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Strategic Planning and Management

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A Review of Recent Experience

Nagy Hanna

WORLD:RANKSTAFFWRKING PAPERS
Nuiber 7$1

WORLD BANK STAFFWORKING PAPERS

Number 751

StrategicPlanningand Management
A Review of Recent Experience

Nagy Hanna

The World Bank

Washington, D.C., U.S.A.

Copyright )1985
The International Bank for Reconstruction
and Development/THE WORLD BANK
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Second printing September 1989
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Nagy Hanna is senior planning officer in the Institutional Planning Division of The
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Library of Congress Cataloging-in-Publication Data

Hanna, Nagy.
Strategicplanning and management.
(World Bank staff working papers ; no. 751)
Bibliography:p.
1. Strategic planning. I. Title. II. Series.
HD30.28.H367 1985
658.4'012
85-17852
ISBN 0-8213-0597-2

ABSTRACT

This paper reviews the recent experienceof strategicplanning

and managementin large institutions,primarily in the private sector. The
main conclusionsare:
l.

Planning practiceshave undergone fundamentaltransformationin

response to acceleratedchanges in the complexityof
institutions,the diversity of their businesses,and the
uncertaintyand competitivenessof their environment.

2.

Planning has evolved from a preoccupationwith financial

controls,forecastingand formal planning processes towards
increasingemphasis on understandingthe external environmentand
competitors,providing a strategic framework for resource
allocation,and integratingthe strategies,structures,systems,
skills and values of an institutionto fulfill a clearly defined
mission.

3.

Strategicplanning practices have employedvarious tools to

promote environmentalanalysis, differentiateamong market
segments,and formulatea hierarchy of strategiesfor corporate,
businessand functionallevels. In general, strategicplanning
has introduceda disciplinefor coherent thinking about the long
term and uncertaintiesand raised awareness of the threats and
opportunitiesarising from competitorsand environmentalchanges.

4.

Strategicmanagement has emerged as the latest form of planning

in response to tendenciestowards bureaucratizationand
centralizationof the strategicplanning function. Strategic
managementemphasizesan ongoing strategymanagementprocess,
widespread creative thinking,and the integrationof strategy
formulationprocesseswith other managementstructuresand
systems. It employs a planning process that is outwardoriented, issue-focussed,creative, selective,opportunity
seeking and highly interactive. It emphasizesleadership,
delegationwithin a strategicframework,and line management
ownershipof strategydevelopmentand implementation. Staff
plannersact as facilitators,catalysts,counselorsand
stimulatorsto the line manager,who must be the strategist.
Strategicmanagers bridge the gap between planning and
implementationby addressingimplementationearly and often, by
involving key players at early stages, by experimentation,and by
consciousmanagement of resistanceto change.

Acknowledgment

This paper benefited from the contributionsof the review team

which surveyed planning practices,led by Nagy Hanna and comprisingPetter
Langseth, Robert Voight, Douglas Graham and Margret Thalwitz. The author
gratefullyacknowledgesthe helpful comments of a larger number of World
Bank staff. In particular,he would like to thank Joseph Wood, Shinji
Asanuma, Ian Scott, Richard Lynn and Jim Kearns for their comments and
advice.

STRATEGICPLANNING AND MANAGEMENT

A Review of Recent Experience
Page
I.

OVERVIEW . .

. . . . . . . . . . . . . . . . . . . . . . . . .

II. THE EVOLUTION OF PLANNING.

A.
B.
C.

Financial Planning . .o.

. . . . . .....
.
. . o.
.
. . . . ...
Long-Range Planning.
. . .
. .
. . . .
. . . .
. .0.
Strategic Planning . o ..
. ..
. . ..
. . ..
...
...
.

8
11

. .

. .

. .

Segmentation and the Strategic Business Unit (SBU). .

Portfolio Analysis/Competitive Positioning. . . . . .
Hierarchies of Strategies . . . . . .
. . .. . .. . ..
The Strategic Planning Process. o . . . . . . . . .
.
The Use of Scenarios in Strategic Planning. . . . . .
Contingency Planning o o . . .o.
. . . . ..
. . . .
Value Added by Strategic Planning . . . . . . . . . .
The Limitations of Strategic Planning . . . . . . . .

(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)

STRATEGIC MANAGEMENT. . . . .

III. THE STATE OF THE ART:

A.

. .
.

*.

. .
. .
.
. .

20
22
29

32

41

o..........
o

*.
.....

42

Integrating Planning With Other Managerial Systems. . .

(i) Link to Organizational Structure . . . . . . . . .
(ii) Link to Resource Allocation . . . .
. . . . .
(iii) Link to Communication and Information Systems. . .
(iv) Link to Incentive Structure.
. . . . . . . . . .

.
.

(b)

Strategic Issue Management & .

o
(a)
(b)
(c)
(d)

..

. .

..

Purpose .....
. . . . . . . . ..o
..
. o
What is a Strategic Issue?. . . . . o . . . . . . .
What is a Strategic Issue Management (SIM) Process?
Modalities of the SIM Process . . . . . . . . . . .

Culture Management
(a)
(b)

IV.

13
17

34
36

Changing The Strategic Planning Process *. . . . .

.. .
(i) Changes in the Structure . . . . . . . . . . . . . .
(ii) Changes in the Modalities of the Process . . . . . .

(a)

C.

13

Changing and IntegratingStrategic Planningand Management

Systems. . . . . . . . o .o
....

B.

49
51
52
55

57

59

..

.
.
. . .
. . .
. . .

. .. . . . . .

Managing the Corporate Culture. . . . . .

. .
. . . . .
Planning and Managing "Capability Transformation" . . . .

SUMMARY AND CONCLUSIONS

. . . .

ANNEX 1 - A Methodological Note

ANNEX 2 - Selected Bibliography

..

...

..

..

..

42
43
45

59
62
62
66
69
69
75

80

StrategicPlanning and Management

A Review of Recent Experience
I. OVERVIEW

Managementpractices,particularlyat the executive level and in

the private sector are undergoingsubstantialchanges in response to
fundamentalenvironmentalchanges. Organizationshave to respond to new
levels of global competitionand economic restructuring,market shifts,
increasinguncertaintiesand an acceleratedpace of change. Technological
and institutionalinnovationshave made finance, physicalresources and
finishedgoods more mobile than ever. The world is becoming a highly
interdependentand competitivemarketplace. The pace of technological
change has also acceleratedand contributedto the dynamics of a world
market with substantialand frequentshifts in competitiveadvantage. In
the corporateworld, extremelydiversified,complex and global
organizationshave emerged. Also industriesare becomingmore knowledgebased and skill-intensive. The "knowledgeworker" has become the dominant
labor force in industrialcountries. Public service institutionsare
facing similar environmentalchallengesas they support social changes that
must accompany economic change. They have to exhibit new levels of
flexibilityand selectivity. They are learning to respond quickly and
effectivelyto diverse needs and clients in full recognitionof their
specific comparativeadvantagesand of those of other actors in the
environment.

A previous era was characterizedby stability,continuity,and

predictablegrowth. That era was governedby the logic of large scale

-2-

production: standarizedrules, centralizedauthority,machine-like

organizations,predictabledemand and given ends. The management's
attention to internal efficiencieshad as its premises growing demand,
steady supply of resources,and the consensusof stakeholderson the
mission (businesses)of the institution. Slow adaptation,gradual
evolution,productionand efficiency-orientation,
and forecast-based
planningwere then perhaps the adequatemodes of responsefor growth and
survival.

With the emergence of the present era of uncertaintyand

turbulence,predictionbecame impossibleand strategic adaptationhad to
replace the stable rules of slow evolution. New productiveorganizations
are emergingwith flexible systems of production,outward-lookingand
customer-focusedcultures, less hierarchicalstructures,and learningoriented processesof planning and decisionmaking. There is also a
growing evidence that corporationsare increasinglyadopting and adapting
technologiesand know-how created by others; more emphasis is given to
screen the environmentfor informationand to gain competitiveadvantage
through strategicpartnershipwith external sources of knowledge and
innovation. The new era requires a new form of managementthat fosters
strategicthinking and behaviour,influencesthe external environment,and
organizesfeedback from clients and stakeholders. More than ever before,
top managementhas to focus on setting and communicatingclear directions,
generatingbroad-basedconsensusand commitmentsabout adjustments,and
engaging all employees in continuouslearningand the constant improvement
of the entire organization. In this context,planning becomes a critical
tool for top and line management to facilitaterapid and active adjustment,

- 3-

to define and build upon competitive advantage, to concentrate resources on

the highest payoffs and the future, and to enhance the management of
change.

This paper identifies the major steps in the evolution of

planning, to the present state of "strategic management'. Its objective is
to clarify the basic concepts and components underlying the recent
experiences and practices of leading corporations in strategic planning and
strategic management. The paper draws on the experience of 90
organizations that have been surveyed through direct interviews with
strategic planning managers and selected executives and consulting firms
(see Table 1, page 51, otl summary of findings and Annex I on methodology of
the survey). Although most of these organizations were selected from the
private sector, where most of the innovations in planning practices have
occurred, this paper emphasizes those concepts and practices that are
essential to the effectiveness of both public and private organizations,
including public and professional "services" organiszations.

The most important and recent trends in the strategic planning

process emphasize:

Ownership: line managers must see strategy formulation and

implementation as their business; strategy setting must be
restored to be the core of line management responsibility. "The
notion that an effective strategy can be constructed by someone
in an ivory tower is bankrupt". Top management, in particular,
support and drive the strategic planning process as its tool for
executive management.

-4-

External orientation: strategymust be born out of close

relations with and sensitivityto customerneeds and market
shifts.

Implementability: the credibilityof planningwill erode to the

extent plans do not get implementedeffectively;changing the
capabilityof organizationsto manage new strategiesand postures
is at the heart of strategicplanning.

Agility: the planning process must be informedbut not enslaved

by analysis and bureaucraticroutines; it must be flexible,
responsive,and selective (rather than calendar-driven,
formalisticand comprehensive). It should enhance understanding,
creative thinking,and experimentation. There must be a
fundamentalchange in the nature of planning from an exercise in
forecastingto an exercise in creative choice.

Add Value: planners and planning systems must be seen to

contributedirectly to improveddecision making and strategy
implementation.

These changes in planning practicesare congruentwith and

reinforcedby other changes in managementpractices. These transformations
emphasize:

Leadership: top managementmust lead organizationalchange. The

keys to managing change are (1) a clear mission; (2) well thought

-5-

out and clearly communicatedstrategies;(3) top management

drive; and (4) bold implementationactions. The closer managers
are to the point where the product is made or the service is
delivered,the more important is the capacity to clarify purpose,
to inspire people with its importance,and to meet their
requirementsand expectations. To fulfill their role, senior
managers should be active communicatorsand motivatorsand should
infuse their organizationwith vision and purpose'/.

Culture Management: a key to effective organizational

performanceand strategic adaptationis to develop a
consciousnessof the organization'scharacter,of the limitations
and possibilitiesderived from its history, and to consciously
shape this culture both as a resourceand a constraintto
strategic adaptation. The elements of success in "In Search of
Excellence"are primarily cultural: closenessto the customer,
bias for action, autonomy and entrepreneurship,etc. Survey
results indicate that CEOs are assuming their responsibilityas
leaders of the corporate culture and value shapers,rather than
simply occupying the apex of a multi-layeredbureaucratic
structure.

1/ This suggests that senior managers should devote significanttime and

effort to communicateand engender a sense of direction and purpose to
all levels of staff. This may involve managers in open and frequent
meetings and professionalfora with various sectionsof the
organization,intensive informationcampaigns in differentmedia, and
presentingall staff with themes, visions and clearly defined
organizationalobjectivesand strategies. This may be referred to as
"transformational"
leadership.

-6-

Stimulatinginnovationand learning: managementmust assume

responsibilityfor strategizing,for choosing and modifying "what
businesswe are in", for developingnew competences,for
validatingthe choices made, and for energizingthe values and
aspirationsof organizationmembers at all levels to sustain
these choices. At the heart of this process are learning
organizationsand learningpersons. There is a resurgencein the
developmentof organizationcapabilitynot only in management
ranks, but wherever creativecontributionsto competitive
advantage can be sparked and developed. This extends beyond
trainingand encompassesappropriateincentives,careful career
planning and placement,decentralization,delegation,an open and
supportiveclimate for learning,and the nurturing of teamwork
and collaborativeentrepreneurship. In an environmentwhere
knowledge and innovationare the cutting edge of competitiveness
and relevance,managers are expected to empower staff to act on
their ideas and be rewarded for risk taking and entrepreneurship.

An integratedapproach: orchestrationof strategy,structure,

systems, staff, skills, style and shared values: organizational
change and developmentis not simply a matter of selecting a new
strategyor organizationalstructure. Rather, effective
organizationalchange is the result of managingmutually
reinforcingchanges in the strategy,structure,systems,
staffing, skill development,managerialstyle, and organizational

-7-

2 /.
culture (shared values)

These elements of change management

are closely interconnected;it is difficult,perhaps impossible,

to make significantprogress in one factor without progress in
the others as well. The role of top managementis to initiate
mutually reinforcingchanges in these factors;a priori, it is
not obvious which of the seven factors will be the driving force
in changinga particularorganizationat a particularpoint in
time.

2/ This implies a shift from managementby control and adherence to

proceduresand processes,to managementby intellectualleadership,and
by orchestrationof all the capabilitiesof an organization.

-8-

II. THE EVOLUTION OF PLANNING

The reasons for the emergence of strategicmanagementand the

problems of implantingstrategic planning processes in organizationscan be
best understoodwithin a historical perspective. This perspectivesuggests
that managementsystems evolved in response to qualitativechanges in the
environment. Each system addressed a particularchallenge,and as its
limitationsbecame clear, other capabilitieswere added to complement
earlier systems and/or older systems had to be totally transformed.

Four major stages are recognizedhere:

financial planning (managementby budgetary control)

long range planning (managementby extrapolation;improved

forecasting)

strategicplanning (managementby strategic analysis and

positioning)

strategicmanagement (managementby widespread strategic

thinking,well defined strategic framework,effectively
communicatedvision and strategy, and strong culture).

A. Financial Planning

This stage emphasizesthe annual budgeting process and

operationalefficiency issues. This is the dominantactivity of top

-9-

management and was sufficientfor the continuedgrowth of organizations

within stable environments. It still predominatesin large bureaucracies
and heavily regulated institutions. It remains an importantbuilding block
of more advanced planning systems. However, its role, structure and links
to other management functionshave been changed in fundamentalways when
used in the context of advanced strategicplanning systems.

The traditionalbudgeting process is based on standards of

efficiencyand performancethat are implicit in budgetary projectionsand
targets,and are derived from historicalexperience. This process has been
subjected to continuousrefinement;to increase flexibilityand
transparency;to increasedelegationand task control; and to facilitate
other management functions. A new approach to the use of budgeting for
setting performance (productivity)targets calls for the use not only of
historicaldata, but for the establishmentof commitmentsthat emerge from
a strategicplan, or from negotiationsconductedwithin a managementby
objectives(MBO) framework. Other approaches to link budgets to
performanceimprovementsand enhance non-incrementalresource decisions are
Planning, Programmingand Budgeting System (PPBS) and Zero-BasedBudgeting
(ZBB). The latter establishesa set of comprehensiverules to force
managers to justify their budgetary allocationsfrom ground zero. These
refinementsare usually associatedwith later stages in the evolution of
planning.

The complementaryprocess to the budget is financialcontrol.

Financial control measurementsare used to judge the performanceof a
corporationor of well-definedsegmentswithin a corporation. Recent

10

advances have emphasizedthe transparencyof cost structuresas the basis

for formulatingcompetitivestrategies,low cost comparativeadvantage,and
competitivemarketing and pricing (e.g., the deregulatedbanking
services). The notion of the responsibilitycenter has been developed to
promote the decentralizedaccountabilityof profit and cost performanceat
various levels in the organization. Substantialgains in performance
improvementscan still be achieved, particularlyamong public organizations
such as the Bank, by rendering the cost structure transparentand by
subjectingline managers to internalmarket disciplineand incentivesthat
serve broad institutionalgoals.

