Strategy: Formulation, Implementation, and Monitoring

Kalman J. Cohen; Richard M. Cyert

The Journal of Business, Vol. 46, No. 3. (Jul., 1973), pp. 349-367.
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T h e study of corporate strategy within graduate schools of business has been under way for
many years. With the growing complexity of the world and with the increased size of business firms,
the need for planning and the development of a corporate strategy h a s become recognized in
the business firm. While many areas of management have been subjected t o scientific analysis, the
strategy area continues to be characterized by a commonsensical, judgmental approach. This paper
is an attempt to impose structure upon the various problems inherent in the process of
formulating, implementing, and monitoring corporate strategy in modern business firms. We begin
by identifying the relevant considerations in the strategic planning process and then discussing the
manner in which formal models can prove useful to executives in dealing with various subproblems. T
h e paucity of valid, normative propositions in the corporate strategy literature indicates t h e need f
o r a more scientific approach to this important field.

T h e nine major steps that constitute the strategic planning process are as follows: ( 1 )
formulation of goals; ( 2 ) analysis of the environment ( 3 ) assigning quantitative values to the
goals; ( 4 ) the microprocess of strategy formulation; ( 5 ) the g a p analysis; ( 6 ) strategic
search; ( 7 ) selecting the portfolio of strategic alternatives; ( 8 ) implementation of the strategic
program; ( 9 ) measurement, feedback, and
contro1.l This paper will review these nine steps a n d present selected ideas that demonstrate
how the strategic planning process could be im-
proved through use of analytical procedures. T h e nine steps should not
b e viewed as a once-and-for-all process of strategic planning, but, rather,
as a continuous, ongoing p r o ~ e s s . ~ T h e whole procedure is a dynamic * Distinguished
professor of finance and economics, New York University,
and president, Carnegie-Mellon University, respectively.
1. The s e nine steps into which we have subdivided the strategic pl anning
process a r e consistent with some viewpoints expressed in the cur r ent l i t e r a tur e .
They a r e not , however, specifically t aken f r o m any single source. They represent
o u r cha r a c t e r i z a t ion of the probl em based upon o u r knowledge of the l i t e r a tur e ,
discussions with corpor a t e executives, a n d pa r t i c ipa t ion in the process itself. Some
othe r a t t empt s t o present a conc eptua l f r amework f o r the strategic planning process
a r e presented in George A . Steiner, Top M a t ~ a g e m e t l t Plarlriirig ( N e w Y o r k :
Ma cmi l l an Co., 1 9 6 9 ) , c h a p . 2.
2. Thi s point is apt ly illustrated in H. Igor Ansoff, "Towa rd a Strategic T h e o r y
of the Firm," in B~rsirressS t r a t e g y , ed. H . Igor Ansoff (Ba l t imor e : Penguin Books,
1 9 6 9 ) , esp. fig. 6. T h a t pl anning should be viewed a s a cont inuous , ongoing process
is clearly stated in the following quot a t ion "Guide t o Business Planning," a bro-350 The
Journal of Business
feedback process that has neither a beginning nor an end; it is merely
for expository convenience that we label the first step as formulating
corporate goals.
I. FORMULATION OF GOALS
The first step in the strategic planning process can be viewed as the
development of the arguments in the corporate utility f u n c t i o n 3 This
specification is made by the coalition responsible for the top-level man-
agement of the c ~ r p o r a t i o n . ~ Corporate goals must stem from partici-
pants within the organization5 T h e goals of a small firm under control
of a single entrepreneur a r e determined solely by him. T h e goals of a
large corporation under control of professional managers a r e determined
by a coalition which typically includes the chairman of the board, the
president, and a select group of the more important vice presidents. The
group is characterized as a coalition because no one dominates it in the
way that a single entrepreneur may dominate his organization.
T h e final set of arguments in the utility function for the corpora-
tion must be accepted by the individuals who a r e responsible f o r im-
plementing the policy of the corporation. This acceptance can be induced
in a variety of ways that have been characterized by organization theo-
rists as "side payment^."^ A t this stage, the goals are specified in qualita-
tive rather than in quantitative terms. Some goals relate to measurable
entities such as earnings per share, total sales, share of market, return on
investment, rate of growth in sales, rate of profit growth, and so forth.
Other goals represent management aspirations which are more difficult
t o measure: for example, a desire to be the most advanced electronics
firm in the United States, a desire to be a leader in community improve-
ments, a desire to be ecologically responsible, and so forth.7
chure printed in 1969 (primarily for internal u s e ) at Westinghouse Electric
Corporation: "Planning . . . must be a continuous process o f evaluations, decisions,
and actions. That does not mean that management must continually recycle the
whole formal planning process, or that constant revision o f data is required. But
management must be continually sensitive t o changes that can significantly a f f e c t
previously planned actions. . . . a corltinual review is required to assess the potential
impact o f current events and current decisions on future performance; but that
will not be done i f only one short span o f time within the year is reserved as
'planning time.' . . . sustained efforts-in reviewing data, reevaluating plans, and
assessing performance-are required throughout the year" ( p . 7 ) .
3. A model o f discretionary managerial behavior based on the notion o f a
corporate utility function has been developed in Oliver E . Williamson, T h e Eco-
nomi c s o f Discretionary Behavior: Managerial Objectives in a T h e o r y of the Fi rm
(Englewood C l i f f s , N.J.: Prentice-Hall, Inc., 1 9 6 4 ) , chap. 4 .
4. See Richard M . Cyert and James G . March, A Behavioral T h e o r y o f the
Fi rm (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., 1 9 6 3 ) , chap. 3.
5 . Thi s statement does not imply that the goals o f the corporation are neces-
sarily identical with the goals o f any participants in the organization. See, e.g.,
H . A. Simon, "On the Concept o f Organizational Goal," Admini s t rat i v e Science
Quarterly 9 , no. 1 ( June 1 9 6 4 ) : 1-22.
6. Cyert and March, pp. 29-32.
7 . A detailed discussion o f the variety o f goals pursued by business firms is
provided i n Steiner ( n . 1 a b o v e ) , chaps. 6-7. 3 5 1 Formulation, Implementation, & Monitoring
I n the formulation of corporate goals, the relationships between
those goals and the goals of the participants in the organization should
be considered by the coalition. If all participants had the same goals and
the same perception of the means t o achieve them, then there would be
no problem in formulating a goal structure for the organization. Simi-
larly, if all participants completely accepted the goals of some single
individual (such as the chief executive), the organizational goal structure
could be easily understood. However, most organizations consist of in-
dividual participants having sets of personal goals that are different from
each other's and from the organization's goals. I t is clear from even
casual observation that there is no formal weighting process by which
the goals of each participant are incorporated into the goal structure in
a systematic fashion. Fur the r , it is also clear tha t each individual does
not have an equal vote in determining the goals of an organization.
