Why Has Planning

Failed?

Malcolm W. Pennington Vice President, Golightly International, New York.

Formal planning has, in general, received fhe kind of attention and support from fop management that most emerging techniques can only dream of. Top management is usually aware of and oflen dedicated to the doctrine that “the functions of management are planning, direcfing, confrolling, and evaluating, and the first of these is planning”. In company afler company, planning funcfions have been set up with sophisticated, trained sfaaffs. Elaborate plans of all manner and description have been developed. Top managemenf have reviewed fhese plans in defail. Planning should be making a vast and continuing contribution to more effective business management. In practice, planning has been a resounding and expensive failure. A survey of any representative group of companies will document fhe conclusion that in most of them, planning still falls short of making an important contribution to corporate accomplishment. Top management is either not getting fhe results if expects and needs from planning, or if is unable or unwilling to use fhese results.

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acceptance in the relatively few years that it has been widely publicized as a formal management tool. There are two basic reasons for this : 0 Managers have always planned. It is part of their function. The procedures included under what we call “planning” simply serve to organize and clarify the process. There is nothing startlingly new in formalizing what you have done all along informally-sometimes casually. is 0 It has great logical appeal-it better to control your future than to react to it.

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The contribution that effective planning -both annual and long term-can make to an enterprise no longer needs definition or defence. Every available survey of high level executive opinion confirms the importance that top management attaches to planning in today’s complex and competitive environment. There is abundant evidence that those who rise to decision making levels in organizations these days do so because, among other talents and capabilities, they have a sense of dedication to those management processes and procedures that make it possible to commit today’s resources to the productive accomplishment of tomorrow’s targets. Pronouncements about new techniques that will maximize corporate accomplishment have a way of ending up with the admonishment that these techniques will be effective only if they get top management’s attention and support. The corollary is that with top management attention and support they will yield outstanding results. With planning, nothing could be further from the fact. Formal planning has, in general, received the kind of attention and support from top management that most emerging techniques can only dream of. Top management is usually aware of and often dedicated to the doctrine that “the functions of management are planning, directing, controlling, and evaluating, and the first of these is planning”. In company after company, planning functions have been set up with sophisticated, trained staffs. Elaborate plans of all manner and description have been developed. Top management have reviewed these plans in detail. An Expensive Failure..

. Planning should be making a vast and continuing contribution to more effective business management. In practice, planning has been a resounding and expensive failure. A survey of any representative group of companies will document the conclusion that in most of them, planning

still falls short of making an important contribution to corporate accomplishment. Top management is either not getting the results it expects and needs from planning, or it is unable or unwilling to use these results. Planning must be classed as a failure to because : 0 It has changed the way things are actually done in only a very few companies. These companies are, of course, the most successful and competitors aroundaggressive companies such as Xerox (39 per cent return on stockholders equity over the last 5 years), Merck (29 per cent return), Litton (23 per cent), IBM (21 per cent), and Continental Air Lines (20 per cent). These companies reap the benefits of controlling their futures. 0 It has satisfied the needs and desires of top management in only a very few companies. It is noteworthy that the average “life expectancy” of a planner with a U.S. corporation is oniy 33 years. Then they move on because they are dissatisfied-they are not succeeding in getting anything accomplished ; because they are rocking the boat-changing the comfortable ways the company operated before. But corporate planning, in common with the proverbial nine-lived cat, possesses a remarkable ability to survive. This is astonishing considering the number of dead or dying plans strewn about the battlefields of modem business. In company after company, elaborate planning functions have been established close by the executive suite, only to have their handsomely illuminated output end up in the lower left-hand drawer of the president’s desk, to be consulted-if they are consulted-only after the year’s results are in, for the somewhat unproductive purpose of seeing how far the performance has departed from plan. Time after time, these planning functions are dismantled. But,

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undeterred by past failures, managements regularly start over again and mount a new planning effort. Usually the results of the new attempt do not make any greater contribution to the operation of the business of the attainment of company objectives than earlier planning efforts. Certainly no other function of the business has survived so much futile work or such frequency of failure. Despite the apparent failure of planning to perform up to its potential, executives still have faith-they are still convinced that planning will play a more important role in their companies in the future than it has in the past. In a recent survey of executive opinion, in over a hundred companies, not a single executive thought that planning would be less important to the company in the future, and more than two thirds of the sample expressed the view that its importance would increase. . . . With Wide Support All this adds up to the fact that at the highest level of management, most companies want planning and sense that the right kind of planning is essential to orderly and profitable growth. They are willing to devote tremendous amounts of money and valuable executive time to planning, and they are willing to keep trying. They believe in planning despite the failure of plans. The determination to get the benefits of planning takes some odd forms : 0 Some companies continue the process, but avoid the term. “Planning” has become a dirty word. General Motors, for example, does not use the term planning in any corporate title or in the name of any corporate activity. 0 Some companies conceal the fact of planning. In one small company the President and his four Vice Presidents spend a long weekend together each year. They say they have gone fishing, but they spend the time discussing the long-term future of the company, and plan how they are going to operate over the next few years. Thus their own activities are coordinated, but they do not choose to carry the planning they have done to lower levels of the firm. 0 Another company made a start at planning, then got a new president who had had a dismal experience with planning with his previous company. The President vetoed formal planning, but his Vice Presidents were convinced of its value. For more than a year they held monthly meetings with representatives of a consulting firm with extensive ex-

