Corporate Planning in CPC Europe J. R. Champion Corporate Planning CPC Europe
Manager,
a wide range of consumer and industrial products and the total volume of sales is about evenly divided between the consumer and the industrial-a ratio which is also found in many of the national affiliates. In the field of consumer products. CPC Europe is one of the leading food manufacturing groups in Europe. Its main products are soups, bouillons, sauces and gravies, baby food, kitchen starch, desserts, salad and cooking oil, and instant potato products sold under internationally-known brands. It also sells such diverse products as cheese, snacks, jams, olives, herring, cake mixes etc. in national markets under national brands.
The author of this article is Manager of Planning and Management Information Systems for CPC Europe (formerly Corn Products Europe) and was one of the principal architects of his company’s planning system which isdescribed inthisarticle. The article describes the company, the family of plans called for by the system, the procedures by which the system operates and the manner in which the system is kept up to date to reflect changes in management’s approach to the business. It also discusses some of the techniques used in producing the company’s plans, provides comments on the planning workload and how it is handled, and presents some of the special problems associated with planning in a multinational environment. The article concludes with an evaluation of the system and with some practical suggestions for those who either have, or who plan to introduce, a planning system in their company.
THE
On the industrial side, CPC Europe produces and sells starches, glucose syrups, dextrose, caramel colouring, adhesives, corn oil and feed ingredients to over 60 specialized food and non-food industries such as soft drink manufacturers, brewers, confectioners, paper and textile manufacturers, foundries and animal feed manufacturers.
COMPANY
C Brussels, is the largest of six operating companies comprising CPC International, PC
EUROPE,
WITH
HEADQUARTERS
IN
Inc., headquartered in the U.S. CPC Europe with a volume of sales of almost S45OM in 1969, has operations in 21 European and African countries. These operations range from a major national affiliate with S IOOM of yearly sales to small ‘venture posts’ in countries such as Kenya, Morocco and Iran and include 55 factories and eight research centres. Employees total 19,ooo. The company manufactures and markets
8
Until 1965, all of the foreign-including the European-affiliates of CPC International (at the time Corn Products Co.) reported directly to an international division headquarters in the U.S. In 1965, the decision was taken to create regional headquarters to coordinate operations in the four regions in which the worldwide company operates: U.S., Europe, Latin America and the Far East. Under this arrangement the national affiliates still remained profit centres. Experience at the regional level, however, soon demonstrated that effective regional coordination could not be accomplished unless the regional headquarters were also given profit responsibility and authority. This realization led to the creation of CPC International’s current six operating companies-three in the U.S. based on product and functional differentiations, and three outside the U.S. based on geographical
differentiations. Each of the operating companies is a true profit centre. CPC Europe, as one of these six operating companies, has its own Board of Directors. Its operations and planning are directed by an Executive Committee composed of the CPC Europe company president, a company secretary, and vicepresidents for Industrial Operations, for Consumer Operations, for New Business Development, for Finance and for Technical Services (which includes Manufacturing, Engineering, and R & D). The Industrial and Consumer vice-presidents have overall CPC Europe profit responsibility for their respective domains and the national affiliate managements have been reorganized so that each affiliate has an Industrial and/or a Consumer Operations Manager, each reporting directly to his respective vice-president in Brussels. These vice-presidents have their own staffs but are also aided by Operations Councils comprised of the Operations Managers of the larger affiliates who meet regularly to review the current status of operations and to plan future operations. The other vice-presidents are true staffvice-presidents, i.e. they make and recommend policy and they monitor and coordinate the activities of the afliliates in their respective specialized areas. The only exception to this is the vice-president for in New Business Development who, addition to his responsibility for new business planning and policy, has line responsibility for the new and smaller affiliates that are just getting under way in countries in which CPC Europe has recently expanded its operations. In addition to having Industrial and Consumer Operations Managers. each established affiliate also has a Country Manager who reports directly to the President, CPC Europe and who is responsible for public and government relations in his country as well as for
LONG
RANGE
PLANNING
coordinating all the support services of the national affiliate such as Finance, Personnel, EDP, Administration etc. The author reports to the European Vice-President, Finance for Planning and Management Information Systems and to the President, CPC Europe for Strategic Planning. THE PLANNING
SYSTEM
Before the establishment of a European region, when the CPC affiliates still reported to the International Division headquarters in the U.S., the affiliates did a considerable amount of planning. Most of it was short term, however. Yearly sales and profit goals were established as were detailed Consumer and Industrial marketing and sales budgets. For the longer range, broad 5 year sales and profit forecasts were made, new product programmes were outlined, and capital expenditure budgets for plant and equipment were developed. Summaries of these plans were sent to the U.S. for review and approval. When the European region was created, with the objective of managing European operations as a thoroughly integrated enterprise, it became quickly apparent that the existing approach to planning would no longer be satisfactory. It was clear that European operations had to be planned as an integral whole if they were to be managed as such. It was equally clear that integrated planning could be done only by developing a system and procedures which would link together into a coherent pattern all the planning activities already going on plus any additional ones which would be required as a result of the need for integration. It is at this point that CPC Europe hired a Planning Manager. The first step was an analysis of the This planning currently being done. analysis took approximately 6 months to do and it led to the conclusion that CPC Europe needed a planning system which possessed the following major characteristics : 1. Strategic, long range+planning at the European level to provide a broad set of objectives and a programme for CPC Europe as a whole. 