Nevertheless, if the organization is to function effectively, its goals must
in some sense be an amalgam of the goals of the participants.
A frequent phenomenon in organizations is the formation of sub-
units and of subunit goals. These subunits, which a r e usually work
groups, become the object of the participants' identification. Group
norms arise and may exert more influence over the individual than the
organizational goals. T h e norms of the group may at some time be in
conflict with the organizational goals and the subgroup actions contrary
to the interests of the total organization. Still the individual may, in fact,
substitute the goals of this subunit for the organizational goals. Hence,
in formulating organizational goals, the coalition should consider the
effect that they will have on subunit goals and on the potential formation
of subunits.8
Clearly the corporate goals must be viewed from the standpoint of
the social values that are held by members of the coalition. I t is necessary
to differentiate between the social goals that are proper for the organiza-
tion to hold and those that a r e proper for the individual participant to
hold. F o r example, there may be a conflict for some firms between pol-
lution control and profit. This conflict becomes particularly strong when
the society has not passed the appropriate laws which embody its social
values and the corporation is left with the problem of voluntarily reduc-
ing its profit in order to contribute to some social goal. I t is not clear
whether the organizational coalition can properly take actions that reduce the profit of the
organization in order to achieve a set of social
goals that the coalition itself holds. Most corporation executives take
the position tha t they d o not have the right to impose their own social
values on stockholders, but they d o have a right to fight as individuals
for particular kinds of legislation even though the effect of the legislation
is to reduce the corporation's profit. There are also an increasing number
8. See Richard M. Cyert and Kenneth R. MacCrimmon, "Organizations,"
in T h e H a r ~ d b o o k o f Soc ial P s y c h o l o g y , ed. Ga rdne r Lindsey and Elliot Aronson,
2d ed. (Reading, Mass.: Addison-Wesley Publishing Co., 1968) , 1: 591-93. 352 T h e J o u r n a l
of Business
of attempts t o get stockholder approval of particular strategies that will
achieve social goals. I n the final analysis, however, business firms a r e
profit-seeking organizations, a n d society depends o n them t o seek profit
as a means of achieving t h e optimum allocation of resources."
I n s umma r y , we have stressed t h e fact that goal formulation is a
process of determining the arguments in the corporate utility function.
T h e particular set of goals that the corporation selects must t a k e i n t o
account the personal goals of t h e members of the organization and t h e
goals of subunits. T h e coalition must also consider the problem of social
goals a n d t h e extent t o which they a r e going t o be represented in t h e
corporate goal structure. I n this first step of the strategic planning p r o -
cess, n o attempt is ma d e t o assign quantitative values t o the set of
elements in t h e goal structure.
11. E N V I R O N M E N T A N D T H E F I R M 1 °
T h e organization and the environment a r e parts of a complex interactive
system. T h e actions t a k e n by the organization can have important effects
o n t h e environment, a n d , conversely, t h e outcomes of the actions of t h e
organization are partially determined by events in t h e environment.
These outcomes and the events that contribute t o them have a major
impact o n the organization. E v e n if the organization does not respond
t o these events, significant changes in t h e organizational participants'
goals and roles c a n occur.ll
Most organizations attempt to learn f r om interaction with t h e en-
vironment a n d respond t o changes caused by the environment. B o t h the
learning and response a r e easiest when the environment is disjoint. I n
such cases, t h e causal links among the sectors of the environment a r e
relatively short a n d events in o n e sector a r e likely t o have only minor
effects o n events in other sectors. T h e organization can then usefully
partition such a disjoint environment and consider the sectors in isola-
tion. F o r example, a multinational firm selling products under different
brand names in each of several countries can change policy in o n e market
and analyze the effects without considering interactions with other mar-
kets. T h e learning a n d response a r e more difficult f o r the organization
when the environment is complex and long chains of causal links and
events in o n e sector have profound effects o n other sectors. I n such an
environment, the organization must consider t h e whole sequence of pos-
9. Social Re spor~s ibi l i t i e s o f Busir1ess Corporatio11s ( a s t a t ement o n na t iona l
policy by t h e Re s e a r ch a n d Policy Commi t t e e of t h e C o m m i t t e e f o r E c o n o m
ic
Deve lopment , N e w Y o r k , J u n e , 1971 ) .
10. S o m e of the ma t e r i a l i n this section ha s been directly t aken o r pa r aphr a s ed
f r o m Cye r t a n d h l a c C r i m m o n , pp. 593-602.
1I . A n ext ended discussion of the m a n n e r in which roles a n d tasks within a n
organi z a t ion should be influenced by the envi ronment is presented in P a u l R .
Lawr enc e and J a y W. Lor s ch, Orgarlizatiorl arrd Erlvirorrrnerrt: Marragirlg Di f f e r -
erztiatiorz arrd lrltegratiorz ( B o s t o n : Division of Re s e a r ch, G r a d u a t e School of Busi-
ness Admini s t r a t ion, H a r v a r d University, 1 9 6 7 ) . 3 5 3 Formulation, Implementation, &
Monitoring
sible effects of any action it takes. F o r example, large steel companies
must consider the effects that a price increase will have on various sectors
of the environment-on labor unions, competitors, consumers, and gov-
ernment.
T h e parts of an environment that are relevant differ according to
t h e type of organization. F o r the business firm, economic conditions a r e
of prime importance. When the economy is in an expansionary period,
many possible actions can yield the necessary resources to allow the firm
to survive and grow. Conflict with other organizations in the environment
will b e minimized since all organizations can readily meet their basic
resource requirements. Conflict within the organization will also gen-
erally be reduced because the preferences of the various coalition mem-
bers can be more easily satisfied. An expanding economy not only makes
it relatively easy for the firm to attain its current goals, but also offers t h e
possibility for the firm t o expand its goal set. T h e degree to which the
goal set is expanded depends on the expected duration of the favorable
economic conditions. Such a change in goals may lead to some internal
conflict as the various coalition members assert their own preferences.
However, these internal conflicts will not b e seriously disruptive, since the
firm's increased resources permit all coalition members to achieve higher
levels of utility.
I n contrast, when economic conditions are unfavorable, goal attainment becomes more difficult
and the firm will devote increasing at-
tention toward its goal set. Continued failure to meet its goals without
any apparent possibility of increasing resources generally results in a
reduction of goal values. I n the face of economic adversity, typical firm
responses are to tighten operations by postponing expansion plans, en-
gaging in cost-cutting drives, reducing the number of participants, and
so on. T h e extent of these actions depends on the amo u n t of slack in the
organization. At the beginning of unfavorable economic conditions, the
organization will usually have considerable slack accumulated during
more favorable times. If economic conditions continue at a low level f o r
a n extensive period of time, it becomes increasingly difficult to remove
slack without reducing services that were previously considered essential.
