentives are set, and summarize this by means of an
index.
-27-
vii.
How widespread
An index
4.
Effectiveness measurements.
We shall carry out three aspects of effectiveness measurements, namely
and finally,
how each company is performing along external measures such as sales and
profits growth.
IV.
Conclusion
We have stated a "theory" of planning which we shall attempt to test
V.
Appendix:
1.
-28-
valid research must start with a statement of the theory which reflects the
purest state-of-the-art of the field.
Then, one or more hypotheses about
This hypothesis-testing
is done by examining real-life data to see whether one can find an instance
Instead of elabo-
rating on the rationale for this research method per se we shall discuss a
few implications for our study.
First, it is important that the theory to be stated at the outset of
the research reflect the state-of-the-art.
The "theory"
that we shall be able to state, then, will have to be quite sketchy, more in
the form of a conceptual scheme but reflecting the sum of our intuitive
We shall strive to
understanding of contingencies.
precise expression of the phenomenon and will be true for this contingency
setting but not true for any other settings.
A major purpose of our hypothesis
contingencies.
1.
2.
See Christenson
or
Lorange
-29-
important.
Thus, we should
on testing the theory against cases which possess the relevant situational
characteristics.
questions.
1.
See Nermann
17
-so-
under study.
No data
The
researcher will ask the executive about these questions in an open-ended form,
the questions serving as a way of structuring a conversation around a theme.
The researcher notes down the bulk of the answers on the sheet with his
which has a number of more specific questions with some degree of measurement scale attached, a Data Sheet
.
of the interview, the researcher may have to go back and ask additional
questions where the original data turned out to be incomplete or where its
After the data have been collected in this way for one major
phenomenon, the researcher moves on to collect data for the next interview
package.
REFERENCES
[I] W.J. Abernathy and J.M. Utterback, "Innovation and the Evolution of Technology in the Firm," Working Paper #75-18R, Boston, Harvard Business School, Revised June 1976.
H.I. Ansoff, J. Avener, R.G. Brandenberg, F.E. Portner, and R. Radosevich, "Does Planning Pay? The Effect of Planning on Success of Acquisitions in American Firms," Long-Range Planning , 3:2-7 (December 1970)
[2] [3] H.I. Ansoff, R.P. Declerck and R.L. Hayes, "From Strategic Planning to Strategic Management," Working Paper #74-32, Boston, Sloan School of Management, M.I.T., June 1974.
[4] Boston Consulting Group Staff, Perspectives on Experience , Boston, The Boston Consulting Group, 1968.
[5] E.E. Carter, "A Behavioral Theory Approach to Firm Investment and Acquisition Decisions," unpublished doctoral dissertation. Graduate School of Industrial Administration, Carnegie Mellon University, 1970.
[6] C. Christenson, "Proposals for a Program of Empirical Research into the Properties of Triangles," Working Paper #75-23, Boston, Harvard Business School, July 25, 1975. [7] J.W. Dobbie, "Guides to a Foundation for Strategic Planning in Large Firms," paper presented at the 34th annual meeting of the Academy of Management, Seattle, Wa., August 1974.
[9] D.M. Herold, "Long-Range Planning and Organizational Performance," Academy of Management Journal , 15:91-102 (March 1972).
[10] H.E. Klein, "Incorporating Environmental Examination into the Corporate Strategic Planning Process," unpublished doctoral dissertation, Columbia University, 1973.
Lorange, "Administrative Practices in Smaller Companies Some Preliminary Findings," Working Paper, Boston, Sloan School of Management, M.I.T., December 1976.
[II]
P.
[12] P. Lorange, "Divisional Planning: Setting Effective Direction," Sloan Management Review (Fall 1975) [14] P. Lorange and R.F. Vancil, "How to Design a Strategic Planning Systems," Harvard Business Review (September/October 1976).
[13] P. Lorange, "A Framework for Strategic Planning in the Multinational Corporation," Journal of Long-Range Planning (July 1976).
[15] P. Lorange and R.F. Vancil, Strategic Planning Systems CLiffs, N.J., Prentice-Hall, 1977.
,
Englewood
"A Comparative Study of Corporate Long-Range Planning and its Influence on the Management Practices of Several Large Electronics
[16] P.F. Myers,
M.I.T.
[19] M.E. Porter, "Making Strategic Planning Processes Work: A Matter of Consistency," Working Paper #76-35, Boston, Harvard Business School, October 1976. [20] E. Rhenman, Industrial Democracy and Industrial Management Tavistock, 1968.
London,
[21] J.K. Shank, E.G. Niblock, and W.T. Sandalls, "Balance Creativity and Practicality in Long-Range Planning," Harvard Business Review (Revised January /February 1973).
[22] G.A. Steiner, Pitfalls in Comprehensive Long-Range Planning Oxford, Oh., The Planning Executives Institute, 1972.
[23] S.S. Thune and R.J. House, "Where Long-Range Planning Pays Off," Business Horizons 13:81-87 (August 1970).
,
[24]
Vancil and P. Lorange, "Strategic Planning in Diversified Companies," Harvard Business Review (January/February 1975).
R.F.
[25] E.K. Warren, Long-Range Planning: The Executive Viewpoint, Englewood Cliffs, N.J., Prentice-Hall, 1966. [26] V.L. Wright, A System for Managing Diversity Little, Inc., 1974.
,
Cambridge, Arthur D.
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