Cover title: Strategic Management Methodology: Generally Accepted Principles for PractitionersGuidelines for Strategists ; No. 1 author: Roney, C. W. publisher: isbn10 | asin: 1567206298 print isbn13: 9781567206296 ebook isbn13: 9780313053788 language: subject publication date: lcc: ddc: subject: cover Page i Strategic Management Methodology page_i Page ii This page intentionally left blank. page_ii Page iii Strategic Management Methodology Generally Accepted Principles for Practitioners C. W. Roney Guidelines for Strategists, Number 1 page_iii Page iv Library of Congress Cataloging-in-Publication Data Roney, C. W. (Curtis W.), 1942– Strategic management methodology : generally accepted principles for practitioners / C. W. Roney. p. cm.—(Guidelines for strategists ; no. 1) Includes bibliographical references and index. ISBN 1-56720-629-8 (alk. paper) 1. Strategic planning. I. Title. II. Series. HD30.28.R6617 2004 658.4′012—dc21 2003053024 British Library Cataloguing in Publication Data is available. Copyright © 2004 by C. W. Roney All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 2003053024 ISBN: 1-56720-629-8 First published in 2004 Praeger Publishers, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.praeger.com Printed in the United States of America The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48-1984). 10 9 8 7 6 5 4 3 2 1 Copyright Acknowledgment Every reasonable effort has been made to trace the owners of copyright materials in this book, but in some instances this has proven impossible. The author and publisher will be glad to receive information leading to more complete acknowl edgments in subsequent printings of the book, and in the meantime extend their apologies for any omissions. page_iv Page v Contents Illustrations vii Preface xi Introduction xiii Part I. 1 Foundations of Methodology 1. Historic Perspective 5 2. The Planning Process 33 3. The Classic Approach 51 4. Neoclassical Methodology 69 Part II. 93 Management of Planning Functions 5. Authorities and Responsibilities for Planning 95 6. Administration of Planning Procedures 119 7. Procedural Contingencies: How to Make Planning Fit the Firm 139 Part III. 165 Decision-Making Procedures 8. Planning Decisions in the Single Business 167 9. Planning Decisions in the Multi-Business Corporation 211 Part IV. 231 Implementation of Strategy 10. Making Strategy Happen: Required Capabilities 233 11. Restructuring the Enterprise 259 page_v Page vi Part V. 285 Summary 12. Generally Accepted Planning Principles: A Compilation 287 Appendix: Evolution of Classic Planning Models 301 Bibliography 313 Index 339 page_vi Page vii Illustrations Exhibits 1.1 Emergence of Formal Planning in Countries Other than the United States 10 1.2 Evolution of CBP Concepts in the Twentieth Century 16 1.3 Twenty Companies That Failed 19 1.4 Results of Planning-Performance Research in Specific Industries, 1970–1989 23 5.1 Pitfalls in Comprehensive Long-Range Planning 102 5.2 Qualifications of the Senior Planning Executive 114 6.1 Corporate/Division Planning Schedule for a Single-Business Corporation 125 6.2 The Product-Line Package 127 7.1 Factors Influencing Planning Process Formality 161 8.1 Scope of Business Conditions Assessment 171 8.2 Evaluating the Commercial Significance of Environmental Forces 179 8.3 Industry Trade Associations as a Source of Operating Benchmarks 192 Figures 2.1 Comprehensive Planning: Length versus Depth 37 2.2 Comprehensive Planning: Height versus Depth 38 page_vii Page viii 2.3 Comprehensive Planning: Height versus Length 38 2.4 Corporate and Business Planning: Length versus Depth 39 2.5 Departmental Planning: Length versus Depth 39 2.6 Comprehensive Planning: Three-Dimensional View 40 2.7 Strategic Planning Nomenclature 42 3.1 Conceptual Model for the Analysis of Planning Behavior 54 3.2 How Is Strategy Conceived? 55 3.3 The General Planning Model 59 3.4 Corporate Planning Process Model 62 3.5 Incremental Improvement Concept 63 4.1 Condensed History of Planning Technology 71 4.2 Strategic Planning Technology: Sources 76 4.3 The Availability of Electronic Data Systems to Support Strategic and Business Planning 91 5.1 Executives’ Influence on Planning Decisions 104 6.1 Planning-Programming-Budgeting Sequence 126 7.1 The Anderson and Paine Strategy Model 141 7.2 Appropriate Approaches to Decision Making in Firm Size/ Structure Combinations 143 7.3 Inter-Industry Differences in Long-Range Planning Incidence, 1995 147 8.1 Market Share/Growth Matrix: Cash-Flow Characteristics 181 8.2 Normative Cash Flows within the BCG Matrix—An Alternate View 182 8.3 GE/McKinsey Multifactor Portfolio Matrix 183 8.4 Product/Market Life Cycle 184 8.5 Product/Market Evolution Matrix 185 8.6 Directional Policy Matrix 186 8.7 ROI Relationships to Market Share and Industry Concentration 196 8.8 Hypothetical Relationship of Market Share and Return 197 8.9 Baseline Projection, Goal and Strategic Objective: Interrelationships 198 9.1 Strategic Objective of Acquisitions 220 10.1 The Implementation Competences Bridge 245 11.1 Measuring the “Second Gap” 260 Tables 1.1 Incidence of Comprehensive Business Planning in Ten Industries 11 2.1 The Comprehensive Planning Process 41 5.1 Responsibilities for Identifying versus Approving Objectives 96 page_viii Page ix 5.2 Levels of Plan Approval Authority 98 5.3 Approval of Plans by Individuals and Groups at Corporate and Division Levels 99 5.4 Appropriate Planning Skills: Impacts of Diversification and Breadth of Business Focus 107 5.5 The Strategic Planning Society: April 2002 Membership 110 7.1 