2. Better and more systematically thought out affiliate 5 year plans. 3. Addition, at the European level, of 5 year plans which would reflect the European-as distinguished from the affiliate-views. 4. Addition, in all planning, of goals and programmes for Manpower, R & D and Finance. 5. Better integration of resource plans, i.e. plans for plant and equipment,
DECEMBER,
1970
manpower, R & D support and financing, with the product and market plans which they are designed to support. 6. Incorporation of the detailed 1 year goals and budgets. 7. Procedures and a yearly planning cycle which would ensure that European and affiliate views and plans would be properly merged and would be reviewed and approved at the appropriate levels of management so that when the plans were completed, everyone was clear and agreed on the objectives and their supporting programmes. In addition to possessing the above characteristics, the system had to respect the following constraints established by the Planning Manager and approved by top management : There should be maximum utilization of existing planning procedures. Many of them were good and there was no point in ‘reinventing the wheel’. Furthermore, CPC Europe personnel were familiar with them and keeping them would facilitate the introduction of the ‘new’ system. There should be no more than the essential minimum of additional planning work. The planning was to be done primarily by those who would have the task of implementing the plans, i.e. the line managers and their staffs. The central planning staff at the European level would be responsible for developing systems and procedures and for consulting on techniques. This approach was based on the philosophy that planning is an integral part of managing and that the manager who directs his operations most effectively is the one who has been intimately involved in planning them. Therefore creating a special planning staff to develop plans which are then handed over to line management for implementation represents an undesirable dilution of the function of managing. Furthermore, line managers are far more knowledgeable, than a central planning staff would be, of the environmental conditions within which operations have to be conducted and of the characteristics of the resources that have to be managed to conduct them. Consequently, they are better equipped to develop the plans. Finally, there was ample evidence from planning experiences in other companies to show that, for the reasons just stated, line managers did not take kindly to implementing plans in the develop-
ment of which they had had little or no part. The CPC Europe planning system which is described below does in fact reflect the characteristics just outlined. But it was not created and installed of a piece. Since 1966 it has evolved gradually to its present stage, beginning at first as little more than a system by which affiliate plans were merely consolidated at the European level to one in which the European influence is evident at all levels of planning and in which there is a true merging of European and national affiliate views. The evolution of the planning system has kept pace with -and in some respects aided-the evolution of the CPC organization and philosophy of management. The system described in this article is the system as it is today, i.e. in 1970. The family of plans
CPC/E’s Planning System is designed to produce three kinds of plans (see Figure 1) which are closely interrelated but which differ in the time period they cover, in their level of detail, and in their emphasis on different aspects of the business. These three plans are: (1) a Long Range Strategic Plan (2) a Medium Term Business Plan (3) a Short Term Business and Operational Plan. All three plans reflect, with varying degrees of emphasis the busirress objectives (e.g. product-market goals, growth targets and rates, target financial ratios etc.) as well as the resource o@ectives (production facilities, R & D support, manpower, organization, capital) which must be met in order to achieve the business objectives. The three plans also reflect and integrate both the total CPC Europe objectives and the national affiliate objectives and capabilities. A brief description of each of these three plans follows: The long range strategic plan
The time period covered by this plan extends from the present to 10-20 years into the future. It sets long range objectives and general strategy in the following major areas : l Sales volume, earnings, and return on assets. l Products and markets, for existing as well as for entirely new business. l Company relationships with, and posture vis-a-vis, its total external environment. l Company organization and structure. l Major resource requirements and their timing. These objectives and strategies are based on an analysis and evaluation of future trends, of company strengths and weaknesses, and are guided by policies of the worldwide corporation which establish
9
operating
Figure
limits on both the manner and directions in which the company can evolve. Figure 2 shows a generalized model of this strategic planning process. While the Long Range Strategic Plan depends on information inputs and suggestions from the national affiliates, the responsbility for its development and annual revision lies exclusively with CPC Europe headquarters. The principal contributors to it are the Industrial, Consumer and New Business divisions and the Planning Department. As suggested by the arrows in Figure 1, the Long Range Strategic Plan sets objectives and guidelines for the Medium Term and Short Term Business Plans. The medium
term
business
plans
The time period covered is 5 years. The plans set specific objectives and specific programmes (as distinguished from general strategies) in the following major areas:
10
1. The
0 Sales,
CPC
Europe
System
of Plans.
