Corporate planning is a term that describes an approach or management style, an attitude of mindset, that uses a systematic and integrated approach to all aspects of a company’s operations. The idea is to treat the company as a corporate whole rather than a collection of departments. Treat a company long-term, not short-term. The company is studied with precise definitions of its goals operating in its past, present and future environment.
Drucker defines corporate planning as “a continuous process of making entrepreneurial decisions systematically and with the best possible knowledge of their future, systematically organizing the effort required to implement those decisions, and measuring outcomes against expectations through organized systematic feedback”.
In a study conducted on hundreds of international companies, the reasons for these companies to engage in corporate planning;
• effective diversification;
• rational allocation of resources;
• the prospect of improved coordination and technological change;
• increased profitability and growth rate.
While annual profits are important, they are short-term factors in company plans. Manpower and new product development are examples of factors that affect the long-term survival of the organization. Better results are achieved by companies that adopt corporate planning methods. In fact, adopting a management style suitable for working in an atmosphere of change is the key to the successful implementation of corporate planning.
Management systems and practices in all types of companies, such as banks, local governments and industries, should be revised to put more emphasis on strategic considerations. Competition may not be so much in products or markets, but through conflict with government and pressure groups in society on issues such as pollution, safety and welfare.
Therefore, institutional plans are needed to deal with social and political change. This requires careful consideration in setting social goals, policies and plans to ensure that the company’s ideas are socially and politically accepted. The idea behind this is the strategic issue of adapting the organization to its environment, and this will often mean fundamental changes in management and organizational structure.
The entire industry the company is a part of should be examined, such as supply and demand factors, possible future trends, and new opportunities, threats or issues. A comparison should be made between the performance of the company and the performance of its competitors. Trends in the economic and political spheres, such as government controls over mergers, should also be taken into account. Next, some key factors that seem likely to improve the company’s position should be identified.
The final assessment will cover specific areas and their problems and opportunities:
• research and development necessary to address the need for new products and product improvements;
• Human resources necessary to ensure the availability of personnel of the required quantity and quality;
• sales and marketing reflecting the compliance of sales policies, market share, conformity of quality, design and price of products, marketing mix;
• Production needed to ensure adequate production capacity and other facilities and production costs is acceptable.
From the above analysis, restructuring, merger, diversification, etc. possibility can be considered.
The basic need is to integrate plans from various areas of a business so that the functional plans are linked together to form an overall corporate plan. But an enterprise plan is more than just linking functional plans; It can be thought of as a systems approach to achieve business objectives over a period of time. An interesting explanation of the various strategies that can be implemented and the classification of opportunities and risks is given by Peter Drucker in managing results.
He draws attention to two important strategies that need to be decided:
(a) To decide what opportunities or requests the company wants to pursue and what risks it can and will accept:
(b) Deciding on the scope and structure and the right balance between specialization, diversification and integration.
Classifying opportunities (additional, complementary and groundbreaking) and risks are interesting and practical guides to help formulate strategies. This is the first time a large company has learned in such an analysis that 75 percent of its profits come from a single product and that this market is slowly declining. Many other important factors can also come from such an analysis, such as under-utilisation of financial assets.
A final point regarding this aspect is the measurement of ‘synergy’, which is often defined as ‘assessment of strengths and weaknesses’. The concept of synergy is best explained using the following example. For example, if the company’s return on investment as a whole is only the return on existing operations plus the return on new activity, there is no synergy (2+2=4). However, where the new activity uses existing resources, the company’s return as a whole will be greater than the average of the new and existing operations (2+2=5).
Plans range from far-reaching plans for a long timeframe, which is a concern of top managers, to short-term, day-to-day operational plans that are a concern for managers at lower levels of the organization. As the amount of innovation increases in a given period, the time available for new product use decreases. But it still takes the same to develop and test new products; money still needs to be spent on promotional and sales activities, and as a product’s lifespan decreases, profitability will decrease. Long-term planning (LRP) enables management to anticipate challenges and take steps to eliminate them before they arise, and can help bring a more unified approach to the various factors in a problem. But plans should clearly state which manager is responsible and responsible for what results, that is, there should be management according to specific objectives.
The length of the plans varies from industry to industry. The luckier ones, like the auto industry, can plan a few years ahead. Others, like the fashion industry, may only plan for six months ahead. Different aspects of the plan will cover different time periods, for example, loans can be planned one year in advance to cover certain expenses, while plans for a new car cover at least four years ahead. The LRP will, of course, include the short-term plan (SRP) which is assumed to cover one year for convenience. The freedom to change the SRP is limited and can be broken down into monthly commitments. It is important to understand that the assumptions made in the LRP should be specified and any changes to them should be carefully reviewed.
Corporate planning is a simple, formal, logical method of running a comprehensive or all-encompassing business of an organisation. Individuals are responsible for planned results. Corporate planning is a management tool to steer the business towards the agreed goals. Corporate planning can be said to include long-term planning and management by objectives, and has evolved in status since its inception in the USA in the 1950s.
The corporate planner’s position in an organization can indicate the status of the activity. The person usually has a staff role to advise management; usually reports to a senior person, sometimes to the chief executive. It is responsible for:
• organization of the section;
• preparing an agreed planning system;
• ensuring that all roles are known and that everyone meets agreed standards;
• acting on behalf of the chief executive in preparing, coordinating and controlling the company plan;
• preparing reports on progress.
Specific responsibilities include:
• devising goals and strategies to seize growth opportunities and capitalize on growth;
• to follow business trends and developments in management techniques.
However, the corporate planner also faces limitations:
• only responsible for members of its staff;
• advises the general manager about events affecting company plans.
There are many advertisements for corporate planners, and there are required qualifications that usually include a degree with a good knowledge of mathematics, statistics and management techniques. He or she must also have at least eight years of experience in companies or multiple industries and a personality acceptable to most people. Their role is to establish and maintain a system; corporate planners do not plan the system; if they do, this will cause a lot of problems.