Eventually this set of events will lead to changes in the organizational
structure. Some roles may be eliminated completely and other roles may
b e extensively modified. Serious internal conflict among the individual
participants will occur and will result in participants leaving the orga-
nization both voluntarily and involuntarily.12
12. Examples of the manne r in which adverse economic circumstances c a n
lead t o extensive organi z a t iona l changes have been described in Williamson, chap.
6. A mor e detailed exampl e of the disruptive influences t h a t a sudden adverse
e conomi c envi ronment c an have o n a n organization is the impa c t of the crisis of
1920 o n Ge n e r a l Motor s . Thi s point is dr ama t i c a l ly illustrated in the following
quot a t ion f r om Al f r ed D. Chandl e r , Strategy arid Strrictlire: Chapt e r s irz t h e Hi s tor y
of t h e Arnericari Eriterprise ( N e w Y o r k : Doubl eday, 1 9 6 6 ) , ". . . the automobi l e
ma r k e t had collapsed . . . but , by the end of Oc tobe r [1920], the s i tua t ion had 354 T h e
J o u r n a l of Business
T h e impact of changing economic conditions is reduced if t h e orga-
nization is prepared for them. Thus, organizations attempt to plan a h e a d ;
as a basis for planning, forecasts must b e made of future changes in
economic conditions. These forecasts a r e , of course, more a c c u r a t e ~wh e n
the economic environment is relatively stable over time. T h e organiza-
tion has more difficulty in learning the structure of the environment and
accurately predicting its future states when the environment is highly
volatile. Unfortunately, these a r e the circumstances when forecasts are
most essential.
F o r whatever planning horizon the firm uses, it is necessary to make
predictions for the entire planning period. I n particular, it is necessary
to make predictions of various aggregate economic variables which are
relevant for the firm. These aggregates include GNP, price indices, un-
employment rates, and similar measures of the state of the economy at
benchmark dates during the planning period. It is desirable that these
predictions be made at the corporate level and transmitted to the operat-
ing units of the firm as a basis for their specific planning. I n this way, all
planning activity of the firm is conducted under a uniform set of predic-
tions. T h e predictions will not necessarily be single-valued estimates. T h e
firm may find it useful to develop several plausible alternative economic
scenarios and to require its operating units to formulate plans for each
alternative.'"
I n addition to aggregate economic predictions, it is necessary for
the firm to make predictions about future conditions in the industries
a n d markets in which it operates. A n industry forecast is usually made
in terms of the total dollar sales expected for the industry. ~ r o m such
forecasts, the firm can predict its future sales over the planning period
by making assumptions about t h e market shares that it will obtain. I n
making these assumptions the firm must make predictions about t h e
behavior of its present and potential competitors.14 Estimates must be
made of the prices competitors will charge, of their advertising policies,
a n d of the product changes competitors will make. I n this regard it is
highly useful f o r firms to maintain a n elaborate information system o n
their competitors. Relevant information o n competitors can b e obtained
f r om public sources such as financial statements, f r om information
be come so serious tha t ma n y Ge n e r a l Motor s manage r s were having difficulty
finding cash to cover such immedi a t e needs a s invoices a n d payrolls. . . . dur ing
the crisis, the prices of Ge n e r a l Motor s stock plumme t ed. T h e n c ame Dur ant ' s
disasterous a t t empt to sustain the price by buying Ge n e r a l Motors' stock o n credit
which led t o his financial difficulties a n d his r e t i r ement a s president o n Novembe r
20, 1920. T e n days l a t e r , Pi e r r e d u P o n t took over t h e presidency. . . . onc e h e
agreed t o serve, Pi e r r e acted quickly and firmly. T h e d a y a f t e r he took office, he
began a systematic review of the corporation's position and probl ems . An d one of
his very first a c t s was t o approv e the plan ~ * o r k e do u t b y A l f r e d Sloari whi ch
de f ined arl orgarzizatior~al s t ruc tur e f o r Gerzeral Motors" ( p . 157, italics a d d e d ) .
13. F o r a survey of various approa che s t o forecasting the f u t u r e envi ronment ,
see Steiner ( n . 1 a b o v e ) , c h a p . 8.
14. T h e impor t anc e of analyzing compe t i tor s is stressed in S. Tilles, "Making
Strategy Explicit," in Ansoff ( n . 2 a b o v e ) , pp. 186-90. 3 5 5 Formulation, Implementation, &
Monitoring
gathered from the firm's salesmen, and from executives who meet rival
executives at professional meetings. All of these sources can be utilized
to build u p a data base on each of the firm's major competitors.
111. ESTABLISHMENT OF
QUANTITATIVE TARGETS
After goals have been qualitatively formulated and after the environ-
mental analysis has been completed, the firm's coalition is in a position
to establish quantitative targets.15 Quantitative targets essentially impute
quantitative values to those previously formulated goals that are capable
of being stated in quantitative terms. These quantitative targets are often
usefully established for planning purposes in terms of rates of growth.
Thus one goal may be tha t the firm's profit should grow at some specific
annual rate over the planning horizon. Part of the process of establishing
quantitative targets also involves weighting the importance of the various
targets. Thus, the firm conceivably might weight achievement of its sales
goal more than achievement of its profit goal. This weighting is impor-
tant when the firm may be in a position t o achieve some but not all of
its goal set. Given the weighting it is then possible to specify strategies
which are appropriate when it is impossible t o attain all the various tar-
gets. Goals stated in terms of absolute levels rather than rates of change
require target dates t o be specified. I t is generally necessary f o r a plan
t o have values for the relevant goals specified for various benchmark
dates. This is frequently done, permitting the firm t o project pro forma
balance sheets and profit and loss statements for the individual years
within the planning horizon.
One useful heuristic for planning is the process of "backward induction."16 This approach
requires that a specific set of desired values
be established for the various goals for the final period of the planning
horizon, for example, 5 years f r o m now. The planners specify, for in-
stance, the values the firm should have for sales, profit, capital invest-
ment, and so on during the fifth year. O n the basis of these specifications,
the planners work backward t o see where the firm must be in the fourth
year if it is t o achieve the goals in the fifth year and so on back t o the
first year of the plan. This process of backward induction is a useful
addition t o the planning process. I t enables the planner to establish a
viable plan for the entire planning horizon. Several iterations may be
required, and, in this process, goals may be modified.
