Corporate planning is a term describing an approach or a style of management, an attitude of mind, which uses a systematic and integrated approach to all aspects of a company’s activities. The idea is to treat the company as a corporate whole instead of a collection of departments. Treat a company on a long-term basis instead of a short-term one. The company is studied with precise definitions of its objectives functioning in its past, present and future environment.
Corporate planning is defined by Drucker as “a continuous process of making entrepreneurial decisions systematically and with the best possible knowledge of their futurity, organizing systematically the effort needed to carry out these decisions and measuring the results against expectations through organized systematic feedback.. “
In a study of hundreds of international companies, the reasons these companies introduced corporate planning were;
• effective diversification;
• rational allocation of resources;
• improved coordination and anticipation of technological change;
• increased profitability and the rate of growth.
Although annual profits are important, they are short-term factors in corporate plans. Manpower and new product development are examples of factors influencing the survival of the organization in the long term. Better results are obtained by companies adopting corporate planning methods. In reality the adoption of a style of management suitable to work in an atmosphere of change is the key to successful application of corporate planning.
Management systems and practices in all types of companies like banks, local governments and industries need to be revised to give more weight to strategic considerations. Competition may not be so much in products or markets, but through conflict with government and pressure groups in society in relation to matters such as pollution, safety and welfare.
Corporate plans are therefore needed to cope with social and political change. This needs careful thought in setting social objectives, policies and plans to ensure the gain of social and political acceptance of the company’s ideas. The idea behind this is the strategic problem of adapting the organization to its environment and this will usually mean fundamental changes in management and the organizational structure.
The whole of the industry of which the company is part of should be examined like the supply and demand factors, possible future trends and new opportunities, threats or problems. A comparison should be made between the company’s performance and that of its competitors. Trends in economic and political areas should be taken into consideration like government controls on mergers. Certain key factors should then be identified which appear likely to improve the company’s position.
The final assessment would cover specific areas and their problems and opportunities:
• research and development necessary for the need for new products and product improvements;
• human resources necessary to ensure the availability of staff in line with the desired quantity and quality;
• sales and marketing which reflect the relevance of sales policies, share of market, suitability of quality, design and price of products, marketing mix;
• production which is needed to ensure adequate production capacity and other facilities and costs of production are acceptable.
From the above analysis the possibility of reorganization, merger, diversification, etc., can be considered.
The essential need is for the plans from the various areas of a business to be integrated so that functional plans are interlinked to form an overall corporate plan. A corporate plan, however, is more than just an interlinking of functional plans; it can be considered as a systems approach to achieve the aims of the business over a period of time. An interesting account of the various strategies which can be adopted and classifications of opportunities and risks is given in managing for results by Peter Drucker.
He points out two important strategies which have to be decided:
(a) To decide what opportunities or wants the company wishes to pursue and what risks it is willing and able to accept:
(b) To decide on the scope and structure and the right balance between specialization, diversification and integration.
His classification of opportunities (additive, complementary and breakthrough) and of risks are interesting and practical guides to help the formulation of strategies. One large company found out for the first time in such an analysis that 75 per cent of its profits came from one product and this market was slowly declining. Many other important factors can come from such an analysis like underutilization of financial assets.
A final point regarding this aspect is the measurement of ‘synergy’ which has been defined frequently as the ‘evaluation of strengths and weaknesses’. The concept of synergy can best be explained by using the following example. If, for example, the return on investment of the company as a whole is just the return on the existing activities plus that of the new activity, there is no synergy (2+2=4). But where the new activity makes use of existing resources, the return for the company as a whole will be greater than average of the new and existing activities (2+2=5).
Plans range from those of a broad scope concerned with a long time span, which are the concern of top executives, to short run, day-to-day operating plans which are the concern of managers at lower levels in the organization. As the amount of innovation increase in a given period, the time available for new product exploitation diminishes. But it still takes the same it to develop and test new products; money has still to be spent on promotion and selling activities ands, as the life span of a product falls, profitability will be reduced. Long-range planning (LRP) enables management to anticipate difficulties and take steps to eliminate them before they arise and can help to bring about a more unified approach to the various factors in a problem. Plans, though, must clearly state which manager is accountable and for what results, i.e. it must be management by specific objectives.
The length of plans varies from industry to industry. The more fortunate can plan a few years ahead, like the car industry. Others may plan only six months ahead like the fashion industry. Different aspects of the plan will cover different periods of time like loans to cover certain expenses can be planned a year ahead while plans for a new car cover at least four years ahead. The LRP will of course contain the short-range plan (SRP) which for convenience will be assumed to cover one year. Freedom to change the SRP is limited and may be broken down into monthly commitments. It is important to realize that assumptions made in LRP must be specified and any change in them examined carefully.
Corporate planning is simply a formal, logical method of running a business, which is comprehensive or covering all activities of an organization. Individuals are responsible for planned results. Corporate planning is a tool of management to guide the business towards its agreed goals. Corporate planning can be said to incorporate long-range planning and management by objectives and has developed in status since its beginning in the USA in the 1950s.
The position of the corporate planner in an organization can indicate the status of the activity. The person usually has a staff role, to advise management; he generally reports to a senior person, sometimes the chief executive. He is responsible for:
• organizing the section;
• preparing an agreed planning system;
• ensuring all roles are known and everyone is fulfilling standards agreed;
• acting on behalf of chief executive in preparing, coordinating and controlling the corporate plan;
• preparing reports on progress.
His special responsibilities include the following:
• considering opportunities for growth and devising objectives and strategies to exploit growth;
• keeping abreast of business trends and developments in management techniques.
However, the corporate planner is also faced with limitations:
• only responsible for members of own staff;
• advises chief executive of events affecting corporate plans.
There are many advertisements for corporate planners and qualifications required usually include a degree with a good knowledge of mathematics, statistics and management techniques. In addition, he has got to have at least eight years experience in companies, or more than one industry and a personality that is acceptable to most people. Their role is to install and maintain a system; corporate planners do not plan the system; if they do, this will lead to many problems.