Even among profit-orientedorganizations,exclusive reliance on

budgetingand financialcontrols as a planningmode has proven to have
major limitations. The main pitfall is excessivemyopia and undue concern
with short-termobjectives(profitabilityor cost effectiveness)at the
expense of the long-term developmentof the organization. Moreover,
budgetary-basedresource allocationdecisions lack a long run frameworkfor
strategiccommitments. The proper developmentand communicationof the
business (institutional)strategyand the translationof the resulting
strategiccommitmentinto resource allocationsand meaningfulperformance
indicatorsare essential requirementsto prevent the misuse of budgeting
and financialcontrols. Targets for a given year can probablybe
achieved. The main question is, at what price?

B. Long-RangePlanning

Long range (LR) planningwas a response adopted by many firms to

manage the unprecedentedgrowth triggeredby the economic boom during the

11

post World War II period. To meet the required expansionsof capacityand

to find the correspondingfinancial resources,it became necessary to
extend the planninghorizon beyond annual budgeting. The starting point
for LR planning is a multi-year forecastof demand (the firm's sales). All
other functionalplans are based on this forecast,which represent a growth
commitmentof the organization. The final step is the aggregationof these
functionalplans (projections)into a long or medium-term financialplan.
The forecastingeffort relied heavily on historicalprojectionsand was
primarily a bottom-up aggregationof budgets and programs.

The primary contributionof LR planning and budgeting has been to

provide a multi-yearperspectiveon resourcesand thus facilitatethe
developmentof strategiesand policies for their use. It forced managers
to confront the long term resource implicationsof their decisions. The
limitationsof this mode of planning became clear with the increasing
uncertaintiesof demand and growth prospects and the growing awarenessof
the need to better understand the market/client. With increasing
competitionand growing complexityin the environment,some of the basic
assumptionsunderlyingforecast-basedplanningwere called into question.
The growing uncertaintiesfrustratedthe forecastersand underminedthe
credibilityof "blue print" planning. The typical reaction of
forecast-basedplanning has been to add further complexityand data to
heir large scale forecastingmodels. Moreover, beginning the processwith
sales (demand)forecastsrepresentsa serious flaw. Instead, the focus
should be on forecastingtotal markets (needs) which are linked to sales
through the market share. The latter is a criticallyimportant decision
variable in the definitionof a strategic position. LR planning also

12 -

assumes a static portfolio (mix) of productsand a focus on current

capabilities. This type of planning has often deterioratedinto a
mechanical routine and a mere extrapolationof the past. It has distracted
managers from understandingclient needs and the dynamics of markets. It
has focussedplanners' attention on predictingrather than creating the
future. It has often made managers fall into the trap of thinking they
were creating a sustained growth situationwhen, in fact they were merely
being driven by highly favorableexternal forces. Even when conditions
were not favorable,forecastedtrends have often shown a tendencyamong
planners that has come to be called the "hockey sticks" phenomenonwhich
are plans that project a sudden recoveryof demand (sales, lending) and
performance,even after a sustained decline.

LR planning does not work under changingexternal conditions,

increasinguncertainties,intensive competition,or in situationsthat call
for major discontinuitiesbetween the past and the future. Likewise, it
does not work for organizationswith diversifiedproducts (programsor
services)or corporationsengaged in a variety of businesses. The
functionalorientationof LR planningpresupposesa monolithicbusiness
structureand a homogenouscustomer (need). When there is a multiplicity
of businesses(clients,geographicmarkets), it is essential,first, to
understandtheir inherentdifferencesin order to meet their distinctive
needs. Notwithstandingits shortcomings,LR planning constitutedan
important first step in preparing for the next stage of planning
evolution.

- 13 -

C. StrategicPlanning

With acceleratingstructuralchanges in the national and global

economies and growing uncertainty,complexityand unpredictabilityin the
3 /, organizationsbegan to lose faith in forecastingand in the
environment

use of blueprint planning to eliminate uncertainties. Planning had to

become externally-oriented.Strategic planninghas provided some key
concepts and processeswhich help to understandthe market and the forces
driving change, a dynamic and creative framework for resourceallocation,
and a process for the generationand evaluationof strategic choices at
various levels in complex and diversifiedorganizations. The following
three key concepts that have been used extensivelyin strategic planning:
(1) Segmentationand the StrategicBusiness Unit (SBU), (2) portfolio
management,and (3) a hierarchyof strategies. In the following
discussion,each of these concepts is first described and is then employed
in a prototype strategic planning cycle to illustrateits role and how the
system operates at prototypicalmanagerial levels and in the strategic
planning process.

(a) Segmentationand the StrategicBusiness Unit (SBU)

The concept of segmentinga company's activitiesin the market

place into strategicbusiness areas arose in response to the increasing
diversity and complexityof the businessesand environmentsthat
diversifiedcompanieshad to manage. With diversification,the first step
3/ For a full appreciationof the nature and degree of changes in the
socio-economicenvironmentand their implicationsfor institutionssee
Robert P. Reich, The Next America Frontier, Times Books, 1983.

- 14

in strategic analysis became not to define "the business we are in"4 /, but
to identify the multiplicity of the distinctive businesses of the company.
In order to do this, management had to make a fundamental change in
outlook.

It became necessary to question the historical portfolio of

businesses and to avoid limiting business prospects to historical product

lines and established operational units.

It became necessary to shift to

an "outside-in" perspective: to analyze the environment of the firm in

terms of distinctive areas of demands, trends, threats and opportunities.

The unit for this analysis is the strategic business area (SBA)
which is a distinctive segment of the environment in which the firm does
(or may want to do) business. As the first step in strategy analysis, the
respective SBA's are identified and analyzed without any references to the
firm's structure or its current products. In business, the pioneer was GE,
which developed a complementary concept called the Strategic Business Unit
(SBU) which is a unit of the firm responsible for developing the firm's
strategic position in one or more SBA's.

This environment-centeredperspective was pioneered in the U.S.

Department of Defense by developing the "mission slice" and creating new
units charged with strategic planning for the respective "mission slices",
independent of the operating departments of the Defense (Army, Navy, Air,
Marines). One example of a mission slice was the "Polaris" missile
development project. In this application, the SBU's had only strategic
planning responsibility, the departments being responsible for strategy
implementation.
4/

The importance of defining or choosing the right business is reflected

in the criticism leveled against railroads and petroleum companies for
failing to articulate their business concepts, to be in the
"transportation business" and in the "energy business" respectively.

15 -

In our survey, we found considerablevariationsbetween

corporationsin relating the strategicstructure (the hierarchy of SBU's)
to the operating organization. In the Departmentof Defense example
mentioned above, the duality of structure,one for strategy formulationand
the other for implementation,led to conflicts and problems during
implementation. To avoid such duality, GE undertook the difficult task of
matching existingoperating units to the SBA's, thus making their SBU's
responsiblenot only for strategy planning and implementation,but also for
subsequentoperating performance(profit making or satisfyingthe
market)5/.

An intermediatestep between the above options is to create a

strategic (SBU) structure that articulatesstrategy formulationand

implementationbut assigns the strategic roles to the operating managers;
in this case many managers assume dual roles, strategicand operational.
Given this, systems and incentivesmust be developed to balance their
6 /.
attentionbetween short- and long-termimperatives

In the terminology

of Texas Instruments,these individualswear "two hats". Other

organizationshave used the SBU structurefor new businessdevelopment
5/ But GE found there are limitationsto reorganizingthe firm to provide
one-to-onecorrespondenceof SBA's and SBU's because a reorganization
based on the SBA, which maximizes the effectivenessof strategy
formulationand implementation,may compromisethe firm's operating
performanceor may be infeasiblein light of commbrnresources and
productionlinkages.
6/ At Texas Instruments,a planningorganizationwas adopted which
differed from the organizationfor operatingday-to-daybusiness.
Short-runoperationsare decentralizedto product/customercenters
(PCCs),which were keyed to existing capabilities,serving existing
markets and incrementalexpansions. A new structure,called
Objectives/Strategies/Tactics
(OST) has been created to supplementthe
PCC structure. At the top of the OST structureare the objective
managers, and each objective is served by several strategymanagers.
In turn, each strategy is served by several tactics managers. These
managers are selectedamong the senior and line managers and are
expected to handle both their short-runoperating responsibilityand
the assigned long-run strategicresponsibility.

16 -

while maintaining the formal organizationalstructure for on-going

7 /.
businesses

The most extreme case that can be adopted in seeking

integrationbetween operationaland strategic responsibilities,when these

responsibilitiescannot be squarelyassigned to a single individual
8 /.
(wearing "two hats"), is the matrix structure

Many organizationshave used the SBA/SBU concept as the basis for

periodicallyrealigning the operating structurewith the strategicfocus of
their businesses/markets. Others have adopted a dual structure,reflecting
the difficultyof changing the operating structure too frequentlyand the
flexibilitythat the SBU structurecan provide by changing the strategic
aspects of managementprocesses to respond to acceleratedchanges in the
environmentwithout full reorganizationof operations.

The segmentationprocess may be guided by various dimensions,

dependingon the driving forces of the market and the organization. The
common dimensionsused to determine SBA's/SBU'sare: demand (growth
prospects),customer type, geography and technology. The segmentation
process must identifya large number of significantlydifferent
combinationsof SBA's/SBU'sso that each SBA/SBU should include as few
product/marketsegments as possible to allow for the developmentof
7/ At Elkem (Norway),both an SBU organizationand a formal organization
were initiallydeveloped;the SBU organizationwas actively used to
introducenew products or ideas. After a while, however, the SBU
organizationtended to be formalizedinto a structureconformingwith
the rest of the company. IBM's Personal Computer Project and GM's
"Saturn Project" are variations on this approach to the use of SBU's.
8/ A true matrix organizationhowever is more than an organizational
structure;it has overwhelmingcultural, behavioral,planning and
systems implications,all of which should be congruent and properly
balanced for the matrix to be viable.

17-

coherent SBU strategies and meaningful decisions on the strategic

allocation of resources. On the other hand, the number of SBA's/SBU's must
be small enough to ensure a manageable span of control for the top
management and corporate planners and hence to keep strategic decisions
manageable and the strategy of the overall organization coherent.

Regardless of the limitations and the difficulties in segmenting

a firm's environment into SBA's and reorienting its own internal structure
in terms of SBU's, the SBU concept has become a common tool for giving a
clearly organized view of its future environment and of differentiating its
strategies to meet the increasing diversity of the businesses (roles) it is
in.

The SBU has become to strategic planning what a profit (cost) center

is to financial planning. During our survey we noted that the leading

organizations have further enriched this concept to enhance the
decentralization of strategy formulation, to improve the focus of dialogue
among levels of management on strategic issues, and to ensure
accountability for strategy implementation.

(b) Portfolio Analysis/CompetitivePositioning

Although the concept of portfolio management and the analytical

tools used for its implementation have been limited to private diversified
corporations, it is important for its impact on strategic thinking and the
possible development of parallel methodologies in other organizations that
might enhance thinking about and the communication of distinct strategies.

The essence of portfolio methods is to position each business

(domain) within a matrix in accordance with:

(1) the attractiveness of the

- 18 -

industry (market growth, economic factors,etc.) and (2) the competitive

strength (market share, comparativeadvantage,etc.) of the firm. This
correspondsto viewing a business strategyas a response to two dimensions:
(1) in facing the external environment,to try to take advantageof market
opportunitiesand neutralize adverse environmentalimpact; and (2) in
facing the internal environment,to reinforce internalstrengthsand
improve upon perceivedweaknesses. Put differently,the portfoliomatrix
views strategyas a plan of action for maximizingor realigningone's
strength (comparativeadvantage)against the forces at work in the
environment(demandsand opportunities). The results of this analysis,
presented in a simple graphical display,allow managers to visualize the
contributionof each business to the corporate portfolio. At the corporate
level, portfolio analysis providesa tool to set up criteria for resource
allocationamong various SBU's, to identifythe major strategicissues and
performancegaps facing various SBU's, and to balance the risks and
potentials,developmental(investment)needs, and cash flows among various
SBU's. At the business/SBUlevels, the focus of attention changes to
specific product/marketsegments.

Among the most popular portfoliomatrices is the "AttractivenessStrengthMatrix", developed by General Electric and McKinsey & Co. The
process begins with the identificationof criticalexternal factors which
are noncontrollableby the firm. This leads to the determinationof the
overall attractivenessof the industry to which the businessbelongs (e.g.
market size, market growth rate, competitivestructure,industry
profitability,political concerns,technologicalfactors, ... ) and
similarly to identifythe critical internal (success)factors,which are
largely controllableby the firm. These factors are weighed and use to

19

identifythe current position of the businessin the "AttractiveStrength

Matrix". The process of generatingand probing these factors is
fundamentalto a deeper understandingof the business the firm is in and
the firm's own strengthsand weaknesses. This process is repeated by
identifyingthe trends of each external factor to gain an understandingof
the most likely environmentthe firm will be facing and to anticipate
explicitlywhat are the competitive,economic, financial,socio-political
and technologicalassumptionson which its proposed strategicactions will
be based, (often, this step does not lead to a single projection,but to
several scenarios). Having determinedthe future trends of industry
attractiveness,a strategic positionis selected for the future development
of that business (SBA/SBU),and the global competitivestrategy (desired
business strength)is decided. Subsequently,the new positioningof each
of the controllablesuccess factors is selected to achieve that overall
business strength; this step provides the basis for identifyingthe
multi-functionalaction programs necessary to secure a long-term
sustainablecompetitiveadvantage. The strategiesformulatedfor each
business thus have two components: (i) broad action programs based on the
controllablesuccess factors (neutralizeinternalweaknesses, build on
positions of strength);and (ii) broad action programsbased on the
external factors (preventnegative consequencesof adverse trends, take
advantagesof potential opportunities).

Portfolio approacheshave made important contributionsto the

improvementof strategicplanning thinking. They represent simple and
effectiveways of decomposingthe firm's activitiesinto a set of
well-definedbusinesses. By permittingthe clear differentiationof the
nature of each business in terms of industry attractivenessand competitive

20

position, portfolio approachesallow top managers to set distinct

strategiesfor each business in accordancewith its inherent potential and
developmentalneeds. They also representa way of communicationthat
captures the essence of strategic options confrontinga diversifiedfirm.
They were judged as most significantin raising the strategic alertness
(externalorientation)of many managerswe met since their implementation
has required a minimum level of quantitativeinformationregardingmarket
potential and competitorsperformance. They have provided a disciplined
process for seeking opportunitiesfor growth, and a necessary step for
improvingenvironmentalintelligence. Finally,portfoliomanagementraises
awareness and provides a common frameworkfor examining the corporation's
comparativeadvantage in each businessand for making difficultchoices to
ensure selectivityin each segment or role.

(c) Hierarchiesof Strategies

Within large organizations,strategy formulationprocesseswere

progressivelydifferentiatedto match key levels of executive and operating
management. This need for multi-levelplanning and strategyformulation
parallels the need for a hierarchy of objectivesin large organizations.
This differentiationwas also a response to the need to deepen strategic
thinkingand action throughoutthe organization,involve lower levels of
the managerialhierarchy,and promote decentralizationand responsiveness.
The common hierarchy of strategies(planninglevels) involvesthe following
three major levels: (a) Corporate Strategy; (b) business (SBU) strategies;
and (c) functional strategy.

21 -

The emphasis of corporate-levelplanning is on establishingthe

mission of the firm, stating corporate objectivesand strategic thrusts,
defininga corporatephilosophyand values, identifyingthe domains in
which the firm will operate, and on the broad allocationof resources
consistentwith corporatepriorities. The corporate level strategyis
concernedprimarilywith answering the question: what set of businesses
(roles)should we be in? Consequently,scope (product/marketsegments)and
resourcedeploymentamong the SBU's are the primary focus of corporate
strategy.

At the business level, strategy focuses on how to operate or

compete in a particularbusiness or product/market(service/client)
segment. The most importantcomponentsof business strategyare
determiningpresent resourceand skill deployment (distinctivecompetence)
and creating competitiveadvantagesby repositioningresourcesvis-a-vis
competitors (other actors).

At the functionallevel, the focus of strategyis on maximizing

resource productivity,integratingactivities to support corporate and SBU
strategies,and the further developmentof distinctivecompetencesof the
overall organization,(e.g. R&D).