We have discussed the establishment of quantitative targets from
the perspective of the corporation as a whole. Frequently, however, it is
also desirable t o establish quantitative targets for various collections of
15. Cf . Russell L. Ackoff, A C o n c e p t o f Corporat e Planning (New Yo r k :
J o h n Wiley & Sons, 1970) , chap. 2.
16. An explanation of backward induction is presented in Morris H. DeGroot ,
O p t i m a l Statistical De c i s ions (New York: McGraw-Hill Book Co., 1970) , pp.
277-78. 356 The Journal of Business
operating units within the corporation, for example, groups or divisions,
by disaggregating the previously established corporate-wide targets.
This description of the first three planning steps completes the
macrophase of the planning process. The next step is to have each oper-
ating unit within the firm formulate its own set of plans.
IV. THE MICROPROCESS OF
STRATEGY FORMULATION
The fourth major step in the planning process can be referred to as "the
microaspects of strategy formulation." Each operating unit in the cor-
poration formulates its own strategic plan over the relevant time horizon.
The time horizon chosen for strategic planning will vary depending upon
the nature of the firm, but 5 years is a typical time horizon for strategic
planning in business organizations. I t often will be desirable for some
qualitative aspects of the strategic plan to be formulated over a 10- or
20-year horizon, even though detailed quantitative projections may be
made only for an intermediate-term time horizon such as the next
5 years.
Before each operating unit can develop its own strategic plan, it is
necessary for the senior executives of the corporation (or their staff
members) to provide the managers of the operating unit with some back-
ground information.17 This centrally provided information should con-
sist of at least the following items:
a ) Some guidelines concerning the nature of the strategic plan-
ning process should be provided. The emphasis should be put on actively
involving relevant executives in the planning process in order to focus
their attention on strategic considerations. Especially a t the level of the
operating units, there is a tendency for managers to worry primarily
about immediate problems. A formalized planning process is necessary
to induce managers to think seriously about long-term strategy for the
operating unit.
b ) The relevant goals that top management wants the operating
unit to be concerned with should be explicitly stated.
C ) All operating units should be provided with the results of the
broad analysis of the economic environment undertaken in corporate
headquarters. T o the extent that relevant technological or product-market
forecasts were centrally made, these should also be transmitted to appro-
priate operating units. There may be economies in having some of the
technological and product-market forecasts made centrally even though
they are relevant only to particular operating units in the corporation.
O n the basis of this corporate information, each operating unit
should develop its own strategic plan, in both qualitative and quantitative
1 7 . A n interesting discussion of o n e proc edur e f o r coordina t ing the pl anning
done a t various levels in a corpor a t ion is provided i n Ackoff, pp. 133-37. 357 Formulation,
Znzplernentation, & Monitoring
terms. A major activity which each operating unit must undertake in
developing its strategic plan is a critical, thorough analysis of the environment for its own particular
mix of products and markets. A reason-
ably broad definition of the operating unit's product-market mission
needs t o be adopted for this purpose. Given this broad view of its
product-market posture, the operating unit must attempt t o analyze its
external environment to discover significant economic, market, and tech-
nological developments. As part of its environmental analysis, the operat-
ing unit must identify its major present and potential competitors. I n
addition, the cperating unit should make an internal analysis to uncover
those areas in which it has had problems and successes in the past in
order to diagnose hitherto unrecognized strategic obstacles and oppor-
tunities. I n the light of these external a n d internal analyses, the operating
unit must then determine where its c o n ~ p a r a t i v e advantage exists.
This analysis should result in a set of recommended strategic pro-
grams f o r each operating unit. Several types of recommendations may be
relevant. These might involve pricing strategy, product-line strategy,
marketing strategy, programs of cost reduction for existing products a n d
markets, new products to be developed, new markets to be entered,
major research and development expenditures, major advertising cam-
paigns, a n d major physical investments. I n proposing the operating unit's
diversification into additional products and markets, recommendations
should be made as to whether this diversification should be accomplished
by means of internal growth o r through external acquisition. Enough
detailed information should b e given in the verbal discussion and the
quantitative projections so that executives a t higher levels in the corpora-
tion can independently determine the impact of undertaking, postponing,
o r rejecting each element in the recommended strategic plan.
V. THE "GAP ANALYSIS"
T h e fifth major step consists of aggregating upward the strategic plans
formulated by each operating unit to obtain aggregate strategic plans for
the corporation as a whole and for any relevant subdivisions. This upward
aggregation of the specific quantitative projections made by each operat-
ing unit for the next 5 years can readily be done by a process of simple
summation. Equally important, however, is the upward aggregation of
the qualitative, verbal aspects of each operating unit's strategic plan. T h e
hierarchical pattern utilized in the upward aggregation process should
be carefully chosen to make the most logical sense for the particular
corporation. I t might first involve consolidating the operating units into
departments, then consolidating the departments into divisions, then
consolidating these divisions into groups, a n d , finally, consolidating the
groups into the corporation. Of course, the number of levels present in
this upward aggregation process, a n d the particular labels attached to
each level of consolidation, will differ from firm to firm. The Journal of Business
Table 1
A n Example of a Perceived-Gap Matrix
Time Periods in the Planning Horizon
Corporate Goals Year 1 Year 2 Year 3 Year 4 Year 5
Total sales revenue

( m i l l i o n $ ) . . . . . . . . . . . . . . $ 2 . 5 - 7 . 3 -10.9 -18.7 -28.3

Earnings per share

( $ p e r s h a r e ) . . . . . . . . . . . . . + 0 . 0 5 - 0 1 - 0 . 3 1 - 0 . 8 0 - 1.35
Index of geographical

dispersion (percentage) . . . . -15 -13 - 9 - 7 - 6

The immediate aim of the aggregation is to enable a "gap analysis"

t o be performed a t higher organizational levels in the firm.l8 This "gap
analysis" might be made only at the corporate-wide level, or , instead,
preliminary gap analyses might be made at each of the "collection points"
at lower organizational levels ( for example, initially at the departmental
level, then at the divisional level, and finally a t the group level) prior t o
the corporate-wide gap analysis.
Regardless of the organizational level a t which the gap analysis is
performed, the procedural aspects of it are much the same. In particular,
the projected performance for the corporation as a whole ( o r for what-
ever organizational subdivision the gap analysis is being performed) is
compared to the quantitative targets which have been established for the
corporation ( o r the appropriate subdivision). Since the corporation gen-
erally has multiple goals, the gap analysis should be done for each goal.
