Spring 2022 Semester Exam Solutions For The Corporate Planning Process At Newcastle University

March 06, 2023

Henry Root

United States of America

Corporate Planning Process

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This blog contains the latest information on the corporate planning process and the need for planning, examined in the spring 2022 semester exam solution at Newcastle university. Apart from the solution to the key concepts, we offer microeconomics exam help services to students considering planning a dream course. You can count on these enthusiastic economics exam helpers to give you the needed help.

Question:

What does organizing a corporate planning process involve?

Answer:

I do not believe that any chief executive needs to throw up his hands and say that as he cannot foresee every event that will happen, he should not spend his time thinking of the future. There is a process of management that almost any chief executive can use if he so desires, which-accepting that there is no certainty about tomorrow's results, let alone next year's or the year-after-sets, to systematically consider future events against every decision made in the business.

Planning as a Means to Increase Profits

There can be only one justification for corporate planning: the belief that it can increase profits. Unless a chief executive has this belief, he should only attempt this form of planning since, with a personal commitment, he will be satisfied with the results.

In large companies, it can become acute. We all have our private stock of "horror" stories about the results of poor cooperation. Department X takes an action that affects Department Y but does not take Y into its confidence. A study is made for the new computer- only the chief executive keeps to himself that he is about to double the size of his company by acquisition or expansion: the result is that the computer is too small a capacity on the day on which it is installed.

A fourth reason is the attitude toward change that planning generates in an organization. The modern business operates in an environment of continuous change. Nothing is static. Because of the current state of technology, this process operates at a much faster pace than even a decade ago and at a frightening rate when compared with the turn of the century-a period still within living memory. There is no reason to suppose that the process will slow down and every reason to expect the pace to increase. It is not only the advance of technology that affects business operations. The energy crisis of 1973-4 and the resultant period of high inflation and economic decline have stressed the relevance of economic factors to the performance of individual organizations. Raw material shortages around this period demonstrated that the environmentalists had a message of considerable importance to the business. Population structures are not static; there is, at least in the Western world-a continual improvement trend in the standard of living, which alters the balance of consumer desires and needs and causes changes in social values. Channels of distribution are in a constant state of flux. If we add to these the political and legal changes likely to occur, we get some idea of the turmoil that faces every business. For many companies, any change is-if noticed-regarded as a threat and is often completely unobserved until it begins to attack profits. The forward-looking company sees an opportunity in the new patterns that will emerge, the chance to adapt the organization to make additional profits from innovatory measures. Indeed it may actively seek to create change to its advantage and mould some of the trends into the direction it would like to see them go. It does not stand and bewail the buffets of an unkind fate or look back to history at its past glories. Corporate planning makes the company that uses it a forward-looking organization.

Whether the chief executive accepts what corporate planning can do for his company and what it can do for the industry is a matter of his conviction. It is a mistake to introduce planning without this belief. This book outlines the basic steps to install and operate a corporate planning system. Only the chief executive can make such a system work.

Question:

What circumstances might lead to the failure of planning?

Answer:

When the chief executive allows no one but himself to make decisions, there are many companies like this, and their size is a function of the ability of the one man who runs them. They are unlikely to be of great size and, without some change in policy (or a new chief executive of the same kind), will die with the entrepreneur who leads them. Successful or unsuccessful, they will all be unable to use the discipline of corporate planning-if only because it is a discipline with a formal approach.
The small company cannot afford the time needed to write down plans so straightforwardly that all the major implications can be carried in the chief executive's head. The very small companies that do not employ an accountant of their own would be wasting their money if they moved into a more sophisticated management area. While small, they can only be very successful with formal planning and have a high probability of remaining small.
The company is sinking so rapidly that it requires all those on board to operate the pumps. Until it can get the holes caulked and the ship floating, it has very little prospect of formalizing its planning process. Such a company may, of course, wish it had introduced corporate planning many years ago and avoided the situation in which it now finds itself.

Although these companies may not benefit from the corporate-planning methods described in this book, they must still consider their future. Every chief executive has to think ahead, a duty he cannot escape. Only in the method he uses does he have freedom of choice. Peter Drucker sums up the task that all companies face:

Corporate long-range planning will enable the company to avoid the fate Drucker predicts for the unwary and unthinking. Before looking at what corporate planning involves, it is worth considering some of the arguments, I have heard against planning.