operating expenses, earnings and return on assets. l Existing products and markets. l New products and markets. l Capital expenditure. OR&D. l Acquisitions. l Manpower, managerial and organizational development. l Financing. Medium Term Business Plans are produced for CPC Europe as a whole as well as for each national affiliate and the process by which they are produced is a closely co-operative endeavour involving the CPC/E headquarters organizations and the affiliates. Guided both by the provisians of the Strategic Plan and their general knowledge of aIIiliate capabilities, the headquarters staffs prepare general outlines of coordinated Europe-wide programmes which cover all of the major planning areas listed above except financing, which comes later. These European
programmes also make tentative assignmentsofelementsoftheseprogrammes to the affiliates for implementation. During the same time period the affiliates, emphasizing particularly existing products and markets and their requirements for capital expenditures and R & D support, develop tentative Medium Term Plans which reflect their more detailed knowledge of the particular needs and possibilities of their national markets as well as their estimates of their own capabilities. Not surprisingly, there are divergencies in what the headquarters staff think the affiliates can and should do and what the Far from affiliates themselves think. disrupting the planning process these divergent views in fact set the stage for what is one of the most fruitful features of the CPC/E planning system-an intensive dialogue between top management and operating management during which a thorough evaluation and understanding present and future of the company’s
LONG
RANGE
PLANNING
What
is
the
which
world
in
we operate to be like
going
?
0 Technology 0
Customers
0
Customers
0
Competition
0
Politico
0
Socio
0
Others
wants
Where
legal
to
economic
do we go ?
0 Opportunities
want
toget from where we are,to yohere,we want
to pursue 0
0 Threats
to
Strategies
parry 0 Tactics
0 Strengths
to
preserve 0
0 Problems Where are
and what we today
0 Weaknesses
to
0 Company
resources
0
Company
stability
0
Competitive
0
Flexibility
0
Company
0
Other
posture
policies
aspects
business needs and capabilities is obtained. As a consequence of this dialogue, the divergencies are eliminated either by clarification or by compromise. The end result, after a centrally coordinated financing plan has been added and after review at the European Division and Executive Committee levels, is a set of European Medium Term Business Plans which incorporate Europe-wide strategic objectives while at the same time reflecting affiliate needs and capabilities, and a set of affiliate Medium Term Business Plans which incorporate programmes geared to their own business and market needs but which also include planned activities which contribute to the Europe-wide programmes. The short term business and operational plans
These plans cover a period of 1 year and are in fact the first year of the 5 years covered in the Medium Term Business Plans. The same major business and resource objectives and programmes are
1970
Resources Responsibilities
mix
Figure
DECEMBER,
0 0
to
overcome 0 Product/market
Contingencies
resolve
2. A Generalized
Model
for Long
Range
dealt with as in the medium term plans but the 1 year goals are formally established, after review and approval, as standards against which operations during the year are monitored, evaluated, and controlled both at national and European levels of management. From the short term plans the affiliates develop their own quarterly or even shorter term operating plans and programmes in such areas as purchasing, production, marketing etc.-all, hopefully, within the budgets that have been approved and established as firm goals. The
planning
procedures
Keeping within the requirements originally established for it. the planning system has been designed not only to permit -but to require-coordination among the many.elements of CPC Europe’s complex operations and the integration of the objectives and activities of these various elements into a coherent overall plan. Furthermore, the actual doing of the pianning and the preparation of the
Planning.
required planning documents is a formidable task which, in so large and diversified an organization, cannot (and should not) be undertaken by a single central planning Staff.
To cope with these problems a year-long rolling planning cycle (Figure 3) and a set of procedures was evolved, based on CPC Europe’s fiscal year which begins in October. The planning procedures are designed to : l Break down the total planning task into manageable pieces, assign these pieces for completion to appropriate individuals and organizations within the company, and provide for the reassembly of these pieces into overall division plans and later into a total company plan. 0 Incorporate a flow of planning activities and a schedule which permit as much coordination as possible among the organizational units whose planning must be coordinated and integrated.