Thus for each goal of importance to the corporation, the projected figures
will be subtracted from the targets established for that goal in order t o
develop a perceived gap. F o r any particular goal, for example, earnings
per share, this perceived gap c an be expressed as a function of time ( for
example, year-by-year over a 5-year hor i zon) . Thus, the gap analysis
process can be usefully viewed a s developing a "perceived-gap matrix,"
as illustrated in table 1. The rows in this matrix designate the various
corporate goals, for example, total sales, earnings per share, some mea-
sure of geographical dispersion, and so forth. The columns of this matrix
correspond to various points of time within the planning horizon, for ex-
ample, years one, two, three, four and five. The entries in this matrix
are the perceived gaps along each goal for each particular point of time.
T h e manner in which this perceived-gap matrix can b e used t o initiate
strategic search will be discussed in connection with step six below.
VI. STRATEGIC SEARCH
A gap between the goals specified a t the corporate level and the predicted
achievement developed through the microanalysis stimulates the firm to
18. A different approach to the gap analysis is discussed in H. Igor Ansoff,
Corporate Strategy (New York: McGraw-Hill Book Co., 1965) , chap. 8 . 3 5 9 Formulation,
Implementation, & Monitoring
search for new strategies in order to achieve its goals.lg T h e strategic
search process generally first focuses on internal activities. F o r example,
the firm may begin its search by reviewing its price strategy to see whether
it can achieve its goals by raising prices. More broadly, the firm may
review its entire marketing strategy. Another area for search is the cost
structure of the firm with a view toward establishing a strategy for cost
reduction. Still another area for internal search is research and develop-
ment. All of these areas, and others which may be undertaken, fall into
the category of internal search.
If the measures discovered by internal search d o not entirely close
the gap, the firm then turns to external search. I n this phase the firm
begins to examine the environment with a view t o w a r d bringing new
resources into the firm to enable it to achieve its goals. Frequently this
is accomplished through a strategy of acquisition of other firms. I n gen-
eral, the firm searches for acquisitions which would result in economies of
scale o r positive externalities. An economy of scale would result from an
acquisition that would enable the firm to use some of its resources more
intensively, for example, by producing o r distributing a new product with
already existing facilities o r manpower. Positive externalities would result
from a new (complementary) hroduct whose sale would increase the
sales of the firm's present products, from elimination of overlapping
facilities (such as branch or headquarter offices), from the acquisition
of new technical talent, and so forth. A frequent source of economies
resulting from acquisition is the more intensive utilization of capable
managers. I t is clear that in any economy, including the U.S. economy,
there is a significant shortage of good managers.20 Thus , firms which have
capable managerial talent may be able to benefit from acquisitions that
d o not appear t o be a synergistic fit. However, because of the ability of
the acquiring firm to supply good management, these acquisitions may
prove highly successful.
There is at present in the United States much evidence that legal
power will be invoked to restrict the acquisition policy of f i rms z1 This
19. A general discussion of the empirical process of s e a r ch behavior within
a n organization is presented in J ame s G . Ma r c h and He r b e r t A. Simon, Organizations (
N e w Y o r k : J o h n Wiley & Sons, 1 9 5 8 ) , esp. p p . 173-74, 180. A discussion
of search behavior which focuses mo r e directly o n issues of corpor a t e strategy is
cont a ined in Ansoff, ibid.
20. Ma rvin Bower, T h e Wi l l t o Manage ( N e w Y o r k : McGr aw-Hi l l Book
Co., 1 9 6 6 ) , pp. 92-94.
21. U S . , Congress, Hous e , Commi t t e e on the Judiciary, Ant i t rus t Subcom-
mittee, Investigation of Conglome rat e Corporations, 92d Cong., 1st sess., J u n e 1,
1971. O n p. 5 of this r epor t , the following s t a t ement s a r e pr e s ent ed: "This public
a t t ent ion, notor i e ty and industry d ema n d spa rked unprecedented a t t ent ion a t the
na t iona l level to the probl em of corpor a t e mergers. I n the first 6 mo n t h s of 1969,
a t least 8 ma jor investigations were under way a t the national level into Fede r a l
questions conc e rning mergers and acquisitions by conglome r a t e corporations." On
the s ame page, C h a i rma n Celler is quot ed a s s t a t ing: "It may be t h a t the t r adi t iona l
s t anda rds of the ant i t rus t laws against mergers and corpor a t ions which 'may be
substantially t o lessen competition, o r tend t o c r e a t e a monopoly' need reevaluation
in t h e light of e conomi c and political effects of conglome r a t e mergers." 360 T h e J o u r n a l
of Business
development reduces the efficacy of external search and increases the
importance of internal search. This change in turn emphasizes the need
to develop organizational policies that will permit managers with entre-
preneurial ability t o advance within the firm. T h u s it is important that
planning activity not restrict initiative by developing inflexible policies;
instead, the planning process should induce division managers t o feel
responsible for developing new business ideas as p a r t of the strategic
plans for their own divisions.22
VII. SELECTING THE PORTFOLIO
OF STRATEGIC
ALTERNATIVES
I n the sixth step of the strategic planning process, the perceived-gap
matrix was used to trigger several different types of strategic search. T h e
purpose of this search is to develop a strategy set that consists of possible
strategic actions. E a c h of the members of this set is a strategic action
that might be undertaken by the corporation as a whole ( o r by appro-
priate subdivisions). F o r example, a strategy set might include proposals
for changes in pricing policy, major cost-reduction campaigns, changes
in product design, new market introduction plans, diversification into
specific new product-market alternatives, major investments in physical
facilities, and the acquisition of particular products o r of entire firms.
T h e fact that a set of possible strategic actions has been developed
does not imply that each action will be adopted as part of the strategic
plan. F r o m the strategy set, management selects a particular portfolio of
strategic actions; this portfolio constitutes the corporation's new strategic
plan.23
T h e seventh step of the strategic planning process, as we have
described it, focuses on the way in which corporations should develop
a strategic plan. Because of the rather casual manner in which strategic
planning is approached in most corporations, however, little emphasis
is placed on the portfolio aspects of the problem. T h e usual approach is
to judge each proposed action as it is uncovered in the search process
strictly o n its own merits. If the proposed action proves acceptable at
this point, then the action is adopted as p a r t of the new strategic plan.
When enough proposed actions are adopted in this manner to close t h e
perceived gap ( o r if the gap is closed by lowering the goal v a l u e s ) ,
strategic search is terminated a n d the new strategic plan has been for-
mulated. On e deficiency in this typical approach is that management
fails to evaluate interactions among possible strategic actions. A more
22. Litton Industries is one corporation which was able t o obtain this type o f
behavior by their division managers under their "opportunity planning" process.
Thi s is described in Edmund P . Learned et a ] . , Bitsirless P o l i c y : T e x t and Cases,
rev. ed. (Home w o o d , 111.: Richard D . Irwin, Inc., 1 9 6 9 ) , pp. 833-39.