Question:

Outline the objections to formal planning

Answer:

Some managers make the blunt claim that "it can't work". Frequently this is an unreasoned stock response used as a defence against something new. In some cases, more thought is given to planning, and the argument runs like this. "In my industry, market forecasting is impossible. Therefore, we cannot plan. This is throwing in the towel before the contest begins. Some of the greatest planning successes come from industries in problem markets. Of course, I believe that planning does work, but I accept that there are difficulties in measuring costs and benefits:

This leads to the next argument, which runs something like this. "Planning is costly in money and management time, and we are not convinced that the benefits outweigh the costs." Of course, benefits are almost impossible to measure since you are always in an "either/or" situation. It is never possible 10 measure what would have happened if you had (or had not) embraced corporate planning. Similarly, although the costs of the corporate planner can be ascertained, it is more complex to calculate the cost of any planning activity undertaken by management. Of course, the additional cost of an informal planning approach is relevant. Despite these difficulties, there has been significant progress in developing research methods to measure the benefits of planning. All studies show differences in individual performance, and non-planning companies outperformed some planning companies in the samples.

Despite the research, this remains an area for management judgment, and many other such areas are facing modern management-after; no one has yet discovered an effective way of measuring the benefits of advertising. Companies that do corporate planning properly notice benefits in profit improvement, internal communication, and people's motivation. The key word is "properly" since not all companies with planning departments practice corporate planning. So this is an argument for which the chief executive must act as his judge. Many companies in the U.K. and the U.S.A. have judged that it pays off and genuinely feel there is no better way to run a company.

A third argument I have heard is that a formal planning process removes power from the chief executive. My answer is that if it does, the person concerned does not deserve to be chief executive! Any planning department he may set up acts only as an extension of himself. While it may bring specialized knowledge to bear on problems, it never makes the decisions. Top management judgment alone must be the ultimate step in the planning process. This objection stems from a complete misconception of the planner's role in a company.

All this can happen, and many planners complain about difficulties in their relations with line management. Yet all these problems are usually based on a misconception since plans should only be imposed on operating managers with their involvement, and a good planner will never do their work for them. Of course, in the course of his work, a planner may have to recommend a policy that does upset a particular manager, for example, the divestment of a business area, but this is no more than the sort of recommendation the financial director might be forced to make under other circumstances. This problem of obtaining and maintaining good relations between planners and operating management will be discussed in greater detail as the book progresses. It is, where it exists, a human problem, not a fault of the planning concept: although it is a factor that must be considered when a planning process is designed.

Question:

What is a long-range plan?

Answer:

I would define "short range" as is for up to 12 months, and the sort of planning system I recommend would have this linked with the budgetary control process.

The term "long-range" is relative, and I see this as extending for 3 years or more. The question of how long a company should plan is often raised. There is no stock answer, and each company must make its judgment. The period needs to be sufficiently long for a strategy to be developed: any period of fewer than 3 years is usually too short for this. Major capital investments in a chemical plant may take a long time. The planning period should cover a sufficient period so that a realistic picture emerges.

There is nothing magic about any of these numbers, and 5 years is often chosen simply because it is a nicely balanced unit of time. I would be reluctant to take less than 5 years for any business because a lesser period tends to lack perspective. At the same time, 3 years suits some companies very well.

For example, a 5-year planning cycle does not mean that a plan is prepared at 5-year intervals, nor does it mean that the company should not study trends beyond the 5 years.

The trends beyond the planning cycle will affect the company's strategies. A simple example is the quarrying enterprise whose quarry has only a 10-year life. This fact may well be a major influence on the first 5-year plan since it may restrict the investment the enterprise is prepared to put into the quarry or cause it to search for some other activity area so that this can be well established by the time the quarry is exhausted.

Both these points state that the far-sighted company will apply good sense and business judgment to its plans. Slavish attention to rigid rules can well mean planning with defective vision. The fact that a company goes to the trouble of writing a document does not mean that it is, in. fact, planning! Planning is more important than the written plans themselves.

The company may wish to have two or three planning periods. It is often very sensible to consider a project plan for much longer than the 5 years laid down for the strategic plan. Also, it may be wise to plan strategically for 5 years but only to produce operating plans for 3 years: I have never found this necessary, but this is how some companies work.