11
res,jonslbls diwrlono
(Dec.31
Fnnal plans
top management
planning reports (written and oral) which quickly reveal to management whether the necessary coordination and integration has occurred. (As an example, R & D plans are required to identify specific product and market objectives to be supported by the proposed R & D work and these product and market objectives must be demonstrably a part of the business plan presented by operating managers. The operating managers in turn must identify which of their product and market objectives require R & D support, and: in addition to justifying the cost of this support, must show that it is incorporated into, and is in conformity with, the R & D programme.) l Provide for the filtering of planning information and documentation as the plans move upward through the various management levels of approval so that each level of management reviews only the amount of detail which corresponds to its responsibilities. The major phases of the planning cycle and procedures are as follows: 1. Updating and revision of the Long Range Strategic Plan and issuance to all units of revised planning target and guidelines by late October or early November. 2. Preparation by the various headquarters staffs of detailed planning
J
Feedback
Figure
12
Rswew 0‘ plans by CPC!E
)
L -~~~-c-~----~~-~~-------
l Require
_
3. CPC
Europe
Planning
Cycle.
procedures and instructions for their own planning guidance as well as for that of the affiliates. These instructions are compiled into a Planning Manual and are issued to the field by mid-December. They cover such things as: (a) a detailed planning schedule for the year, (b) a listing by planning area (e.g. Marketing, Finance etc.) and by affiliate of the planning documents to be prepared and submitted, (c) assumptions to be made regarding such items as raw material prices, inflation, dates for EEC food law harmonization etc., (d) formulae to be utilized in making various planning calculations, (e) definitions of product groupings and market sectors, etc. These instructions are essential to insure that all planning units talk the same language so as to facilitate inter-unit coordination, comparisons of plans and alternatives, and, eventually, consolidation of affiliate and other unit plans into an overall European plan. 3. The period from January 1 to May 1 is devoted to the preparation of Medium Term and Short Term plans by headquarters staffs and by affiliates. It is during this phase that Europe-wide programmes and affiliate plans and programmes are gradually brought into compatability with each other and with the overall European objectives. Headquarters
staff personnel go into the field and work with the affiliate planners, expose the European programmes, help the affiliates integrate the European plans to compensate for particular affiliate problems and inabilities. identify and evaluate the strategic and tactical alternatives and help to insure that the appropriate coordination takes place at the affiiiate level as well as at the European level between Marketing, Manufacturing, R & D, Personnel, Finance and Administration. During the latter half of April. the European-influenced affiiliate plans are consolidated into Europe-wide Consumer Operations and Industrial Operations plans, R & D plans, Capital Expend itures plans, Manpower and Organization plans and Financing plans. 3. During May the consolidated plans are reviewed, modified, and approved at the vice-presidential (divisional) level. The vice-presidents are aided in this function by their Operations Councils which, as mentioned earlier. are comprised of key affiliate management personnel. As planning advisors to the vice-presidents, the members of the Councils bring to bear their considerable business experience; as representatives of the affiliates, they help to insure that what headquarters plans is feasible at the implementation level.
LONG
RANGE
PLANNING
5. In late May or early June, the total European Medium Term and Short Term plans are summarized for review by the CPC Europe Executive Committee. The major objectives of this week-long review are to: a. Judge whether the financial goals proposed are sufficiently ambitious but also feasible within the constraints established and whether the ratio of proposed investment to proposed financial results is acceptable. b. Insure that business plans are supported by adequate resource plans. c. Insure that affiliate plans support Europe-wide divisional objectives, and that European objectives together support total CPC Europe objectives. d. Identify the major alternatives that have been examined during the planning process and the reasons for their inclusion into, or exclusion from, the finally proposed plans. e. Identify major areas of uncertainty and risk in the plans and the related contingent actions proposed.
The review is attended by the CPC International (CPC/I) Board Chairman, the President, and other worldwide corporate management executives. While frequent and continuing communication between CPC Europe and CPC International top managements during the planning year serve to insure that the objectives and planning of both groups are compatible. the presence of CPC/I top management at the yearly total plans review helps to ensure, before the CPC Europe plans are finalized, that no last minute incompatibilities of major importance have developed. 6. Finally, during the period from June 15 to September 30, the Short Term Business and Operational Plans and budgets are formally agreed and official goals are fixed; the Medium Term Business Plans are also agreed; final adjustments reflecting these official agreements are made in affiliate and European plans; and the final plan documents are prepared. By October 1, the beginning of CPC Europe’s fiscal year, all management and operating units have a thoroughly clear and highly detailed blueprint for the coming year and a somewhat less detailed but nevertheless clear picture of the goals and plans for the coming 5 years.