23. See E. Eugene Carter and Kalman J . Cohen, "Portfolio Aspects o f Stra-
tegic Planning," Jour r ial of Bilsiness P o l i c y 2, no. 4 ( S umme r 1 9 7 2 ) : 8-30. 3 6 1
Formulation, Implementation, & Monitoring
complete analysis from a portfolio viewpoint will often lead to a different
evaluation of a particular proposed action because of interaction effects.
A second deficiency of the usual approach is that strategic search may
be prematurely terminated.
The nature of the strategic search process in organizations often
prevents an objective evaluation of proposed actions. When a potential
action is advocated by a coalition member, he thereby becomes identified
with the action. When this identification becomes close, the coalition
member may view the ultimate adoption or rejection of the proposed
action as a measure of his personal power position within the coalition.
The strategic planning process would be far more effective if the proposed
actions could be divorced from individual sponsorship. Typically, how-
ever, this is difficult to accomplish because proposed strategic actions
are brought to the attention of the coalition through a chain of successive
sponsorships within the organization. In this chain, each manager in the
hierarchy attempts to convince his immediate superior of the merits of
the proposed action and sponsorship of the proposal passes upward with
acceptan~e.~~
The difficulty of the coalition's making an objective evaluation of
proposed actions is further complicated by the loss of information as
proposals filter upward through the organizational hierarchy. So many
details concerning proposals are eliminated in "the selling process" that
it becomes virtually impossible for coalition members to analyze inter-
action effects even if they so desired. Thus, each coalition member spon-
soring a proposal becomes an "uncertainty absorber" with respect to the
proposed actions that he advocates.25 This situation effectively forces the
coalition into the necessity of making personal judgments concerning
the competence of its members in the guise of selecting a strategic plan. In
order to minimize personal conflict among coalition members, the coali-
tion frequently adopts rules of thumb to allocate strategic resources
among organizational subunits in some objective but nonoptimal manner,
for example, budgeting research and development expenditures in pro-
portion to sales and authorizing automatic reinvestment of depreciation
charges.
VIII. IMPLEMENTATION OF THE
STRATEGIC PROGRAM
Once a portfolio of strategic alternatives has been established for the
corporation ( a s well as for each group, division, department, and operat-
24. Thi s process ha s be en analyzed in E . Eugene C a r t e r , "A Behavioral
Theory Approa ch t o F i r m Inve s tment and Acquisition Decisions" ( P h . D . diss.,
Carnegie-Mellon University, 1 9 6 9 ) .
2 5 . C f . Ma r c h and Simon ( n . 19 a b o v e ) , p . 165: "Uncertainty absorpt ion
takes place when inferences a r e dr awn f r om a body of evidence and the inferences,
instead of the evidence itself, a r e then communi c a t ed. . . . through the process of
unc e r t a inty absorption, the recipient of a communi c a t ion is severely limited i n
his ability to judge its correctness." The Journal of Business
ing unit in the corporation), the next step in the strategic planning
process is implementation of the program." We will focus on the imple-
mentation problem from the standpoint of overall corporate strategy,
but analogous considerations also apply at other levels in the organiza-
tional hierarchy.
I n order to develop an operational procedure for implementing the
agreed-upon strategic program, it is necessary to decompose the broadly
stated strategy into a time-phased sequence of plans regarding such
actions as new product developments, new market introductions,
external acquisitions, capital investment projects, management develop-
ment, manpower recruitment, and so forth.27 The various activities neces-
sary t o implement any particular strategy should be defined in terms of
each type of resource required. I t is common practice to reduce this
specification of resource requirements to monetary terms. Unfortunately,
in many firms, the underlying detail is then lost and only the dollar
budget for the strategic program remains as a permanent control docu-
ment. With this loss of detail and transformation into monetary terms,
a subtle change in attitudes also occurs. I n place of the inspiration and
imagination displayed in the development of the plan, management has
merely a set of monetary constraints within which it must operate. This
primary emphasis on monetary considerations has the effect of replacing
the manager's entrepreneurial spirit with a bureaucratic attitude. The
long-term goals of the strategic plan are displaced by the short-term goal
of operating within budget.
I n arguing that the financial budget should not be the sole form to
which the strategic plan is reduced, we nonetheless acknowledge that
financial budgets a r e essential. The various forms of short-term plans
and budgets should be consistent with the strategic plan. Such inter-
action can be accomplished by initially defining the plans and budgets
for the coming year as the first-year components in the quantitative
projections developed as part of the 5-year strategic plan. If necessary,
of course, these initial figures for the coming year can then be further
disaggregated in the short-term planning and budgeting process.
I t is obvious that any attempt to forecast the future (especially
several years ahe ad) is bound to be subject to errors. Unfortunately,
however, many planning and budgeting systems place undue reliance
upon the accuracy of the underlying forecasts. More realistically, strategic plans and their
accompanying operating budgets should be formu-
lated on a contingency basis. Some type of decision-tree analysis may be
a useful planning aid for this purpose.** At a minimum, operating
26. An overall discussion of some probl ems involved in implementing s t r a -
tegic plans is cont a ined i n Steiner ( n . 1 a b o v e ) , chap. 11.
27. De compos i t ion of the broadly stated strategy into a time-phased sequence
of plans is ana logous t o some of the steps involved i n the pl anning-progr amming-
budgeting system t h a t was developed dur ing the 1960s in the Depa r tment of
Defense. See Cha r l e s J . Hi t ch, Decision-making for D e f e n s e (Berkeley, Ca l i f . :
University of Ca l i forni a Press, 1 9 6 7 ) , pp. 21-39.
28. F o r a n exampl e of the use of decision-tree analysis, see Ha rvey M. Wag-3 6 3
Formulation, Implementation, & Monitoring
budgets for the next year as well as strategic plans for the next 5 years
should be in a variable budget format, rather than the more usual fixed
budget format. T o the extent possible, however, various major contingencies should be
envisioned and probabilities of occurrence assigned
t o each one. Alternative plans of actions can then be developed for each
contingency having a sufficiently high probability of occurrence. Obviously, in this regard, some
type of computerized planning and budget-
ing model would be extremely helpful in developing suitable contingency
plans.
I n order t o implement any specific strategic program successfully, it
is necessary t o obtain enthusiastic cooperation from executives a t various
levels of the corporation. One way of achieving acceptance of the
strategic plan by lower-level executives is to have these executives
actively participate in the planning process. The approach t o strategy
formulation that we have described requires such participation in the
process of developing the plan (especially in the microprocess of strategy
formulation and in strategic s e a r ch) .
