Formal planning systems : their role in strategy formulation and implementation

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MASSACHUSETTS INSTITUTE

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WORKING PAPER
ALFRED P. SLOAN SCHOOL OF MANAGEMENT

FORMAL PLANNING SYSTEMS: THEIR ROLE IN STRATEGY
FORMULATION AND IMPLEMENTATION

Peter Lorange

WP 979-78

March 1978

MASSACHUSETTS

INSTITUTE OF TECHNOLOGY

50 MEMORIAL DRIVE

CAMBRIDGE, MASSACHUSETTS 02139

FORMAL PLANNING SYSTEMS: THEIR ROLE IN STRATEGY
FORMULATION AND IMPLEMENTATION

Peter Lorange

WP 979-78 March 1978

Paper given at conference on "Business Policy and Planning Research:
The State-of-the Art," Pittsburgh, May 25-27, 1977. To appear in
Strategic Management: A New View of Business Policy and Planning,
edited by Dan Schendel and Charles Hofer, Little, Brown & Co.,
Boston, 1978.

Introduction

This paper attempts to survey the empirical-based research literature
on long-range formal planning processes for corporations, and to assess
the state of the art of the research-based body of knowledge on formal
planning systems. Its scope is thus limited in several ways. First, we
shall be dealing solely with the planning process as it goes on in profit-
making corporations. Thus, although our discussion might have relevance
for a broader set of applications, planning in organizations such as those
in the public sector will not be discussed. Further, we shall limit
ourselves to formalized planning processes. Formalized systems become
particularly useful in instances where the company has grown too diverse,
big, or interrelated to handle planning informally. Not surprisingly,
therefore, most of the research findings to be discussed will be dealing
with larger organizations. And since formal planning concepts have been
extensively developed by companies in the industrial sector, we shall
confine ourselves to discussing planning efforts in large, complex
industrial corporations.

It seems increasingly clear that the systems approach to strategy
formulation and implementation, as signified by formal planning systems,
is only one of many aspects relating to effective strategy formulation
and implementation; several other factors might contribute equally or
more to a corporation's strategic success. One is the intellectual process
of developing a good substantive strategy, without which no formal planning
system or process can suffice. Although the formal planning system is
intended to facilitate the development and implementation of the company's
strategy, it is clear that the element of managerial vision, strategic

n ^c^l-h-

understanding and "feel" is critical. No formal strategic planning system
can compensate for managerial insight and the will to manage strategically.
As a corollary, it becomes difficult to discuss planning systems in
isolation from the substantive strategic decisions that might face the
firm.

Organizational structures and processes is another key area that
affects strategy implementation. Formal planning systems cannot function
in a vacuum but need to be reinforced by other formal systems, such as
management control, managerial accounting, management information and
management incentives and compensation. Again, however, at the expense
of being unrealistically narrow, we shall not discuss these issues of how
the formal planning system can be positioned as one element of an overall
strategic system.

In summary, then, the focus of this paper has been kept intentionally
narrow in several ways, by only dealing with research on formal planning
systems in relatively large, profit-making industrial organizations, by
separating the issues of designing a planning system from the decision-
making tasks of facing specific substantive strategic choices, and by not
focusing on other interrelated systems that also play important roles in
the formulation and implementation of strategy.

II. Classification System and Overview

There are several potentially useful ways of classifying the research
literature for the purpose of a survey like the one undertaken here. A
conceptually appealing approach would be to outline a normative/ theoretical

framework for long-range planning for then to compare the various
empirical research findings against this conceptual scheme. This would
allow us to assess the extent to which the various aspects of the
conceptual framework seem to be validated by the empirical findings, or,
alternatively, to specify areas of modifications that seem to be called
for in order to improve on the relevance of the conceptual scheme. This
logico-experimental approach, although superior from a research methodology
point of view, does however raise several practical problems if attempting
to apply it in our present task. A primary concern is the newness of
long range planning as a field for research. Consequently, a commonly
accepted conceptual scheme has hardly yet emerged; on the contrary, the
nature of much of the research at this embryonic stage has been focused
on delineating what might be relevant parameters in a conceptual scheme
for planning. We might characterize this research effort as a preliminary
step anticipating the evolution of the field to a stage where the state-
of-the-art can be sufficiently operationally described to allow for a
logico-experimental research thrust. A second concern is our desire to
be able to reconcile a broad set of empirical studies in our discussion,
done during the recent two decades, reflecting an often dramatic progress
in our understanding of formal planning systems as a management tool and,
consequently, also often with vastly differing research purposes in mind.
A framework following strict conceptual lines would blur our sense of
direction of progress over time, an important consideration for being
able to understand where the field might be going.

Consequently, we shall organize our discussion in such a way that
the dynamic direction of progress in the field gets highlighted. It

4.

shall therefore be useful to first review the rather broad research
literature which attempts to address the rationale for formal planning
in general — why do we need a planning approach and what might be its
payoffs — for them to review a set of studies which have a somewhat
more sharpened focus in that they address issues of how to establish a
long-range planning system, such as what seem to be the most common
general pitfalls in implementation? Moving one important step further
in terms of added focus of the research, our next task will be to
review the literature on how to design aspects of a formal planning system
so that this might reflect differing corporate situational settings,
address the question of what seems to work for different types of companies.
This will bring up to where the bulk of the research activities in the
field seem to be going on as of today. It shall be a logical next step,
then, to ask the question of what will be a likely and useful evolution
of direction for research to take us from here. Our survey of empirical
studies on planning shall, thus, be followed by a sequel section where we
shall discuss the potential research directions that we see.

Our discussion of the empirical knowledge-base on formal planning —
retrospective, perspective and prospective — cannot be properly interpreted,
however, without a recognition of what seem to be some of the major problems
and challenges in doing research in this area. This paper shall thus
conclude with a few caveats for doing research on planning systems.

Before embarking on our review, let us point out one overall
generalization about the studies as a whole, as well as one general
limitation with respect to our discussion. As we shall see there seems

to be a generally strong empirical verification that formal planning
has reached a high degree of usefulness and seen to be generally beneficial.
Also the areas of general pitfalls of formal planning seem to have been
excessively research. However, when it comes to research that focuses
on contingency-related issues for planning systems design there seems to
be much less research undertaken and, not unexpectedly, also a less clear
pattern of consensus as to the implications of the research results.
Thus, the interpretations and viewpoints of this reviewer become
relatively more important during this portion of the discussion. This
subjective element will be even more pronounced when it comes to
discussing fruitful research directions. Thus, although we have attempted
to be as objective as possible in our review of the various stages of
research in this field, it is inevitable that some element of personal
bias will be present. Most important in this respect is probably the
reviewer's belief that formal long-range planning systems might contribute
more usefully to strategy formulation and implementation when such
"systems" are seen primarily as decision-process elements of a larger
strategic management process, rather than being isolated as a separable
body of knowledge about formal planning systems as such.