Management Style versus Planning Approach 156 8.1 Industries Where Participants Typically Have Narrow Lines of Business 167 8.2 Scope of Forecasting Methods 177 8.3 Marketing Focus: Priorities 190 8.4 Purposes of Goals: Management Perceptions 200 8.5 Information Required for Goal Selection 201 9.1 Sources and Impacts of Pitfalls in Multinational Business Planning 228 Appendix A.1a Formulation of Economic Mission 303 A.1b Formulation of Competitive Strategy 305 A.1c Specification of Programs of Action 307 A.1d Reappraisal of Master Plan 308 A.1e Top Management Planning Framework 309 A.2 Ansoff’s Strategic Planning Model 310 A.3 A Strategic Planning System 311 A.4 Comprehensive Strategic Planning: Structure and Process 312 page_ix Page x This page intentionally left blank. page_x Page xi Preface This book was written for the commercial planning profession—the community of management professionals who form, facilitate, and manage procedures for selecting corporate and business objectives; developing strategy and plans of business, and facilitating strategy implementation. Nearly every sizeable business in America prepares a formal plan of business. In each such business, at least one manager is responsible for overseeing the firm’s planning procedures. This book is intended to be a source of methodological guidance for those managers. The focus of this text is on practice—how planning functions best are performed administratively. There is an abundance of theoretical writing and empirical research into topics pertaining to business and corporate strategy. But, surprisingly little definitive information is available to guide professional planning managers or senior executives in selecting the procedural principles most likely to produce plans that can be implemented successfully in the specific circumstances of their firms. This book is intended to fill that void. In this volume, the planning manager will find a collection of methodological principles that are “generally accepted” for one of three reasons. First, their effectiveness may have been demonstrated empirically, either by formal research or case histories. Second, academicians may be in general agreement on the practical application of strategic management theory. Third, even if empirical evidence or relevant theory are unavailable, a pattern of customary practice may have evolved. In the absence of those foundations, I have drawn on three decades of page_xi Page xii our firm’s experience in formulating plans and planning procedures with and for clients in virtually all sectors of American industry. Wherever possible, the empirical bases for planning principles have been emphasized and theoretically unsupported constructs have been minimized. Nevertheless, the methodologies of business and corporate planning still include many principles and practices that have not been tested empirically. Much applied research still is needed to define planning methods’ efficacy, in several types of commercial and industrial settings. Thus, commercial planning professionals today employ methodologies that apply substantial portions of both art and science. C. W. Roney Wilson, NC November 2003 page_xii Page xiii Introduction This book explains how the body of knowledge that resides in strategic management theory can be put to effective use by senior executives and practicing planning managers. It is about methodology, the intersection of theory and practice. Thus, these pages focus on methodological principles that may be used to guide managers in the conception and administration of their firms’ planning functions. It is important to emphasize that the study of strategic planning methodology should not be limited to techniques alone. Many books have been written on planning techniques over the years, but without firm foundations in theory and/or empirical verification, very few have endured the test of time. Accordingly, this volume is a compendium of both theory and empirical evidence that pertain specifically to how firms should be managed strategically. Thus, the application of strategic management theory and empirical evidence to planning technique is the subject matter of strategic planning methodology, and this volume which, we believe, is the first to achieve such a nexus. Strategic planning technique is, to strategic management theory, what mechanical engineering is to theoretical physics. More than simply procedural guidelines, then, this book contains principles of applied strategic management theory and empirical evidence that are either generally accepted or sufficiently verifiable to serve as bases for professional practice. Both strategic management scholars and serious strategic planning practitioners who desire a comprehensive collection of generally accepted planning principles should find this volume useful. page_xiii Page xiv ORGANIZATION OF THIS BOOK The text consists of twelve chapters, divided into five parts. Part I addresses the foundations of strategic management methodology. Its first chapter discusses the “planning mission” from a historic perspective, which should give planning managers the comfort of knowing that their profession has evolved in lockstep with modern management. In the second chapter, the basic approach of comprehensive planning is defined. In the third chapter, that basic approach is elaborated in the form of a classic procedural model. In the fourth chapter, readers will learn how the classic model fell from favor during the 1970s and 1980s, as its evidential and analytic requirements overwhelmed the