MARCH,

1972

perience in planning. These meetings were held outside the office (and sometimes in other cities), and the consultant’s fees were concealed in the Vice President’s budgets. The meetings enabled the Vice Presidents to solidify their thinking and agree on long-range objectives and specific goals-long range and short rangefor the company. With this agreement they have been able to sway the President toward the direction they want to go without mentioning “planning”. Divisional short-range plans are coordinated and directed toward the same goals. The change in this company is already becoming evident in its industry. Some companies simply keep on trying, hopefully improving their planning efforts and getting greater value from each attempt. Top management has shown its commitment to the concept of formal planning. The question is, what can be done to make planning work better and have a favourable impact on company growth and profits? A review of the experiences of many unsuccessful companies and a few successful ones leads us to some conclusions about what planners and managers can do to make planning an effective management tool. Broadly, the lessons of both logic and experience fall into two patterns: Planning has succeeded in those companies that have recognized the fact that planning is more than special skills and techniques. These companies have accorded important consideration to how planning activities are integrated with other management activities. Where planning works, it works because appropriate attention has been given to the interpersonal relationships that affect the flow of work and information in the organization. Successful planners tend to be those who view planning not as a discrete activity, the purpose of which is a well-turned out plan, but rather as a process that is ultimately integrated with day-to-day decision making and action throughout the organization. Managements that are undertaking a renewed attack on the planning problem will find no better text for their efforts than the comments of the chief executive of a fast growing company in which planning has made the kind of contribution that would bring joy to any hard-pressed president: “To be really effective, planning must be a continuing process, an established way of management life, and an everyday working tool.”

For some compames, planning has brought rich rewards. For most, it has not, and this seems odd considering the support planning received. The failures have stemmed from two sources: 0 Planners have not been giving top management what it needs-a carefully honed management tool for conducting the enterprise on a dayto-day and long range basis. 0 Top management has not been able to specify the nature of the tool it requires and to keep the planners’ efforts directed toward its needs. As one looks at the experience of those companies that have made planning an effective management tool, it becomes evident that there are some common characteristicsofsuccessfulplanning. These serve as the basis for five simple guidelines. They do not guarantee success, but should help both management and planners to avoid obvious pitfalls, and should give planning a better chance of working. The guidelines are : (i) Involve top management at key points, but only at key points. (ii) Involve the doers in planning. (iii) Don’t look for the perfect answer. (iv) Plan for a real world. (v) Start small, move slowly. 1. INVOLVE TOP MANAGEMENT AT KEY POINTS, BUT ONLY AT KEY POINTS

Almost without exception, the timehonoured lists of management responsibilities include planning-usually in first place on the list. It is this traditional identification of the executive with the planning function that has mischieviously led many companies to insist that the planning function be continually under the intimate eye of the top brass. The justification is the oft repeated cliche : “It will not be effective unless the chief executive is involved”. A look at successful planning operations proves that nothing could be further from the truth. In fact, when planning is a productive activity in a company, it actually uses up very little of top management’s time. The trick is to structure the planning operation in such a way that this minimal investment of high level time and talent is brought to bear on the planning process in a manner that makes planning an extension of the policy and strategic decision-making of the top executive group. This is management’s most precious commodity. The chief executive must be sure that he has enough time to give adequate attention to other corporate functions that depend for success on his guidance and support. If he becomes overinvolved in the planning, his other func-

a

tions may suffer. Furthermore, the planning process can run into delays while waiting for his decisions at many points, it can get him needlessly involved in disputes at lower levels, it can take planning initiative away from his subordinates so that they become “yes-men” for a one-man planning operation and it can dilute the enthusiasm that makes planning productive. Planning is a tool for top management. Top management therefore, needs to keep abreast of the planning function. But managements’ time is scarce and valuable, and planning should not become a burden on that time. Successful staff planners are those who make sure that top management knows what is going on, that the key decisions are made, but spare management the time-consuming details. Three Days a Year In a 300 million dollar corporation that boastsahighly effective planning operation, the total involvement of the chief executive in the formal planning process adds up to no more than 3 days a year. In this company, this minimal but important involvement of the chief executive has proved to be one of the keys to its successful planning dT0l-t.