III. Planning' s Acceptance and Payoffs

In this section we shall discuss the empirical research literature
which deals with issues relating to the general acceptance and payoffs of
formal planning. Starting with surveys of the rate of acceptance of
planning, i.e., the degree to which planning is being used, Ringbakk
asserts that very few corporations had adopted what we would call systems

for corporate planning prior to 1960. The major waves of adoption came
from 1962 to 1965 for U.S. firms and from 1964 to 1969 for European firms.1
Studies by Ringbakk^»3 for the U.S.A. and by Kempner and Hewkin and
Taylor and Irving-* for the United Kingdom indicate that the degree of use
of formalized corporate planning is somewhat less than might have been
expected. According to Ringbakk,

"Organized corporate long-range planning is neither as

well accepted nor as well practiced as suggested by

the literature on the subject."**
And Taylor, et al, concluded that,

"Corporate planning in major U.K. companies is neither

as well developed nor as fully accepted as one might

expect. "^

^Ringbakk, K.-A. , "The Corporate Planning Life Cycle - An International
Point of View", Long Range Planning, 1972.

^Ringbakk, K.-A., Organized Planning in Major U.S. Companies - A Survey,
Stanford Research Institute, 1969.

^Ringbakk, K.-A., Organized Corporate Planning Systems - An Empirical
Study of Planning Practices and Experiences in American Big Business,

Unpublished Ph.D. Thesis, University of Wisconsin, 1968.

^Hewkin, J. W. M. and T. Kempner, "Is Corporate Planning Necessary?",
BIM Information Summary, December 1968.

5Taylor, B. and P. Irving, "Organized Planning in Major U.K. Companies",
Long Range Planning, June 1971.

^Ringbakk, K.-A., Organized Planning in Major U.S. Companies - op_ cit.

^Taylor, et al, op_ cit.

A number of studies have been made to establish the potential payoff
of planning. Thune and House undertook a study in which from an initial
sample of 96 corporations, 26 were matched in terms of industry and size
into six industry groups. This study showed that, when measured in terms
of earnings, companies with formal planning tended to achieve better
performance after this. Herold2 attempted to replicate the study of
Thune, et al, but focused on two industries only and with a sample of
only five pairs of companies. Both in terms of sales and profits the
companies with formal planning performed better than those with informal
planning. Karger reports on a study comparing high-growth with low-growth
U.S. corporations in which "93 percent of high-growth companies rated the
'Setting of Basic Objectives' and the 'Setting of Goals for the Years
Ahead' as important factors whereas low-growth companies rated these
items 81 and 88 percent respectively". Although these differences are
not large they nevertheless may suggest that the goal-setting process is
more emphasized in effective corporations than in less effective ones.
Taylor, et al's study of 27 large U.K. companies indicates that,
"while any assessment of planning benefits must be
largely subjective, it is perhaps worth noting that
virtually all respondents were enthusiastic about
the benefits to be derived.

lrrhune, S. and R. House, "Where Long-Range Planning Pays Off", Business
Horizons. August 1970.

2Herold, D. M. , "Long Range Planning and Organizational Performance:
A Cross-Valuation Study", Academy of Management Journal, March 1972.

Karger, D. W. , "Integrated Formal Long Range Planning and How to Do It",
Long Range Planning, December 1973.

^Taylor, et al, op_ cit.

A final study by Perkins and Sugden also attempts to evaluate the
effectiveness of formal planning systems in general. This study was
part of a large empirical research project on planning undertaken at
Harvard Business School, which will be discussed later. After stating
definitions of the "purpose" of planning and planning' s "effectiveness",
an index of planning effectiveness was developed. Thus, the relationship
between purpose and effectiveness was expressed in a single quantifiable
measure. However, the study failed to come up with significant results.

A team of researchers at Carnegie-Mellon University under the
leadership of Ansoff undertook a study of the potential payoff from
planning when making acquisitions. The study addressed solely the
phenomenon of diversification planning undertaken at the corporate level
of the organization. Ninety-three corporations which had acquired 299
other firms were studied. Two different planning behaviors were identified,
namely those firms which took an unplanned opportunistic approach and those
which planned systematically. Measures of success were both objective as
measured by profits and stock performance, taken from the Compustat tapes,
as well as perceived effectiveness measures. The main results, which were
all significant within reasonable confidence levels were as follows:

1Perkins, A. E. and B. K. Sugden, "Purposes and Effectiveness of Formal
Planning Systems", in Vancil, Richard F. , ed, Formal Planning Systems -
1971, Harvard Business School, Boston, 1971.

2

Ansoff, H. I., J. Avner, R. G. Brandenburg, F. E. Porter, and R. Radosevich,

"Does Planning Pay? The Effect of Planning on Success of Acquisitions in
American Firms", Long Range Planning, December 1971.

"Although subjective evaluation of results by management
does not differ greatly between planners and non-planners,
objective financial measurements show a substantial
difference. ... On virtually all relevant financial
criteria, the planners ... significantly outperformed
the non-planners. ... (Also,) they performed more
predictably than non-planners. Thus, planners appear
to have narrowed the uncertainty in outcomes of
acquisition behavior."
Lorange undertook a study of what seemed to be more effective as
opposed to less effective designs of planning systems for major capital
expenditures. This study was heavily based on the contingency theory
concept. In it, he attempted to correlate the "tailoring" of a system

to the given setting of a company, and measured systems effectiveness

2
according to an index of perceived effectiveness. With this he found

significant differences at the 95 percent or better level between the

more effective and the less effective subsamples when it came to two out

of 10 possible systems design elements. Using an index for the rate of

financial growth as an alternative effectiveness measure, he found

significant differences at the 95 percent or better level between more

and less effective subsamples for only one of the 10 design factors. A

Ansoff, et al, op_. cit .

o
Lorange, P., Tailoring the Capital Budgeting System to the Behavioral

Style of Management, D.B.A. Thesis, Harvard Business School, Boston, 1972,

See also Lorange, P., Behavioral Factors in Capital Budgeting, Norwegian

University Press, Bergen, Norway, 1973.

10.

third alternative effectiveness measure, an index for "the degree of
confronting as a problem solving style", gave no significant differences
between the more effective and the less effective subsamples along any of
the 10 systems design dimensions.

Given the apparent difficulties of estimating the effects of formal
planning based on real-life company data, one might speculate that
experimental research design approaches could be an alternative.
Surprisingly, we know of only two experiemental studies of the effects
of formal planning. The first is a study by McKinney , which focused on
how systematic approaches to strategic planning might aid in developing
better corporate strategies. The effects of two alternative formal
planning approaches were tested, namely,

"the dominant concept for a formal approach to strategic
planning — it focuses on allocating corporate resources
to meet opportunities in the environment. The other
approach is oriented instead at detailing desirable
improvements in the corporate strategy — at the tactical

elements that make up corporate strategy."

4
These procedures were based on Cannon's strategy concepts. The

strategies were operationalized as computer-based check-lists and made

-'-This surrogate measure for systems effectiveness has been suggested by
Lawrence and Lorsch; see Lawrence, P. R. and J. W. Lorsch, Organization
and Environment, Division of Research, Harvard Business School, Boston,
1967.

McKinney, III, G. W., An Experimental Study of the Effects of Systematic
Approaches to Strategic Planning, Unpublished Ph.D. Thesis, Stanford
University, Palo Alto, 1970.

3Ibid.

^Cannon, J. T. , Business Strategy and Policy, Harcourt, Brace, and World,
New York, 1968.