In our survey we found many variations regarding the degree of

emphasis on one of these levels of planning. For conglomerates,holding
companiesand where extensive decentralizationof planninghas been
achieved (such as CitiCorp.),most strategicplanning activitiesare
carried out at the SBU level. In other complex conglomerates,where groups

22

of SBU's share significantresources and concerns among themselves(HP,

GE), a new hierarchicallevel called group or sector managementhas been
introducedto promote synergy among SBU's. Yet in other organizations
where strategicplanning is relativelyrecent and planning skills and
culture are not commonlyshared, corporate-levelplanning is the focus and
is oriented towards controllingand evaluatingstrategic planning at the
SBU level or major participationin SBU planning activities. At
functionally-organized
firms, corporate planning is relativelycentralized
and often combinedwith planning for key functionalareas (at Kodak,
technologyplanningis the responsibilityof corporate planners). In sum,
the scope of planning at various levels varies between organizations
because, among other reasons, of variationsin managementstyle, the degree
of diversity among businessesand markets, the degree of common sharing in
strategicresources,and the availabilityof planningskills at lower
levels.

(d) The Strategic PlanningProcess

The above discussionof the key concepts of strategicplanning

can now be used to describe the process of strategicplanning in a
prototypicalfashion. At the risk of being overly simplistic,the
following diagrams provide a brief descriptionof a typical strategic
planning process, involving corporate,business and functionallevels (see
Figures 1 and 2). It should be emphasizedthat the survey indicates that
there are many variations to this process,dependingon the clharacteristics
of the firm (its structure)and its businessesand environment (see Annex
1). The followingdescribes some common propertiesamong these variations.

- 23

The strategic planning process depicted in the diagrams provides

a disciplined and well-defined organizational effort to specify and
evaluate strategies at the business and functional levels within the
framework of overall corporate mission, objectives, and priorities. The
following is a brief account of the objectives of each step in the cycle:

Step (1) and (3) The Corporate and Business Missions

(See Figure 1)

The corporate mission is a relatively permanent statement that

communicates institutional purpose and business scope, provides a
framework to relate the institution to its primary stakeholders, and
states the broad objectives of the organization's performance. This
statement often includes an expression of the mission of the
organization in terms of its product and market (service and client),
and of the way to achieve its competitive advantage (leadership)9 /.
It often identifies the SBUs and their interactions in terms of shared
resources and concerns. Finally, it articulates the corporate
philosophy in terms of corporate policies (e.g., relationship to
clients) and cultural values (e.g., commitment to excellence,
entrepreneurship). The mission at the SBU level is sharper and more
detailed.

9/

One useful tool used to reflect upon changes in the mission of a firm
is the concept of the driving force (NCR, Tregoe). The following
strategic areas have been suggested as forces that decisively influence
the nature and direction of any organization: markets/ products
(market needs, products offered), capabilities (technology, production
capabilities,.methodof sale, distribution, natural resources), and
results (growth, return-profits). For example, the market-needs driven
organization will be constantly looking for alternative ways to fill
the needs it is currently filling; and searching for new or emerging
needs in the market-segment it serves.

Pigure 1.

Hierarchical
Levels of
Plamdnng

Less Frequent than

AnnualReview

AnnualReview
_

Structural
Onlitioners
_

THE FPCMALS1EAMEGIC
KIAMM&DIN
CYCLE

Strategy

~~~~~~(1)

Foriliation

Strategic

(2)

Strategic
&
Oerational
Budgetiqg

Programdng
(9)

(12)

(6)
Corporate

DCrporatemission
and identification
of SBUs and their
interactions

_>

-Strategic
scope
and thrnsts
-Planning assumptions
and gidelines
-Performance object.

Resource allocation
and definition
of
performance
neasnr
m3nts
for
managemEnt control

Evaluation and
consolidation
approval of
businessand

Cbnsolidation and
approval of
strategic
and
operational
funds

fuoctional
strategies

Business

NJ

(3)

(4)

BUsiness Mission:
Scope and
identification
of
product-nmrket
segiments

Formulation of business
strategy:

(7)

formilation of multi-gear
broadaction programs
(strategies)

interaction/

~~~~participation

Functional.

(5)

Formulation of functional
strategies;
participation

in (4)

Definition and
evaluation
of specific
action
programs

(10)
Budgeting at
the business
level

(8)

rX(11)
Definition and.
evaluation
of specific
functional

action prograse

Budgeting at
the functional
level

41

- 25 -

Yue

2. T1e Fundametal Elnts

In Fonrl Strateglc Plamirg

Crporate Mission (Vision)

- Corporatemission
- Crporate policies ard values
- Identificatim of SU1's &
sbared concerns/rescxwces

Cornorate
Level

Internal Scrutiny
at Corporate Level
- distinct cetencies
- drivir forces
- appraisal of potentials

Envirnmental Scw at the Carpwate Iesel

- enirviental
asaptions
- relevant scenarios

ad weaknesses

- Strategic Posture
. strategic thrusts
. cballaeges/issues for analysis
. performnce objectives
guideln
g r esxrces
.calendar formaats/assigments

Internal Scrutiny at Business level

- assessment of conpetitive
Business
Level

- identification
weakness

Business Mission (role)

- cpetitive
advantage
- identification of product
- market segnents

of strengths

\ivirmcental Scan at tbe

Business Level
- identification of critical
success factors
- assesasnt of markets &
industry attractiveness
- identification of opportunities & threats

Fomulation of the Businesses (progran) strategy

A set of multi-year broad action programs
Functional
Level

I
Definition & Evaluation of Specific Action Proams
- Base Case (average 1 year)
- Scenario & contirqency planniog

Pesource Allocation & Definition of Performance

IFaaaeints
for mwagremntcontrol

Didwting
- Strategic Funds Progrndng
- Operational &ldgets
:~~~~~~~~~~

- 26 -

Step 2: FormulatingStrategicPosture
(See Figures 1 and 2)

The corporate mission has to be translatedinto more concrete

guidelineswhich serve as immediatechallengesfor the developmentof
strategic proposals at the business level (SBUs) and in the major
functionsof the firm. This is expressed as a strategic posturewhich
has to be distilled from the mission and the situationalanalysis of
the external and internalenvironments. As indicated in Figure 3,
situationalanalysis encompasesboth environmentalscanning (including
forecastingand scenariodevelopment)to identifyexternal threats and
opportunities,and internalscrutiny to identify the strengthsand
weaknessesof the corporation. The resultingoutputs are: corporate
strategic thrusts (the primary issues the organizationmust address in
the next 3-5 years to play its roles, the identificationof specific
planning challengesfor the corporation,businesses(SBUs) and
functionalareas, and the statement of corporateperformance
objectives(quantitativeindicators). This step provides the
framework for formulatingstrategiesand action plans at all levels of
the firm.

Step 4: Formulationof Business Strategy

(See Figures 1 and 2)

This step requires a thoroughanalysis of the current and future

business position in terms of:

- 27 -

(a) the non-controllableforces of the externalenvironmentwhich

determine the industry trends and market opportunities;and

(b) the internalcompetenciesof the firm which will determine its

unique competitiveleadership. Strategy formulationat this
level is also guided by the strategic thrusts providedat the
corporate level. The result of this step is a broad outline of
multi-yearaction programs.

Step 5: Formulationof FunctionalStrategy

In highly decentralizedcorporations,functionalmanagers are directly

involvedin the developmentof their correspondingfunctional
strategies to support each businessunit (SBU) in the planning process
(Step 4). Functionalstrategiesare also formulatedin responseto
relevant corporate thrusts. In corporationswith businessesthat
share centralizedsupport functions,the functionalmanagers might be
in a position to analyze the business strategiesand broad action
programs proposed by businessmanagers and indicate their concurrent
or non-concurrencewith them. When a functionalarea (resource)is
critical to the overall organization,the formulationof its strategy
becomes closely linked to the corporatestrategy (e.g., technology
planning in high-tech organizations;professionalresources planning
in Price Waterhouse).

28

Step 6: Consolidationof Businessand FunctionalStrategies

(See Figure 1)

This step is crucialand usually involvesthe criticalreview and

approvalat the corporatelevel of the set of broad action programs
proposedby business(SBU)and functionalmanagers. It requiresthe
involvementof all key executiveswho share the responsibilityfor
shapingthe strategicdirectionof the firm. It addressesthe
followingissues: resolutionof conflictsbetweenmanagersof
businessesand functionalareas; balancingthe businessportfolioof
the firm (prioritiesamong businesses);definingthe availabilityof
strategicfunds; and preliminaryevaluationof proposedaction
programsand their prioritiesfor resourceallocation.

Steps 7 & 8: Definitionand Evaluationof SpecificAction Programs

(See Figure 1)

Once strategiesare definedand approved,this step specifiesthe

instrumentsfor deployingthe strategicfunds in terms of structured,
coherentand timed actions. In most corporations,these actions
involvecapitalinvestmentsand developmental
expenses.

Step 9: ResourceAllocationand PerformanceMeasures

(See Figure 1)

At this step, top managersare confrontedwith the task of making a

final evaluationof the proposalsoriginatedat the businessand
functionallevels. In addition,performancemeasurementsare

- 29 -

developed to facilitatecontrol and monitoringof the action programs

supportingbusiness and functionalstrategies.

Steps 10, 11 & 12: Strategicand OperationalBudgeting

(See Figure 1)

Once all strategic programs have been approvedand resources allocated

accordingly,business and functionalmanagersare left with the task
of translatingthose commitmentsinto detailedoperating budgets and
precise estimatesof the strategic funds neededlO/. The new concept
that has emerged in recent years among leading organizationshas been
the separationof strategicfrom operationalbudgets in order to
sharpen and make more accountablethe strategic commitmentsof the
organization.

(e) The Use of Scenarios in StrategicPlanning

There are three essential ingredientsin the formulationof

corporatestrategic thrusts: the corporate mission,an assessmentof
corporate strengths and weaknesses (internalscrutiny) and an environmental
assessment (Figure 2). Scenariosare now developed at a growing number of
companies (such as Shell, Amoco, NCR) as a critical input into
environmentalassessment. In particular,it is used to specify the
10/ "Strategicfunds" for an organizationis the equivalentto a
"developmentbudget" for a government;they are expense items required
for the implementationof strategicaction programswhose benefitsare
expected to be accrued in the long-term,beyond the current budget
period. This definitiongoes beyond the traditional"capitalbudget"
and includes areas such as researchand development,strategic items
to open new markets and develop new businesses,etc.

30

planningfocus, the basic environmentalassumptionsfor planning,and the

contingencyconditions,and to identifykey threatsand opportunitiesthat
may be confrontedor exploited. The growinguse of scenariosis mainly the
result of increasedawarenessthat institutionshave to plan and adapt to
environmentswith major uncertaintiesand discontinuities.Forecasting
models have not providedfor the timely introductionof new factorsor
parametersthat result from discontinuities;
quantitativetechniqueshave
only addressedquantifiablephenomenaand have inevitablyextrapolatedthe
future from the past. In contrast,scenariodevelopmentstimulates
thinkingabout differentlogicsof change in the macro environment,
accommodatesstructuraland qualitativechanges,and takes accountof
political,social and technologicalforces in additionto the economic
ones.

Scenariosare not predictions;rather, they are coherent

descriptionsof plausiblefutures. Scenariosdo not reduce uncertainty;
they clarifyit. They complementtraditionalapproachesto forecastingby
focusingplanners'and decisionsmakers' attentionon the critical
assumptionsthat underliecorporatestrategiesand strategicdecisions,on
the differentplausiblelogics of change and early signs for their
unfolding,and on the opportunitiesand threatspresentin these distinct
change logics.

The use of scenariosin strategicplanningare varied. In some

diversifiedchemicalcompanies,they are used to providea common framework
for SBU strategydevelopment,for corporateassessmentof SBU strategies
and/or corporateallocationof resourcesamong SBUs. For several
integratedoil companies,scenariosare used to convey planningpremisesat

31

corporate and businesses levels for plan formulation at various levels of

the organization (Shell). At some high-tech companies (NCR), scenarios are
used to provide forward looking and holistic views of the word which could
provide the basis for formulating their basic thrusts in R&D, product
development and markets.

At others, scenarios are used as a top management

stimulus for thinking about crucial and difficult-to-define environments.

Some companies have experimented with various types and uses of

scenarios. The Royal Dutch Shell group was one of the first companies to
use scenarios in planning.

Experimentation with scenarios started at Shell

in 1971, mainly due to dissatisfaction with other forecasting approaches.

The company now uses three kinds of scenarios - long-range, medium-term,
and operating company - to serve different roles in planning and to address
different sorts of concerns and time horizons. Long range global scenarios
cover the world and go forward about 20 years; medium-term scenarios cover
5-years and serve as a backdrop for nearer-term, more cyclical planning
issues.

Another tier of scenarios is developed by specific planning

departments and operating companies to focus on the concerns most relevant

to Shell's operating companies and particular major investments. The
20-year scenarios primarily serve Shell's committee of managing directors;
the planning group that prepares and revises these scenarios is
organizationally close to that committee. Shell revises its long term
scenarios every 4 to 5 years, and its mediumrterm scenarios every year.
Shell planners underscore the value of the global scenarios in providing a
"common language" for Shell's operating companies for use in their specific
and more tailored scenarios. Reflecting its culture, the company strongly
encourages interaction among diverse parts of its organization in creating,
critiquing, and using scenarios. It also pays special attention to how it

- 32

presentsscenariosand related informationto users. Workingwith such an

elaboratescenariodevelopmentsystem is not without problems,but the
company'sscenarioapproachhas been highly successfulin raising the
qualityof informationand debate about its future and its future business
environment,both criticalto good strategicthinking.

(f) ContingencyPlanning

In turbulentenvironments,contingencyplanningand alternative
futuresexplorationsbecome a necessity. The strategicplanningprocess is
based on the most likely future forecastor scenario. However,there are
less likely conditionsthat would create seriousdifficultiesfor a firm if
they actuallyoccurred;these are the subjectmatter of contingencyplans.
The fundamentalpurposeof contingencyplanningis to place managersin a
positionto deal more effectivelywith unexpecteddevelopmentsthan if they
had not made such preparations.An additionaladvantagecited for
contingencyplanningis that it forcesmanagersto look at dimensionsof
the environmentother than probableevents.

Since there are many eventswhich might cause seriousdamage to

most organizations,
a few of these contingencies
must be identifiedand
selectedfor planning,such as deviationsfrom expecteddemand (sales)or
profits,politicalthreats,or the loss of a major customer. These events
are screenedfor their criticality(impact)and probability. Answeringthe
"what if" questionmight then entail the formulationof strategiesfor
advanceactionsto avert the possibleevent, of strategiesto respond to it
if it actuallyoccurs and of tacticalplans to implementthe strategies.
Contingencyplans may also specify triggerpoints or warning signalsof the

- 33 -

imminence of the event for which the plan is developed. For reasons of
economy and practicalitycontingencyplans are usually few and should be
made for really criticalevents, not merely troublesomeones.

Alternative scenarios and means of futures explorationscan serve

to identify events that might become the subject of a contingencyplan.
They can also serve to stretch the imaginationof managers and staff; they
force managers to deal with interactionsof forces that might be missed in
single case projectionsor in a base scenario. Hence, as with strategic
planning in general, contingencyplanning is likely to assist managers in
dealing with crises for which no contingencyplans have been prepared.

Scenarios can also serve in developingcontingencyplanning

capabilityby enhancing environmentalscanningand improving the robustness
of the selected strategy. When using scenarios,the best strategywould be
one that will work well within the envelope of trends and uncertainties
that all the plausible scenariosencompass. Most companiescannot meet
this goal in practice and rather choose as a "planningfocus" one or two
scenarios that reflect the decision makers' view of what is currentlymost
likely; they then design strategiesto fit the "planning focus" best. Some
companieshowever use the other plausible scenariosas backgroundfor
building flexibilityinto strategiesmade in the context of a "planning
focus" scenario. Finally, by identifyingcriticaluncertainties,scenarios
provide a frameworkfor the strategicmonitoringof the environmentand
provide a selective frameworkfor the early detectionof changes and for
switching to other scenarios.

