Corporate Planning may be defined as the process of deciding long term goals and objectives within the ambit of organisation’s strength and weaknesses in the existing and prospective environmental setting to ensure their achievement either by integrating the short term and long term plans or by adopting such measures which may bring even structural changes in the composition of the organisation, after taking recourse to financial resources.
Learn about:- 1. Introduction to Corporate Planning 2. Definitions of Corporate Planning 3. Characteristics 4. Scope 5. Need 6. Basic Premises 7. Factors for the Success of Corporate Planning
8. Major Practices 9. Process 10. Steps 11. Difference between Strategic Planning and Corporate Planning 12. Reasons which Lead to the Failure of Corporate Planning 13. Limitations.
Corporate Planning: Introduction, Definitions, Characteristics, Scope, Need, Process, Steps and Limitations
Corporate Planning – Introduction
Corporate planning in a sense may be stated as Strategic Planning as described by a number of writers including Stenier. In spite of the difference in the concepts of long range planning and Corporate Planning. Stenier, Miner and Gray have used Corporate Planning and long range planning synonymously. Such conceptual similarity may not necessarily obliterate the conceptual difference between the two terms; we will maintain the difference for our analysis.
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D.E. Hussey while defining Corporate Planning stated that “Corporate long range planning, is not a technique, it is a complete way of running a business. Under it, the future implication of every decision is evaluated in advance of implementation. Standards of performance are set up beyond the time horizon of the annual budget. The company clearly defines what it is trying to achieve. A continued study is made of the environment in which the company operates so that the changing patterns are seen in advance and incorporated into the company’s decision process.”
According to Dr. Scott “Strategic Long range Planning is a systematic approach by a given company to making decisions about issues which are of fundamental and crucial importance to its continuing long term health and vitality. The fundamental and crucial importance of issues is derived from the fact that they provide an underlying and unifying basis for all other plans to be developed within the company, over a determinate period of time. Thus a long range strategy is designed to provide information about a company’s basic direction and purpose which will serve as a guide for all the operational activities of that company.”
Likewise, Professor Stoner states that “Strategic Planning is the process of selecting an organisation’s goals, determining the policies and strategic programmes necessary to achieve specific objectives enroute to the goals, and establishing the methods necessary to assume that the policies and strategic programmes are implemented.”
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Stoner elaborates further the concept of strategic planning by making distinction with the operational planning. The distinction between the two may be summarised in a few words – “Whereas operational planning focusses on operating planning, problems such as present profit, present resources, environment, efficiency and even low risk, strategic planning focusses on long term survival and development. For this purpose, the emphasis shifts from present to future and from present operation to future growth and development. With the drift from present to future, there ought to be a change from the low risk to high risk.”
Peter Drucker defines corporate planning as a “continuous process of making entrepreneurial decisions systematically and with the least possible knowledge of their fraternity; organising systematically, the effort needed to carry out these decisions; and measuring the results against expectations through organised systematic feedback.”
Corporate Planning may be defined as the process of deciding long term goals and objectives within the ambit of organisation’s strength and weaknesses in the existing and prospective environmental setting to ensure their achievement either by integrating the short term and long term plans or by adopting such measures which may bring even structural changes in the composition of the organisation, after taking recourse to financial resources.
If we analyse this definition it will contain the following elements to constitute Corporate Planning or Strategic Planning:
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1. Laying down long range corporate goals and objectives.
2. Macro and Micro Environments.
3. Strengths and weaknesses of the organisation.
4. Integration between short term and long term plans.
5. Structural changes in the organisation.
6. Implementation of the plan.
7. Optimal use of scarce financial resources.
8 Evaluation of performance.
9. Feedback to make corporate planning more effective and purposeful.
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Long term goals and objectives pertain to the areas of production, marketing, quality and even cost of production. In the area of production, the company may specifically spell out its goals regarding the volume of production, addition of new products or product lines. This decision may change the structure of the organisation. Similarly the marketing objectives may relate to market spread from domestic to international market.
To achieve the above goals and objectives, the organisation shall have to assess its strengths and weaknesses in relation to competitors and the market forces and other components of macro and micro environments.
After assessing the strengths and weaknesses in the prevailing and prospecting macro and micro environments, the corporation shall have two options before it – One – it may resort to an expansion programme to cope with the growing commitments to the objectives laid down; for this purpose it will be required to push forward the existing plan of action which amounts to integrating short term plans with long term plans.
Two-the other option may be diversification or technological upgradation. In both the cases some structural changes may be needed in the composition of the organisation.
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The objectives of strategic planning is to achieve the desired long term objective/ goals by making the optimal use of the scarce resources in men and material.