This does not mean that in some companies planning to be effective may not require more time on the part of the chief executive. Sometimes it does, and when it does, there are reasons for it. The point is that it should take as little of his time as possible and never make such a heavy demand on his schedule that it strings out the planning process so that final plans are outdated before they become available. There are many reasons for the confusion about how much of the chief executive’s time needs to be assigned to the planning process. The purpose of planning however, is to cut down the time that the chief executive has to spend on critical decisions. Planning, whatever its demands on the chief executive’s time, should give him more time, not less. When you examine successful planning operations, it becomes clear that they have faced up to the fact that the top management can be over-involved or underinvolved, and that striking a reasonable balance between these equally destructive alternatives is critical to their success. what is required is an understanding of what it is that top management has to contribute to effective planning. Looking first at over-involvement, this can broadly be defined in two dimensions : l Quantitatively, planning must not encroach on the other demands on the time of busy top managers. It must not defer the date when plans

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are available to operating people for their use. l Qualitatively, the time top management spends on planning must be pared down with surgical precision. It must demonstrate the intention to take full advantage of the wisdom and experience of key managers, both line and staff, especially those with responsibilities that keep them close to the pulse of the marketplace. It must, of course, never deprive line managers of their valid need to participate in decisions that affect their operations. Affirmatively, top managers must intervene in the planning effort to take only those actions that they uniquely contribute to process and that lend conviction to the corporate commitment to planning as an additional dimension of fact-based decision making. In companies where planning is successful, the two causes of confusion about the excessive demands on the chief executive’s time have been eliminated. One confusing concept has to do with charging the planning process for the time it takes IO hammer out corporate objectives, a practice which arises from textbook treatments of the planning process that invariably list “definition of objectives” as the first step in the development of corporate plans. Plans, it is true, do have to start from clear statements of objectives, but so does everything else a company does. This becomes clearer when planning is differentiated from decision making. Any decision made in a company has to relate alternative courses of action to goals, so whether a company has a well developed planning procedure or does not. the responsibility for defining objectives is still critical to the management process. Many years ago, in his classic The Practice of Management,’ Peter Drucker described the role of objectives in managing an enterprise. He said then: “0bjec:ives are needed in every area where performance and results directly and vitally affect the prosperity and survival of the business. These are the areas which are affected by every management decision.” Not much has been added to this subject since that time, and not much gained by burdening the planning effort with the time and effort that every executive ought to put into a clear formulation of objectives. Secondly, and related to the demanding problem of setting objectives, is the matter of forecasting. As in the case of objectives, forecasting is not synonymous with planning, and a good forecast is something which management needs whether it is committed to formal planning or not. Most companies had forecasts before they had

plans. C. N. Oursler, formerly Vice President-Corporate Planning at American Airlines, made the distinction in an arresting way: “Forecasting asks what wi/l The skills of forecasting have happen”. progressed enormously in recent years. especially in the fields of technological forecast, and no executive shouid be without. But, as in the case of target-settmg, to charge the planning process with the time etfort and money it takes to develop a good forecast is to throw planning out of perspective. What is important is the fact rhat forecasts involve matters of judgment and. however skilful the people who develop the forecast, it is the chief executive who has to put his blessing on the forecast on the basis of which the company makes its day-to-day decisions. Planning starts where the definition of objectives and the development of forecast leaves off. In the company cited in which the chief executive is committed to spending only 3 days a year on planning, for example, what does he do in those 3 days? He spends 1 day reviewing the assumptions and projections on which plans are based. -By doing so, he assures everyone in the company that everyone involved in planning is starting from the same point. 2. He spends 1 day reviewing the choice of actions that have been identified as critical for corporate profitability and growth, and in evaluating the broad programmes recommended in these areas. -If, for example, marketing is the key to the company’s foreseeable future, as it is in the case of this company, the president looks at the broad marketing plan and the relationship of other plans to the marketing plan. This allows the president to bring his judgment to bear on the broad programmes before time and effort have been invested on their detailed development. He can keep planning from going off the track, weed out less attractive programmes. and assign By thus placing his priorities. imprimatur on the broader outlines of the plan. he contributes to the commitment of those who are now called upon to supply the details. 3. He spends 1 day reviewing the final integrated corporate plan. -After the broad programmes that have been approved have been developed in detail for all of the functions of the business, and after

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they have been integrated into a corporate plan, he participates in resolving any differences of opinion that may still exist and then gives his blessing to put the final plan into action. Or Four Days