administrative capabilities of most corporations. In the 1990s, with arrival of new information technology, those impediments to executing the classic model were removed. Accordingly, the fourth chapter also proclaims that a new age in strategic planning methodology has arrived and that “neoclassicism” now represents the state of the planning art. Part Two’s three chapters address administrative principles for managing strategic planning functions. It begins with a chapter on the managerial responsibilities for performing and the authorities for approving the work of strategic planning. In research conducted by our firm, we have learned that, in some industries, firms’ performance is best when plans are approved by the board of directors. In other industries, performance is best when the chief executive has that authority. This striking difference in industries’ planning- performance dynamics illustrates the importance of a proper organizational alignment of planning responsibilities and authorities. The second chapter in Part II reviews administrative principles that should be observed by planning managers in conducting planning functions. The third chapter explores several contingencies that may affect how those administrative principles are best applied in a firm’s particular circumstances. For example, the often-encountered impediment of organizational resistance to planning is discussed. In Part III, strategic decision-making procedures are described. This book is intended to provide methodological principles for practicing strategic planning managers who facilitate and administer strategic planning functions, but rarely have the authority or responsibility to make strategic decisions themselves. Accordingly, these two chapters are focused on the procedures rather than the substance of strategic decision making. For a more comprehensive treatment of substantive matters related to strategic decision making, readers may refer to the author’s forthcoming volume addressed solely to that subject. The first chapter in Part III addresses decision-making procedures for firms with single businesses. Even multi-business corporations are page_xiv Page xv comprised of individual businesses, each of which should follow the principles set forth here. The second chapter addresses special procedural considerations that apply in multi-business corporations; here, readers will find decision-making procedures that are unique to corporate-level planning, as opposed to business-level planning. Part IV addresses requirements for effective implementation of strategy. Planning managers can’t implement strategy themselves, of course, but they must work with line executives at all levels to provide the capabilities and resources that are needed for effective implementation. Making such provisions is an essential, but often overlooked, element of the planning function. The first chapter of Part IV addresses implementation capabilities—both skills and resources. Surely, this is the least developed area of strategic management literature. In both theory and practice, our current methodology for realizing strategy has many voids. Much more is known about how to form strategy and formulate strategic plans than about the competences that are required to implement strategy effectively. But, readers may take some comfort from the specific guidelines in this chapter. (Readers also may be encouraged to know that a fourth volume in this series will describe the methodology of strategy implementation in much greater detail.) The second chapter in Part IV addresses procedures for implementing strategies that call for transforming the structure of an enterprise through acquisitions, divestments, mergers, alliances, joint ventures, and bankruptcy reorganizations. Planning managers usually don’t do the legal, auditing, tax, regulatory, or engineering work that takes place when firms are restructured. They often are asked to coordinate such functions administratively, however. This chapter provides some procedural guidelines for that role. A forthcoming volume in this series will describe the substance of restructuring methods, legal/regulatory considerations, and related economic issues in much more detail. In Part V, planning principles that were stated at the end of each chapter have been recompiled in a more consolidated form. Practitioners may refer to this abbreviated compendium for quick reference or review as they go about the work of forming plans and planning procedures for their firms. They may refer back to the text for more detailed principles as needed. HOW GENERALLY ACCEPTED PRINCIPLES ARE STATED At the end of each chapter, readers will find an abbreviated list of “generally accepted” planning principles that apply to the chapter’s page_xv Page xvi subject matter. General acceptance of these principles is a reflection of (1) evidence that has been assembled in empirical research, (2) strategic management theory that is widely accepted in the academic community, and/or (3) procedures that are customary among practicing planning professionals. As a general matter, those factors were given weights of importance corresponding to the sequence in which they were just mentioned. That is, empirical evidence was given the greatest weight; widely accepted academic theory was weighted second; and customary practices were given less weight, since one purpose of this volume is to provide practitioners with procedural principles that may supplement, or even replace, some of their present customs. Finally, to supplement those