69 – A concept of Corporate Planning (Ackoff, 1970)


Ackoff, Russel L.
“A concept of Corporate Planning”
Wiley, New York, 1970 (Ch.1,2,3,7)

Topic: Corporate Planning: definitions, concepts and framework for its development

Summary and citations:

• Planning is the design of a desired future and of effective ways of bringing it about. It is an instrument that is used by the wse, but not by the wise alone. (p1)
• Planning is one of the most complex and difficult intellectual activities in which man can engage. (p1)
• Nature of planning: 1) canticipatory decision; 2) system of decisions; 3) process (p4)
• Strategic planning is lnog-range corporate plaaning is ends oriented (p5)
• Philosophies of planning: satisficing, optimizing, and adaptizing
• Satisficing : more concerned with survival than with development and growth
• Optimizing: use of mathematical models (p9) Optimizer tries to a) minimize the resources …B) maximize the performance …c) to obtain the best balance of costts and benefits (p12)
• Techniques of optimization have in general been more useful in tactical than in strategic planning (p15)
• Adaptizing: innovative planning (p15); 1) Process is our most important product; *** 2) design an organization that will minimize the future need for retrospective planning 3) knowledge of the future: certainty, uncertainty and ignorance – p17
• Adaptive responses are ppassive or active (p18).
• The more that corporate planning is pushed from satisficign toward adaptizing, the greater the requirement for scientific methods, techniques, and tools.- p21
• Optimizing planning requires more understanding of an organization’s behavior than dies satisficing. Adaptative planning requires even more than does optimizing – p21
• The required understanding of collective and individual beahvior is dconsedeably greater than that currently possessed by many corporate planners and managers – p21
• Desired states or outcomes are objectives. Goals are objectives that are scheduled for attainment during the period planned for. Objectives are of two types, stylistic and performance. P-41
• Performance objectives require operational definition – p41
• Profit maximization is commonly taken to be the most general formulation of a company’s performance objectives. But profit is often ill defined. It can be operationally defined and transformed into goals by constructing gain and loss euqations for each product line… – p41
• One cannot fix goals until at least the means to be employed in pursuing them have been considered. – 41
• It is usually much better to dissolve a problem than it is to solve it. Dissolution of a problem requires innovation, whereas it solution requires only evaluation – p43 ***
• The key to both creating and evaluating courses of action and policies lies in understanding the system involved. – p 43
• A manager is unlikely to be aware of how little understanding he has of some of the operations for which he is responsible – p47 **
• Few companies understand why their products are consumed although they think they do – 51 ***
• Thus there are three attitudes toward the future, which, ordered from the most to the least prevalent are a) wait and see, b) predict and prepare, c) make it happen. P56 ***
• Reinventing the system: understanding a system increases our ability to find innoative and superior courses of action and policies. … Polisy innovation depends critically on our ability to brong these self-imposed constraints into question. P59
• Modeling efforts should be directed at acquiring understanding of the form, its supply system, its distribution and marketing system, its consumers, its competitors, and its environment. – p64
• Creation fo new alternatives can often be facilitated by redesigning (from scratch) the system being planned for, with no constraints. – p64
• The probability of success of a planning effort decreases as the organizational autonomy of the planning activity increases. – 129
• Remember that successful planning cannot be done to or for an organization; it can only be done by the organization itself. – p132
• The value of planning to managers lies more in their participation in the process than in their consumption of its products. – p137

Personal comments, interesting issues and findings:

• Philosophies of planning: Satisfacing might aim eficacity and otimizing maybe efficciency
• I think that in current business (also social and political) world, uncertainty and ignorance are a major trend. From this point of view, contingency planning and rsponsiveness planning are important because they make companies flexible and adaptable to changes (ie crisis management).
• How do we take into consideration individual and collective behavior into planning? Has our knowledge of behavior increased to have a better planning?
• Ackoff affirms that technology (in the 70’s) is the limit to optimizing planning: which is the current state of the art of technology and planning?
• Planning reminds me of the concept of quality: 1) affects all departments in the firm; 2) is an on-going process and can always be improved; 3) quality costs are high but non-quality costs are higher. The same could be said of risk management.
• Ackoff says that the book is not a handbook (it is what should be done, not how it should be done). (Preface) But I think it is quite practical and even says details of how to do it (“The scenarios themselves should be from 10 to 20 (double-spaced) typewritten pages in length…. I have found it convenient to organize each scenario into three sections” p29
• Ackoff is very didactic, step-by-step and with plenty of examples. To explain his theory, many concepts are defined. He had 30 years involvement with universities when he wrote the book and we can feel his interest in pedagogy (see expample p61-63)
• What I liked the most in Ackoff is his effort in transmitting the message that the system has to be reinvented. The importance of what an organization should be like “as a whole and ideally” (p59)
• “Process is our most important product” and “It is usually much better to dissolve a problem than it is to solve it”: the two stronger ideas

Comparative analysis: Ackoff and Drucker

• Both Ackoff and Drucker, uses the same example: the answer of the carpenter “Puttting some pepices of wood together” ot “putting up a door frame” or “bulding a house”. Ackoff to explain different types of objectives (means and ends), Drucker to show the difference between a non-manager and a manager.
• Ackoff and Drucker have a common point: “Maximize profit cannot be a goal”. But for different reasons. Ackoff says that to maximize profit(ability) is a matter of definitions and a matter of financial and accounting policy. Drucker says that this is not the goal, but the sastisfy the customer.
• Ackoff and Drucker both analyze the consumers. Ackoff studies the models of consumers and says “Few companies understand why their products are consumed, although they think they do” (p51). Drucker says that this understanding and serving the customer is the goal of the company.
• Ackoff and Drucker –p61- both consider that objectives have to be reexamined continually
• This requires each manager to develop and set the objectives of his unit himself – p129 says Drucker. Ackoff agrees when he says that an outsourced firm can’t make your planning.