This same kind of minimal, but important involvement of the chief executive contributes to an enormously effective planning operation in a major international steel company. Here the chief executive is involved at only four points in the planning process, 1 day at a time: 1. In October. he reviews the forecasts that have been developed, contributes the benefit of his experience, and approves forecasts on the basis for planning. Plans are then developed at the operating levels of the company and integrated into a corporate plan. 2. In February, he participates in a planning conference that critically examines any gaps between planperformance and corporate objectives. The purpose of this conference is to determine strategies that will bridge the gap between the plan and the target. In the light of these strategies, operating people are expected to replan. 3. In June, he reviews the updated 5year plan, and, when any indicated revisions have been made. gives it his blessing. On the basis of this, operating executives are expected to develop their plans for the year ahead. 4. In September, the president reviews and after approves-sometimes modification-the annual plans for the year ahead. At a large Canadian multi-division chemical company the President keeps in touch at the same points, but has somewhat different timing. He spends the better part of a day with each division reviewing their assumptions and projections, what they think they can accomplish. and what they would like to try. When he has heard them all out he has a second meeting with each division to modify their divisional plans in terms of what other divisions are doing and the President’s decisions on allocations of company resources. His final contact is a review of the divisional plans and the overall corporate plan-after the details are filled in. The point is that these involvements are enough-and not too much-to enable the chief executive to control the planning process and to give him an opportunity to impress on everyone in the organization

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1972

the role that he attaches to planning. He establishes its importance by making his contribution at the critical times in the planning process, and only at those times. There are many ways in which the chief executive can get over-involved in planning. The most common, of course, is when he insists on committing time that he does net have so that planning stalls while he takes care of more pressing concerns. Much of what goes by the name of management style these days is made up of loud and clear messages to the troops that planning is not as important as other decisions or actions on the president’s desk. Running through the record of companies with poor planning, however, is another kind of over-involvement-in which it becomes painfully apparent that the chief executive has learned only the lessons of lip service. This is involvement without commitment. l In one company with a successful record of volume growth and profit performance, the chief executive signalled his conversion to a faith in planning by summoning his division heads to a 5-day planning meeting at which all of the top executives were required to present their projections and the 5-year plans they had developed. At the end of the 5 days of give and take the President terminated the meeting with : “Look fellows, we are not going to make any decisions here. This has been a useful meeting because during the next few years, you will see that some of these things will happen”. Needless tc say, planning in that company died on the spot. Under-Involvement

Under development of the chief executive, on the other hand, robs planning of its impact on operations. If the chief executive does not get involved at key points the company will never develop a complete and successful plan. a The President of a packaging company has done a fine job of clarifying the company’s objectives and setting specific goals. But he has never felt that he should be involved in planning beyond this step. Each division develops its own plans within the framework of these objectives and goals, and there is limited liaison among the divisions to prevent most serious conflicts. But there is no organization to put division plans together and create an overall company plan. In practice, the President is being forced into later steps in planning to the extent that he must resolve conflicts between divisions,

and must assign priorities for the use of ccmpany assets where the divisions plans, in aggregate, exceed the resources available. He is aware that resolution of these conflicts and replanning uses a great deal of his time and the time of division executives, and it is likely that he will change his views and take a more active role in planning in the future. In these terms, the under-involvement of chief executives in the planning process takes on a new meaning that has nothing to do with time. To the extent that the objective is to integrate planning into the management process under-involvement is synonymous with undercommitment. Conversely, with a minimal involvement of time, the chief executive can contribute the things that convey throughout the organization his commitment to planning: 1. He demonstrates to all concerned that planning is important to him and to the company. 2. He applies his wisdom and judgment to determining the direction that the company will take. 3. He resolves any differences of opinion in the organization that might otherwise lead to a scattering of effort and a less than optimal use of resources. The exact degree of involvement of the chief executive that is desirable and the points of contact with the planning process that he will emphasize varies from company to company depending on its internal and external environment, and on the sophistication of the planning it does. e There are two airlines that are about the same size, both relatively new at corporate planning, and whose Presidents have similar personalities. One airline is well established in its present markets and actively seeking growth through a vast expansion of its international route structure and through diversification into airlinerelated fields. The president of this company is primarily involved with the stage of developing company objectives and goals, as the nature of the company’s business is changing radically. He tends to leave review of the assumption and projections on which plans are based, and the broad projects, to his executive vice-president and not become deeply involved again until time to go over the complete plan. The other airline has expanded rapidly into new markets in recent years. Its President is less concerned with objectives and goals, which tend to be relatively constant at this stage in the company’s growth, but in-