Evaluation of the plan implementation is necessary to know from the feedback if the execution has been confronted with any blockade in implementing of the plan. If the bottlenecks are experienced they may be removed by taking suitable measures to achieve the desired objective with efficiency, in the light of the feedback received.
Corporate Planning – Definitions
Corporate planning is a sophisticated planning tool. It has been introduced into the corporate world recently, first in USA and later in all advanced industrial countries. A humble beginning has been made in India also. For example, BHEL practices corporate planning vigorously. In simple words, corporate planning is the determination of the long-term goals of a company as a whole and then developing plans to achieve these goals giving due weightage to environmental changes. It is planning for overall organisational performance.
Hussey defines corporate planning as, “the formal process of developing objectives for the corporation and its component parts, evolving alternative strategies to achieve these and doing this against a background of systematic appraisal of internal strengths and weaknesses and external environmental changes, the process of translating strategy into detailed operational plans and seeing that these plans are carried out.”
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This is a comprehensive definition of corporate planning which includes deterministic, motivational and directional elements of corporate planning.
In the words of Steiner, “Corporate planning is the process of determining the major objectives of an organisation and the policies and strategies that will govern the acquisition, use and disposition of resources to achieve these objectives.”
According to Drucker, “Corporate planning is the continuous process of making present entrepreneurial (risk-taking) decisions systematically and with the best possible knowledge of their futurity, organising systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organised systematic feedback.”
As per Drucker’s view, “Corporate planning is not confined to taking strategic decisions in the light of future conditions but is also concerned with the implementation of these decisions in the best possible way and undertaking periodic review of these decisions in the light of new development.”
Corporate planning is quite comprehensive as it includes – (i) strategic planning, (ii) operational planning and (iii) project planning.
Corporate Planning – Top 6 Characteristics
1. Corporate planning is a formal and systematic process.
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2. It is a rational process. It requires imagination, foresight, reflective thinking, judgement and other mental facilities.
3. Corporate planning is a continuous process. It is a dynamic exercise that goes on throughout the company’s life.
4. Corporate planning has a long-term perspective.
5. Corporate planning provides an integrated framework within which each of the functional and departmental plans are tied together.
6. Corporate planning is basically concerned with the future impact of present decisions.
Corporate Planning – Scope
A corporation can be effective only if it can grapple successfully with the external environment (that is the society) in which it functions. Similarly, the corporation can function smoothly and efficiently only if it can deploy its material, manpower and methods in a way that they function with optimal efficiency.
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Hence to be effective and efficient the corporation has to cope with external as well as internal environment. Hence corporate planning has two aspects, macro and micro; the former is concerned with the interaction with the external environment and the latter with the interaction with the internal environment. The scope of corporate planning in its macro (aggregative) and micro (functional) aspects has been discussed below-
Scope of Corporate Planning:
1. Aggregative (Macro) Aspects:
i. Economic- National Economic Projections — Technological Progress.
ii. Political- Policy towards private investment.
iii. Social- Social mores and attitudes towards pricing and income distribution.
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iv. Regulatory- Government controls on imports and investment, repatriations and size of firms.
v. Competition- Relative growth rate of firms, future tax trends, government policy towards large-scale enterprise.
The need for and extent of corporate planning within any economy is governed basically by the factors.
Scope of Macro-Aspect of Corporate Planning:
1. Economic:
i. National Planning:
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a. G.N.P. growth forecasts.
b. Inter sectoral plans.
c. Role of public and private sectors.
d. Monetary and fiscal policy.
e. Export prospects and balance of payments trends.
f. Credit policy.
g. Changes in price level.
ii. Demand:
a. Price policy.
b. Population growth rate.
c. Income-saving pattern.
d. Rate of urbanisation.
iii. Technological Planning:
a. State of indigenous technology.
b. Foreign collaboration and import of technology,
c. Facilities for research and development work.
iv. Availability of Resources:
a. Materials.
b. Manpower
c. Methods.
v. Infrastructure Facilities:
a. Transport.
b. Power.
c. Equivalent.
d. Land.
e. Finance.
2. Political:
i. Manifestoes of party in power and in opposition.
ii. Attitudes towards nationalization and the growth of public sector.
iii. Attitudes towards investors.
iv. Attitudes towards workers.
v. Interests of different pressure groups and lobbying.
vi. Donations to political parties.
3. Social:
i. Policies towards income distribution.
ii. Policies towards “Social pricing”.
iii. Attitudes towards consumption and savings.
iv. Attitude towards social responsibility of business.
v. Attitude towards environmental pollution.
4. Regulatory:
Government Regulations-
i. Industrial licensing.
ii. Foreign exchange.
iii. Capital and bonus issues.
iv. Competition policy.
v. Repatriation of capital/dividends.
vi. Tariff Commission.