I t is critical as part of the implementation process t o examine the
formal organizational structure.29 Although major changes in structure
will occur relatively infrequently, it is nevertheless important t o deter-
mine whether minor modifications will increase the likelihood of achiev-
ing the goals specified by the strategic plan. By organizational structure
we mean the particular description of the roles of the organization, the
allocation of decision-making power, and the placing of responsibility.
There must be a matching of the structure with the requirements for
decision making, coordination, and control emanating from the plan.30
Generally changes in organizational structure a r e made along the
centralization-decentralization dimension. The strategic plan should b e
analyzed t o determine whether the organizational structure should be
shifted in either direction. For example, if the firm acquires a new pro-
duct that has little relationship t o the current product mix, it may be
desirable t o decentralize decisions relating t o the new product. Such
decentralization places decision-making power in the roles where ap-
propriate information and knowledge exist.
Speaking more generally, the main factors affecting the degree of
decentralization of an organization a r e its size, the environment (benign
or hostile), subunit interdependency, and t e ~ h n o l o g y . ~ ~ As an organiza-
ner, Principles of Operations Research (Englewood Cliffs, N.J.: Prentice-Hall,
Inc., 1969) , pp. 18-20.
29. An appropr i a t e f r amework f o r this purpose is presented in Ackoff ( n . 1 5
a b o v e ) , chap. 5. An interesting analysis of the manner in which a firm's organiza-
tional s t ruc tur e should be adapted t o ma t ch the produc t -ma rke t portfolio defined
by its overall strategy is presented in E. Raymond Cor ey and Steven H . St a r ,
Organization Strategy: A Mar k e t ing Approach (Bos ton: Division of Research,
Ha rva rd Business School, 1971 ) .
30. F o r a brief discussion of organizational design problems, see He rbe r t A.
Simon, T h e N e w Science o f Management Decision ( N e w Yo r k : Ha rpe r Bros.,
1 9 6 0 ) , p p 12-13.
3 1. See Cye r t and Ma cCr immon ( n . 8 a b o v e ) , pp. 584-85. The Journal of Business
tion grows larger, the cost of maintaining centralized control increases.
If the environment is hostile (in the sense that mistakes will be easily
exploited by competitors), there will be an increased tendency toward
centralization. Similarly, if there is a high degree of interdependency
among subunits, more centralization is often necessary. If the techno-
logical changes associated with the firm's activities require large invest-
ments in order t o exploit them, the tendency t o centralize is increased.
Technological changes that reduce the costs of communications provide
an impetus toward decentralization. I n order t o relate the strategic plan
effectively t o the organizational structure, management should determine
whether there will be any significant changes in size. environment, sub-
unit interdependency, and technology resulting from the plan. If so,
modifications of the organizational structure should then be made as part
of the implementation process.
IX. MEASUREMENT, FEEDBACK,
AND CONTROL
An essential component in the strategic planning process is the develop-
ment of operational measures of the extent to which the corporation and
appropriate subunits thereof are i n fact adhering to the agreed-upon
plan.:j2 Additional information should also be developed t o help man-
agement determine whether the strategic plan may no longer be appro-
priate. Corporate targets have already been specified in operationally
measurable quantitative terms (see Section 111 a b o v e ) . It is, therefore.
relatively simple to obtain periodic measurements of corporate per-
formance ( o r subunit performance), and to relate these in a timephased manner t o the targets.
I t must be recognized. of course, that any attempt t o measure per-
formance and t o provide feedback on the degree of goal attainment is
an evaluation process which introduces possible pitfalls." Once the
"rules of the game" have been laid down, the players can be expected
to alter their behavior so as to "look good" according to the "score-
card" which is kept on them. Therefore, it is essential that the summary
evaluative measures conform as closely as possible to the important
corporate goals. I t also is important that the detailed measures used for
ex ante decision analyses a r e exactly the same as ( o r at least consistent
with) the corresponding measures for ex post performance evaluation.
Otherwise, one would expect serious biases to be introduced into stra-
32. F o r a discussion of some common approa che s t o the me a sur ement , feed-
back, and cont rol aspects of strategic planning, see Kenne th R . Andr ews , TIze
C o r ~ c e p t o f Corporate Strategy (Homewo o d , Ill.: Ri cha rd I rwin, Inc . , 1 9 7 1 ) ,
chap. 7.
33. A discussion of some pitfalls tha t ma y arise in the me a sur ement and
feedback system associated with long-range planning is provided in E. Kirby
Wa r r e n , Long-Railge Plarlr~iilg: T h e Execrltive Vieivpoirlt (Engl ewood Cliffs, N . J . :
Prentice-Hall, Inc . , 1 9 6 6 ) , chap. 5. 3 6 5 Fornzulution, Inlplernentution, & Monitoring
tegic decision ma k i n g a n d imp l eme n t a t i o n in o r d e r t o ma k e t h e p e r -
f o rma n c e evaluations look good. often at t h e expense of t h e desired
c o r p o r a t e objectives.
Dangers i n h e r e n t in t h e me a s u r eme n t a n d f e e d b a c k process a r e
intensified when attention is focused solely o n o n e t j p e of s umma r y
figure, f o r e x amp l e , R O I ( r e t u r n o n i n v e s t m e n t ) , defined a s t h e i n c ome
after taxes allocated t o a profit center divided by t h e total f u n d s ( o r
i n v e s tme n t ) utilized by t h a t profit c e n t e r . h I o s t strategic e x p e n d i t u r e s
a r e of such a n a t u r e t h a t they p r o d u c e nct cash outflows in their earl)
years, accompanied ( h o p e f u l l y ) by net cash inflows in later ) e a r s . If
t h e s h o r t - t e rm l e t u r n o n investment me a s u r e is in jeopardy a t a p a r -
ticular profit center f o r a given year, it would a p p e a r easy f o r t h e
manager of that profit c e n t e r t o eliminate o r r e d u c e strategic e x p e n d i -
tures this year, in o r d e r t o have a better s h o r t - r u n perforlilance evalua-
tion. T h e emphasis o n s h o r t - r u n p e r f o rma n c e is aggravated in
orgailizations where t h e profit-center ma n a g e r c a n expect t o h o l d t h a t
particular organizational role f o r only a few years.
B y having ma n y dimensions of perforlilallce o n which me a s u r eme n t s
a r e ma d e a n d feedback p r o v i d e d , it is less eas) f o r executives t o find
ways of arbitrarily "winning t h e game" at t h e expense of t h e long-run
c o r p o r a t e objectives. I n p a r t i c u l a r , if t h e various actioiis required t o
i m p l e m e ~ l t t h e profit center's strategic p r o g r am a r e clearly spelled o u t
( m a n p o w e r requirements. research a n d developnlent projects. physical
investments, a n d so f o r t h ) , t h e n t h e profit center ma n a g e r should b e
required t o explain deviations f r o m t h e various actions specified in t h e
strategic plan.