three sources and to resolve matters of practical application, the author drew on about thirty years of practice as a planning professional. When statements of planning principles were drafted, an attempt was made to distinguish between their reliability, or degree of uncertainty. To accomplish this distinction, the following categories of principles (and their definitions) were employed: Axiom: A statement that needs no proof because its truth is self-evident Definition: A semantic axiom Postulate: A plausible, but unproven, statement assumed to be true Corollary: A statement that must be true if the one that precedes it is true Hypothesis: A description of a natural phenomenon that can be tested empirically, stated tentatively to provide a possible explanation of the phenomenon under consideration CONCLUSION This compilation of generally accepted strategic planning principles is long overdue. The legions of academicians who study strategic management, in all of its various forms, have produced mountains of literature, which surely benefit practitioners from time to time. Most would agree that there is a chasm between strategic management theorists and professional practitioners—and that this chasm has been growing wider in recent years. It is time to narrow the gap between strategic management theorists and the practitioners who, like engineers, apply the theory that accumulates in academe. This book has taken a step in that direction. Surely, there will be revisions and additions as we rediscover the rich sources of guidance for planning practitioners that reside in the strategic management literature and harvest them in these guidelines. page_xvi Page 1 Part I Foundations of Methodology Foundations of Methodology The community of strategic planning practitioners, although amorphous, is very large. A survey conducted by our firm in 1995 found that 88 percent of 368 publicly owned industrial corporations had formal strategic planning programs (Roney, 2001). Moreover, that proportion had been growing in recent years and probably is approaching 90 percent today. Indeed, Rigby (2001) also reported that his survey, conducted in 2000, found the incidence rate in North America to be 89 percent. Those results should not be surprising. Try to imagine a chief executive standing before his shareholders at an annual meeting, or a meeting of securities analysts, saying something like the following. “Frankly, we really don’t do strategic planning in our firm; and we don’t have a formal plan of business—no goals and no deliberate strategy. Instead, we’re opportunists: we’re fast on our feet and take things as they come. I like to manage by walking around, rather than focusing on any particular direction at a time.” Most would agree that any chief executive who made a remark like that, without joking, probably wouldn’t be employed much longer. A large majority of senior business executives in fact do practice formal planning; as observed earlier, most page_1 Page 2 corporations of any significant size have formal plans of business. They also have staffs of professional managers who administer and facilitate planning procedures. This book has been written for both senior executives and serious planning professionals, as well as academic methodologists. It provides a comprehensive collection of methodological principles for conducting a firm’s planning functions. In this, first of four parts, there are four chapters on the foundations of comprehensive commercial planning—historic perspective; some basic methodological concepts; the “classical” approach to planning; and a “neoclassical” approach that exploits modern advances in information technology. Chapter 1 begins by summarizing the historic evolution of comprehensive planning into a formal management discipline. Military planning and strategy existed around 450 B.C.; but strategic planning, as we know it today, first was practiced in France during the late 1860s. General acceptance of commercial planning principles didn’t emerge in North America until a century later, however. Benefits to be expected from commercial planning also are discussed in Chapter 1. More specifically, results of empirical research demonstrating that formal planning can improve the probability of a firm’s commercial success—by either increasing upside performance potential or reducing downside risk—are reviewed. The purpose of planning is to realize both of those benefits. A related discussion addresses the firm’s economic mission and the role that comprehensive planning can play in helping the firm to accomplish its mission successfully. Chapter 2 explores essential concepts of comprehensive planning and its methodological scope. In this chapter, some very important terms used throughout the remainder of the book are defined. Among those are “comprehensive commercial planning,” “comprehensive corporate planning,” “comprehensive business planning,” “goal,” “strategy,” and “objective.” A three-stage general planning model—also a bedrock of the remaining chapters—is introduced here as well. Chapter 3 reviews the basic approach of strategic planning from two quite different perspectives. In one case, planning decisions are viewed as rationally deductive in nature. If management knows how to define standards of success, then, at any given time, it also should be able to describe the gap between the present performance potential and those standards. Planning should entail deducing actions to reconcile differences between the status quo and success. An alternative perspective may