34 -

(g) Value Added by StrategicPlanning

Formal strategic planning constitutesa powerful tool to enhance

managerialunderstandingand to guide strategic resourceallocation
(includingredeploymentand reorganization). Among the most important
contributionsof the above concepts and processes are:

(i) Providing direction,coherence and unity to organizational

efforts: By startingthe process with a clear articulation
of the mission of the organization,and subsequentlyby the
mission (role) of each SBU, and the recognitionof its
distinctive competencies,the planningprocess formulates
unifying thrusts and mobilizes the key managers in the
pursuit of agreed upon objectives. Strategicplanning
provides a strategicframework to guide resource
allocation,new business initiatives,the innovationand
developmentof new productsand markets and many of the
daily decisions of managers at all levels of the
organization.

(ii) Introducinga disciplinefor long-termthinking: The formal

planning process enforces a logical process and a calendar
for thinkingabout strategic options and tasks and thus
ensures that managerialtime, especiallyof top management,
is not preemptedentirely by short-termoperationalissues.
It encouragesmanagers to reflect upon the strategic
direction of the business.

35

(iii) Raisingawarenessabout the environment: By analyzing

competitive advantage and the position of businesses
vis-a-vis competitors and market prospects, the process has
induced managers to be more externally focussed.

An

extensive amount of information is collected on the overall

structure of the industry (business) and its trends, on the
strength and possible strategic moves of competitors, on the
comparative advantage of potential complementary actors (for
joint ventures), and of customer needs, perceptions (image)
of the product, and the degree of satisfaction with it.

(iv)

Enhancing the dialogue among managers on strategy:

The

process has been used, in varying degrees, to focus senior

management attention on shaping and evaluating the
strategies of line management at all levels of the
organization. It has also enhanced the comunication of
strategic options and issues at corporate and business
levels.

(v)

Improving the organization of the firm:

Segmentation and

portfolio analysis have often forced a continued examination

of the organizational structure, both to enhance business
autonomy oriented towards serving evolving but distinct
markets and to exploit potential synergies.

(vi)

Educating managers in strategic thinking: Perhaps this

is the most important contribution. Engaging in
communication, generating multiple negotiations, creating a,

36

need to understandthe primaryfactorsaffectingthe

business,the common understandingof corporateobjectives,
and the personalinvolvementin answeringthe strategic
issues that arise during strategyformulation,is what makes
the planningprocessworthwhile.

(h) The Limitationsof StrategicPlanning

Like earlier forms of planning,strategicplanningfailed to meet

all the expectationsand demands for strategicbehaviorby organizationsin
turbulentenvironments.The followingare some of the limitationsof
strategicplanningwhich, if not properlyrecognized,can destroyits
effectiveness:

Tendencytowardsexcessiveformalization,
bureaucratization
and
ritualization:One of the inherentrisks in formalizingany
process,particularlya creativeone, is to create conditions
that impose an increasingburden and rigidityover time which
ultimatelystifle creativityand result in losing the sense of
shared objectivesthe processis intendedto support. Planning
can become an end in itself,and degenerateinto a staff
dominated,paper based, number intensiveand controloriented
activity. This risk is very real and some of the companieswe
visitedhave fallen in this trap;others have tried various
innovationsto maintainstrong vitalityand interestin a process
which can otherwisebecome time-consuming
and repetitive. GE
experiencehighlightsthese risks and the company'sefforts to
de-bureaucratize
the process. An approachused by some companies

37 -

(e.g., AmericanExpress,Merrill Lynch) is to conducta

comprehensiveand strategicaudit once every several (say five)
years, and in the interimto deal with selectiveupgradingand
marginaladjustmentsof strategiesand programs. Another is to
selectivelyidentifyeach year those businessesthat deservemore
carefulattention,either becauseof environmentalchanges,
the dynamicnature of their business,or their performance
problemsand risks. Many of the advancedmultinationalshave
adoptedthis approachto ensure timely in-depthreview and
continuousdialoguewith selectedbusinesses. A third approach
is to select each year a planningtheme which will requirethe
attentionof all key managersin their annual planningefforts.
A fourth is to engage managersin variousinteractiveprocesses
to structuretheir thinkingand stimulatetheir creativity,e.g.,
the use of scenariosrather than model-basedforecasting.

Institutionalization
of the planningprocess,like many earlier
managementfunctions,is a necessity. In the case of Texas
Instruments(TI), the late Presidentand founderof TI argued
was the cost they had to pay for
that institutionalization
cumulativeinstitutionallearning. The challenge,however,is
not only to preventthe strategicplanningprocessfrom
ossificationbut also to use it as a means to transformother
and flexible
institutional
capabilitiesto more entrepreneurial
modes.

Grand design vs. incrementalism

and experimelftation:
Some
questionshave been raised regardingwhether creativethinking

38

can ever emerge from a formal analytical process.

The authors of

the book In Search Of Excellence highlight the need for actionorientation, experimentation, "chunking", and risk taking and
argue that over-reliance on analysis and numbers often leads to a
built-in conservative bias, a narrow form of rationality, and
inflexibility.

The process of logical incrementalism, however, does not have to

contradict a well-conceived strategic planning process. A
participatory planning process, which provides a sense of vision
from the top, but is shared by all key managers, does not blindly
set a grand design, but rather generates a sense of long term
direction and continuously adjusts its course of action with a
strategic posture in mind.

Many of the companies we visited

(e.g. 3M, IBM, HP) have complemented the formal process by

action-oriented task forces, sponsoring the champions of new
products/businesses, pilot projects and other approaches for
learning by doing.

Hence, managers proactively guide streams of

actions, innovations, and events and incrementally buil,d

strategies at more disaggregate levels and then to integrate and
institutionalize them.

Formal vs. entrepreneurial (opportunistic) planning: There is

also a need to respond to unforseen opportunities and threats
that arise outside the formal planning cycle.

Organizations that

rely exclusively on formal planning can trap themselves into

inflexibility and rigidity. On the other hand, an organization
whose decision making capability rests entirely on ad-hoc

39 -

opportunisticresponseswill be constantlyreactingto external

forces,without having a clear sense of direction. Formal
strategicplanning,however,can complementopportunistic
planning,and if appropriatelydeveloped,can train managersin
strategicthinkingand reinforceother effortsto nurture and
guide an entrepreneurial
culture.

A Calendar-driven
vs. continuousplanningand real-timeresponse:
The increasingturbulenceof the environmentand the need to make
planningan on-goingconcern have also called for processesto
complementthe calendar-driven
planningprocess. IBM and TI have
institutedan alternativesystemwhich allows for program
initiatives(e.g., productdevelopment)to be generatedat any
time during the year, as opposedto waiting for the prescribed
time in which action programsare supposedto be formulated. But
even under this system, there is a given point in time, called
period planningwhen all the programproposalsare consolidated
to be sure they form a consistentstrategy. Other firms, such as
GE, have developeda rollingagenda for the selectivereview of
strategicissues and the strategiesof their businesses(SBU's)
to make strategicplanningan ongoingprocess. Volvo views
strategicplans as continuousguiding frameworksfor an ongoing
decisionmaking process (see Annex 3).

Isolationof planningfrom other managementfunctions: This is

perhaps the most fundamentallimitationto the common application
of strategicplanning. The establishment
of large centralized
planningdepartmentshas often resultedin isolatingthe planning

- 40 -

process from the mainstreamof managerialdecisions. Moreover,

since its introduction,particularlyin the USA, strategic
planninghas been viewed primarily as a rational analytical
process; implementationwas taken for granted. It is assumed
that, given the new selected strategicposture, the institution
will muster and allocate its energy to effecting its realignment
vis-a-vis the environment. The common result was failure in
implementation. Moreover, following the originalapproach to
strategic planning, a new strategywas chosen to match the
historicalstrengths of the firm. In a discontinuous
environment,however,historical strengthsmay become irrelevant,
if not future weaknessesll/. These limitationssuggest the need
to add "capabilitytransformation"planning to strategy
planning. In particular,there is a need to replace the
historicalstrength/weaknessconcept with a broader concept of
organizationalcapabilitywhich involves,among others, managers'
attitudes,capacity for change, structuralrigiditiesand
culture. Ultimately,planningmust become a "way of life" for
management.

11/ Henry Ford was so trapped by his historicalsuccess in mass production

that he failed to adjust to market-basedcompetition;his famous
statement "give it to tj)em-in
any color so long as it is black"
suggests the consequencesof taking the client for granted.

- 41 -

III. THE STATE OF THE ART: STRATEGICMANAGEMENT

Strategic managementattempts to resolve the above limitationsto

the strategicplanning process and to build on the potential contributions
of strategicplanning concepts. It develops the "enablingconditions"for
carryingout effective strategic planning and implementation. It
representsa natural evolution in planning practices. It offers a way of
integratingall organizationalcapabilitiesto ensure effective strategic:
thinking and behavior at all levels in the organization.

This section discusses some of the fundamentalconcepts of

strategicmanagement,concentratingon those aspects that transformor
complementthe strategic planning process. These aspects are organized
around:

the need to change the structureand modality of the strategic

planning process and the role of institutional(corporate)
planners to ensure that the process is led by the executive and
line managements and that it remains a creative learning process;

the need to integrate the multi-levelplanning processeswith the

other managerialsystems and processes at the corresponding
levels of management;in particular,the need to integrate all
managementsystems in the strategicmode;

the need for additionalflexibilityto be built into the new

capabilityto provide effective and timely responses to

42 -

continuousand unanticipatedchange and to facilitatethe

managementof strategic issues.

the need to seek congruencybetween managerialinfrastructure

(formal systems and processes,including planning)and the
culture; the need to create an entrepreneurialclimate that
supports strategicbehavior; strategicmanagement is basically a
a way of life;

the need to plan capabilitytransformationto create the new

capabilities(strengths)necessary for strategyimplementation;
strategicposture managementconcerns itself simultaneouslywith
the strategyand the capabilityneeds of the institution.

A.

Changingand IntegratingStrategicPlanning and ManagementSystems

(a) Changingthe StrategicPlanning Process

The major challenge,illustratedby the case study of GE, is to

use the strategicplanning process as a powerfulmeans to institutionalize
strategic thinkingand behavior into the executive managementfunction.
This should be accomplishedin such a way that it integratesthe entire
organizationinto a coherentwhole, yet remains responsiveand agile to
avoid bureaucratizationof an otherwise creativemode of decision making.
This requiresa fundamentalunderstandingof the organic nature of
strategicdecisionmaking and the role of plannersin facilitatingthis

43 -

creative process by providing tools, informationand orderly social

interactionsto foster superiorexecutive decisions.

The following illustratessome of the specific changes in the

structureand modalitiesof strategicplanning at leading corporations.

(i) Changes in the structure

The main directionsof change in the structure of the

planning process are intended to:

Focus the process on addressingthe real gut issues and

make it more selective,opportunity seeking and agile (GE,
Abbott Labs, Salomon). Strategy reviews have well defined
purposesand no rigid formats.

Enhance the quality of discussionson strategyat the top

management level and between levels of management,making
the process more interactiveand thought provoking,and
using it to enhance understanding,consensus,and commitment. (Abbott Labs, GE, HP, IBM). Some SBU strategiesare
discussedmore frequentlyand in greater depth than others.
The emphasis is on visualizingand communicatingthe
strategyand subjectingits fundamentalassumptionsto the
scrutinityand collectivejudgement of the top management.
The CEO would not "let his managers get away with no
strategyor accountabilityfor their business".

'-44-

Make strategy formulation and adaptation an ongoing rather

than calendar-driven process, and thus responsive to
real-time needs, and closely related to continuous
monitoring, evaluation, experimentation, and learning.
Marriott, Wang).

(GE,

A rolling agenda of issues and business

strategies are discussed by top management; in managing this

process, top management is-highly involved, interactive, and
action oriented.

Emphasize the use of institutional strategy as a framework

for guiding all choices, rather than as a "blueprint" plan
for detailed control and mechanical implementation. The
heart of the planning process is to deepen the understanding
of the environment, to clarify purposes and priorities and
to provide effective means and forums to share these
understandings and purposes as a guide for daily decision
making.

Strategies are kept in broad, qualitative, and

easily understood terms.

Strategies must provide a firm

direction to meet clear objectives but allow for maximum

possible autonomy in meeting them; they should provide
stable expectations about "what really counts".

Use task forces and other ad-hoc and flexible means of

organizing senior management and staff and empower these
task forces with the authority to formulate fundamental
strategic responses such as redefining the mission and
markets to be in, or creating a major product such as the
personal computer (IBM, Merrill Lynch, Sears, Dean Witter,

45

Citicorp). The corporateplannerswould engage in the

organization,follow up and provisionof support to these
task forces (primarilycomposedof seniormanagers)and draw
from throughout
on resourcesand specialskills/knowledge
the organizationto formulatea new comprehensivestrategy;
this exerciseis done periodicallyand once approved,
plannerswork with line managementto facilitateits
implementation.

Involvemultipledimensionsof the organizationin strategic

planningso that strategyformulationcan capturethe
totalityof potentialinteractionsbetween the organization
and its environmentand can engage all managersin the
formulationof their own contributionsto the overall
organization(GM, GE). These dimensionsmight include:
client/market,
and regional/
functional,product/service,
geographic. However,the primarydimensionfor such
planninghas been the SBU, which has often been based on
market/clientsegmentation.

(ii) Changesin the modalitiesof the process

The above directionsin the evolutionof strategicplanning

processessuggest a deeper understandingof the nature of strategic
decisionsand of the role of a staff functionin facilitatingdecision
where strategicplanninghas not yet taken
making. In many organizations
hold (AmericanPresidentLines) staff plannersare often frustratedby the
lack of top managementattentionand responseto their analyses. Gaining

46 -

the attention and support of executivesappears to be the most difficult

challenge facing the planning function. "It is difficult to push ideas
that go against the corporate power structure". "Managersare fearful that
formal planningwill limit their freedom". "The incentivesare based on
the short-term". "Planningdocumentsare hardly read". The dilemma for
planners is that although they are subordinateto most executivesand
general managers in terms of authority,they must advise these superiors on
the most important decisions affecting the institutionand must assume some
control over the decision-makingprocess itself to be influentialin
bringing about more effective decisions.

The nature of strategicdecisionmaking that emerges from this

review suggests the following:

Strategicproblems are not amenable to simple, sequentialproblem

solving; strategicmanagementis like sailing or exploring. The
executivessteer the organizationinto the unknown future (or
create its future) by constantlyextending their sight ahead and
making tentativechanges and experiments to discover and
influence this future.

Strategic planning (and decisionmaking) is a social process of

communication,negotiationand learningamong many managers. It
is also a political process that involves the realignmentof
interestgroups into a coalition for strategicchange.

- 47 -

Strategicdecisions are not purely "rational"or "objective",but

involve personal and intuitive thinking. They involve
existentialchoices, risks and commitments.

In contrast to a formal strategic planning process, strategic

decision making has importantorganic qualities. Executivesare
action oriented and ultimatelybase their decisions on intuition
rather than complex studies. Strategy formulationis a creatjive
process; the decision maker continuallygathers opinionsand
informationand integratesthe most useful of them into a mental
model that is constantlyevolvinguntil a choice emerges.

If the decision-makingprocess is so messy, fluid and

unstructured,then what role can the planning staff and the planning
process play? The answer lies in transformingthe planning function to
facilitate,rather than work at cross purposeswith the decisionmaking
process. Although strategicdecisions are the result of an organic flow of
executive thinkingand must evolve from an extensiveweb of interactions,
the role of the planningprocess is to facilitatethis creativeprocess by
providing orderly social interactions,tools, informationand perspectives
to foster superior decisions. The recent drive is to keep planning systems
simple and to use techniquesthat are easy to grasp. Various methods are
used to intensify interactionsamong managers on strategy development(task
forces, planning conferences,etc.), to stretch imaginationand invite
intuitionand judgement (scenarios,contingencyplanning,brainstorming),
and to facilitatethe flow of ideas and informationamong otherwise distant
componentsof the organization.

48 -

This understandingalso transformsthe role of plannersand the

workingrelationshipbetween plannersand executives. At the progressive
organizationsamong the sample surveyed,plannersdescribedtheir role as
process facilitatorswho help foster change in the consciousness
of
others. They cultivate"the art of influence"throughthe generationof
new ideas, information,perspectives,environmentalscanning,perceptions
and feedbacksfrom externalclients,etc.- They try to cultivatea
consultant-client
relationshipsimilarto independentprofessionals.They
seek strategicentry or leveragepoints and opportunitiesto providevalue
added. Althoughplannersare temptedto providethe solutionsand write
the planningdocuments,their most effectiverole is to assist executives
by providingthem with informationand processingcapabilitiesto formulate
their own judgements. In some firms, plannershave taken the role of
advocates,representingthe perspectives(interests)of the executives.
In others,plannersbecame the advocatesof the operatingmanagers. In
either case, plannersare acting to facilitatethe thinkingand actionsof
management,rather than planningfor others or promotingtheirown
solutions. They become advisorsand catalystsfor strategicthinkingand a
focal point for anticipatingand facilitatingchange (see Table 1).