5. Competitive:
i. Relative, growth rate of firms.
ii. Government policy towards large business houses.
iii. Tax policies.
iv. Competition for market and market structure.
v. Competition for control of scarce resources like materials, managerial manpower and finance.
vi. Competition from public and cooperative sectors
From the above discussion it is obvious that data on wide variety of topics and aspects has to be collected for coping with the external environment. This process of scanning the external environment is usually denoted by the term “monitoring of the environment”.
There is of course substantial inter-dependency among these various aspects, namely, economic, political, social regulatory and competitive. However, for a moment we may ignore this interdependency and consider the need for and scale of planning which are positive functions of all these factors.
The intensity of impact of each one of these factors varies from country-to-country, from industry-to-industry, from sector-to-sector, from unit-to-unit and, from time-to-time for the same unit. Hence, there is a real need to monitor the environment regularly and continuously.
In particular, one may note the distinctive differences in the developed and developing economics in this respect. In the developed economics, there is stiff competition for a share of the market and relatively less competition for resources. Whereas in developing countries there is not much likelihood of customer based competition.
Instead there is a stiff competition for claims on resources, especially materials, managerial manpower and finance. Further, in developed countries the corporations are giant-sized while government regulation is minimal. On the contrary, in developing countries the corporations are relatively smaller in size but government control and regulations are relatively large and oppressive.
2. Functional (Micro) Aspects:
i. Marketing- New products, new markets, etc.
ii. Production- Technical problems, research.
iii. Materials- Quality, availability.
iv. Finance- Capital structure, sources, viability.
v. Manpower- Managerial, labour force projections, and development.
In addition it is necessary to note that the size of the corporation, the business in which it is engaged and the goals that it has set for itself are crucial factors which affect its planning whether macro or micro.
The second aspect of corporate planning is the “micro” to functional aspect. In broad terms the functional aspects of corporate planning embrace marketing, production and materials procurement, finance and personnel and manpower planning?
Corporate Planning – Need
Corporate planning is an indispensable component of strategic management. Without corporate planning the long term objectives and goals of the organisation will not be achieved. In addition, the corporate manager keeps himself up-to-date regarding the status of technology, the state of strategic choices of the competitors and the policy changes of the government.
At present, the rate of technological obsolescence is so fast that if the Corporate Manger becomes a little sluggish, his competitors will oust him from the market. Corporate Planning forces the Corporate Manager to install state-of-the-art technology so that the company’s march towards the realisation of long term objectives and goals is not hampered.
Corporate Manager, under the force of corporate planning is expected to maintain a constant watch regarding the adoption of strategic choices by the competitors and their impact on cost, profit and price. The manager accordingly shall have to bring about the needful adjustment in the functioning and operating efficiency of his organisation.
Policy changes by the Government are also an important variable of corporate planning. The Corporate Manager has to keep himself up-to-date regarding changes in such policies as industrial, monetary, fiscal or exim which have a direct bearing on the operation of the organisation. Equally important is the impact of these changes on the overall functioning of the organisation so that necessary changes in various functional areas could be effected to maintain the desired level of efficiency.
Corporate planning is founded on the edifice of men rather than machine or material which is also important. Human beings, howsoever competent and dynamic they may be, if allowed to remain as they are, they will become fossilised over a period of time. Hence corporate planning requires human resource development on a continuous basis without regard to the level at which they are operating.
Development of employees through different methods such as training, seminars, group discussions and other modes of development, keep the employees trim and fit by way of updating their knowledge and skill to take quick and correct strategic decisions.
To compete in the market, the corporate manager is expected to exercise a close watch on the life of each product. Before it reaches the decline stage, the other product is substituted. New product development is quite an arduous task which requires a detailed study of market, cost and production capacity of the organisation. Dynamic enterprises are in constant search for new products which could be developed over a period so that they could replace old products already reaching the decline stage.
The efficiency of the organisation also depends on investment decisions. Investment decisions require the corporation to have a precise and concrete perception of long term funds requirement of the organisation, the climate in the capital market and broader policy framework of the corporation within which the decision regarding the investment could be undertaken.
A sound capital budgeting policy will provide a rational and dynamic capital structure which is apt to obviate the changes of over-or-under-capitalisation. Those corporations which make wrong decisions regarding capital budgeting and capital structure land into the vicious circle of not only over/under capitalisation but also higher cost of capital from which they cannot wriggle out.
The implication of wrong capital structure decision may be illustrated by the real example of J&K State Financial Corporation Ltd. The corporation had issued bonds at 9% say ten years back. They were due for redemption sometime in 2002. Capital raised is mostly blocked in the loans given to the enterprises. Most of such enterprises have not cleared even the servicing charges much less the principal.
In the absence of the cash resources to redeem the past liability, the corporation has decided to float a new set of bonds in the market at 14% to redeem the past debt. By doing so, the corporation will be creating a recurring liability of additional 5% apart from the debt liability of the value of bonds, issued to the public.