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volves himself deeply in the broad programmes developed by his division heads and in the detailed plans to support these broad programmes. The degree of involvement of the chief executive will also depend on his personality and previous experience. Some top executives want to stick to the “broad picture”, others want to get into the details of planning. For example, William F. May, Chairman and Chief Executive Officer of American Can, has had extensive staff experience and one time was Vice President-Corporate Planning and Development. He tends to go deeper into the details of planning and spend a relatively high percentage of time on planning. Ellison L. Hazard, President of Continenta! Can, on the other hand, has been an operating man throughout his career. He prefers to leave the details of planning to his divisions and his staff and keep his own involvement to a minimum. Thus the chief executive has to spend whatever time is required, to make these critical contributions. By using his time to convey his commitment he accords planning the prestige it must have if it is to ingredient in the become a productive management process. In this context the chief executive’s contribution starts with structuring and staffIn his look at ing the planning function. the planning process, Kirby Warren ranks “Who is chosen as planning director?2 as the first test that people in an organization apply to an evaluation of the chief executive’s intentions. In this sense, whether assignment to the top planning post is a promotion or a demotion is critical to the success of the corporate planning effort. Incidentally, he cites several instances in which successful performance in the top planning responsibility was the occasion for promoting the man to a new line responsibility, a sequence of events which cut down significantly the chance of planning really succeeding in these organizations-since the successful planners were quickly removed from the planning function. The chief executive’s contribution cannot be measured by how much time he spends on planning. What is critical is the role he wants planning to play in the decision making and actions of his executives. If he wants planning to pervade the company’s life, then the main problem he faces is how to make that clear. Certainly, his personal input into the planning effort is one way of communicating his intentions. How the planning function is positioned in the organization, and the caliber of the people he assigns to this activity, the backing he gives them, and the way he rewards planning performance

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are equally significant. So is the way the chief executive uses-or does not useplanning inputs in his own decision making. As one planning executive has described this in his own company: “The planning activity is largely inseparable from the daily operations. Such integration is achieved not because of some mysterious formula but because of a rather simple one, namely, the boss wants it that way so people work at it.” 2. INVOLVE PLANNING

THE DOERS

IN

Line executives must make the final decisions on plans and must carry them out. They should. accordingly, take an action roie in developing the plans. Resulting mans will benefit from: The 1 experience, and specialized knowledge, and insights of the line executives. Their cooperation in implementing them, if these executives are involved in creation of the plan they will understand it and have a personal stake in it. They cannot pass it off as the work of some dreamers up in an ivory tower. Plans that are passed down are seldom, if ever. carried out. Shattering of the splendid isolation of the planning staff. In the early days of plannmg, there was an unfortunate tendency of planners to set themselves as a race apart, as people with a special expertise that equipped themand them alone-to produce meaningful corporate plans. Long ago, it became painfully apparent that plans developed by planners simply do not work. The reasons for this are complex, residing partly in the realm of behavioural science and the fact that such plans can never gain the acceptance of those who have to do the things the planners call for-and partly in the fact that people locked in the ivory tower of corporate headquarters can never have the intimate knowledge that an operating veteran has acquired from the peculiar experience provided by day-to-day life on the firing line. Whatever the reason, good planners know that planning has to intimately involve those who have the ultimate responsibility for putting the plan to work. For all its obviousness, this has become increasingly difficult to do as long range planning has gained in importance. In short range planning, it is simple enough to upgrade the planning capability of line management. In long range planning, however, the test of planning effectiveness is too far in the future. Long range planning, therefore, usually requires a

headquarters planning staff that can provide the expertise that makes long range plans reliable. While this does not alter the fact that the content of the plans must ultimately be the responsibility of operating people, it does pose some challenging organizational problems. Participation of line executives in planning is not enough. They should do the planning and the staff planners participate. The job of the staff planner is to provide the information, assumptions, and forecasts on which plans may be based; planning expertise and guidance to assist managers. to aid and comfort managers, and to provide liaison between operating units so that their plans mesh. The job of the planner is to make planning easier for the line executives. 0 For example, when Henry Gadsden became President of Merck he gave each division head the responsibility of developing plans for his division. It was left up to the division heads to decide how to do it. In practice, each division head has made his subordinates responsible for planning in their departments. Each division has a small (usually one man) planning staff to provide encouragement, expertise, and an occasional goal to developing department plans and combining them into division plans. The earlier gap that grew up between those who plan and those who have to put plans into practice has been bridged in most companies by acknowledging the need for both line and staff involvement in the planning process. Most line executives these days welcome the assistance of staff planners, and most planners are now aware that their job is to help operating people to better planning, but not to do the planning themselves. 3. DON’T LOOK FOR THE PERFECT ANSWER There is a tendency in any new discipline to feel that there must be one best way to do things. The early applications of critical path scheduling, for example, tended to be efforts to fit the using companies to the existing concept and procedure. But with more sophistication, numerous distinct approaches and techniques have been developed to fit the varying needs of different industries and different companies with these industries. Planning must also be adapted to the particular company. One of the most interesting characteristics of successful planning operations is that they bear little resemblance to each other. This is because they are tailored to the characteristics and circumstances of the organization at a particular point in time. Every company