X. SUMMARY
I n this p a p e r we have outlined t h e nine nlajor steps which c omp r i s e t h e
strategic planning process. O u r discussion of strategy f o rmu l a t i o n , imple-
me n t a t i o n . a n d nloiiitoring is p r i r n a r i l ~ i n t e n d e d a s a n o rma t i v e , r a t h e r
t h a n as a descriptive, presentation. We would expect t h a t t h e actual
process in a few firms which have collcentrated o n strategic planning
would be generally similar t o t h e f l amewo r k t h a t we have s k e t c h e d .
W e have not, however, ma d e a n ) conscious a t t e m p t t o describe t h e
ma n n e r in which this process is c o n d u c t e d in any particular firm. Un f o r -
t u n a t e l y , we d o not believe t h a t most firms a p p r o a c h strategic planning
in t h e serious, logical ma n n e r t h a t we have a d v o c a t e d . T h u s . this present
p a p e r must be regarded as being normative in n a t u r e , r a t h e r t h a n a n
empirical description of the strategic p l a ~ l n i n g process in real organizations.
T h e nine ma j o r steps i n t o which wc have divided the strategic
planning process c a n be usefully g r o u p e d into t h r e e p h a s e s : f o rmu l a t i o n ,
imp l eme n t a t i o n , a n d monitoring of strategy. Strategic planning should be
viewed as being a repetitive. cyclic process. A n y firm should r e p e a t this
e n t i r e process periodically, f o r e x amp l e , a n n u a l l ) . T h e J o u r n a l of Business
T h e first seven steps together constitute t h e formulation phase.
A prerequisite to any serious attempt t o undertake strategic planning is
t h e specification of the overall goals of the organization. This is normally
the responsibility of the coalition comprising the t o p management of the
firm. Although initially t h e goals are stated in qualitative terms, it is
ultimately necessary to formulate goals in quantitative terms, f o r example, as a sequence of
target values over several time periods. Before
quantitative targets can be meaningfully assigned t o the goals, however,
it is necessary t o analyze relevant portions of t h e environment in order
to determine the type of performance that may generally be feasible. F o r
a business firm, o n e of the most significant aspects of the environment
is the general condition of t h e economy. Aggregate economic predictions
must also be transformed into more specific predictions concerning the
various industries and markets in which the firm operates. After specific
quantitative goals have been established at the c o r p o r a t e level, it is then
critical f o r the various operating units independently t o establish their
own strategic plans. A corporate-wide aggregation of the plans produced
by each operating unit then provides a prediction of the total corporate
performance that would result if n o further changes in direction were
provided by central management. This implied corporate performance is
then compared t o the quantitative corporate goals t o indicate what gaps
there may be in predicted goal achievement. When there are significant
positive gaps, that is, when aspirations exceed expected performance,
strategic search is initiated both a t the c o r p o r a t e level and in various
operating units. T h e objective of strategic search is to discover possible
new strategic actions that will improve the performance of the firm
beyond that implied by t h e aggregation of the previously prepared micro-
plans. T h e senior executives in the firm a r e then responsible for selecting
a particular portfolio of strategic actions f r om t h e set of possible strategic
actions uncovered in t h e strategic search process. This portfolio consti-
tutes the new strategic plan for the c o r p o r a t i o n , thus ending the strategy
formulation phase.
Implementation of the strategic plan constitutes the second major
phase of t h e strategy process. T h e basic problem of implementation is to
p u t t h e strategic plan into effective action. O n e of the critical steps in
implementing the strategy is t o decompose t h e broadly stated plan into
a time-phased sequence of specific action programs. This basically is a
specification of the various types of resources that will be required at
particular dates in order to achieve the planned strategy. An o t h e r critical
aspect of the implementation process involves considering possible
changes in the organizational structure of the firm if these will increase
t h e likelihood of achieving the plan.
T h e final phase in the strategy process involves monitoring the
extent t o which t h e plan has been effectively implemented and remains
appropriate. This requires that various relevant aspects of performance
b e measured a n d compared with corresponding aspects of the plan. T h e
behavioral effects of a n y measurement, feedback, a n d control system 367 Formulation,
Implementation, & Monitoring
need to be considered to avoid inducing types of motivation that lead to
undesirable forms of behavior.
I t is our view that the framework we have suggested for the stra-
tegic planning process can lead to formulation of serious research efforts
that will develop techniques for improving the effectiveness of strategic
planning. Such research efforts can be expected to proceed in at least
two different directions. O n the one hand, some aspects of the strategic
planning process can be formulated in rigorous quantitative terms, and
the power of management-science techniques and computer systems can
be brought to bear to help improve those aspects of the process where
the relevant issues can be sharply and definitively stated. On the other
hand, some other aspects of strategic planning, which typically have
been viewed in qualitative terms and approached solely on the basis of
judgment, wisdom, and experience, can be subjected to a more rigorous
scientific analysis by the use of the behavioral sciences. We are not
maintaining that strategic planning will ever be reduced to a fully
automated process in which executive judgment is unnecessary. We d o
believe, however, that further research efforts will put into clearer focus
those areas where executive judgments are essential, thus enabling execu-
tives to perform better those tasks in which they have a comparative
advantage. This will be possible only when other aspects of the strategic
planning process ( t h e ones in which quantitative models, computer-based
information systems, and behavioral science concepts possess some com-
parative advantage) a r e more rigorously analyzed and understood. The
end result will be an improved process of strategic planning, in which
the judgment, wisdom, and experience of executives are combined with
the judicious use of quantitative and scientific concepts in a manner
which effectively exploits the comparative advantages of each component
and participant in the process.
Even without waiting for further research efforts to be successfully
completed, however, most firms can greatly improve the effectiveness
of their strategic planning process by adopting the framework that we
have outlined i n ' t h i s paper. Such a framework does not necessarily
involve the use of sophisticated quantitative models and computer tech-
niques. Rather, it requires only that the executives in a business firm
devote some serious efforts to the strategic planning process and recog-
nize the critical problems inherent in it. Most executives are fully capable
of participating effectively in this process if they only take the time to
d o so. Preoccupation with short-term operating problems unfortunately
reduces the attention that most executives pay to strategic planning. I t is
clear, however, that for the well-being of particular firms as well as our
entire economic system, major attention must be paid to produce more
effective strategic planning systems in most American corporations. I t is
only by having effective strategic planning processes that the American
economy will have the ability to provide the innovations and adaptations
which are necessary to produce a n efficient allocation of economic
resources in the dynamic society in which we now live.