This understandingsuggeststhat the planningprocessmust be

driven by line management,and, in particular,that strategyformulation
and implementation
must be led by top management. The CEOs and/or
executivevice presidentsmet during the survey describedtheir role as the
leadersof the overallstrategicplanningprocess,giving it the vision,
the drive, the commitment,the resolve,the legitimacyand the supportive
cultureto ensure its utilityas their own primarytool for strategic
management(IBM, GE, Wang, HP, Marriott,Citicorp,SAS, Volvo and Norwegian

- 49

Management School). Citicorp's strategic planning task force was headed by

the Senior Vice President who managed the most dynamic and successful
division. Most of top management time (Senior Operating Officer/or the
Chief Executive Office, general managers of the major business units) is
allocated to thinking through and managing strategy development and the
resolution of strategic issues.

The organic and day-to-day informal

relationships between corporate planners and top management are emphasized.

Most corporate planning officers are influential vice presidents who report
directly to the CEO.

Central planners are often former line managers who

have extensive working experience and in-depth understanding of the actual

working of the organization. The chief planner is so close to the CEO and
key top managers to be the "alter-ego" and counselor of top management.
Planning at lower levels exhibits similar characteristics and planning
staff work very closely with line managers to facilitate the formulation
and monitoring of line manager plans (see Table 1).

(b)

Integrating Planning With Other Managerial Systems

In complex organizations, planning alone will never produce the

massive mobilization of resources and people and will never generate the
high quality of strategic thinking and response required for success in a
turbulent environment. Strategic management has, as an ultimate objective,
the development of organizational responsibilities and administrative
systems which link strategic and operational decision making at all
hierarchical levels and across all businesses and functional lines of
authority in an institution. At this stage of management development, the
conflicts between long term development and short term performance would be
explicitly managed and resolved.

In our survey, the leading organizations

Table 1:
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- 51

have integrated their planning processes with the following management

systems: organizational structure, resource allocation, communication and
information systems, and incentive structures. The following sections
point to some of the lessons learned.

(i) Link to Organizational Structure

The planning process is a primary vehicle for systematically

identifying the major tasks faced by an organization. The organization is
segmented into responsibility centers (strategic business units and
operating units) which allows for proper decentralized authority and
accountability at all levels of the structure. Hence, a common result of
periodic strategic exercises in many organizations has been to restructure
them to facilitate the development and implementation of the long term
directions of the business of the organization; structure follows
strategy. (Merrill Lynch, Hewlett-Packard, Volvo, First Chicago, GM, IBM,
Bechtel). The process of adjusting the basic organizational structure
should be distinguished from ad-hoc organizing and from the detailed or
micro organizational structuring. The basic restructuring is to reflect
the major segmentation of the businesses the firm is engaged in by defining
an hierarchical order which reveals the priorities top management assigns
to the firm's central activities.

Organizing for the strategic mode may take various forms, short
of complete reorganization. The SBU manager may be assigned a permanent
coordinating role.

A second option is to assign to a committee (normally

composed of the CEO and the top operational managers) the task of
developing and implementing the necessary strategic programs of SBU's.

In

52

their role as membersof the SBU managementcommittee,managersare

supposedto act on behalf of the institution's
ultimateinterests,and not
as parochialdefendersof their own areas of operationalresponsibility.A
third and most extremeoption is to adopt a matrix form of organizationfor
dealingwith operationaland strategicresponsibilities.

In general,strategicplanninghas been used to foster

among large corporations.The developmentof a strategic
decentralization
of the overallorganization
planningprocessand the periodicrepositioning
have facilitated,
or have been explicitlyused to facilitatethe delegation
of authorityto more manageableunits of the organization. "You cannot
delegatewithout a strategicframework". As strategicdecisionsare taken
regardingthe portfolioof businessesthe firm shouldbe in and the long
term directionof each individualbusiness,the organizational
structureis
realignedto facilitatethe allocationof resourcesamong its businesses,
and to supportthe implementation
of each businessstrategy. Thus,
strategicplanninghas been used to clearlydefine authority,
accountability
and objectivesat each level of the organization.

(ii) Link to ResourceAllocation

Strategicplanningis used to define a strategicframeworkfor

resourceallocationamong competingclaims,both among businessesand
betweenshort term performanceand long term (institutional)
development.
In the privatesector,the use of portfoliomatriceshas facilitatedthe
allocationof strategicfunds for potentialinvestments,R & D, and other
developmental
expensesin accordancewith clearly-selected
portfoliosand
businessstrategies. Resourceallocationsoften reflectthe generic

- 53

strategies selected for each business:

invest to increase market share,

invest to hold position, invest to gradually give up share, and divest to

exit.

A common approach is to allocate the strategic funds directly to the

SBU's based on the overall priority of each SBU, leaving to the SBU
managers the assignment of those resources among the individual projects
(developmental activities) generated at the SBU level. An alternative
approach is based on central examination of each project (program)
emanating from the business (operating unit) level and the use of some
common criterion such as net present value as the basis for funding. In
many leading organizations, the former approach has been used to provide
tentative allocation of strategic funds among SBU's according to their
strategic position in the portfolio. This approach guarantees a strategic
fit between the allocation of resources and the strategic positioning of
each SBU.12 /

Although non-profit/public sector organizations may not be able

to apply these specific criteria and tools, there are some broad concepts
and lessons that may be transferable. One principle is the progressive
delegation of resource allocation to SBUs, in accordance with the overall
strategy of the organization and the priority of the business each SBU is
in.

Only major single investments beyond a certain level would be

evaluated by levels higher than the SBU management. Another is to clearly

distinguish and scrutinize the strategic from the operating budgets and to
devote the attention of top management to improving the allocation of the
strategic budget. A third is to provide clear performance criteria or
returns to the organizations from investment in these strategic programs.
12/

Central approval on a project-by-project basis can often lead to

incongruencies between the perceived priority of a business and
resources allocated to it (due to the different behavior regarding the
generation of projects on the part of the managers in charge of each
SBU).

54 -

Managers at all levels are held responsiblefor their performance in

managing these strategic expenses (and not only for the operating budget).

Finally, strategicplanning is distinguishedby its emphasis on

providing strategic criteria for resourceallocation (derivedfrom the
institutionalstrategy) that depart from marginal, ad hoc or trend
increases. It ensures that resource allocationdecisions are taken in full
view of the strategiesof each business and the long term consequencesof
resource redeployments. Strategic planning tools, such as portfolio
matrices, are used to examine the contributionof each business in light of
the institution'scompetitiveposition (specificstrengths)and the future
attractiveness(evolution,growth) of this business,and to shift resources
accordingly. Thus strategic planningenables institutionsto concentrate
their resources on the most promisingactivitiesand to withdraw resources
from old and less productiveones. "Resourcescan be productiveonly if
they are concentrated;fragmentationinhibitsresults" (Peter Drucker).
"Sloughingoff yesterday"is particularlyimportant in turbulenttimes and
for public service institutions. They have to think through the changed
circumstancesin which they operate. Precisely because results in service
organizationsare not easily measured, there is a need for organized
abandonmentof marginal and resource-consumingactivitiesof the past. In
turbulent times an institutionneeds to be able both to withstand outside
contingenciesand to avail itself of sudden unexpectedopportunities.

Although commonlyneglected as a resource for strategic

allocationpurposes, managerialand staff skills, and their knowledge about
the clients and the environment,are now increasinglyrecognizedas the

- 55 -

scarcest organizationalresources. Financial resources are easier to

measure and redeploy. As Texas Instrumentsput it, "financialresources
can be borrowed, but the scarcest resources for us to find are
entrepreneurialmanagers and innovativeengineers to run our most
challengingbusinesses". Not surprisingly,in professionalservices
organizationsand high-tech companies the highest priority for the
attention of top management is the recruitment,placement and development
of human resources. (IBM, Price Waterhouse, Salomon,Citicorp, SRI).

(iii) Link to Communicationand InformationSystems

Various levels of planningmust be supportedby appropriate

informationsystems. The clear delineationof levels (hierarchy)of
strategies,objectivesand responsibilitieshave been used to structure the
informationflows and communicationchannelswithin strategically-managed
organizations. For strategicplanning purposes the focus of the
informationsystem is reorientedto ensure that the organizationis able to
scan its environment,to detect trends and to provide timely feedbackto
top managementon emerging problems. Informationsystems for top
managementlevels are focused primarily on the criticalassumptions
governing strategy formulationand strategic issue resolution. Information
systems are designed to discriminaterelevant informationto be made
available to different levels of the managementhierarchy. Similarly,
informationsystems developed for lower levels of the managementhierarchy
are shaped by their decisionmaking needs. Informationsystems are
designed to provide early detection of opportunitiesand threats and
continuousfeedback on clear performanceindicators.

- 56 -

Many of the strategicallymanaged organizationshave used their

informationsystem capabilityto enhance their understandingof their
clients and improve their ability to provide "value added" to their
clients (understandthe user's total economics). For example, Citicorphas
used its superior informationnetwork and informationtechnologyas the
basis for its competitiveadvantage and hence its competitivestrategy.
Many organizationshave built an extensive network of informationchannels
to detect and meet their clients'needs; this has become a strategic
strength and a decisive competitiveadvantage (Sears, Salomon,American
Express, Wang, Merrill Lynch). They have empowered lower level management
to take actions based on such information. In addition, they devised ways
to ensure timely detection of patterns of such needs and to bring them to
the attentionof top managementfor strategic response. Systems are also
developed to provide information(intelligence)on the objectives,
strategiesand plans of other influentialactors in the environment
(competitors,potential collaborators,strategicallies). Significant
attention is also given to measure the organization'sperformance. From a
strategicpoint of view, for example, it is not enough to know the firm's
own cost structure;rather, it is the industry cost structureand the
firm's relativeposition in it that is relevant. Service-oriented
organizations,in particular,have developed an impressivearray of
channels (includinglocal representatives,user surveys, etc.) to assess
their performanceand comparativeadvantagesvis-a-vis other competitors
and have used these informationsystems to formulate their own strategies.
(AmericanExpress, American PresidentLines, Abbott Labs, American
Airlines).

57

Strategic management integrates strategic planning and

communication systems for the purpose of translating information into
meaningful messages to both internal and external audiences
(stakeholders). It develops clear and well defined communications
strategies. Communications are actively used to facilitate understanding
of institutional strategies, objectives and plans. The primary thrust of
these communication processes is the articulation of the central objectives
and programs the organization is intended to pursue in a way which is
effective for key external and internal audiences. The purpose is to
increase the level of understanding and the degree of commitment of the
organization to its stakeholders and vice versa.

(iv) Link to Incentive Structure

Well designed planning processes should include the definition of

performance measurements which are the essence of management control.

In

operational planning, the continuity between planning, performance

measurement and control is well understood and more commonly practiced.
This is not the case, however, in strategic planning. Very often, firms
resort to the budgeting and financial control systems (developed in stage 1
of the evolution of strategic planning), thus falling into the trap of
short-term accounting-drivencontrol instruments. Therefore, the ability
of the organization to implement, monitor, evaluate and control strategic
commitments is almost entirely lost.

Strategically managed organizations

devote considerable attention to devising measures of performance and

control for strategy implementation. Much more creativity is required for
measuring the long term impact of the chosen strategic plan, and monitoring
the progress of strategic programs and the deployment of strategic funds.

- 58 -

Both the budget and the reporting systems are often designed to express
this dichotomybetween operational (for ongoing businesses,short term) and
strategic accountability(GE, TI).

Rewards and motivationalsystems are also devised to allocate

appropriateweights between short and long term performance. Most
organizationssuffer from the use of short term measures of performanceto
reward high-levelmanagers, who are mainly responsiblefor imsplementing
strategicactions (Japanese companiesare noted for temperingthis bias and
for emphasizingrewards for long term performanceas well). Strategically
managed organizationsare trying to develop more balanced reward systems.
Among other systems, the strategic factors approach involves the
identificationof the criticalsuccess factors governing the future
performance(profitability)of the business and the assignmentof proper
weights dependingon the inherent characteristicsof the organizational
(business)unit and its agreed upon strategy. Some relevant factors might
include: product quality measures, client-satisfaction/market
demand
measures, productivitylevels, product developmentmeasures, and personnel
developmentmeasures. More subtle and richer varieties of motivational
systems are ultimatelyderived from managing the culture of the firm (see
the followingsection).

In our discussionsduring the survey, it was often emphasized

that performancemeasurement,accountabilityand incentivesare integral to
the successfulimplementationof strategiesand to the introductionof an
effective strategic planning process. The difficultyof devising such
systems was commonly acknowledged,particularlyfor non-profit service

- 59 -

organizations. However, it is a necessity for the strategicallymanaged

organization.

In summary,the integrationbetween the structureand systems of

organizationsshould ensure the continuityof decisionsacross all
hierarchicallevels, not only in an operationalmode, but also in a
strategicone. Organizationalstructuresare developednot only to allow
for the efficientexecution of day-to-dayoperationalrequirements,but
also to facilitatethe implementationof the strategic commitmentsof the
organization. Similarly,resourceallocationsystems are designed to
distinguishbetween processes for allocatingstrategic funds and operating
funds. Managers are expected to "wear two hats", the first as an operating
manager concernedwith today's operating results and the second as a
strategicmanager concernedwith longer range results (TI). Information
and communicationsystems are also restructuredto guide strategicdecision
making and strategic performance,and to foster an externally-oriented
outlook. Finally, performancemeasures, monitoringand evaluationsystems
and incentivesare realigned to ensure that strategyformulationand
implementationare taken seriously.

B. Strategic Issue Management

(a) Purpose

There are three primary reasons for the emergence of strategic

issue managementas a core capabilityof strategicmanagement. The first
is to focus managementattention on resolving strategy-derivedissues as

60 -

they arise from implementinga selected strategic posture. The early

expectationof strategic plannerswas to revise strategiesannually and
comprehensively. But experienceshowed this was impracticaland
unnecessary. Impracticalbecause comprehensivestrategy revision is an
energy and time absorbing exercisewhich, if conducted annually, overloads
managementor deterioratesinto ritual. Annual comprehensiverevisionsmay
also cause vacillationsin managerialbehavior and prevent a fair test of
the strategic posture. Unnecessary,because a comprehensivestrategy is a
long term thrust which takes several years to implement. As this
understandinggrew, organizationsbegan to space comprehensiverevisions of
strategiesseveral years apart (Merrill Lynch, American Express, Sears).
In the beginning of the annual planning cycle, a review of last year's
progress focuses attention on businessareas (SBU's) which have encountered
important strategic issues (changes in basic assumptionsunderlyingtheir
business strategies,new threats and opportunities,difficultiesin
strategy implementation). In this context, issue analysis becomes the
heart of an on-going process of planning and implementationof a
comprehensiveand long term strategic posture.

A second reason for issue managementis to resolve

environmentally-derived
issues. Strategicissues would arise from
environmentalscanning, identificationof trends, and emerging
environmentalthreats. These signals are examined in terms of their impact
on future organizationalgoals and performance. In this context, issues
can be thought of as the stresspointsresulting from the clash between the
organizationand its continuouslyshiftingenvironment, Issues are not
always threats,but may also pose unusual opportunities. For example, the

- 61 -

decisionof IBM to enter the explodingpersonalcomputermarket was a major

issue.

The third reason for the growingimportanceof issuemanagement

has been the growingincidenceof surpriseevents which come from
unexpectedsourcesand impact quicklyon the organization.The combination
of speed and noveltyof such issuesmake them less amenableto a regular,
planningcycle. Time is of the essence;early detectionof
calendar-driven
these issues,and their resolutionat the appropriatelevel (top
of institutional
management)is criticalto the qualityand effectiveness
response. In this context,it becomesdesirableto separateissue
resolutionfrom the annual planningcycle.