be taken, however. This is an inductive approach, by which planning decisions are made incrementally rather than deterministically. At any given time, management may discover opportunities to improve upon the status quo. Thus, a policy of continuous improvement is adopted without necessarily knowing what the firm’s highest potential page_2 Page 3 might be. Each approach—deterministic and incremental, deductive and inductive—can be effective. However, as the classic strategic planning models used most frequently today are deterministic and deductive in nature, the classic model of strategic planning as a decision-making process is described here in greatest detail. While the classic planning model has made a great impact on the practice of modern management and has influenced how corporations still are administered, that model nevertheless has been cumbersome and difficult to execute, primarily because—being so rational and deductive—it requires substantial evidence and analysis to support executives’ decisions. In an age of increasing turbulence, the evidential and administrative burdens of classic procedures greatly impaired their practicality and their effectiveness until information technology eventually made those procedures much less difficult. In Chapter 4, readers will learn how modern information technology has been applied to strategic planning methodology so that the impediments of informational overload and administrative burden no longer impair the classic models’ execution. In fact, information technology has so facilitated execution of the classic models that a new, neoclassical methodology of strategic planning has emerged. Neoclassicism today represents the state of the planning art. In this chapter, readers will become familiar with a wide variety of electronic planning aids now available to facilitate strategic planning at all stages of the process. page_3 Page 4 This page intentionally left blank. page_4 Page 5 1 Historic Perspective Historic Perspective The ability to conjecture about the future and to formulate plans is an attribute that distinguishes humankind from other species. We cannot say when formalized planning began, but surely it was long before modern management theorists started to write about this subject. For centuries, military commanders have conducted operations according to battle plans predicated upon analyses of their forces’ capabilities, opponents’ capabilities, and battle conditions in the environment. Cummings (1995) reported that the earliest surviving volume on strategy was written by Aeneas, about 450 B.C. Pericles devised plans and strategies for war against the enemies of Athens around 425 B.C. That was when the terms strategos (military commander) and strategoi (a body of commanders alleged to be the wisest citizens of Athens) emerged. At about the same time, Sun Tzu authored a complete text on military strategy that mandated comprehensive planning (Chen, 1994:43). Houlden (1995:100) wrote as follows: “Throughout history, whether it be Caesar, Hannibal, or Nelson, there have been examples of the art of strategy. [But,] it is only recently that science has developed to such a stage that more of a blend between the science and art has given rise to strategic planning as we know it today.” Indeed, as explained later, modern commercial planning has existed for only about forty years, although some formal business plans clearly were being prepared well over a hundred years ago. page_5 Page 6 EVOLUTION OF MODERN CONCEPTS The Pennsylvania Railroad’s management formed a corporate structure to perform long-range planning functions in the 1860s and the 1870s (Chandler, 1962:22, 23). DuPont also was among the earliest manufacturing concerns to form a corporate planning function, which it did in 1903 (Dutton, 1942:185, 186). Chandler (1962) described the early arrival of formalized planning in those and several other large American corporations from about the onset of the twentieth century. Using in-depth analyses of how those corporations’ managerial and administrative structures evolved, Chandler concluded that formal planning practices (among others) evolved in response to the increasing administrative complexity that accompanied corporate growth and diversification. Emergence of Comprehensive Commercial Planning Henri Fayol (1916), in one of the first texts on management principles, prescribed an elaborate system of well-integrated long- and short-range planning procedures and plans, which he used in actual practice from 1866 to about 1918. For fifty years, his French mining companies formulated comprehensive plans of business. They followed deliberate planning procedures, which included each essential element of current strategic planning procedures. Thus, many “modern” concepts of strategic planning unquestionably were initiated by Henri Fayol. Fayol’s most widely read work (1916) could be used as a strategic planning text, with principles not unlike many that appeared more than a half-century later. Remarkably, Fayol’s book on industrial management principles defined the comprehensive business planning process and plans’ contents, in a way very similar to the manner in which, more than eighty-five years later, they are practiced today! Fayol developed annual, two-year, five-year and ten-year plans that were updated on a rolling-revised basis. They had a full scope of objectives, approach to goals’ pursuit (strategy), and action programs. Fayol applied these planning methods with great success in his own mining companies. Fayol’s plans included