Strategic Planning in IBM
D. G. Thoroman*
IBM Director of Corporate Strategy
Development, New York
This paper presents an overview of
the corporateplanning system which
has evolvedfor a large multi-national
corporation in the information pro-
cessing business. An integrated
planning system is described which
relates, through a cyclic process,
the objectives, strategies and action
plans of the company in response to
dynamic markets in environments
of intense competition and technol-
ogical change. Of particular interest
is the combination of periodic
planning events with time variable
elements, which gives the system
necessary flexibility. Additionally, a
brief discussion of the increasing
significance of managementscience
to strategic planning is included.
The computer tool and advanced
quantitative techniques have greatly
enhanced the value of a formal
planning system. The planning pro-
cess has in fact become an integral
part of the management system at
IBM, acting as a vehicle for decision
making and delegation of respons-
ibility. In this role, the planning
system has had to be an adaptive
organism, responsive to variations
in management style and sensitive
to the lessons of prior experience.
Is A LARGECORPORATIONWHICHHAS
I BMexhibited growth over a long time
period. We operate in over 100 countries
around the world, marketing products
which serve the needs of business, govern-
ment, educational and other institutions.
Most of our business has a very high
technology content. The largest portion
of it is in the data processing field, a
market which has undergone radical
*Mr. Thoroman is IBM Director of Corporate
Strategy Development, and has responsibility
for developing and making recommendations on
objectives and business strategies for the IBM
Corporation as a whole. He has been active
during the past 5 years in the design and imple-
mentation of the current IBM Corporate Planning
System.
2 LONG RANGE PLANNING
changes in its brief history, and which
many observers feel is far from mature.
There is a long lead time from initial
investment in advanced development to
ultimate profit payout, during which
perceived user needs undergo significant
modifications, and during which also
competing products and services are being
made available by other manufacturers.
Since most users prefer to lease rather than
purchase data processing equipment, cont-
tinued service plays an important role in
influencing a customer's decision to stay
with the manufacturers of his installed
equipment or to replace it with another
manufacturer's product. Stated generally
we operate in an industry which is large
and growing, geographically dispersed,
rapidly changing, highly competitive, tech-
nologically dependent, and where in-
vestments must be carefully managed
from idea inception through years of
customer use.
Structurally, the company is divided
into 10 operating units, seven of which are
fully integrated (including the World
Trade Corporation which itself consists
of numerous integrated country subsid-
iaries). The remaining three serve special
corporate purposes: the Research Division
conducts basic and applied research in
fields of interest throughout the company;
the Advanced Systems Development Div-
ision is a special arm of the corporation
to investigate potential new business
opportunities; and the Real Estate and
Construction Division is responsible for
managing IBM owned buildings and
supervising the construction of new facili-
ties. Although these three divisions are
involved in the planning system, most of
the description which follows applies
primarily to the seven integrated operating
units. The General Managers of these
operating units report to the top manage-
ment of the corporation as do the various
corporate staffs whose primary function
is to assist corporate management in
planning and managing the company.
It will be seen that both line and staff
are deeply involved in the planning pro-
cess.
The IBM planning system is built on
three basic principles:
1. Planning is a line management re-
sponsibility. As a result, the bulk
of the planning work done through-
out the company is done in the
operating units. However, since cor-
porate management reserves to it-
self the right to approve plans,
the corporate staff and corporate
management have significant invole-
ment in reviewing, analyzing, evalua-
ting, and approving operating unit
plans. In addition, at times special
planning studies may be undertaken
with corporate sponsorship due to
unusual conditions.
2. The purpose of planning is to make
better current decisions. The reason
for this principle is to avoid useless
planning work. However, it has
further implication to the "life" of
a plan, once it is assembled, since
implementing the better decisions
may obsolete the plan which portray-
ed their need. A plan properly used
may well become its own instrument
of destruction.
3. Planning must anticipate uncertainty.
The best plan is the one which
utilizes available resources to provide
maximum short and long term
benefits with minimum risk. Flexi-
bility must be incorporated to adapt
to real conditions as they emerge;
and, thereby, minimize the cost of
error. This principle implies that
plans should change, rather than be
rigidly adhered to.
Further discussion of the background
and philosophy of the IBM Corporate
Planning System may be found in an
earlier article by W. W. Simmons.1 Par-
ticularly significant at that time was the
emphasis on an increased time horizon
covered by the plans, enabling coverage
of a meaningful strategic time period. It
should be emphasized that long range
plans are not meant to make the decisions
now which may be made better in the
future, but to understand the implications
for the future of decisions which must be
made now. As the understanding of
resource lead time and generally appropri-
ate life spans for different product lines
has increased, we have been able to tailor
the planning horizons to appropriate
time periods for the various operating
units. This avoids the irrelevant extrapola-
tion of quantities for an arbitrary number
of years. The importance of the longer
range view is that it identifies more fully
the narrowing of options as a function
of time resulting from the decisions
being made in the present.