The above suggeststhat issues may arise both in the contextof

strategydevelopmentin an annual planningprocessand the
comprehensive
of the environment.They can therefore
contextof continuoussurveillance
annual strategic
be partly addressedwithin an agile and issue-focused
between the
planningprocess. However,there is a growingdifferentiation
two processes,particularlyin enterpriseswhose basic strategicthrusts
are clear and relativelystable,but whose environmentsare turbulent.

surveyed,almost
Regardlessof variationsamong the organizations
analysis,and
all of them have orderlysystemsfor issue identification,
management. It was often reportedthat top management,which constitutes
the "issuemanagementteam", is spendingmore than half of its time on this
process. Top managementtime is consideredthe scarcestresourceof an
the role of planningstaff is to structurethe time and focus
organization;
the attentionof the top team on managingthe fundamentals.

62

(b) What is a strategicissue?

There is no genericlist of strategicissues that can be relevant

to all types of organizations.There are, however,three basic sourcesof
informationabout impendingstrategicissues: trendsin the external
environment,trends in the internalenvironment,and trends in
have
organizational
performance. Large and complexorganizations
developedadvancedcapabilitiesfor environmentalsurveillance,
for
trackinginternaldevelopments,
and for monitoringinstitutional
performance. Particularattentionis given to possiblemajor future
which might have a major impact on the organization.
discontinuity

The followingcriteriamight be used in identifyingand screening

strategicissues for top managementconsideration:

a.

presentor potentialimpact on institutional

implementation;
performance/strategy

b.

urgency;

c.

impact on other issues/organizational

units.

(c) What is a StrategicIssueManagement(SIM)Process?

Strategicissue managementanticipates,assignsprioritiesand
systematically
managesthe resolutionof issues. An SIM processis a
disciplinedprocedurefor early identification,
fast response,and
systematicfollow-upon changesboth within and outsidethe institution.

63 -

Early identificationcan be assured in the followingways:

(i) Unlike the annual strategic planning process, SIM is a

continuous "real-time"process. In many organizations,this
means a periodic (monthly)review and updating of a key
strategic issues list.

(ii) It also means continuoussurveillance,both inside and

outside the organization,to detect emerging threats and
opportunitiesand the continuoussifting of signals for top
managementattention.

Fast response to trends can be assured in the followingways:

(i) A staff group facilitatesthe consolidationand screeningof

issues, elicits issue identificationfrom relevant sources
throughoutthe organization,frames these issues in a
standard format that facilitatesthe examinationof options
and action, and chairs task forces to examine
cross-departmentalissues.

(ii) The responsibilityfor managing the process is assumed by a

senior managementgroup which has the resources and
authority to initiate prompt action without unnecessary
delays. In practice, this group is often the executive
management committee (Kodak),the strategicplanning
committee (Sears),or the policy committee (IBM). In other

64

such as Bechtel,there are severaloverlapping

organizations
strategicissue managementcommitteesthat addressissues
confrontingdifferentbusinessesor key functionalareas.
Such committeesare empoweredwith the authorityto take
actionson all the strategicissues in theirareas.

organizations,
(iii) Particularlyamong entrepreneurially-managed
SIM cuts across hierarchicallevelsand assigns
responsibility
for individualissues directlyto units which
are best equippedto deal with the issue. When an issue is
not particularto a managerialunit (mostoften),and ad hoc
project(task force) is formed,resourcesare directly
assignedto the project,and progressis monitoredand
reporteddirectlyto seniormanagement.

this
(iv) The SIM is action-oriented.In many organizations
are not for
means that the assignedresponsibilities
planningthe responsebut for acting on the issue. The
usual separationbetweenplanningand implementation
periods
is not visibleand experimentation
is often the mode for
testingoptionsfor issue resolution(particularly
among
bureaucracies).Unless explicitlyguardedagainst,SIM may
degenerateinto "paralysisby repeatedanalysis".

Systematicfollow-upcan be assuredin the followingways:

(i) A "staff"group is made responsiblefor maintainingan up to

date displayof the key issueslist, their prioritiesand

- 65 -

the status of the task forces (change projects). The group

is also responsible for ensuring that completed studies are
fully implemented,or, when necessary,adapted throughout
implementation.

(ii) Particularlyfor bureaucraciesand socio-political

organizations,many issues are complex and unstructuredand
cannot be resolved "in one shot". Moreover, many task force
recommendationsand action projects are left half done and
never meet their original objectives. In such cases, there
is a need to revisit issues and to resolve them in a
progressiveand persistentmanner. Moreover, urgent issues
may be addressed by task forces before their dimensionsand
implicationsare fully understood. The early stages will
progressivelymake clear the strategicdimensionsof the
issue: the extent of its impact and its urgency. The SIM
process provides the focus and disciplineto manage a
complex agenda of issues and to follow up on a large number
of on-going task forces and organizationalchange projects.

(iii) Senior managementusually exercise strategiccontrol over

the task forces or project teams, and give them sufficient
autonomy,guidance, and support. The design, use, and
managementof task forces have become important tools for
managing organizationalchange and enhancing responsiveness
to fast changing externalenvironments.

66 -

(d) Modalities of the SIM Process

Strategic issue managementand the strategicplanning process

must be linked together in at least two ways. The first is through the
inclusion of issues of moderate urgency in the annual planning process.
Issues generated from the SIM process are thus incorporatedinto the annual
planning guidelinesand addressedby the relevant SBUs. The second is
through the issues and strategiesgenerated by the annual planning process
itself which can be consolidatedand analyzed as high priority
institutionalissues for SIM consideration.

Various tools and formats have been developed to assist in SIM.

The objectivesof these tools are to assess the impact and urgency of
trends and to analyze their interdependence. Trends and issues usually
arise and form a cluster of interdependentproblems. Cross-impactanalysis
may be used to identifyclusters of events/trendswhich are likely to
impact on the organizationso they could be confrontedor exploited. The
recent trend is to use more creative and interactiveprocesses for issue
identification,such as scenario building (Shell, NCR, SRI). In this
context, scenariosare used to span the plausibleenvelope of uncertainties
that bear upon the strategic issues or decisions of the organizations.
They can help clarify likely threats and opportunitiesand the significant
developmentsthat managers and planners need to watch and review on a
regular basis. Such processes could improve on the generationof strategic
issues for senior management consideration. Such interactivemethods can
be designed to induce change in the corporate culture by encouragingnew
ways of thinkingabout the future, by seeking to stretch the search for

- 67 -

plausiblefutures,and by surfacingassumptionsand basic beliefsfor

examinationby top management.

Corporationsnaturallytake varyingapproachesto issues

management. Some companieshave creatednew positionsor groups of issuesmanagers,separatefrom the corporateplanners. At some, an issuesmanager
organizesa committeeof middle managersand relevantstaff to do the
analysis,with the resultssent to top executives. At others,like
Hewlett-Packard
and Wang, the corporateplanneror the advisorto the CEO
organizesissue-oriented
task forces. Other companies,such as Arco and
Sears, have large staffs of full-timeissues managers. In some cases,
issues managerstry to build a consensusamong operatingunits before the
issues get to top corporatemanagement. The common use of "issue
management"is to alert executivemanagementto emergingtrends,threats
and opportunities,
and to help mobilizethe company'sresourcesto deal
with them. It is seen as a "pre-crisisapproach". "Single-line
numbers
forecasting,typicallydone by economicplanners,did not predictthe oil
crisis or the environmental
revolution. We need a wider, more qualitative
approachto supplementthe traditionalforecastingtechniques"(Arco).

Perhapsthe most importantprerequisitefor the effective

functioningof a SIM processis the role and group dynamicsof top
management. At first glance,SIM appearsto be an easy system to put in
place and to manage;it is lean,with a minimumof paperworkand mechanics;
it is complementary
to and compatiblewith periodicplanningprocesses;and
it addressespressingproblemswith a minimumof routines. However,SI!Hnot simple to operateand requiressupportfrom top managementand the
organizational
culture;it is not the staff'sbut the top managers'

68 -

process. One common source of difficultyis the refusal of the top

managementgroup to submit itself to the disciplineof SIM. While periodic
planning is frequentlyused for organizing "others",SIM requires top
management to become part of the process. Another often mentioned
difficultyis the resistanceof top management to accept new and unfamiliar
issues as relevant to running their business. One way to engage managers
in the process of generating these issues is to involve top management in
scenariodevelopment. To enhance its acceptability,the SIM may start
first by addressingthose issues that are ranked highest by few key members
of the top managementgroup. One or more top managersmay periodicallyput
on "staff hats" and become engaged on a part-time basis in managing the
"issue agenda",with the support of the planning staff.

In companieswhich emphasize consensusmanagementand where

"issue management"is effective, the chairman usually play a crucial role
in maintaining the process honest and open while ensuring final resolution
of issues and accountabilityfor implementation. In such cases, the
powerfulmembers of the top managementgroup assume the role of "patrons"
of the process and use it collectivelyto drive the organization. Issues
are then consideredon their merits and examined collectivelyby the group;
"once they step into those meetings, they take off their territorialhats
(functionalturfs) and put on their institutionalhats". In some cases,
corporationshave sought external help from process consultantsto ensure
the smooth and effective use of this process and to help build "a team
spirit" and to develop a climate that is safe for risk taking and open to
candid examinationof the gut issues facing the organization. Without
engendering a supportiveclimate for confrontingissues and "thinking the

- 69 -

unthinkable",task forces and planning staff would tend to obfuscate rather

than clarify the strategic issues and options, and top managementwould
tend to inhibit innovativeand non-marginalresponses.

C. Culture Management

(a) Managing the Corporate Culture

Strategy needs not only to be congruentwith the organizational

structure and the key administrativeprocesses but also has to be
integratedwithin and supported by the corporate culture. The findingsof
"In Search of Excellence"and numerous other studies suggest the critical
role of the style of top managementand shared values (or superordinate
goals) in shaping the organization'sstrategic and operatingbehavior. The
style of management,reflected in the way it collectivelyspends time and
attention and uses symbolic behavior, provides tangible evidenceof what
managementconsiders important. In this sense, it is not what management
says is important,it is the way managementbehaves. The mix of staff
(demographics)and skills (disciplinesand experiences)also shape the
corporate culture. Culture is transmittedand shaped in many ways:
statementsof philosophyand vision, deliberaterole modeling and coaching
by leaders,explicit rewards and promotion criteria, symbolic events, what
leaders attend to and control,what criteriaare used for recruitment,
selection,promotion,leveling off and "excommunication"of people,
informationand communicationsystems, etc. Some leading corporationshave
conducted cultural analysis and cultural audits to unveil the operating and
behavioralprinciplesgoverning the organization,and how the organization

70 -

relates to its clients, how it manages time, how its members relate to each
other, etc. In general, our survey has underlinedthat a supportive
culture is fundamentalin moving strategic planning away from being a
mechanicaland abstract activity towards becoming a driving force and a way
of life in an organization.

One common and simple differentiationbetween organizational

culturesis whether it is inward or outward looking. Outward-looking
culturesprevent complacencyand rigidity by adhering to an obsessionwith
some facet of their performancein the marketplacesuch as "excellencein
servicingthe customer". Inward-focusedculture, by contrast,place a
premium on internalprioritiesand procedures. Another dimension is the
strengthof a culture,which may be defined as the extent to which it has
an influenceon behavior. Among the key determinantsof cultural strength
are how long people have lived and worked in it (cultureis formed from
experienceand learning),how many shared values and basic beliefs exist
and how widely they are shared, and how clear are the prioritiesamong
these values when conflict arises.

Culturalcharacteristicshave fundamentalimplicationsfor the

openness of the organizationto influence and/or adjust to the
environment. a case in point is how does the strength of an organizational
culture influence its ability to play a catalytic role or engage in joint
ventures with other autonomousinstitutions. Sufficientcultural strength
is needed to withstand external adversity and to sustain values that
conflictwith those in the external environment. On the other hand, strong
but inward-lookingcultures could

militate against cooperation,make it

- 71 -

difficult to compromiseand may become counterproductiveas circumstances

change. The basic guiding rule is to develop a strong culture that derives
its stability or source of change from the needs of the customer.

The growing awareness of the corporate culture as a constraintor

a driving force is generally accepted, even by some of the most hard-headed
corporations(GE, IBM, HP, 3M, Volvo). There is a growing trend among
strategicallymanaged organizationsto shape their culture to become
supportiveof strategic thinking and entrepreneurialbehavior. Senior
Management is engaged in shaping appropriateand strong culturesto meet
the challengesof their business; IBM culture "is so pervasive that leaving
the company is like emigrating". To start with, the first step of the
strategic planning process (the definitionof the mission or purpose of the
firm) is not used as a rhetoricalexercise in issuing empty platitudes.
Rather, statementsof corporate missionsbecome the joint output of a
visionary leader and the product of much involvementand convictionby the
major stakeholders. They are stated and communicatedin a way that goes
beyond the pragmatic functions of the organization. They become essential
for creating the "spirit"and vision that energize the organizationand
give it a sense of purpose.

Survey findings suggest that in strategicallymanaged

organizationstop managementhas assumed a central role in communicating
the basic strategic roles of an organizationto its various stakeholders.
Strategywould be unlikely to become a driving and motivatingforce if it
were treated as a top secret and highly confidentialmatter that could be
trusted only to a select few. Top managementnot only serve as the key

72 -

architect for shaping the strategy of the firm, but equally important,it
devotes substantialtime and effort to communicatingthe organization's
strategic thrusts to all levels of the organizations. This aspect of
culturalmanagementhas recently received significantattention from
American firms, particularlyafter recognizingthe strengths that their
Japanese counterpartshave enjoyed in this area, and the significant
competitiveadvantage resulting from that strength. At progressive
Japanese corporations,top managementviews its role as one of managing the
culture and of recruiting,rewarding and coaching other managers to ensure
that these managers can formulate and implement strategiesthat are
appropriateto the chosen culture and the environment. It is interesting
to note, moreover, that many European firms, particularlythe Scandinavian
ones, have placed a strong emphasis on developingcorporate cultures that
are congruent with their strategiesand on using these culturesas the main
driving force for implementation.

In most of the strategicallymanaged organizationswe visited,

the processesfor defining missions and selecting strategiesare led by top
management,and particularlyby the CEO. A significantamount of the time
of top managementis spent not only on strategydevelopmentand objective
setting,but also in simplifying,clarifyingand communicatingobjectives
and strategiesthroughoutthe organization(Volvo, SAS, IBM, GE). In some
of the professionalorganizations,such as the NorwegianManagement School,
the process involvedas much bottom-up as top-down communicationand
interactionbefore missions, strategiesand prioritiesultimatelyemerged.
The process was guided by a leader who engaged the imaginationand energies
of a highly professionalorganization.

73 -

The above concernwith strategizingand communicating

choicesin
an open way may presenta dilemmafor publicand politicalorganizations
which are subjectto diverseexternalinterestgroups and scrutiny. The
Harvard BusinessSchool (HBS)suggestsan examplewhere missionand
strategyformulation
were manageddifferentlyfor its different
constituencies.What is important,even in this example,is that strategic
planningis conductedopenly among the top managementas a team and that,
once a strategyis decided,it must be communicatedeffectivelyand
purposefullyto the various concernedconstituencies.In the case of HBS,
the planningprocesshad to move around the rather individualistic
aspects
of the institution's
cultureand to avoid threateningthe autonomyof its
major stakeholders(the faculty).

More fundamentally,
strategicmanagementattemptsto transform
the institutionand its systemsrather than to introducestrategicplanning
as an appendageto traditional,
hierarchical,bureaucraticinstitutions.
Effectivestrategicplanningrequireswillingnessto deal with ambiguity
and to addressnon-marginalchoices. "If you don't like to take chances,
you won't do well here" (Citicorp). People managementis given centre
stage; team work, involvementand commitmentare nurturedand rewarded.
Managementis engagedin nurturingcreativityand a passionfor
excellence. The eleventhCommandmentat 3M is "thou shalt not kill a new
productidea". The Hewlett-Packard
way is "a chance to learn by making
mistakes". Communication
is activelyused to secure understanding
and
ensure identification
of all staffwith institutional
objectivesand
strategies. This does not involve the productionof thick planning
documents;it involvesthe creationof variousforumsand professional
group interactionsto reach all membersof the organization(Salomon).

