Corporate planning is a systematic approach to clarifying corporate objectives, strategic decision making and checking progress toward objectives. A corporate plan is a set of instructions to managers of an organization describing what role each department is expected to fulfill in the achievement of organization’s objectives (Gubbins, 2003, p. 98).
During the 1950s and 1960s companies were growing in size and complexity. Consequently, executives were faced with the challenges of coordinating decisions and maintaining control. Corporate planning was devised as a framework for harmonizing capital investment decisions and the long-term development of the firm. The typical format was a five-year corporate planning document that laid down objectives, forecast key economic trends (e.g., demand, market share, revenue and costs), identified priorities in different business lines and allocated capital expenditure. Diversification into new business areas was a major thrust of corporate planning (Grant, 2005, p. 15).
There are five phases in planning (Ackoff, 1981, pp 74-75): 1) Formulating the mess: In this phase planners attempt to understand the system of threats and opportunities the organization faces. 2) Ends planning: Here a desirable future for the organization is specified. 3) Means planning: In this step the way to reach the ends is delineated. 4) Resource planning: The required resources together with the time they will be needed and the way to obtain them are determined in this phase. 5) Design of implementation and control: This phase addresses the questions of who is to do what, when and where, and how the implementation and results should be monitored.
The 1970s saw the birth of a new approach. Failure of diversification efforts, the oil shocks of 1974 and 1979, and increased international competition from Europe, Japan and Asia required a change in management emphasis. The turbulent management environment meant that firms could not “plan” investments, new product introduction and human resource requirements five years ahead because of forecasting challenges in a changing environment. Hence, there was a shift from “planning” to “strategy making” where the focus was positioning the firm in relation to competitors in a way that would maximize potential profit (Grant, 2005, p. 17).
There are four basic orientations to planning (Ackoff, 1981, pp 53-61): 1) Reactive: Reactivists tend to like the way things were in the past. Faced with a tide of change, they swim against it to restore the past status. 2) Inactive: Inactive planners’ frame of reference is the present state of affairs. Red tape and bureaucracy are characteristics of inactive organizations. They are slow; even if they take action, lack of resources and mismanagement guarantee their failure. 3) Preactive: Preactivists believe the future will be better than the present and the past. They try to accelerate change. 4) Interactive: Interactivists (or proactivists) are not content with the past, present or the future state of affairs. They take into account all three temporal dimensions to shape a desired outcome.
Rigid thinking is one of the most serious culprits in attaining poor results in the realm of corporate planning. The attitude that there is only one way to do things causes problems. Some corporate planners tend to use solutions that worked in some past situations, but past successful solutions may not apply now or for future opportunities. Flexibility is important in corporate planning (Thierauf, 1987, p. 89).