Chapter 1

Strategic Management and Strategic Planning

Strategic planning is inextricably interwoven into the entire fabric of management; it is not something separate and distinct from the process of management. This point is underscored in this chapter. Also discussed is the shifting focus of management from operations to strategy. Finally, attention is given to the different fundamental approaches to strategic planning that can support management decisionmaking.

The Managerial Task and Planning

Years ago when my colleagues and I were "selling" what at that time was called long-range planning and what I now call strategic planning, we spoke of it as a valuable new tool for management, a major new technique to help managers. I no longer speak of it this way. Strategic planning is inextricably interwoven into the entire fabric of management.

Several years ago, The Conference Board interviewed intensively fifty chief executives about their roles in planning. The first overarching frame of reference most executives articulated was that "planning cannot be usefully distinguished from the rest of the management process....

The researchers summarized the view of the executives in this way: planning cannot be disentangled from such management functions as organizing, directing, motivating, and controlling.

Although it is acknowledged that each of these functions or elements can be formally defined and contrasted with one another, in terms of the chief executive's daily, weekly, even annual routine it is not realistic from his point of view to break up his job into parts and examine each as a discrete phenomenon. For his role as planner is meshed with his role as organizer, director, and so on, in a seamless web of management; for instance, the thought he devotes to what might be termed planning questions, and decisions he makes about them, have implications for his exercise of control; and vice versa. It is the whole of his job that must be looked at, the interaction of the elements of the management process rather than the individual elements.

The Conference Board survey was concerned with chief executive officers, but the conclusion is applicable to all managers. I believe that no manager is fully discharging his or her responsibility when strategic planning is neglected. Strategic planning is a function and responsibility of all managers at all levels in an organization. It is obvious, however, that the planning responsibilities of managers will vary significantly among types of organizations and different organizational levels.

Strategic Management, Operational Management, and Strategic Planning

To oversimplify, there are two types of management. That which is done at the top of an organizational structure is strategic management. Everything else is operational management.

Strategic planning is a backbone support to strategic management. It is not, of course, the entirety of strategic management but it is a major process in the conduct of strategic management. Everyone recognizes that strategic and operational management are tightly linked. Strategic management provides guidance, direction, and boundaries for operational management. Just as strategic management is vitally concerned with operational management so is strategic planning concerned with operations. But the focus and emphasis of strategic planning as with strategic management is on strategy more than operations.

Years ago the managerial emphasis in the typical corporation was on operations. A major question for management was how to use efficiently those scarce resources at its disposal in producing goods and services at prices consumers were willing to pay. If this task were done efficiently, it was believed, profits would be maximized. Today, efficient use of scarce resources is still a commanding concern of managements of all organizations, but today, because of a turbulent and rapidly changing environment, the ability of an organization to adapt properly to environment, internal and external, is becoming more critical in survival.

General Robert E. Wood, when chief executive of Sears, Roebuck and Company, succinctly captured this thought when he said: "Business is like a war in one respect, if its grand strategy is correct, any number of tactical errors can be made and yet the enterprise proves successful." A company may overcome inefficient internal resource use if its basic strategy is brilliant, but it is not likely to overcome the wrong strategies even with excellent production and distribution performance. The ideal situation, of course, is for an organization to design brilliant strategies and to implement them efficiently and effectively.

In a growing number of companies, particularly the larger organizations, the framework for formulating and implementing strategies is the formal strategic planning system. Strategy can be formulated without a formal system, however, as will be discussed later. But either way, the processes of strategic planning are intertwined with management.

Tasks of Top Management

This is a book about strategic planning and not about the tasks of top management. It is useful, however, to comment a bit more on a point already made, namely, that strategic planning is a central concern of strategic management but not the entirety of the top management job.

In a recapitulation of his monumental book on management Peter Drucker summarized the tasks of top management as follows: First is the formulation and implementation of strategy. Drucker explained this prime task as

the task of thinking through the mission of the business, that is, of asking the question "what is our business and what should it be?" This leads to the setting of objectives, the development of strategies and plans, and the making of today's decisions for tomorrow's results. This clearly can be done only by an organ of the business that can see the entire business; that can make decisions that affect the entire business; that can balance objectives and the needs of today against the needs of tomorrow; and that can allocate resources of men and money to key results.

