The Need to Better Understand Management Planning
Dr. Brian Monger
The degree to which a company is able to cope with its operating environment is very much a function of the understanding it has of the management planning process as a means of sharpening the rationality and focus of all levels of management throughout the organisation.
This requires further explanation. What most companies think of as planning systems are little more than forecasting and budgeting systems. These give impetus and direction to tackling the current operational problems of the business, but tend merely to project the current business unchanged into the future – something often referred to in management literature as ‘tunnel vision’.
The problem with this approach is that because companies are dynamically evolving systems within a dynamically evolving business environment, some means of evaluation of the way in which the two interact has to be found in order that there should be a better matching between them. Otherwise, because of a general unpreparedness, a company will suffer increased pressures in the short term, in trying to react and to cope with environmental factors.
Many companies, having gone through various forms of rationalisation or efficiency- increasing measures, become aware of the opportunities for making profit which have been lost to them because of their unpreparedness, but are confused about how to make better use of their limited resources. This problem increases in importance in relation to the size and diversity of companies.
In other words, there is widespread awareness of lost market opportunities through unpreparedness and real confusion over what to do about it. It is hard not to conclude, therefore, that there is a strong relationship between these two problems and the systems most widely in use at present, ie. sales forecasting and budgeting systems.
The most frequently mentioned operating problems resulting from a reliance on traditional sales forecasting and budgeting procedures in the absence of a management planning system.
1. Lost opportunities for profit
2. Meaningless numbers in long-range plans
3. Unrealistic objectives
4. Lack of actionable market information
5. Inter functional strife
6. Management frustration
7. Proliferation of products and markets
8. Wasted promotional expenditure
9. Pricing confusion
10. Growing vulnerability to environmental change
11. Loss of control over the business
It is not difficult to see the connection between all of these problems. However, what is perhaps not apparent from the list is that each of these operational difficulties is in fact a symptom of a much larger problem which emanates from the way in which the objectives of a firm are set.
The meaningfulness, hence the eventual effectiveness, of any objective, is heavily dependent on the quality of the informational inputs about the business environment.
Objectives need to be realistic
However, objectives also need to be realistic, and to be realistic, they have to be closely related to the firm’s particular capabilities in the form of its assets, competences and reputation that have evolved over a number of years.
The objective-setting process of a business, then, is central to its effectiveness.
Tt is inadequacies in the objective-setting process which lie at the heart of many of the problems of companies. Since companies are based on the existence of markets, and since a company’s sole means of making profit is to find and maintain profitable markets, then clearly setting objectives in respect of these markets is a key business function.
If the process by which this key function is performed is inadequate in relation to the differing organisational settings in which it takes place, it follows that operational efficiency will be adversely affected.
Some kind of appropriate system has to be used to enable meaningful and realistic management objectives to be set. A frequent complaint is the preoccupation with short-term thinking and an almost total lack of what has been referred to as ‘strategic thinking’. Another complaint is that plans consist largely of numbers, which are difficult to evaluate in any meaningful way, since they do not highlight and quantify opportunities, emphasise key issues, show the company’s position clearly in its markets, or delineate the means of achieving the sales forecasts. Indeed, very often the actual numbers that are written down bear little relationship to any of these things.
Dr Brian Monger is Executive Director of MAANZ International and an internationally known business consultant with over 45 years of experience assisting both large and small companies with their projects. He is also a highly effective and experienced trainer and educator
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