Commentary & Analysis
Planning Often Gets in the Way of Running Business Well
On my recent PrintFest trip,
By Dr. Joe Webb
Published: November 10, 2008
On my recent PrintFest trip, I finally got to one of those books in my “to read when I find some time” pile, Strategy Bites Back, published in early 2005. The principal author is Henry Mintzberg, whose Rise and Fall of Strategic Planning, published in 1994, skewered, barbecued, and devoured the strategic planning process quite mightily. This newer book does so in a far more entertaining manner. It is a collection of short articles and excerpts craftily assembled for one purpose only: to make one think. I recommend reading it, and here’s why.
Over the past year and a half, I have had numerous conversations with vendors and printers as they describe the trends in their individual businesses. Many have expressed deep concern for their companies and their ability to forecast what's ahead for them. The executives who have whispered in my ear feel that commonly available market sizing and much of the published industry data are too optimistic. The aggressive sales plans they have deployed based on those optimistic data are hitting the wall of marketplace reality. Since so many of their internal forecasts have been too high, this has caused them to constantly scramble, scrutinizing even the most minute expenditures and endlessly reallocating resources because of revenue shortfalls.
Sometimes strategic planning processes create rigid and narrow visions of the individual business and marketplace that are perpetuated for years. This can, of course, be a huge problem if those plans were based on faulty data. Compounding the problem, managers are firmly directed to stay focused only on their specific roles and responsibilities and to ignore anything they might catch in their peripheral vision, because that's not their job (which sends the lessons from their teambuilding seminars out the window, I guess). News, analyses, competitive actions, and events are interpreted in the context of the strategic plan, with anything contrary being minimized, ignored, dismissed as flawed or not applicable. This inhibits the company’s ability to act against new competitors or to detect and creatively address marketplace changes.
As I read Mintzberg's book, I was reminded of a couple of examples of why I have a well-ingrained distrust of bureaucratic planning processes. My first taste of this was when working for a boss early in my career who was held accountable for sales of a product that everyone in the company knew would not be available until the following year—field tests had failed and scale-ups were therefore delayed. But he was accountable for the revenue anyway because it was in the strategic plan. It doesn’t even make sense, does it?
About 16 years ago, I did some consulting for a supplier (no longer in our industry) that included an analysis of the product pricing that had just been approved by their upper management. The prices were unrealistic. No one had checked the marketplace; the prices were a creation of a spreadsheet and were were set using corporate profitability targets that some yet-higher-up market-oblivious accountant had established, approved by yet another higher-level out-of-touch committee who did not consider the recent competitive price history of similar products.
These executives knew the game and played it to the hilt. To get their plans approved with minimal challenge, managers developed their dubious pricing schemes by working backwards: they would estimate their costs, estimate their volume (which also had intensely political origins), and determine what price was needed to reach the arbitrary profit targets. Once they had that, it would sail through the approval process, and they figured they'd pick up the pieces later. I told them the prices were inflated, and indeed, within five years, true market prices dropped by two thirds of what had been approved. Too bad they didn’t listen. It is this type of bureaucratic, inflexible and internally-focused activity that causes companies to fail. It's easy to blame a “competitive marketplace,” but why should a competitive marketplace surprise anyone?
Of course, with that type of process, they could just as easily have underestimated prices, an equally dangerous result. A software company (also no longer in our industry) did just that; for a new product, they could have charged almost three times the price that they had established. They had overestimated demand and backed into the price to meet some other kind of arbitrary objective, thereby setting the price too low. (Unlike the prior example, I arrived too late on the scene to create an analysis that they could ignore).)
Ultimately, insufficient monitoring of marketplace changes and rigid adherence to plans built on improper assumptions carry a serious penalty: neglected upside opportunities or failing initiatives and marginal programs that need constant tweaking. One company I worked with almost 10 years ago had corporate guidelines that prevented it from entering any business that could not be expected to grow to at least $1 billion in five years. I asked what would happen if it was a certain $300 million business with a 90% gross margin or higher. They said it would never be approved... and executives wonder why small competitors “blindside” them.
The Mintzberg book has two marvelous sections, both related to the Boston Consulting Group (BCG). First, the firm’s popular quadrant model of “stars,” “dogs,” “cash cows,” and “question marks” comes in for a good and well-deserved discrediting for its shallowness. The second one reviews an analysis by BCG of Honda's entry into the motorcycle market and compares it with reports from Honda executives. They were quite different.