In the wake of the tight cash position, issue of bonds is a wrong capital structure decision. Instead of bonds, the corporation should have issued fully convertible bonds either at zero rate of interest or a nominal rate of interest say 5.6%. This step will make the corporation financially sound by reducing the recurring liability to 5.6% as compared to 14%. When converted into equity, the corporation may have an addition to the funds available.
If the corporation during these years is capable of enhancing EPS (Earning Per Share) it may issue shares at a premium. Premium money on shares will be additional cash resource with the corporation. For another ten years, the corporation may not have to bother for the borrowings.
Corporate planning is used as an instrument to enhance the operating efficiency of the organisation. A system of constant monitoring and control in every functional area which is charged with the responsibility of fulfilling the targets will seek to eliminate different types of wastages so as to enhance the level of operating efficiency. Likewise, the implementation of appropriate strategic choice may certainly result in growth of sales, earning per share and increase in the share price in capital market.
Corporate planning keeps the Corporate Manager on constant vigil on the changing environments, the behaviour styles of the competitors and vigorous monitoring and controlling of the performance of the corporation. All these components of corporate planning lead to enhancing the overall efficiency of the corporation.
Corporate Planning – 4 Basic Premises
“Corporate Planning” is concerned with problems of the kind that can only be tackled by the top levels of corporate management; it is true that its influence is felt at every level of a corporation and it extends to every part and activity, but its prime function is to examine and illuminate decision on overall corporate strategy at the top.
Corporate planning was first started in the United States in the late 1950s, and it has now spread gradually to all advanced industrial societies whether capitalist or socialist. In India to a beginning has been made.
Corporate planning proceeds from four basic premises:
1. It is necessary to define corporate goals in order to draw-up corporate plans.
2. It is necessary to look ahead and anticipate changes in environment.
3. It is necessary to have an overall organisational perspective rather than the compartmentalised view of departments and divisions or the view of the corporation as a collection of departments.
4. It is necessary to take the environment into account in drawing up the corporate plan.
Although these premises appear quite simple and native, each of them contains a kernel of truth and when they are joined into one single concept, a new and powerful management approach emerges.
Corporate Planning – Factors for the Success of Corporate Planning
Success of the corporate planning will depend on the following factors:
1. Proper understanding of Corporate Planning philosophy by all the people operating at different levels in the organisation.
2. The Chief Executive is fully committed to the philosophy of Corporate Planning.
3. The Chief Executive is able to enlist support and cooperation of all the persons operating at different levels in the organisation.
4. Linkage between the short term and long term plans and between the corporate and the divisional plans.
5. An effective Management Information System within the organisation.
6. Existence of an effective Research & Development (R&D) wing which is fully equipped with men and material to engage itself in the R&D activity relating to technology, marketing, human resources and such other areas which may provide support to evolving and executing an appropriate strategy.
7. Corporate planning, to be rational and meaningful, requires involvement of people operating at different levels. Apart from inculcating in them the faith for the efficacy of corporate planning, it becomes imperative that the Corporate Manager has motivated them to participate and contribute in the exercise of corporate planning. Unless the employees are committed to help the top management to formulate the corporate plan and execute the same in letter and spirit, the desired results will not be obtained.
8. An effective system of monitoring and controlling ought to be evolved which may act as a watchdog to keep the functioning of each department to the track. Every deviation ought to be rectified by taking immediately corrective measures.
Understanding of the philosophy of corporate planning in proper perspective by all the employees and managers of the corporation is a condition precedent to the success of corporate planning. Unless people understand the philosophy, they will not be able to appreciate the need for its application, nor will be able to assess and evaluate the advantages to the Corporation or to themselves.
For this purpose the Corporate Manager should arrange seminars, group discussions or even brain storming sessions to make them fully comprehend the entire philosophy of corporate planning.
The role of Chief Executive in this regard is supreme. This has been highlighted by almost all the management thinkers, who have contributed towards the development of the concept of corporate planning. The Chief Executive ought to be fully committed to the formulation and execution of corporate planning. His commitment should be based on his conviction regarding its potential and success rather than an imposition from above without conviction or commitment.
Enduring success both at the formulating stage and the executing stage will depend on the whole-hearted participation of all employees without regard to the level of authority. This has been stated by the Chairman of ITC and the Managing Director of SAIL who had devoted about two years to evolve, design and implement corporate planning.
It is for the Chief Executive of the organisation to evolve a system in which persons at every level are able to contribute freely and frankly in this regard. Their participation should not be ceremonial; it should be purposeful; it should give satisfaction to the employees that they have contributed to this vital task of institutional building.