11.

available in the form of an experiment to Master's students for solving
a policy case. Judges then rated the quality of these strategies. An
important result emerged: The performance of the students using the
formal planning system which laid out a pattern of resource allocation
to an overall set of opportunities was much higher than the performance
of the students using the increments-driven "tactical" planning system.
Thus, a broad overall consistent approach to planning seems advantageous
as a tool for better strategic decisions.

Lee* studied the performance of competing "companies" run by teams
of senior executives as well as Master's students in the context of a
management game situation. He found that teams that formulated more
focused corporate goals and objectives tended to outperform teams that
took a more informal approach towards goals- and objectives-setting.
It seems particularly interesting that in a highly time-pressure oriented
setting such as when playing a management game, a more formalized approach
towards planning and policy formulation seemed to pay off. A total of
24 teams of 4-7 students were part of the study. There was no difference
between the performance of the teams composed of senior executives versus
those composed of Master's students when it came to the benefits from
formalized planning; in both instances a more formal approach seemed to
pay off.

Lee, D. , "Strategic Decision Making in a Management Game: An

Experimental Study of Objectives Setting and Consistency in Complex
Decision-Making", Sloan School of Management, M.I.T., Working Paper
No. WP 887-76, Cambridge, 1976.

12.

The general pattern of the results from the studies just reviewed
seems to indicate that formal long-range planning indeed is an accepted
management tool, that might provide competitive advantages to those
companies that adopt such systems. Thus, at a highly generalized level
there seems to be strong indications that planning might pay off. This
conclusion is however neither particularly surprising nor particularly
useful. What would be potentially useful to know but what is however
not being shed much light on by the results of most of the studies just
cited is the question of specifically what potential benefits that seem
to be yielded by different types of planning approaches. However, given
the number of factors that may affect the performance of a corporation,
not only such as the degree of effectiveness of management systems other
than the planning system, but also the goodness of strategic choices
actually made by management as well as a component of "sheer luck", it
seems a^ priori unlikely that one should be able to establish strong
detailed causal empirical relationships between a firm's adoption of
formal planning and its performance, at least not unless the company's
performance is judged over an excessively long period of time. Therefore,
it is probably not surprising that no more specific conclusion as to what
are the more tangible benefits from planning seems to emerge from the
studies just reviewed.

Two potential shortcomings in the designs of several of the studies
might however also account for the inability to verify more specifically
the ways that effective formal planning might pay off. First, several
of the studies neglected to specify what type of planning they have in

13.

mind, be it corporate level portfolio planning, divisional level business
planning or functional planning. Thus, except for the studies by Ansoff
et al and Lorange (1972), planning was being treated as a broad phenomenon,
and little effort was being made to distinguish with what sort of planning
one is dealing. Thus, the problem largely still remains in deciding which
planning activities proved specifically advantageous. In future attempts
to establish the usefulness of planning, care should be taken to focus on
each particular type of planning separately; if not, potential patterns
of empirical causality might be "averaged" out.

Secondly, the measures of planning 's effectiveness that have been
used might not be as relevant as we might wish; many of these measures
have attempted to assess effectiveness by means of some general surrogate
variable, when it probably would be more relevant to determine planning' s
effectiveness as a function of how well the formal planning system's

capabilities are able to meet the specific planning needs at hand for a

2
given company. Such an approach towards researching whether there is a

It is outside the scope of this paper to discuss conceptual approaches
to the structure of formal planning systems; however, there seems to be
a general consensus that it is useful to consider three levels of
strategic planning, as indicated above. See, for instance, Vancil, R. F. ,
"Strategy Formulation in Complex Organizations", Sloan Management Review,
Winter 1976, or Lorange, P. and Vancil, R. F. , "Strategic Planning in
Diversified Companies", Harvard Business Review, Jan. -Feb., 1975.

2
See Lorange, P., "An Analytical Scheme for the Assessment of a Diversified

Company's Corporate Planning System: Needs; Capabilities; Effectiveness",

Sloan School of Management, M.I.T., Working Paper No. 964-77, Cambridge,

1977.

14.

relationship between high performance and high planning effectiveness,
when effectiveness is defined as the degree of "match" between a
particular firm's specific planning needs and its specific planning
capabilities, would however probably require a highly clinically based
research design, emphasizing an in-depth assessment of planning needs
and capabilities for a given firm, i.e., probably an approach involving
smaller samples than was the case in the studies discussed in this section.

While the focus of the research discussed this far has been focused
primarily on establishing a verification that the planning approach is a
useful management tool in general, we have paid little attention

this far to what specific factors that we may have to consider in
order to implement planning and actually achieve the potential benefits
from the approach. This will be discussed in the next section.

IV. General Pitfalls of Planning

Let us now discuss a few studies which address how to make planning
work. Ringbakk reports on a survey study of 350 companies, of which 65
companies participated in an interview study and 285 responded to a
questionnaire which listed a total of 32 planning problem issue questions.
These companies were based in the United States, as well as in Europe.
This study revealed ten common reasons why the planning process typically
might malfunction:

1Ringbakk, K.-A., "Why Planning Fails", European Business, No. 29,
Spring 1971.

15.

1. Corporate planning has not been properly Integrated with the
rest of the company's management systems;

2. There may be a lack of understanding of certain dimensions of
planning, such as lack of consideration of alternative strategies

or exclusion of alternative courses of action;

3. Management at various levels in the organization may not be
participating properly in planning;

4. A staff planning department, not the line, has gotten the brunt
of the planning responsibility;

5. There may be a misconception among many managers that they
actually expect the plans to be realized, despite the fact that
new events almost inevitably will change the assumptions of the
plan;

6. Often, too much may be attempted at once when starting formal
planning;

7. There may be a lack of willingness among management to follow
the plan in their operating decisions;

8. Extrapolations and projections may be confused with planning;

9. There may be elements of inadequate or unbalanced inputs in
planning, such as too little environmental input, or too little
participation in projections by top management, engineering or
marketing personnel;

10. Small planning details may distract and hamper the development
of an overall view of planning.

16.

Some of these reasons, notably 4, 6 and 8, simply seem to Indicate
a lack of general pragmatic competence among management with respect to
how to approach the task of implementing planning. The other reasons,
however, suggest that the planning process in this large sample of real-
life companies does not particularly seem to resemble what we might call
a mode of rational or optimal decision-making choice behavior. Rather
the nature of the pertinent implementation problems seem to indicate that
long-range planning activities in most companies is more in line with the
so-called organizational behavior decision-making approach, as a more
realistic way to describe what goes on in real life. (Look at problem 2,
for example!) This is consistent with the view taken by the so-called
"behavioral theory" school which see the planning process primarily as
one of facilitating organizational directions as a result of a combined
set of inputs of limited rationality rather than one of rational choice
with respect to one unified directional thrust as such. Thus, it seems
as if the behavioral implementation "realities" of planning imply that
we may be dealing with a process significantly characterized by limited
search, bounded rationality and suboptimization.

Unfortunately, empirical data is given only to verify problems two,
seven and nine on the above list in Ringbakk's study. Also, since the
findings were not crosstabulated against subgroups of respondents, it is
not possible to conclude whether the findings are relevant to all types
of planning or, say, primarily to portfolio planning, or to business
planning, and so on. This seems particularly critical because the sample

^Cyert, R. M. , and J. March, A Behavioral Theory of the Firm, Prentice-Hall,
Englewood Cliffs, 1963, Cohen, K. J. and Cyert, R. M. , "Strategy:
Formulation, Implementation, and Monitoring", Journal of Business, July
1973, or Allison, G. , Essence of Decision, Little Brown, Boston, 1971.