DECEMBER,
1970
HOW THE PLANNING WORKS
SYSTEM
In carrying out the planning activities just described, a clear distinction is made between planning the planning and doing the planning. The plan for planning is, in effect, the Planning Manual of instructions which is revised and issued yearly at about mid-December. The CPC/E Corporate Planning Manager is responsible for the production and issuance of this manual as well as for developing and updating the overall approach to, and system for, planning which the manual translates into specific procedures and techniques. In this task the Corporate Planning Manager is given major assistance by the staffs of the various headquarters divisions each having a division Planning Coordinator. Doing the planning is the responsibility of line management. Planning for planning
The process of planning for planning goes about as follows. During the course of the planning year, careful note is taken of the special problems which arise at headquarters and at the affiliates as the plans are being developed and reviewed. These problems take many forms, for example, functions (e.g. management development) which management feel should be incorporated into the plan but for which insufficient or no procedures have been developed, or instructions which are either confusing or too limiting (e.g. a standard formula for reflecting inflationary factors in profit forecasting which some affiliates feel restricts their freedom to set realistic gross margin goals) or a schedule that is too tight to allow sufficient coordination in certain areas. Where such problems can be solved easily, a solution is quickly developed and an amendment to the current Planning Manual is issued. The solutions to more complex problems are kept for the following year’s manual. Following the major total plans review in late May or early June, the Corporate Planning Manager prepares a memorandum for the CPC/E Executive Committee in which changes to the planning system are recommended. This memorandum proposes solutions to the more important of the problems encountered during the year’s planning as well as broader change in the overall planning system which are required to insure that the system reflects the evolving management philosophy and interests of CPC Europe. Upon approval, sometimes after modifications, of these recommendations by the Executive Committee, the Corporate Planning Manager issues instructions and guidelines to the division Planning Coordinators who are responsible for seeing to it that the agreed
modifications to the total CPC/E planning system are reflected in their divisions’ particular planning systems and are compatible with their divisions’ particular planning needs and capabilities. Major changes in the planning system may require a task force to be set up to undertake the work. These task forces always include affiliate personnel to make sure that the affiliate viewpoint is adequately reflected. Less complicated changes are worked out by the division Planning Coordinators or by the Corporate Planning Manager and his staff but these are also checked with affiliates in an attempt to minimize the risk that procedures are developed at headquarters which turn out to be infeasible in the field. All of this work is supervised and closely coordinated by the Corporate Planning Manager. By the middle or end of November, each headquarter’s division has prepared its chapter of the Planning Manual in which the new procedures and methods are incorporated and the Corporate Planning Manager and his staff have prepared the general schedule and instructions which apply equally to all divisions. All this material is printed on standardized and numbered formats and bound within a single cover. By mid-December the Planning Manual is issued to headquarters staffs and to the affiliates. The Planning Manual revision and preparation procedures just described are designed to give CPC/E’s planning system the combination of unified structure and of flexibility and adaptability that it must have if it is to be a valid and useful support to management. The use of division Planning Coordinators and the close working relationship between them and the Corporate Planning Manager helps to guarantee that each division management’s special planning needs are satisfactorily met and yet also satisfy the planning needs of CPC Europe’s top management. The continuing interaction between the division Planning Coordinators and the affiliates helps to guarantee that affiliates can satisfy their own planning needs and those of the European divisions within the same planning framework. Finally, the continual monitoring, by the division coordinators and by the Corporate Planning Manager, of problems which arise in the development of the plans and of changes in divisional and corporate management approaches and interests, together with the revision of the planning techniques and procedures to reflect these changes and the solutions to the problems, serves to insure that the planning system continues to be responsive to the evolving planning needs and requirements of management.
13
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Consumer
Country:
New
Business
A.
What
Market
Product
is total
market
Deciston Chart No D. 206A Date ._Launch F’... _.
Division-Retail
Product
Review ,.. Units
D.
opportunity?
What
is your
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marketing
and
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E. What
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deviation
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Total
Figure ‘Doing’ the planning The responsibility for doing the
planning, i.e. developing the plans, called for by CPC Europe’s planning system is that of the line and operating managers. Obviously, they delegate much of the work involved to their staffs but the planning system, by requiring them to present and defend their plans at the plans review, makes it mandatory that they be personally intimately knowledgeable of the details of these plans and they can gain this intimate knowledge only by being personally deeply involved in the planning process. This requirement that line and operating management be closely involved in doing the planning was, as indicated earlier, deliberately made a feature of CPC Europe’s planning procedures. Planning involves the setting of objectives and priorities and the allocation of resources. These are undeniably line management responsibilities and it is unrealistic to expect that a staff of planning ‘experts’ can
14
4. Sample
Plan
Summary
Chart-CPC
sit off in a comer somewhere, assume these line management responsibilities, build them into a plan, and turn the completed ,olan over to line management for implementation. Planning
techniques
Techniques, the how of planning, are involved, of course, at every stage of the planning process. That is, there must be techniques for collecting and analyzing internal and external environmental data, for forecasting developments in the external environment and the evolution of the company’s existing business in that environment, for matching company capabilities with potential future market opportunities, for evaluating alternative strategies and tactics, for calculating the pros and cons of various resource allocation patterns, and finally, for documenting the completed and approved plans. There is generally wide use throughout the company of such techniques as PERT,
Europe.