BCG was under the assumption that Honda had a grand plan; it turned out that there actually was none. What they had were product ideas and market assumptions that, as it turned out, were very wrong. Because Honda executives had no rigid plan to “guide” them, they dealt with problems (some of them of immense threat) quickly, with adeptness and an admission of the problem's existence that seems quite refreshing in retrospect. They never had access to anywhere near the resources they had requested. Every decision they made was difficult but fixated on necessity, creating a sense of urgency and driven by a need to preserve scarce resources. Because of those limited resources, they never had time to sit and analyze, and spend endless time in meetings: they had to act.
As a manager, it is often difficult to keep your eye on external happenings when immediate problems can capture so much of your attention. But one thing is quite clear—customer knowledge is essential to the process of planning. It's still hard to believe that there are executives who feel that having too much direct customer knowledge somehow affects their ability to be objective and judge the veracity of facts. I've always contended the opposite. One should always seek out both the trends and countertrends in the market—and customers are a great source of that type of perspective. If the job of management is to create change (if it's not, then they're administrators, and not managers), then it's implied that managers should always be working hard to detect industry turning points early enough.
The ability to discern turning points is essential to understanding the current state of the printing industry. Printing volume is not directly demanded; it is a derived demand from the desire and need to communicate messages to target audiences. This is why watching the actions of designers, agencies, publishers, consumers, industries, technologies... the list is endless... should be part of every manager's job in one way or another.
I get questions about why I'm always writing and talking about new media and new technologies. I do so because it is an awareness of these things that reminds us that we exist in a communications environment where the habits of information consumers are constantly changing. Those habits and preferences are known, but not necessarily understood, and used by communicators in developing their communication plans and allocating their resources. Note that I used the word “awareness” rather than “understanding”—understanding implies historical analysis, which is not particularly helpful in understanding emerging trends. You will also note that I said we exist in a communications environment—not a communications marketplace. We are at a stage of business communications where discrete markets may not yet have developed.
To be prepared for turning points, you often have to make decisions about marketplaces that may exist in the future. That means they're not real today, but you have to be ready for them. Waiting for “real” can mean missing an opportunity or not being adequately prepared to defend one's business against pesky upstart competitors.
There was a time when the growing use of print was a foregone conclusion. Populations were growing, incomes were rising, the amount of information was exploding, technologies were lowering the costs of using print. It was a strong case that seemed quite logical. Today, however, population is still growing, incomes are still rising, the amount of information is still exploding, and technologies are still lowering the costs of print. Rats... the same arguments... but now there are competitive alternatives that take advantage of those exact same trends. It's amazing how the same trends can justify contradictory results. That's what a marketplace is
There was no way to fully understand the impact of competitive alternatives to print as they arrived on the scene. Let’s face it, if the creators of those alternatives had fully understood them, there would not have been an Internet bubble followed by a severe Internet bust. So how could we, from outside the research and development community, have understood them at that time? At best, we could have been more keenly aware of them and speculated about alternative scenarios that might play out. That's what real planning is supposed to do.
The purpose of planning is not to create blind adherence to a document. The capital investments that businesses make, the skills and experiences of the people they hire, the legal entanglements businesses negotiate, all express and lock in a vision of the future in very real terms, tying up company resources for years into that future, beyond the reach of future managers. Those overt actions say more about the direction of a company than any document can. It's those actions of past executives that new managers spend lots of time unraveling when the old assumptions are no longer true.
Most planning processes are definitely too long and too detailed. Be clear about objectives, create sensible reporting to detect problems and reallocate resources as needed. But most of all, create a flexible environment where people are trusted to take actions that lead to meeting the objectives with minimal supervision. Don’t bog them down in repetitive administrative exercises with little return.
The Mintzberg book may not be for everyone. It's not a textbook, but an appealing hodgepodge of ideas and concepts with a strong theme that can be amusing and inspiring. It's designed to be picked up and put down, and even read out of order. You'll nod or shake your head (sometimes at the same time), but even if you're bogged down in an imposed planning process that you can't change, you'll at least have a richer perspective about it and perhaps squeeze some good out of it.