With this as background information,
the planning system can be described as
three inter-related subprocesses: a process
for setting objectives; a process for
developing strategies; and a process for
producing plans. These will be discussed
in that sequence.
SYSTEM STRUCTURE
Objectives. The literature of planning
places significant emphasis on setting
objectives as an integral part of planning.
The reason is obvious; "If you don't
know where you're going, then any patch
will get you there. ''2 In IBM the planning
objectives for the seven operating units
are gross and net income by year for the
number of years (up to seven) agreed to
as a planning horizon for each operating
unit. The process by which objectives
are set is an iterative and bilateral one.
Each year in January, the corporate
planning staff, in cooperation with other
staffs, develops planning targets (gross
and net income by year) for each operating
unit. These are reviewed by corporate
management and, upon approval, for-
warded to the operating unit as the corp-
oration's expression of expected results
from that operating unit. During the
period from March to June, the operating
units respond to these targets with their
proposed goals. The documentation of
these goals (typically ranging from 6
to 20 pages) is forwarded to affected
corporate staffs 2-3 weeks prior to a
formal presentation of the goals to
corporate management. The staffs review
the goals for challenge, acceptability,
and credibility; prepare a written critique
of them for corporate management; and
take a written position of agreement or
disagreement with the proposed goals.
Staff/line disagreements are umpired by
corporate management.
It should be emphasized that the ration-
ale supporting a set of proposed goals is
not a plan, although many of the planning
factors used in developing goals come
from the last approved plan. Rather,
goals are an expression of what the opera-
SEPTEMBER 1971
ting unit believes to be both challenging
and achievable (based on market and
other studies and development capabili-
ties) and proposes to use as the basis or
developing its strategies and producing
its plan.
Once agreed to, goals are assumed to
remain valid until either the corporation
or the operating unit proposes a change
to them. Goals form the aggregate
performance standard between the corp-
oration and the operating units, and are
therefore integral not only to the planning
system but to the management system as
well.
Strategies. A business can be analyzed
and dimensioned in a number of ways.
For planning purposes, we look at our
business in two principal ways: the
primary strategic dimension is by business
area while the major operating dimension
is by function. The business areas are
defined revenue sources (e.g. electric
typewriters, large data processing systems,
direct access storage devices, etc.) and the
functions are the usual production, market-
ing, development, and service activities.
In general, the operating units are or-
ganized by function, since this has proved
to be the most efficient structure for
operating the business. Each of the
functions within an operating unit de-
velops strategies aimed at improving
productivity of resources utilized, re-
sponding to changing environmental
conditions, and implementing agreed-to
business area strategies.
An effective planning system should
systematically provide management with
the necessary information at the right
time to make the appropriate strategic
decisions, which provide direction and
scope. Traditionally, planning of corp-
orate operations is tied to the annual
budgeting cycle. To retain their place as
guides for line management decisions,
planning documents must be explicity
updated when events or actions modify
the strategic direction of the company.
To achieve this kind of currency is a
major goal for the IBM planning system.
However, a 1-year cycle virtually guaran-
tees that, for a large part of the year, a
plan will be a historical document rather
than a chart for the future, because
significant strategic decisions will soon be
made which may obsolete the published
plan. Budgetary changes can be tracked
with some facility, particularly on an
automated information system. But major
strategic changes may not be as easily
assimilated, particularly when non-quanti-
tative factors are involved.
A formal business area strategy process
has recently been implemented, which is
critical to the operation of the overall
planning system. Since it represents a
significant step in the direction of con-
tinuous planning, it will be described in
some detail.
Business areas are defined by the
operating units, subject to corporate
agreement (there are currently in excess
of 50 business areas in total for the
corporation). For each business area a
documented strategy is required which
includes the assumed environment (in-
cluding competition) for that business
area, its objectives, the major courses of
action which will be implemented to
achieve objectives, resource requirements
for these action programs, alternative
courses of action considered and rejected
for stated reasons, known risks and
exposures, and significant dependencies
on other organizational units within
IBM. These strategies must be updated
or reconfirmed annually and must be
approved by the operating unit General
Manager or his designee. The individual
responsible for developing the business
area strategy (usually a product or systems
manager closely coupled to the develop-
ment organization within the operating
unit) must secure the necessary functional
commitments to implement the strategy
and all management approvals within
the operating unit.