statistical analysis, correlation analysis, break-even analysis, cash-flow analysis, standard costing, financial ratios, risk analysis, check lists, rating schemes for new business opportunities etc., and many alhliates also use market consultants for analyzing future demand, but there is no standardized set of planning techniques imposed on the CPC/E planners. The Planning Manual requires the planners to evaluate the future in certain terms (e.g. to forecast demand for a certain product and the factors which will affect that demand) or to identify and calculate planning options and to present the results of the calculations in specific terms (e.g. what is impact on earnings and on relationship to the trade of deferring a new product launch for a year), or to relate specific aspects of the business in specific ways (e.g. make 5-year indstruial sales volume forecasts both by product alone and by product in relation to client industry sector) but it does not specify to
LONG
RANGE
PLANNING
the planners how to collect this data or how to analyze it or whether to process it manually or by computer. This approach recognizes the fact that most of the company’s planners, at headquarters and at the affiliates, are people who have had considerable experience in analyzing their business and in making and using forecasts. The absence of an imposed set of standardized techniques has the advantage of giving the planners freedom to exercise their creative abilities. It has the disadvantage of leaving room for loose analysis and simple ‘square-filling’ by any planner who doesn’t want to be bothered with the discipline of a more structured approach. The system attempts to counter these disadvantages in several ways. To begin with, the Planning Manual does include quite detailed specifications, in the form of charts and instructions for preparing them, for presenting plan alternatives and results. Figure 4 is a sample of one such chart. These do in fact specify the kinds of analyses to be undertaken if not the Secondly, precise analytic techniques. planning reviews by management are organized as much as possible with a view to examining the validity of planning assumptions and analyses reflected in the plans so that it is usually possible to determine fairly quickly when someone has engaged in simple square-filling. Thirdly, the CPC/E Planning Department and the division Planning Coordinators do recommend specific data collection and analysis techniques to the planners. These safeguards against ‘loose’ planning analysis seem to work reasonably well. However, now that the system and the procedures have become well established within the company, the major focus of the Planning Department’s work over the next several years will be on the introduction of more sophisticated analytic and computer techniques-particularly in the area of probability statistics, linear programming, and possibly, input-output analysis for the industrial side of the business. The company does have several largescale computerized models which are used for planning. One is a risk analysis model for all investment proposals exceeding SlO0,OOO. This model, which uses discounted cash flow (DCF) techniques, measures the sensitivity of calculated rate of return to deviations from expected values in volume, price, cost and investments. A second model is a linear programming model with over 4000 variables which can be used for Europe-wide industrial production and distribution planning. It calculates the most profitable mix of 11 different product groups in each
DECEMBER,
1970
of seven major production facilities based on forecasted demand in 33 market areas and on forecasts of selling price, cost of manufacture at each plant, and cost of distribution from each plant to each market. The area of information for planning has also received some attention from the Management Information Systems Department which is under the same manager as the Planning Department. An example of efforts in this area has been the transformation of the headquarters library from a passive information acquisition and storage facility into an active information selection, scanning, and dissemination centre. The objective is to maintain a reasonable flow of environmental information aimed particularly at top management and their staffs to keep them apprised of major developments and trends and to stimulate their thinking about strategic and long range possibilities for the company.
added some work. It is also quite probable on the other hand, that the systematization and better organization of planning has served to reduce the number of unproductive planning activities which take place in a less organized context. The second factor to be considered is that in a company as product and market diversified as CPC Europe, planning inevitably is a complex and time-consuming task. In recognition of this fact of modem business life, the planning system design attempts to break down the planning workload into manageable parts and to distribute it in such a way that no organization or individual is unduly burdened. Despite the two preceding considerations, a continuing effort is made to reduce the amount of work and the volume of paper which the planning system requires.