That, of course, is the strategic planning process.

The other tasks of top management according to this eminent observer of management and managers are as follows: standard setting, for example, for the conscience functions; building and maintaining the human organization; fulfilling responsibilities concerning relationships that only the people at the top of an organization can establish and maintain, such as with major customers, very important suppliers, or bankers; performing ceremonial duties, such as at civic events; and being the "standby" organ for major crises.

There is, of course, no idealized or single way for top managers to discharge their responsibilities. For some managers the strategic planning process is a much larger part of the total job than for others. But for all it is of central importance in performing properly the top management function.

Planning Responsibilities of All Managers

It was said previously that strategic planning is a function of all managers at all levels of an organization. This point has been amplified by Marvin Bower, who for several decades was managing director of McKinsey and Company, a well-known, worldwide management consulting firm. In a superb book that summarized the lessons of experience of effective managers over a long period of time Bower concluded that there are

fourteen basic and well-known management processes [that] make up the components from which a management system for any business can be fashioned....Fashioning these fourteen components into a tailor-made management system is the building job of every chief executive and every general executive. To support, follow, and enforce the system is a vital part of every top manager's operating job -- and of managers and supervisors at every level.

What are these fourteen processes? They are, Bower says, the following:

1. Setting objectives: Deciding on the business or businesses in which the company or division should engage and on other fundamentals that shall guide and characterize the business, such as continuous growth. An objective is typically enduring and timeless.

2. Planning strategy: Developing concepts, ideas, and plans for achieving objectives successfully, and for meeting and beating competition. Strategic planning is part of the total planning process that includes management and operational planning.

3. Establishing goals: Deciding on achievement targets shorter in time range or narrower in scope than the objectives, but designed as specific sub-objectives in making operational plans for carrying out strategy.

4. Developing a company philosophy; Establishing the beliefs, values, attitudes, and unwritten guidelines that add up to "the way we do things around here."

5. Establishing policies: Deciding on plans of action to guide the performance of all major activities in carrying out strategy in accordance with company philosophy.

6. Planning the organization structure: Developing the plan of organization -- the "harness" that helps people pull together in performing activities in accordance with strategy, philosophy, and policies.

7. Providing personnel: Recruiting, selecting, and developing people -- including an adequate proportion of high-caliber talent -- to fill the positions provided for in the organization plan.

8. Establishing procedures: Determining and prescribing how all important and recurrent activities shall be carried out.

9. Providing facilities: Providing the plant, equipment, and other physical facilities required to carry on the business.

10. Providing capital: Making sure the business has the money and credit needed for physical facilities and working capital.

11. Setting standards: Establishing measures of performance that will best enable the business to achieve its long-term objectives successfully.

12. Establishing management programs and operational plans: Developing programs and plans governing activities and the use of resources which -- when carried out in accordance with established strategy, policies, procedures, and standards -- will enable people to achieve particular goals. These are phases of the total planning process that includes strategic planning.

13. Providing control information: Supplying facts and figures to help people follow the strategy, policies, procedures, and programs; to keep alert to forces at work inside and outside the business; and to measure their own performance against established plans and standards.

14. Activating people: Commanding and motivating people up and down the line to act in accordance with philosophy, policies, procedures, and standards in carrying out the plans of the company.

All these processes, without exception, are in one way or another embodied in a comprehensive formal strategic planning process. But again, managerial responsibilities and actions for some of the processes extend beyond the planning process. For instance, activating people (item 14) is a requirement that is more pervasive than planning. The point of this discussion is that dominant management processes, according to a management observer whose word commands respect, are elements of or rely heavily upon strategic planning.

Intuitive-Anticipatory versus Formal Strategic Planning

There are two fundamentally different ways for a manager to formulate strategic plans for the future. The first is to meet each day as it arrives and make strategic decisions only on that basis. I assume that managers who prefer this "Mickey Finn" approach will not be reading this book. Those managers who think much about the future and devise strategies to help them meet the future in ways they want may take one of two alternative approaches.