Once approved, the business area stra-
tegy is a key underpinning to the operating
unit plan. For that reason, the business
area strategies are generally scheduled
for development and approval during the
period between the approval of goals
in March-April and the submission of
plans in October-November.
Since, in a sense, each business area
strategy is a stand-alone plan for a segment
of the total business, affected corporate
staffs have access to them when they are
approved by the operating unit General
Manager. Any staff disagreement with the
strategy is expected to be resolved at that
time either through negotiation with the
operating unit or by appeal to corporate
management for refereeing. Further, when
the operating unit plan is prepared, it is
expected to be consistent with approved
business area strategies except for those
changes stated in the plan document.
Business area strategies are the primary
vehicle for developing plans which achieve
the goals previously agreed to by the
operating unit. These goals are disaggre-
gated to the business area level to become
a standard against which the business
area strategy can be measured. Converse-
ly, the goals set the strategic direction for
the operating unit (and the corporation)
since resources must be applied consistent
with the sub-goals assigned to the business
area.
3
 The business area strategies serve one
other major purpose, viz. to focus attention
on the worldwide optimization of business
strategies. Virtually all of our operations
outside the United States are conducted
by the World Trade Corporation, an
integrated operating unit which manu-
factures, markets and services goods
and services in over 100 countries. How-
ever, product development responsibility
for World trade is assigned to the U.S.
operating units. The business area strate-
gist is responsible for developing a strategy
which addresses the worldwide business
opportunity rather than just the U.S.
market. The World Trade ~Corporation
is responsible for seeing that the strategist
fulfills this responsibility, and, in the
event there is a disagreement, bringing it
to the attention of corporate management
for resolution.
To summarize, business area strate-
gies represent the principal strategic
planning focus of the corporation, are
developed in response to explicit goals,
and serve as the major building block
of operating unit plans.
Plans. During the last 3 months of
the year, each operating unit submits a
plan to the corporation for approval.
As mentioned above, this plan is expected
to be consistent with the approved business
area strategies unless otherwise noted.
The number of years covered by a given
operating unit's plan is based on the
lead time for critical planning decisions
which require the information which is
included in the plan. Because this lead
time varies according to the business
characteristics of the operating unit,
the plan horizon ranges from a minimum
of 2 years to a maximum of 7. For
those operating units which produce
plans covering more than 2 years, some
information prepared for the first 2 years
is in greater detail than for the remaining
years, e.g. departmental budgets are
required for only the first 2 years.
The plan reflects the consolidated results
of planning decisions made up to that
point, including the resources required
to carry out those decisions. All U.S.
operating unit plans are based on a
set of common environmental assump-
tions (developed by corporate staff) as
to the performance of the economy,
salary trends, and legislative and govern-
mental actions which could affect our
operations. Similar assumptions are gen-
erated within the World Trade Corpora-
tion for its country plans.
Each plan follows the same general
pattern of review and approval. The
documented plan is submitted to the
corporation about 30 days prior to its
scheduled presentation to corporate man-
4 LONG RANGE PLANNING
agement. The various corporate staffs
affected by that plan review it in detail
during the 2 weeks following submission,
during which questions and areas of
potential disagreement are communicated
to the operating unit. Other operating
units affected by a given plan also receive
a copy of it and analyze it for accepta-
bility. At the end of this 2-week period,
each such staff and operating unit (these
are specified as part of the planning
system) must take a written position of
either concurrence of nonconcurrence
with the plan. Nonconcurrences of course
must be on specific grounds.
During the next 2 weeks, the operating
unit attempts to resolve any nonconcurren-
ces which have been raised. In many
instances, additional work must be done,
or additional data must be gathered,
to come to a resolution. The noncon-
curring staff or operating unit may agree
to defer its position until such work has
been completed, in which case the non-
concurrence becomes an issue with a
specified later date for resolution.
Approximately 1 week before the
scheduled presentation to corporate man-
agement, written critiques of the plan
from certain of the corporate staffs
(Marketing, Engineering, Manufacturing,
Service, Finance, and Planning) are for-
warded to corporate management and
to the General Manager of the operating
unit. These critiques are an analysis of
the plan from the viewpoint of these staffs,
with concentration on matters considered
significant to the corporation. They are
compiled along with any remaining letters
of nonconcurrence, and corporate man-
agement is expected to read them prior
to the operating unit's presentation of its
plan.
The presentation of the plan to corpor-
ate management is done by the general
manager of the operating unit and his
associates. A limited number of required
standard charts are presented first, after
which the operating unit describes its
plan in whatever form it deems best,
but in two segments. One segment covers
the first 2 years of the plan in order to
give special attention to the near term
profit plan. The second portion concen-
trates on business area strategies, expected
financial results, and functional strat-
egies.