Senior

74 -

managementis open, accessible,and in touch; "managementby walking

around" (Hewlett-Packard)
is more than a popular idea. The most
fundamentalaspect of this transformationis to create organic
entrepreneurialnetworks.

Many leading corporationshave been engaged in creatingflexible

"entrepreneurial
networks" of small, self organizingbusiness units that
employ participativeforms of leadership (such as GE, HP, SAS, Solomon and
other high technologyor service-orientedfirms). The corporationis
slowly being transformedfrom a hierarchicalpyramid into a loosely
connectedsystem of individualentrepreneurswho collaboratein solving
their strategicproblems at the grassrootslevel. In this organizational
context,strategic decisionmaking is becoming more "participative"because
managers must interact more directly to foster the knowledge and "spirit"
that ultimatelynurture innovationand excellence. Executivesare
increasinglyfocusing their efforts on encouragingcollaboration,
developingnew institutionalroles, resolving critical issues, facilitating
the contactswith external constituenciesand fostering synergy.
Executivesare also providingmore personal leadershipto unit managers by
offeringadvice and ensuring accountability. Rather than being the boss in
the traditionalsense, the executive is becoming more of a coach, teacher
and catalyst..."Weare trying to reshape GE in the minds of its employees
as a band of small businesses...totake the strengthof a large company and
act with the agility of a small company". This institutionalmodel is also
conducive to an externalorientation that fosters collaborationwith
clients, playing catalytic roles, and forging strategic ventureswith other
actors in the environment.

75 -

The strategicallymanaged organizationdescribedabove can be

thought of as a "mega-strategy"or a higher level strategy that transcends
strategicplanning to create a new type of organizationespeciallygood at
fostering strategicchange and entrepreneurialinnovation. As such,
strategicmanagementis an ideal that has been realized only partially in
some of the leading organizationswe surveyed. Therefore,organizations
can only strive constantlytowards the pursuit of this vision of
management. Change towards this mode takes a significantperiod;
consolidationand integrationof strategic planning into the systems and
culture of the organizationis a long-term and continuousprocess.

(b) Planning and Managing "CapabilityTransformation"

The above discussionhas focused on strategicmanagementas an

institutionalizedcapacity for managing strategic change and fulfilling
future objectivesand strategies. This section is concernedwith planning
the developmentof specific capabilitieswithin an organizationto fulfill
a selected strategy. In this context, a strategy is a long term thrust
which implies substantialchanges in roles and capabilities,and may
involve several years of implementation. The section concludeswith some
ideas about managing institutionalresistanceto changes in strategiesand
capabilities.

Strategicmanagementconcerns itself simultaneouslywith both the

strategyand the kinds of capabilitiesneeded to support this strategy.
Explicit considerationand planning for these capabilitiesare essential
when the selected (necessary)strategy implies a significantdis,continuity

- 76 -

or departure from historical strengthsand historicalmanagement

capability. The experienceof most organizationswhich have practiced
strategic planninghas.shown that the implementationof strategy does not
automaticallyfollow strategy formulation. When some firms diversified
from within (internaldevelopment)into new products and markets, the
organizationexhibited resistanceto the new departures;costs were
underestimated,benefits were overestimated,and delays frustratedthe
planners and managers. Other corporationswhich grew and diversifiedby
acquisitionshave often been disappointed;new acquisitionsturned
unprofitable,cultures clashed between the parent and acquired firms, and
the synergies anticipatedfrom mergers failed to materialize. Moreover,
the experienceof many organizationssuggested that the treatment of
strategyplanning and implementationas two sequentialand independent
processesis an artificialconveniencewhich neglects the fact that the way
planning is done has a determiningeffect on the eventual implementability
of planningdecisions.

The measures used to plan "capabilitytransformation"are similar

to those discussedabove (under integratingplanningwith other managerial
systems and with the culture). The main differencehere is in making
specific changes in planning and budgeting systems, in communicationand
information,in controls and rewards, and in the culture, to support the
long term strategic thrusts of the organization. Another differenceis in
developingspecific skills and attitudes among the managerial cadre and the
staff to carry out their new roles and tasks and to develop the new
instrumentsand action programs for implementingthe selected strategy.
People managementand managementdevelopmentsystems (selection,placement,

- 77 -

training,reward) assume paramount importancefor overall corporate

capabilityrealignmentwith strategy. The organizationalstructureof the
institutionmust be also realigned to support its strategyand intended
behavior. Roles, authority structuresand accountabilitiesare redefined
accordingly.

Four generic options are available to deal with the questionof

compatibilitybetween strategyand culture:

(i) ignore the culture,which has often led to disappointing

results;

(ii) manage around the culture by changing implementation

(choosing the "second best" solution);

(iii) change the strategy to fit the culture,perhaps by reducing

performanceexpectations;this is often the adopted option
in strategicallyplanned organizations;

(iv) change the culture to fit the strategy; this is the emerging
choice among strategicallymanaged organizations. This is a
difficult task to accomplishand must be led by the CEO and
coordinatedwith all the necessary and mutually reinforcing
internal changes in managementsystems and organizational
structure. In the most progressiveand entrepreneurially
managed organizations,culture is used as the driving force
for managing change; other management systems and structures

- 78 -

follow the cultural transformation,or are used to reinforce

it, (Volvo, SAS).

The process of "capabilitytransformation"almost inevitably

faces resistance. Like resistanceto the introductionof strategic
planning, resistanceto capabilitytransformationis not a superficial
phenomenon;it has a logic of its own, and it cannot be removed by
exhortationfrom top managers. It occurs whenever an organizational
strategy implies a discontinuousdeparture from historicalbehavior, power
structure,skill mix and institutionaland managerialroles. Resistance
manifests itself in procrastination,slow change performancelag,
bureaucratizingchange instruments,paralysis by analysis, lack of
implementationfollow up, etc. It also manifests itself in the elimination
of significantand bold options.

Strategically-managed
organizationshave become increasingly
sophisticatedin developingproceduresfor the effectivemanagementof the
transformationprocess from the historicalto the new capability-strategy.
To assure an optimal transitionto the new capability,the change process
is managed in a way that anticipates,minimizes and controlsresistance.
As a first step in managing change, a preliminarydiagnosis is conducted of
the nature of change in capabilityneeded to support the strategy. This
diagnosisalso determinesthe units which will be affected by the change,
the key groups and individualswho will support/resistchange, the reasons
for their positions,and their relative importancefor the success of the
proposed change. The result of this diagnosis is a "readinessassessment"
or a "resistancemap".

79 -

Using this map, measurescan be taken to build a supportive

environmentand to eliminateunnecessaryresistancethat may be due to
misperceptions
and fears. Progressiveorganizations
invest significant
time and effort to ensure adequatecommunication
and informationabout the
strategy,with specialattentionto the affectedunits and groups.
Varietiesof measuresare used to build a pro-changepower base, such as
formingcoalitionsand offeringincentives. In addition,behavioral
featuresmay be designedinto the plan for change such as includingin
decisionmaking all individualswho will be involvedin implementingthe
change. To the extent time permits,change is startedwith groupswho are
committedto the change;rewardingand recognizingthem can facilitatethe
spreadof change to other units. Participantsin the change processshould
be providedwith the necessarynew conceptsand skills. Action programs
and "capabilitychange"projectsare often formulatedto supportand
sustainthe new strategy.

In our survey,we observedthat progressiveorganizations

have
placed increasingattentionon buildingimplementability
into planning.
More attentionis given to this in Europeanfirms,particularlyin
Scandinavia(Volvo,SAS, NorwegianManagementSchool)than in the U.S. Top
managementinvestsconsiderableeffort to ensure behavioralacceptanceof
new strategies. Exemplarybehaviorby top managementin its dailywork is
consideredcrucialin communicating
its commitmentto the new strategy.
The Japaneseapproachis similar: concernwith behavioralacceptanceof
new strategiesfrom the very beginningof the decisionprocess;and early
launchingof experimentsand change projectsbefore planringis completed,
resultingin parallelplanning/implementation
activity. (WANG,with a
ChineseCEO, came closestto this approach).

- 80 -

IV.

SUMMARY
AND CONCLUSIONS

Our review of external planning practices indicates that leading

organizationshave evolved their planning processes,transformedthe focus
and modalitiesof these processes and integratedthem into other management
systems and structuresover time. The evolution of planning practicesalso
suggests that time is of the essence and that effectiveorganizationsmust
learn to plan as well as plan to learn. Particularlysince 1980, and in
response to an acceleratingrate of change and increasingcompetition,some
leading organizationshave adopted a new mode of strategicplanning, called
"strategicmanagement". Viewed as an ideal, strategicmanagementis only
partiallyrealized in progressiveorganizations. These organizationshave
become committed to strive constantlytowards the realizationof this form
of management. Strategic managementhas come to be seen as an essential
goal for organizationsto learn and develop, to maintain their excellence,
to remain responsive,even to survive.

Survey findings indicate that present planning practices at the

leading organizationshave built upon and transformedearlier forms of
planning. Startingwith budgeting and financial controls,organizations
have developed measures for setting productivitytargets,transparentcost
structures,appropriatebase for unbundlingand pricing their services,
responsibilitycenters, and internal incentivesand markets to enhance
competitiveness. Lacking a long-term perspective,however, the main
pitfall of this planningmode is excessive myopia and an absence of
meaningfulincentivesand performanceindicatorsfor strategic adaptation.
Long-rangeplanningwas then adopted and was driven by multi-yearforecasts

- 81

of demand. While this mode may have been appropriate in a period of fast
growth and in a stable environment, it proved inadequate as the environment
grew less certain and more competitive, and as markets and clients could
not be taken for granted.

Planners have focussed their attention on

forecasting techniques and on predicting rather than creating future

demand.

Subsequently, planning had to become externally oriented and

strategic planning emerged with some powerful concepts and tools to provide
this orientation. In particular, the businesses of a corporation are
segmented into distinctive strategic business areas and the organization is
restructured along strategic business units (SBUs) that are responsible for
developing the firm's position in one or more of these areas.

Segmentation

has become a common tool for giving a clearly organized view of present and
future environments and for differentiating the strategies of the
organization to meet the increasing diversity of the roles it should play
and the clients it should serve.

Portfolio matrices are employed to

position each business (domain) in accordance with the attractiveness of

the industry and the competitive strength of the firm in this particular
business. These tools provide a common framework for establishing
priorities among businesses in the portfolio and for developing distinctive
strategies for their repositioning in view of the changing structure of the
industry and the critical success (internal) factors that must be
influenced. Strategy formulation processes were progressively
differentiated into corporate, business (SBU) and functional levels, with
each level determining the broad directions and thrusts of the next.

The

overall strategic planning process has become an encompassing tool for

engaging all business (SBU) and functional managers in formulating their

82

qwn strategies, and subsequently their plans and budgets, in response to

the corporate mission, internal scrutiny of strengths and weaknesses,
environmental scanning of threats and opportunities, and the overall
corporate posture.

Scenarios have been used to provide a common world view

and a coherent set of planning assumptions for the development of a

corporate strategy and subsequently, the business (SBU) and functional
strategies.

Strategic planning tools and processes have rendered the strategy

formulation process transparent, encouraged differentiation of business
strategies to meet the needs of diverse environments and clients, and
provided feedback on and accountability for strategy management at
organizational levels closer to the market.

Over time, it introduced a

discipline for long-term thinking, increased awareness about the diversity

and fast changing character of the environment and possible threats and
opportunities from competitors. In general, it educated operating managers
in strategic thinking and prepared them for more general management
functions. However, tendencies towards bureaucratization, ritualization
and isolation of the strategic planning function prompted its
transformation into a new mode, called strategic management.

Strategic management involves a strategic planning process that

is issue-focused, selective, opportunity seeking, and highly interactive.
It puts more emphasis on qualitative and creative thinking and uses
strategies as frameworks for guiding all choices rather than as "blueprint"
plans for detailed controls. It complements the cyclical and formal
processes with ad-hoc and flexible means of organizing and responding on a
continuous basis.

In addition to changing the structure, strategic

- 83 -

management is strivingto transform the modalitiesof the strategic

planning process. In particular,the role of institutionalplanners is to
facilitateand foster superior strategicdecisions and creative choices by
providing information,tools, perspectives,interactiveprocesses and
stimulationto executive and line managers. This implies close and
informalworking relationshipsbetween planners and managers, at times as
advisors and "processconsultants",and at times as advocates, stimulators
and even intellectualchallengers(see Table 1, page 50).

The strategic planning process is also integratedwith other

managementstructuresand processes. At many progressiveorganizationsthe
strategicplanning process is used to realign the organizationalstructure
in terms of emerging or redefined strategicbusiness areas and to
facilitatedecentralization. It is linked to strategicresource allocation
and is used to provide a framework for the allocationof strategic
resources (includingstaff) according to clear prioritiesamong businesses
and selected strategiesfor their repositioning. The strategic planning
process is also linked to the organization'sinformationand communication
systems and is used to shape the orientationand focus of these systems;a
premium is put on understandingthe client and the overall industry
structure,and on communicatingwell defined objectivesand strategiesto
both internaland external audiences. Finally, strategic planning is
linked to the incentive structureand control systems to ensure that the
institutioncan motivate, monitor, evaluate,and control strategic
commitmentsand can balance rewards for the opportunisticand short-term
with the strategic and longer-term.

84 -

Strategicmanagementintroducesa new dimension to planning

commonlycalled "strategicissue management". Strategic issue management
focuses top managementattention on key issues arising from implementation
of the strategicposture of the institution (strategy-derived),
from
emerging environmentalthreats and opportunities(environmentally-derived)
and from unexpected (surprise)events. The processesemployed for issue
managementmust be simple and flexible and must assure early identification
of issues, fast response, action-orientation,and systematicfollow up. At
strategically-managed
companies,the issue managementteam is the top
management,with the chief corporate planner acting as agenda manager. The
debate on issues is conducted in an open and candid way and in deliberating
and acting on the issues, team members assume overall corporate,rather
than territorialresponsibilities. The corporateplanners facilitatethe
identificationand examinationof the issues, organize task forces and
mobilize institutionalresources to further clarify or act on the issues
and ensure selectivityand persistancein addressingthe difficult
strategicissues facing the institution.

Strategicmanagementemphasizesculture and people management,

"transformational"
leadership,communicationand clarity of mission and
objectives,entrepreneurshipand risk taking, and support for learning and
external interaction. It fosters an organizationalclimate that
facilitatesthe implementationof the strategic thrusts of the institution
and that induces strategic behavior in general. It nurtures an
outward-lookingand strong culture and transmits the fundamentalvalues of
the institutionthrough role modeling, recognition,symbolic events,
communicationsystems and incentives. It offers meaning and a sense of

85 -

involvementand mission; it gives staff confidence(to innovate,for

instance)stemming from stable expectationsabout what really counts. It
combines a firm central direction (value driven) with maximum individual
autonomy and attention to the client.

Finally, strategicmanagement plans and manages capability

transformationto realign present capabilityand culture with the chosen
strategic thrusts. It acknowledgesthat resistanceto strategic thinking
and to capabilityrealignmentwith environmentalchange are not superficial
phenomena to be removed by exhortation. It manages change in a way that
anticipates,minimizes and control resistance. It diagnoses the nature of
required capabilitychanges,determines their impact on differentgroups,
develops a "resistancemap" and then engages in building coalitionsfor
these changes. It empowers participantswith the necessary concepts and
skills to initiate their change experimentsand provides appropriate
incentivesand a supportiveenvironmentto sustain their commitment. Early
launching of experimentsand "capabilitychange" projects is used to create
"facts" and demonstrationeffects, to provide feedback to planning, and to
enable the institutionto learn as it plans.

ANNEX 1
Page 1 of 8
A METHODOLOGICAL NOTE

Table 1 covers the organizations visited by the review team,

which comes to about 90 organizations, equally distributed between the USA
and Europe., Interviews were short and limited to the chief planners
(usually a V.P.); in a few cases it involved the CEO. The coverage was
intended to provide more breadth than depth; follow up was expected for
in-depth interviews with various levels of managers and planners within few
selected comparator organizations.
All organizations covered by the survey were asked to describe
their basic planning approach and their experience with institutionalizing
planning. In particular:

1. What is the basic purpose(s) of planning? What are its

contributions (value added) to the organization? Who are the
primary users/audience of the planning process?
2. What planning approach is adopted to achieve these purposes?
3. What mechanisms, concepts, modalities and means are used to
implement the adopted approach:
(a)

(b)
(c)

Do you distinguish among strategic planning, long-range and

operations planning and where does the organizational
responsibility lie for each?
What is the time cycle and steps involved in the planning
process?
What are the means of communicating and documenting plans
and coordinating the strategic planning, long-range
planning, and operations planning elements?