The
As might be expected, coordinating and integrating the plans of a company whose operating units are situated in different countries presents problems which are not encountered by a uni-national firm. The easiest problems to resolve are problems of linguistic and financial communication. In CPC Europe, English has been for a long time the lingua franca. The top management and most of the middle management of all units are quite competent in English and, in many cases, in one or more other languages. Management at lower levels, however, usually speak only their native tongue and this means that at some point in the upward flow of planning inputs these must be translated into English. This, of course, is time-consuming and creates possibilities of error. Financial communication upward presents a similar set of problems. The U.S. dollar is the financial-lingua franca but all affiliates keep their accounts, for local legal as well as practical reasons, in the local currency. At some point in the preparation of plans a conversion process must take place. This task is made easier by the CPC/E Chart of Accounts which defines conversion rates and by the fact that many of the affiliates have put the conversion routines on their computers. Nonetheless it does represent additional effort which a uni-national company is not faced with. National legal requirements do not apply only to the currency in which local accounts are kept but apply equally to the definition of accounts and accounting procedures. As a consequence, each affiliate has a subsidiary Chart of Accounts which differs somewhat from the CPC/E
planning
workload
The author of this article is frequently asked whether the CPC Europe planning system described in the preceding pages has not added greatly to the workload of management and staff. The answer to that question is a cautious ‘no’. There are two factors to consider here. One is the fact that whether managers are conscious of it or not, they have always spent a great deal of time and energy in planning activities. The managers of the organizations that comprise CPC Europe are no exceptions to this general rule. Before there ever was a CPC/E planning system they set themselves sales and profit goals, developed budgets, wondered about the future of their existing products, figured out ways to beat the competition, pondered about when and where to build new production facilities, laid out marketing campaigns, evaluated the pros and cons of various new product proposals, and so on. They did a lot of planning in preplanning system days; they do a lot of planning now. The major difference is that now the same planning activities are conducted within a systematized and organized framework designed, as mentioned earlier, to insure proper coordination among related and interdependent functions and effective integration, review, and approval of unit plans as they pass upward through the various levels of management. In fact, the CPC/E planning system was not started from zero. It includes a very large part of the planning activities that were already going on before the system was developed. It is quite certain that requirements for plans coordination and integration has
PLANNING IN A MULTINATIONAL ENVIRONMENT
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Chart of Accounts and for both planning and performance reporting, there must be a translation of one set of accounts into the other. Similar considerations apply to personnel records where, for social security purpose (e.g. in Switzerland and Italy) personnel are required to be classified in categories different from those used at the CPC Europe planning level. However, although the solutions to these problems do require ‘communication’ extra time and effort, the problems are relatively easy to resolve. Much more difficult-in fact, almost impossible-to solve are problems which derive from differences in consumer behaviour due to fundamental differences in cultural tradition. These kinds of problems apply particularly in the consumer food business in which CPC Europe is a major participant. Rationalization of production, of advertising, and of distribution in a Europe composed of highly nationalized consumer a Spaniard and say nothing to a German housewives prefer instant mashed potatoes based on potato granules; French housewives prefer flakes. Where one production facility would do the job, two become necessary. An advertising message which appeals to a French consumer may offend a Spaniard and say nothing to a German or a Swiss. Result-three or four separate advertising campaigns instead of one. The European Consumer Division has decided, as part of its long range strategy to get into a new product area on a Europewide basis. However, the French Consumer Marketing Manager wants a low-price product because this is the part of the market which competition is ignoring and where there is a real chance of successful entry. The German Consumer Marketing Manager, on the other hand, feels that the low-price market in his country is saturated and that his best chance is in the highprice range. The Europe-wide programme has suddenly split into two different production technologies, two different marketing strategies, two entirely different economic propositions. Disharmony in nationally-based food laws aggravates these problems. The fact that one country does not allow ingredients in food products which another country permits is another inhibitor to rationalization of production and distribution. The EEC is hard at work on food law harmonization but it still has a long way to go. It is interesting that the problem of nationally-oriented markets is much less a factor in CPC/E’s industrial business. What determines the demand for CPC/E’s industrial products is the technology of the client industries and technology, unlike tastes and preferences for food products, easily crosses national borders. It is thus
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possible to plan industrial operations on a truly European basis and it is this fact which has made it possible to develop and use the LP model described earlier which aims at rationalizing industrial production and distribution throughout Europe. Another kind of problem which arises in a multinational environment has to do with unifying national managements behind multinational objectives. One illustration of this is the case of a national management that has grown up in the tradition that company prestige in that country is based on position, i.e. share, in the market. Profitability is a secondary consideration. This attitude is in conflict, of course, with a multinational objective of maximizing profits. Other illustrations could be provided. All of these are examples of some of the special problems that arise when one attempts to conduct business in a coordinated and integrated fashion across cultural and political borders. Indeed, these are not planning problems per se. These are the problems of doing business on a multinational level. But they add greatly, of course, to the difficulties of doing a good job of planning. HOW GOOD IS THE SYSTEM?