17.

includes mining and raw materials processing corporations as its biggest
industry group. Such companies would normally be managed in a more
centralized way than firms in several of the other industry groups which
normally would be expected to be more diversified. Thus, the fact that
the findings are not reported in a form which would correspond to a
contingency that would distinguish between the planning tasks of these
different companies probably limits the usefulness of the results. Also,
the variance in sales and number of employees is high and indicates a
heterogeneous sample, another reason why a contingency analysis of this
kind of data seems appropriate.

Taylor and Irving undertook a survey study of corporate planning
practices in 27 large United Kingdom based corporations. They defined
corporate planning to be:

a) The formal process of developing objectives for the corporation
and its component parts, evolving alternative strategies to
achieve these objectives and doing this against a background of
a systematic appraisal of internal strengths and external
environmental changes.

b) The process of translating strategy into detailed operational
plans and seeing that these plans are carried out.

Thus they limited their study to corporate level portfolio planning, and
were hence also explicit about what type of planning that was being
researched, a definite strength of this study. However, they solicited

-'-Taylor et al, 0£ cit.

18.

response from corporate planners solely and not from line managers; there
might be a systematic "optimistic" bias in the data due to this.

One finding of Taylor, et al, is that formal planning seems to
require a particular type of systematic upper management attitude, and
that informally managed organizations will have to change management style
if attempting to undertake planning. This seems to raise the question of
seeing style as an independent variable, i.e., as a given, to which we
shall have to tailor the system's design. Thus, failure of planning may
result from inappropriately tailormaking the design of the planning systems
for organizations, reflecting that their situational settings may differ in
terms of the formality of their management styles.

Twelve major reasons were given why formal planning was needed; 36% of
the reasons quoted related to "external" reasons, 40% related to "internal"
needs and 24% were unspecified. The dominant external need shown was to
enable better response to environmental changes, while the major internal
need was to coordinate overall internal activities better following
decentralization. This corresponds to what has been postulated in a
number of normative studies on planning, namely, that a formal planning
system should fulfill two major types of tasks, namely adaptation to
environmental opportunities and/or threats as well as integration of the
internal pattern of activities so as to reap benefits from strengths and/or
ameliorate effects from weaknesses. The formal planning system's capacity

See Lorange, P., Corporate Planning; An Executive Approach, Prentice-Hall,
Englewood Cliffs, 1979, Hax, A. C. and N. S. Majluf, "Towards the
Formalization of Strategic Planning - A Conceptual Approach", Technical
Report No. 2, Sloan School of Management, M.I.T., 1977, do., "A Methodological
Approach for the Developing of Strategic Planning in Diversified Corporations",
Technical Report No. 3, Sloan School of Management, 1977, and Malm, A. T. ,
Strategic Planning Systems, Student Litteratur, Lund (Sweden), 1975.

19.

to facilitate adaptation through "opportunistic surveillance" will

probably be relatively more important when the environment is rapidly

2
changing than when it is more stable. Its capacity to facilitate

integration will probably be relatively more important when the company

3
is relatively more differentiated as well as larger and more diversified.

As to which factors had provided major stimulus for planning, the

occurrence of tangible events such as major personnel turnover, organizational

changes or some sort of a crisis seems to be very significant. This seems

to be consistent with findings relating to the implementation of more

4
structural management systems such as management information systems. It

also seems consistent with the clinical intervention theories for

organizational change developed by Schein and others.

The major internal "political" problem arose when planning was seen

as embracing activities traditionally carried out by other functions.

^-Thompson, J. D. , Organizations in Action, McGraw-Hill, New York, 1967.

2Gordon, I. E. and D. Miller, "A Contingency Framework for the Design of
Accounting Information Systems", Accounting, Organizations and Society,
1976.

3
Vimberly, J. R. , "Organization Size and the Structuralist Perspective:

A Review, Critique and Proposal", Administrative Science Quarterly,

Dec. 1976.

Keen, P. G. W. , (ed.), The Implementation of Computer-Based Decision Aids,
Center for Information Systems Research, Sloan School of Management,
Cambridge, 1975.

5Schein, E. A., Process Consultation: Its Role in Organization Development,
Addison-Wesley, Reading, 1969, do., "Increasing Organizational Effectiveness
through better Human Resource Planning and Development", Sloan Management
Review, Fall 1977, and Beckhard, R. D. , Organization Development:
Strategies and Models, Addison-Wesley, Reading, 1969.

20.

The role of careful and open information and communication, attempts not to
preserve old interests, and the active role of the top management were
seen as important factors in removing such political problems. This
seems consistent with the clinical findings of Lorange which indicate
that a major barrier to more effective implementation of strategic
programs is a tendency among the various functions not to adequately
cooperate in what might be seen as a predominantly cross functional process.
An important general management role seems to be to facilitate such
cooperation on strategic programs. Several interesting case studies
have also been reported which illustrate the need to create a strategic

mode of cooperation among management which might differ from the operating

. 2
mode.

As to the role of the planner it was found that "...the common theme

was that planning is a line job. The role of the planner therefore is

3

not to do the planning but to design, sell and direct the planning effort."

Given that Taylor, et al, look at planning at the corporate level only, it
seems to be a very plausible finding that the planner should be a system's
"catalyst", not a plans "analyst". This is consistent with the normative

isee Lorange, P., "Implementation of Strategic Planning Systems" in
Hax, A. C. (ed.) Studies in Operations Management, North Holland/American
Elsevier, New York, 1978.

2
See "Texas Instruments Incorporated", in Lorange, P. and R. F. Vancil,

Strategic Planning Systems, Prentice-Hall, Englewood Cliffs, 1977, and

Goggin, W. , "How the Multi-Dimensional Structure Works at Dow-Corning",

Harvard Business Review, Jan. -Feb., 1974.

^Taylor, et al, o£. cit.

21.

arguments of others, and is also supported by case study profiles that
indicate that this seems to be the appropriate role for the corporate
planner. However, at the divisional or functional levels the role of
the planner does not necessarily have to serve an identical function.
In fact these planners are probably "doers" much more than catalysts.

As to the chief executive's involvement, it was found that 33% of
the chief executives were said not to be personally involved in strategic
planning. This seems to be consistent with Ringbakk's finding that only
10% of the chief executives participated in the original development of
plans. Three major reasons were cited for the top executive's lack of
involvement: misunderstanding about the nature of the planning process,
short-term operations orientation and lack of planning philosophy.

The line managers were cited to have various types of motivations
for planning, the most important being that planning would help them do
a better job (30% response frequency) , the second being corporate pride
(22% response frequency). Only 3% response frequency indicated an
interest in the role of planning in capital expenditure allocations and

1-See Ackerman, R. W., "Role of the Corporate Planning Executive", in
Lorange, P. and R. F. Vancil, eds., Strategic Planning Systems, Prentice-
Hall, Englewood Cliffs, 1977, and Lorange, P., Corporate Planning: An
Executive Approach, "Ch. 7 - Executives' Roles in Planning", Prentice-Hall,
Englewood Cliffs, 1979.