formal business analyses, market analyses, ten-year forecasts, and very specific implementation programs, as well as progress monitoring procedures and contingency plans. “Forecasts” in Fayol’s plans were much more than simple quantitative exercises; they contained integrated strategy statements. The first year of a plan’s ten-year term was expanded into an operating budget. Ten-year objectives were revised every five years. “Thus, there is always a line of action marked out in advance for five years at least” (Fayol, 1916:47). All elements, from short term to long term, were carefully intercon- page_6 Page 7 nected and updated regularly. Fayol’s methods were so novel and successful that he was appointed to the French Legion of Honor (Chevalier in 1888 and Officer in 1913). He received the Delesse Prize from the French Academy of Sciences and gold medals from the French Society for the Encouragement of National Industry and the French Mining Society. Subsequent to Fayol’s work, further academic attention to planning functions developed slowly. Modern notions of comprehensive planning began to emerge again in the 1950s. Drucker wrote extensively on business planning principles in The Practice of Management (1954), a text that may have been one of the first to prescribe modern planning functions. Later, in Managing for Results (1964) and Management: Tasks, Responsibilities, Practices (1973), Drucker reiterated and refined these concepts. Development of comprehensive planning functions by industrial concerns accelerated after World War II for reasons explained by Fulmer and Rue (1973), Henry (1981), and Houlden (1985, 1995), among others. In part, this acceleration may have been due to the influence that military management methods and computing systems exerted in business. But, it also was due to the rapid growth in size and complexity of American businesses, which Chandler (1962) described in his definitive analysis of how strategy and structure jointly evolved. The Military Analogy It is a common belief that modern business planning took its genesis from military methods and procedures developed during World War II. Indeed, military planners have developed principles for devising strategy, assigning implementation tasks to operating units, and allocating resources to those units for many years. (For example, see the histories of Liddell-Hart, 1954 and Paret, 1986.) After World War II, planning skills allegedly were transferred from military to business organizations through management migration. Although this legend may have some truth, recall that Chandler (1962) documented the presence of planning departments and many of today’s business planning functions in American corporations before the turn of the twentieth century and that Fayol had implemented planning practices in the late 1860s—well before World War I. Therefore, the transference of military planning techniques to business may have strengthened American management’s planning capabilities after World War II, but business planning functions surely existed long before then. During World War II, U.S. military planners developed some formal planning methodologies, which later were transferred to industry and given popular names such as “Planning, Programming, and Budgeting” page_7 Page 8 (PPB), reflecting a process of developing plans in progressively greater detail with closer proximity to the points of implementation in operations and in time. Military planners also developed the practical notion that success in plans implementation is closely related to the effectiveness of organization structure. Thus, “command and control” concepts evolved. When World War II ended, military veterans with planning experience often put the techniques that they had learned to good use, especially in the “military-industrial complex,” as Eisenhower called it in his farewell speech (1960). For example, Robert McNamara applied PPB and quantitative planning methods at Ford Motor Company before taking them to the U.S. Defense Department as secretary of defense. The first generation of postwar business planners benefited not only from lessons learned in military applications of planning, but also from a plethora of quantitative approaches to optimizing outcomes in complex systems and the arrival of the electronic computer. Igor Ansoff, after receiving his Ph.D. degree from Brown University in 1948, got his early experience in planning at RAND Corporation. He moved to Lockheed Aircraft Corporation in 1957, where he became a vice president for planning and programs (Hussey, 1999). Both firms were original members of the postwar military-industrial complex and early users of the first large-scale computing machines. Ansoff’s brilliant academic career subsequently took him to Carnegie Mellon, Vanderbilt, and U.S. International University. He was a founder of classic strategic management methodology (Ansoff, 1965). Notwithstanding its uncertain validity, the military analogy unquestionably has been helpful to strategy authors (Harrigan, 1980, 1986a; Kotler and Singh, 1981; Fahey, 1985; Cohen, 1986; Peacock, 1984; Rogers, 1987; Parks, Pharr and Lockeman, 1994). Initially, concepts of business planning, like their military analogs, involved relatively static objectives. Generally accepted planning principles, early in their post–World War II evolution, focused on selecting fixed goals (or objectives) and then defining the work required to bridge gaps between present positions and objectives (Argenti, 1969; Kami, 1969). Ultimately, the required work was broken