THE CORPORATE STRATEGIC PLANNING PROCESS WP #13~6 …

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THE CORPORATE STRATEGIC PLANNING PROCESS Arnoldo C.:,Hax and Nicolas S. Majluft

January 1983 WP #13~6-83

A.P.Sloan School of Management, M.I.T., Cambridge, MA 02139 tEscuela de Ingenieria, Universidad Catolica de Chile, Santiago, Chile

The Corporate Strategic Planning Process

The corporate strategic planning process is a disciplined and well-defined

organizational effort aimed at the complete specification of corporate strategy. In the words of Andrews (1980):

Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and noneconomic contribution it intends to make to its shareholders, employees, customers, and communitites... [It] defines the businesses in which a company will compete, preferably in a way that focuses resources to convey distinctive competences into competitive advantages.

It is a complex matter to describe this process in general terms. We need to

identify not only the major tasks that have to be addressed in setting up

corporate strategy, and the sequence in which they must be completed, but also the assignment of responsibilities for the execution of those tasks.

There are many hierarchical planning levels that depend very heavily upon

the diversity of businesses of the firm, its organizational structure, and the

interrelationship between strategy and structure. It becomes clear, then, that

the precise specification of a corporate strategic planning process depends on

the particular characteristics of the situational setting confronted by the

firm. The planning process appropriate for a single business firm with a purely

functional organizational structure is quite different from the one suitable

for addressing the strategic tasks of a highly diversified multinational corpora-

tion. However, we believe that there are some common properties whose adequate

use can help in delineating the formal planning process for most business firms.

At the risk of being overly simplisitic, we will go back to basics. In

Figure 1 we have identified three conceptual hierarchical levels, which have always been recognized as the essential layers of any corporate planning process:

a corporate, a business, and a functional level. Regarding the nature of the planning tasks, we believe it is important to

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-3distinguish, first, some activities which have a more permanent character. Although planning is a continuous process which is repeated year in and year out in the life of an organization, there are certain basic conditions that seem to be more permanent and are not significantly altered in each planning cycle. We have referred to them as the structural conditioners of the business firm and thus are represented in Figure 1 by the vision of the firm, and the mission of the business.

At the same time, there are three major tasks which need to be updated and revised at every planning cycle: strategy formulation, strategic programming, and strategic and operational budgeting.

The essence of the message portrayed in Figure 1 is that corporate planning is neither a top-down nor a bottom-up nrocess. It is a much more complex activity which requires a strong participation of the key managers of the firm, where objectives are being proposed from the top, and specific pragmatic alternatives are being suggested from business and functional levels. It is a process that, properly conducted, generates a wealth of individual commitments and personal participation from everybody who has a definitive say in sharpening up the direction of the firm. It is a rich communication device,. where the key managers have an opportunity to voice their personal beliefs about the conduct of businesses of the firm, and offers a valuable joint experience as well as an educational opportunity to be shared by key participants.

We provide now a brief description of the content of the corporate strategic planning steps identified in Figure 1.

Step 1: The Vision of the Firm The vision of the firm is a rather permanent statement articulated primarily

by ts Chief Executive Officer, addressing the- folowing-issues: 1) Communicate the very nature of existence of the organization in terms of

corporate purpose, business scope,-and competitive leadership;

III

-42) .provide a framework that regulates the relationships between the firm and

its primary stakeholders: employees, customers, shareholders, suppliers, and the communities in which the firm operates; 3) state the broad objectives of the firm's performance in terms of growth and profitability. The mission of the firm has to be expressed so as to provide a unifying theme and a vital challenge to all organizational units, communicate a sense of achievable ideals, serve as a source of inspiration for confronting the daily activities, and become a contagious and motivating guiding force congruent with the corporate ethic and values. The vision is a statement of basic principles that set apart those firms which have been able to articulate it in a positive manner from those which lag behind in this respect. There are very few firms which can show well-defined statements of mission. An individual working for a firm has to become an active collaborator in the pursuit of the corporate purposes; he must share the vision of the firm and feel comfortable with the way in which it is translated or expressed in traditions and values. The behavior of individuals is conditioned by this framework and they must intimately sense that, by following these guidelines, they are fulfilling their most personal needs for achievement. The vision of the firm is a personal drive for their own lives. Though the vision of the firm is a central thrust for a smooth development of corporate concerns, it is very hard to state it in unambiguous and pragmatic terms, and explain what it takes to develop and communicate the sense of vision. But the prop~c realization of corporate strategic planning requires, as a first step, that a statement of the vision of the firm be issued. We believe that three major components should be present in such a statement: 1) an expression of the mission of the firm in terms of product, market, and geographical scope; and a statement of the way to achieve competitive leader-

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