See the following cases: "The State Street Boston Financial Corporation"
in Lorange, P. and Vancil, R. F. , eds., Strategic Planning Systems, op. cit.
and E. G. & G. (A) and (B) , Harvard Business School, 9-376-187 and
9-376-188, Boston, 1976.

-^Ringbakk, K.-A. , Organized Planning in Major U.S. Companies - o£. cit.

22.

its linkage to control. Somewhat surprisingly, this seems to indicate
that planning' s role in the resource allocation process is unemphasized ,
that is, that line managers do not see the full value of planning as a
tool for "narrowing down options". The predominant characteristics of
the planning process coming out of this study seem to resemble the
behavioral model; in this respect Taylor, et al's findings seem to agree
with Ringbakk's.

Steiner and Schoollhammer undertook a survey study of pitfalls in
long-range planning in 460 multinational corporations, about half of which
were headquartered in the U.S., and the others headquartered in Japan,
Canada, Great Britain, Italy or Australia. The ten most important pitfalls
to be avoided when implementing planning were as follows:

1. Top management assumes that it can delegate the planning function
to a planner.

2. Top management becomes so engrossed in current problems that it
spends insufficient time on long-range planning, and the process
becomes discredited among other management and staff.

3. There is a failure to develop company goals suitable as a basis
for formulating long-range plans.

4. There is a failure to create a climate in the company which is
congenial and not resistant to planning.

5. Top management fails to review with departmental and divisional
heads the long-range plans which they have developed.

^Steiner, G. A. and H. Schoollhammer, "Pitfalls in Multinational Long-Range
Planning", Long Range Planning, April 1975. The methodology is based on
Steiner, G. A., Pitfalls in Comprehensive Long Range Planning, The Planning
Executives Institute, Oxford, Ohio, 1972.

23.

6. Major line personnel fail to assume the necessary involvement
in the planning process.

7. There is a widespread assumption within the company that
corporate comprehensive planning is something separate from
the entire general management process.

8. There is a failure to make sure that top management and major
line officers really understand the nature of long-range
planning and what it will accomplish for them and the company.

9. There is a failure to locate the corporate planner at a high
enough level in the managerial hierarchy.

10. There is a failure to use plans as standards for measuring
managerial performance.
It turned out that in general there was little dramatic difference
between companies of different country origins, except for a few relatively
minor characteristics. The most important pitfalls were also classified
by organizational size. There was surprisingly little difference in the
choice and ranking of variables due to size differentials. It is
interesting to compare the small effect of size differentials among
larger companies on the design of their formal planning systems with the
noticeable effect of size differentials between relatively small companies
and somewhat larger but still small companies on the designs of their
formal planning system. Examining planning in 95 companies with annual sales
in the range between five and fifty million dollars, Lorange found that
the formality of planning in companies larger than 25 million dollars in
sales was significantly higher than for smaller companies along several

24.

design dimensions. This might underscore that there typically will be
a relatively large, one-shot investment in setting up a formal planning
system, requiring a certain size to become affordable as an overhead item.
Above this critical size range, however, the formality of the planning
system and the costs of planning might not be expected to grow at as high
rate as sales; hence, we find less variation in systems design due to sales
differentials above a certain level.

Steiner and Schoollhammer also identified the least important
pitfalls, and these revealed even less disparity among the different
groups of respondents. An assessment was also made of the effects of
various pitfalls on the perceived effectiveness of the long-range planning
system. It turned out that the two pitfalls that most reduced planning 's
effectiveness (and, therefore definitely should be avoided) were lack of
top management's awareness of the importance of the planning system and
that corporate goals were not stated in clear and operational terms. In
terms of overall satisfaction there does not seem to be as much
dissatisfaction with the planning system as one might have expected.
Divisionalized corporations tend to be slightly more satisfied with their
planning systems than more centralized corporations. Further, there is
a strong positive correlation between satisfaction with the planning
system and the degree of formality of the system, as well as with the
extent of written plan documentation, and some with the "age" of the
planning system — the older the system the more satisfaction.

See Lorange, P., "Administrative Practices in Smaller Companies,"
paper given at TIMS/ORSA conference on strategic planning, New Orleans,
1977.

25.

The findings of Steiner and Schoollhammer call for two general
observations. First, the general pitfall list of ten problem issues for
the implementation of planning seems to verify, in general, the earlier
findings by Ringbakk and by Taylor, et al, namely that effective planning
should be seen as a strategic decision-making process, belonging to the
line and reflecting that a relatively large number of managers will be
involved in what might more resemble a behavioral process than an explicit
optimal choice process. It is significant that these more recent findings
corroborate this general pattern, particularly given the extreme care
that seems to have been given to research design and pilot testing in
the study by Steiner, et al. Secondly, Steiner, et al, report on very
valuable contingency analysis results in their study. It is an important
finding that many of the demographic factors they have tested, such as
national origin of headquarter location, or size, do not seem to be as
discriminatory as one might have expected in calling for different
planning system design approaches. It is particularly interesting,
however, that Steiner, et al, have attempted to measure user satisfaction
with the planning system, and have found that users' perceptions do seem
to differ. This might call for a measure of perceived effectiveness of
planning among its users as a criterion for planning success rather than
using success criteria based on the organization's performance as such.
(In the next section this issue shall be pursued further.) It is also
interesting that Steiner, et al, find degree of diversity/decentralization
and the maturity of the planning systems to be two important situational
factors, which verifies what has been postulated by Lorange and Vancil.

1Lorange, P. and R. F. Vancil, "How to Design a Strategic Planning System",
Harvard Business Review, Sept. -Oct., 1976.

26.

Now that we have established relatively broad evidence indicating
that formal planning is a useful and valuable management approach and
also have identified a set of common factors that seem to be important
for the implementation of effective formal planning systems, our next
question will be to address the issue of how to approach more specific
aspects of the design of these formal planning systems, particulary so
in order to enable such systems to "fit" the settings of different
corporations.

Special Purpose and Contingency-Based Studies

There have been a number of what might be called special-purpose
studies which are relevant in the context of our present discussion in
that they focus on aspects of the design of formal planning systems,
which, when taken together might take us one step further towards
understanding the elements of a more full-fledged contingency-based
theory of formal planning systems design.

An early attempt at such contingency-based special purpose studies
stems from the so-called Harvard Business School Data-Bank Project.
During the years 1970 and 1971, under the direction of Vancil, an extensive
set of data were collected from 60 and 90 organizations respectively,
encompassing detailed measures of the situational setting, a large number
of planning systems design characteristics and practices, and several
effectiveness measures for planning. Given that the situational factors

1See Aguilar, F. J., R. A. Howell, and R. F. Vancil, Formal Planning
Systems - 1970, Harvard Business School, Boston, 1970, and Vancil, R. F.,
Formal Planning Systems - 1971, Harvard Business School, Boston, 1971.

27.

(i.e., the set of independent variables) may partly or entirely relate to
several systems design issues (i.e., sets of dependent variables), there
is potentially great economy in building a data-bank as a research tool:
the background information — the independent variables — may be collected
once and remain constantly accessible in the data-bank. The dependent
variables may then be collected separately by means of a number of short
questionnaires, each addressing the particular research question in focus.