Question:

State and explain the types of corporate plans

Answer:

We cannot leave the definition of strategic and operational planning hanging in the air, for other plans are bound up with them. Some inter-relationships must be explained. Figure I shows a generalized family of plans which a company might develop. I say "might" because the practical application of the principles will often suggest changes to suit the particular situation of the individual firm. The system is described below to give a coherent picture, but each element receives more extensive treatment in later chapters.

Fig. 1 Generalized planning system

At this stage, I must confess that the word plan still tends to suggest an image of a huge leather-bound document, perpetually locked and hidden deep in the company archives. I do not think I am alone in this--for example, I once had a perfectly serious inquiry from an acquaintance who wanted to know what a strategic plan looked like and how long it was. "Plan" must not be interpreted in such a way in the conceptual approach I have outlined (no corporate plan should ever gather dust in the archives!), and in many cases, the whole "plan" may be only a few sheets of paper. Sometimes, it may be long enough to make up a file or a book. The objective should, of course, be to keep plans as concise as possible, but at the same time, they must include enough data to make them actionable. There is some merit in having the various parts of the total package so that they can be lifted from the whole because of their confidential nature; it may be advisable to restrict readership of the total corporate plan. In this case, various sub-plans may be taken from the whole and passed to those who must act on them.

The total approach discussed above is for a company that has embraced the corporate planning method. Just as it is possible to carry out project planning without corporate planning, it is possible to do operational or strategic planning in isolation. But real success can only come from undertaking both.

Question:

Identify ways of evaluating the evolution of planning thought

Answer:

Before we look at ways of moving from the generalized planning system to a continuous management process, it is worth stressing that planning concepts have followed an evolutionary route.

Evolution can be considered in two ways. The first is the way planning has changed within a particular firm. Few people will require more than their own experience to accept the statement that individual companies regularly rethink and redevelop their planning philosophies. For the purist, there is supporting research evidence (see, for example, Formal Planning in U.S. Organisation, H. W. Henry, Long Range Planning, October 1977).

The second way to consider evolution is to define what is generally considered best practice at any time. A real difficulty is that although there is undoubtedly a movement that can be followed, there is never a universal philosophy adopted by all firms. Thus more "primitive" planning exists besides the more advanced forms; as the vocabulary is similar, it takes some time to discover where a firm sits on the evolutionary tree. One way of visualizing this tree is shown in Fig. 2. The arrows indicate that this type of planning continues.

Fig. 2. Evolution of planning approaches.

Another approach to evolution was derived from a research project. This suggested four evolutionary planning phases: basic financial, forecast-based, externally oriented, and strategic management (Strategic Management for Competitive Advantage, F. W. Gluck, S. P. Kaufman and A. S. Walleck, Harvard Business Review, July/August 1980).

Question:

Explain the integration of planning techniques

Answer:

Strategic analysis techniques have improved dramatically over the past decade, and the more modern approaches to planning will make heavy use of some of these. It is a mistake to think of techniques as anything more than a tool kit from which a selection can be to fit a particular situation. Some of the claims made for techniques suggest a solution by looking for a problem, leaving the vague feeling that if the problem does not fit the solution, there is something wrong with the problem!

The techniques, many of which are discussed in detail later in this book, need to be looked at as something other than stand-alone features. There is a great deal of value in seeing several techniques as linked, both within a business unit and between the unit and corporate levels, as Fig. 3 suggests. This not only brings recognition that information from one approach can be shaped to feed another, but it also stresses that several should be used to illuminate the problem properly.

Fig. 3. Integration of planning techniques.

In their simplest terms, these techniques change information patterns to perceive the strategic situation differently. All humans erect boundaries of perception when they consider problems because they cannot consider every aspect. Businesses tend to do the same, and a common belief in the strategic situation often permeates the firm. Within this perception, logical decisions are made. In Europe in the Middle Ages, men knew the world was flat and made logical decisions based on this certainty. Once the explorers had proved otherwise, many of these decisions were seen to be illogical. Techniques can fulfil the same function. By changing the perception of the problem, they can show the weaknesses of old strategies and point the way to new ones.