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has its own distinct history, style of doing business, management tradition, policies, techniques, organization and people. The planning organization and procedure must fit this internal environment, as well as the external competitive environment. A structure and procedure that will succeed admirably for one company will almost invariably be wrong for another organization, even in the same industry. Although a good answer is developed it may be appropriate to change it later. When the internal or external environment changes, successful planning operations change at the same time to fit the new situation. Just as plans are never final, but must be regularly reviewed and brought up-to-date, so planning procedures and techniques must evolve to fit the changing needs of the organization. l In one of the major consumer service industries two of the major competitors, about the same size, have quite successful planning operations that bear only small and superficial similarities to each other. For one of these companies, corporate objectives are defined essentially in terms of deepening its penetration of present markets. The company has just broadened its activities by making a number of important acquisitions that have propelled it into new products and new markets. As a result, the chief executive understandably wants to be intimately involved not only in planning the market effort but with monitoring the performance of his marketing executives around the world, and relating that performance to the targets defined by the corporate plan. To accomplish this the company has recently restructured its planning to build corporate planning around marketing, and to have planning report directly to the chief executive. In the other company, both short and longer term targets are defined by the fact that it is approaching a point of diminishing returns in its present markets. Reflecting this state of affairs, the major efforts of this top management in the foreseeable future are pointed at the need to expand into new markets and into new businesses. In this case, the planning of its on-going operations require very little of the chief executive’s time. On the other hand, he needs direct access to those activities that support his exploration of new business opportunities. In this company, therefore, the planning for existing markets and products is channelled to the desk of an execu-

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1972

tive vice president, who thus shields the chief executive from all but the most critical decisions relating to these on-going activities. Other approaches work equally well for other companies in the same industry. A third company’s planning department is under a vice president for staff services. In this case the planning group is primarily concerned with assisting the operating divisions in developing their plans. Coordination of the division plans into a corporate plan is handled in a meeting of the divisions heads and the chief executive. A fourth successfully splits the planning function, with a short range planning grouped within Marketing and an overall planning group (for information, forecasts, liaison and coordination, and longer range planning) under Finance. Students of planning sometimes seem surprised to find that definitions of the planning function differ importantly from company to company, and the contents of plans similarly show sharp differences. They should. If our goal is to make decision making more fact-based, then the future related facts which bear significantly on corporate objectives should differ from company to company. It is in this sense, despite the protests of planning purists, that both the content of the planning effort and the procedure should differ from one company to another. Similarly, people can validly account for differences in the planning process. Melville Branch, in this study of the planning process,8 flags a fact that is obvious to anyone who has toiled in these vineyards: “A plan which makes sense in every other way may be unworkable because of the personal characteristics of a key executive or a wide-spread employee attitude.” The best planning utilizes the results of rational analysis to the fullest extent consistent with the realistic understanding of psychological limitations and advantages. This may seem self-evident, but it is surprising in how many ways business still fails to appreciate that its primary motive force and operating concern is people, functioning individually and together as an institutional group through a complex system of inter-relationships. What successful planners have had to learn is that in no function of management are people considerations more important than in planning. Of all corporate functions, planning is one of the least susceptible to textbook treatment. The planning effort is an exextension of the present personality of the company, and good planning will differ from company to company more than does any other corporate activity. There are, in other words, many right ways to

plan, and what is right for one company is almost certain to be wrong for another company. Finding the right process for a particular company inevitably involves more trial and error. There is no royal road. 4. PLAN FOR A REAL WORLD Successful planning requires an internal environment that is rigorously realistic. Unsuccessful planning operations seem to have an intangible but important characteristic in common. In these companies, planning seems somehow to be related to something in the far-off future, but of small importance to the problems that came up this morning and must be settled before the case of business today. On the other hand, in those companies with outstanding records of planning success, plans have a hard-nosed relationship to day-to-day decisions. This internal environment is difficult to describe, but certainly one of its characteristics is a certain toughness, particularly about measures of performance against which operations are assessed and towards which plans point. One of the reasons for the success in planning at DuPont is their single-minded use of return-on-investment as a measure of performance. At DuPont, this is a way of life to which young potential executives get exposed at the earliest practical point in their careers. In this kind of environment, planning is a serious affair. The dreamy-eyed reputation that planning has, was once the fault of the planners themselves, but that is no longer the case. Planners have done much to mend their ways. When planning works these days, it is because management surrounds it with a realistic environment in which planning provides realistic alternative ways to meet realistic targets. Setting Targets Too often, management has created an environment in which planning sets targets that are too small to stretch people or too rosy to be credible. When management permits plans to point at goals that are less than can validly be accomplished, the organization senses that there can be no rich rewards for meeting the goals that the plan sets out. What a company gains in caution, it loses in the absence of challenge. Sometimes timidly set targets can have irreparable repercussions. For example, in one major airline the growth objective of the air freight business was defined at 4 per cent for a particular year at a time when the head of the cargo operations believed that the company should be shooting for a 25 per cent increase. On that basis, he felt that he needed additional