A linkage between the short term/operational plan and the long term plan is quite significant to achieve the desired results. Corporate Plan or a strategic plan is a long term perspective plan extending to 10-15 years. The components of the perspective plan are the operating plans and the short term plans.
They are instrumental in the realisation of the long term objectives and goals of the organisation. If there is a mis-match between the two, the resources will be pulled in opposite directions which will lead to wastages and inefficiency in the organisation.
A Management Information System requires an effective input-processing-output system. All departments/divisions should be linked with the network terminals. Information received from different sources is processed systematically and the relevant data/information are disseminated to respective departments for use in the performance of their activities.
Research and Development has assumed an overwhelming significance in the process of strategic corporate planning; it is this department which keeps on making research regarding technological development and its use in the organisation, the behaviour of the market forces, strategic analysis, the status of technology and efficiency of the competitors and in-depth study of the macro and micro environments in which the organisation is operating.
Even in our country, the corporations have started taking R&D seriously; to encourage expenditure on Research and Development, to improve the overall efficiency of the organisation, the central government in the budget of 1995-96 announced tax incentives to encourage investment in R&D activity. In Europe and United States multinational corporations allocate huge resources for Research and Development activity. Expenditure on R&D is investment in efficiency which will provide recurring benefit to the organisation.
Monitoring and evaluation is the genesis of corporate planning framework. The corporate plan is broken into operating plans which are further divided into divisional/departmental plans. The annual target of each division is broken into the quarterly targets for controlling purposes.
The divisional/departmental heads are expected to send the progress information every day/ every week or every fortnightly as decided by the Budget Controller. These reports are properly tabulated and then evaluated in the background of the target of performance fixed by the Budget Director. The reports of the departmental heads are again discussed in the periodic meetings held by the Budget Controller in the presence of the departmental heads.
The departmental heads shall have to justify the shortcoming, if any, in the performance so that suitable redressal measures could be taken in the remaining quarters.
Evaluation of different strategic alternatives is necessary to select the best alternative. The evaluation of the selected alternative is also done periodically so that the feedback provided by such evaluation could help the Corporate Manager to bring about the needed adjustment in corporate objectives and goals.
Corporate Planning – Major Practices
1. Definition of Corporate Goals:
Planning is a goal-oriented process. Hence, unless the goals are defined planning becomes impossible. Thus, the definition of corporate goals becomes the necessary and essential first step in corporate planning.
Since survival and growth are universally recognised as the basic goals of an organisation, they constitute the basic goals of a corporation as well, as corporation is essentially a social organisation. However, a corporation has multiple goals as objectives need to be identified in every single area in which the quality and effectiveness of performance of a corporation, directly and vitally affects its chances of survival and growth.
Peter F. Drucker has identified eight such key areas as follows:
i. Market standing
ii. Innovation
iii. Productivity
iv. Resources physical, financial and technological
v. Profitability
vi. Managerial performance and development
vii. Workers’ performance and attitude
viii. Public responsibility
2. Forecasting Change in Environment:
The effectiveness and efficiency of a corporation depends to a large extent on its ability to cope with the changing environment both macro and micro. Since the corporation has to survive and grow in a dynamic and ever changing society it is essential to look ahead and forecast the probable changes.
If the changes foreseen represent opportunities for the corporation, then the corporation can, through advance planning, seize the opportunity and exploit it to the maximum advantage of the company. On the contrary if unfavourable changes in environment are foreseen defensive action may be planned to minimise losses or disadvantages. Thus, whatever the nature of change if it is foreseen, the corporation can plan to benefit by this fore-knowledge.
3. Overall View:
It is necessary to recognise that the goals and perspective of individual divisions and departments as also the view of any grouping of divisions or departments is not the same thing as the perspective or viewpoint of the corporation as an integrated whole. The corporate perspective and the corporate goal is distinctly different from the individual perspectives and goals of departments and divisions or from any aggregation of such goals and perspectives.
4. Influence of Environment:
Since a corporation has to grapple both with the external environment as well as internal environment, corporate planning has to take into account the whole environment both internal as well as external. Thus, corporate planning takes into account both micro and macro-environment. This is essential because the efficiency and effectiveness of a corporation depends wholly on its ability to adjust to the environment in which it has to function.
Corporate Planning – Process
Corporate planning is a continuous phenomenon. To be specific planning may be stated as a “thinking process, an organised foresight and the vision based on fact and experience.” Planning is more important than the plan.
Corporate planning is a process, that is to say, it is an activity carried out in a sequence of steps taken in a certain order. Like any other complex process it consists of hundreds of steps, some of which may be so small as to advance the process only imperceptibly, while others may be so important that to omit them in describing the process would make the description unintelligible.
Plan is the culmination of a particular thought process. It is also important for the survival and growth of an organisation; but in the modern times, the corporation has to keep itself fully prepared in the competitive environment to meet every eventuality or threat.