One of the Harvard Data Bank studies, undertaken by Lorange, was
addressing some of the design problems which arise when suggesting planning
systems to handle major investment decisions in large industrial companies.
He attempted to evaluate the supposition that, in order to be effective,
a formal system for capacity expansion planning would have to be designed
in such a way that the specific situational setting of the firm be
reflected. Focusing attention on behavioral situational variables in
particular, he proposed that ten controllable systems design factors, or
dependent variables, be considered as elements of such a planning system,
and seven situational human behavior factors, or independent variables,
be used to reflect the setting of a firm. In order to explore the
relationship between dependent and independent variables in effective
systems, he developed an index of perceived effectiveness. Out of a total
of 87 respondents, 30 turned out to be highly effective, 40 were in the
middle, and 17 were less effective. By means of multiple regression he
estimated the multivariate relationships between the seven independent
variables and each of the dependent variables, both with the effective
and the less effective samples as bases.

■^See Lorange, P., Tailoring. . . , op. cit . , and Lorange, P., Behavioral. . . ,
op. cit.

28.

Only four of the predictions were highly significant, indicating
that in the more effective firms the degree of linkage of the project to
plans and budget tended to be tighter, the incorporation of the shape of
the cash-flow pattern tended to be more explicit, the degree of generality
of the analytical approach tended to be less and the commitment to
improvement of the planning method tended to be higher. Running factor
analysis on the dependent and independent sets of variables, four
situational, "independent" factors and four "dependent" factors were
identified. It turned out that one design factor, the degree of detail
in the system, depended strongly and positively on management's conflict
resolution behavior. Two other design factors, technical complexity in
the system, and the commitment to systems improvement, depended negatively
on three factors: management's conflict resolution behavior, management's
R&D orientation, and management's concern for operations. The final
design factor, the financial orientation of the system, depended positively
on both management's conflict resolution behavior and the planner's
competence. In general, the multivariate analysis based on the factor-
analysis reached similar conclusions to those arrived at in our multiple
regression analysis. Although not revealing an overly conclusive general
pattern of statistically significant results, the study is significant in
that it provided an early empirical verification of the merits of
contingency-based planning systems design approach through the citing of
four instances of statistically significant verification of the contingency
design approach to effective planning systems design.

29.

A recent study by Anand explores further the relationship between
capital budgeting, resource allocation and strategic planning. The
study revealed that senior managers typically consider a large number of
dimensions when making up their decisions with regard to resource
allocation alternatives. Specifically, based on in-depth data collected
in 13 firms, he found that the number of dimensions seems to increase
with the uncertainty of the firm's environment, and also that as the
amount of planning done prior to investment evaluation increases, the
dimensions used by managers for this evaluation shift from a combination
of externally-oriented as well as internally oriented ones to predominantly
internally oriented factors. The data did not seem to indicate large
differences due to different degrees of diversity of the firms.

Another study to test aspects of the validity of the contingency
theory to systems design was undertaken by Vancil, who addressed how to

develop schemes for tailored business planning, which was distinguished

2
from portfolio planning. He started by running a number of simple

correlations between a number of industry characteristics and business

characteristics, as well as correlations within the two sets of

characteristics. Perhaps the most significant result of this was that a

large number of paired relationships seemed to exist, and that any one

Anand, S. , Resource Allocation at the Corporate Level of the Firm:

A Methodological and Empirical Investigation of the Dimensions Used by
Managers for Evaluating Investments, Unpublished Ph.D. Thesis, Sloan
School of Management, Cambridge, 1977.

2Vancil, R. F., "Tailored Business Planning", in Vancil, Richard F., ed. ,
Formal Planning Systems - 1971, op. cit. , pp. 145-166.

30.

industry or business characteristic might be related to several others.
Vancil also undertook a number of progressive analysis of independent
variables relating to a given design feature. First, he ran simple
correlations with the dependent variable. Then he selected significant
correlations for multiple regression while progressively reducing the
number of independent variables in order to finish with the "best" ones.
Unfortunately, the approach did not reveal many intuitively meaningful
results.

Vancil concluded that such a disappointment as finding few significant
multivariate relationships might perhaps be expected for a project
attempting to describe systematic patterns of differences in planning
practices at the very detailed business planning level. Not only might
it be that the approach simply might not work in a relatively new and
rapidly developing field such as long-range planning, given our limited
ability to specify plausible a^ priori hypotheses which then would be
tested through design of measures and collection of data specifically for
the purpose. More fundamentally, however, one might actually expect that
a pattern of causal relationships might be particularly difficult to
detect at the business level, where extensive differences among various

businesses can be expected to be the rule, thereby making it less realistic

to expect to be able to develop more robust contingency-based rules in

business level planning systems design practices.

The difficulty of developing a contingency-based business level
planning systems approach was also corroborated by Lorange, who compared
the nature of the formality of the planning systems of well-performing and

31.

less well-performing companies which were predominantly in high-growth
businesses versus predominantly in more mature businesses. In general
he found relatively few significant differences in systems design, except
for a significantly more formal emphasis on the preparation of funds flow
planning items for the more effective firm in high growth business areas,
and a more formal emphasis on efficiency-related planning issues among
the more effective firms in predominantly mature businesses.

It is particularly worthwhile noticing that this far we have been
unable to come up with a relatively robust contingency-based approach to
the business level planning systems design, given what seems to be an
emerging consensus on what seem to be the relevant dimensions in the

9

substantive strategic choices in business strategizing, both conceptually^

3
as well as empirically. Thus, the role of formal planning systems as an

implementation tool at the business level does not yet seem to have been

operationalized to a corresponding extent.

Returning once more to Harvard's data bank project, a number of other

studies were undertaken to explore aspects of systems design. In general

these were rather explanatory in nature and will be only cursorily dealt

with here. As to the roles of various executives in planning there seemed

to be a difference between a corporate planner's and a divisional planner's

^orange, P., "Administrative Practices in Smaller Companies", op_. cit.

2See, for instance, Boston Consulting Group, Growth and Financial Strategies,
Boston, 1971, or Arthur D. Little, Inc., A System for Managing Diversity,
Cambridge, 1974.

3
See, for instance, The Strategic Planning Institute, Nine Basic Findings
on Business, Cambridge, 1977.

32.

i 2

involvement, the "track record" of the planner may be important, and

3
the line executive must be centrally involved. The goal-setting process

4 5
was found to be an important part of planning. It was found that the

planning system tended to become more tightly linked to the management

control system as time evolved, both in terms of similarity of the plan's

and budget's content, the timing of the planning-budgeting sequence as

well as the degree of contact between the planner's and controller's

offices. • Lorello more recently has done a survey study of linkage

practices involving 92 companies, attempting to verify the findings of

Q

Shank; he generally comes up with corroborating results. As to the
planner's role in acquisition it was found that planning and the planner

1Lorange, P., "The Planner's Dual Role - A Survey of U.S. Companies",
Long-Range Planning, March 1973, pp. 13-16.

Greiner, L. E., "Integrating Formal Planning Into Organizations", in
Aguilar, F. J., et al, eds., op_. cit. , pp. 85-109.

3Ewing, D. W., "Involvement of Line Executives in Planning", in Aguilar,
F. J., et al, eds., op. cit. , pp. 65-68.