After the operating unit presents its
plan, any remaining nonconcurrences are
heard and discussed. Corporate manage-
ment is then in a position to approve or
disapprove the plan. If disapproved,
the operating unit resubmits part or all
of its plan and the process repeats.
Once approved, the operating unit is
free to proceed with implementation of
the plan.
Since the measurement system of the
corporation is a subject beyond the scope
of this paper, it will not be discussed in
detail. However, suffice it to say that
measurement against the plan is essential
not only to evaluate the performance of
the various organizational components
of the company, but also to provide
feedback to current decisions and sub-
sequent plans. The measures used include
the normal financial, budgetary and
productivity factors. In addition, we
monitor action programs, review the
progress of projects against schedules
and scan the environment for early
warning signals.
It should be noted that approved plans
may require change, especially as the
first year unfolds and conditions or results
emerge which are at variance with what
was expected. Depending on the cir-
cumstances, it may be necessary for the
operating unit to request corporate ap-
proval of a plan change at any time during
the year. These changes generally affect
only the first and second years of the
plan and are processed in somewhat the
same manner as described above. How-
ever, due to the wide variety of changes
which can arise, the specific process for
review and approval of a plan change is
determined by the Director of Budgets
at the time the change is contemplated.
Strategic issues. The formal structure
of the planning system has now been
described. This system is designed to
cover the bulk of the planning work
necessary to manage the corporation.
However, a decade of experience with
formal long range planning has indicated
the need for more attention to selective
strategic subjects at the corporate level.
We have a process, called Key Corporate
Strategic Issues, aimed at handling topics
with significant long term implications to
the company. When a subject is so
designated, corporate management, with
staff and line assistance, specifies the
nature of the issue, the work necessary
to resolve it, the parties responsible
for performing that work, and the schedule
for its completion. Because each such
issue is addressed uniquely, the process
is defined in very general terms. However,
strategic matters which might otherwise
not get appropriate attention if embedded
in a comprehensive plan do get addressed
by this approach, and also are more
directly related to the planning efforts
encompassed by the formal planning
system. One of the features of this part
of the planning process is its independence
from normal planning events. Strategic
issues may present themselves at any time,
and, by their very nature, they demand
umque attention.
As would be expected, the system
depends very heavily on a number of
other activities including a product review
procedure, a system for pricing goods
and services, etc. Furthermore, the opera-
ting units have defined planning systems,
some more formal than others, which
specify the responsibilities and interactions
of the various groups and individuals
involved in developing and approving
goals, strategies and plans. Obviously,
the corporate planning system described
above could not function without these
underpinnings.
It should also be noted that established
corporate policies, principles, and prac-
tices provide a framework within which
the planning system functions. That is,
the planning system is subordinate to
and supportive of the corporation goals,
principles, policies, and its management
system.
M A N A G E M E N T SCIENCE
Management Science has become a sub-
stantial contributor to the major proces-
ses described above. Especially during
the past 5 years, the use of advanced
quantitative techniques throughout the
company has increased dramatically, par-
ticularly in support of planning. The
process of developing strategies has come
to be that of selecting a "best" alternative
from among a number of possible paths,
not all of which are initially obvious.
This has placed a burden on the manage-
ment scientist to develop models for
evaluating the outcome of various actions.
Modelling. Probably the most widely
used management science development
within the company is a product strategy
model developed by the Data Processing
Group. The data processing marketplace
is a complex one, made up of interdepen-
dent systems and products with rapid
rates of technological change. The product
strategy model in its computer imple-
mentation takes into account the product
and systems interdependencies, and helps
to give the profile of how these change
over time under varying assumptions.
With this tool, the strategist can evaluate
within a very short time period the
incremental effects to a base plan of a
large number of feasible alternatives.
The specification of alternative strategies
is quite simple, given an understanding
by the strategist of what is technically
feasible, including schedule flexibility.
Once the number of alternatives has
been reduced to a small set of potentially
"best" strategies, more detailed forecasts
and financial evaluations are made in
order to develop the recommended stra-
tegy.
SEPTEMBER, 1971
An obvious application of the computer
in modelling is to prepare income and
expense statements associated with a
given plan. As an example, a financial
model of the Data Processing Group,
has been particularly useful in analyzing
the implications of a given plan. This
model includes an approximation scheme
to calculate depreciation of the capitalized
rental machine inventory given the opening
inventory distributed by age, additions
to the inventory, and retirements from
the inventory. As a by-product, and this
is where the model is useful in post plan
analysis, information regarding the age
of the inventory, implied rental life,
and other actuarial data is produced.