Hence, planning becomes an unending process which goes on even after the execution of a particular plan. In other words, the plan ends but planning continues. Those organisations which are not involved in the constant planning process will lag behind in the race in a competitive market.
Constant thinking process leads to clarity about what is to be done or how it is to be done. It will lead to developing knowledge about the futurity which gives rise to the development of vision. The vision so developed will help Mangers to adopt such alternative course of action through which the corporate goal could be achieved with efficiency.
To make corporate planning successful, it becomes necessary to involve people operating at different levels. Their involvement will benefit the organisation in two ways – (i) their commitment and support for plan formulation and execution and (ii) their suggestions for making corporate planning more relevant and result oriented.
Dilating further on the efficacy of employee’s participation in decision-making, it may be stated that most difficult decisions could be taken without any problem. Some of the difficult issues may be resolved through turnaround strategy or switch over from labour intensive to capital intensive technology causing of retrenchment of such employees. Such decisions have been take in the past by DCM, ITC and SAIL.
Dismissal is the last rest in every act of gross indiscipline. To save the organisation, not one but many may be dismissed after taking consensus into account.
If the action is based on objective consideration with conviction, hardest decisions could be taken. Hence it may either be the dismissal of an employee or rustication of students from the University, such hard decisions are taken in the interest of organisations.
In certain cases even the employee is the party to his retrenchment.
Corporate planning, as already pointed out, starts with the formulation of mission, long term objectives and goals. Their long term goals and objectives may be laid down in the context of environmental setting. Within the limits of macro and micro environments strengths and weaknesses of the organisation are fully analysed in the paradigm of long term objectives and goals.
B.W. Denning has also laid emphasis on Environmental Appraisal. Instruments identified by him are markets competition, technology, economy, government, taxation etc.
These environments create opportunities and threats for different organisations existing in the country. In the light of the opportunities and threats an analysis of organisation’s strengths and weaknesses are ascertained which are necessary to achieve corporate goals. Estimation of corporate resources especially financial is an important condition for strategic planning.
Availability of material, machine and equipment are not sufficient; more important is the human resource. Hence, there is a need for the analysis of skill, capability and the competence profile of the employees of the organisation. Simultaneously key skills required for structural change in the organisation and functional processes ought to be identified and defined.
Study of long term objectives and goals will be incomplete without establishing a linkage between the long term objectives and goals and the operating/short term plans.
While discussing corporate planning, it becomes essential to state the status of tactical planning. Tactical planning is not a strategic or corporate plan. Corporate planning has two important elements – (i) Long term objectives and goals and (ii) structural changes in the organisational structure. Tactical planning does not fulfil any of these two conditions. It may be stated as the short term tactics to help realise the long term objectives and goals of the corporation.
The corporation is importing the machine and selling it in the market. Its long term objective is to manufacture every component and assemble them into a machine to sell in the market. One of the weaknesses of the corporation is that it does not have the needed skill and competence.
The corporation prepares a tactical plan. Under this plan, it makes the supplier agree to train its people for the sake of assembling the components and parts in the importing country. The know-how so obtained by the corporation’s people will be instrumental in realising the long term objective of producing the machine itself. This is tactical planning.
Next step in the process of strategic planning is development of strategic alternatives. These alternatives have been identified as (i) Expansion (ii) Diversification (iii) Integration (iv) Acquisition and Merger (v) Divestment and (vi) Liquidation.
Each of these alternatives has to be evaluated to find out its efficiency to achieve the desired organisational objectives and goals. The alternatives so selected will be implemented. The performance of the alternative course of action will be evaluated periodically which will provide the desired feedback to consider if some changes are necessary in the objectives and goals put forth by the organisation. As the long term objectives/goals are not generally changed casually, the feedback may be helpful in bringing about changes in the operational plans or even tactical plans.
Corporate Planning – 5 Major Steps
There are five major steps in corporate planning:
Step # 1. Environmental Scanning:
(a) External Environment:
Business environment is scanned to secure up-to-date information on opportunities and threats revealed by the changing environmental forces, such as customers, customer needs, competition, economic, social and political climate, ecology, and technology. The situation analysis indicates where we are, how we got here and where we are now going.
(b) Internal Environment:
Marketers must also have adequate knowledge of internal situation through self-analysis, i.e., on corporate strength and weakness. The corporate resources are the limitations on exploitation of marketing opportunities knocking at our door. The environmental opportunities may not become specific corporate opportunities.
Company opportunities constitute a set of marketing undertakings in which a particular company has competence and capability to enjoy the competitive benefit because of its particular and unique market approach. There should be a happy marriage between the company resources and company opportunities so that the marketer can accomplish the set corporate goals.