Aguilar, F. J., "Setting Corporate Objectives", in Vancil, R. F., ed.,
op. cit. , pp. 13-21.

-*Muray, T. F. and W. F. Tuxbury, "Plan Review Process: Negotiated Goal
Setting", in Vancil, R. F., ed., op_. cit., pp. 34-56.

6Shank, J. K., "Linkage Between Planning and Budgeting Systems", in
Aguilar, F. J., et al, eds., op_. cit. , pp. 109-123.

7Camillus, J. C, Formal Planning: Creativity vs. Control, doctoral
thesis, Harvard Business School, Boston, 1973.

8Lorello, B., Plan-Budget Linkage, unpublished M.Sc. thesis, Sloan School
of Management, Cambridge, 1976.

33.

1 2
might play a useful role in identifying areas of acquisition. ' The

findings on acquisition planning are strongly corroborated by Ansoff

et al.3

In terms of potential generalizations that seem to emerge from the
contingency-based studies, these seem to be relatively few and tentative
in nature. Let us first attempt to summarize these conclusions for them
to discuss why a more unidirectional pattern of direction for contingency-
based design does not seem to emerge. We shall make three generalizations
with regard to contingency-based formal planning systems design.

First, it seems as if a contingency-based approach towards the
design of formal planning systems seems to be necessary, in general, in
order to achieve more effective systems. Thus, less than ever we can
probably now expect eventually to arrive at a general theory of planning

systems design. Secondly, several situational factors seemed to emerge
as potentially important for taking into consideration when assessing
the needs of a particular corporate setting when it comes to the design
of a formal planning system. Strictly demographic factors such as the
size of the company and maturity of the planning system seem important.
Also factors relating to the strategic setting seem relevant, including
the diversity of a firm's portfolio of businesses and the nature of the
product/market setting of various businesses. Finally, management style

-^Tennican, M. L., "Diversification by Acquisition", in Aguilar, F. J.,
et al, eds., op_. cit. , pp. 123-147.

2
Cash, W. H. and J. M. Revie, "The Long-Range Planner and Acquisition

Planning", in Vancil, R. F. , ed., op_. cit. , pp. 206-234.

3
Ansoff, H. I., et al, o£. cit.

34.

factors, such as management's perceptions about the needs for planning
seem important. Thirdly, several systems design factors seem to emerge
as important in terms of appropriately choosing how to tailormake them
into the formal planning system, given a particular situation. Such
issues include the relative top-down versus bottom-up involvement and
division of labor between the corporate and the divisional level in
initiating, formulating, reviewing and executing plans, the relative
emphasis on longer-term objectives-setting versus near term action
programs, the nature of various devices for linking together elements of
the planning process, such as timing, content and organizational linkage,
and the role of the corporate planner as well as other staff and line
executives in the planning process.

Admittedly, however, nothing more than a few rudiments of a
contingency-based approach towards formal planning systems design seems
yet to have emerged. Largely, this is what we would expect; it is a
formidable research task to explore not only what might be relatively
exhaustive sets of situational and design variables in various types of
settings. Even more monumental is the task of increasing our understanding
about the specific nature of the interrelationship between these variables.
As such we can only consider our present findings as a mere start-up.

There might, however, also be research methodological issues that
contribute towards the relatively low degree of conclusiveness that has
emerged from the contingency-based thrust of studies. One might be a
lack of precision in hypothesis-formulation (some of the studies did not
state hypotheses at all) and in data gathering. Another reason might be

35.

due to the typically high degree of variability of the underlying data.
Thus, several of the research designs were inadequate to study such a
large and apparently complex set of problems as contingency-based design
of planning systems. Although the Harvard data bank, for instance,
contained a large number of "cases" with data on corporations' planning
practices, the causal relationships may well be so unique for each case
that it may be unrealistic to expect general relationships to emerge.
This may be so even if the number of responses had been substantially
increased. Finally, in some of the studies discussed there was possibly
also a tendency to "over-kill" the data by "forcing" it to be analyzed
by means of powerful multivariate techniques, often violating the data-
requirement assumptions. Simple non-parametric frequency distributions,
gross classifications, and cross-tabulations often may be more
appropriate and yield more meaningful research insights than the use of
parametric techniques such as correlation, multiple regression and factor
analysis.

VI. Potential Research Directions

As indicated at the outset of the present discussion, one of our key
purposes is to establish a reasonably clear sense of direction with regard
to the evolutionary direction the field has been taking and to suggest
potential research directions as a function or extension of this. Thus,
as a preliminary step to our identification of potential research
directions, let us briefly recap the impacts that might be identified
from the empirical studies. There are three overall conclusions. First,

36.

there seems to be ample empirical evidence that long-range planning as a
general phenomenon has received widespread use in practice, and that
planning as such seems to pay off for corporations and is potentially a
useful management tool. There is also a strong empirical body of knowledge
relating to general pitfalls that might detract from the effectiveness of
the overall planning process. Second, there is some empirical evidence,
although less clear than that cited above for general aspects of planning,
that indicates that the nature of the planning process is multifaceted ,
not monolithic, that there seem to be several types of planning at work,
and that a design approach which is heavily contingency-based seems to be
necessary. Third, there are a few instances of piecemeal and sporadic
evidence about the relationship between the actual design variables that
are part of a contingency-based theory of planning, although in this
instance the empirical evidence is not strong.

It seems clear from the above that the thrust of our future research
efforts should be towards a better understanding of situational design
and implementation of planning systems. It is in the area of specific,
contingency-based research that new efforts are particularly needed,
rather than within areas of more "global" planning issues. Specifically,
the challenge seems to be to be able to better understand how formal
planning systems can be used more effectively for different organizations'
strategy formulation and implementation attempts. In this respect there
will probably be a need for better insights with respect to contingency-
related planning systems design issues. Until we more fully understand
how to better tailormake a planning system to a particular situational
setting the adaptation of the use of strategic planning systems as a tool

37.

for corporations' strategy formulation and implementation might be ham-
pered. But we are probably here dealing with a complicated problem; the
issue of how to increase a planning system's usefulness and role in a
firm's strategic decision-making process is indeed a major challenge and
seems to represent the most significant research problem ahead.

The first specific research need that we shall identify follows naturally
from the evolutionary trend that we have just identified. This calls for
a continued emphasis on contingency-based research, so that one can con-
tinue the progress that we have just embarked on of better being able to
understand how to tailormake the design of a formal planning system so
that it is as responsive as possible to each given corporate setting.
However, a significant shift in the nature of this research is probably
to be called for. Although the predominantly demographic situational
factors emphasized thus far, such as for instance corporate size or di-
versity, would probably indirectly have provided some indication of a
corporation's strategy, these factors nevertheless basically inherently
remain non-strategic "mechanical" proxies. What is needed is to shift
the emphasis more directly towards the explicit recognition of the stra-
tegic setting itself as the key situational factor. Thus, the particular
strategic setting that a company is in will probably dictate the par-
ticular needs that this firm has in a better way than any other situational
factor might do.