This analysis can be done on the total
inventory or on selected types of products.
Demand for our goods and services
is affected by the strength of the economies
in which we operate, and our costs and
expenses are affected by the variable which
influence inflation rates. Projections are
therefore made of various economic
variables to form the base for our business
plans. In the U.S.A., we have developed
an econometric model to forecast the
major sectors of gross national product.
An auxiliary input/output model helps
us to forecast value added in many
industries. These forecasts of the economic
environment are then factored into our
business for planning purposes. For
certain major segments of our business,
we have econometric models of demand
based on the forecasted economic en-
vironment which produce projections that
are helpful in validating the forecasts
developed on a product-by-product basis.
Other models are currently in use within
the corporation. Those mentioned above
were selected because of their specific
orientation to planning and their relative
significance. It should be obvious that
we find Management Science to be helpful
to us in a number of ways. To be specific.
1. Management science enriches the
alternatives available to management
by providing the capacity to evaluate
the results of many more alterna-
tives than would otherwise be pos-
sible.
2. Advanced quantitative techniques in-
crease the realism of decisions by
providing the capacity to examine
large numbers of variables and
quantities of data which would be
infeasible to examine without such
models.
3. Mathematical models contribute to
a progressive understanding of the
company's business. Knowledge in-
corporated into a model becomes the
base for the cumulative growth of
understanding of the business. As-
sumptions are explicit and can easily
be modified. Inputs and results
are objective and can be critically
examined, tested, and improved.
4. Management science models facili-
tate responsive decisions by allow-
ing more rapid and thorough assess-
ment of changes in environment,
and proposed company changes.
5. Management science models enhance
business communication, since pro-
viding better understanding and ob-
jectivity clarifies areas of agreement
and more sharply focuses issues of
disagreement.
It would be improper to leave the im-
pression that models are a substitute for
detailed analysis or for good judgement.
As with all approximations to reality,
mathematical models must be used with
care. However, when used thoughtfully,
models can make planning more effective.
CONCLUSION
Formal long range strategic planning is
now entering its second decade at IBM;
and, while it has not been a panacea for
all problems, nor has it guaranteed
surprise-free operations, there is strong
evidence that opportunities would have
been lost without this kind of process.
The discipline of planning documents
and schedules involves a certain bureau-
cratic risk, but in a large complex business,
intuitive day-to-day management of the
future can lead to costly errors and un-
acceptible delays in commitment.
For the future, if planning is to con-
tinue to increase its utility as a line
management tool, the process must strive
for simplicity of use while maintaining
responsiveness to changes in the status
quo. As a part of the management system
planning should influence resource al-
location decisions, strengthen the delega-
tion of authority and responsibility, and
still provide a meaningful frame of refer-
ence for control.
In a recent issue of the Harvard Business
Review? George Steiner distinguishes
between two types of corporate planning.
He characterizes the first as 'intuitive,
anticipatory planning', and states that it
is done by all managers based on their
experience, a feel for a situation, and deep
understanding of events, and that no
one really knows the thought processes by
which this type of planning is done. The
second type is formal or organized
planning--that which has been the subject
of this paper. As Steiner points out, there
is nothing inherently contradictory in
these two types of planning. Formal
planning has come a long way in the
last decade, to the point that, for our
company at least, it would appear that
it has become integral to the management
5
of the enterprise. Largely because of this,
the need for advanced quantitative tech-
(2) This saying has been rather popular in recent
niques has become intensified; with the
consequence that planning work has
become more useful to management and
ingrained in the decision processes of the
corporation. •
REFERENCES
(1) W. W. Simmons, Corporate Planning: The
Keystone of the Management System.
Long Range Planning, 1, No. 2, pp. 2-9 (1968).
months. It has been characterized as an old
African proverb and has been attributed to
the Talmud. The nearest source I have
been able to trace is Lewis Carroll's "Alice's
Adventures in Wonderland". In Chapter VI,
Pig and Pepper, the following exchange
occurs:
(Alice) "Cheshire Puss--would you tell me,
please, which way I ought to go from here?"
"That depends a good deal on where you
want to get to", said the Cat.
"1 don't much care where...", said Alice.
"Then it doesn't matter which way you go",
said the Cat.
(3) George A. Steiner, Rise of the Corporate
Planner, Harvard Business Review, 133 (1970).
ACKNOWLEDGEMENT
Major parts of this paper were presented on
September 23, 1970 to the Management Science
and Strategic Planning Conference at the IBM
Scientific Centre, Peterlee, England.

6 LONG RANGE PLANNING