But techniques should become part of the management process. They work when attention is given to the behavioural issues around their usage and good analysis. And this links us to thoughts about the overall shape of the planning process.

Question:

Explain how the total planning process takes place

Answer:

Plans such as those described do not suddenly come into being. One might claim they are in the middle of the planning process. Figure 4 shows the various steps that must be followed before a company can justifiably claim to be formally approaching the task of planning. Each of these steps is vital to the success of planning in the company, and each is described in full detail in later chapters. At this stage, obtaining an impression of the company's total task is only necessary.

Preceding the diagram is a decision to do the planning. This is a big decision, for it will cause radical changes to the company's management pattern. But it is important to realize that it is a decision. There are several possible starting places for Fig. 4. I have chosen the environment because corporate planning involves acceptance that.

Fig 4. The total planning process

The market has been shown as a separate element from the other environmental factors, affected by them, and vitally important to the company's future. A later chapter deals specifically with market planning.

The environmental appraisal seeks to establish what external events I do affect the company's operations. Equally important, it is designed to provide the company with assessments of future trends to indicate areas likely to change in the years ahead so that that strategy may be adjusted and the company moulded to a new pattern of operations.

As all forecasts of trends are, at best, only forecasts, it will be necessary to reduce these to assumptions for planning purposes (Any plan which provides for future events must be based on assumptions; the corporate-planning process insists that these are clearly defined so that all concerned with planning know what they are) It also makes it possible to monitor them to measure when things go wrong so that corrective action can be taken before the effects are felt on profits.

Monitoring and controlling are seen as a step affecting the whole process, directly impacting the corporate appraisal and the rest of the process. Although illustrated as one step, it will comprise as many sub-systems as needed, and different model elements will be controlled differently. It is a critical stage in the planning process and should be a regular, continuous system.

At the bottom of Fig. 4 is a box indicating the corporate appraisal. This is a very important step but needs to be addressed. Some companies argue that planning should have no connection with present operations: the "don't rock the boat" philosophy. This is nonsense, and unless a company is willing to put itself under a form of self-analysis to assess its strong and weak points, it might as well give up the idea of planning. The corporate appraisal helps the company understand its interface with its environment. It defines, in effect, the unique corporate identity, which is the feature of every company.

Many argue that the true first step in any plan is the definition of objectives. The diagram shows that the primary objectives are, in part, a response to how the chief executive decides to meet his interpretation of the stakeholders' expectations. The stakeholder concept embraces all interests in the firm: shareholders, employees, the community, customers, and suppliers. Although the non-shareholder interests may modify the degree to which profit is sought, we should remember that adequate profit is necessary for the survival and growth of the business and, therefore, to meet the other stakeholders' expectations. The determination of objectives is an area of conflict since everybody cannot be satisfied to the degree that they might wish.

Objectives may require reconsideration during the various stages of the preparation of a plan and are shown in the diagram as being influenced by stakeholders, the environment, the market, the appraisal, and the feedback of results against strategies. The objectives include a profit target, a definition of the company's business, and a statement of what it intends to become. This brief description will be expanded later.

Other stages in the model show the identification of strategic options and considering their risks, leading to a selected strategy subjected to sensitivity analysis to "test" its vulnerability. This is the heart of the analytical framework of the strategic plan and leads to goals and action plans. These effects are the particular operational and strategic sub-plans discussed in Fig. 1.

This leads to monitoring results against the plan and the feedback mechanism already discussed. We are now very close to the design of a planning process. This takes Figs.

The final links which complete the process are forged with other systems in the company: for example, budgeting control, capital budgeting, project and capital expenditure evaluation, personal appraisal, and management development.

No universal flow chart will illustrate the process in a way that fits every company. The best that can be done is to show a summary diagram of the process as it is applied in a particular company: this is illustrated in Fig. 5. This chapter has dealt at length with some broad issues. Having disposed of these, we can now understand the more practical problems involved in introducing planning and making it work. Figures 1 to 5 should be considered as the various parts unfold over the following chapters.

The emphasis now placed on particular aspects must not lead us to forget the very important relationship each has with the whole.

Fig. 5. Rolls-Royce Motors Ltd. outline planning process. (From Corporate Planning at Rolls-Royce Ltd., R. Young and D. E. Hussey, Long Range Planning. April 1977.)