down into manageable tasks that might be assigned to organizational units and individual managers. Gilmore and Brandenburg (1962) provided a graphic description of this classic procedural model; it will be found in the Appendix. During the 1960s and early 1970s, planning principles in business and the military did seem to evolve in parallel. For instance, as business conditions (and global military situations) became more dynamic and uncertain, it was necessary to plan for more than one combination of conditions on the competitive battlefield. In addition to prevailing assumptions regarding the environment, alternative “scenarios” were page_8 Page 9 formulated (Wilson, 1973; Downey et al., 1975; Edmunds, 1982; Hoffman, 1985; Schwartz, 1991; Mercer, 1995a,b). Strategic responses to alternative scenarios, or contingencies, initially may be prepared in less detail than strategy in the prevailing plan. Then, when environmental monitoring indicates that the probability of a contingency’s occurrence is increasing, a strategy for responding to that contingency can be refined. Eventually, it may become appropriate to substitute “contingency plans” for corresponding elements in the prevailing plan—at which time the contingency plan will prevail and the predecessor will be discarded. General Acceptance of Planning Practices The steady growth of formal planning practices in American business was defined statistically and chronicled by several writers after the mid-1950s. One study, conducted by the National Industrial Conference Board in 1955 found that 75 percent of 166 large corporations had installed “long-range planning” functions (Baker and Thompson, 1956). Ten years later, that proportion allegedly had risen to over 90 percent (Brown, Sands and Thompson, 1969). However, most other studies’ results produced less spectacular growth rates. A survey by Business Management magazine in 1967 found that about half of 101 large corporations had begun to plan formally. Fulmer and Rue (1973) found that only 23 percent of 386 respondents to their survey of a broader sample, conducted for the Planning Executives Institute, had highly developed “strategic” planning functions, but that another 50 percent had long-range financial “plans” that were unsupported by strategy. In that study’s results, manufacturers were twice as likely to have long-range financial plans as service firms. Surveys in other industrialized nations confirmed that the practice of comprehensive plans was widespread on a global scale (Exhibit 1.1). By the end of the 1960s, formal strategic planning had become an established management discipline. Some studies observed that the incidence of comprehensive business planning (CBP) practices was significantly influenced by firms’ sizes (Henry, 1981; Houlden, 1985). Other studies disclosed that planning propensities tended to differ between industries (Fulmer and Rue, 1973; Dess and Beard, 1984). Subsequent surveys tended to report that the incidence of formal CBP functions increased steadily both in the United States and in most industrialized nations (Houlden, 1995). Most recently, Rigby (2001) confirmed that the incidence of strategic planning had increased throughout the period of 1993–2000. In North America, the incidence rate had reached 89 percent in 2000. Satisfaction levels were reported to be quite high (about 89 percent). page_9 Page 10 EXHIBIT 1.1 Emergence of Formal Planning in Countries Other than the United States No. of Companies Incidence Region/Country Author(s) Survey Year N1 N2 RR Pct. ASEAN Region Foo Check-Teck 1988-89 1300 325 25% 100% P. H. Grinyer Peter McKiernan Belgium Filip Caeldries c. 1986 1000 124 12% 66% R. von Dierdonck Denmark Robert Ackelsberg c. 1987 NA 12 NA 100% William Harris France H. Schollhammer c. 1968 790 371 47% 15%- 70% Germany W. H. Strigel 1965 NA 1600 NA <20% I. Bamberger Eduard Gabele Werner Keppler 1973-74 289 181 62% 35% Greece D. N. Koufopoulos 1991 231 62 27% 69% Neil A. Morgan Japan Toyohiro Kono 1975 536 74 14% 57% Netherlands D. Jan Eppink c. 1974 20 20 100% 85% Doede Keuning Klaas de Jong Singapore C. H. Wee c. 1987 749 223 30% 56% Seok Kuan Lee John U. Farley United Kingdom B. W. Denning 1967 300 225 75% 33% M. E. Lehr Bernard Taylor 1969 27 27 100% 81% Peter Irving J. C. Higgins c. 1975 NA 71 NA 86% R. Finn N1: number of surveys N2: total response RR: response rate NA: not available c.: Approximate: actual date of survey was not reported. This is the publication date, less two years. In a survey conducted during 1994–1996, we found that 88 percent of 368 publicly owned firms in ten U.S. industries practiced comprehensive business planning and that this rate had increased steadily during the preceding decade (Roney, 2001). However, unlike the findings of Fulmer and Rue (1973) more than twenty years earlier, the incidence of formal planning practices was higher in two industrial service industries than in three fabricating industries, as Table 1.1 demonstrates. The page_10 Page 11 incidence of formal planning was highest of all in the most asset-intense industries. Since our response rates were quite high (85%) and our sample was relatively large, our findings probably are reliable for publicly owned firms in the industries that we studied. Emergence of Generally Accepted Principles As academic and professional interest in the practice and promise of comprehensive business planning accelerated, methodologists turned their attention to articulating principles by which increasing numbers of managers involved in formalized planning could