4. How was formalized planning introduced into the organization and

how did it evolve? What factors have influenced its evolution
and effectiveness (contributing, hindering)?
5. What common pitfalls should be avoided in planning practices?
How to maintain a high pay off for organizational planning?
Figure 1 suggests some of the key dimensions which the Bank
shares with the categories of organizations surveyed. We have found that
these dimension have significant impact on the planning environment and on
the scope and focus of the planning process. The following Figures and
Tables define these dimensions.

ANNEX 1
Page 2 of 8

Figure 2 suggests some of the linkages between the

characteristics of the organization and its business and the environment
and their implications for the scope and focus of the planning function and
hence the basic approach to planning used. Table 2 suggests the major
impact of various business characteristics on the role of (need for) the
planning function. Table 3 highlights some of these characteristics and
their relevance to the Bank. The following points describe the impact of
key business and organizational characteristics on the planning process:
Impact of Business and Organizational Characteristics on Planning Processes
. When managers operate under consensus and/or entrepreneurial
approaches, a centrally-imposed planning process will be resisted
and resented.
. When organizations have no supportive culture for strategic
thinking, planners must create effective demand for their
services and demonstrate "value added" early on in introducing
planning tools and processes.
, An organization's position in the market can affect its role and
approach to planning e.g. leadership means orienting planning
to influence the market rather than only adapt to it.
, Professional service organizations typically generate new ideas
and strategic direction based on a combination of what their
staff and managers are good at and what clients appear to need.
. The organization's "basis for success" must be an integral part
of the planning process: (1) in providing feedback on past
decisions; (2) in comparing strategic alternatives.
. Bottomrup planning probably won't work in a bureaucratic or
rigidly hierarchical organization.
. Where there is a high risk of error with major consequences, the
planning approach should incorporate contingency and "hedging"
devices, take an adaptive role, and be willing to detect and
acknowledge deviations early on.
. A stable customer base (usually associated with hard products and
repetitive services) permits the planning process to rely on the
market place for jpredictingfuture trends in sales volumes and
customer preferences.

ANNEX 1

Page 3 of 8
Lead-timecharacteristicsof organizationsdictate: (1) the
planninghorizon; (2) the type of market informationthat is
needed for strategicbusiness decisions; (3) the reliabilityof
projectionof future markets and competitiveconditions.
Where feedbackon performanceand the results of past strategic
decisions is unclear or slow, the planning process is usually
bureaucraticand budget driven. In such cases, planners may use
"performanceindicators"as surrogatesfor measuring the actual
criteriafor success.
Emphasison performancemeasurement enhances the potential for
successfullyintroducingplanning in an organizationbecause it
heightensmanagers' sense of accountability.
Highly volatile and uncertain conditionsof supply and demand may
mean it's best to use strategic planning to influence "position"
in the market.

ANNEX 1
Page 4 of 8
TABLE 1:

SURVEY OF COMPARATORORGANIZATIONS'

ORGANIZATIONS

PLANNING FUNCTIONS

U.S.A.

EUROPE

International

agencies

UNDP

ILO
EEC

Multinational
Institutions

Financial

Merrill Lynch
Citibank
Chemical Bank
First Chicago
Bank of America
Interfirst Corp.
American Express
Dean Witter
Phibro Salomon

Midland Bank
SG Warburg
Bayerische Vereinsbank
Deutsche Bank
Dresdner Bank
Swiss Bancorp
Union Bank
Svenska Handelsbanken
CBK
Banque Bruxelles Lambert

US State Dept
US AID

Kreditanstalt
Norad
Veritas

Governmental

Institutions

Fur Wiederafbau

Project Management
Organizations

Bechtel
Fluor

Multinational Manufacturing
Organizations

3M
Abbott Labs
Eaton

Pechiney
Renault
Metallgesellschaft
BOC Group
Imperial Chemical Industries
BMW
Hoechst
Ciba Geigy
Brown Roveri
Volvo
Elkem
Noboe
Norsk Hydro

Resource/Infrastructuralbased Companies

Dupont
Exxon
Shell Oil
Amoco

British Petroleum

Professional Services
Organizations
(Consulting, Think Tanks
& Academia)

Conf. Board
Management Analysis Center
Booz-Allen
McKinsey
AMA
SRI
BCG
Ernst & Whinney
Strat. Planning Associates
Price Waterhouse
Harvard Business School

INSEAD (Business School)

Coopers & Lybrand Ltd.
McKinsey (Germany)
Competanse Centeret
IFL
Indevo
University of Stockholm
Norwegian Mgt. School
Mars and Co.

High Tech Companies

General Electric
Hewlett-Packard
NCR
Xerox
Kodak
IBM
TRW
Texas Instruments
Wang

Philips

Consumer Services/
Transportation

American Airlines
Marriott
Conrail
Amer. Pres. Lines

Nestle
SAS
Norema
Acty-Nor

__ _

__

'

FlIEQ 1:

flOl

Di*lW

Ca.rW1(N
(kpnloatn
Catemory

Mana
t
Style
&
o m

World 1ik

Cs.su/
ierarddcal
dIA
V
avoidanee
. pros
orited

Iatemti.
AGnciem

Bsis of
cess

W of0
leaeresip
profe-ahl
siesIs
cunt
relations

. Often
awbgeus
ad slaw

Dltenmzss
0of P1 e d
Coices

Opolitie
Pismicil
ard Prof.
resurces

knwads
a edqer.

ANDRJSrNC&QiCRUMCIRtSMS

Size and Scpe

of M*.et

X
I

Pnmf.
Servifis'

Dlveesity ard Stabllity et

laterOstorme e
depeiabncy
aN
anirsa
.

WayRy
Interdepfor
a geven
cUlet
(anctey)

. R at
iinrlla
org. (Dos)
aw0git
ai-'ops
(i stitotiona)

.rd
uncertainty
In both
auppy aid
dmwd

LeAd4im for
Strateic

ahme

PotatiAlly.
wry salrt

I
X
X

Seves

X._.

Styie:

Basis of Succesm/
Ftwforsce Bsare:
Clarity and TinSg
of Performuwe Feedback:
Determinants dE Rae
of Chdices:
Size ad Scepe of Mmket:
Naatte of Prodet:
Interdepeideay ong

fim

Statlal
risk of
error with
aslor
ceo
_ua
rmo
on jintit.
Climt

frasrontue

Risk of
Stratqglc
Error aid
Pibde
of
Ccwuens

X
X

I*gtnt'i1.

Level of
ISanortainry
of 9L4y/
Dm

X
I

Project
t.qWz

KoM_nt

Natwre of
Product

.alobtl
Nn. v't. ojW.
Reetittve
as interSevieCa
sediary for . Titellenoe
nad irft.
elet
uisetd org.
. Ffig

hzutit.

DO't.
lbuit.

Clarity and
timivgf
Ferfonor
Fedc

1EIWNME BWEANDOClARAITIGNl(rs

Methodand location of decision-rdlcig: am four categories - brea2ratic,

hier rdhical, cownseu, entreprena.tial: ospnisatoes my
reflect a ciminati-n of these styles.
te amythe organiaation rate
uon
s
performance and the success of its professionlsi: the key to success in a certain indastty or
business.
11w precisely and bowquickly the ramlts of idividoal decisions and cverall stratfgy are knloanto ,ansnnent.
The basic operatirg frawedi and ronstraints on the organization as established by, for ep,le,
geopolitics, sharefolders.
masoes, structural -neltment, regolation, aid darter.
Rneiorna vs national ws international; "typre" of
stor or costitrancy.
'Nbrd product; repetitise service (e.. tranpoctation): non-repetitive service (e.g., -nnasent consulting).
Extent to chich adiitrg prodwtt or basineses can be 'bulod" or "ubadled".

competition,

11siases:

Stability of WatomerBase:
Lvel of !thectaixty Of
of Spply/Dnd:
Load-tine for Strategic
Q :
Risk of Stategic Ermr
ad MHagitudeof
enoes:

Deree to dhich reenna is genersted over tim by nultiple asia (services) to the oawe or similar set of castoamrs (stable) vs a pstterm of
one-tine aales to a tontatly
dwgirTg set f customers (ustable).
Risk of uraailability
of rescurces (supply and cost of funds, expertiase, aterials)
and/or a ondret demid (benae
f chdaWirg nees or
caretition).
Tim lag bea
mkineddrg
and eamotirt a strategic decision as dictated by tire required to develop "proiaction" caPdlity
of the product or
mservice.

Probability of vwrsg strategic decsion aid the irpect on the orWgnization ai/or

cenutibrersY of the aistame.

0|

FGLQE 2;

LUJA

WIEIEN
CIAfISTIC

Diagnosis/Parters

dcracteristics
Organi7ational
planirig erNvircgit
influeoce
o

that

and focuis:

age, size, cmAplexity, history,

culture, plannuig skills,
meiagement style

that
Business characteristics
influence pLarning ervirorent
and focus:
advantage/
- basis for competitive
performarnce
amx buwines_e
- interdependence
coverage (geography)
- rker
product; standard/
- hard/soft
non-standard
bese/market shifts
- custoar
- level of urcertainty
- decision ad execution leatim
prauct
(resource procreent;
developmnt and delivry)
of
and tihg
- clarity
fem*
perfowce
- bgree of risk in dAcidion/
tconme

sance

AN) APW14
ANDENW IMENlS, ANDTE SOXPE/FOCL.S

S (F CWNIZATICIS, UEIR MBUSU

<

sign dtbica

envirmnt:
Plirg
of coices.
- ra;e
of business/prodct
- oplexity
evaluation
aMd docnumt
- ability to forAlate
firm plans (need for mnitoring
randupdate)
>- ability to blend xietitive
sdvantage/perfore
into evaluation prooess
to forecast
- need (aid ability)
mrtket acnditions and cLmtoer
funds
for upside
of alloI
- iportaEe
and dowmide riAcs
decisions
- locus of key buiness
ard uetkod
in the orginiation
of implementation

TO PfLAff

PLx

Sqe

Organizational

aid Fos:

P
(structural

ptoble/isases

of

is expected to
that planlrg
address:
- extent of focus on business/
product evaluation vs imple(atae e
plasri
iatation
scs
euld go vs how e get there)
resotroe allocation
- strategic
- synergy, coordinstisn
basic directions
- settlW
- re&acing uncartainties/
aiCipaktion
- ontrol; aommtability
of
identification
- ianatian;
oppetxniities
- gexnrating conuesn
- increasing

resqpxsivess

delegatiom
- policy adviv /cuneBing
the top
- focn_ on eawiront/caqpetition

&

:
characteristics

pla%ing)

degree of fornality
with
degree of integration
bxlgeting & short term
plamln g
top duwn or bottom up driven
extent to ehich forecasting
plays driving role
priairy audience:
eKternal astittency
top nansgomait
agment
line
staff
dcree of decentralization

Ip

icat ions for:

- structure

rnlttr.e
style
skills
prwtxws
systems
iives
linis with finrmial
prooesses
- location &
of
distribution
stat
plafirn

AB

IMPACT OF VARIOUS BUSINSS CHARACTERISTICSON THE PLANNING FUNCTTON

Major Influence
-

on Planning

Environment

Impact on Planning Role (Scope and Focus)

Interdependenceamong businesses services/diversityof

products.

-range of business choices available

-complexity of business/product
evaluation

-evaluating diversification opportunities

-focus on synergy and coordination

The time horizon necessary for effective

(decision
and execution lead-times

-ability
to forecast
accurately
-need for routine monitoring and update

-forecasting,
contingency
planning
-time frame, continuity,.
-anticipatory

-importance
of allowing
for upside/
downside
-need for monitoring
and update

-degree

-ability
to formulate
firm plans

-focus
on measuring
-lirk
to incentives

Degree of risk

- Clarity

Impact

planning

in decisions/consequences.

of measures

of performance/immediacy

of

feedback.

The organization's
"basis
for success"
and measures
performance:
- low cost
- high quality,
reliability,
service
- innovation,
high value added, nichmanship

- Degree of flexibility

determinants
-

of the

as dictated
organization's

Geopolitics
Charter
and regulation
Competition
Resources
Structural
comimitment

by the
range

and document

-focus

of centralization
on strategic

assumptions
feedback

of
-ability
to blend
explicitly
into

performance
measures
planning
process

-detailed
control,
link to budgeting
-customer
focus
-highly
decentralized
and informal
planning

most important
of choices
-range of business
choices
-complexity
of business/product
evaluation

-selective
audience/degree
of openness
-advocacy,
focus on constituency,
political
-ad boc, agile,
strategy
focus
-resource
allocation
focus
-to stimutale
innovation
and experimentation
-capacity
to forecast

process

IDI
0

TABLE 2

IMPACT OF VARIOUSBUSINESS CHARACTERISTICS ON THE PLANNINGFUNCTION (Continued)

Impact
- Size and scope of the
of international
extent

- Providing
service.

a hard

- Dependability
funding base).

- Level

of future

particularly
"market"
sectors,
coverage,

product,

and stability

a repetitive

of

the

with respect
beneficiaries.

service,

constituency"

to

or non-repetitive

(customer

base

on Planning

Planning

Environment

Role & Focus

the market
management
structure

of business
-complexity
decisions
-locus of key business
market conditions
-need to forecast

- segmenting
- portfolio
- decentralized

market
to forecast
-need and ability
and customer trends
conditions
for upside/
of allowing
-importance
downside risks

- emphasis

market
to forecast
-need and ability
and market funds
conditions
and document firm
to formulate
-ability
plans

on influencing
-focus
definition
-role
on concensus:
-focus
stockholders

on innovation
degree of
degree
- entrepreneurship
- standardization
the
value

of

enviroment
added

to

uncertainty.
to forecast

market

- In markets to be served
- In competition

-need and ability

conditions

- In volumeof business
of resources
- In availability

of allowingfor upside/
-importance
downsiderisks

performance
- In achievable
cost/profit).
impact,

(customer

satisfaction,

- scenario

building

-focuson environment

-need for close monitoring and update

iQZ
m xd
co

00

ANNEX 2

Selected Bibliography

Andrews, Kenneth R. The Concept of CorporateStrategy. Homewood, Illinois:

Richard D. Irwin, 1980.
Ansoff, H. Igor; R.P. Declerck;R.L. Hayes. From StrategicPlanning to
StrategicManagement. New York: John Wiley & Sons, 1976.
Ansoff, H. Igor. StrategicManagement. Hong Kong: The MacMillan Press Ltd.,
1979.
Drucker, Peter F. Management: Tasks, Responsibilitiesand Practices,New York:
Harper's College Press, 1977.
Galbraith,Jay R.; Nathanson,Daniel A. Strategy Implementation: The Role of
Structure and Process, West PublishingCompany, 1978.
Halal, William E. "StrategicManagement: The State-of-the-Artand Beyond."
TechnologicalForecastingand Social Change, 25, pp. 23-261, 1984.
Hax, Arnoldo C.; Majluf, Nicolas S. StrategicManagement: An Integrative
Perspective,Prentice-Hall,Inc., 1984.
Hofer, Charles W.; Schendel,Dan. Strategy Formulation:AnalyticalConcepts.
Reading,Mass. Addison-Wesley,1978.
Kanter, Rosabeth Moss. The Change Masters: Innovationfor Productivityin tile
American Corporation. New York: Simon and Schuster, 1983.
Peters, Thomas J.; Waterman, Robert H. In Search of Excellence. Harper and Rlow
Publishers, 1982.
Schendel, Dan E., Hoffer, Charles W.
Brown, 1979.

Strategicmanagement. Boston: Little,

Steiner, George. Strategic Planning: What Every Manager Must Know. New YorRc:
The Free Press, 1979.
Tichy, Noel M. Managing Strategic Change: Technical,Political and Cultural
Dynamics. New York: John Wiley & Sons, 1983.
"Scenariosand Corporate Strategy: Planningin Uncertain Times", 1982 by SRI
International,Business IntelligenceProgram, Report No. 669.

The World Bank

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