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facilities and additional personnel. Despite the fact that his case was well documented, he was denied the facilities. The airlines have long regarded cargo as an ugly stepchild and management was unwilling to commit the resources that a more ambitious goal would have required. The business offered actually grew 35 per cent, as a result of which service deteriorated. Customers were lost to more ambitious competitors and the company has never been able to recoup its position in the air cargo field. Conversely, if the corporate environment is conducive to the development of rosy pictures of an unachievable future, men are not likely to be motivated to give their all in the effort to achieve something that only the most sanguine stockholders could possibly believe. They know that only in school or in romantic movies do people get good marks for trying. Realistic targets must be introduced by rigorously defined responsibility and appropriate rewards for performance. Successful planners have learned that planning works only when management is willing to document the importance it attaches to plans by tying whatever rewards it has to offer as precisely as possible to performance according to plan. The

Problems

of Forecasts

In companies that make planning work, this kind of realistic environment is possible because they have learned to live with the uncertainties of the future and the unpleasantnesses that may lurk there. Companies that make planning work have schooled people to face squarely three facts of life: 1. Forecasts cannot ever be certain. In a changing world they are at best a guess as to a range of probability. Plans and decisions must be made based on the best available information, the best available interpretation of it, and the most knowledgeable assessment of oossibilities. firm the 0 At a major petrochemical overall corporate plan is based on investments, production, and sales that total less than the sum of the division plans. This is because the corporation knows that, as a practical matter, not all the division plans, however well thought out, and regardless of the President’s approval, are actually going to work. The whole is less than the sum of its parts-and this is still one of the most difficult concepts for many of the executives of this firm to face. Successful planners know that it is uncertainties of the future that make planning more valuable, because it puts the company in a position to

move quickly and decisively as the future unfolds. Companies that do not plan effectively are the ones most likely to be victimized by unfavourable events. 2. The best available forecasts may nor be what you want to hear. Successful companies are willing to face up to the future they see, however unwelcome. and plan and act accordingly. Planning succeeds when planners are willing to confront management with unfavourable prospects. DuPont’s planned exit from the rayon business is a case in point. Years ago DuPont planners foresaw the declining return on investment in this field. Forewarned, the company was able to make an orderly retreat from the rayon business and to make the most of its obsolescing investments in that sector of the industry. Even facing good news can sometimes be painful. l The Executive Vice President of one company said. “I wish we had never started planning. With our anticipated increase in market this year, we’re going to have to make a huge expansion in production. This means we’re going to have to get about 400 skilled workers by year end, and they are difficult to find. If we didn’t have planning I wouldn’t have to worry about this for 6 months.” However, since he worried about the problem 6 months before it became critical, there was time to develop and implement a detailed plan for getting these 4.90 skilled workers. It has meant an expansion of staff and three shift operation in personnel; an aggressive training programme to upgrade present workers; and implementation of an apprentice programme to replace the workers being upgraded. But the company will get the workers it needs and will not lose markets because it can’t produce sufficient product. The news may, of course, be unbelievably bad. A projection that the company’s most important product is well into a steady decline in customer acceptance or estimates that a competitor will be making a major sales effort in your prime market area, or the like, will not be welcomed. Management must face these disappointments and plan for them rather than hiding their collective heads in the sand. In the past, kings and emperors were given to beheading messengers with bad news. Today there are still many chief executives who blame bad news on the bearer. In this atmosphere they seldom hear bad news. As a consequence, they are forced to react to bad situations after they have become obvious to everybody, instead of

anticipating them and making plans to adjust. 3. The environment changes and the best forecasts may go astray. Since change. however unsettling, is a part of the world we live in, forecasts and plans must also change. Plans cannot be cast in concrete. They must be regularly reviewed and updated as necessary. Resistance to changing plans usually dooms them. IBM has long had an annual plan updated each year. The changes in this industry are occurring so fast, however, that this year IBM has switched to a system of continuous plan updating whenever a significant change in the internal and extemai business environment takes place that would have an important effect on the annual plan. Pet Milk has several products in highly competitive markets where price wars are common. Pet cannot afford to wait for this kind of development to revise its plans. Over the years, Pet has learned to develop contmgency plans for each of the potential price wars that it foresees during the planning period. The added planning is expensive, but not as expensive as being caught flatfooted and having to react to a situation on the spur of the moment. Selecting the Planners If planning is to achieve its true potential, then the planning process, must be recognized as an activity that makes a significant contribution even though the products of that contribution may not be realized until some point in the future. Management creates this kind of environment by demonstrating its willingness to assign top talent to the planning process and paying top prices for the planning process itself, as distinguished from other factors that can contribute to the accomplishment of the company’s objectives. Ideally, planners should be selected from the ranks of successful line executives. Then they will have both the respect of other managers and intimate knowledge of the problems of implementation. To get the needed men in planning, planning pests must be potential steps to leadership of the company. There are, however. few companies where planning appears to be a route to the top. Bill Phillips at Glidden (now President of International Milling) and Bill May at American Can are happy exceptions. The experience of successful planners indicates that salesmanship ranks high in the required array of qualities. Planning must be sold to action-oriented operating executives concerned with today’s prob-