benefit from the experience and assessments of others. Initially, attempts at codification were fairly broad in scope, providing guidance in integrating multiple management functions to implement planning procedures. Perhaps the first of these broad-scope texts was Melville Branch’s (1962) The Corporate Planning Process. (Professor Branch received the first doctorate in planning awarded by Harvard University.) Complete in its treatment of methodology, Branch’s text discussed planning’s theoretical bases, purposes, procedures, assumptions, analytic techniques, implementation, performance monitoring, and even the future of planning as a function of management. Although not nearly as widely heralded as Kenneth TABLE 1.1 Incidence of Comprehensive Business Planning in Ten Industries Percentage of Planners N 1983 1994 Change Process Industries 194 44% 93% 49 Basic Metals 30 70 90 20 Chemicals 30 57 93 36 Petroleum 60 42 88 46 Utilities 74 31 97 66 Fabrication Industries 98 60 77 17 Auto Components 26 58 77 19 Building Components 27 67 78 11 Machinery 45 58 76 18 Service Industries 76 57 91 34 Banking 47 57 89 32 Industrial Construction 16 62 100 38 Environmental 13 46 85 39 All Industries 368 51% 88% 37% Source: Roney, 2001 page_11 Page 12 Andrews’ theoretical work, The Concept of Corporate Planning (1971), Branch’s text—which is far more definitive—predated Andrews’ by nearly a decade. Immediately after Andrews’ text, two others—more along the lines of Branch’s—were published by Ewing (1972) and Hussey (1974). Lorange and Vancil (1977) probably reached the limit of such early approaches to defining strategic planning functions by compiling a series of articles that prescribed how CBP procedures should be performed in various elements of the organization at different stages of the process. Systematic procedural approaches to performing specific tasks of comprehensive business planning also emerged fairly early. Among the most important of such works surely was Ansoff’s first text, published in 1965 (followed by subsequent versions in 1979 and 1988). Even more systematic and procedurally definitive were Argenti’s two texts (1969, 1974). Particularly helpful was Argenti’s approach to preparing a “baseline” financial projection as a beginning point for quantifying strategic objectives in financial terms and demonstrating how incremental benefits of strategic objectives should be defined. Ackoff (1970) elaborated on some of these concepts by providing a quantitative context for setting objectives and a general approach to systematizing planning tasks. Other important treatments of systematic approaches to defining procedural planning principles were published by Enrick (1967), Rothschild (1979), Grant and King (1982), Sawyer (1983), and Marrus (1984). Ansoff also was instrumental in defining systematic approaches to “implanting strategy” (1984). As procedural planning principles emerged, their architects focused greater attention on practicalities. In particular, procedural principles were focused more intensely on implementation requirements. For instance, managers’ work could be prioritized by a hierarchy that connected objectives throughout the enterprise to corporate-level goals and strategic objectives (Granger, 1964; Pearson, 1979). Subsequent texts by Hrebiniak and Joyce (1984), Hamermesh (1986), and Lorange (1982) focused on strategy implementation. At the same time, several approaches to “managing by objectives”—following Drucker’s (1964) work— established procedural principles for harmonizing organizational resources in the implementation of goal-seeking strategy (Odiorne, 1961; Morrisey, 1977; Giegold, 1978). Borrowing from McGregor’s (1960) notion, the “human side of planning” also was developed as a vital consideration of implementation methodology by Ewing (1969) and others whose work in this area was summarized by Madden (1980) for the Planning Executives Institute. As academicians grew more interested in business planning and strategy, they focused research inquiries on the efficacy of alternative planning procedures. A virtual tidal wave of research into technical page_12 Page 13 planning practices followed. Some results of that research are summarized in a subsequent section of this chapter. However, illustrations include the initial study of its kind by Ansoff et al. (1970), which contrasted acquisition results of companies that had highly developed planning functions to those of companies that did not. When acquisitions were conducted to implement formal strategies in comprehensive plans, financial results were superior to those of firms in which acquisitions were not guided by comprehensive plans. At the same time, Thune and House (1970) reported results of a smaller but statistically more rigorous analysis: they found that planners in some industries outperformed nonplanners. Another groundbreaking research report was that of Rumelt in 1974, which focused on relationships between growth strategy, corporate structure, and financial performance. Firms that diversified into related lines of business out-performed firms that diversified into unrelated lines, as well as those that did not diversify at all. Another important trend in the emergence of generally accepted planning principles was represented by a growing number of investigators and theorists who focused attention on the competitive domain of strategy. For instance, the PIMS (profit impact of marketing strategy) studies, begun in 1960 at General Electric (Schoeffler et al., 1974; Buzzell and Gale, 1987), demonstrated