To further pursue the issue of the strategic setting's role as a
prime determinant of its planning needs let us elaborate on this somewhat.
Considering a division of a company for the moment that typically carries
out business activities in several products and markets; given that we
can measure the market share of a product in such a market we therefore

38.

have a useful unit of entity in terms of lending itself to strategic busi-
ness decision-making, commonly denoted "Strategic Business Units" (SBUs) .
For such a SBU there will probably be different needs for planning de-
pending on where the SBU is positioned strategically in terms of the
relative attractiveness of its business (say, market growth position)
as well as in terms of its positioning of relative competitive strength
(relative market share) . What are specifically the differences in plan-
ning needs between SBUs that are enjoying fundamentally different stra-
tegic positionings? How can the formal planning system be designed to
meet these needs?

These are key questions about how to achieve strategy-determined
situational design for the formal planning system. Analogous questions
could be raised for the division level's planning needs - how can the
planning system meet the strategic planning needs of divisions with dif-
ferent SBU structures and different patterns of interdependence between
the SBUs (consolidation attractiveness") -, as well as at the corporate
portfolio level - how can the planning system be tailormade to meet the
strategic needs stemming from different portfolio strategy directions,
such as due to differences in availability and usage patterns of funds?
Unfortunately, we do not have many empirically tested answers with regard
to questions like these. It should be a high-priority challenge for
research to attack these issues.

This leads us to a second and related research area. If we understand
how to better tailormake a planning system's capabilities to its strategy-
driven planning needs, then the next issue is how to be able to better
undertake modifications in the design of the planning system so as to
meet modified needs for planning due to a change in the firm's strategy.
Thus, we are calling for an expanded role for the formal planning systems

39.

in that we want to become able to manage the evolution of the system so
that it will support and reinforce decisions on shifts in strategy.

Thus far, there has been done little research on the issue of man-
aging the evolution of formal planning systems. Not only might such an
evolutionary approach towards a "plan for planning" facilitate that the
systems maintain their effectiveness as vehicles for providing capability
for strategy implementation. Even more promising would be this approach's
opening up for the potential to more actively support and reinforce stra-
tegic change. Research questions that in all likelihood would have to be
addressed in order to develop an operational approach towards a strategy-
driven management of the planning system's evolution might include: what
design factors seem particularly effective in enhancing a desired change
in a planning system's capabilities - in terms of features that should be
relatively more as well as relatively less emphasized; how might such an
actively managed evolutionary approach which typically would imply fre-
quent changes in the planning system more effectively be implemented with
the line organization; what would be the relationships between the plan-
ning system and other formal systems that have a bearing on the firm's
strategies - are we seeing the emerging of an overall strategic admin-
istrative system, and in case, what would this imply for the formal plan-
ning system; what would be the role of the corporate planner now that he
is more directly involved in being a change agent for the corporation's
strategic shifts; and so on.

In terms of potential research directions, then, we see a shift in
emphasis towards better understanding formal planning' s role as a tool in
strategy formulation and implementation, the issue becoming how to achieve
an appropriate match between strategic needs and capabilities. We see a
contingency-design approach as the most likely to be followed in order to

40

yield meaningful results with respect to this, and we see a need for the
contingency approach taking on a second, dynamic dimension in the form of
an active management of the evolution of planning systems in order to be
able to meet emerging strategic needs.

An emerging issue at this point is the question of what might be useful
research approaches for tackling the research problems just outlined. We
shall now address this issue together with a discussion of some general
caveats about doing research in the planning systems area.

VII. Caveats for Doing Research on Planning Systems.

Having gone through a considerable body of literature for the purpose
of this survey study, we can conclude that, despite a vast number of im-
pressive works that have been done in the field, we are left with the uncom-
fortable feeling that it is difficult to fit the bits and pieces together.
There seems to be considerable lack of consensus in the literature when
it comes to such central questions as what are the critical elements of
the nature of planning systems, what constitutes relevant empirical areas
of research, etc. Also, the common vocabulary is surprisingly small and
too often lacks adequate definitions. The research design frequently is
less precise than desirable, particularly when it fails to state assump-
tions which might limit the universality of the research findings. The
reasons why this situation of fragmentation and lack of synthesis exists
may be due to the nature of our general research problem. We are studying
a very complex administrative phenomenon, consisting of a number of dif-
ferent planning types (such as systems for corporate planning, business
planning, functional planning) , and a number of sequentially related
stages (such as stages of objectives-setting, multi-year programming and
budgeting), each of these aspects interrelated. Added complexity is due

41

to the vast differences in situational settings between corporations and,
therefore, the requirement to tailor strategies and planning systems to
each company. Finally, with rapid changes now so typical for corporations'
situational settings and environments, the task of upgrading the planning
system in response to a phenomenon of dynamic change seems formidable.
Thus, given the complexity of the empirical "terrain," it seems prudent
not to have too high a hope of arriving at a more general theory of formal
planning systems concepts. However, although it may be unrealistic to
expect a more orderly pattern of research output in this field, it may
also be that some of the research in the area has started out from unnec-
essarily narrow or inaccurate premises, thereby making them less recon-
cilable with other studies than elsewise might have been the case.

The nature of our research problem is also influenced by the fact
that we are dealing with a relatively recent addition to management's
tools. This is evidenced in several ways. For instance, the data for

m

empirical research may not be readily available; longitudinal data may
simply not exist. Also, most of the progress in the "art" of designing
long-range planning systems has been spearheaded by business organizations
themselves. Understandably, there might be reluctance to give out data
about these often sensitive systems developments. Measurement problems
and complications due to lack of a well established common language are
also typical for an emerging field.

The choice of research methodologies for the research problems we
have identified is consequently not easy. Our feeling is that the re-
searcher to an increasing degree probably will have to be working with a
relatively low number of companies over typically quite considerable
periods of time and according to a clinical action-research oriented ap-
proach, in order to be able to get the relevant insights called for about

42

what will be exceedingly process-oriented issues. A necessary requirement
for getting access to companies and developing working relationships will
probably be that the researchers are prepared to and in a position to "give
something back" to the companies, in the form of advice and impulses. More
traditional predominantly one-way information-gathering approaches are
not likely to be adequate in providing relevant information at this stage.
Thus, the research challenges ahead seem to be calling for highly involved
efforts from researchers with considerable skills on planning systems and
with the willingness and patience to spend the time that seems to be nec-
essary.

VIII. Summary Conclusions

We have attempted to address the empirical research literature con-
cerning formal planning systems. We have also attempted to outline what
might be fruitful directions for research in this area in the future.
Our major conclusions, which also provide a picture of the evolution of
research and thinking on formal planning systems, were as follows:

- Formal planning systems as a management technique seem to be well
accepted at this point and its payoff seems to be recognized.

- The implementation of formal planning systems seems to have become
relatively well understood, with a relatively standard set of
issues emerging in terms of pitfalls to be avoided.

- The contingency-based design of formal planning systems is still
close to its infancy, and is relatively heavily oriented towards
acknowledging demographic-type factors as characterizing the sit-
uational setting, with little or no emphasis on the strategic
setting as the basis for dictating the design of the planning sys-
tem.

43.

- It is expected, however, that future research will focus on bringing
formal planning systems more in line with the particular strategic
settings of companies so that such systems can contribute more ef-
fectively toward strategy formulation and implementation.
In summary then, formal planning systems have evolved a long way, and
are today important and integral tools in many companies' decision-making.
We expect that formal planning systems will play an increasingly important
role in the corporate strategizing process in the future.

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