The internal and external environmental scanning offer us SWOT, i.e., Strengths and Weaknesses as well as Opportunities and Threats. Threats are considered as challenges to be met or overcome by strategic planning. Marketing information and research enables us to scan external environment. Sales audit and cost analysis enable us to study internal environment.
Step # 2. Defining Corporate Mission:
The statement of basic purpose or mission offers customer-oriented answers to a few questions, e.g., what is our business? Who is our customer? What is our goal? The mission focuses the attention on the fundamental customer needs.
Examples of Mission- What is our business?
i. Communication Co. We offer varied forms of reliable, efficient, cost-effective services in telecommunications.
ii. Xerox- We automate offices.
iii. Levi Strauss- In wearing garments we offer fashion, comfort and durability.
iv. Cosmetic Co. In the shops we sell hope.
Step # 3. Setting Objectives:
The mission answers the question, “What is our business?” The objectives answer the question, “What do we want to achieve?” Objectives must be clear, ambitious but realistic, measurable and time-bound. The mission points out the needs to be served. The objectives indicate performance standards, e.g., market share, profit, services, customer satisfaction, etc. Please note that objectives or goals are the desired or planned outcome.
Step # 4. Identifying Strategic Business Unit (SBU):
Within a multi-product or multi-business corporation, we may have one or more business areas or SBU. In the corporation there may be more than six divisions but in reality we may have only three distinct businesses. Hence, for strategic planning, all divisions will be grouped into only three strategic business units.
The concept of SBU has unique importance in corporate strategic planning. The products that form a planning unit (SBU) should have, in common, major strategic features such as target markets, distribution channels/advertising, and sales force strategies. Thus, SBU is a separate division for a major product or a product line or a market in a multi-product or a multi-business organisation.
It is in charge of conducting situation analysis, determining marketing objectives, selecting target market, measuring the market and designing a strategic marketing-mix.
In order to identify SBU, a business is defined on the basis of consumer-orientation (not product-orientation) in terms of three dimensions- (1) Customer needs to be met, (2) Group of customers to be served, and (3) Product or service to fulfil those needs.
The SBU has three features- (1) It is a collection of related products meeting similar needs, (2) The unit has its own rivals and it wants to surpass them through best marketing strategies, (3) The manager of SBU organisation is directly responsible for strategic marketing planning, control and profits.
Each SBU manager is given a set of strategic planning goals and the requisite finance. The manager will present SBU marketing strategic plan to the corporation which will give its sanction with a few modifications, if essential. The manager of SBU will formulate a distinctive plan of marketing objectives and strategies, distinctive marketing-mix for the target market, i.e., chosen market segment. Each SBU will have its own distinct mission, competition and strategy.
The concept of SBU provides precise and practical direction to the process of corporate strategic planning. In India, SBU concept is adopted by big businesses in corporate strategic planning.
Step # 5. Selecting Appropriate Strategies:
Once the corporation has planned where it wants to go, the next step is to answer the question “How are we going to get there”? Corporate strategies supply the best answer to this vital question, viz., the best means to achieve the desirable goals and fulfill the mission.
There are four alternative strategies before the corporation or an SBU:
1. Invest Strategy- Marketing efforts are intensified further to strengthen the SBU or the enterprise.
2. Protect Strategy- The SBU will be given help to maintain its present position in the market.
3. Harvest Strategy- The SBU is used as a cash-flow source to help other SBUs to grow or maintain the position.
4. Divest Strategy- The sick or unwanted SBU may be just sold out and the corporation gets rid of that SBU.
Please note that the strategic company planning is done by the top management for the whole enterprise. Strategic marketing planning is done at the strategic business unit level. The annual marketing planning is done for each product line, major product or market.
Corporate Planning – Difference between Strategic Planning and Corporate Planning
Strategic Planning:
1. Nature – Strategic planning is devised to meet changes and challenges in the environment.
2. Purpose – It addresses contingencies.
3. Coverage – It may relate to a particular functional area.
4. Scope – It is a part of corporate planning
Corporate Planning:
1. Nature – Though corporate planning is environment based, it is developmental in outlook.
2. Purpose – It addresses all types of contingencies (both predictable and unpredictable).
3. Coverage – It is meant for organization as a whole.
4. Scope – It includes both strategic planning and operational planning.
Corporate Planning – 27 Main Reasons which Lead to the Failure of Corporate Planning
Steiner and Hussey have identified a check list of twenty seven reasons which lead to the failure of corporate planning:
1. Failure to develop throughout the company an understanding of what strategic planning really, is, how it is to be done in the company and the degree of commitment of top management to doing it well.
2. Failure to accept and balance inter-relationship among institutions, judgement, managerial values and formality of the planning system.
3. Failure to encourage managers to do effective strategic planning by basing performance appraisal and rewards solely on short range performance measures.