This is a difficult question to answer since there are no good criteria for evaluating planning systems. Perhaps an answer can be approached by breaking down the main question into three component questions and attempting to answer these questions as objectively as possible: Does the system work? Has it produced the desired results? What improvements does it need? The answer to the first question -does the system work?-is an unqualified room for ‘yes’. There is obviously improvement, but the system: 1. Does produce long range, medium term, and short term goals and plans which are reasonably well thought out. 2. Does produce plans that relate resource objectives and programmes to business objectives and programmes. 3. Does produce plans that integrate long, medium and short term objectives and national and European goals into combinations which management has rationally evaluated and consciously decided upon. 4. Does produce these plans at a time and in a form which makes it possible for management to control long, medium, and short term operations with a reasonable degree of effectiveness. 5. Does organize the planning work so
as to distribute that work rationally and equitably and so as to bring to the attention of the various levels of management those problems and decisions which are their particular concern. These are the things that a planning system should do and which the CPC Europe planning system does. The second question-‘Has the system produced the desired results?‘-must be answered in two parts. The first part has to do with the immediate objectives of developing the planning system, and these objectives are related to improving the effectiveness and efficiency of CPC Europe management. The second part has to do with what must be the ultimate objective of any management system-planning or other-and that is to aid management in achieving its basic purpose which is to realize the maximum return from the assets entrusted to its care. As regards the immediate results hoped for from the system, they were basically two. First, top management wanted to transform its European operations from a group of quasi-autonomous affiliates into a smootly functioning integrated European unit. To do that it was necessary among other things, that the affiliates plan together within the framework of Europe-wide objectives. The planning system has unquestionably contributed to the achievement of this goal. CPC Europe is a solid unity today imbued by a team spirit which is nourished by effective dialogue up and down the management hierarchy and across functional and national boundary lines. Clearly, this major and very difficult achievement cannot be attributed exclusively to the planning system, but the system by establishing requirements and procedures for co-operation and coordination across all boundary lines and by stimulating the frank recognition and examination of common as well as particular business problems has aided importantly. Secondly, top management wanted to insure that all affiliates looked at their present and future business in a rational, analytic and systematic way. It is fair to say that CPC/E management has today a thorough and organized understanding, at both the national and European levels of its present and future business potentials and that rational and organized planning has become a habit with the managers. Again, the planning system contributed significantly to the achievement by defining the parts into which a complex business and organization logically break down and by suggesting the means by which the functioning of these parts should be analyzed. The second part of the question can be
LONG
RANGE
PLANNING
paraphrased into ‘Has the planning system contributed indirectly to profits?‘. It is the most difficult question to answer. Profitwise CPC Europe has done well since the planning system was installed. It would be ridiculous to assume that the company would not have done well without the planning system. The factors that make for success or failure in business are too numerous and too complex to make it possible to point to one as the determinant factor. But it is difficult to believe that an approach to planning which rationally structures the identification and evaluation of opportunities and the identification and measurement of risks does not in some small way at least contribute to sounder management decisions regarding which opportunities to pursue and which risks to take. This is not a completely satisfactory answer, but the truth is that planning systems, like management in general, must to a certain degree be accepted on the faith that their presence is beneficial. Finally, while there is obviously considerable satisfaction with the system it also has its shortcomings. and there are two major respects in which efforts are being made to improve it. One is in the area of planning techniques particularly for forecasting and for the evaluation of alternatives. Improvements under consideration include the systematic use of probabilities and various forms of
DECEMBER,
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modelling and simulation including linear programming, broader utilization of risk analysis, input-output analysis and automated financial analysis. The second area in which improvement is constantly being sought is in reducing the planning workload. Although considerable progress has been made in this area since the system was first installed, the planning workload remains considerable because CPC/E’s business continually expands with new products, new markets and new enterprises and these have to be reflected and integrated into the planning. Automation of some of the steps in the planning process, such as budgeting, financial planning, risk analysis etc., may provide the solution to reducing the amount of planning work. CONCLUSION
The author (who is willing to admit to a certain amount of unconscious favourable bias) believes that the planning system described in this article works well for many reasons but particularly because it reflects the application of four important principles. These are listed here briefly for whatever help they may be to other planning system designers. (1) The corporate planner’s role is to design and maintain the planning system -not to do the planning. The latter task is properly the task of those who will be
required to implement the plans. (2) A planning system is a custommade tool which must be closely adapted, if it is to be effective, to the philosophy and style of the managers who use it. For that reason, the corporate planner must be someone who understands thoroughly both the theory and practice of management and must occupy a position in the company organization which enables him to observe closely the way in which the company’s management operates. (3) For corporate planning to be effective, top management must not only give verbal support to planning, it must participate actively in the process of planning. This participation must be in two forms-in making the decisions on the company’s objectives and programmes and in participating actively and intelligently in the planning dialogue with operating managers. (4) Attempting to introduce sophisticated planning techniques before an organized planning system and procedures are introduced is, with rare exceptions, doomed to failure. Without a procedural base on which to overlay them, techniques tend to be meaningless and confusing. If the system and a network of procedures is established and in operation, planners will quickly become aware of the need for special techniques and will find them meaningful when they are suggested.
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