LONG

RANGE

PLANNING

lems. Nothing hampers these selling efforts more than words and deeds that create a gulf between the planner selling his art and his customer, the line manager. This imposes some very special requirements on the job qualifications of the planning group. As one recent study of planning expressed it: “The Director of Planning has to be both thinker and realist, philosopher and practical politician. soothsayer and salesman”4 A corporate planner recently added: “He should also be able to walk on water.” 5. START

SMALL, MOVE SLOWLY It does not pay to bite off more than the

company can chew. It is seldom wise to attempt to start with a global planning organization and a complicated procedure. Companies that are not used to the discipline of rigorous planning are seldom able to cope the first time around with comprehensive planning that gets into every detail of day-to-day operations. Operating executives, however long they may have been planning their own activities, cannot be expected to learn the techniques of formal planning on a company wide basis on their first try. Nor can they be expected to be willing to take the time required from their day-to-day operations to develop a full-blown corporate plan from scratch. Planning should, accordingly, be started on a small scale and expanded as executives learn the techniques and become convinced of the usefulness of planning. The initial step might be an annual plan for a single division, later expanded to other divisions. Or it might be a rough annual corporate plan, with more details added and the time span expanded in later years. Planning must start small and earn its acceptance. Partly because it is an intellectual exercise and partly because (in its early incarnations at least) it was so far removed from real world problems and from practicality, planning efforts that begin with broad brush approaches to the total corporate effort are likely to fall from their very breadth. Action-oriented executives at any level in the corporate ladder are innately suspicious of thinkers and talkers who have not proved the ability to contribute in terms of results. For that reason, planning works best when it starts with a specific and precisely defined area, proves that it is profitable and then uses that proof as a beachhead

MARCH,

1972

from which to extend itself into other areas of the business. The scope of planning can be increased as success, familiarity with planning, and sophistication increase. Those companies that have built successful planning operations usually have started small. They have introduced planning to those phases of their operations where planning is most needed and most likely to yield significant improvements. The accomplishments in these phases have sold the concept to other areas of the company, and the influence of planning has spread. Because successful companies have insisted on a workday approach to planning, they have frowned on going global immediately and have learned to walk before they ran. For example: 0 A large airline had a sophisticated planning staff producing sound business projections and good analyses of the impact of alternative plans. But the planning staff could never get the top managers-all extremely busy with their own problems-to get together to clarify goals and agree on a broad plan of action. So the planning staff now helps each manager with his problems in his own area and is making slow, but steady progress toward getting them all involved with overall company planning. 0 The President of a paper products company was successfully running a programme of growth through acquisitions and development of new products, but objected to creating any formal planning staff. On the other hand the Vice PresidentMarketing was concerned with the already short, and shrinking, life of many of the company’s products. The Vice President-R & D was concerned about the long lead times for developing new products. They both wanted a planning staff to examine the future and coordinate their efforts with the rest of the company. With the President resistant, they set up planning staffs within their own divisions, then gradually got other Vice Presidents talking with them about the impact of their development and marketing plans on the other divisions. Production, personnel, and finally finance have found themselves doing planning on a divisional basis. The next step will

be to combine these plans on a company-wide basis and formalize the de facto planning structure that has developed. CONCLUSION

A look at successful planning efforts establishes that, in the companies that have made planning work neither the interest of the chief executive nor the proficiency of the planners is what really makes the difference. There has to be a certain technical competence in how planning is done. The nature of planning is such that technical competence, alone, does not suffice to make planning the effective management tool it can be. Companies with successful planning have started with the requisite technical competence but have gone on to corporate planning into the rest of the management process. Functional plans fuse into corporate plans which in turn serve as guidelines to functional planners. Short term plans meld into long range plans which provide the broad framework within which near term decisions become consistent with more remote objectives. In these companies, the mechanics of planning do not interfere with the integration of planning into the whole management process. A special environment has to be created to accomplish this-an environment that reaches from the innermost council chambers of the chief executive out into the farthest field operation. There is nothing easy about establishing this environment. It is creation of this internal environment, rather than development of technical expertise, that makes succ:ssful planning so difficult to achieve. Successful planning is an elusive target that requires looking into an unknown future, reducing the range of uncertainty, examining alternative courses, selecting the optimal route to corporate objectives, and regularly reviewing and modifying the plans developed is expensive and difficult. But formal planning will work, and work very well indeed, if given a chance. q REFERENCES Peter F. Drucker, The Practice ofManagemenf, Harper & Row, New York (1954). (2) E. Kirby Warren, Long Range Planning: The Executive Viewpoint, Prentice-Hall, New Jersey (lQS6). (3) The Corporate Planning Process, AMA, New York (1962). (4) E. Kirby Warren, op. cit.

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