4. Failures to tailor and design the strategic planning system to the unique characteristics of the company and its management.
5. Top management, becomes so engrossed in current problems that it spends insufficient time on the strategic planning process and the process becomes discredited among other managers and staff.
6. Failure to mesh properly the process of management and strategic planning, from the highest levels of management and planning through tactical planning and its complete implementation.
7. Failure to modify the strategic planning system as conditions within the company change.
8. Failure to keep the planning system simple and to weigh constantly the cost/benefit balance.
9. Confusing the extrapolation of financial and/or economic projections with strategic planning.
10. Management’s failure to understand the analytical tools used in different parts of the planning process and theory becoming captive to staff experts.
11. Failure to secure in the company the climate for strategic planning that is necessary for its success.
12. Failure to balance and link appropriately the major elements of the strategic planning and implementation process.
13. Failure by managers to understand the importance of implementation of strategy and how to make that process efficient and effective.
14. Blame strategic planning for failure in other managerial and staff procedure.
15. Chief executive does not believe it, but has a planner because other firms also have such a person.
16. Insufficient backing by chief executive leads line managers to under-estimate its importance.
17. Chief executive instructs planner to avoid upsetting line managers, as they are too busy with current activities.
18. Chief executive gives planner too low a status that he is unable to converse with general managers on equal terms.
19. Chief executive creates a planning committee rather than give planning task to one individual.
20. Chief Manager allows some managers to opt out of the system.
21. Chief executive spends too little time on planning.
22. Corporate planner tries to do all planning himself.
23. Planner of low calibre.
24. Planner has only a part time interest in planning and has to spend much of his time on other activities.
25. Planner is a narrow specialist who lacks ability to seek full scope of his trade and view planning only in terms of his own discipline.
26. Lack of attention to one or more of the basic steps.
27. Company tries to move into an advanced management area before it is ready e.g. companies with no accounting function.
Corporate planning may achieve the desired organisational goals if a soft approach is followed in corporate planning. Short range and medium range plans should constitute the subsystems of the corporate plan system. The corporate planning process should be initiated with the proper evaluation of each alternative with the technique of SWOT analysis. The selected alternative should also be evaluated periodically with a view to reduce the gap between planning and performance to be minimum.
The success of corporate planning will depend on the willingness of people to implement the plan on the one hand and the practicability of the plan on the other. Both these parameters of a rationally effective plan are available in the involvement of people in the formulation of the plan.
Only people who are in the field are the best judges regarding the applicability of the plan. If they are not involved, the plan will be unrealistic and likely to fail on the anvil of organisational goals and objectives.
Corporate Planning – Limitations
(1) Excessive Bureaucratisation:
The formalised process becomes bureaucratic. The bureaucratic burden strifes creativity and overshadows the prime object of organisational effectiveness. The ills of bureaucratisation may be avoided by a comprehensive and extensive strategic audit. The audit may be a long term —say every five yearly; during the interim period the company may resort to minor upgrading of strategies and programmes.
Further, the corporation may select only articulate units for careful attention because of environmental changes. Such discriminatory approach is intended to avoid environmental effects.
The other device to avoid bureaucratisation is to select every year a planning theme which may require attention of all key managers. Gluck, Stephen, Kaufman, and Wallock have given illustrative suggestions by way of new manufacturing process technologies, the value of the firm’s product to customers and alternative channels of distribution.
(2) Lack of Integration with Other Formal Management Systems:
Corporate Planning is not an isolated activity; it is the part of the organisational system. The organisation is a system whole and different departments and groups are the sub-systems. Hence the activities of the plan formulation and plan execution have to co-exist to achieve the desired goals.
Three factors may be responsible for this type of situation – (i) Corporate plan has been formulated in an autocratic manner with the result that the managers in-charge of execution may not be expected to extend support or commitment for execution; (ii) the plan is not realistic because it may not be based on the environmental realities existing within and without the organisation; and (iii) adequate preparation may not have been made to execute the plan with conviction.
In short, if the organisation does not follow the systems approach both in letter and spirit, the organisation will be confronted with the problem in the execution of the plan.
(3) Greater Reliance on Tactical Planning:
More often the corporation is swayed by unexpected emergencies of opportunities and threats which relegate strategies to the background. Since tactical planning usually concentrates on a segment of the corporation, the holistic concept gets diluted which lands the corporation far away from strategic planning.
Further, tactical planning is based on the existing capabilities that permit slackness and flexibility. The pressure of tactical planning more often blocks the paradigm of corporate planning.
This problem could be averted by establishing fusion between the two planning processes. These limitations could be averted by taking two steps – (i) By designing and implementing an effective control system capable of bridging the gap between planning and performance and (ii) forging integration between strategic and operational modules.