The first, the intuitive-anticipatory approach, has several major characteristics. Generally it is done in the brain of one person. It may or may not, but often does not, result in a written set of plans. It generally has a comparatively short time horizon and reaction time. It is based upon the past experience, the "gut" feel, the judgment, and the reflective thinking of a manager. It is very important and must not be underestimated. Some managers have extraordinary capabilities in intuitively devising brilliant strategies and methods to carry them out. For instance, in speaking of Will Durant (the man who put together the companies upon which General Motors Corporation was built), Alfred Sloan (whose leadership built General Motors Corporation) said: "He was a man who would proceed on a course of action guided solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged to make an engineering hunt for the facts. Yet at times he was astoundingly correct in his judgment."

Albert Einstein acknowledged the significance of intuition from a different angle in these words:

I believe in intuition and inspiration...at times I feel certain that I am right while not knowing the reason....Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution. It is, strictly speaking, a real factor in scientific research.

If an organization is managed by intuitive geniuses there is no need for formal strategic planning. But how many organizations are so blessed? And, if they are, how many times are intuitives correct in their judgments?

In contrast, the formal planning system is organized and developed on the basis of a set of procedures. It is explicit in the sense that people know what is going on. Frequently, manuals of instruction are prepared to explain who is going to do what and when and what will happen with the information. It is research based. It involves the participation of many people. Support for the decisionmaking in the process is frequently documented and the result of the entire endeavor is a written set of plans.

It is not at all unusual to find in organizations a clash between these two approaches to strategic decisionmaking. A manager who has been successful with his intuitive judgments is not likely to accept completely or readily the constraints of a formal planning system. Such a manager may be uneasy with some of the new language and methods used by sophisticated staff in a formal planning system. Or, the manager may feel a challenge to his authority as those participating in the system engage in the decisionmaking process. The thought processes of these managers may conflict with the requirements of formal planning.

For such reasons, and because of cognitive differences between intuitive and systematic thinkers, there are some who argue that with the intuitive thinker there can be no formal planning. This either-or conclusion is not correct. Limited empirical observation will show that the two approaches are indeed meshed in many organizations. There is often conflict, to be sure, but each can be and often is adapted to the requirements of the other. They can and should complement one another. A formal system can and should help managers sharpen their intuitive-anticipatory inputs into the planning process. At the very least, a formal system can and should give managers more time for reflective thinking.

In a fundamental sense, formal strategic planning is an effort to duplicate what goes on in the mind of a brilliant intuitive planner. But formal planning cannot be really effective unless managers at all levels inject their judgments and intuition into the planning process. Nor, on the other hand, will formal planning be effective if top managers reject it in favor of their own intuition.

Managers do indeed follow different thought processes in decisionmaking. The design of a formal planning system must understand and reflect these differences if the system is to function successfully. I shall return to this point in several subsequent chapters.

Summary

There are two different types of management. One, which is done at the top of the corporate organization, is called strategic management. Everything else is operational management. Strategic planning is central to helping managers discharge their strategic management responsibilities. The central focus of both is on strategy. But, just as strategic management is concerned with operational management, so strategic planning is interrelated with operational planning. For managers at all levels strategic planning is interrelated with the management process. Strategic planning is not something separate and distinct from management.

Strategic management and strategic planning are vital to the success of corporations today. This is so because the wrong strategy can lead to serious difficulties, no matter how internally efficient a company may be. Conversely, a company may be inefficient internally but successful if it has the right strategies. Good marks in both, of course, is the preferred position.

Although strategic planning is of commanding significance in strategic management it is not the whole of strategic management. Top managers have responsibilities other than planning.

There are two ways to help top managers discharge their strategic planning responsibilities: intuitive-anticipatory planning and formal systematic planning. Both are important and must not be underestimated. In many corporations there are conflicts between the two approaches because different thought processes are involved in them. However, formal planning cannot be done without management intuition. If the formal planning system is correctly tailored to managerial characteristics it can help managers improve their intuition.

Copyright © 1979 by The Free Press